DOL issues Final Rule requiring paid sick leave for some federal contractor employees

On Friday, the U.S. Department of Labor published its Final Rule to implement Executive Order 13706, Establishing Paid Sick Leave for Federal Contractors. President Obama issued the Executive Order on Labor Day 2015, and the Department of Labor issued a proposed rule in February 2016.

After receiving more than 35,000 comments, the DOL made very few substantive changes from the proposed rule, and as we noted then, the administrative burdens that this Rule will place on covered contractors is significant. Although we cannot cover every detail of the new requirements in a bulletin, this overview reveals in part how complicated and difficult compliance will be.

For a more thorough discussion and analysis of the Final Rule, join us for a webinar on Thursday, November 3, at 1 p.m. Eastern.

Which contractors are covered?
Generally, the same contractors that are covered by the regulations implementing the Executive Order Establishing a Minimum Wage for Contractors will be covered by these new requirements. Specifically, employers with the following contracts will be required to provide paid sick leave to their covered employees:

• Procurement contracts for construction covered by the Davis-Bacon Act
• Service contracts covered by the Service Contract Act
• Concessions contracts, including any concessions contracts excluded from the SCA
• Contracts in connection with federal property or lands and related to offering services for federal employees, their dependents, or the general public.

The Final Rule clarifies that contracts with the U.S. Postal Service may be covered by the Final Rule.  Because the USPS was not expressly excluded by the Executive Order, the DOL inferred that service contracts with the USPS are covered.

Contracts are not covered if they are subject only to the DBA-Related Acts, are grants, are with Indian Tribes, or are subject to the Walsh-Healy Public Contracts Act – that is, contracts for the manufacturing or furnishing of materials, supplies, articles, or equipment to the government. In addition, the requirements apply only to those contracts, or portions of contracts, that are performed in the United States.

The dollar thresholds in the DBA and SCA must be satisfied before a prime contractor will be covered ($2,000 for the DBA and $2,500 for the SCA). For other procurement contracts, the threshold for coverage is $3,500. There is no monetary threshold for coverage, however, of non-procurement contracts for concessions or for subcontracts to covered contracts.

When will contractors become covered?
The obligation to provide paid sick leave to covered employees applies to new contracts and replacements for expiring contracts that result from solicitations issued on or after January 1, 2017. Further, the Rule will apply to a contract in effect before January 1, 2017, if it is renewed, extended, or amended on or after January 1, 2017.

Which employees are entitled to paid sick leave?
Employees who “perform work on or in connection with” a covered contract will be entitled to accrue and use paid sick leave in certain circumstances. To be covered, the employee’s wages must be governed by the DBA, the SCA, or the Fair Labor Standards Act, including those employees who are exempt from the FLSA’s overtime requirements.

Employees perform work “on” a covered contract if their work involves the specific services outlined in the contract. Employees perform work “in connection with” a covered contract if their work activities are necessary to the performance of that contract but they are not directly engaged in the specific services outlined in the contract. Examples provided by the DOL of employees performing work “in connection with” a contract are a security guard patrolling a DBA-covered site and a payroll clerk processing wages for SCA employees.

The Rule provides an exception for employees performing work “in connection with” a covered contract if they spend less than 20 percent of their hours worked in a particular workweek performing work in connection with covered contracts. Such employees are not entitled to the paid sick leave allowance. This exclusion does not apply, however, to employees who perform work “on” a covered contract at any point during a workweek.

How much paid sick leave must be provided to covered employees?
Contractors must provide at least 1 hour of paid sick leave for every 30 hours worked on or in connection with a covered contract, up to 56 hours a year (seven 8-hour days). Although the DOL proposed that contractors be required to calculate each employee’s accrual of paid sick leave “no less frequently than at the conclusion of each workweek,” it modified the regulatory text to mandate accrual of paid sick leave only at the end of each pay period or each month, whichever is shorter. Paid sick leave carries over from one accrual year to another, but contractors are not required to allow a total accrual of more than 56 hours at a time. In addition, any leave carried over does not count toward the 56 hours for the next accrual year.

