Gov’t Contractor Sick Leave Rule Likely Excludes Banks

July 21, 2016Articles Law360

Kenneth A. Rosenberg and Asad Rizvi authored the Law360 article, "Gov't Contractor Sick Leave Rule Likely Excludes Banks."

Banks and financial institutions have wondered for months whether they would be subject to Executive Order 13706, which requires certain federal contractors to provide their employees with up to seven calendar days of paid sick leave.

Our analysis of recent federal rulemaking strongly suggests that banks will not be subject to the federal paid sick day rules, except in very limited circumstances, because of how the term “government contractor” has been defined in similar contexts.

The banking industry has traditionally been included within the definition of “government contractor” by the U.S. Department of Labor and Office of Federal Contract Compliance Programs. On Feb. 25, 2016, the DOL issued a notice of proposed rulemaking to implement EO 13706.[1]

Fortunately, however, a careful review of the notice, in conjunction with prior DOL and OFCCP enforcement activities, shows that it is highly unlikely that the banking industry will be subject to this burdensome new requirement.

At first blush, it would appear that this conclusion is unjustified because most banks and financial institutions fall within the definition of “government contractor” since:

  1. They are covered by the Federal Deposit Insurance Corporation or the National Credit Union Association with deposit insurance;
  2. They act as an issuing and paying agent for U.S. savings bonds and notes; and/or
  3. They act as a federal fund depository. 41 CFR § 60-1.3, 41 CFR § 60-1.40.
Moreover, the OFCCP has included the banking industry in its interpretation and enforcement of amendments to EO 11246 when enforcing:
  • EO 11375, which bans discrimination on the basis of sex in hiring and employment;
  • EO 13665, which encourages pay transparency by prohibiting the discharge or discrimination of employees or applicants who inquire about, discuss or disclose their own compensation or the compensation of another employee or applicant;
  • EO 13672, which bans discrimination on the basis of gender identity and sexual orientation; and
  • EO 13496, which requires contractors to inform their employees of their rights under the National Labor Relations Act. Indeed, the OFCCP has clarified that it interprets “government contractor” under EO 13496 as it has historically done so under EO 11246, meaning that banks and financial institutions are required to post the NLRA posters in their facilities.
However, unlike the foregoing executive orders, EO 13706 appears to be modeled after 2014’s EO 13658, which increased the minimum wage that certain contractors must pay their employees to $10.10 per hour.[2] Importantly, this order was limited to the following subsets of federal contractors and subcontractors:
  • Procurement contracts for construction covered by the Davis Bacon Act;
  • Service contracts covered by the Service Contract Act (SCA);
  • Concessions contracts, including any concessions contract excluded from the SCA by the U.S. Department of Labor regulations at 29 C.F.R. 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.
None of the foregoing contractual categories explicitly applies to the banking industry. The only potential and limited exception is found in the fourth category: contracts in connection with federal property or lands and the performance of service for federal employees, dependents or the general public. Nonetheless, as a practical matter, most banks and financial institutions will not find themselves in the government’s crosshairs under this coverage provision.

Under the proposed paid sick leave rule, the DOL has announced that it intends to apply the same definition of “federal contractor” that is set forth in the final minimum wage rule. Since EO 13706’s notice utilizes the same subset list of federal contractors and subcontractors in its definitional section, it appears that the banking industry has been excluded from having to provide its employees with the paid sick leave days.

For the banking industry the takeaway is simple: while it is required to comply with a myriad of other onerous regulations, it does not appear to have to comply with EO 13706 except in the most limited of circumstances (i.e., contracts regarding federal property or services to federal employees or the general public).

Notwithstanding the foregoing, banks and financial institutions should continue to monitor the EO 13706 notice until it becomes a final rule, just in case the DOL/OFCCP reverses course and decides to treat them like other federal contractors and requires them to provide their employees with seven calendar days of paid sick leave, too. Moreover, as we highlighted in an earlier alert on EO 13706,[3] employers should continue to comply with the assorted number of paid sick leave laws at the local and state levels and to continue to be cognizant of the new ordinances and statutes being passed regularly by legislatures throughout the United States.

In the event that questions arise regarding the DOL/OFCCP’s anti-discrimination and affirmative action requirements and whether and which ones need to be complied with by a bank or financial institution, guidance from counsel experienced in federal contractor regulations and affirmative action compliance should be sought.

[1] The OFCCP is charged with enforcing most notably, among other laws, EO 11246, as amended. EO 11246 prohibits federal contractors and subcontractors from engaging in discrimination on the basis of race, color, religion, sex, sexual orientation, gender identity or national origin and imposes affirmative action requirements upon certain federal contractors/subcontractors where they have 50 or more employees and contracts/subcontracts in excess of $50,000 annually with the federal government or one of its agencies/departments.

[2] Effective Jan. 1, 2016, the minimum wage for federal contractors was increased to $10.15 per hour.

[3] “Federal Contractors and Subcontractors Face Newest Executive Order Requiring Them To Provide Employees With Paid Sick Leave,” Labor & Employment Alert, Sept. 17, 2015, Kenneth A. Rosenberg and Christina A. Stoneburner.

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