Troops and and civilians enjoy American fast food at the Kaiserslautern Military Community Center's food court in 2009. (Army & Air Force Exchange Service PAO)
Forty lawmakers have signed a letter asking the Labor Department to exempt some military morale, welfare and recreation and exchange operations — such as fast food concessions — from wage regulations affecting federal contractors on military bases.
“Should these policy changes be fully implemented, we are concerned they will eliminate jobs, negatively impact recreational services on military bases, and limit the dining options for service men and women on military installations,” states the April 10 letter, signed by Rep. Joe Wilson, R-S.C., chairman of the House Armed Services Committee’s personnel panel, Rep. John Kline, R-Minn., chairman of the House Education and the Workforce Committee; and 38 others.
McDonald’s restaurants already have closed on three Navy bases, and Marine Corps officials have said one will close on a Marine Corps base. Another eatery, “I Love Country,” has closed at Naval Station Pearl Harbor, Hawaii.
“Such a drastic policy change should have received thorough examination,” Wilson said in a statement announcing the letter. “In light of recent spending reductions targeted towards military installations, now is not the time to reduce support services our military families have grown to depend upon. Additionally, this government mandate threatens to destroy jobs at a time when American workers need them most.”
At issue are recently implemented Labor Department rules for fast food workers on federal contracts under the Service Contract Act that require an increase in their minimum wage, varying by region.
The rules also require payment of new, additional “health and welfare” benefits at a rate of $3.81 per hour. The Navy’s waiver request noted that in six areas in Florida, California and Virginia, the increase in the hourly wage ranged from 72 percent to 76 percent.
For example, in one area in California, the prior wage rate of $7.25 per hour has increased to $12.79 per hour with the regional increase and the $3.81 health and welfare benefits addition.
More closures may come unless relief is granted. Navy and Marine Corps exchange officials estimate that up to 390 fast food concession operations would close on installations across the U.S. and its territories, which would result in the loss of jobs for nearly 5,750 employees, according to an April 8 letter to Labor Department officials signed by Russell Beland, deputy assistant secretary of the Navy for military manpower and personnel, asking for exemption from the wage regulations.
These contracts are negotiated for different bases at different times, so the effects will be seen incrementally. The Navy and Marine Corps exchange systems already have suspended 74 contracts for “new concepts,” according to the Navy letter.
Many family members and veterans are employed by the fast food restaurants.
Officials of the two exchange services estimate a combined loss of about $27 million a year in profits associated with food service sales alone. The companies that build and operate the restaurants on base make payments to the exchange systems.
Concessionaires can’t increase their prices on bases as a way to mitigate their increased labor costs, the lawmakers noted. “Price increases are not allowable under most contracts because they cannot charge more for similar services within a specified radius of a military installation,” the letter states.
And fast food restaurants outside base gates are not bound by the minimum wage rules associated with the federal contracts.
The increased cost from the new rules eliminates any profit potential fast food concessionaires might have had, the Navy’s Beland said in his letter, and puts them “in an impossible business dilemma insofar as performing under his concession agreement.”
One company told the Navy that “a restaurant on a military base is not paid by the federal government; it relies on the revenue it receives from its customers, and provides revenue payments to the military exchange systems that help support MWR programs. … Dramatically increasing costs for restaurants operating on base will simply result in the closure of those facilities over time because they will no longer be profitable.”
An exemption is necessary to avoid serious effects on the exchanges’ operations, and on the amount of money the exchanges contribute to MWR, Beland said.
In 2012, 32 percent of Navy exchange profits came from food services in the U.S. and its territories, as did 17 percent of Marine Corps exchange profits.
Both the Navy and Marine Corps exchange systems contribute about 70 percent of their profits to MWR programs.
“Contracted operations for fast food and other services are a key aspect of these operations and provide much needed and desired services for our military personnel while generating tens of millions of dollars to underwrite vital community support programs,” the lawmakers wrote.
If Labor Department officials do not grant exemptions, the wage-related issues may intensify next year as a result of an executive order signed Feb. 12 by President Obama.
The order will raise the minimum wage for federal contracts from $7.25 to $10.10 per hour for employees working on new and renegotiated federal contracts beginning Jan. 1. That means all federal contract employees on military bases — including those working in fast food establishments — would earn $13.91 per hour.
“We applaud the effort of Chairman Wilson to provide relief to the exchanges,” said an industry source. “A number of factors are converging on the exchanges that inhibit their ability to provide goods and services to military families.”