On September 7, 2015, President Barack Obama signed an Executive Order requiring federal contractors to offer their employees up to seven days of paid sick leave per year. The Executive Order will impact contracts entered into on or after January 1, 2017.

Background of the Executive Order

The Executive Order requires federal contractors, and all tiers of their subcontractors, to offer no less than 56 hours of paid sick leave to their employees. The new sick leave requirements will apply to new contracts and solicitations issued after January 1, 2017.

The paid sick leave required under the Executive Order is an accrued benefit—covered employees will earn a minimum of one hour of paid sick leave for every 30 hours worked until up to 56 hours (the equivalent of seven days) of leave is earned. However, contractors may offer more generous amounts if they choose to do so. Paid sick leave will carry over each year and also must be reinstated for an employee who is rehired by a contractor within 12 months of a job separation. Employees may use the paid sick leave to seek treatment for their own or a family member's (such as a child, parent, spouse, domestic partner or another loved one) physical or mental illness or injury, to obtain a diagnosis or preventive care for themselves or a family member or to cover their own absences resulting from domestic violence, sexual assault or stalking.

What This Means for Employers

This Executive Order, on its face, applies only to contractors and all tiers of subcontractors. Prime contractors and subcontractors will be required to flow down the new sick leave requirement in all subcontracts. Specifically, the Executive Order applies to all procurement contracts for services or construction, services contracts covered by the Service Contract Act, contracts for concessions and contracts for the provision of services on federal property for federal employees and the general public. Of particular significance for contractors is that the new sick leave requirements are in addition to already-existing prevailing wage and fringe benefits requirements under the Service Contract Act and the Davis-Bacon Act. Any sick leave provided under the new Executive Order will not be credited toward complying with those statutes.

A detail employers should note is that the Executive Order does not require payout of accrued sick leave at termination but does not prohibit it either, so employers may make this determination for themselves. Similarly, the Executive Order does not prohibit employers from front-loading the leave rather than providing it on an accrued basis. Leave shall be provided upon the oral or written request of an employee at least seven days in advance of the leave being taken (if the employee has advance knowledge) or as soon as practicable. The employee is required to indicate in the request to the employer the expected duration of the leave, and an employer may seek certification from a healthcare provider only for employee absences of three or more consecutive workdays. An employee's use of paid sick leave cannot be contingent on the employee's finding a replacement to cover his or her responsibilities at work. Finally, while employers may not interfere with or in any other way discriminate against employees for taking paid sick leave, the Executive Order does not provide employees with a private right of action.

In addition, the Executive Order does not displace more generous paid sick leave requirements imposed by state and local laws. Thus, independent of the Executive Order, generally applicable state and local laws also may require employers to provide paid sick leave to employees. California and Massachusetts are two examples of states that require employers to offer paid sick leave; Washington, D.C., New York City and Philadelphia are cities that have done the same. These laws may have unique requirements regarding how much leave must be provided and how it is accrued, as well as if and how leave may be carried over from one year to the next. Employers will be required to adhere to the more generous of the new federal or otherwise-applicable state or local laws.

According to the Executive Order, the U.S. Department of Labor is supposed to issue implementing regulations by September 30, 2016, so that the regulations and the Executive Order become fully effective on January 1, 2017. Final regulations will not become effective until the Department of Labor provides a Notice of Proposed Rulemaking and a 60-day period for public comments. Therefore, it remains to be seen what exemptions, embellishments and nuances, if any, will be added to the sick leave requirements through the regulatory process. For example, while the Executive Order indicates that it applies only to employees who work "on" federal contracts, the regulations could interpret this language to include all employees of the contractor regardless of whether the work they perform relates to the contract. The implementation of the Executive Order will also be dependent on the Federal Acquisition Regulatory Council's promulgation of regulations and applicable contracting clauses.

Although the Executive Order will apply only to new contracts beginning in 2017, employers who have contracts with the federal government—or who have subcontracts with federal contractors—should consider reviewing their sick leave policies to determine whether they are in compliance with the impending requirements. Contractors and subcontractors may also want to start planning on how they will modify their pricing strategies for new contracts to recoup the anticipated costs of compliance with the new sick leave requirements.