United States: DOL's Final Rule On Sick Leave Takes Effect: Contractors Have Until Year's End To Comply

On September 29, 2016, the DOL released a final rule requiring federal contractors to provide seven days of paid sick leave annually. The rule implements a 2015 executive order from President Obama that we covered in greater detail here. More than 35,000 individuals and organizations submitted comments on the DOL's proposed rule.

The final rule comes at a time when state and local governments are enacting mandatory paid leave laws in a piecemeal manner across the country. According to Secretary of Labor Thomas Perez upon announcement of the final rule:

"The next step is a federal earned sick time law such as the Healthy Families Act, and I am confident that it is a question of when, not if. I'm proud to be part of an administration that's getting us closer to that day."

Covered Contracts

The DOL estimated that between 694,000 and 1.05 million employees of federal contractors will receive additional sick leave under the new rule – at an expected annual cost to contractors of around $380 million.

A covered contract would include any "new contract" or subcontract with the federal government that (1) is a procurement contract for construction covered by the Davis Bacon Act; (2) a contract for services covered by the McNamara-O'Hara Service Contract Act; (3) contracts for concessions (such as a concession stand in a federal park); or (4) a contract in connection providing services on federal property and lands to federal employees, their dependents or the general public.

A contract is considered a "new contract" if it is entered on or after January 1, 2017, which, according to the final regulations, would include a contract entered into prior to January 1, 2017 if the contract is renewed, extended or amended through negotiations after January 1, 2017 and the changes and/or extensions were not contemplated in the original contract.

Accrual and Carryover

The rule, which will apply to federal contracts issued on or after January 1, 2017, requires covered federal contractors to give employees at least one hour of paid sick leave for every 30 hours of work. Contractors must allow employees to use paid sick leave in increments of one hour. Although contractors may choose to allow increments of less than one hour, they are not required to do so.

Workers must be allowed to accrue up to at least 56 hours per calendar year. Up to 56 hours of paid sick leave carries over from one year to the next.

The rule allows a contractor using the accrual method to limit the amount of paid sick leave an employee is permitted to accrue to 56 hours in each accrual year. The rule also provides that sick leave carried over from the previous year shall not count toward the accrual cap. The rule also allows a contractor to limit an employee's leave available for use at any point in time to 56 hours. In other words, the rule allows for two caps on leave: an annual accrual cap of 56 hours and an available amount for use of 56 hours.

Permitted Uses

The rule provides that paid sick leave may be used for the following:

  • an employee's own physical or mental illness, injury, or medical condition;
  • for an employee to obtain diagnosis, care, or preventative care;
  • to care for a child, parent, spouse, domestic partner, or "any other individual related by blood or affinity whose close association with the employee is the equivalent of a family relationship" who has an illness, injury, medical condition, or who needs to obtain diagnosis, care, or preventative care; or
  • for domestic violence, assault, or stalking situations resulting in an illness, injury or medical condition or the need for obtaining diagnosis, care, or preventative care, or to obtain additional counseling, seek relocation, seek assistance from a victim services organization, take related legal action for the employee or one of the above-listed individuals in domestic violence, assault or stalking situations.

Requests for Leave

Employees must make requests for leave at least seven calendar days in advance where the need for leave is foreseeable—or, short of that, as soon as practicable. However, paid sick leave must still be provided upon the employee's oral or written request. Some of the changes in the final rule make it easier for employees to request leave (e.g., an employee does not need to specifically reference the executive order or use the words "sick leave").

Medical Certification

The final rule permits contractors to require a certification issued by a health care provider or other appropriate documentation, but only if the sick leave lasted for three or more consecutive full workdays. Moreover, contractors may only require certification or documentation after informing the employee of the requirement before the employee returns from leave.

Impact on Existing Leave Policies

Existing paid leave policies (e.g., vacation, PTO) may be used to satisfy the requirements of the final rule if certain conditions are met. In general, such leave must be available to all covered employees in a manner that meets or exceeds the requirements of the final rule.

Ability to Frontload

Contractors may "frontload" leave by providing an employee with at least 56 hours of paid sick leave at the beginning of the accrual year. In contrast, under the accrual method, employees accrue one hour of leave for every 30 hours worked.

Frontloading is easier for employers to administer, but the downside for employers is that the frontloading may incentivize more absences and may result in the contractor providing more leave than required under the rule in the case of an employee who terminates during the course of the year.

That said, the rule does acknowledge that it will not always be appropriate to provide a new employee with 56 hours of paid sick leave under the front loading method. Contractors using the front loading method who hire an employee or newly assign the employee to work on or in connection with a covered contract after the beginning of the accrual year may provide the employee with a prorated amount of leave based on the number of pay periods remaining in the accrual year.

The rule gives the following example: if an employee was hired after one-third of the pay periods in the current accrual year had passed, that employee would be entitled to begin her employment with at least 37 hours (two-thirds of 56 hours, rounded to the nearest hour) of paid sick leave.

Payment upon Termination

Unused leave does not have to be paid out upon termination, but leave must be reinstated for employees rehired by a contractor within 12 months of a job separation.

Effect of Collective Bargaining

The final rule provides a temporary exclusion for employees under a collective bargaining agreement (CBA). This is a change from the proposed rule, which did not provide for a CBA waiver. The final rule provides that some requirements do not apply to employees covered by a CBA ratified before September 30, 2016, until the date the CBA terminates or January 1, 2020, whichever is sooner. This waiver only applies so long as employees are provided at least 56 hours per year of illness-related paid time off.

Retaliation Prohibited

Contractors are prohibited from retaliation under the new rule, which includes, but is not limited to interfering with an employee's accrual or use of leave and discriminating against an employee for taking or attempting to take paid sick leave.

Notice Requirements

Covered contracts and subcontracts entered into on or after January 1, 2017, except for those related to procurement subject to the Federal Acquisition Regulation ("FAR"), need to contain the sick leave contract clause set forth in Appendix A of the rule.

Finally, contractors must post a notice provided by the DOL in a prominent and accessible place at the worksite. Electronic postings may satisfy this requirement.

Conclusion

As the final rule's effective date of January 1, 2017 approaches, covered contractors and subcontractors should take immediate steps to identify any existing contracts and determine whether those contracts are subject to the final rule. If so, a contractors should closely review existing policies and work with counsel to identify any changes that need to be made before the new year.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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