Today, the U.S. Department of Labor (“DOL”) published its final rule implementing Executive Order 13706 (the “Final Rule”), which requires certain federal contractors and subcontractors to provide paid sick leave to their employees.  Our previous blog posts on this development can be found here and here.

The Final Rule in large part implements the proposed rule which was published in February 2016.  However, the Final Rule does make several changes and provides some key clarifications.  Discussed below are some of the key aspects of the Final Rule that contractors need to know as well as a discussion of some of the changes and clarifications.

Sick Leave

The Final Rule provides that covered employees must accrue paid sick leave at a rate of 1 hour for every 30 hours worked on or in connection with a covered contract, up to 56 hours per year.  The proposed rule defined “hours worked” to include all time for which an employee should be paid (including, for example, an employee’s time spent on paid leave).  This definition was significantly broader than the definition of “hours worked” under the Fair Labor Standards Act, as it included, for example, days taken off for which the employee receives vacation pay.  In response to commentary from the contracting community and industry groups, the Final Rule narrowed the definition of “hours worked” to include only actual working hours, not time spent on paid leave.

The Final Rule permits contractors to either provide 56 hours of leave to employees at the beginning of each year, or to provide leave as it accrues.  If contractors provide the leave up front, there is no need to track sick leave accrual, thus lessening some of the burden associated with the Final Rule.  However, by doing so, contractors will permit their employees to have at least seven days of paid leave to use at the beginning of each year (56 hours, plus any carry over).  Contractors that utilize the accrual method, by contrast, will bear the associated tracking burdens but their employees will only be able to take leave as they accrue it (other than any carry over leave).

Covered Contracts and Employees

The Final Rule applies to the following types of contracts entered into with the federal government after January 1, 2017:

1. procurement contracts for services or construction covered by the Davis-Bacon Act;

2. contracts or contract-like instruments for services covered by the Service Contract Act;

3. contracts or contract-like instruments for concessions; and

4. contracts or contract-like instruments in connection with federal property or lands and related to offering services for federal employees, their families, or the general public.

Only employees who work on or in connection with covered contracts must be provided paid sick leave.  Thus, if an employer’s business includes covered government contracts as well as other contracts, only employees working on or in connection with the covered federal contract must accrue sick leave, and then only for the hours worked on or in connection with the covered contract.

The Final Rule explains the distinction between working “on” or “in connection with” a covered contract as it applies to accrual of sick leave.  Specifically, the Final Rule provides that working “on” a covered contract means that the employee is “perform[ing] the specific services called for by the contract.”  Conversely, working “in connection with” a covered contract means “the employee’s work activities are necessary to the performance of a contract but are not the specific services called for by the contract.”  The distinction is important.  Employees working “on” a covered contract are entitled to accrue sick leave.  However, employees working “in connection with” a covered contract are only entitled to accrue sick leave “if that employee spends 20 percent or more of her hours worked in a given workweek in connection with covered contracts.”  These nuances highlight the importance of developing systems to track employees’ work “on” or “in connection with” covered contracts.

The Final Rule also requires subcontractors to provide paid sick leave to any employees performing work on a covered contract on the same basis as prime contractors.  Notably, subcontractors need only provide sick leave when their work is also covered by one of the four enumerated contracts above.  For example, just as the Final Rule does not cover “prime contracts for the manufacturing or furnishing of materials, supplies, articles, or equipment,” the Final Rule “likewise does not apply to subcontracts for the manufacturing or furnishing of materials, supplies, articles, or equipment.”

Additionally, the Final Rule makes clear that paid sick leave must be offered to both exempt and non-exempt employees.  The Final Rule clarifies that contractors can simply assume exempt employees work 40 hours per week when calculating sick leave, rather than tracking hours worked.

Paid leave must also be offered to part-time employees.  This is significant for contractors who plan to rely on their existing paid time off (“PTO”) policies for compliance – which is permitted by the Final Rule.  One thing that those contractors must consider is whether part-time employees are covered by existing PTO policies.  Thus, contractors must either provide PTO to full-time and part-time employees (if not already provided) or provide and track separate sick leave to part-time workers.

