After failing to convince Congress to pass federal legislation requiring employers to provide paid sick leave to employees, on September 7, 2015—Labor Day— President Obama announced a new Executive Order requiring federal contractors and sub-contractors to provide their employees with paid sick leave. Companies that are not federal contractors or sub-contractors and are not considering becoming a contractor may stop reading and breathe a sigh of relief because the Executive Order does not apply to them. All other companies—even if they offer more generous paid sick leave—should pay close attention. Beginning January 1, 2017, employees working on covered federal contracts are entitled to earn at least one hour of paid sick leave for every 30 hours worked. This new obligation adds to the regulatory overload the Obama Administration has heaped on federal contractors.

The Executive Order provides, among other things, that:

  • It would apply only to contracts with Executive branch departments and agencies above the micro-purchase threshold, which generally is $3,000, but can be as high as $30,000 depending on the nature of the contract. Independent agencies are encouraged to comply. As a result, if the regulations become final, federal contractors would need to know if their contracts are with an Executive department or agency and if not, whether their contracts are with part of the federal government that voluntarily chose to adopt the Executive Order. If so, negotiation of contract terms will be especially important. Absent regulations by the noncovered federal agency, the obligation will be a function of contract. (Elimination of the reference to the Executive Order in a contract with an Executive department or agency would not eliminate the paid sick leave requirement. The obligation is imposed by law.)
  • Covered employees would only be employees who perform work on the covered federal contract. Federal contractors will need to be able to track which employees work on federal contracts and sub-contracts and their hours worked on those specific contracts. It appears only hours worked on a federal contract would earn paid sick leave under the Executive Order.
  • The Executive Order suggests that it will apply to businesses that enter into federal contracts: (1) for procurement for services or construction; (2) for services covered by the Service Contract Act; (3) for concessions; and (4) in connection with federal property or lands and related to offering services for federal employees, their dependents, or the general public. This is a narrower set of companies than are obligated to comply with the nonconstruction, supply, and service affirmative action obligations of the Office of Federal Contract Compliance Programs (OFCCP). Stated differently, not all federal contractors with affirmative action programs will have to provide paid sick leave under the Executive Order. The types of covered contracts appear to be the same covered by the $10.10 minimum wage for federal contractors under Executive Order 13658 (29 C.F.R. §§ 10.01-10.58). So if your company has had to increase its pay to provide the minimum wage of $10.10, it will likely have to provide paid sick leave under this new Executive Order.
  • An employee may use paid sick leave:
    • to care for self because of illness, injury, or medical condition or to obtain personal diagnosis, care, or preventive care;
    • to care for a child, spouse, domestic partner, or person whose relationship to the employee is the equivalent of a family relationship and who needs care because of:
    • illness, injury, or medical condition;
    • need to obtain personal diagnosis, care, or preventive care; or 
    • domestic violence, or sexual assault, or stalking.
  • A federal contractor must carry over paid sick leave from one year to the next and reinstate it for employees who are rehired within 12 months, but it is not required to pay out unused paid sick leave upon termination.
  • A covered employer may not require an employee to find a replacement before taking paid sick leave.
  • A contractor may require medical certification only for absences of three or more consecutive days.
  • A federal contractor must allow covered employees to earn at least 56 hours of paid sick leave, which means employees will earn an hour for every 30 hours worked (up to 1,680 hours worked) on the federal contract. Federal contractors not wanting to apply the Executive Order beyond 1,680 hours will need policies outlining different terms for earning paid sick time. Also, there is no exclusion for employees covered by union contracts. The Executive Order states it does not excuse noncompliance with, or take the place of, any applicable law or union contract "requiring greater paid sick leave or leave rights than those established under this order."
  • The paid sick leave entitlement is in addition to prevailing wage and fringe benefits under the Service Contract Act, 41 U.S.C. §§ 351-358, and the Davis-Bacon Act, 40 U.S.C. §§ 3141-3148. The Service Contract Act applies to federal contracts exceeding $2,500 principally for services performed in the United States by service employees, such as security and guard services, janitorial services, cafeteria and food services, and support services at government installations. The Davis Bacon Act requires that each prime contract exceeding $2,000 for a federal construction project and all sub-contracts include language requiring the payment to each trade's construction worker on the project a federal prevailing wage and fringe benefits.
  • The Executive Order does not apply to grants. Nor does it apply to contracts and agreements with and grants to Indian Tribes under the Indian Self-Determination and Education Assistance Act.

The Department of Labor has until September 30, 2016 to issue proposed regulations outlining the specific details of the Executive Order's implementation.

Between now and the Executive Order's anticipated January 1, 2017 effective date, federal contractors should:

  1. determine whether their federal contracts and sub-contracts are with Executive branch departments and agencies or independent agencies that will voluntarily adopt the Executive Order's paid sick leave requirements. Part of this assessment is whether the company will likely have Service Contract Act and Davis Bacon Act obligations as a result of its federal contracts;
  2. assess their abilities to track which employees work on federal contracts and sub-contracts, their hours worked on those specific contracts, and their paid sick time earned under the Executive Order;
  3. evaluate their current sick leave programs and union contracts to see if they will comply with the requirements outlined above; and
  4. decide whether the company will have separate policy requirements for paid sick leave accrued outside of the federal contract or sub-contract, or have a uniform policy for ease of administration.