On February 25, 2016, the U.S. Department of Labor published a Notice of Proposed Rulemaking implementing Executive Order 13706, Establishing Paid Sick Leave for Federal Contractors. The proposed rule (Proposed 29 C.F.R. Part 13) creates an employee right – for both hourly and salaried employees – to accrue and use paid sick leave while working on federal contracts. The proposed rule also imposes a complex regulatory scheme, with new federal contracting clauses created by the Department of Labor, on contractors to enforce the newly created employee rights. The salient points of the proposed rule are as follows:

Paid Sick Leave Obligations

Employees shall accrue paid sick leave at the rate of no less than one hour of sick leave for every thirty hours worked on a federal contract. Proposed 29 C.F.R. § 13.5(a). Sick leave accrues for all hours “worked” in a paid status, “including time when the employee is using paid sick leave or any other paid time off provided by the contractor.” Both hourly and salaried employees – including employees “employed in a bona fide executive, administrative, or professional capacity” – are entitled to paid sick leave under the proposed rule. Contractors must inform their employees of their accrued sick leave balances no less than monthly. “Contractors may choose to provide an employees with at least 56 hours of paid sick leave at the beginning of each accrual year rather than allowing the employee to accrue such leave based on hours worked over time.” Id.

Paid sick leave shall carry over from one accrual year to the next and carried over sick leave shall not count toward any limit the contractor sets on annual accrual. Fortunately, the proposed regulations provide that contractors may cap accrued leave at “not less than 56 hours,” provided employees will continue to accrue paid sick leave once their accrued balance dips below 56 hours or the employers higher established threshold. Proposed 29 C.F.R. § 13.5(b)(3).

“Paid sick leave shall be reinstated for employees rehired by the same contractor or a successor contractor within 12 months after a job separation.” Proposed 29 C.F.R. § 13.5(b)(4). Contractors are not required to pay employees accrued sick leave upon separation of employment. But, if contractors voluntarily do so, they are still obligated to reinstate an employees accrued sick leave upon rehire within 12 months of separation. Proposed 29 C.F.R. § 13.5(b)(5).

The obligation to pay sick leave “is in addition to a contractor’s obligations under the Service Contract Act and Davis Bacon Act. A contractor may not receive credit toward its prevailing wage or fringe benefit obligations under those Acts for any paid sick leave provided” under these new regulation. Proposed 29 C.F.R. § 13.5(f)(2). To the extent a contractor provides paid sick leave benefits greater than what is required by the proposed rule, those additional benefits may satisfy Service Contract Act or Davis Bacon Act requirements. Id.

Contractor Paid Time Off (“PTO”) policies may satisfy the new paid sick leave requirements if (i) the paid time off is made available to all employees; (ii) may be used for all of purposes permitted by the proposed rules; (iii) enough leave is provided; (iv) use of the leave complies with the proposed rules; and (v) is protected by the prohibitions against interference, discrimination and recordkeeping violations prohibited by the proposed rule. Proposed 29 C.F.R. § 13.5(f)(5).

Employees are permitted to use the new paid sick leave for purposes similar to those permitted by the Family and Medical Leave Act (“FMLA”): e.g., medical treatment or diagnosis for the employee, or the employee’s child, parent, spouse, domestic partner, or close relative, as well as for matters related to domestic violence, sexual assault, or stalking. Proposed 29 C.F.R. § 13.5(c). Employees also must request the use of paid sick leave in a manner similar to that provided by the FMLA. Proposed 29 C.F.R. § 13.5(d). Contractors may request certification or documentation to support any employee leave of three or more consecutive days. Proposed 29 C.F.R. § 13.5(e).

Coverage

The proposed rule applies to employees performing work on federal contracts within the United States. Proposed 29 C.F.R. § 13.3. The proposed rule does not apply to (i) grants; (ii) contracts, grants and agreements with Indian tribes; (iii) procurements excluded from Davis Bacon Act coverage; and (iv) procurements excluded from Service Contract Act coverage. Also excluded from coverage are “those employees who perform work duties necessary to the performance of the contract but who are not directly engaged in performing the specific work called for by the contractor, who spend less than 20 percent of their hours worked in a particular workweek performing in connection with such contracts.” Proposed 29 C.F.R. § 13.4.

