Today, the U.S. Department of Labor published its Proposed Rule to implement Executive Order 13706, Establishing Paid Sick Leave for Federal Contractors. President Obama issued the Executive Order on Labor Day 2015, and the Department of Labor is required to issue final regulations by September 30, 2016. Individuals have 30 days, or until March 28, 2016, to submit comments on this proposal.
The administrative burdens that this rule would place on covered contractors is significant. Although we cannot cover every detail of the proposal in this bulletin, this overview reveals in part how complicated and difficult compliance will be.
What Contractors Are Covered?
The same contractors that are covered by the regulations implementing the Executive Order Establishing a Minimum Wage for Contractors would be covered by these new requirements. Specifically, employers with the following contracts would be required to provide paid sick leave to their covered employees:
- Procurement contracts for construction covered by the Davis-Bacon Act
- Service contracts covered by the Service Contract Act
- Concessions contracts, including any concessions contracts excluded from the SCA
- Contracts in connection with federal property or lands and related to offering services for federal employees, their dependents, or the general public.
Contracts would not be covered if they are subject only to the DBA-Related Acts, are grants, are with Indian Tribes, or are subject to the Walsh-Healy Public Contracts Act, i.e., contracts for the manufacturing or furnishing of materials, supplies, articles, or equipment to the government. In addition, the requirements would apply only to those contracts, or portions of contracts, that are performed in the United States.
The dollar thresholds in the DBA and SCA must be satisfied before a prime contractor would be covered ($2,500 for the DBA and $2,000 for the SCA). For other procurement contracts, the threshold for coverage is $3,000. There is no monetary threshold for coverage, however, of non-procurement contracts for concessions or for subcontracts to covered contracts.
When Would Contractors Become Covered?
The obligation to provide paid sick leave to covered employees would apply to new contracts and replacements for expiring contracts that result from solicitations issued on or after January 1, 2017. Further, the rule would apply to a contract in effect before January 1, 2017, if it is renewed, extended, or amended on or after January 1, 2017.
Which Employees Are Entitled to Paid Sick Leave?
Employees who “perform work on or in connection with” a covered contract will be entitled to accrue and use paid sick leave in certain circumstances. To be covered, the employee’s wages must be governed by the DBA, the SCA, or the Fair Labor Standards Act, including those employees who are exempt from the FLSA’s overtime requirements.
Employees perform work “on” a covered contract if their work involves the specific services outlined in the contract. Employees perform work “in connection with” a covered contract if their work activities are necessary to the performance of that contract, but they are not directly engaged in the specific services outlined in the contract. Examples provided by the DOL of employees performing work “in connection with” a contract are a security guard patrolling a DBA-covered site and a payroll clerk processing wages for SCA employees.
The proposed rule provides an exception for employees performing work “in connection with” a covered contract if they spend less than 20 percent of their hours worked in a particular workweek performing work in connection with covered contracts. Such employees are not entitled to the paid sick leave allowance. This exclusion is not applicable, however, to employees who perform work “on” a covered contract at any point during a workweek.
How Much Paid Sick Leave Must Covered Employees Be Given?
Contractors must provide at least 1 hour of paid sick leave for every 30 hours worked on or in connection with a covered contract up to 56 hours per year (seven 8-hour days), and they would be required to calculate each employee’s accrual of paid sick leave “no less frequently than at the conclusion of each workweek.” Paid sick leave would carry over from one accrual year to another, but contractors would not be required to allow a total accrual of more than 56 hours at a time. In addition, any leave carried over does not count toward the 56 hours for the next accrual year.
Employees who are rehired by either the contractor or a successor contractor within one year would be entitled to reinstatement of their paid sick leave balance at the time of separation. Contractors would not be required to pay departing employees for any unused sick leave time; however, if they do, they would still have to reinstate the employee’s leave balance upon rehire within a one-year period.
Noteworthy Items on Accrual of Paid Sick Leave
- Employees would be required to accrue paid sick leave only when performing work "on" or "in connection with" a covered contract. Thus, time spent working on non-covered projects would not necessitate accrual of paid sick leave. Of course, contractors would be obliged to maintain adequate records to differentiate where an employee worked.
