Designing a bonus plan that rewards attendance and productivity without violating the FMLA.

Since the passage of the FMLA in 1993, employers have struggled with the impact of the law on employee bonus plans. Their efforts have run the gamut from plans that expressly (and illegally) penalized FMLA usage, to plans that rewarded employees absent on FMLA leave no differently than employees physically present at work. The Third Circuit recently issued a decision on this topic in Sommer v. The Vanguard Group. When coupled with prior authority on the subject, a road map begins to emerge which would allow employers to create incentives for attendance while still maintaining FMLA compliance.

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The Third Circuit Court of Appeals very recently issued a decision in Sommer v. The Vanguard Group, (1) regarding an employer bonus program under the Family and Medical Leave Act (FMLA). The Third Circuit's decision was preceded by prior regulations and opinion letters published by the U.S. Department of Labor (DOL), and prior case law from both federal district and appellate courts, on this subject.

Employers who operate or contemplate a bonus program need to be aware of all of these existing authorities (which do not address identical bonus plans or identical facts). These authorities, capped off by the Third Circuit's Sommer decision, provide a road map for employers to structure their bonus plans under the FMLA. These authorities, and this article, provide an analysis of how bonus plans may be structured so as to avoid paying bonuses to employees that would further compensate them for their time on FMLA leave.

DOL REGULATIONS

The DOL has adopted extensive regulations under the FMLA. These regulations must be given "controlling weight unless they are arbitrary, capricious or manifestly contrary to the statute." (2)

Several general propositions within these FMLA regulations should be considered with respect to this issue. First, under 29 C.F.R. Section 825.220(c), an employer cannot use the taking of FMLA leave as a negative factor in employment actions. A second, somewhat countervailing principle, contained in 29 C.F.R. Section 825.215(d)(2), recognizes that employees on FMLA leave are not entitled to accrue seniority or other benefits during an FMLA leave.

In addition to these general principles, there is a specific subsection--which is part of the more general regulation entitled "Equivalent Pay"--which expressly addresses the issue of bonuses and how they must be treated under the FMLA. This specific subsection is 29 C.F.R. Section 825.215(c)(2). This portion of the FMLA regulations is, typically, the starting point for the analysis of employee bonus plans under the FMLA. It states:

 
   Many employers pay bonuses in different forms to employees for 
   job-related performance such as for perfect attendance, safety 
   (absence of injuries or accidents on the job) and exceeding 
   production goals. Bonuses for perfect attendance and safety 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, that is, 
   the employee may not be disqualified for the bonus(es) for the 
   taking of FMLA leave.... A monthly production bonus, on the other 
   hand does require performance by the employee. If 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 (as 
   appropriate). [29 C.F.R. Sec. 825.215(c)(2)] 

DOL OPINION LETTERS

In addition to these regulations, the DOL has issued several opinion letters which offer insight on this FMLA bonus issue. Several of these opinion letters were issued before the final DOL regulations became effective on April 6, 1995. Two other DOL opinion letters on this topic were issued thereafter. As the Third Circuit recently noted in Sommer, these DOL opinion letters are "entitled to respect" to "the extent that …