DOL Issues Final Rule Implementing Paid Sick Leave For Federal Contractors

On September 29, 2016, the U.S. Department of Labor (DOL) issued its long-awaited final rule1 to implement Executive Order 13706,2 which requires covered federal contractors to provide employees with up to seven days (56 hours) of paid sick leave per year, including paid leave to care for family members and family-like individuals. Although the DOL made several minor revisions in its final rule, the substantive provisions of the rule—including accrual and use requirements—remain largely unchanged and will impose substantial new obligations on many employers beginning January 1, 2017.

The implementation of the final rule comes as state and local governments are increasingly enacting mandatory paid leave laws in a piecemeal fashion across the country. According to Secretary of Labor Thomas Perez upon announcement of the final rule:

The next step is a federal earned sick time law such as the Healthy Families Act, and I am confident that it is a question of when, not if. I'm proud to be part of an administration that's getting us closer to that day.3

The DOL explains that the final rule "will . . . improve the health and performance of employees of . . . covered federal contractors and bring benefits packages offered by those companies in line with leading firms, ensuring they remain competitive in the search for dedicated and talented employees." According to the DOL, "by supporting workers to stay home, paid sick leave protects the public health by keeping fellow employees, customers and clients away from illness."

The DOL estimates that once fully implemented, the rule will extend paid sick leave to 1.15 million employees, including 594,000 workers who currently do not receive paid sick leave. However, the full impact of the rule remains to be seen as many employers face the challenge of modifying their policies to comply with the myriad state, local, and now federal, paid sick leave mandates, which vary in application.

Covered Employers and Employees

The final rule applies to new covered contracts where either the solicitation has been issued, or the contract has been awarded outside the solicitation process, on or after January 1, 2017, with the federal government requiring performance in whole or in part within the United States. The rule also generally applies to existing covered contracts that will be renewed, extended, or amended on or after January 1, 2017.

The final rule sets forth four broad categories of covered contracts:

Procurement contracts for services or construction covered by the Davis Bacon Act (DBA); Contracts for services covered by the Service Contract Act (SCA); Contracts for concessions, including any concessions contracts excluded from coverage under the SCA by DOL regulations at 29 CFR 4.133(b); and Contracts in connection with federal property or lands and related to offering services for federal employees, their dependents, or the general public. The rule broadly defines "contract," stating that the term "includes all contracts and any subcontracts of any tier thereunder."

A covered employee means any person engaged in performing work on or in connection with a contract covered by the executive order, and whose wages under such contract are governed by the DBA, SCA, or the Fair Labor Standards Act (FLSA), including employees who qualify for an exemption from the FLSA's minimum wage and overtime provisions, regardless of the contractual relationship alleged to exist between the individual and the employer. Thus, the paid sick leave requirements would apply, for example, to employees employed in a bona fide executive, administrative, or professional capacity. In addition, the paid sick time requirements would extend even to independent contractors who are covered by the SCA and the DBA.

Excluded Contracts, Employees, and Collective Bargaining Agreements

The rule narrowly excludes from coverage the following types of contracts:

"Grants" within the meaning of the Federal Grant and Cooperative Agreement Act; Contracts with and grants to Indian Tribes under the Indian Self-Determination and Education Assistance Act; Procurement contracts for construction that are excluded from the DBA's coverage (i.e., those worth under $2,000); and Contracts for services that are exempted from coverage under the SCA (i.e., those worth under $2,500). Employees performing "in connection with" covered contracts for less than 20% of their work hours in a given workweek are also excluded from the paid sick leave requirement under the rule. However, employees performing work "on" covered contracts, regardless of amount, are not excluded from coverage. Employees performing "on" covered contracts are those directly performing the specific services called for by the contract, while those performing "in connection with" a covered contracted are performing activities that are necessary to the performance of the contract, but are not directly engaged in performing the specific services called for by the contract.

In a significant change from the proposed rule, the final rule also provides a temporary but limited exclusion for employees whose covered work is governed by a collective bargaining agreement (CBA). Under the proposed rule, paid sick leave requirements of the executive order could not be waived in a CBA. The final rule, however, provides that some of the executive order and final rule's requirements do not apply to employees covered by a CBA ratified before September 30, 2016, until the date the CBA terminates or January 1, 2020, whichever date is earlier, as long as employees are provided at least 56 hours per year of paid time off that may be used for reasons related to sickness or health care.

Specifically, if the CBA already provides covered employees with at least 56 hours of paid sick time each year, the final rule's other requirements temporarily do not apply. If the CBA provides paid sick...