- “Hours worked” would encompass all time for which an employee is or should be paid, which would include the time an employee is using paid sick leave or any other paid time off provided by the employer.
- If contractors do not keep records of hours worked by exempt employees, they may allow the employees to accrue paid leave as if they worked 40 hours per week on a covered contract.
- Contractors could opt to provide covered employees with 56 hours of paid sick leave at the beginning of the accrual year.
- Contractors would be mandated to advise each covered employee, in writing, the amount of accrued but unused paid sick leave as follows: (1) at least monthly; (2) whenever an employee requests the information (but not more frequently than once a week); (3) whenever an employee asks to use paid sick leave; (4) upon an employee’s separation; and (5) if the employee is reinstated within one year.
- A contractor would not be obligated to “allow employees to accrue paid sick leave in increments less than 1 hour for completion of any fraction of 30 hours worked. Any such fraction of hours worked shall be added to hours worked for the same contractor in subsequent workweeks to reach the next 30 hours worked provided that the next workweek in which the employee performs on or in connection with a covered contract occurs within the same accrual year.”
- A contractor could allow employees to use paid sick leave in increments of less than 1 hour, but it could not require employees to use such leave in increments of more than 1 hour.
- A contractor cannot reduce an employee’s accrued sick leave by more than the amount of time that the employee is actually absent, nor can it compel an employee to take more leave than is necessary for the specific need, as long as the leave is allotted in increments of no more than 1 hour.
- The amount of sick leave used may not exceed the hours the employee would have actually worked if not on leave at that time.
When Could Paid Sick Leave Be Used?
An employee would be entitled to use paid sick leave for time working on or in connection with a covered contract if the absence is related to
- A physical or mental illness, injury, or medical condition
- Obtaining diagnosis, care, or preventative care from a health care provider
- Caring for a child, parent, spouse, domestic partner, or any other individual related by blood or affinity whose close association with the employee is the equivalent of a family relationship who has any of the conditions or needs for diagnosis, care, or preventive care above, or otherwise needs care
- Domestic violence, sexual assault, or stalking, if the absence is for any of the conditions or needs in the first two bullets, or to obtain counseling or assistance from a victim services organization, seek relocation, take legal action, or to assist an individual related to the employee as described above any taking any of these actions
Noteworthy Items on Use of Paid Sick Leave
- If employees work on both covered and non-covered work, they would be entitled to use paid sick leave only during the time that they would be working on or in connection with the covered contract.
- A “physical or mental illness, injury, or medical condition” would be defined as “any disease, sickness, disorder, or impairment of, or any trauma to, the body or mind.” Treatment by a health care provider is not required, and examples include “a common cold, ear infection, upset stomach, ulcer, flu, headache, migraine, sprained ankle, broken arm, or depressive episode.”
- Employees would have a “close affinity” with anyone with whom they have a significant personal bond that is like a family relationship and that the employees consider to be like a family member. “The employee need only assert that a family or family-like relationship exists.”
How Would Employees Request Paid Sick Leave?
Employees could request leave orally or in writing, and in person, by telephone, or by email. Requests for leave should be made at least 7 calendar days in advance when the need for the leave is foreseeable. If not foreseeable, employees would be expected to provide as much notice as practicable under the circumstances. Although the request for leave should include an estimate of the amount of time needed by the employee, “the contractor may not hold an employee to the estimate provided in the request.”
Contractors would have to respond to a request for leave as soon as practical. The DOL proposes that this should happen “immediately or within a few hours.” If a contractor denies a request for leave, the denial must be in writing with an explanation of the reason. If denied due to insufficient information, the contractor would be required to provide the employee an opportunity to submit a corrected request. If the denial is based on a request to use paid sick leave during a time when the employee is not working on a covered contract, the denial must be supported by records showing the employee’s time on covered and non-covered work.
A contractor could provide oral or written notification to the employee that the request is granted, but the amount of paid sick leave available must be provided to the employee in writing when the request is granted.
When Can a Contractor Require Documentation Supporting Need for Paid Sick Leave?
The only time a contractor could require documentation from a health care provider (or other documentation if the leave is related to domestic violence, sexual assault, or stalking) is when an employee is absent for three or more consecutive full workdays. Moreover, such documentation can be mandated only when the employer informs the employee of the need for such information before the employee returns to work. Employees can be put on notice of such a requirement through a general policy or handbook provision.
