FMLA Violations - Do Your Merit Increase and Bonus Plans Comply?

Tuesday, November 1, 2005 - 01:00

Since the inception of the Family and Medical Leave Act ("FMLA") over ten years ago, effective on August 5, 1993, the difficulties employers continue to face with adhering to the FMLA's requirements, and the implications of failing to do so have become more widely known, yet complaints continue to rise.

According to the most recent statistics available from the United States Department of Labor, Wage and Hour Division ("U.S. DOL"), the U.S. DOL recovered over $2.4 million in back wages for employer violations of the Family and Medical Leave Act in fiscal year 2003. The number of FMLA complaint investigations concluded by the U.S. DOL increased in fiscal year 2003.

FMLA claims generally fall into two categories: 1) claims that the employer refused to provide an FMLA benefit to which the employee was entitled (e.g., leave time, continued health insurance benefits, reinstatement); and 2) claims that the employer discriminated against the employee because he/she took FMLA leave. Both types of FMLA claims are especially risky for employers because there are no affirmative defenses available. Thus, if an employer does not provide a required benefit or discriminates against an employee for taking FMLA leave, the employer is strictly liable. The threat of FMLA claims is further problematic because, unlike other federal employment law claims, there is no statutory cap on damages. Moreover, liquidated damages under the FMLA are easier to obtain because employees are automatically entitled to recover such damages unless the employer can establish good faith.

Overview Of The Family And Medical Leave Act Basics

The FMLA imposes strict and often confusing obligations on employers regarding leave and notice requirements. On January 6, 1995, the U.S. DOL issued its Final Rule interpreting the FMLA and setting forth the Wage and Hour Division's implementing regulations (the "Regulations").1 In administering the FMLA, employers must be conversant with both the Act and the Regulations. The thousands of complaints filed with the U.S. DOL last year are indicative of the fact that employers are often not adequately familiar with the Act or the Regulations to know how the FMLA applies to anything but the most basic cases.

Virtually all employers with 50 or more employees are covered by the FMLA.2 The FMLA provides that an eligible employee who works for a covered employer can take up to 12 weeks of unpaid leave a year to care for a newly born, adopted or foster child, or a family member with a "serious health condition."3 An eligible employee may also take leave to care for his or her own serious health condition, if such condition prevents him or her from performing the essential functions of the job.4 In certain cases, the 12 weeks of FMLA leave may be taken on an intermittent basis rather than all at once, or may be taken in accordance with a part-time schedule.5

Importantly, the FMLA provides that supervisors may be held individually liable for their failure to notify employees of their FMLA rights, grant leave where permissible, or otherwise comply with the FMLA.6 The majority and most recent courts deciding this issue have found the FMLA analogous to the Fair Labor Standards Act, thereby confirming that there can be individual liability under the FMLA.7

General Prohibition Against Discrimination For Taking FMLA-Qualifying Leave

The FMLA prohibits employers from discriminating against employees for exercising their rights under the law and, thus, it is more difficult to terminate an employee with excessive absences because employers cannot consider FMLA-qualifying absences with respect to employment decisions.

Prior to the FMLA, when an employer terminated an employee for excessive absences, the employer could successfully defend against the former employee's claims of disability discrimination on the basis that attendance is an essential function of the job. Courts generally have held that employers were justified in terminating employees for excessive absences.8 The FMLA limits that defense when an employee's excessive absences include FMLA-qualifying leave because employers may consider only those absences which are not attributed to FMLA-qualifying leave, purposes of discipline, promotion or any other employment decisions.

FMLA Compliance For Merit Increase And Bonus Plans

Another area which is ripe for FMLA discrimination claims relates to whether an employee is adequately paid pursuant to an employer's Merit Income or Bonus Plans. Employers should carefully analyze whether their current Merit Increase and Bonus plans comply with the FMLA.

With respect to Merit Increases, some companies "pay for performance" such that employees are compensated, through merit increases, for their demonstrated performance and contribution to the success of the business in the preceding calendar year. Managers are asked to score their employees based on performance and any Merit Increase is based upon that review score.

Generally, pay increases conditioned upon length of service or work performed would not have to be granted to employees returning from FMLA unless it is the employer's policy to do so with respect to all employees on "leave without pay."9 However, benefits which have accrued at the time leave began, must be available to an employee upon return from leave.10 For example, if an employee met all required performance criteria, e.g., production quota, before going out on FMLA leave, he would be entitled to his full Merit Increase.

Moreover, even if the required criteria are not met, if employers provide other non-FMLA-qualifying employees on "leave without pay" with Merit Increases, then the employer must grant such pay increases to employees returning from FMLA leave.11

A compliant Merit Increase policy should:

  • Include attendance requirements as a factor in determining whether an employee is eligible to receive a merit increase. Recommended policy language: "Employees will be eligible for a merit increase only if they have worked at least [X] days during the calendar year." This will put employers in a better position to justify proration of any Merit Increase based upon the days that an employee on FMLA actually worked because employees will not be able to claim that they were entitled to the Merit Increase as of the time FMLA leave began.

  • Specify that the company will prorate Merit Increases to eligible employees, based upon the employee's number of active service days during the applicable calendar year. Doing so will enable employers to justify any intended proration of the Merit Increase.

