USERRA - Are You Ready?

Saturday, July 1, 2006 - 01:00

On December 19, 2005, the Department of Labor ("DOL") issued final regulations under the Uniform Services Employment and Reemployment Rights Act of 1994 ("USERRA"). These final regulations were issued 11 years after USERRA was enacted and one year after the proposed regulations were issued by the DOL. The final regulations do not substantially change the provisions of the proposed regulations but, rather clarify the provisions. The final regulations make clear that the scope of USERRA is extremely broad. This article addresses the broad scope of USERRA and the implications for employers.

USERRA establishes a floor of the employment rights and protections afforded to employees in the uniformed services; employers are free to provide greater benefits. USERRA supersedes any state law, contract, agreement, policy, plan, practice or other matter that reduces, limits or eliminates in any manner any right or benefit provided by USERRA.

Which Employers Are Subject To USERRA?

Almost all employers are subject to USERRA. USERRA defines an employer as "any person who has control over employment opportunities, including a person to whom the employer has delegated the performance of employment-related responsibilities." This definition is broader than the definition of employer under the Americans with Disabilities Act, Title VII of the Civil Rights Act and the Consolidated Omnibus Budget Reconciliation Act ("COBRA"). Unlike COBRA, there is no small employer exception. Governmental employers and foreign employers that are doing business in the United States are subject to USERRA. In fact, U.S. employers that have operations in foreign countries are not exempt from complying with USERRA with respect to U.S. employees assigned to the foreign locations. These employers are required to comply with the provisions of USERRA, unless doing so would violate the laws of the foreign country. At least two courts have held that individual supervisors may be held liable for violations of USERRA. To date, however, no court has found individual liability to exist for employees of employers. Successor employers are responsible to comply with USERRA with respect to employees of the predecessor employer who are on military leave at the time of the corporate transaction. It is, therefore, important to obtain information relating to employees who are on military leave when conducting due diligence in connection with a corporate transaction.

Which Employees Are Covered by USERRA?

Virtually all employees are covered by the nondiscrimination and anti-alienation provisions under USERRA, including temporary employees (employees in brief, non-recurrent positions). However, only employees who are not temporary employees are covered by the employment and re-employment provisions of USERRA. Employees who are laid off with recall rights, on strike, or on a leave of absence, are all treated as employees under USERRA. If, while the employee is laid off, he or she begins a period of military service, or is laid off while on military leave, the employee is entitled to reemployment rights only if the employer would have recalled the employee during the military leave period. The same rule applies if the employee is on strike or on a leave of absence when his or her period of military service begins. However, if the laid off employee would not have been recalled while he or she was on military leave, such employee is not entitled to reemployment rights.

The drafters of USERRA used the term employee rather than individual. Likely, this is because independent contractors are not covered under USERRA. The exclusion of independent contractors is consistent with the treatment of independent contractors under many other employment-related and benefit-related laws. For example, independent contractors may be excluded from participating in employee benefit plans maintained by employers. The test under USERRA to determine whether an individual is an employee or an independent contractor is more expansive than the traditional common law test that is generally used for employee benefits purposes. The test under USERRA is similar to the test under the Fair Labor Standards Act. As a result of using a more expansive test, more individuals will be treated as employees rather than independent contractors and be entitled to USERRA rights and protections.

What Requirements Must An Employee Satisfy To Be Entitled To Reemployment Rights?

Consistent with the broad scope of USERRA, the requirements that an employee must satisfy to be entitled to re-employment rights are not burdensome, and in fact, there are exceptions to each of the requirements.

The first requirement is that the employee is required to give his or her employer advance notice of military leave. Notice may be written or verbal and there is no time limit for the employee to give the employer notice. However, if it is impossible for the employee to give advanced notice, the notice requirement is waived. If the employee is working for more than one employer, he or she is required to give notice to each of the employers.

The second requirement is that the cumulative length of military service be five or less years with respect to a particular employer. Only the actual time that the employee is in military service is taken into account for purposes of determining the five-year limit. Generally, the time preceding or following actual military service is not taken into account. There are exceptions to five-year limit ( e.g ., if military service is required beyond five years to complete an initial period of obligated service).

The third requirement is that the employee must timely return to work. The period that an employee is given to return to work after the end of military leave depends on the length of military leave. If the employee is on military leave for less than 31 days or away from work for the purpose of an examination to determine fitness to perform service, he or she must report back to work the next business day after being home for 8 hours. If the employee is on military for at least 31 days but less than 181 days, he or she has 14 days to make an application to return to work. The application may be written or verbal. If the employee is on military leave for more than 180 days, he or she has 90 days to submit an application for reemployment. Notwithstanding the foregoing, if an employee is injured during military service, he or she is not required to submit an application for reemployment until the end of the recovery period. Generally, the recovery period cannot exceed two years. During the period between the end of military service and reemployment, the employee may seek other employment without losing his or her reemployment rights with the pre-service employer.

