As anticipated, the FAR Council has issued an interim Federal Acquisition Regulation (FAR) rule to implement Executive Order 13706, Establishing Paid Sick Leave for Federal Contractors. The interim rule was released on December 16, 2016, and was applicable as of January 1, 2017, to solicitations issued on or after January 1, 2017, and to contracts resulting from those solicitations.

This interim rule follows the earlier Department of Labor (DoL) final rule dated September 30, 2016. When fully implemented, this rule will provide paid sick leave to over one million contractor employees, more than half of whom reportedly do not currently receive paid sick leave. Interested parties are invited to submit written comments on or before February 14, 2017, in order to be considered in the formation of the final rule.

What Does This Interim Rule Do?

This interim rule revises the FAR to implement Executive Order 13706, which seeks to ensure employees working “on” or “in connection with“ covered contracts earn paid sick leave, including paid sick leave for family care in accordance with the Executive Order and the DoL final rule. The Executive Order directed the DoL and the FAR Council to sequentially issue implementing regulations.

As discussed in an earlier Steptoe advisory, DoL’s Final Sick Leave Rule Increases Federal Contractor Compliance Obligations and Costs, the DoL regulations added a new part 13 to title 29 Code of Federal Regulation (CFR). The DoL rule, as implemented by this FAR interim rule, now applies to FAR-based acquisitions (as described in FAR 1.104) that are covered by the Service Contract Labor Standards statute (Service Contract Act) or the Wage Rate Requirements (Construction) statute (Davis Bacon Act). It also applies to contracts that are non-FAR based; however, the FAR interim rule only applies to FAR-based contracts.

FAR Clause

The interim rule includes a new FAR clause, which is FAR 52.222–62, Paid Sick Leave under Executive Order 13706. This clause is not identical to the clause at Appendix A of the DoL rule, but the FAR Council states it is “substantially based on, and accomplishes the same purposes as” the DoL’s clause.

Other Application Issues

The interim FAR rule and Effective Date/Applicability section of the preamble to the interim rule address several issues related to contract coverage.

As noted above, the interim applies to contracts covered by the Service Contract Act or Davis Bacon Act and exceed the applicable thresholds for application of those statutes. However, contracts at or below the simplified acquisition threshold are not exempt, nor are contracts for the acquisition of commercial items that are otherwise subject to the SCA or DBA. On the other hand, the interim rule does not apply to acquisitions of COTS items since the Service Contract and Davis Bacon Acts do not apply to contracts for the acquisition of supplies.

The interim rule essentially adopts the DoL position that paid sick leave requirements will not apply to the unilateral renewal or extension of an existing contract that does not include the new FAR Paid Sick Leave clause, if the renewal or extension is pursuant to a pre-negotiated option included in the contract as of December 31, 2016. See FAR 22.2104(c); 81 Fed. Reg. at 921632 (emphasis supplied). However, the preamble to the interim FAR rule states “[i]n accordance with FAR 1.108(d)(3), contracting officers are strongly encouraged to include the [FAR] clause in existing indefinite-delivery indefinite-quantity contracts, if the remaining ordering period extends at least six months and the amount of remaining work or number of orders expected is substantial.” See 81 Fed. Reg. at 921627 (emphasis supplied). This is consistent with the commentary accompanying the DoL rule. See 81 Fed. Reg. at 67612. The interim FAR rule also provides that contracting officers “shall include the [FAR] clause in bilateral modifications extending the contract when such modifications are individually or cumulatively longer than six months.” Id (emphasis supplied). Finally, the FAR Council also takes the position that, in light of general government contract principles, any bilateral out-of-scope modification should be the subject of a “new procurement” and, therefore, if post-January 1, 2017, subject to the interim rule.

Some Key Provisions in the Interim Rule

As we noted in the earlier Steptoe advisory (link provided above), this rule will require contractors to examine and, if necessary, revise policies and procedures regarding paid sick leave, and to take steps to ensure compliance with the interim FAR rule. In addition, contractors may need to coordinate the overlapping requirements of paid sick leave laws existing at the federal, state, and local levels. Even if a contractor has a paid sick leave policy, a review of the policy for FAR compliance would be prudent.

