As an employer, you may not be aware
of how the Family and Medical Leave
Act (FMLA) affects bonus pay.
According to a 2006 court case, you may
prorate (reduce) a production bonus — but
not an “absence-of-occurrence” bonus —
for employees who are absent on leave
under the FMLA.
“You may not reduce an absence-of-occur-rence bonus if the employee would have
qualified for the bonus had he or she not
taken FMLA leave,” says Craig Snethen, a
senior associate of Jackson Lewis LLP.
“However, you may prorate a production
bonus by the amount of lost production —
hours or other quantifiable measure of productivity — caused by the FMLA leave.”
Smart Business spoke with Snethen
about how the courts interpret FMLA-related bonus conflicts.
What bonus programs are affected by FMLA?
The Department of Labor interprets the
FMLA relative to two varieties of bonus programs: an ‘absence-of-occurrence bonus,’
like a bonus for perfect attendance, and a
‘production bonus,’ like a bonus based on
hours worked, number of items manufactured or some other productivity measurement. Generally, a production bonus requires
some positive effort on the employee’s part at
the workplace, while an absence-of-occur-rence bonus merely rewards an employee for
compliance with the rules.
What precedents have the courts set?
In Sommer v. Vanguard Group, the U.S. 3rd
Circuit Court of Appeals ruled that an
employer did not violate the FMLA when it
reduced a former employee’s annual bonus
payment based on the employee’s eight-week
FMLA leave. The employer’s bonus program
defined ‘hours worked’ as the actual hours
for which an employee is paid or entitled to
be paid for performing duties or for vacation,
holidays or sick time. However, the policy
explicitly excluded unpaid leaves of absence
under disability programs from the definition
of ‘hours worked.’ Similarly, the employer
had a practice of prorating the bonus based
on absences due to workers’ compensation
and personal leave. The court observed that the FMLA regulations do not require the
equal treatment of employees who take
unpaid forms of FMLA leave and those who
take paid leave. Doing so would be incompatible with FMLA regulations, it ruled,
because it would entitle employees to accrue
rights or benefits that would not have been
available had their leaves not been designated as FMLA leaves. Therefore, because the
employer’s policy explicitly excluded FMLA
leave and other forms of unpaid non-FMLA
leave from the definition of ‘hours worked,’
the employer’s proration of the productivity
bonus based on the employee’s unpaid
FMLA leave was proper.
Why should bonus programs be in writing?
If you have an unwritten bonus program,
the Sommer decision underscores the importance of putting it in writing in order to maximize the likelihood that it will be interpreted
consistent with your intent. Further, a written
policy covering various types of unpaid non-FMLA leave will constitute evidence that you
do not discriminate against employees who
take FMLA leave and/or discourage employees from availing themselves of rights under
the FMLA. In drafting written bonus programs, you should clearly establish your goals in simple, easy-to-understand terms.
Defining an employee incentive as a production or absence-of-occurrence bonus can
determine your right to prorate a bonus
based on an employee’s absence. To that end,
you should be conscious of this critical distinction when formulating a written bonus
program. We also encourage you to review
any existing bonus programs to maximize
the likelihood that such programs be construed as production bonuses. Because the
plaintiff in the Sommer case attempted to
bring the claim as a class action, the importance of carefully preparing and reviewing
written bonus programs to maximize your
right to lawfully prorate employee bonuses
under the FMLA cannot be overstated.
What are the primary dangers inherent when
an employer doesn’t put a complete and specific bonus program in writing?
One danger is that the bonus program can
be interpreted in a manner inconsistent with
your intent, therefore, you may be deprived
of an opportunity to prorate a bonus based
on an employee’s absence under the FMLA.
Another danger is that you are deprived of
the opportunity to present it as evidence in
an FMLA discrimination/interference action.
Should there be a separate written communication to employees about bonus programs?
You should be able to demonstrate that
employees have access to, or are otherwise
aware of, the program’s terms. The mechanics of the manner in which this is accomplished is up to you. In a perfect world, each
employee would sign an acknowledgement
that he or she received a copy of the program. However, as a practical matter, this
often may not be feasible. At a minimum,
written bonus programs should be circulated
to employees in the most efficient manner
possible. If you provide annual employee
handbook updates, these programs may be
included in the updated handbook. You may
also circulate the written program to employees via electronic means or at least let them
know of the written program and direct them
to a central site.
CRAIG SNETHEN is a senior associate of Jackson Lewis LLP. Reach him at (412) 232-0196 or [email protected].