Generally, employees who are rehired within one year are entitled to reinstatement of their paid sick leave balance at the time of separation. Contractors are not required to pay departing employees for any unused sick leave time, but if they do, the obligation to reinstate the paid sick leave balance does not apply. In addition, the DOL eliminated the proposed requirement that successor contractors assume the employee’s accrued leave balance with the predecessor employer.

In addition, the Final Rule does not apply immediately to certain employees covered by a collective bargaining agreement. If an employee works under a CBA that was ratified before the date the Final Rule was issued (September 30, 2016) and the CBA provides at least 56 hours of paid sick leave per year, the requirements of the Final Rule do not apply until the CBA terminates or January 1, 2020, whichever is earlier. If the CBA provides less than 56 hours of paid sick leave, however, the contractor would have to provide “top up” paid leave sufficient to equal 56 hours to take advantage of this temporary exception.

Noteworthy Points on Accrual of Paid Sick Leave Employees must accrue paid sick leave only when performing work "on" or "in connection with" a covered contract. Thus, time spent working on non-covered projects will not necessitate accrual of paid sick leave. Of course, contractors will be obliged to maintain adequate records to differentiate where an employee worked. For employees who work “in connection with” a covered contract, contractors are permitted to use an estimate of such time in calculating the amount of paid sick leave earned, as long as the estimate is “reasonable and based on verifiable information.” “For example, a contractor could estimate that a receptionist who handles incoming calls for a group of other employees who work on covered contracts during, on average, one third of their work time also spends one third of her hours worked in connection with covered contracts.” The definition of “hours worked” was modified from the proposed rule, which provided that it would encompass all time for which an employee is or should be paid, including the time an employee is using paid sick leave or any other paid time off provided by the employer. In the Final Rule, “hours worked” is consistent with the FLSA, so it does not include paid time off. If contractors do not keep records of hours worked by exempt employees, they may allow the employees to accrue paid leave as if they worked 40 hours per week on a covered contract. Contractors can opt to provide covered employees with 56 hours of paid sick leave at the beginning of the accrual year. Contractors must provide written notice to each covered employee of the employee’s accrued but unused paid sick leave. The notice must be provided at least once per pay period or per month, whichever time period is shorter. Such notices must also be given upon an employee’s separation and, if the leave balance was not paid out at time of separation, when the employee is rehired within one year. These notice requirements can be satisfied by providing online access, such as through an employee self-service portal. A contractor is not obligated to “allow an employee to accrue paid sick leave in increments less than 1 hour for completion of any fraction of 30 hours worked. Any such fraction of hours worked shall be added to hours worked for the same contractor in subsequent pay periods to reach the next 30 hours worked provided that the next pay period in which the employee performs on or in connection with a covered contract occurs within the same accrual year.”

When can paid sick leave be used?
An employee will be entitled to use paid sick leave for time working on or in connection with a covered contract if the absence is related to

• A physical or mental illness, injury, or medical condition
• Obtaining diagnosis, care, or preventive care from a health care provider
• Caring 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 any of the conditions or needs for diagnosis, care, or preventive care above, or otherwise needs care
• Domestic violence, sexual assault, or stalking, if the absence is for any of the conditions or needs in the first two bullets, or to obtain counseling or assistance from a victim services organization, seek relocation, take legal action, or to assist an individual related to the employee in taking any of these actions.

Noteworthy Points on Use of Paid Sick Leave If employees work on both covered and non-covered work, they would be entitled to use paid sick leave only during the time that they would be working on or in connection with the covered contract. If an employee works on more than one covered contract, though, the contractor cannot limit the use of paid sick leave to time on a specific contract – the “use of paid sick leave is contractor, rather than contract, specific. . . .” If the contractor estimates the amount of time that an employee works “in connection with” a covered contract for purposes of accrual, that employee can use paid sick leave during any work time. A “physical or mental illness, injury, or medical condition” is defined as “any disease, sickness, disorder, or impairment of, or any trauma to, the body or mind.” Treatment by a health care provider is not required, and examples include “a common cold, ear infection, upset stomach, ulcer, flu, headache, migraine, sprained ankle, broken arm, or depressive episode.” Employees have a “close affinity” with anyone with whom they have a significant personal bond that is like a family relationship and whom the employees consider to be like a family member. The Rule “does not allow significant intrusion into [employees’] personal lives by their employers,” and “the employee need only assert that a family or family-like relationship exists. . . .” The amount of sick leave used may not exceed the hours the employee would have actually worked if not on leave at that time. However, the Final Rule creates a “narrow exception” for employees whose work makes it physically impossible to leave or return to the job during a shift, such as flight attendant work.

