Biden rule imposing minimum wage increase on federal contractors faces court challenge

Wage challenge, which argues firms could be forced out of business, follows successful lawsuit opposing vaccine mandate.

Updated: December 28, 2021 - 11:03pm

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While numerous lawsuits have been filed over the Biden administration’s federal contractor vaccine mandate, another order imposing a $15 hourly minimum wage on the same firms is facing its own court challenge.

The Pacific Legal Foundation sued the administration over the mandate on behalf of outdoor adventure guides, arguing it amounts to “an executive power grab to force a social agenda through federal contractors.”

The order and rule also violate the Administrative Procedures Act and is unconstitutional, the suit alleges. 

The nonprofit legal foundation sued in U.S. District Court for the District of Colorado on behalf of Arkansas Valley Adventures (AVA), ​​a licensed river outfitter regulated by the Colorado Division of Parks and Wildlife. It’s also representing the Colorado River Outfitters Association (CROA), a nonprofit trade association that represents more than 150 independent operators who primarily conduct business on federal lands using special use permits through Forest Service or Bureau of Land Management.

The lawsuit names President Joe Biden, Labor Secretary Marty Walsh and the U.S. Labor Department, and its Wage and Hour Division and administrator, as defendants.

The DOL issued the final rule Nov. 16 following an executive order Biden issued April 27. It increases the hourly minimum wage for employees performing work on or in connection with federal contracts to $15 beginning Jan. 30.

It also eliminates the tipped minimum wage for federal contract employees by 2024, ensures a $15 minimum wage for workers with disabilities performing work on, or in connection with federal contracts, and imposes minimum wage requirements on outfitters and guides operating on federal lands.

“Federal contract workers are essential workers and are critical to the federal government,” Walsh said on a call with reporters when the rule was finalized. The rule “makes progress towards reversing decades of income inequity” and “ensures the federal government leads by example,” Walsh argued. 

Of the 1.8 million potentially impacted workers, 327,300 are expected to see a pay increase, the DOL projects.

Raising the minimum wage “enhances worker productivity and generates higher-quality work by boosting workers’ health, morale, and effort; reducing absenteeism and turnover; and lowering supervisory and training costs,” the rule states.

Biden’s minimum wage order is similar to one issued by former President Barack Obama in 2014.

Acting Wage and Hour Administrator Jessica Looman maintains that Biden’s executive order “is good for the economy and makes progress towards reversing decades of income inequality.”

“The increased earnings growth resulting from this Executive Order will help essential federal contract workers now and in the future,” Looman argued.  

But AVA argues it is wrongly being lumped in with federal contractors, forcing it “to adopt a wage model that is fundamentally incompatible with the way that the guiding industry operates.”

AVA, which provides a full range of outdoor experiences year-round, including guided, multi-day river rafting wilderness trips in the summer, isn’t a federal contractor and never has been. But because it holds a special land use permit to operate on federal lands, it is subject to the requirement.

In its complaint it notes that this distinction was recognized by the Trump administration, which in 2018 issued an exemption to the Obama-era mandate.

Obama’s mandate didn’t “promote economy and efficiency in making these services available to those who seek to enjoy our Federal lands,” the exemption held. Instead, it “threatens to raise significantly the cost of guided hikes and tours on Federal lands, preventing many visitors from enjoying the great beauty of America’s outdoors,” the lawsuit stated.

In order to comply with the rule, AVA would be forced to cut the lengths and types of trips offered, cut its guides’ hours, or radically increase fees. All three options would hurt the livelihoods of AVA’s owner and guides because paying $15 an hour for several 24-hr day trips would be cost prohibitive, the suit argued.

If implemented, the rule could effectively end multi-day trips, a major source of AVA’s business, and potentially even put them out of business altogether. The same would be true for CROA’s members.

But they wouldn’t be the only ones impacted. The DOL estimates that the rule will impact more than 500,000 private firms, including approximately 40,000 that provide concessions or recreational services pursuant to special use permits or licenses on federal lands.

The DOL also estimated the rule would result in “transfers of income from employers to employees in the form of higher wage rates” of “$1.7 billion per year over 10 years.” The “average annualized direct employer costs are estimated to be $2.4 million” for each firm, which the Office of Information and Regulatory Affairs determined was “economically significant,” the lawsuit noted.

The DOL’s 348-page rule acknowledges that once it’s implemented it would increase compliance costs, consumer costs, reduce profits and result in “disemployment,” for some companies.

The DOL suggests the rule will produce non-monetized benefits, including improved government services, increased morale and productivity, reduced turnover and absenteeism, and reduced poverty and income inequality. 

But the administration doesn’t have the constitutional authority to regulate minimum wage, the PLF argues. That’s a job for Congress.

“Only Congress can make law setting minimum wages,” PLF attorney Caleb Kruckenberg said in a statement. “The president can’t establish a minimum wage through administrative fiat. The Constitution says that only Congress can make laws that bind the public.”

While the case makes its way through court, the DOL’s Wage and Hour Division already began forging ahead with the rule change. It’s already held virtual compliance seminars and interactive webinars for contracting agencies, contractors, unions, workers and other stakeholders to learn how to comply with the new rule.