NJ's Earned Sick Leave Law Regulations Create Challenges for Employers

The Department of Labor and Workforce Development’s responses to public comments on its final rules implementing the Earned Sick Leave Law provide insight into the department’s interpretation of the statute.

The NJ Earned Sick Leave Law

On Oct. 29, 2018, the New Jersey Earned Sick Leave Law (ESLL) became effective. The law requires New Jersey employers (other than public employers legally required to provide employees with paid sick leave) to provide their part- and full-time employees (with limited exceptions) with: (a) one hour of paid sick leave for every 30 hours worked, up to a maximum of 40 hours in a “benefit year” (the “accrual method”); or (b) the full 40 hours of paid sick leave on the first day of the benefit year (the “frontloading method”). N.J.S.A. 34:11 D-2(a).

Any accrued but unused sick leave is carried over to the next benefit year, with maximum carryover limited to 40 hours. Id. Alternatively, under the accrual method, an employer may offer an employee payment for accrued but unused leave in the final month of the benefit year. The employee has 10 days to decide whether to accept payment for the full amount or 50% of unused leave, with any accrued leave not paid out carried over to the following year. Id., 34:11 D-3(c). Under the frontloading method, an employer may pay out unused sick leave to the employee in the final month of the benefit year or carry forward such leave to the next year, provided the employer frontloads sick leave in the following year. Id., 34:11 D-3(d).

Earned sick leave (ESL) may be used for an employee to care for his or her own or a family member’s (broadly defined) physical or mental health or injury; address domestic or sexual violence against the employee or a family member; attend a child’s school-related meeting, conference, or event; or care for a child when school or child care is closed due to an epidemic or public health emergency. Id., 34:11D-3(a). In limited circumstances, an employer may require documentation of an employee’s need to use ESL—i.e., when an employee uses more than three consecutive days of leave, or takes unforeseeable leave on “certain” dates designated by an employer. Id., 34:11D-3(b).

The law includes employer notice and posting requirements, prohibits retaliation, and includes penalties for retaliation and non-compliance. Id., 34-11D-4, 5, 7.

Review and Comment Period

In October 2018, the Department of Labor and Workforce Development (“Department”) issued its proposed rules (“Proposed Rules”). A public hearing was held in November 2018, and the public was invited to submit comments by December 2018. More than a year passed with no word from the Department and, on Jan. 6, 2020, the final rules were issued (“Final Rules”). There were some minor changes to the Proposed Rules, but the most significant insight into the Department’s thinking about the ESLL came in the Department’s extensive written responses to more than 100 public comments.

Notable Public Comments and Responses

A. Single Benefit Year

The ESLL defines a “benefit year” as a consecutive 12-month period, set by an employer, in which an employee accrues and uses earned sick leave. Id., 34:11D-1.

The Proposed Rules (N.J.A.C. 12:69-2.1 and 3.1) required employers to set a “single benefit year” for all employees. A commenter expressed concerns with this requirement, including that: (a) employers often use an employee’s anniversary date as the benefit year when determining employee eligibility for and use of paid time off (PTO) such as vacation, sick leave, and personal time; (b) requiring employers to use a single calendar or fiscal year for all employees would cause confusion for employers, particularly those who base vacation time use on employee anniversary dates; (c) allowing employers to provide separate benefit years for employees or different groups of employees (e.g., union-represented as compared to management employees) is in line with the statute’s definition of benefit year. 54 N.J.R. 20(a), Comment 12.

Although the Department disagreed with the commenter’s interpretation of the term “benefit year,” it recognized the burden placed on employers in mandating a single benefit year for all employees. It agreed not to adopt the proposed rule mandating use of a single benefit year, creating more latitude for employers in establishing the benefit year. Id., Response 12.

B. PTO Policies

The ESLL provides that an employer complies with the law by offering fully-paid PTO that may include personal, vacation, and sick days (“single-use PTO”) that may be used for ESLL purposes, and where accrual rates are at least equal to those under the ESLL. N.J.S.A. 34:11D-2(b). Notably, the law does not require employers to provide employees with more than 40 hours of annual ESL, regardless of the amount of leave carried over from one year to the next. Id., 34:11D-2(a).