Federal Contracting Requirements

The Department of Labor created a new proposed contract clause, which agencies shall be required to include in “all covered contracts and solicitations.” Proposed 29 C.F.R. § 13.11. If an agency omits the new clause, the proposed rule gives the agency the authority to retroactively insert the clause to the commencement of performance under the contract.

The new contract clause must be flowed down to all tiers of subcontractors. Contractors shall also require, “as a condition of payment, that the subcontractor include the contract clause in any lower-tier subcontracts.” Proposed 29 C.F.R. § 13.21. Furthermore, the prime contractor and any upper-tier subcontractor is legally responsible for subcontractor compliance with the paid sick leave proposed rule, regardless of whether the clause was included in the subcontract.

Upon completion of a federal contract, contractors are required to provide the contracting officer with “a certified list of the names of all employees entitled to paid sick leave . . . . who worked on or in connection with the covered contract or any covered subcontract(s) at any point during the 12 months preceding the date of completion of the contract.” Proposed 29 C.F.R. § 13.26. The certified list shall include the employees’ names and the amount of paid sick leave each employee accrued and had available for use as of the date of contract termination or the date the employee separated from the contract or subcontract. The contracting officer must then provide this certified list to the successor contractor, to enable the successor to comply with its obligations to continue the employees’ accrued paid sick leave. Proposed 29 C.F.R. § 13.11.

The proposed rule also creates a strict recordkeeping requirement for contractors (Proposed 29 C.F.R. § 13.25), requiring them to maintain the following information for at least three years after contract termination:

  1. name, address, and SSN for each employee;
  2. employee’s occupation/classification;
  3. wage rate paid;
  4. daily and weekly hours worked;
  5. deductions made from pay;
  6. total wages paid each pay period;
  7. a copy of notifications to employees of the amount of paid sick leave the employees have accrued;
  8. a copy of employee requests to use paid sick leave
  9. dates and amounts of paid sick leave each employee uses
  10. a copy of any written denials of employee requests for paid sick leave
  11. a copy of certification or documentation contractor received regarding an employee’s need for paid sick leave;
  12. records showing any tracking of or calculations related to employee’s accrual and/or use of paid sick leave;
  13. a copy of any certified list of employees’ unused paid sick leave provided to a contracting officer;
  14. a copy of any certified list of employees’ unused paid sick leave received from a contracting officer; and
  15. the relevant covered contract.

There is also a new posting requirement, advising employees of their rights under the proposed rules. Proposed 29 C.F.R. § 13.27.

Enforcement

There is no private right of action created under the proposed rule. Instead, all complaints for enforcement of the regulations must go through the Department of Labor’s administrative process. The penalties for non-compliance include backpay and reinstatement of lost wages and benefits, liquidated damages in an amount equal to all other monetary relief ordered, and debarment. Proposed 29 C.F.R. § 13.44.

Notice and Comment

These proposed rules raise a number of issues for concern to the contracting and subcontracting community.

  1. The proposed regulations dovetail with employee rights under the Nondisplacement of Qualified Workers regulations, but do not provide a realistic mechanism for successor contractors to learn the size or scope of any unfunded paid sick leave liabilities until after they have been awarded the contract.
  2. On a related note, the proposed regulations raise issues of procurement integrity if only the predecessor contractor knows its paid sick leave liability and only it can accurately factor those costs in when bidding on any successor contract. If a successor contractor wins, will this result in a potential change to the successor contract to compensate for the increased paid sick leave liabilities and, if not, who will ultimately pay for the increased costs.

Comments on the proposed rule are due no later than March 28, 2016.  As with the Fair Pay and Safe Workplaces Regulations that were published last year, contractors, subcontractors, and contractor associations should comment on these proposed rules to clarify or modify the proposed rule given the large impact the proposed rule will have on virtually any contractor or subcontractor working on federal contracts.