United States: Paid Sick Leave For Federal Contractors Final Rule - Prognosis And Practical Challenges

Seyfarth Synopsis: The United States Department of Labor's Final Rule on paid sick leave requirements for many federal contractors, which was published on September 30, 2016, will apply to covered contracts beginning on January 1, 2017. The obligations facing employers, which range from multiple accrual thresholds and unlimited usage of earned sick leave to broad recordkeeping obligations and protected family members, are complex and require careful planning to avoid potential pitfalls.

As we previously reported, on September 30, 2016 the United States Department of Labor ("DOL") published its Final Rule on federal contractor paid sick leave. The Final Rule, which implements Executive Order 13706 (the "Order"), will provide paid sick leave benefits to many employees of certain federal contractors beginning in less than three months.1

Satisfying the Final Rule and Order will be no easy feat for covered employers. This is particularly true for employers that are already subject to one or more of the existing state and local paid sick leave laws.2 The Final Rule deviates from these laws in several significant ways and expressly requires such employers to "comply with the requirement that is more generous to employees." Given the intricacies of the Final Rule, below are summaries of many of its key provisions, as well compliance options for employers.

Which Employers Are Covered?

The Final Rule explains that both federal contractors and subcontractors are covered businesses if they have a covered contract, as defined below. The requirements specifically will apply to "new contracts," which the Final Rule defines as covering both new and replacement contracts entered into, whether or not through solicitations, on or after January 1, 2017.  Importantly, a contract that is entered into before January 1, 2017 will be considered a "new contract," and thus subject to the Final Rule, if, on or after January 1, the contract is (a) renewed, (b) extended, or (c) amended due to a change that is outside the contract's scope.  The obligation would not apply, however, to the unilateral exercise of a pre-negotiated option to renew an existing contract by the Federal Government.

To those contractors familiar with DOL's rules implementing Executive Order 13658, Establishing a Minimum Wage for Contractors (the "Minimum Wage EO"), the definitions will be quite familiar. The Final Rule contains a lengthy definition of "contracts or contract-like instruments" and notably states that "[t]he term contract shall be interpreted broadly."

To be covered, the contract must be one of the following:3

  • A procurement contract for construction covered by the DBA;
  • A contract for services covered by the SCA;4
  • A contract for concessions, including any concessions contract excluded from coverage under the SCA by DOL regulations at 29 CFR 4.133(b),5 or
  • A contract in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public.6

With respect to subcontracts, the Final Rule explains that only covered subcontracts (i.e., those that meet the above standards) of covered prime contracts are subject to the Order's and Final Rule's sick leave requirements. As with prime contracts, the sick leave requirements do not apply to subcontracts for the manufacturing or furnishing of materials, supplies, articles, or equipment between a manufacturer or other supplier and a contractor for use on a covered contract. Here is a helpful example to illustrate this point -- A subcontract to supply napkins and utensils to a covered prime contractor operating a fast food restaurant on a military base is not a covered subcontract.

The Final Rule also contains certain exclusions from coverage, which include (a) grants, (b) contracts and agreements with and grants to Indian Tribes, (c) procurement contracts for construction that are not covered by the DBA, and (d) contracts for services that are not covered by the SCA.  Also, and as discussed below, the Final Rule does not apply to certain groups of employees.  Despite these exclusions, in the preamble to the Final Rule (the "Preamble") the DOL advises contracting agencies to be aggressive in their application of coverage and try to extend coverage to contracts even where the Final Rule may not strictly apply.  Thus, employers should be vigilant during the contracting process to ensure that the Order and Final Rule will not apply to their contracts.

Footnotes

1 The DOL released a Proposed Rule for public review and comment prior to publishing the Final Rule. Seyfarth Shaw submitted comments on certain important aspects of the Proposed Rule. A number of the comments resulted in updates in the Final Rule that benefit covered employers.

2 The five states with paid sick leave laws are Connecticut, California, Massachusetts, Oregon, and Vermont. The Vermont law becomes effective on January 1, 2017 for most employers. The current municipal paid sick leave laws include: (1) San Francisco, CA; (2) Washington, D.C.; (3) Seattle, WA; (4) Long Beach, CA; (5) SeaTac, WA; (6) New York City, NY; (7) Jersey City, NJ; (8) Newark, NJ; (9) Passaic, NJ; (10) East Orange, NJ; (11) Paterson, NJ; (12) Irvington, NJ; (13) Los Angeles, CA; (14) Oakland, CA; (15) Montclair, NJ; (16) Trenton, NJ; (17) Bloomfield, NJ; (18) Philadelphia, PA; (19) Tacoma, WA; (20) Emeryville, CA; (21) Montgomery County, MD; (22) Pittsburgh, PA; (23) Elizabeth, NJ; (24) New Brunswick, NJ; (25) Spokane, WA; (26) Santa Monica, CA; (27) Plainfield, NJ; (28) Minneapolis, MN; (29) San Diego, CA; (30) Chicago, IL; (31) Berkeley, CA; (32) Saint Paul, MN; (33) Morristown, NJ, and (34) Cook County, IL. A number of these laws, including Santa Monica, Spokane, Minneapolis, Chicago, Saint Paul, Berkeley, Cook County, and Pittsburgh, are not yet in effect.  The Los Angeles law for private employers became effective on July 1, 2016. There is also a separate Los Angeles paid sick leave law that has been in effect since late-2014 and applies to certain hotel employers. Similarly, the Long Beach and SeaTac ordinances only apply to hospitality or transportation employers.

3 An additional coverage requirement is that the wages of employees under such agreements must be governed by the Davis-Bacon Act ("DBA"), Service Contract Act ("SCA"), or Fair Labor Standards Act ("FLSA").

4 The SCA does not define or limit the type of services which may be contracted for and subject to the law's requirements. Among the examples cited by the SCA are contracts for (a) laundry and dry cleaning, (b) transportation of the mail, (c) custodial, janitorial, or guard service, (d) packing and crating, (e) food service, and (f) miscellaneous housekeeping services. The SCA, specifically 29 C.F.R. § 4.130, provides a long, illustrative list of covered service contracts that can be used by companies seeking to determine if they are covered by the Final Rule.

5 The Final Rule defines a "concessions contract" to mean "a contract under which the Federal Government grants a right to use Federal property, including land or facilities, for furnishing services." Importantly, such contracts include, but are not limited to, "a contract the principal purpose of which is to furnish food, lodging, automobile fuel, souvenirs, newspaper stands, and/or recreational equipment, regardless of whether the services are of direct benefit to the Government, its personnel, or the general public." 

6 For SCA- and DBA-covered contracts, coverage applies to prime contracts at the thresholds specified under those Acts (currently, $2,500 and $2,000, respectively).  For other procurement contracts, coverage applies when the prime contract exceeds the micro-purchase threshold (currently $3,500).  For all other contracts, coverage applies regardless of contract value.

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