Biden’s $15 Federal Contractor Wage Rule Nixed by Ninth Cir. (2)

President Joe Biden lacked the authority to impose a $15 minimum wage mandate for contractors, a divided federal appeals court ruled.

The US Court of Appeals for the Ninth Circuit vacated the US Labor Department rule implementing Biden’s executive order, finding that the department violated the federal law governing agency rulemaking when it overlooked alternatives to the $15 minimum wage mandate.

The Ninth Circuit panel majority—composed of two Trump appointees—delivered a major setback to one of the Biden administration’s most prominent efforts to boost worker pay. The ruling could limit future presidents’ latitude to set policies for federal contractors, even as it endorses the importance of judicial oversight of the administrative state.

Attorneys have warned that successful challenges to the president’s procurement power could also galvanize lawsuits questioning the authority of the DOL’s Office of Federal Contract Compliance Programs as a whole. That agency was created via executive order and enforces anti-discrimination and affirmative action obligations for federal contractors.

The administration’s contractor wage increase drew three lawsuits that have created a circuit split. The Tenth Circuit refused to halt the pay requirement earlier this year in a case brought by recreational touring companies that’s now being briefed at the US Supreme Court.

Another lawsuit raising identical legal questions to the EO brought by Texas, Louisiana, and Mississippi is still pending before the Fifth Circuit. A Texas-based federal judge had sided with the GOP states in September 2023 and blocked enforcement of the wage increase for the states’ agencies. The Fifth Circuit heard oral argument over the measure in August.

Idaho, Indiana, Nebraska, and South Carolina took their legal battle against the contractor pay hike to the Ninth Circuit after a lower court rebuffed the states’ request for a preliminary injunction and dismissed their lawsuit.

On Tuesday, the Ninth Circuit ruled that Biden didn’t have the power under the Procurement Act to set a minimum wage requirement for federal contractors. The two-judge bloc of Trump appointees rejected the administration’s argument that the law’s statement of purpose allows presidents to prescribe policies that they consider necessary to keep the procurement system economical and efficient.

“The Government’s preferred interpretation would wildly expand the President’s authority from other statutes that contain both the ‘carry out’ language and a congressional statement of purpose,” Judge Ryan Nelson wrote for the majority.

Biden can only issue policies that carry out an operative provision of the Procurement Act, and none of that law’s operative provisions allow for a minimum wage mandate, said the Ninth Circuit majority, which included Judge Danielle Forrest.

The majority also turned aside the administration’s argument that the Labor Department rule implementing Biden’s order wasn’t subject to review under the Administrative Procedure Act.

“To hold as the Government urges would allow presidential administrations to issue agency regulations that evade APA-mandated accountability by simply issuing an executive order first,” the court said. “Agencies would be permitted to implement regulations without the public involvement, transparency, and deliberation required under the APA.”

The Labor Department failed to meet basic APA requirements for reasoned decision-making by not considering any alternatives to the $15 minimum wage mandate, so the rule must be vacated, the Trump-appointed majority said.

Judge Gabriel Sanchez, a Biden appointee, dissented. The Procurement Act, longstanding judicial precedent, and executive practice all show Biden had the power to direct the Labor Department to enact the wage boost, he said.

The Ninth Circuit majority rejected the consensus on the president’s procurement power in favor of a “far more restrictive understanding,” while improperly second-guessing the executive branch’s views about its own procurement needs, Sanchez said.

“We are ill-equipped to judicially second-guess procurement decisions that are grounded in social, economic, and political policy judgments,” he said.

The case is Nebraska v. Su, 9th Cir., No. 23-15179, 11/5/24.