On Sept. 7, 2015, President Barack Obama issued Executive Order 13706, "Establishing Paid Sick Leave for Federal Contractors," which requires certain employers with federal government contracts to provide up to seven days, or 56 hours, of paid sick leave annually. The Executive Order set Sept. 30, 2016, as the deadline for the Department of Labor (DOL) to issue regulations or a final rule implementing the order's requirements.
DOL's final rule became effective Nov. 30, 2016, and requires federal construction contractors and subcontractors to provide employees with up to seven days of paid sick leave annually, including paid leave allowing for family care. The final rule discusses the contractors and employees subject to the paid leave requirements, as well as rules for how paid leave will accrue, how the paid leave can be used, and how DOL intends to enforce the rule against federal contractors and subcontractors who violate the rule's requirements.
Applying paid sick leave
The requirement to provide paid sick leave only applies to contractors and subcontractors working on federal construction projects meeting two requirements. First, the prime contract must be new, which is defined as a contract awarded on or after Jan. 1, 2017. Second, the contract must be subject to the Davis-Bacon Act. A project is subject to the Davis-Bacon Act when it is owned by a federal contracting agency and the prime contract's value exceeds $2,000. (The Executive Order also applies to contracts covered by the Service Contract Act, concessions contracts, and service contracts in connection with federal property and lands.)
Importantly, an exception applies for employers that are signatory to collective bargaining agreements. However, employees working on a covered contract must be entitled to at least 56 hours of paid sick leave or paid time off that can be used for health-related reasons under the collective bargaining agreement's terms.
Similarly, the final rule also permits contractors to fulfill their obligations jointly with other contractors by using multiemployer plans with access to paid sick leave.
When the Executive Order and final rule apply, the contracting agency must ensure a clause regarding paid sick leave requirements is inserted into the prime contract. Prime contractors also must insert a clause regarding the requirements into any covered lower-tier subcontracts and ensure lower-tier subcontractors comply with them.
Are all employees affected?
The final rule explains the Executive Order only applies to employees engaged in performing work "on" or "in connection with" a contract covered by the Executive Order and whose wages are governed by the Davis-Bacon Act or Fair Labor Standards Act (FLSA). This includes employees who qualify for an exemption from FLSA's minimum wage and overtime provisions. Employees who are not performing work on or in connection with a covered contract are not entitled to paid sick leave provided by the Executive Order.
Affected employees include those directly performing the specific services called for by a contract and those performing work activities that are necessary to the performance of a covered contract but who are not directly engaged in the specific services called for by the contract.
An exception applies to employees who perform work duties necessary to the performance of a covered contract (but who are not directly engaged in performing the specific work called for by the contract) and who spend less than 20 percent of their hours worked in a particular workweek performing work in connection with such contracts. For these employees, the final rule does not apply, and employers are not required to provide these employees with paid sick leave.
Accrual of leave
Employers are not permitted to establish accrual rates when offering paid sick leave pursuant to the final rule and Executive Order. Rather, the final rule explains employees accrue one hour of paid sick leave for every 30 hours worked on or in connection with a covered contract. Employers are not required to permit employees to accrue paid sick leave during time spent on work not subject to the Executive Order. So, for example, an employee who works a 60-hour workweek with 30 of those hours working on a covered contract and 30 hours working on noncovered contracts only accrues one hour of paid sick leave under the final rule's requirements.
For employees not exempt from FLSA's minimum wage and overtime pay requirements, keeping track of the number of hours worked on a covered contract will not be difficult because FLSA already requires employers to retain payroll records reflecting hours worked for nonexempt employees. On the other hand, for employees exempt from FLSA's minimum wage and overtime pay requirements, there currently is no such record-keeping requirement. The final rule acknowledges this and provides employers may assume exempt employees are working on or in connection with a covered contract for 40 hours each week. Employers also are permitted to use an estimate for their employees who work in connection with a covered contract as long as the estimate is reasonable and based on verifiable information.
Rather than having employees accrue paid sick leave at the rate of one hour for every 30 hours worked on a covered contract, employers have the option of simply awarding employees 56 hours of paid sick leave at the beginning of each accrual year. The accrual year is the 12-month period in which an employee can be limited to accruing 56 hours of paid sick leave. An employer may choose and set the dates of the accrual year, but the employer must use a consistent option for all similarly situated employees. The accrual year can begin on the date an employee's work on or in connection with a covered contract began, the date the contractor's fiscal year begins, or the date the employer uses for determining employees' leave entitlements under FLSA.
The final rule requires employers to calculate the amount of paid sick leave that has been accrued for each employee at the end of each pay period or each month, whichever interval is shorter. Similarly, employees must be notified in writing of the amount of paid sick leave they have available at the end of each pay period or each month, whichever interval is shorter.
Sick leave details
The final rule is clear employers only are required to permit employees to accrue up to 56 hours of paid sick leave per accrual year.
Employees who have accrued unused paid sick leave time at the end of a year are permitted to carry the unused time forward into the next year. However, employers whose employees accrue paid sick leave throughout the year can prohibit employees from having more than 56 hours of paid sick leave available for use at any point in time.
The final rule does not require employers to convert accrued but unused paid sick leave into cash either at the end of the year or at the end of the employment relationship. However, employers may choose to include as part of their paid sick leave policy the option of having employees convert accrued and unused paid leave into cash at the end of the year or at the end of the employment relationship.
