As noted in our previous New Jersey paid sick leave (“PSL”) alert, there were certain provisions in the Department’s Proposed Rules that appeared inconsistent with ESLL standards. The binding ESLL Final Rules,1 and the Department’s corresponding non-binding guidance via responses to interested parties’ commentary on the Proposed Rules, clarify many of these discrepancies. At the same time, certain questions remain given the Department’s deference to select ESLL provisions. As indicated in its responses to interested parties’ comments, the Department may address outstanding discrepancies in a subsequent rulemaking.
Importantly, and with minimal notice, the ESLL Final Rules went into effect on January 6, 2020. As a reminder, the ESLL took effect on October 29, 2018. Over a year later, here are some of the highlights from the Final Rules and related Department commentary.2
- Eligible Employees: Per the Final Rules, “[e]mployee” means an individual engaged in service for compensation to an employer in the business of the employer who performs that service in New Jersey. Previously released non-binding ESLL FAQs had added if an employee works both in and outside of New Jersey, whether the employee is entitled to receive paid sick leave under the ESLL depends largely on how much time the employee spends working in New Jersey, and noted the test to be applied would be “the test applied by the Division on Civil Rights in its enforcement of the New Jersey Family Leave Act.”3 While the Department’s comments on the Final Rules indicate that it anticipates adopting this standard “through formal rulemaking,” it did not do so as part of the current Final Rules. Employers should stay tuned for a potential separate “formal rulemaking” from the Department that codifies an eligibility standard for employees who spend time working both inside and outside of New Jersey.
- Benefit Year: The ESLL Proposed Rules defined “Benefit Year” as “the period of 12 consecutive months established by an employer in which all employees shall accrue and use earned sick leave.” (emphasis added). Significantly, the Final Rules revert back to the ESLL language, defined as the period in which an employee shall do the same. While the Proposed Rules could be read to mandate that the employer establish a single benefit year for all employees, the Department’s Final Rules commentary confirms the change and that the ESLL “permit[s] an employer to establish multiple benefit years, rather than require each employer to establish a single benefit year.” This update is particularly important for employers who use employees’ anniversary year as their benefit year.
- Notice to Department: While the requirement that an employer establish a single benefit year for all employees has been eliminated, employers must still give notice to the Commissioner of the Department at least 30 days prior to a proposed change to employees’ paid sick leave benefit year. Notably, the Final Rules maintain the Proposed Rules’ notice standards, namely that the notice (1) be in writing, (2) specify the existing and proposed new benefit year, (3) indicate the effective date of the new benefit year and reason for the change, and (4) include a list of current employees, including their contact information, and a history of PSL accrual, payment, payout and carryover during the prior two benefit years.
- Frontloading & Carryover: The Final Rules confirm that employers may provide employees with no less than 40 hours of earned sick leave on the first day of the benefit year for use throughout the benefit year, as opposed to allowing employees to accrue PSL. Importantly, the Final Rules reinforce language in the ESLL stating that frontloading PSL each year does not permit employers to follow a “use it or lose it” approach for unused time at year-end. In particular, the Final Rules state that employers “shall provide earned sick leave to each employee, using either the accrual method . . . or the advancing method . . . subject to the rules governing payout and carry-over.” In this regard, the Final Rules provide “[w]here the employer provides earned sick leave to its employees using the advancing method . . . . [i]n the final month of the employer’s benefit year, the employer shall either provide to the employee a payout for the full amount of unused earned sick leave or permit the employee to carry-over any unused earned sick leave, except that the employer shall not be required to permit the employee to carry forward from one benefit year to the next, more than 40 hours of earned sick leave.” (emphasis added).4
- No Impact on Annual Usage Limit: Regardless, the Final Rules explicitly clarify “[t]he employer shall not be required to permit the employee to use more than 40 hours of earned sick leave in any benefit year.” (emphasis added). Indeed, in response to interested parties’ commentary, the Department acknowledges these requirements “may result in the carry-over from Benefit Year 1 to Benefit Year 2 of an employee’s unused earned sick leave that the employee will never be permitted to use. That is to say, where the employer limits the use of earned sick leave within a single benefit year to 40 hours, as is permitted under the ESLL; and where that employer advances his or her employees the full complement (40 hours) of earned sick leave for a benefit year on the first day of each benefit year; and where an employee has 40 hours of unused earned sick leave to carry-over from the prior benefit year; the employee will start the new benefit year with 80 hours of earned sick leave, only 40 of which the employee will be permitted by his or her employer to use during that benefit year.”
- Covered Reasons for Use:
- School Events: As a reminder, the ESLL allows employees to use PSL for various reasons, including, but not limited to, “time needed by the employee to attend his/her child’s school-related conference, meeting, function, or other event requested or required by a school administrator, teacher, or other professional staff member responsible for the child’s education.” In commentary, the Department noted that “[a] school sporting event, play, or similar activity may, under certain circumstances, constitute a permitted reason to use earned sick leave,” because these events “could reasonably be characterized as ‘a function or other event.'” The Department also suggests that determining whether PSL can be used for such “non-educational” events “would hinge on whether attendance at the event had been ‘requested or required'” by appropriate personnel.