The Proposed Rule stated that an employer’s single-use PTO policy that met or “exceeded” the ESLL’s requirements would be compliant. N.J.A.C. 12:69-1.1(c). Commenters asked the Department to clarify: (a) carryover requirements where an employer maintains a single-use PTO policy exceeding the 40-hour annual ESL requirement; and (b) whether an employer could create a “subaccount” in an existing PTO policy that complies with the ESLL’s accrual, use, and carryover requirements as to 40 PTO hours, and where any remaining PTO hours beyond 40 are treated according to the company’s usual PTO policy. 55 N.J.R. 20(a), Comments 8 and 9.

The Department responded that: (a) to comply with ESLL requirements, a single-use policy must permit an employee to use all PTO for any reason identified in the law and meet or exceed the law’s other requirements (e.g., accrual, carryover, and payout); and (b) if an employer seeks to “treat some PTO” in a way that does not comply with the law’s requirements, then the PTO policy would not be compliant. Id., Response to Comments 8 and 9. Essentially, the Department’s position is that if an employer has a PTO policy that provides for 80 hours of PTO, all 80 hours must be ESLL-compliant and made available to an employee for sick leave purposes, even though the ESLL mandates only 40 hours of paid sick leave. For some employers, it is a distinction without a difference because PTO is typically available for employees to use as they see fit within the confines of the employer’s policy. However, under these circumstances, employers may be required to provide additional rights to employees (not intended by their policies, or perhaps the legislature), such as carryover requirements that may result in employees having more PTO time available for immediate use and greater total annual PTO in cases of “use it or lose it” single-use policies.

Given the Department’s position, employers with more generous single-use PTO policies have a decision to make. They can either continue with ESLL-compliant PTO policies, knowing now the Department means for every PTO hour to be covered by the ESLL with all its bells and whistles, or separate their PTO and paid sick leave policies and avoid the complications and confusion the Department created by its responses to the comments.

C. Black-Out Dates

Under the ESLL, employers “may prohibit employees from using foreseeable earned sick leave on certain dates” (“black-out dates”) and require documentation if unforeseeable sick leave is used on those dates. N.J.S.A. 34:11D-3(b).

Although not specified under the ESLL, Proposed Rule 12:69-3.5(h) provided that black-out dates are limited to “verifiable high-volume periods or special events,” during which use of leave “would unduly disrupt” the employer’s operations, and provides examples such as an airline restricting use of foreseeable sick leave close in time to holidays where increased customer flight activity is predictable, or for a manufacturer of retail projects close in time to a new product launch. Commenters expressed varying concerns with this Proposed Rule. One stated that the Department’s description of black-out dates was more restrictive than the ESLL’s broad language allowing employers to set “certain” black-out dates and require supporting documentation when an employee takes unforeseeable leave on those dates. 52 N.J.R. 20(a), Comment 18. Another commenter requested that the Department set a maximum number of black-out and consecutive black-out dates. Id., Comment 20.

The Department left the Proposed Rule intact and responded that it acted within its authority in further defining “certain dates” under the ESLL and, in doing so, balanced employer rights in running their businesses with employee leave rights. The Department declined to impose a maximum number of black-out or consecutive black-out dates. Id., Response to Comments 18, 19 and 20.

D. FMLA and NJ FLA

The ESLL provides that an employee is not “required to” use accrued sick leave, and the Proposed Rule stated that an employer is prohibited from requiring an employee to use such leave. N.J.S.A. 34:11 D-2(d); N.J.A.C. 12-69-3.5(m)(2). Commenters expressed concern with this prohibition, noting that federal and state leave laws, including the Family and Medical Leave Act (FMLA) and the New Jersey Family Leave Act (FLA), permit employers to require employees to exhaust all paid leave concurrent with taking family leave. 52 N.J.R. 20(a), Comment 10. The Department responded that it sees no conflict, because neither the FMLA nor FLA addresses a situation where a state law, rather than employer policy, creates employee “entitlement to accrued paid leave,” and where the state law prohibits an employer from mandating employee use of paid leave. Id., Response to Comment 10. The end result—employees cannot be required to use their accrued earned sick leave.

These are just a few of the issues raised in the Final Rules. In view of the Department’s broad interpretation of many ESLL provisions, now is a good time for employers to carefully review the Final Rules and their sick leave and PTO policies to ensure compliance.

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Reprinted with permission from the March 16, 2020 issue of the New Jersey Law Journal. © 2020 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved. For information, contact 877-257-3382 or reprints@alm.com or visit www.almreprints.com.