Some key points for contractors to consider regarding the interim rule:

  • The interim rule follows the DoL final rule in defining an employee who works “on” a covered contract as one who “directly performs the specific services called for by the contract,” and an employee who performs “in connection with” a covered contract as one whose “work activities are necessary to the performance of a contract but are not the specific services called for by the contract.” FAR 22.101. The Preamble to the DoL final rule includes some further discussion of these categories. See 81 Fed. Reg. at 67618-10.
  • Like the DoL final rule, the interim rule also provides that its requirements are in addition to the obligations under the SCA and the DBA. Further, a contractor does not receive credit toward its prevailing wage or fringe benefit obligations under those statutes for any paid sick leave provided pursuant to the requirements of the interim rule.
  • Employee notification is required by FAR 52.222–62 (k). The contractor is required to notify all its employees performing work on or in connection with a covered contract of the paid sick leave requirements of Executive Order 13706, 29 CFR part 13, and this FAR clause by posting a notice provided by the DoL in a prominent and accessible place at the worksite. Further, contractors who customarily post notices to employees electronically may do so, provided such electronic posting is displayed prominently on any website maintained by the contractor, whether external or internal, and customarily used for notices to employees about terms and conditions of employment.
  • Like the DoL final rule, the interim rule requires contractors allow employees to accrue not less than one hour of paid sick leave for every 30 hours worked on or in connection with a covered contract. However, contractors can limit the amount of paid sick leave its employees are permitted to accrue in an accrual year to not less than 56 hours. Contractors also have the option of providing employees with at least 56 hours of paid sick leave at the beginning of each accrual year rather than providing for accrual of leave based on hours worked over time.
  • The interim rule states paid sick leave shall carry over from one accrual year to the next (there are some limitations). Paid sick leave carried over from a previous accrual year shall not count toward any limit the contractor sets on annual accrual.
  • Like the clause in the DoL rule, the new FAR clause includes a flow-down requirement. The FAR clause also provides that a prime contractor is “responsible for the compliance by any subcontractor with the requirements of Executive Order 13706, 29 CFR part 13, and this clause.” FAR 52.222–62(c)(6). As noted in our earlier advisory on the DoL final rule, prime contractors and higher tier subcontractors have seen an increase in their responsibilities to effectively police lower tier subcontractors in their supply chain. In that regard, when addressing comments submitted to the earlier Notice of Proposed Rulemaking (NPRM), the DoL in its final rule expressed the view that prime contractors and upper-tier subcontractors are responsible for the compliance by their subcontractors whether or not the applicable contract clause is included in the subcontract. It also said the elimination of this obligation “could diminish the level of care contractors exercise in selecting subcontractors on covered contracts and reduce contractors’ monitoring of the performance of subcontractors—two ‘vital functions’ served by the flow down responsibility.” See 81 Fed. Reg. at 67656.

The interim rule provides for three exclusions:

  • Employees performing in connection with contracts covered by the rule for less than 20 percent of their work hours in a given workweek are excluded;
  • Collective bargaining agreements until the earlier of the date that the collective bargaining agreement terminates or January 1, 2020, for employees whose covered work is governed by a collective bargaining agreement ratified before September 30, 2016, that meets certain criteria identified in the rule; and
  • Contracts that do not contain the new FAR clause where the agency unilaterally exercises a pre-negotiation option to renew.

Finally, we note that paid sick leave is not an issue unique to federal contracts. Several states, cities, and Washington DC currently have paid sick leave laws. Contractors are not exempt from the requirements of those laws and FAR 52.222–62(h) follows the DoL final rule, which mandates nothing in Executive Order 13706 or in the final rule “shall excuse noncompliance with or supersede any applicable federal or state law, any applicable law or municipal ordinance, or a collective bargaining agreement requiring greater paid sick leave or leave rights than those established under the Executive Order and this [rule].” See 81 Fed. Reg. at 67668. However, a contractor may satisfy its obligations by providing paid sick time that fulfills the requirements of a state or local law provided the paid sick time is accrued and may be used in a manner meeting or exceeding all of the requirements of the DoL final rule. Where the requirements of an applicable state or local law and the FAR interim rule differ, the DoL notes “satisfying both will require a contractor to comply with the requirement that is more generous to employees.”