Union contractors may not rely on contributions to typical vacation or welfare plans as a basis for claiming the temporary exclusion to the federal contractor paid sick leave rule, the U.S. Department of Labor’s Wage and Hour Division (WHD) has informed AGC. WHD provided the information to AGC in response to questions posed by AGC on behalf of questioning members. It supports AGC’s prior urgings that all union contractors working on federal projects should act promptly to come into compliance with the rule’s mandates.
The Rule and its CBA-Related Provisions
The rule (link is external) implements President Barack Obama’s Executive Order 13706, Establishing Paid Sick Leave for Federal Contractors (link is external). It applies to new contracts awarded, or based on solicitations issued, on or after Jan. 1, 2017. It covers only contracts directly with the federal government for work to be performed within the U.S. It does not cover contracts with state government agencies, like state departments of transportation, even if the contracts are federally funded. The rule requires prime contractors and their subcontractors to allow employees to accrue one hour of paid sick leave for every 30 hours worked on or in connection with a covered contract, up to 56 hours (7 days) in a year. It sets forth numerous details and mandates related to this requirement, addressing such matters as accrued leave carryover, maximum accrual, permissible purposes for leave, suspensions in service, record-keeping, contract clauses, and more.
The rule includes some provisions particularly relevant to union contractors. One such provision is Section 13.4(f), which offers a temporary exclusion for employees covered by a collective bargaining agreement (CBA) ratified before Sept. 30, 2016. The temporary exclusion applies if the CBA provides employees with at least 56 hours or seven days annually of paid sick time, or paid time off that may be used for reasons related to sickness or health care. In such situations, the other requirements of the rule do not apply to such CBA-covered employees until the date that the CBA terminates or until Jan. 1, 2020, whichever occurs first. If the CBA provides such paid time off but for less than 56 hours or 7 days, then the temporary exclusion applies if the employer “tops off” the leave to make up the difference between the amount of leave provided in the CBA and the 56 hours or seven days required by the rule.
Another provision particularly for union contractors is Section 13.8, which (in response to AGC’s request during the rulemaking process) allows a contractor to fulfill its obligations under the rule jointly with other contractors, as if a single contractor, by making contributions to a multiemployer plan that provides paid sick leave in compliance with the rule and executive order. “Multiemployer plan” is defined as “plan to which more than one employer is required to contribute and which is maintained pursuant to one or more collective bargaining agreements between one or more employee organizations and more than one employer.”
Application of the Rule to Industry Practices
In the commercial construction industry, CBAs that directly provide employees with paid time off for sickness or health care are extremely rare (practically unheard of). Traditionally, craft workers have been paid only for time actually worked, and bargaining parties have negotiated on the assumption that wages must be high to compensate for days when employees will not be paid because they are not needed or cannot come to work. In some areas, however, CBAs do require signatory employers to make cents-per-hour contributions to multiemployer vacation or welfare funds that effectively further compensate workers for time that they may miss work for sickness, health care, or other purposes.
Some such signatory contractors have asked whether their contributions to such funds would satisfy the requirements of the rule for CBA-covered workers, or at least enable the contractors to take advantage of the temporary exclusion. As to the former, it seemed clear to AGC from issuance of the rule that making contributions under to the typical vacation and welfare funds currently used in the industry alone will not satisfy the rule itself, as the CBAs and plans do not provide sick leave in compliance with various requirements of the rule. For example, they typically act more like savings plans that disburse funds to workers on an annual, semi-annual, or quarterly basis. In doing so, they fail to meet the rule’s timing of pay and leave carryover provisions. Further, neither the plans nor the CBAs explicitly grant workers the right to take time off for sickness and the other purposes covered by the rule.
