On September 30, 2016, the U.S. Department of Labor issued the long-awaited Final Rule implementing President Obama’s Executive Order 13706, which requires federal contractors (and their subcontractors) to provide workers with a minimum of seven days of paid sick leave. The Rule will impose substantial new obligations on many employers beginning January 1, 2017, and comes as state and local governments increasingly enact mandatory paid leave laws across the country.

Who is covered?

The Final Rule will apply to contracts solicited by the federal government and/or awarded outside of the solicitation process on or after January 1, 2017. It also applies to certain existing contracts that are renewed or extended after January 1, 2017.  The Rule will go into effect once the Federal Acquisition Regulatory (FAR) Council issues accompanying regulations.

Under the Final Rule, E.O. 13706 applies to four major categories of contracts:

  • Procurement contracts for construction covered by the Davis-Bacon Act (DBA)
  • Service contracts covered by the McNamara-O’Hara Service Contract Act (SCA)
  • Concessions contracts, including any concessions contracts excluded from the SCA by the Department of Labor’s regulations at 29 CFR 4.133(b)
  • Contracts in connection with federal property or lands, and related to offering services for federal employees, their dependents, or the general public

Narrow exclusions include grants, contracts and agreements with Native American tribes, and certain procurement contracts for construction.

The Rule covers employees who perform work within the United States on or in connection with a covered contract, including FLSA-exempt employees and most independent contractors. Employees whose work with covered contracts comprises less than 20 percent of their total work hours in a given workweek, or whose covered work is governed by a collective bargaining agreement that already provides for at least 56 hours of paid sick time, are excluded.

What events or conditions trigger leave under the Rule?

Employees may use accrued paid sick leave for absences relating to:

  1. Their own physical or mental illness, injury or medical condition
  2. Sick or preventive-care medical appointments
  3. Care for the employee’s 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 a physical or mental illness, or to attend sickness or preventive care medical appointments; or
  4. Domestic violence, sexual assault, or stalking, if the time absent from work is for the purposes described in (1) or (2), or to obtain additional counseling, seek relocation, seek assistance from a victim services organization, take related legal action, or assist an individual related to the employee in engaging in any of these activities

Leave requests can be made orally. The request must be made at least seven calendar days in advance when foreseeable, and in other cases, as soon as is practical. Employers must explain any denial of a request to an employee in writing. Denial cannot be based on the employee’s failure to find a replacement worker.

Employers may only require doctor certification for employee absences of three or more consecutive workdays, and only if the employee is informed of the requirement before returning to work.

What leave is due?

Importantly, the leave requirement merely establishes a floor. Contractors must follow any applicable local, state, or federal law that offers greater leave rights, and are free to offer more generous amounts of paid sick leave.

There are two options under the Rule: accrual and frontloading.

Under the accrual approach, an employer must provide one hour of paid sick leave for every 30 hours worked on a covered contract up to a minimum of 56 hours (seven days) per year. Employees may roll over any unused leave to the next year, although contractors can limit employees from having more than 56 hours accrued at any one time.

Under the frontloading approach, the employee receives 56 hours of paid sick leave at the beginning of the year. Employees may roll over any unused leave to the next year, which means that, under the frontloading approach, an employee can have a maximum of 112 hours of paid sick leave at any one time.

Employers are not required to pay an employee for unused sick leave after separation. If an employee returns to work within 12 months of separation, however, (s)he is generally entitled to have any unused sick leave restored that had accrued before the separation.

Other key provisions

  • Contractors may not interfere with, discriminate against, or retaliate against employees for using paid sick leave, and cannot require an employee to waive his/her rights under the Executive Order.
  • There are substantial recordkeeping and posting obligations.
  • Flow-down requirements: Covered prime contractors must include a designated contract clause in their subcontracts, and must require that subcontractors include the clause in any lower-tier subcontracts. Prime and upper-tier contractors are responsible for compliance of their subcontractors or lower-tier subcontractors.
  • Violations of the Rule can lead to monetary relief and/or debarment for up to three years.

Bottom line for employers

Employers who anticipate pursuing or renewing federal contracts after January 1, 2017, should:

  • Review their current sick leave policy to determine compliance with the Final Rule.
  • Review the current payroll system to ensure its capacity to (i) track the amount of sick leave accrued and taken, and (ii) timely advise employees of those totals.
  • Become familiar with the Final Rule’s many, detailed requirements to ensure compliance on any future contracts.

The full text of the Final Rule can be found here.

The DOL’s Final Rule Fact Sheet can be found here.