Paid Sick Leave for Federal Contractors

By Russell Jackson

On September 30, 2016, the U.S. Department of Labor (DOL) published the Final Rule for Establishing Paid Sick Leave for Federal Contractors. The Rule implements Executive Order 13706, signed by President Obama on September 7, 2015. The Order requires companies who contract with the federal government to provide their employees with up to seven days (or 56 hours) of annual paid sick leave, including time to spend with family members.

The effective date for the Final Rule is January 1, 2017, which means it will apply to any covered contracts that have been issued or any contract that has been awarded after that date. The Final Rule applies to any contract with the federal government that falls within any of these four categories:

  1. Procurement contracts for construction and contracts subject to the Davis-Bacon Act. This includes contracts for the construction, alteration or repair (including painting and decorating) of public buildings and public works of the federal government.

  2. Procurement contracts for services covered by the Service Contract Act. This includes any contract that has its principal purpose of furnishing services through service employees.

  3. Contracts for concessions. This would include any federal contracts for furnishing food, lodging, automobile fuel, souvenirs, newspaper stands and recreational equipment to the public (e.g., souvenir shops at national monuments, boat rental facilities at national parks).

  4. Contracts in connection with federal property or lands and related to offering services. This includes contracts entered into in connection with federal property, such as leases of space in a federal building wherein the contractor operates a child care center, credit union, gift shop, etc.

The rule also applies to subcontractors if the subcontract falls within one of the four specifically enumerated types of contracts discussed above.

The requirement applies to employees performing work on or in connection with covered contracts. Employees performing “on” a covered contract are employees who are directly performing the specific services called for under the contract.

The rule requires that contractors permit employees to accrue one hour of paid sick leave for every 30 hours worked on or in connection with a covered contract. A contractor must aggregate an employee’s hours worked on or in connection with all covered contracts for that contractor. For example, if a subcontractor sends employees to three separate covered projects, all the time the employee spends would be added together to determine how much sick time the employee has accrued.

An employee is permitted to use paid sick time in four scenarios:

  1. the employee’s own physical or mental illness, injury or medical condition;

  2. the employee is obtaining diagnosis, care or preventative care from a health care provider;

  3. the employee is 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 condition or is receiving any care (as described in paragraphs 1 and 2, above); or

  4. the absence is related to domestic violence, sexual assault or stalking, or to assist an individual related to the employee (as described in paragraph 3) related to domestic violence, sexual assault or stalking.

The DOL estimates the rule will affect more than 1.1 million people once it is fully in effect. Although many contractors already provide paid leave for their employees, the rule has been criticized by some who argue compliance with it will be costly for smaller businesses who struggle with labor costs, it is an added record-keeping and administrative responsibility, and if a company currently provides more generous benefits, the business may decrease its paid leave policy to comply with the minimum requirement. Any federal contractors who anticipate entering into covered contracts should become familiar with the Final Rule to ensure compliance.

Fair Pay and Safe Workplaces

On August 25, 2016, the DOL issued final rules and guidance implementing the Fair Pay and Safe Workplaces Executive Order, which also affects the federal contracting business community. The stated purpose is to improve federal contractor compliance with labor laws.

The rule would require any contractor bidding on a contract that is estimated to exceed $500,000 to report whether any determination of violation of a labor law had been rendered against the contractor in the previous three years. Contractors are required to direct prospective subcontractors to also submit the required information to the DOL.

Under the rule, federal contractors and subcontractors are required to report any violations of the numerous federal labor laws and to update their disclosures every six months while performing the government contracts. The required disclosures would include non-final administrative merits determinations, including any complaint issued by the General Counsel of the National Labor Relations Board, non-final determinations by the DOL’s Wage and Hour Division concerning alleged violations of the Fair Labor Standards Act, Davis-Bacon Act, Service Contract Act, and the Family and Medical Leave Act, non-final determinations by the Occupational Safety and Health Administration and determination letters that reasonable cause exists issued by the Equal Employment Opportunity Commission.

The rule would also prohibit contractors and subcontractors who enter into contracts for non-commercial items over $1 million from entering into arbitration agreements with employees or independent contractors regarding matters arising under Title VII. The rule additionally requires contractors to inform their employees in each paycheck of the number of hours worked, overtime calculations, rates of pay, gross pay, additions or deductions from pay, and whether they have been classified as independent contractors.

The rule’s effective date was October 25, 2016. However, on October 24, 2016, the U.S. District Court for the Eastern District of Texas enjoined the rule. In the ruling, Judge Marcia Crone found the requirement to report labor law violations was unconstitutional and enjoined the rule’s ban on arbitration agreements. Judge Crone issued a nationwide preliminary injunction. Affected contractors should be aware that an appeal is likely and should plan for potential compliance. The Court did not enjoin the rule’s paycheck transparency provision, which will take effect January 1, 2017.

Russell Jackson, Counsel FordHarrison Memphis Office

Russell Jackson, Counsel
FordHarrison Memphis Office