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It’s year end.  And although the pandemic has taken a sledgehammer to business profits across the country, some employers are set to issue year end bonuses. In fact, a fair number of employers are set to award bonuses to employees in recognition of their commitment to customers and clients during the pandemic.

Perhaps you offered a pay incentive to employees to improve attendance or production during the pandemic. Under this incentive program, employees are downgraded for any tardiness or absences (even for FMLA or ADA-covered leave), which, in turn, disqualifies an employee from receiving the incentive.

In these situations, can an employer disqualify an employee from the bonus or incentive?

Let’s Cover FMLA Absences First

In short, yes, an employer can withhold a bonus from an employee who is ineligible for the bonus due to FMLA-related absences.

Why?

The FMLA regulations provide in relevant part:

. . . if a bonus or other payment is based on the achievement of a specified goal such as hours worked, products sold or perfect attendance, and the employee has not met the goal due to FMLA leave, then the payment may be denied, unless otherwise paid to employees on an equivalent leave status for a reason that does not qualify as FMLA leave.  For example, if an employee who used paid vacation leave for a non-FMLA purpose would receive the payment, then the employee who used paid vacation leave for an FMLA-protected purpose also must receive the payment.

29 C.F.R. § 825.215(c)(2) (my emphasis and bold).

Notably, when qualifying employees for, and/or calculating bonus payments under the FMLA regulations, employers must treat employees who take FMLA leave the same as those who are on “an equivalent leave status for a reason that does not qualify as FMLA leave.”

In the preamble explaining the definition of “equivalent leave status,” the Department of Labor states:

Equivalent leave status refers, for example, to vacation leave, paid time-off, or sick leave. Leave for a reason that does not qualify as FMLA leave refers, for example, to vacation or sick leave that is not for an FMLA purpose (i.e., the vacation or sick leave is not also FMLA leave). Thus, for example, if an employer policy does not disallow an attendance bonus to an employee who takes vacation leave, the employer cannot deny the bonus to an employee who takes vacation leave for an FMLA purpose (i.e., substitutes paid vacation leave for FMLA leave). However, if an employer’s policy is to disqualify all employees who take leave without pay from such bonuses or awards, the employer may deny the bonus to an employee who takes unpaid FMLA leave. If an employer does not count vacation leave against an attendance bonus but does count unpaid leave against the attendance bonus, the employer may deny the bonus to an employee who takes 12 weeks of FMLA leave, two weeks of which the employee substitutes paid vacation leave, but ten of which the employee takes as unpaid FMLA leave.

73 Fed. Reg. 67985 (Nov. 17, 2008).

In the above guidance, the DOL focuses extensively on the substitution of vacation or sick leave and not on the types of non-FMLA leave that are more difficult to compare and interpret against FMLA leave, such as leaves like military leave, jury duty leave, and other short periods of personal leave.  What’s worse, there have very few court decisions (almost none) interpreting the term “equivalent leave status,” and the FMLA regulations or the preamble to the regulations otherwise do not offer any real guidance.

Some Persuasive Authority?

Last year, one court offered us some guidance on this critical issue.  In Clemens v. Moody’s Analytics, Inc. (pdf), Greg Clemens argued that his former employer unlawfully prorated bonus payments owed to him under an incentive program offered by Moody’s. Under this incentive program, Greg was eligible to receive incentive payments for completing certain work throughout the year.  Under Moody’s incentive program, it prorated payments based on the length of an employee’s leave, regardless of the employee’s reason for leave. In other words, if you missed time — regardless of the reason — you lost bonus money.  Moody’s took this approach for all types of leave.  As a result, the federal appellate court ruled that Moody’s did not unlawfully interfere with Greg’s rights by prorating his bonus payments.

What’s the moral of the story? When qualifying employees for and/or calculating bonus payments or incentives, employers must treat employees who take FMLA leave the same as those who are on “an equivalent leave status for a reason that does not qualify as FMLA leave.” So, bottom line, if you deny bonuses and incentives to those on other, similar forms of leave — such as absences related to jury duty leave, military leave to ADA leave — you can deny the same bonus to the employee who took FMLA leave.

What about FFCRA Leave or State/Local Paid Sick Leave?

This year, many of us are providing leave to our employees under the Families First Coronavirus Response Act (FFCRA). Like FMLA, can you deny or prorate bonuses to employees who take FFCRA leave?

As you will recall, FFCRA consists of two parts: 1) paid emergency sick leave (EPSL), under which an employee can take up to 80 hours of leave (or two weeks) for any of six reasons identified due to COVID-19; and 2) paid FMLA (FMLA+), under which an employee may take up to 12 weeks of leave to care for a minor child if the child’s school or place of child care has been closed or is unavailable.

FMLA+ adopts the classic FMLA regulations, and the DOL left untouched any of its classic FMLA regulations (Section 215 above and otherwise) with respect to bonus payments. So, for the 12 weeks of FMLA+, it’s seems obvious that you can deny or prorate a bonus paid to an employee who took this form of leave. As above, we simply follow the FMLA regulations.

EPSL is a bit tougher, as there are no applicable guidance in its regulations. Surely there is an argument that this situation should be treated the same as FMLA+ and other forms of leave. In other words, if you treat other equivalent forms of leave in the same manner, you should be clear when it comes to EPSL. But admittedly, it’s clear as mud. In a similar vein, might we need to worry about state and local paid sick leave laws? In a word, yes. Although larger employers (with 500 or more employees) are not governed by FFCRA, several states and a few municipalities have enacted or amended paid sick leave laws to account for time off due to COVID-19 related reasons. For example, Colorado, New Jersey, Oregon, the District of Columbia and several cities in California (Emeryville, Long Beach, Los Angeles, Oakland, Sacramento, San Diego, San Francisco, San Jose, San Mateo, and Santa Rosa) have extended FFCRA-like benefits to larger employers not covered by the federal law. These laws and ordinances typically do not speak to how you handle bonus payments. Because these laws generally provide leave in addition to any FFCRA entitlement, it’s critical that you determine how these laws impact your employees. Before making or denying bonus payments, put a call into your friendly neighborhood employment attorney to double-check.

Put Aside the Law – just for a Moment

When it comes to these year-end bonus payments, let’s keep in mind that: 1) we are in the human relations business, and 2) we’re all suffering through a pandemic of a lifetime where scores of parents will be left without usual child care to rely on, and will need to take leave for reasons dealing with COVID-19.  This is a time where we simply might want to give the employee the benefit of the doubt.

I know I just dole out legal advice, but months from now, we’re going to kick this pandemic and things will return to (relative) normal. At that point, when an employee has choices on where they work, do you want to be the one who stiffed them a few bucks on a bonus?

Jeff Nowak is a Partner at the law firm of Littler Mendelson and has been named as one of Illinois’ top “40 Attorneys Under 40” to watch in 2012.  Jeff is widely recognized as one of the nation’s foremost FMLA and ADA experts, regularly counseling clients on compliance with FMLA and ADA regulations, conducting FMLA/ADA audits and training, and successfully litigating FMLA and ADA lawsuits.  Jeff is the author of the highly regarded FMLA Insights blog, which has been selected for four consecutive years by the ABA Journal as one of the top 100 legal blogs (2011-2017) and was also voted the No. 2 Labor and Employment blog by LexisNexis.

The above article first appeared in FMLA Insights and is reprinted with Jeff’s permission.

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