Carryover Requirements

Covered employees must be allowed to carry over at least 56 hours of accrued, unused sick leave into the following year.  Accrued, unused paid sick leave must also be reinstated for employees rehired by the same contractor or successor entity within 12 months after a job separation.  Contractors are not required to pay employees for accrued, unused paid sick leave at the time of a job separation (i.e., a “cash-out”).  But if they do, they need not reinstate the employee’s sick leave balance upon rehire.

Permitted Uses of Sick Leave

Covered employees may use paid sick leave for themselves or their family members, including:

1. for a physical or mental illness, injury, or medical condition;

2. when obtaining diagnosis, care, or preventative care from a health care provider;

3. when caring for a child, parent, spouse, domestic partner, or any other individual related by blood or affinity whose association with the employee is the “equivalent of a family relationship,” who has need for diagnosis, care, or preventative care, or is otherwise in need of care; or

4. for domestic violence, sexual assault, or stalking situations.

The Final Rule defines “equivalent of a family relationship” expansively.  Employees are permitted to use paid sick leave to care for a non-nuclear family member who does not necessarily have a biological or legal relationship to the employee, including a “close friend.”

Requesting/Using Sick Leave

Under the Final Rule, employees must request sick leave as early as practicable, either orally or in writing, but ideally at least 7 calendar days before the need for leave is foreseeable.  Employees must also provide employers with the expected duration of their leave when possible.

When an employee uses sick leave for 3 or more consecutive days, a contractor may request a certification from a health care provider (if the absence is related to a medical condition) or from an “appropriate individual” or organization (if the absence is related to domestic violence, sexual assault, or stalking).  The list of “appropriate individual[s]” is not exhaustive, but includes “a health care provider, counselor, representative of a victim services organization, attorney, clergy member, family member, or close friend.”  Contractors are required to keep any information learned from the certification confidential.

Notably, the Final Rule adds self-certification to the list of acceptable sources for certification of absences exceeding 3 consecutive days relating to sexual assault, domestic violence, and stalking.  The purpose of this was to ensure that victims of domestic violence, sexual assault, and stalking, who may not have told anyone about their experience, can still take the necessary leave.

If a contractor decides to deny a request for sick leave, the contractor must inform the employee of the denial, and provide an explanation for the denial in writing.

Non-Retaliation

The Final Rule prohibits contractors from discriminating or retaliating against any employee who exercises his or her rights under the Final Rule.  Even so, the Final Rule makes clear that nothing prohibits employers from investigating genuine concerns about fraudulent use of leave.  For example, if an employee says he needs to take seven consecutive Mondays off to care for a loved one, but the contractor believes the employee is simply trying to take extended weekends, it is not discrimination or retaliation under the Final Rule for the contractor to investigate this requested use of leave.

Posting Requirements

The Final Rule requires that covered contractors post a notice of the sick leave coverage prominently in the workplace so employees are on notice of their rights.  The DOL has published a notice, which is available here.

DOL Guidance

The DOL has provided a number of resources on its website for contractors to familiarize themselves with the new rules.  They can be accessed here.

Key Takeaways

The DOL’s proposed rule is part of a larger effort by the current administration to encourage and implement paid sick leave entitlements.  For example, in 2015, the DOL awarded $1 million in grants to help states and municipalities to conduct feasibility studies for paid leave programs.  President Obama’s 2016 budget includes more than $2 billion in new funds to encourage states to develop paid family and medical leave programs.

The push for paid sick leave has also gained momentum on the state and local levels.  Currently, Oregon, Massachusetts, Connecticut, California, and Vermont have paid sick leave laws.  Additionally, numerous cities and localities, such as Washington, D.C., New York City, and San Francisco, CA, have passed paid sick leave laws.

In order to ensure compliance with the new sick leave requirement, contractors should review their sick leave and PTO policies for compliance with the Final Rule.  For contractors with general PTO policies, it is imperative that they ensure that their PTO policies permit the types of leave covered by the Final Rule, provide at least 1 hour of leave for every 30 hours worked and no less than 56 hours per year, and permit at least 56 hours of accrued, unused leave to be carried over from one year to the next for employees working on or in connection with covered contracts.

Contractors must also be aware of any state and local statutes or ordinates that require paid sick leave for their employees.  The DOL has stated that contractors must comply with more generous paid sick leave protections.