At a Labor Day speech in Boston, President Obama announced a new executive order  that will require federal contractors to provide covered employees with paid sick leave. Executive Order 13706 was published in the Federal Register on September 10, 2015. This is the latest in a series of executive actions by the Obama administration imposing upon federal contractors additional requirements that Congress has declined to impose on other employers. The new order will require covered federal contractors and subcontractors to provide at least one hour of paid leave for every 30 hours worked and will enable employees to earn up to 7 days or more of paid sick leave annually. Employees may use the paid time off to care for themselves or others with whom they are in “the equivalent of a family relationship.” They may also use the time off for absences related to domestic violence, sexual assault, and stalking. AWhite House fact sheet proclaims that the new executive order will benefit 300,000 workers.  

Coverage

It is anticipated that the new paid sick leave requirement will apply to new federal contracts entered into beginning on or after January 1, 2017. The language of the order indicates that the leave requirements apply only to contractor employees who are employed “in the performance of the contract or any subcontract thereunder.”

Permitted Use for Leave

An employee may use earned paid sick leave for an absence to care for him or herself or his or her family members for any of the following reasons, as outlined in section 2 of the executive order:

  1. physical or mental illness, injury, or medical condition;
  2. obtaining diagnosis, care, or preventive care from a health care provider;
  3. caring for a child, a parent, a spouse, a 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 described in paragraphs (i) or (ii) of this subsection or is otherwise in need of care; or
  4. domestic violence, sexual assault, or stalking, if the time absent from work is for the purpose otherwise described in paragraphs (i) and (ii) of this subsection, to obtain additional counseling, to seek relocation, to seek assistance from a victim services organization, to take related legal action, including preparation for or participation in any related civil or criminal legal proceeding, or to assist an individual related to the employee as described in paragraph (iii) of this subsection in engaging in any of these activities.

Caps on Accrual and Carryover of Paid Leave

In several important respects, paid sick leave is different from other types of paid time off (PTO) that contractors often provide. Notably, the order provides that any accrued and unused paid sick leave carries over from one year to the next and, therefore, may not be subjected to annual “use it or lose it” requirements. Contractors may not cap the total accrual of paid sick leave at less than 56 hours in any one year or at any point in time. Although contractors are not required to pay out accrued and unused paid sick leave when an employee separates from employment, they are required to reinstate an employee’s balance if an employee is separated and rehired within one year.     

Employee Notice and Documentation

Employees may request sick leave orally or in writing and should include the expected duration of the leave. Employees should make a request for leave as soon as practicable. Where the need for leave is foreseeable, the request for leave should be at least seven calendar days in advance of the leave.

Contractors may require documentation only for leaves that are three or more days in duration. For medical-related absences of three or more consecutive workdays, contractors can require certification by a health care provider within 30 days from the first day of the leave. For absences related to domestic violence, sexual assault, or stalking, contractors can require documentation from an appropriate individual or organization with the minimum necessary information establishing a need for the employee to be absent from work. The contractor shall not disclose this information except as authorized by the employee or as required by law.          

Prohibited Conduct

The order prohibits discrimination and retaliation against employees who exercise protected rights. Also, the use of paid sick time may not be made contingent on the requesting employee finding a replacement worker to cover any work time to be missed.

Covered Contracts or Contract-Like Instruments

Subject to the U.S. Secretary of Labor’s regulations defining the types of contracts that will be covered, the paid sick leave requirements will apply only to new covered contracts in one of the following categories:

  • a procurement contract for construction covered by the Davis-Bacon Act;
  • “a contract or contract-like instrument for services covered by the Service Contract Act”;
  • “a contract or contract-like instrument for concessions, including any concessions contract excluded by Department of Labor regulations at 29 C.F.R. 4.133(b)”; or
  • “a contract or contract-like instrument entered into with the Federal Government in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public.”

In addition, paid sick leave required by the order is not required if the wages of the employees are not governed by the Davis-Bacon Act, the Service Contract Act (SCA), the Fair Labor Standards Act (FLSA), or its exemptions.

Subcontracts meeting the above criteria will also be subject to the paid sick leave requirements.

 No Credit Against Service Contract Act or Davis-Bacon Act Obligations

Significantly, the paid sick leave required by the order is in addition to a contractor’s obligations under the Service Contract Act and Davis-Bacon Act. Specifically, contractors may not receive credit toward their prevailing wage or fringe benefit obligations under those acts for any paid sick leave provided pursuant to the order.

Enforcement

Under the executive order, the U.S. Secretary of Labor has the authority for investigating potential violations of and obtaining compliance with the order, including the prohibitions on interference and discrimination. The executive order further specifies that the implementing regulations will incorporate the remedies and enforcement procedures available under the FLSA, the SCA, and the Davis-Bacon Act, among others.

Regulations and Implementation

The order instructs the U.S. Secretary of Labor to issue implementing regulations by September 30, 2016. These regulations may define terms used in the order, establish exclusions from the order’s requirements, and establish record-keeping requirements.  Within 60 days of the issuance of these regulations, the Federal Acquisition Regulatory Council is similarly required to provide the specified contract clause language for new contracts and solicitations. Contractors and subcontractors will be required to incorporate these requirements into lower- tier subcontracts.

Record Keeping

Contractors will be charged with managing and administering paid leave for all of their employees. Pending the release of specific regulations governing record keeping, federal contractors should ensure that their HR software and systems can calculate and track the following information:

  • hours worked;
  • accrual of paid sick leave;
  • use of paid sick leave;
  • carryover of paid sick leave;
  • pay out of paid sick leave at separation of employment, if applicable; and
  • reinstatement of paid sick leave, if applicable.

As paid sick leave under the order is subject to special requirements under the order, contractors should consider whether and how to differentiate paid sick leave from other forms of paid time off that they may provide to their employees.

Conclusion

The order provides a broad outline for the new paid sick leave requirements, and many unanswered questions remain. For example, the order does not address accrual rates for exempt employees paid on a salary basis. It also fails to address a number of practical issues such as the rate or amount of pay owed to employees:

  • who are paid on an hourly basis with more than one rate of pay;
  • who are paid on an hourly basis and have more than one schedule for hours worked in a day or days worked in a week;
  • who are paid on a fee-for-service basis (such as housekeeping employees paid on a the basis of the number of rooms they have cleaned);
  • who receive tips in addition to an hourly rate.