Bonus Plans and the FMLA
Among the FMLA regs is Section 825.215(c)(2), that divides bonus plans into two categories: occurrence based (if you have no absences or have no safety violations, you get a bonus) and performance based. Under this regulation pro-rata bonus adjustment because of FMLA time off, for the latter bonus, is permissible under certain conditions. But the employee cannot be disqualified from an attendance bonus for taking family medical leave.
Our colleague Dana Connell at the national labor law firm Littler Mendelson recently co-authored "Designing a Bonus Plan that Rewards Attendance and Productivity without Violating the FMLA."
He finds that employers administering bonus plans need to avoid certain pitfalls to stay out of FMLA trouble.
The potential liability arises, as the regulation above indicates, when an employee takes FMLA leave and this absence is counted against the bonus payable under an occurrence-based (e.g., attendance) bonus plan or under a performance based plan.
Connell's article highlights a Third Circuit Court of Appeals decision, Sommer v. Vanguard Group., 461 F3d 397 (3rd Cir. 2006), that involved a bonus plan amount based on job level, length of tenure, and "hours of service." These included work hours and paid time off hours but excluded STD, LTD, FMLA, and personal and court leave. When Sommer took eight FMLA weeks off and had his bonus reduced, he sued.
The court upheld the reduction of his bonus. The court found that an employer can reduce bonus eligibility based on the "absence of an occurrence" (such as attendance), it may "prorate any production bonuses to be paid to an FMLA leave taker by the amount of lost production caused by the FMLA leave."
Because Vanguard Group's bonus plan was drafted to reward employee production, it was not an "occurrence-based" plan. The court noted that the plan expected each employee to contribute to the company's success, and the plan provided for an hours-based annual production requirement. Employees working less than 1,950 hours per year were subject to prorate reductions of their bonuses.
It was not a contradiction to include vacation and holiday time off in "hours of service" since these leaves are almost always treated much differently from other forms of leave.
If you have a bonus plan that is based on work, make sure that it is drafted to say that, clearly and unambiguously.
If you have an attendance bonus plan that deems FMLA time off a strike against the employee, you must re-draft this plan.