Guidance on When Employers Can Prorate Bonuses of Employees on FMLA Leave
The Second Circuit Court of Appeals, in Clemens v. Moody's Analytics, Inc., has held that an employer did not unlawfully interfere with an employee's rights under the Family and Medical Leave Act ("FMLA") when it prorated his bonus based on his FMLA leave-related absences.
Law. FMLA regulations entitle employees to "unconditional pay increases" that occur during FMLA leave, including cost of living increases and some bonuses. However, employees on FMLA leave are generally not entitled to bonuses that are dependent on specified goals (e.g., hours worked, products sold or perfect attendance) if such goals were missed due to FMLA leave. An exception to this general rule exists where the bonus is otherwise paid by the employer to employees on an equivalent, non-FMLA leave.
A DOL Opinion Letter (FMLA-110, released in 2000) explained that FMLA does not require that employees accrue seniority or benefits during unpaid leave, but it does require that benefits accrued before the leave be available to employees when they return from leave. With respect to determining the amount of a bonus, DOL noted that because bonuses may be prorated based on hours worked, an employer would not violate FMLA if it determined the bonus based only on the actual hours worked.
Background. The plaintiff was eligible to receive incentive payments based on his performance throughout the year under the employer's incentive program. In 2015, the plaintiff took FMLA leave for 63 days to receive treatment for colon cancer, and the employer subsequently prorated his bonus payment under its incentive program based on his FMLA leave absences. In response, the plaintiff sued the employer, claiming that it had interfered with his FMLA rights by prorating the bonus payment.
At trial, the district court found that the plaintiff had failed to show he was denied any FMLA benefits to which he was entitled. Accordingly, the district court dismissed the plaintiff's FMLA interference claim. The plaintiff appealed the adverse decision to the Second Circuit.
Second Circuit. In reviewing the matter, the Second Circuit explained that to succeed on a claim of FMLA interference, a plaintiff must establish: 1) that he is an eligible employee under FMLA; 2) that the defendant is an employer as defined by FMLA; 3) that he was entitled to take leave under FMLA; 4) that he gave notice to the defendant of his intention to take leave; and 5) that he was denied benefits to which he was entitled under FMLA.
In the instant case, the Second Circuit found that the record showed that the employer prorated payments under its incentive program based on the employee's length of leave, regardless of the reason for the leave. Therefore, because the undisputed evidence demonstrated that the employer neutrally applied its prorating policy to these incentive payments, the Second Circuit upheld the district court's determination that the plaintiff could not prove that the employer interfered with his FMLA rights.
Employer Takeaways. Employers that prorate bonus payments made to employees on FMLA leave should be sure to: (i) clearly identify and communicate the requirements for obtaining bonuses; (ii) and ensure that bonuses paid to employees on FMLA leave are prorated and calculated in the same manner as employees who are using other types of unpaid leave.