Federal contractors, as key players in the economy, often find themselves navigating the intersection of business operations and evolving government policies. A recent decision by the U.S. Court of Appeals for the Ninth Circuit offers critical insights into how executive orders, federal statutes, and judicial review interact—particularly when it comes to wage mandates. This article provides a detailed exploration of the Ninth Circuit's ruling on Executive Order 14026, which raised the minimum wage for federal contractors, and its implications for contractors nationwide.
The journey of wage mandates for federal contractors began under President Obama, who issued Executive Order 13658 in 2014, requiring contractors to pay employees at least $10.10 per hour. The Department of Labor (DOL) implemented this directive through regulations, and the policy went unchallenged at the time.
In 2018, President Trump made a slight adjustment by excluding certain seasonal recreational contracts from the mandate, although the minimum wage requirement otherwise remained in effect.
In 2021, President Biden issued Executive Order 14026, which set a $15 minimum wage for employees of federal contractors and rescinded the seasonal exemption. This order claimed that higher wages would enhance employee productivity, reduce turnover, and improve the quality of services provided to the federal government. The DOL finalized this rule later that year, projecting that contractors would bear approximately $1.7 billion in additional labor costs annually. By 2024, the wage has increased to $17.20 due to inflation adjustments.
Not all stakeholders agreed with the policy. Five states—Nebraska, Idaho, Indiana, South Carolina, and Arizona—filed suit, arguing that the mandate was unlawful. Specifically, they claimed the order exceeded presidential authority under the Federal Property and Administrative Services Act (FPASA), violated the Administrative Procedure Act (APA), and improperly circumvented the major questions doctrine. The district court dismissed their claims, prompting an appeal to the Ninth Circuit.
Similarly, Louisiana, Mississippi, and Texas filed a suit challenging EO 14026 under the Procurement Act and the Administrative Procedure Act (APA). They also argued that the president’s directive violated constitutional principles, including the Spending Clause and the nondelegation doctrine, which limits the delegation of legislative powers to the executive branch.
A Texas federal court held that President Biden exceeded his authority under the Procurement Act, awarding judgment to the states on this statutory claim. The court emphasized that the Procurement Act, historically limited to federal purchasing and selling, did not grant the President unilateral authority to impose a nationwide wage mandate. In support of its conclusion, the court contrasted the Procurement Act with the Davis-Bacon Act and the Walsh-Healey Public Contracts Act, which explicitly delegate wage-setting powers to the Secretary of Labor for specific types of federal contracts.
Presidential Authority Under FPASA
The FPASA, enacted in 1949, authorizes the President to establish policies and directives to ensure federal procurement is efficient and economical. While the statute provides broad guidance on procurement goals, critics argue it lacks explicit provisions for mandates like wage increases. Proponents counter that the FPASA’s general purpose empowers the President to adopt measures that serve the government’s operational interests.
Major Questions Doctrine
This judicial doctrine restricts executive agencies (and, in this case, the President) from addressing matters of vast economic and political significance without clear authorization from Congress. It requires a "clear statement" in the relevant statute to justify such transformative policies.
Administrative Procedure Act (APA) Compliance
The APA governs how federal agencies create and implement regulations. It requires agency actions to be reasonable, transparent, and well-justified. Regulations can be invalidated if deemed arbitrary, capricious, or beyond statutory authority.
The Ninth Circuit ruled in favor of the Plaintiffs-Appellants on several grounds, reversing the district court’s dismissal of the complaint, vacating the denial of the preliminary injunction, and remanding the case for further proceedings. The Ninth Circuit determined that the federal contractor minimum wage mandate exceeded presidential authority under FPASA. It emphasized that Section 121 permits the President to issue policies only to “carry out” specific operative provisions of FPASA, not to implement standalone initiatives based solely on the statute’s purpose statement.
The court cited Supreme Court precedent that purpose statements cannot confer substantive authority without supporting language elsewhere in the statute. The court also noted that other statutes governing federal contractor wages—the Davis-Bacon Act, Walsh-Healey Act, and McNamara-O’Hara Service Contract Act—require wage rates to reflect local market conditions rather than imposing a uniform national standard. The wage mandate conflicted with these statutes by disregarding regional differences.
The Ninth Circuit’s decision has significant implications for federal contractors, touching on compliance requirements, procurement practices, and the balance of power between the executive branch and the judiciary.
This decision by the Circuit Court does not have an immediate impact on the enforcement of Executive Order 14026. This means that the Order remains in effect, and contractors are required to continue complying with its provisions. Contractors should maintain their adherence to the Order until a Federal Court issues a further decision, or a nationwide injunction is granted.
The ruling underscores the importance of statutory limits on executive authority. Contractors can expect greater judicial scrutiny of procurement-related mandates, particularly those with significant economic impacts. Future executive actions may face challenges if they are not grounded in specific statutory provisions.
The court’s emphasis on APA compliance may prompt agencies to adopt more transparent and data-driven approaches to rulemaking. Contractors may benefit from engaging in public comment processes to ensure their concerns are considered during regulatory development.
Considering the Ninth Circuit’s decision, federal contractors should consider the following steps to navigate potential regulatory changes effectively:
Understanding compliance requirements and their impact on your business can be challenging. To help, Onsi Group offers resources like training courses (virtual, in-person, and on-demand) checklists, guides, and webinars tailored for federal contractors. Explore our resources here.
The Ninth Circuit’s decision in State of Nebraska v. Su highlights the delicate balance between executive authority, statutory limits, and judicial oversight. While the ruling provides hope for contractors, it also sets important precedents for future policymaking.
By staying informed and proactive, federal contractors can adapt to regulatory changes and continue to play a vital role in supporting government operations. Onsi Group is poised to offer exceptional aid to our clients during the transition into the next administration. As more developments arise, working with Onsi will be a key part of ensuring compliance for your business. Check out our Compliance Courses here or reach out to us should you have more questions or need assistance!
- Author: Hailey Soupiset
- Editor: Joshua Hinckley