Certain Bonuses Not Due For Family Medical Leave Act
The Legal Intelligencer
By Sid Steinberg
September 13, 2006
The Family Medical Leave Act requires that employees taking leave under the act are to be treated in the same manner as if they had remained in the workplace. In a recent case of first impression, the 3rd U.S. Circuit Court of Appeals held that certain types of bonuses may be prorated for the period during which an employee is on FMLA leave.
In Sommer v. Vanguard Group, Robert Sommer sought to receive his full annual bonus payment under Vanguard's partnership plan despite missing eight weeks of work for an FMLA leave. Specifically, Sommer worked as a financial administrator when he took an eight-week short-term disability leave from December 2000 to February 2001. Sommer claimed that he was absent due to "major depression and general anxiety." When 2001 bonuses were paid the following June under Vanguard's partnership plan, Sommer's payout was reduced by almost $2,000, tied directly to the period of his absence.
Sommer brought suit against Vanguard, claiming that the company had "interfered" with his rights under the FMLA by prorating his bonus for 2001.
The FMLA's regulations state that an employer "interferes" with an employee's rights under the act by "not only refusing to authorize FMLA leave, but discouraging an employee from using such leave. In this context, when an employer treats an employee who has taken an FMLA leave worse than if s/he had remained in the workplace, this will constitute 'prohibited' interference."
Two Types of Bonuses
The Department of Labor has distinguished the two types of bonuses paid in the workplace. The first type has been classified as an "absence of occurrence" bonus. "Absence of occurrence" bonuses usually take the form of a perfect attendance or safety bonus that "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.
The second type of bonus is classified as one based on production. In distinguishing a production bonus from an absence-of-occurrence bonus, the DOL states that "if an 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 3rd Circuit considered the regulations, as well as a number of opinion letters issued by the Department of Labor, in holding that "although 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, that employer may prorate any production bonuses to be paid to an FMLA leave-taker by the amount of any lost production (be it hours or another quantifiable measure of productivity) caused by the FMLA leave."
Against this backdrop, the court considered that the amount an employee would receive under the Vanguard partnership plan depended, in significant part, upon meeting Vanguard's target for hours worked in the year (1,950). Specifically, the partnership plan policy explained that "time spent on leave is not considered time worked for purposes of calculating your partnership payment. [P]artnership payment is always prorated for the leave time no matter how short the amount of time the employee is on leave." The only exceptions to this would be for employees taking vacation and sick leave.
The district court granted Vanguard's motion for summary judgment and Sommer appealed. Sommer's principal argument was that the partnership plan, at its core, rewards the absence of an occurrence (i.e., not leaving or getting fired) as opposed to a production bonus. The 3rd Circuit, like the district court, disagreed with this assertion. The appellate court found that "Sommer's argument that the plan is an absence of an occurrence bonus ignores the simple fact that, beyond the plan's qualification requirements, there is an hours-based production requirement. As such, Vanguard was entitled to prorate its payments."
No Interference
Alternatively, Sommer argued that his FMLA rights were interfered with because the company prorates the bonuses of those who take unpaid forms of FMLA leave, but does not similarly prorate the bonuses of those who take paid forms of leave, such as vacation or sick leave. As such, because Sommer took an unpaid FMLA leave, he was not afforded "the same consideration" as those taking paid leave.
The court rejected this argument on the grounds that "because FMLA leave is but one of many forms of leave which triggers proration, employees taking FMLA leave were given the same consideration for the bonus as other employees on paid or unpaid leave (as appropriate)."
Finally, the court noted that the practical application of Sommer's argument would put FMLA leave on a par with vacation and sick leave, "which are almost always treated differently than other forms of leave [i.e., workers' compensation, short-term disability and long-term disability leave]." This would require employers to either give full production bonuses to those employees who potentially miss up to 12 weeks of work or prorating the production bonuses of all employees who take vacation or sick leave. The court found that this was not the intention of Congress in the act.
The practical effect of the Sommer decision is to brighten the line between those types of bonuses that must be paid to FMLA leave taking employees and those that do not. After Sommer, it should be easier for employers and their counsel to slot the bonus appropriately.
SID STEINBERG is a partner in Post & Schell’s business law and litigation department. He concentrates his national litigation and consulting practice in the field of employment and employee relations law. Steinberg has lectured extensively on all aspects of employment law, including Title VII, the FMLA and the ADA..