On September 29, 2016, the Department of Labor (“DOL”) revealed its Final Rule (“the Rule”) requiring federal contractors to provide paid sick leave to their applicable employees.  The obligations established by this rule largely reflect those we have seen in other examples of paid sick leave laws at the state and municipality level throughout the country.  The DOL predicts that this Rule will expand paid leave to an additional 594,000 employees, creating a substantial financial and administrative burden for many contractors.

Applicability of the Final Rule

The Rule applies to all new contract and “contract-like instruments” with the federal government that fall into one of the following categories (with some exceptions):

• Procurement contract for construction covered by the Davis-Bacon Act (“DBA”);
• Contract for services covered by the Service Contract Act (“SCA”);
• Contract for concessions; or
• Contract in connection with Federal property or lands and related to offering services for Federal employees, their dependents or the general public.

This also incorporates subcontracts to perform work on a covered contract where the subcontract also falls into one of the aforementioned categories.

Additionally, the Rule covers all individuals performing work on or in connection with any such contract or contract-like instrument that is governed by the DBA, SCA or the Fair Labor Standards Act (“FLSA”), including those employees that qualify for an exemption from the FLSA’s minimum wage and overtime provisions.    Indeed, the Rule permits federal contractors to assume an exempt employee works 40 hours per week for purposes of tracking accrual as hours worked are not otherwise required to be recorded.  Notably, if an employee is performing work “in connection with” a covered contract, the employee only accrues paid sick leave if she spends 20% or more of her hours in a given workweek performing in connection with the covered contract.  The regulations established by this Rule are effective for all contracts and contract-like instruments that result from solicitations issued on or after January 1, 2017.

Accrual and Use of Paid Sick Leave

Under the Rule, covered employees will be entitled to accrue 1 hour of paid sick leave for every 30 hours worked on or in connection with a covered contract.  Employees can earn up to 56 hours of paid sick leave per year based on hours worked or contractors have the option of simply providing those 56 hours at the beginning of each year rather than having a system of accrual.  Federal contractors must permit employees to carry over accrued, unused paid leave from one year to the next.  Additionally, they must reinstate an employee’s unused, accrued leave if the employee is rehired within 12 months after a separation, unless that accrued time was paid out upon termination of the employment relationship.  However, the Rule does not require pay out of unused, accrued paid leave upon such termination; this is within the discretion of the contractor.

Once leave has been accrued, the Rule specifies that it can be used by the employee for any of the following reasons:

• The employee’s physical or mental illness, injury, or medical condition;
• To obtain a diagnosis, care, or preventive care from a health care provider;
• To care for a person related to the individual who has need for a diagnosis, care, or preventive care, or is in need of care for a physical or mental illness, injury, or medical condition; or
• To receive assistance, care, or take legal action related to an incident of domestic violence, sexual assault, or stalking, or to assist an individual related to the employee with such activities.

Under the Rule, an individual related to an employee is a child, spouse, domestic partner, parent, or any individual related by blood or affinity whose relationship with the employee is that of a family relationship.  If an employee takes leave for any of these reasons, the request can be made orally or in writing, and should be submitted to the contractor at least 7 calendar days in advance where the need for leave is foreseeable.  A federal contractor can only require an employee to provide certification or documentation for absences related to this Rule lasting three or more consecutive days.

Currently the only type of leave required by federal law is the 12 weeks of unpaid leave provided by the Family and Medical Leave Act (“FMLA”).  This Rule has no impact on a federal contractor’s obligations to comply with the FMLA; however, a federal contractor can require that any accrued paid leave run concurrently with unpaid FMLA leave if the employee chooses to use her FMLA leave related to one of the reasons described above.  Contractors may also have to comply with a state or local paid sick time law depending on the applicability of that particular statute.  Compliance with state or local law may also fulfill the requirements of this Rule, as long as the law meets or exceeds the Rule’s requirements.

Paid Sick Leave as a Growing Trend

This Rule is the latest in a recent trend to provide sick and safe paid leave to employees that has been occurring at the state and municipality levels.  Currently, five states and the District of Columbia have specific, defined laws that require employers, including private sector employers, to provide paid sick leave to employees.  Those states are California, Connecticut, Massachusetts, Oregon, and Vermont.  The Vermont legislature just passed its law in 2016 and, similar to the Rule, the law does not become effective until January 1, 2017.

All of these laws permit employees to use sick leave related to care of themselves or a covered family member, and to use safe leave when the employee is the victim of domestic violence, sexual assault or stalking.  Some of them also allow use of safe leave to assist a family member who is a victim.  The definition of family member differs from law to law.  Generally, these statutes provide a maximum of between 24 and 56 hours of accrued time per year, with variations usually depending on the size of the employer.  Each law also varies in the rate of accrual, usually 1 hour for every 30 to 52 hours worked, and how carry over of unused, accrued time works from year to year.  The laws also vary as to which employees they apply, but often include part-time workers (an important consideration for employer leave policies).

A number of municipalities and counties, such as New York City, Philadelphia, Chicago, and Montgomery County, Maryland, have also passed their own laws to require the provision of sick leave.  Again, each law is different as to what amount of time can be accrued and how, but all permit an employee to use time to receive care for her own health condition or to care for a family member (as defined in the law) with a medical condition.  Most of these laws also permit the use of accrued time for safe leave, and many extend it to the employee or the employee’s family member where that individual is the victim.

Recommendations for Compliance

First and foremost, federal contractors must determine whether any local or state leave laws also apply to them and how those laws interact with this rule.  Second, any employer to which a paid leave applies, including federal contractors, must review their current leave and/or paid time off (“PTO”) policies, and determine whether these policies comply.  PTO can often be used for whatever reason the employee chooses.  Thus, if a federal contractor already provides for PTO at a rate equal to or greater than that established by the new Rule, the contractor may already be in compliance.  Alternatively, a policy may need to be updated to meet the accrual rate specified in the rule or, if the federal contractor only has a sick leave policy, expanded to allow leave to be taken related to a domestic abuse or sexual assault incident.  If no paid leave policy exists at all, one should be immediately developed to take effect for any covered contracts resulting from solicitations issued on or after January 1, 2017.

Third, pursuant to a new or revised policy, federal contractors should also prepare to provide training to those management employees charged with tracking the accrual of leave and with whom employees will interact to request use of their paid leave.  Under the Rule, federal contractors may not interfere with the proper accrual or use of paid leave.  As the front line for such requests and the representative who will interface with an employee before, during, and after use of leave, management employees need to know how to properly evaluate and respond to an employee request.  Finally, federal contractors should use this time prior to the effective date to evaluate tracking systems to ensure accrual of paid leave is properly tracked and documented.