On Thursday, February 25, 2016, the U.S. Department of Labor (“DOL”) issued proposed regulations for implementing Executive Order 13706, which requires federal contractors to provide up to 56 hours of paid sick leave to its employees annually. Once finalized, these regulations will have significant consequences for federal contractors; they not only govern how much paid sick leave must be provided to employees, but a variety of other topics, such as which employees are entitled to sick leave, when sick leave can be used, whether sick leave can be carried over from year to year, how employees may request sick leave, and how contractors must respond to such requests.

Under the proposed regulations, employees are eligible for paid sick leave, regardless of their contractual relationship with the contractor, if they: (1) are performing work on or in connection with a contract covered by Executive Order 13706 (“covered contract”); and (2) have their wages governed by the Service Contract Act, the Davis-Bacon Act, or the Fair Labor Standards Act (“FLSA”). Notably, both exempt and non-exempt employees under the FLSA are eligible for paid sick leave.  Further, the DOL anticipates that certain independent contractors will also be entitled to paid sick leave.

Covered contracts are “new contracts” with the federal government – that is, contracts that result from a solicitation issued on or after January 1, 2017, or a contract awarded outside the solicitation process on or after January 1, 2017 – that are either: (1) procurement contracts governed by the Davis-Bacon Act; (2) services contracts governed by the Service Contract Act; (3) concessions contracts; or (4) contracts in connection with federal property for certain services. There are certain exclusions outlined in the proposed regulations, such as contracts governed by the Walsh-Healey Public Contracts Act and employees who spend less than 20% of their workweek performing work in connection with a covered contract.  (This latter exclusion does not apply to employees who perform work directly on covered contracts.)

Contractors are either required to provide employees with 1 hour of paid sick leave for every 30 hours worked on, or in connection with, covered contracts or 56 hours of paid sick leave at the beginning of each accrual year. Contractors who choose the first option should be aware that the proposed regulations define “hours worked” to include all time for which an employee is or should be paid (including paid time off) – a definition that is broader than the definition of “hours worked” under the FLSA.  The regulations also include a contracts clause, which must be flowed down to sub-contractors on covered contracts.

Employees may use their paid sick leave for a variety of purposes, including: (1) an employee’s physical or mental illness, injury, or medical condition; (2) obtaining diagnosis, care, or preventative care from a health care provider; (3) caring for an employee’s child, parent, spouse, domestic partner, or an individual with whom the employee has a close, familial-like relationship; or (4) certain circumstances related to domestic violence, sexual assault or stalking. Further, employees must be permitted to use sick leave in one-hour increments.

One aspect of the proposed regulations that we expect to be clarified before the final regulations are issued involves whether federal contractors may limit the amount of paid sick leave that an employee has available for use. Under the proposed regulations, it is clear that: (1) contractors may limit the amount of paid sick leave an employee accrues to 56 hours in each accrual year; and (2) employees must be permitted to carry over their accrued, unused sick time each year.  However, we expect the DOL to clarify whether a contractor can limit the amount of sick leave available to employees at any time to 56 hours (and if so, whether this amount includes any sick leave carried over from the previous year), and whether contractors can, in all circumstances, limit the number of paid sick leave hours carried over from the previous year to 56 hours.

Although contractors are not required to pay out accrued, unused sick leave to employees upon termination, employees who are rehired by the contractor or a successor contractor within one year must have their accrued paid sick leave reinstated. Also, if a contractor chooses to pay out accrued leave upon termination, the contractor is still required to reinstate the employee’s paid sick leave if he or she is rehired.

Other notable aspects of the proposed regulations include the following:

• Under the non-discrimination provision of the proposed regulations, contractors are prohibited from penalizing employees under a “no fault” attendance policy for utilizing their paid sick days.

• The proposed regulations include requirements regarding when the contractor must inform employees about their accrued, unused paid sick time, including at least once a month and every time the employee requests to use paid sick time.

• The proposed regulations govern how the employee may request sick leave (e.g., oral requests are permitted and when the need for sick leave is feasible, the contractor cannot require more than seven days’ notice), and include obligations on the contractor when responding to paid sick leave requests (e.g., contractors must respond to an employee’s request to use paid sick leave as soon as practicable – which, the DOL expects, will be immediately or within a few hours in many circumstances).

• Contractors may require employees to provide a note from their health care provider validating the need for paid sick leave only if the employee is notified about this requirement before returning to work and the employee is absent for 3 or more consecutive days.

• The paid sick leave required under these proposed regulations must be provided to employees in addition to the contractor’s prevailing wage and fringe benefit obligations under the Service Contract Act and the Davis-Bacon Act.

• Contractors who are found to have disregarded their obligations under these regulations may be debarred for up to three years.

• Executive Order 13706 and the implementing regulations do not supersede any applicable laws or collective bargaining agreements that require greater paid sick leave or sick leave rights, and employees cannot waive their right to receiving paid sick leave.

Further information about the proposed regulations can be found here.  The comment period for these regulations ends on March 28, 2016.  Employers who will likely be subject to Executive Order 13706 and the implementing regulations are encouraged to review current paid time off and sick leave policies to determine how they will need to be revised to comply with the same.