United States: Paid Sick Leave – Proposed Regulations May Carry Significant Burdens For Federal Contractors

On February 25, 2016, the Department of Labor (DOL) issued extensive proposed regulations for implementing the White House's Executive Order 13706, Establishing Sick Leave for Government Contractors. DOL estimates that the rule would provide or expand paid sick leave for 828,200 employees of covered federal contractors.

If adopted as proposed, the regulations appear to impose significant burdens for federal contractors and subcontractors. DOL estimates that the regulations will cost employers an estimated $18.4 million per year in direct costs, with another $250.1 million per year in "transfer costs" flowing from employers to employees. DOL has invited comments on the proposed requirements as well as on DOL's estimates, some of which are likely low: for example, the Department estimates that it will take contractors just a single hour to become familiar with the rule's extensive requirements.

Many of the proposed rule's key provisions are discussed below. Contractors should review the proposed requirements and consider commenting by the extended deadline of April 17, 2016.

Accrual and Use of Paid Sick Leave

Under the Executive Order and proposed regulations, employees will accrue not less than one hour of paid sick leave for every 30 hours worked in connection with a covered contract, to be calculated at the end of each work week. The proposed rule creates an option for contractors to provide at least 56 hours of paid sick leave at the beginning of each accrual year instead.

"Worked" under the rule includes any time for which the employee is paid, including vacation, paid time off, and paid sick leave, and includes time worked on or in connection with a covered contract. The rule seems to assume that all work is under a covered contract unless the employer can prove otherwise, which puts the onus on the contractor to keep detailed records any time an employee works on projects that are not related to a covered contract.

Contractors that choose to have employees accrue leave throughout the year (as opposed to providing 56 hours or more up front) are required to calculate the amount of paid sick leave an employee has accrued each week. No less than monthly, contractors must inform employees in writing the amount of paid sick leave they have accrued. Contractors must also inform employees of the amount of paid leave available to them (a) at the employee's request (not more than once a week); (b) when the employee elects to use paid sick leave; (c) upon the employee's separation of employment; (d) and upon the employee's reinstatement.

Contractors may limit the amount of paid sick leave each employee accrues to 56 hours per year, but they must allow employees to carry over unused, accrued paid sick leave from one year to the next. If an employee leaves the company and comes back to the same contractor or a successor contractor within 12 months, the contractor must reinstate that employee's accrued, unused paid sick leave. Contractors need not pay employees for accrued, unused paid sick leave at the time of a job separation. If contractors "cash out" employees at the time of separation and the employee returns within 12 months, the contractor must still reinstate the prior accrued, unused leave time, even if the employee has been paid for it.

The new paid sick leave regulations are intentionally broader than the Family and Medical Leave Act (FMLA). Employees may use paid sick leave for purposes similar to those permitted by the FMLA, including medical treatment or diagnosis for the employee, or the employee's child, parent, spouse, domestic partner, or close relative. Employees may also use paid sick leave to attend to matters related to domestic violence, stalking, or sexual assault. Unlike the FMLA, paid sick leave does not require a serious health condition; any medical condition or appointment would qualify, including time off for preventative care. Additionally, the new regulations would cover leave taken to care for a much broader range of family and friends. Under the proposed regulations, employees could take time off to care for any person with whom an employee has a "significant personal bond that is or is like a family relationship, regardless of biological or legal relationship," including an elderly neighbor, an adult child, or any "close friend."

Like the FMLA, employees may take paid sick leave intermittently and in hour increments, using as little as one hour at a time. Contractors cannot require employees to use paid sick leave in increments of more than one hour.1

Paid sick leave must be provided upon an employee's oral or written request. Unlike the FMLA, the proposed regulations allow an employer to require that employees direct requests for paid sick leave to appropriate personnel designated in the employer's policy. An employee must make his or her leave request at least seven calendar days in advance when the need for leave is foreseeable; in cases where it is not foreseeable, he or she must make the request as soon as practicable. The proposed rules would require a contractor to communicate any denial or a request to use paid sick leave in writing, along with a written explanation for the denial.

Requiring Certification

Under the proposed rule, contractors may request certification or documentation to support leave of three or more consecutive days, but cannot require certification for shorter periods of leave. Additionally, the contractor must either request the certification before the employee returns to work or have a general policy, made clear to employees (such as in an employee handbook), requiring certification for absences of three or more consecutive days. An employee has 30 days in which to provide the certification. A contractor must pay for the employee's time off, even while waiting for the certification, but can seek reimbursement later.

The certification itself can be any document created or signed by a health care provider or his or her representative—and the employee does not have to have actually seen the health care provider. A contractor may contact the individual who signed or drafted the certification only for purposes of authenticating or clarifying the document. A contractor may not request additional information, require a second opinion, or otherwise question the substance of the certification.

