The Service Contract Act Vacation Benefit Requirement-- No Take Backs!

"Please, Sir, I Want Some More."--Charles Dickens, Oliver Twist

In this field, it is common for successor contractors to hire their predecessor’s employees.  Despite the frequency of this practice, employers often misunderstand their wage and fringe benefit obligations under the Service Contract Act (“SCA”). While each obligation can prove challenging, one of the most troubling compliance issues for employers can be the vacation benefit requirement.

Under the SCA, a contractor must pay wage and fringe benefits in an amount no less than (1) the prevailing wage and fringe benefit determination for that locality, or (2) the wage and fringe benefits established by the predecessor contractor’s collective bargaining agreement. Although the exact amount of vacation benefits varies depending on the locality, the usual federal minimum for SCA vacation benefits (except for some fast food or special wage determinations) is one week’s paid vacation for one continuous year of service.

For clarity’s sake, it is best to separate this vacation benefit inquiry into two separate questions. The first question focuses on which contractor, either the successor or the predecessor, is responsible for the vacation benefit payment. The second question focuses on whether the employee has met the continuity of service requirement such that they get credit for prior service.

Determining which contractor owes payment is the simpler of the two inquiries. While it is simple, the fact is that even the U.S. Department of Labor (“DOL”) often misunderstands this rule. The responsibility for paying the SCA vacation benefit falls upon whichever contractor employs the worker on the anniversary of the worker’s start date. For example, if an employee begins working on August 1, 2018, his vacation benefit accrues on August 1, 2019. The employer on August 1, 2019 is responsible for the payment. The prior employer is only responsible to cash out the unused but accrued as mentioned above, however, the amount of the benefits can be dependent upon the length of the employee’s service.

Continuity of service is a fact-specific inquiry. See 29 C.F.R. § 4.173(b). The employee gets credit for all service with the employer (even if on a non-SCA project) and with any predecessor contractor. Only a break in service disrupts the continuity. When analyzing potential breaks in service, the most relevant factual consideration is the cause of the break. Generally, if the interregnum was out of the control of the employee, it is unlikely there was a break in service as recognized by the SCA. 

The Code of Federal Regulations (C.F.R.) provides some illustrative examples where the DOL determined no break in service occurred.  These examples include (1) an employee who was absent for five months due to illness, (2) a strike after which employees returned to work, (3) an interim period of three months caused by delays in the procurement process, and (4) a mess hall closed for three months due to renovation.  29 C.F.R. § 4.173. The old DOL Board of Service Contract Appeals (“BSCA”) expanded this last example, holding that a mess hall closed for eleven months failed to qualify as a break in service as the closing was out of the control of the employees.  See In the Matter of: Indus. Maint. Serv., Inc., & J.P. Holloman, BSCA No. 92-22 (Apr. 5, 1993). The regulations state also that an interregnum may occur when an employee quits or is fired unless the firing was a temporary layoff or the employer’s attempt to avoid SCA mandates.

The SCA regulations and cases, however, provide only a limited set of specific examples.  The outcome of any given case depends entirely on the facts of that situation.  Contractors wanting to avoid DOL investigations should consult an attorney experienced in the field to determine what wages and fringe benefits, if any, they owe workers before commencing the new contract work. And savvy contractors will factor these vacation costs carefully into their bids and proposals.  

Of course, there are other SCA vacation benefit issues – including but not limited to vesting, part-time proration, fluctuating work schedule proration, on-call workers, independent contractors, forfeiture, interaction with the sick leave Executive Order, and calculation of additional health and welfare benefits on top of the leave. Don’t be afraid to get some professional help in making sure your vacation policy complies with the SCA.