- No Required Use of PSL: Consistent with the ESLL, the Final Rules prohibit an employer from requiring an employee to use earned sick leave even if the employee is absent from work for a covered reason. In response to commentary taking issue with this provision as inconsistent with the Federal Family Medical Leave Act and New Jersey Family Leave Act, the Department’s responsive commentary states that neither law “appear[s] to contemplate the circumstance where a State law, rather than an independently established employer policy, creates an employee’s entitlement to accrued paid leave and where that State law expressly prohibits an employer from requiring an employee to use the statutorily mandated accrued paid leave.” (emphasis added).
- Limitations of Prohibiting Foreseeable Leave on “Certain Dates”: Although the ESLL permits employers to prohibit the use of foreseeable PSL on certain dates (and permits employers to request verification if an employee uses unforeseeable leave on those dates), the Final Rules provide that the “certain dates” must be limited to verifiable high-volume periods or special events, during which permitting the use of foreseeable PSL would unduly disrupt the operations of the employer. The Final Rules provide certain examples, such as holidays for airlines and the release of a new product for retailers. The Final Rules further require that the employer provide reasonable notice to its employees of the “certain dates” on which foreseeable PSL is not permitted. Per its commentary, the Department has declined to enforce a “blanket rule setting forth a maximum number of blackout dates that an employer may identify” and added “there will be no set period of notice (in days or otherwise) that the employer must provide to its employees of its identification of blackout dates.”
- Payment of Sick Leave: The ESLL provides that an employer must pay an employee for earned sick leave at the same rate of pay with the same benefits as the employee normally earns. The Department’s Final Rules comments indicate “that nondiscretionary bonus amounts should be included when determining an employee’s rate of pay for earned sick leave purposes in the same way that such payments are included in the regular hourly wage for the purpose of calculating overtime compensation under State and Federal wage and hour laws.” Per the Department, this is an extension of the Final Rules providing that “[w]here the amount of a bonus is wholly within the discretion of the employer, the employer is not required to include the bonus when determining the employee’s rate of pay for earned sick leave purposes.”
- Additional Guidance: The Final Rules, like the Proposed Rules, provide payment of sick time standards for employees who (a) work two or more different jobs for the same employer or otherwise have fluctuating pay rates, (b) are paid by commission, (c) are paid on a piecework basis, or (d) receive pay that includes the value of gratuities, food or lodging.
- Use of PTO Policies: Significantly, Department commentary preceding the Final Rules may have employers rethinking whether to use existing paid time off (“PTO”) policies for ESLL compliance. In particular, the Department takes the position that an “employer who seeks to meet the requirements of the ESLL using a compliant PTO program must adhere to all of the requirements of the ESLL and the Department’s implementing rules . . . relative to all of the PTO, even where the employee is provided in excess of 40 hours of PTO.” (emphasis added). The commentary further elaborates that “[i]f the employer wishes to treat some PTO in a manner that does not comport with the requirements of the ESLL and implementing rules, then that PTO program would not be ESLL compliant. In the event that the employer wishes to deviate from any one or more of the requirements of the ESLL relative to hours of PTO afforded employees beyond the 40 hours required under the ESLL, the employer always has the option of splitting its leave policies, so as to have an earned sick leave policy that is complaint with the ESLL and another non-ESLL compliant policy for other types of leave.” (emphasis added). While the above standards appear in the Department’s non-binding commentary as opposed to the actual Final Rules, employers should be sure to take the Department’s guidance into consideration when assessing how to comply with the ESLL.
- Collective Bargaining Agreements: The ESLL and Final Rules provide that employees or their representatives may waive their rights to New Jersey PSL benefits during CBA negotiations. The Department’s commentary confirms that “an employee or employee’s representative may agree to accept rights or benefits relative to earned sick leave that are less favorable to employees than those required by the ESLL and may, in fact, waive all rights and benefits set forth in the ESLL, including the right to earned sick leave altogether.”
- Other Obligations Clarified in Final Rules: Consistent with provisions of the Proposed Rules, the Final Rules contain information on family members, compliance with notice and posting obligations, permissible forms of reasonable documentation, compliance with record keeping obligations, in particular for exempt employees, and others. For more information on these now Final Rules, see our prior alert.
While the Final Rules clarify employers’ ESLL obligations in many respects via binding provisions and non-binding guidance, additional ESLL rulemaking may be coming down the road. We will continue to monitor and update employers as we learn of further clarifications regarding their New Jersey ESLL compliance obligations.
With the paid sick leave landscape continuing to expand and grow in complexity, companies should reach out to their Seyfarth contact for solutions and recommendations on addressing compliance with this law and sick leave requirements generally.