The last requirement is that the employee cannot be discharged from military service with a dishonorable or bad conduct discharge, or under other than honorable conditions. The branch of military service, and not the employer, determines the characterization of the discharge. If an employee's discharge is initially determined to be dishonorable and is subsequently upgraded to an honorable discharge, his or her reemployment rights are restored. During the time between dishonorable discharge and retroactive upgrade, the employer is not required to give the employee back pay and pension plan credits.

What Is The Reemployment Position?

After the employee submits an application for reemployment, the employer is required to promptly reemploy the employee. The DOL indicated that, absent unusual circumstances, reemployment must occur within two weeks of the employee's application for reemployment. The DOL opined that two weeks is an equitable balance between the interests of employers and the interests of employees. However, reinstatement in a position following several years of active military service may require additional time because the employer may have to create a position or reassign other employees.

Generally, the returning employee is to be reemployed in the position he or she would have had but for military leave (commonly referred to as the "escalator position"). The employer is required to make reasonable efforts to help the employee become qualified for the escalator position. If it is impossible for the employer to put the returning employee in the escalator position, the employee is to be put in a position that is the nearest approximation to the escalator position in seniority, status, and pay to the escalator position.

Employer's Defenses To Reemployment

There are three exceptions to the requirement that an employer must reemploy an employee. First, if the employer's circumstances have so changed as to make reemployment impossible or unreasonable ( e . g ., a reduction-in-force occurred during the employee's military leave that would have applied to him or her). It is not sufficient for the employer to show that no opening exists. Second, reemploying the employee would impose an undue hardship on the employer. This exception to reemployment only applies if the employee is not qualified for a position after reasonable efforts have been made. Lastly, the employee's pre-service position was brief, non-recurrent and there was no reasonable expectation that employment would continue indefinitely or for a significant period.

Discharge Of A Reemployed Employee

USERRA provides job security protections for employees who are on military leave for more than 30 days. An employee cannot be discharged (except for cause) for 180 days after reemployment if his or her most recent period of military service is more than 30 days but less than 181 days. An employee cannot be discharged (except for cause) for one year after reemployment if his or her most recent period of military service is more than 180 days.

Pension Benefits

Upon reemployment, an employee's period of military leave will be taken into account for purposes of eligibility and vesting service under defined contribution plans, and for purposes of eligibility, vesting and benefit accrual under defined benefit plans. An employee who, on account of military leave, misses the opportunity to make deferrals to a 401(k) plan may elect to contribute the amount of the missed deferrals to the plan after reemployment. The employee has the lesser of three times the length of military leave or 5 years to contribute the missed deferrals. For purposes of determining the amount of missed contributions, the compensation that the employee would have received but for military leave is used. If the plan provides for matching contributions, the employer is required to contribute them to the plan on behalf of the employee at the time the deferrals that give rise to the matching contributions are made. If the employee does not return to the pre-service employer or does not otherwise satisfy the requirements for re-employment, he or she does not have the right to contribute the missed deferrals to a 401(k) plan.

Health Continuation Coverage

The health continuation coverage provisions under USERRA apply to essentially all health plans and policies. The provisions apply to insurance policies or contracts, medical or hospital service agreements, arrangements under which employee health and other services are provided or expenses for services are paid, ERISA covered health plans, cafeteria plans, non-ERISA plans and multiemployer plans.

Health coverage for an employee on military leave for less than 31 days will continue as if he or she is an active employee. An employee who is on military leave for more than 31 days may elect coverage for up to 24 months, including coverage for his or her dependents. Employers may charge the employee up to 102% of the total premium amount for coverage during the leave period. Dependents of employees who are on military leave are not covered under the health continuation provisions of USERRA but, may be entitled to coverage under the Service Members Civil Relief Act or COBRA.

An employee who does not elect coverage upon the commencement of military leave may have the opportunity to elect coverage later. If the employer has procedures that address the election and payment of continuation coverage, then an employee who gives advanced notice of military leave may elect to have coverage retroactively reinstated if he or she pays all amounts due within the time prescribed under the procedures. However, if the employer does not have such procedures in place, the employee who gives advanced notice of military leave may elect to have coverage retroactively reinstated at any time during the military leave period, provided that he or she pays all unpaid premiums. The employer may cancel coverage for an employee who elects coverage but fails to make the required premiums.

Final Thoughts

Employees who serve in the uniformed services are knowledgeable about the rights and protections afforded to them under USERRA. The high level of employee knowledge is directly related to USERRA educational information provided by the uniformed services themselves. Employers should develop USERRA procedures and policies so that both management and employees are aware of their employers' policies.

David P. Doyle and Kathy A. Lawler are Partners in the Employee Benefits/Executive Compensation Practice Group of Pitney Hardin LLP. Susan M. Szafranski is an Associate in the group.

Please email the authors at ddoyle@daypitney.com, klawler@daypitney.com or sszafranski@daypitney.com with questions about this article.