Fair Labor Standards Act

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Most court cases filed on the heels of a Department of Labor investigation focus on misconduct by a contractor. In that respect, the Fifth Circuit’s recent decision in Gate Guard Services, L.P. v. Perez, 792 F.3d 554 (5th Cir. 2015), is unusual. The case is the result of an action by a contractor challenging misconduct by the Department of Labor. According to the decision, DOL investigators and attorneys acted unethically, frivolously, and in bad faith. Ultimately, DOL was forced to close the investigation by making a $1.5 million payment to the contractor.

What happened? Gate Guard provides gate attendants at remote drilling sites for oilfield operators. The gate attendants remain at the drilling sites and record the license plates of vehicles entering and leaving the site. Because many locations are isolated, attendants often live on site and Gate Guard hires service technicians to deliver supplies to them. Gate Guard considers attendants to be independent contractors and pays them between $100 and $175 per day.

In July 2010, DOL investigator David Rapstine received a tip that Gate Guard had misclassified its gate attendants as independent contractors instead of employees. If that were true, Gate Guard would be violating the Fair Labor Standards Act by not paying overtime and by not keeping detailed time records. Rapstine had little training or experience in contractor misclassification cases, but he decided to open an investigation. 

As part of the Obama Administration’s push to raise the minimum wage, the President announced during his State of the Union speech that he intends to issue an Executive Order raising the minimum wage for workers on federal contracts to $10.10 per hour. We’ll wait for the Executive Order itself before offering specific guidance on its requirements, but it’s not too early for contractors to begin thinking about how this might impact their business. Here are a few things to consider—

1.  The new minimum wage could apply to some current contracts.

The Obama Administration has asserted that the wage increase will apply only to new federal contracts—i.e., those awarded after the effective date of the Order. But the regulations implementing the prevailing wage requirements could mean that the $10.10 minimum will also apply to some current contracts.

The McNamara-O’Hara Service Contract Act requires contractors and subcontractors performing service contracts to pay their workers not less than the locally prevailing wage or the amount paid by the predecessor contractor under a collective bargaining agreement. The Department of Labor prepares wage determinations establishing the minimum wages and fringe benefits based on surveys of local prevailing wages or existing collectively bargaining agreements.

FAR provisions implementing the Service Contract Act contemplate that the prevailing wages may change during the course of a service contract. Under FAR 22.1007, the contracting officer is required to obtain and incorporate a new wage determination for modifications that extend the term of an existing contract or make a change in the scope of work “whereby labor requirements are affected significantly.” FAR 22.1007(b). A new wage determination is also required on the annual or biennial anniversary date of multi-year service contracts. FAR 22.1007(c). Depending on how the Executive Order implementing the new minimum wage is worded, the wage determination applicable to contract modifications or to multi-year service contracts could require current contractors to pay the new $10.10 minimum wage.