The answer to the latter question – whether making the contributions is sufficient to claim coverage under the temporary exclusion for CBAs – was less clear. Contractors have wondered, more specifically: does the temporary exclusion apply where the CBA does not explicitly address the right to take sick leave, but where the employer in fact allows sick leave and the vacation or welfare plan periodically pays the worker for lost pay at least equal to seven days per year? Arguably, the arrangement is in the spirit of the temporary exclusion such that signatory contractors should be given the extra time to negotiate relevant changes to their CBAs and become fully compliant with the rule.
AGC posed these questions to WHD, providing several sample CBAs and plan documents to illustrate practices in the industry. In a letter dated August 24 and signed by Michele King, the acting chief of WHD’s Branch of Government Contracts Enforcement, the agency answered “no:”
“We conclude that the information and documents you have provided present no factual basis to treat an employer’s contributions to a vacation or health and welfare plan as equivalent to paid sick leave and therefore we decline to extend the temporary exclusion in section 13.4(f) to a CBA requiring contributions to a vacation or health and welfare plan.”
In support of this conclusion, King cited some of the same reasons cited above in the discussion of why making the contributions will not satisfy the rule itself – reinforcing AGC’s interpretation and, disappointingly but not surprisingly, extending the rationale to the temporary exclusion. Specifically, King noted that “the timing of the disbursements to employees under some of the plans render them fundamentally different than paid sick leave.” Under the shared plans, an employee who is absent from work due to sickness or health care may not be able to receive disbursal of funds off until many months later. “This is not consistent with a basic premise of paid sick leave,” King stated, “which is that an employee receives pay for the period of absence due to sickness either during the same pay period as the absence or soon thereafter.” The lengthy delay between the absence and the disbursal prevents treating the disbursal as payments for absences due to sickness, she said.
King also stated that even those arrangements that permit more frequent disbursal “do not appear to operate in a manner similar to a paid sick leave benefit.” She explained:
“Under these plans…, employees can withdraw funds for any reason, regardless of whether an employee has taken leave due to sickness or health care, and in fact regardless of whether an employee has been absent from work. Furthermore, there is no indication in the materials you sent us that the CBAs permit employees to be absent due to sickness or health care. Thus, there does not appear to be a nexus between the withdrawal of funds and taking of leave due to sickness or health care. It does not appear that such plans are regarded and used as a paid sick leave benefit.”
Finally, King stated that applying the temporary exclusion in these situations would not meet the purpose of the exclusion. The exclusion was warranted to balance the interests of providing paid sick leave against the complications that could arise where an existing CBA provides for paid sick time in a manner that is similar but not sufficient to meet the rule’s paid sick leave requirements, she advised. But these same interests are not at issue in the scenarios presented in the CBAs and plan agreements that AGC shared, she said, “because there is no evidence that the CBAs or the plan agreements actually provide paid sick leave in a manner similar to the rule” and “there is no indication that applying the [executive order and rule] would disrupt genuinely negotiated provisions in such CBAs.”
What This Means for Union Contractors
Union contractors working on projects under a prime contract directly with a federal agency should pay attention and take action to ensure compliance with the rule if they have not yet done so. The letter and other recent activity by the Trump administration indicate that the rule is here to stay despite Obama’s departure. The letter also confirms that contributions to typical multiemployer vacation or welfare plans alone will not render the contractor in compliance with the rule or even grant the contractor coverage under the temporary exclusion. Union contractors, or their multiemployer bargaining agents where applicable, should promptly consider addressing the specifics in collective bargaining negotiations. While not entirely certain, unilateral implementation of the paid sick leave mandates by management could lead to an unfair labor practice charge. Bargaining is also wise as there may be opportunities to obtain concessions in exchange for the new paid sick leave benefit or reallocation of the compensation package. Furthermore, bargaining parties may want to consider creating new benefit plans that would enable them to take advantage of the multiemployer plan option in Section 13.8. AGC is currently exploring the availability and development of such plans for member contractors. If you are aware of any, please contact Denise Gold, AGC’s associate general counsel, at email@example.com (link sends e-mail) or (703) 837-5326.
For more guidance on the rule’s various mandates, see the following resources: