Following up on President Obama’s Labor Day release of an executive order requiring government contractors to offer paid sick leave to employees, the Labor Department issued proposed implementing regulations and invited comments by April 12.  Contractors with service contracts should consider submitting comments, especially if they already offer paid sick leave and rely on that leave to meet their fringe benefit obligations under the Service Contract Act.

Under the SCA, contractors cannot take credit for offering benefits that they are legally required to provide.  By setting a minimum required level of paid sick leave, the proposed regulations convert seven days of those benefits into legal requirements, rendering them ineligible for bona fide fringe benefit status under the SCA.  Contractors would remain free to continue to account for the value of excess paid sick leave in discharging their SCA obligations, but not the base requirements.  As a result, contractors may have to recalculate their fringe benefit packages by extracting the value of current paid sick leave benefits, and then offer some other offsetting bona fide fringe benefit or an equivalent cash payment.  In sum, the paid sick leave executive order could have the effect of penalizing contractors who were already offering the very same benefit that the government now requires. 

 

The coverage of these proposed rules is similar to that of the recent minimum wage rules, but paid sick leave also applies to “white collar” employees who qualify for an exemption under FLSA.  The Department has specifically invited comments whether the final regulations should expand beyond the current proposed coverage.  As written, the proposed regulations apply to SCA-covered contracts.  Certain service contracts, however, are excluded from the SCA if they involve services performed “exclusively by bona fide executive, professional, or administrative employees.”  The Department is considering whether to extend the paid sick leave requirements to those contracts.  (In the context of SCA regulations, the Department does not interpret the term “exclusively” literally.   As long as the vast majority of the workers — at least 80 or 90 percent — are executive, professional, or administrative employees, the Department will typically agree that the SCA does not apply, even if non-exempt employees are also included in the labor mix.)

The proposed regulations include enforcement sanctions for “interference” with an employee’s accrual or use of paid sick leave, and for “discrimination”  in carrying out the requirements.  Contractors should be aware of two nuances in this section of the regulations.

  • First, “interference” sweeps broadly. It includes “discouraging” use of paid sick leave, transferring an employee to a non-covered contract in order to frustrate accrual of leave, requiring an employee to find a replacement before approving sick leave, and even miscalculating accrual rates.
  • Second, the Labor Department takes the position that non-discrimination rules apply to job applicants and former employees, and protects them “from retaliation by a prospective or former employer that is a covered contractor.” The Department concedes that this interpretation contradicts case law in the Fourth Circuit with respect to applicants, and accordingly “would not enforce its interpretation on this issue in that circuit.”  The Fourth Circuit’s jurisdiction covers a wide range of government contractors in the Hampton Roads and Northern Virginia regions, inviting patchwork enforcement and forum shopping.

Contractors have little time to respond to these regulations, but thoughtful comments now could help minimize the impact of difficult compliance burdens in the coming years.

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Photo of Jeff Bozman Jeff Bozman

Jeff Bozman practices with the Public Policy & Government Affairs and Government Contracts practice groups in Washington, DC.  He focuses on the defense and aerospace industry, and on the labor and employment laws that apply to government contractors.

Photo of Jennifer Plitsch Jennifer Plitsch

Jennifer Plitsch is co-chair of the firm’s Government Contracts practice group. Her practice includes a wide range of contracting issues for large and small businesses in both defense and civilian contracting. Her practice involves advising clients on contract proposal, performance, and compliance questions…

Jennifer Plitsch is co-chair of the firm’s Government Contracts practice group. Her practice includes a wide range of contracting issues for large and small businesses in both defense and civilian contracting. Her practice involves advising clients on contract proposal, performance, and compliance questions as well as transactional and legislative issues. Her practice also includes bid protest and contract claims and appeals litigation before GAO, agency boards and the federal courts. Ms. Plitsch has particular expertise in advising clients in the pharmaceutical and biologics industry. She advises a range of pharmaceutical and biologics manufacturers on Federal Supply Schedule contracts, including the complex pricing requirements imposed on products under the Veterans Health Care Act, as well as research and development contracts and grants with various federal agencies. She also has significant experience advising on the requirements of various programs under which vaccine products and biodefense medical countermeasures are procured by the Government.

Photo of Scott A. Freling Scott A. Freling

Scott Freling represents civilian and defense contractors, at all stages of the procurement process, in their dealings with federal, state, and local government customers and with other contractors. He has a broad-based government contracts practice, which includes compliance counseling, internal investigations, strategic procurement…

Scott Freling represents civilian and defense contractors, at all stages of the procurement process, in their dealings with federal, state, and local government customers and with other contractors. He has a broad-based government contracts practice, which includes compliance counseling, internal investigations, strategic procurement advice, claims and other disputes, teaming and subcontracting, and mergers and acquisitions. He represents clients in federal and state court litigation and administrative proceedings, including bid protests before the Government Accountability Office and the U.S. Court of Federal Claims. He also represents clients in obtaining and maintaining SAFETY Act liability protection for anti-terrorism technologies. Mr. Freling’s experience covers a wide variety of industries, including defense and aerospace, information technology and software, government services, life sciences, renewable energy, and private equity investment in government contractors.