If the paid sick leave is for an absence resulting from domestic violence, stalking, or sexual assault, documentation should be from the appropriate individual or organization with the minimum necessary information establishing a need for the employee to be absent from work. The contractor would be prohibited from disclosing any verification information and would be required to maintain confidentiality about domestic abuse, sexual assault, or stalking, unless the employee consents to the disclosure or it is required by law.

Covered (and Non-Covered) Contracts and Employees

Contracting agencies will be responsible for ensuring that a contract clause setting forth the paid sick leave requirements is included in any new contract or solicitation covered by E.O. 13706. The Executive Order and proposed regulations apply to new federal contracts and replacement agreements for expiring federal contracts that result from solicitations issued on or after January 1, 2017, or those awarded outside the solicitation process (i.e., sole-sourced, etc.) on or after January 1, 2017.

The proposed regulations apply to the following four major categories of contractual agreements:

  • Procurement contracts for construction covered by the Davis-Bacon Act;
  • Service contracts covered by the McNamara-O'Hara Service Contract Act (SCA);
  • Concessions contracts, including any concessions contracts excluded from the SCA by the DOL's regulations at 29 CFR 4.133(b); and
  • Contracts in connection with federal property or lands and related to offering services for federal employees, their dependents, or the general public.

The proposed rule would apply to employees performing work on federal contracts within the United States at both the prime and subcontractor level. The rule includes employees not covered under other, similar rules. For example, unlike the recent federal contractor minimum wage Executive Order, the paid sick leave requirement applies to salaried-exempt employees, including employees "employed in a bona fide executive, administrative, or professional capacity."

Keep in mind that the fact that a contractor has one or more federal contractors does not mean that all of its projects or employees are necessarily covered. Employees who perform work duties necessary to the performance of the contract but who (a) are not directly engaged in performing the specific work called for by the contract and (b) spend less than 20 percent of their hours worked in a particular workweek performing in connection with such contracts, are also excluded from the proposed rule's coverage. Moreover, the proposed rule does not apply to (a) grants; (b) contracts, grants, and agreements with Indian tribes; (c) procurements excluded from Davis-Bacon Act coverage; (d) or procurements excluded from Service Contract Act coverage. Nor do the Executive Order and proposed rule apply to contracts for the manufacturing or furnishing of materials, supplies, articles, or equipment to the federal government (i.e., those contracts subject to the Walsh-Healey Public Contracts Act).

Because the Executive Order and proposed rule apply only to employees who do work on or in connection with covered contracts—but not those employees who do not—a contractor may be required to provide paid sick leave to some of its employees but not others. Contractors who have questions about covered contractors or employees, or any of the other requirements of this complicated proposed rule, are encouraged to seek assistance from qualified counsel.

Recordkeeping and Reporting Obligations

The proposed recordkeeping obligations under the regulations are extensive. Contractors would be required to keep the following records for three years:

  • Name, address, and social security number for each employee
  • Employee's occupation(s) and classification(s)
  • Rate or rates of wages paid
  • Number of daily and weekly hours worked
  • Deductions made
  • Total wage paid each pay period
  • Copy of notifications to employees of the amount of paid sick leave the employees have
  • Copy of employee's request(s) to use paid sick leave or other records reflecting such employee requests
  • Dates and amounts of paid sick leave used by employees
  • Copy of any written denials of requests to use paid sick leave, along with explanations for such denials
  • Records relating to any certifications or documentation contractor required from employee
  • Other records showing tracking of or calculations related to an employee's accrual or use of paid sick leave
  • Copy of any certified list of employees' unused paid sick leave provided to a contracting officer at the conclusion of a covered contract
  • Certified list of employees' unused paid sick leave received from the contracting agency in connection with a predecessor contractor
  • Relevant covered contract
  • Records of other proof distinguishing between an employee's covered and uncovered work

Implications of Regulations on Covered Contractors

Executive Order 13706 and its implementing regulations would require covered federal contractors to bear significant burdens. Covered contractors must bear the cost of paying employees for seven days of absences a year, as well as the administrative costs of tracking and complying with this complex regulatory scheme. This effort will be particularly burdensome for small and mid-sized contractors.

Moreover, it is not clear from the regulations what measure contractors can take to prevent employees from abusing the system. With so few ways to ensure an employee is using protected leave properly, contractors will need to trust employees to properly use 56 hours of protected absence or tardiness for one of the Executive Order's intended purposes. Should the rule be adopted as proposed, it will likely complicate contractors' efforts to enforce attendance policies, and government customers may likewise be frustrated unless contractors have well-developed contingency plans to cover for absent employees.

Footnotes

1. DOL has specifically requested comments regarding whether it should add a physical impossibility exception to the one-hour requirement. In situations in which an employee is physically unable to access the worksite, such a provision would allow a contractor to require an employee to continue to use paid sick leave for as long as the physical impossibility remains. Examples given include a flight attendant whose scheduled flight departs and laboratory technicians who work in "clean rooms" that must remain sealed.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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Richard J. Vacura
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