Employees who are not permitted to convert accrued and unused paid sick leave into cash may later recoup their accrued and unused paid sick leave only if they are rehired by the same employer within 12 months following job separation. In these instances, an employee who returns to work is entitled to his or her paid sick leave accrued when the employment relationship terminated.
Using sick leave
To comply with the Executive Order, paid sick leave only can be used for qualifying absences while working on or in connection with a covered contract.
The final rule defines qualifying absences to include the following:
Importantly, the final rule does not require employers to allow employees to use paid sick leave when not assigned to or working on a covered contract though employers may permit it without penalty. Consequently, employees may earn paid sick leave while working on a covered contract, but if the accrued paid sick leave is not used before the employee is assigned to a noncovered contract, the employer is not required to allow the employee use of his or her accrued paid sick leave time. The employee must wait until he or she is reassigned to a covered contract to use the paid sick leave time, which may have been accrued months earlier.
If the need for paid sick leave is foreseeable, the final rule requires the employee to make his or her request for leave at least seven calendar days in advance. If the need for leave is not foreseeable, the employee must make the request for leave as soon as is practical.
Unless the employee is taking three or more consecutive days of paid sick leave, it is not proper for an employer to request documentation verifying the need for leave. However, employees must provide sufficient information to enable contractors to assess whether a request to use paid sick leave is valid. Employers can ask narrowly tailored questions when making the assessment.
If an employee takes three or more consecutive days of paid sick leave, the employer may request documentation or certification verifying the need for leave, but the employer must notify the employee of this requirement before he or she returns to work. The employee has 30 days from the date the leave begins to provide the certification. Certification may be issued by a health care provider, or, if the issue involves domestic violence, sexual assault or stalking, the certification may come from a counselor, representative of a victim services organization, attorney, clergy member, family member or close friend. Employees also can provide self-certification in instances involving domestic violence, sexual assault or stalking.
If the employee fails to provide certification within 30 days of the date leave began, the employer may retroactively deny the request to use paid sick leave. However, this decision must be made within 10 calendar days of the deadline.
If the employee provides certification but the certification is insufficient to verify the employee's need for paid sick leave, the employer must notify the employee. The employee then must be permitted at least five days to provide new or supplemental certification. If the supplemental certification is not provided or is insufficient, the employer can again retroactively deny the request to use paid sick leave, provided this decision is made within 10 calendar days of the deadline for receiving the supplemental certification.
Denying sick leave
Employers are permitted to deny a request to use paid sick leave when an employee does not provide sufficient information to allow the employer to determine whether the request is for a qualifying absence. The request also can be denied if the reason for needing to use paid sick leave does not qualify as a qualifying absence.
Requests for paid sick leave also can be denied if an employee has not accrued any paid sick leave time or expended all his or her accrued paid sick leave time. In addition, a request for paid sick leave can be denied if an employee seeks to take leave while assigned to work on a noncovered contract.
Any time an employer denies an employee's request to use paid sick leave, the decision must be communicated in writing. If the employer customarily corresponds with or makes information available to employees electronically, the decision to deny the request for paid sick leave can be communicated electronically.
Returning from sick leave
The final rule provides "job protection" to employees who miss work while on paid sick leave. Moreover, the final rule includes other anti-retaliatory components that prohibit employers from firing, retaliating against or discriminating against any employee who asks to use paid sick leave or uses his or her paid sick leave.
An existing paid leave policy may meet the requirements of the Executive Order and final rule if paid leave can be used for the same purposes covered by the Executive Order and final rule. Provided the existing paid leave policy allows employees to accrue up to 56 hours of leave during the course of the year and leave can be taken for any purpose, it will meet the requirements of the Executive Order and final rule.
Employers with existing paid leave policies that allow employees to accrue more than 56 hours of paid leave are not required to provide more than 56 hours of paid leave for purposes covered by the Executive Order and final rule though doing so is permitted. Consequently, employers with these leave policies looking to limit the amount of leave used for purposes covered by the Executive Order and final rule must create, track and maintain records reflecting the amount of paid leave an employee uses for the purposes required by the Executive Order and final rule. In these instances, only the paid leave used for purposes covered by the Executive Order and final rule is subject to the documentation, certification and record-keeping requirements of the final rule.
Consequences of noncompliance
The Executive Order charges the DOL with responsibility for enforcing its terms, including its anti-retaliatory provisions. A complaint may be filed with the DOL's Wage and Hour Division by any person or entity that believes a violation has occurred.
The final rule provides a procedure for investigation and informal complaint resolution, and it describes remedies and sanctions for violations. Remedies and sanctions may include the payment of damages and debarment. When a complaint is disputed, the final rule provides an administrative process, including administrative hearings, to resolve the dispute.
President-elect Donald Trump is on record saying he plans to reverse all Obama's Executive Orders on the first day of his presidency; however, he has not specifically discussed the Executive Order regarding paid sick leave for federal contractors. Paid sick leave also is not on his published plans for the first 100 days of his term. But Trump has spoken about paid maternity leave while campaigning for the presidency, stating he would support six weeks of paid maternity leave. At this point, what Trump intends to do simply is unknown. Consequently, those contractors working on federal contracts should prepare to implement the paid sick leave requirements.
Philip Siegel is a member and shareholder of Atlanta-based law firm Hendrick, Phillips, Salzman & Flatt.
To read more about this topic, see "The weight of a regulation," Capitol Hill, November 2016 issue.