In addition to the various loan programs available to private businesses through the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), qualified Federal contractors may obtain further payroll relief under Section 3610 of the CARES Act related to paid leave for employees unable to work due to facility closures or other restrictions. The CARES Act become law on March 27, 2020.
Section 3610 of the CARES Act states:
“Notwithstanding any other provision of law, and subject to the availability of appropriations, funds made available to an agency by this Act or any other Act may be used by such agency to modify the terms and conditions of a contract, or other agreement, without consideration, to reimburse at the minimum applicable contract billing rates not to exceed an average of 40 hours per week any paid leave, including sick leave, a contractor provides to keep its employees or subcontractors in a ready state, including to protect the life and safety of Government and contractor personnel, but in no event beyond September 30, 2020. Such authority shall apply only to a contractor whose employees or subcontractors cannot perform work on a site that has been approved by the Federal Government, including a federally-owned or leased facility or site, due to facility closures or other restrictions, and who cannot telework because their job duties cannot be performed remotely during the public health emergency declared on January 31, 2020 for COVID–19: Provided, That the maximum reimbursement authorized by this section shall be reduced by the amount of credit a contractor is allowed pursuant to division G of Public Law 116–127 and any applicable credits a contractor is allowed under this Act.”
In summary, Federal agencies may modify the terms and conditions of an existing federal contract to reimburse paid leave, including sick leave, a Federal contractor provides to employees due to an employee’s inability to work as a result of the COVID-19 public health emergency. However, there are several restrictions as to the extent of the relief available, and such relief is dependent upon the discretion of the Federal agency and the availability of funds to compensate for such paid leave.
Who is Eligible?
Federal contractors can request modification of the contract to reimburse for paid leave if: (1) their employees perform work on a site that has been approved by the federal government[1]; and (2) their employees are unable to work[2] due to facility closures or other restrictions arising from the COVID-19 pandemic. This would also suggest that the Federal contractor is required to cite to Section 3610 of the CARES Act in any notices placing an employee on leave (and whatever conditions necessary to invoke Section 3610).
Amount Available for Relief
Should a Federal agency agree to modify an existing contract to reimburse the paid leave the Federal contractor is providing, Section 3610 restricts the amount the Federal agency may agree to reimburse. Specifically, at most the Federal agency may agree to reimburse is an amount equal to the minimum applicable contract billing rates for paid leave the Federal contractor provides its employees, not to exceed an average of 40 hours per week. So, for example, if a Federal contractor had a policy providing paid leave equivalent to an employee’s average weekly hours at the employee’s regular rate of pay, the Federal agency would modify the contract to reimburse the Federal contractor for the actual amount of paid leave at the rate of pay the Federal contractor negotiated into the contract with the Federal agency (i.e., if an employee only averages 35 hours per week, at most the Federal agency could reimburse would be the 35 hours, not the 40 hours maximum identified in Section 3610 of the CARES Act).
Furthermore, any modification approved by the Federal agency cannot duplicate any other type of reimbursement or tax credit the Federal contractor may obtain through any other COVID-19 relief. Thus, Federal contractors already intending to claim a payroll tax credit for paid leave offered through the Families First Coronavirus Response Act (the “FFCRA”), or any applicable credits allowed under other sections of the CARES Act, cannot obtain additional reimbursement through Section 3610. This is to prevent a Federal contractor from obtaining more benefit than it would have paid out in leave.
Finally, any reimbursement for paid leave related to reasons associated with the COVID-19 pandemic only runs through September 30, 2020, after which time Federal agencies would no longer offer any reimbursement.
How to Apply
Unfortunately, as with most protections the government has attempted to expedite in response to COVID-19, there has been little to no guidance offered in implementing Section 3610, or regulations related to the process by which Federal contractors can seek relief. Rather, it appears what a Federal Contractor must undertake to seek relief will be unique depending upon the Federal agency with whom the contractor has an existing contract. For example, the Department of Defense on March 30, 2020, issued a Memorandum (in which the Department of Defense noted it would be providing implementing guidance “as soon as practicable,” and entrusts contracting officers to make decisions related to appropriate adjustment on Department of Defense contracts.
For now, it appears that Federal contractors should reach out to the contracting officer overseeing the specific contract to ascertain how to apply and what documentation a Federal Contractor must submit and maintain to obtain the offered relief.[3] This also means that Federal contractors will most likely have to rely on their contracting officer at this point in determining what restrictions must be placed on employees out on leave to ensure they remain in a “ready state” (the stated purpose in Section 3610 behind reimbursing Federal contractors for employee paid leave).
[1] No regulations have yet been issued as to what “approved by the federal government” means, but the assumption is this relates to facilities that are performing work to satisfy a Federal contract and are subject to compliance audits.
[2] “Unable to work” means the employee is prevented from reporting to work at the facility, and is unable to telework because the job duties cannot be performed remotely.
[3] Federal contractors should be contacting contracting officers additionally to determine any other modifications or waivers that may be undertaken to offset the impact of COVID-19 as to production or contract requirements. For example, Defense Pricing and Contracting within the Department of Defense has set up a website to identify various changes to contract terms in response to the COVID-19 pandemic. See https://www.acq.osd.mil/dpap/pacc/cc/COVID-19.html.