How may employees request paid sick leave?
Employees may request leave orally or in writing, and in person, by telephone, or by email. Requests for leave should be made at least 7 calendar days in advance when the need for the leave is foreseeable. If not foreseeable, employees are expected to provide as much notice as practicable under the circumstances. Although the request for leave should include an estimate of the amount of time needed by the employee, “the contractor may not hold an employee to the estimate provided in the request.”

Contractors must respond to a request for leave as soon as practical. The DOL suggests that this will often happen “immediately or within a few hours.” If a contractor denies a request for leave, the denial must be in writing with an explanation of the reason. If denied due to insufficient information, the contractor is required to provide the employee an opportunity to submit a corrected request. If the denial is based on a request to use paid sick leave during a time when the employee is not working on a covered contract, the denial must be supported by records showing the employee’s time on covered and non-covered work.

When can a contractor require documentation supporting a need for paid sick leave?
The only time a contractor can require documentation from a health care provider (or other documentation if the leave is related to domestic violence, sexual assault, or stalking) is when an employee is absent for three or more consecutive full work days. Moreover, such documentation can be mandated only when the employer informs the employee of the need for such information before the employee returns to work. Such notice must be made “in a manner reasonably calculated to provide actual notice of the requirement to employees.”  For example, employees can be put on notice of such a requirement by periodic email reminders or a prominent display on a web page where employees can request leave. A general policy or handbook provision is likely to be considered sufficient only if employees can refer to it “at later dates,” presumably meaning they have access to their own employee handbook or it is available online.

Noteworthy Points on Documentation of Need for Paid Sick Leave A contractor can demand that an employee provide supporting documentation within 30 days of the date the leave began. A contractor that denies leave based on the documentation would have to make such a determination within 10 calendar days of receipt of the documentation or 10 calendar days of the deadline for submission if no documentation is provided. If the documentation is insufficient, the contractor must notify the employee of the deficiency and allow 5 days for submission of supplemental information. A contractor can contact a health care provider only to authenticate or clarify the contents of the certification. It cannot request information regarding the condition, seek a second opinion, or otherwise question the substance of the certification. A contractor cannot require an employee to actually visit a health care provider as a condition of accepting the certification. Certifications and documentation provided by employees must be kept confidential. If the absence relates to domestic violence or a similar reason, “self-certification” is a permissible form of documentation from an employee.

Can a contractor use its existing PTO policy?
Yes, as long as the Paid Time Off policy satisfies all of the regulatory requirements. The preamble to the Final Rule discusses this topic at length and provides numerous examples. In summary, if a contractor provides 56 hours of PTO that can be used for any purpose, the contractor does not have to provide separate paid sick leave even if the employee uses the PTO for purposes not covered by the Rule, such as vacation. However, for PTO policies that provide more than 56 hours of paid leave, contractors must either “(1) provide all PTO used for the purposes described in the Final Rule in compliance with all of the rule’s requirements or (2) track, and make and maintain records reflecting, the amount of paid time off an employee uses for the purposes described in the rule, in which case the contractor need only provide, for each accrual year, up to 56 hours of PTO the employee requests to use for such purposes that complies with the rule’s requirements, such as for certification, documentation and recordkeeping.”  In other words, if the contractor does not track what time is being used as paid sick leave – as opposed to vacation or other leave – and adopt all the requirements of the Rule for that time, then “all of an employee’s requests to use paid time off . . . must be provided in compliance with” the Final Rule (emphasis added).

