Employer May Reduce Bonus of Employee Who Took FMLA Leave
Reducing an employee’s annual bonus based on the time he spent on Family and Medical Leave Act (FMLA) leave is not a violation of the Act, the U.S. Court of Appeals for the Third Circuit (DE, NJ, PA, VI) has held, in a case of first impression.
Vanguard Group employee Robert Sommer took short-term disability leave under the FMLA from December 7, 2000, to February 4, 2001, due to major depression and anxiety requiring hospitalization. Because of his absence, Vanguard prorated bonus payments made to Sommer for calendar year 2001, including a $1,7288 reduction of a Partnership Plan payout. Sommer filed suit, claiming that Vanguard interfered with his rights under the FMLA. The court disagreed.
The FMLA grants employees the right to up to 12 weeks of leave per year for a qualifying health condition without “the loss of any employment benefit accrued prior to the date on which leave commenced.” However, the employee is not entitled to “the accrual of any seniority or employment benefits during any period of leave, or…any right, benefit, or position of employment other than any right, benefit, or position to which the employee would have been entitled had the employee not taken leave.” To establish a claim of interference with such rights, an employee must only show that he was entitled to benefits under the FMLA and that he was denied them.
With regard to bonuses, the threshold question is whether the bonus program rewards employee production or the absence of an occurrence, such as a safety infraction or absenteeism. Regulations issued by the Department of Labor (DOL) under the FMLA provide:
Bonuses for perfect attendance and safety do not require performance by the employee but rather contemplate the absence of occurrences. To the extent an employee who takes FMLA leave had met all the requirements for either or both of these bonuses before FMLA leave began, the employee is entitled to continue this entitlement upon return from FMLA leave, that is, the employee may not be disqualified for the bonus(es) for the taking of FMLA leave....A monthly production bonus, on the other hand[,] does require performance by the employee. If the employee is on FMLA leave during any part of the period for which the bonus is computed, the employee is entitled to the same consideration for the bonus as other employees on paid or unpaid leave (as appropriate).
The regulations do not specifically address the proration of bonuses, but DOL has issued opinion letters on the subject that the court here found persuasive. The court ruled that an employer may not reduce an absence-of-occurrence bonus paid to an FMLA leave taker if the employee was otherwise qualified but for the taking of the FMLA leave, but it may prorate a production bonus by the amount of any lost production (by hours or another quantifiable measure of productivity) caused by FMLA leave.
Sommer argued that Vanguard’s Partnership Plan rewards the absence of an occurrence rather than production. Relying on a written company policy stating that bonus eligibility is based only on the employee being employed on the last day of the year, on the date of distribution, and all days in between, Sommer asserted that the program rewards the absence of quitting or being fired, like a “stay bonus.” The court admitted that sifting through a company’s bonus program documents to ascertain the goal actually being rewarded is difficult. However, it found that the bonus program in this case is more like a program that rewards employee production, noting that the focus throughout the policy appears to be on incentivizing employees to contribute to Vanguard’s performance and production by meeting a predetermined hours goal. Accordingly, proration of payments made under the program for those who take FMLA leave is allowed.
Sommer also argued that Vanguard’s policy interferes with his FMLA rights because it provides for the proration of bonuses paid to employees who take FMLA leave but not to those who take paid forms of leave, such as vacation or sick leave. The court rejected this argument as well. Vanguard’s policy distinguishes between (1) vacation and sick leave (bonuses are not prorated), and (2) all other types of leave (bonuses are prorated). The latter category includes FMLA leave as well as short-term disability, long-term disability, and workers compensation leave. Had Sommer not designated his short-term disability leave as FMLA leave, his bonus would still have been prorated. By comparison, the court noted, if the FMLA leave were required to be treated the same as vacation or sick leave, then Sommer would have been accruing rights or benefits that would not otherwise have been given to him had he designated the leave as non-FMLA short-term disability leave. Such a result is inconsistent with the statute. Thus, Vanguard did not interfere with Sommer’s FMLA rights.
Sommer v. The Vanguard Group, Case No. 05-4034 (3rd Cir., 8/24/06).
For further guidance on the FMLA, click here.
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