  • Direct managers to recommend a full (not prorated) Merit Increase for employees who were on a leave of absence during the review period and Human Resources should be responsible for prorating the recommended merit increase as appropriate. This will keep FMLA compliance issues in the hands of experienced professionals.

  • Merit Increases should state that they are effective at the end of the calendar year (e.g., December 27) for eligible employees who are actively at work on that day, and explain that employees who are on a leave of absence on the effective date will have their increase delayed until they return to active status. Otherwise, an employer may not be able to justify any delay in paying the Merit Increase.
  • With respect to Bonuses, the FMLA generally recognizes two types of bonuses - 1) attendance bonuses and 2) performance bonuses. To the extent an employee who takes FMLA leave has met all the requirements for an attendance bonus 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 from the attendance bonus because of taking FMLA leave.12

    However, if a bonus requires performance by the employee and 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.13 An employee is NOT entitled to accrue any additional benefits or seniority during unpaid FMLA leave.14 Only benefits which accrued at the time leave began, must be available to an employee upon return from leave.15

    The U.S. DOL has taken the position that "any methodology for calculating bonuses that are not based on work time or accrued earnings cannot be reduced at all for FMLA leave takers who qualified for the bonus before they started FMLA leave."16 Conversely, if a bonus is calculated based on hours worked or yearly/monthly earnings, the employer can pay the FMLA leave taker a lesser amount.17

    The U.S. DOL has also considered the issue of bonuses based on some positive action required by the employee. Depending upon the terms and conditions governing any Bonus plan, such an employee may be awarded a reduced bonus or be deemed ineligible as a result of having been on FMLA leave and not having had the opportunity to continue to meet specified criteria during the award period.18

    To ensure FMLA compliance, a Bonus plan should:

  • Include a requirement for each employee of days worked during the applicable year. This will give the employer a basis to justify pro-rating any Bonus because employees who are out on FMLA or other leave will not otherwise be qualified for the full bonus.

  • If the Bonus plan includes any calculation of "company performance/profitability" into the analysis of whether a Bonus is justified, include a minimum "days worked" requirement. Doing so will enable the employer to pro-rate the bonus calculation under the assumption that an employee on any type of leave did not contribute equally to the company performance/profitability.
  • Supervisor Training

    Given the FMLA's complexities and the potential for individual liability, training of supervisors with respect to the FMLA's requirements is crucial. A supervisor who is not trained in the FMLA or other leave laws may unknowingly deny what may be a legitimate request for FMLA leave or improperly reduce an employee's Merit Increase or Bonus.

    To avoid liability, employers should ensure that FMLA leaves and benefits are monitored by someone who is fully knowledgeable with respect to the FMLA's requirements, be it a human resources professional, senior management or legal counsel. Employers must also regularly review their policies and procedures to make sure they are FMLA-compliant.

    It is important that those individuals with complete working knowledge of the FMLA and other employment laws make decisions with respect to FMLA-qualifying leaves so that such requests can be properly and consistently handled. Training supervisors and having experienced professionals in charge of the final evaluation of leave requests can prevent employees from later asserting that their rights have been violated.

    By accomplishing all of these things, employers will be in a better position to establish, if challenged, their compliance with the FMLA and, beyond that, their good faith.

    1 29 Code of Federal Regulations § 825.100 et seq . All subsequent citations to the Regulations refer to 29 C.F.R. § 825.100 et seq. unless otherwise specified.

    2 FMLA § 2611(4); Regulations § 825.104(a).

    3 The definition of "employer" is extremely broad in that it in cl udes any person engaged in commerce who employs 50 or more employees. FMLA § 2612; Regulations § 825.200.

    4 Id.

    5 FMLA §5 2612(b); Regulations § 825.100(a).

    6 FMLA §2611; Regulations § 825.104 (d).

    7 See e.g., Johnson v. A.P. Products, Ltd., 934 F.Supp. 860 (S.D. Ala. 1996); Beyer v. Elkay Mfg Co. et al., No. 97 C50067 (N.D. Ill. Sept. 19, 1997); Krussman v. State of MD, 935 F.Supp. 659, 663 (D.Md 1996).

    8 See e.g., Santiago v. Temple University, 739 F. Supp. 974, 979 (E.D. Pa. 1990), aff'd, 928 F.2d 396 (3d Cir. 1991); Carr v. Reno, 23 F.3d 525, 527 (D.C. Cir. 1994).

    9 825.215(c)(1).

    10 825.215(d)(2).

    11 825.215 (c) (1).

    12 825.2152(d)(2).

    13 825.215(c)(2).

    14 825.215(d)(2).

    15 825.215(d)(2).

    16 WHM 99:3025, FMLA Opinion 31.

    17 WHM 99:3025.

    18 FMLA Opinion 79.

    19 Regulations § 825.301(b).

    Katherin Nukk-Freeman is a Director of Gibbons, Del Deo, Dolan, Griffinger & Vecchione. Ms. Nukk-Freeman devotes the majority of her practice to counseling, training and litigating on behalf of emploers regarding diverse employment issues pertaining to family and medical leaves, wage and hour requirements, COBRA compliance, discrimination laws, hiring and termination decisions, drug testing and state and federal disability laws.

    Please email the author at with questions about this article.