Contractors have the option of amending existing PTO policies to comply with the new requirements or adopting separate paid sick leave policies.

Is there an anti-retaliation provision?
Yes. Contractors are prohibited from interfering with employees’ rights or use of leave, and from retaliation. The following actions would be considered interference:

• Miscalculating the amount of paid sick leave accrued by an employee
• Denying or unreasonably delaying a response to a request for paid sick leave
• Discouraging an employee from using paid sick leave
• Reducing an employee’s accrued paid sick leave more than the amount actually used
• Transferring an employee to work on non-covered contracts to prevent the use or accrual of paid sick leave.

In addition, contractors cannot discharge or discriminate against an employee for

• Using or attempting to use paid sick leave
• Filing a complaint, initiating any proceeding, or otherwise asserting any rights provided by the Executive Order or regulations
• Cooperating in any investigation or testifying in a proceeding under the Executive Order or regulations
• Informing another person of their rights under the Executive Order or regulations.

Further, considering any of the above as a negative factor in any employment decision, including counting paid sick leave under a no-fault attendance policy, is unlawful.

How will the regulations be enforced?
Neither the Executive Order nor the final rule creates a private cause of action. Therefore, the Wage and Hour Division of the Department of Labor will investigate compliance and determine whether a violation occurred. Depending on the type of violation, possible remedies include the following:

• Pay or benefits denied or lost
• Actual monetary loss suffered as a result of the violation
• Liquidated damages
• Withholding of payments due on the contract
• Reinstatement of wrongfully discharged employee
• Other appropriate or equitable relief.

What language must be included in contracts?
The full contract clause can be incorporated by reference in federal contracts and subcontracts with the following language: “Executive Order 13706 – Establishing Paid Sick Leave for Federal Contractors, and its implementing regulations, including the applicable contract clause, are incorporated by reference into this contract as if fully set forth in this contract.” The web page that includes the contract clause in full or the applicable CFR or FAR provision must also be cited.

What records must be retained by covered contractors?
The following records must be kept by contractors on each employee during the course of the covered contract and for three years thereafter:

• Name, address, and Social Security number
• Occupation or classification
• Rate(s) of wages paid
• Number of daily and weekly hours worked
• Any deductions from wages
• Total wages paid each pay period
• Notifications to employees of the amount of paid sick leave accrued
• Employees’ requests to use paid sick leave
• Dates and amounts of paid sick leave used
• Written denials of requests to use paid sick leave, including explanations
• Records relating to certification, and documentation required and provided
• Records showing tracking of or calculations related to an employee’s accrual or use of paid sick leave
• Regular pay and benefits provided to an employee for each use of paid sick leave
• Any financial payment made for unused paid sick leave upon an employee’s separation
• Covered contracts.

Do contractors have to provide notice to employees?
Yes. Contractors are obligated to notify all employees performing work on or in connection with a covered contract of the paid sick leave requirements.The DOL has issued a poster that must be displayed prominently at the worksite. If the contractor customarily posts notices electronically, it may satisfy the notice requirement by posting the notice on a website that is normally used for notices to employees regarding their terms and conditions of employment.

Conclusion
Even if a contractor already provides 56 or more hours of paid sick leave, it must review its policy in conjunction with the requirements of the Final Rule to ensure that it complies with the myriad of additional obligations. If a contractor works in areas where state or local laws govern paid sick leave, it must ensure that it is complying with the most generous obligations and that it also satisfies the mandates in the Final Rule. Although the paid sick leave requirements will not affect every contractor beginning January 1, 2017, those contractors that do not closely track new or modified contract dates may choose to implement the new requirements voluntarily by January 1. Some contractors will also have to decide whether they will adhere to strict application of the Rule and provide sick leave only to those employees working on or “in connection with” covered contracts, or, for morale reasons (and easier administration, perhaps), provide it to all employees regardless of actual coverage.

For further detail, insights, and recommendations, join us for our November 3 webinar.  Or contact a member of Constangy’s Affirmative Action/OFCCP Compliance Practice Group or the Constangy lawyer of your choice.

For a printer-friendly copy, click here.