Noteworthy Items on Documentation of Need for Paid Sick Leave
- A contractor could demand that an employee provide supporting documentation within 30 days of the date the leave began.
- A contractor denying leave based on the documentation would have to make such a determination within 10 calendar days of receipt of the documentation or 10 calendar days of the deadline for submission if no documentation is provided.
- A contractor could contact a health care provider only to authenticate or clarify the contents of the certification. It could not request information regarding the condition, seek a second opinion, or otherwise question the substance of the certification.
- A contractor could not require an employee to actually visit a health care provider as a condition for accepting the certification.
- Certifications and documentation provided by employees must be kept confidential.
Can a Contractor Use its Existing PTO Policy to Comply?
Yes, as long as it satisfies all of the regulatory requirements.
Is There an Anti-Retaliation Provision?
Yes. Contractors would be prohibited from interfering with employees’ rights or use of leave. The following actions would be considered interference:
- Miscalculating the amount of paid sick leave accrued by an employee
- Denying or unreasonably delaying a response to a request for paid sick leave
- Discouraging an employee from using paid sick leave
- Reducing an employee’s accrued paid sick leave more than the amount actually used
- Transferring an employee to work on non-covered contracts to prevent the use or accrual of paid sick leave.
- In addition, contractors cannot discharge or discriminate against an employee for
- Using or attempting to use paid sick leave
- Filing a complaint, initiating any proceeding, or otherwise asserting any rights provided by the Executive Order or regulations
- Cooperating in any investigation or testifying in a proceeding under the Executive Order or regulations
- Informing another person of their rights under the Executive Order or regulations.
How Would the Regulations be Enforced?
Neither the Executive Order nor the proposed rule creates a private cause of action. Therefore, the Wage and Hour Division of the Department of Labor would investigate compliance and determine whether a violation occurred. Depending on the type of violation, possible remedies include the following:
- Pay or benefits denied or lost
- Actual monetary loss suffered as a result of the violation
- Liquidated damages
- Withholding of payments due on the contract
- Reinstatement of wrongfully discharged employee.
What is the Clause that Would Be Included in Contracts?
The full contract clause could be incorporated by reference in federal contracts and subcontracts with the following language: “Executive Order 13706 – Establishing Paid Sick Leave for Federal Contractors, and its implementing regulations, including the applicable contract clause, are incorporated by reference into this contract as if fully set forth in this contract.” The web page that includes the contract clause in full or the applicable CFR or FAR provision must also be cited.
What Records Must Be Maintained by Covered Contractors?
The following records must be kept by contractors on each employee during the course of the covered contract and for three years thereafter:
- Name, address, and SSN
- Occupation or classification
- Rate(s) of wages paid
- Number of daily and weekly hours worked
- Any deductions from wages
- Total wages paid each pay period
- Notifications to employees of the amount of paid sick leave accrued
- Employees’ requests to use paid sick leave
- Dates and amounts of paid sick leave used
- Written denials of requests to use paid sick leave, including explanations
- Records relating to certification and documentation required and provided
- Records showing tracking of or calculations related to an employee’s accrual and/or use of paid sick leave
- Certified list of unused paid sick leave provided to a contracting officer by a predecessor
- Certified list of unused paid sick leave provided from a contracting officer to a successor
- Covered contracts
Is There an Employee Notice Requirement?
Yes, contractors would be obligated to notify all employees performing work on or in connection with a covered contract of the paid sick leave requirements. The DOL will provide a poster that must be displayed prominently at the worksite. If the contractor customarily posts notices electronically, it may satisfy the notice requirement by posting the notice on a website that is normally used for notices to employees regarding their terms and conditions of employment.
Because of the short turnaround between the expected publication of the Final Rule in September 2016 and the effective date in January 2017, contractors who are likely to be covered by these mandates should review them carefully and start planning for implementation and budgeting for the increased expenses. Although some changes are possible, the Final Rule is likely to incorporate most of the provisions in the proposed rule. And, of course, if a different political party wins the presidential election, the Executive Order itself could be rescinded entirely. Stay tuned for further updates!