Production Bonuses May be Pro-rated for Time Spent on FMLA Leave

In an appellate case of first impression the Third Circuit Court of Appeals found that employers may pro-rate production bonuses for time missed by employees while on leaves covered by the Family and Medical Leave Act (“FMLA”). Sommer v. The Vanguard Group, 2006 U.S. App. LEXIS 21638 (3rd Cir. 2006). The court held that bonus programs rewarding performance that can only be achieved if at work may be pro-rated, while those rewarding the absence of some occurrence, like a perfect attendance bonus, may not be pro-rated.

Further elaborating on the distinction, the court cited a DOL opinion letter differentiating the two bonus forms. A bonus paid for perfect attendance requires an employee to not do something, be absent, thus it may not be pro-rated. An employee who had perfect attendance before taking FMLA leave would continue to be eligible for the bonus upon returning from the leave. In contrast, where the bonus is based on some form of affirmative performance, which can only be achieved if at work, the leave taker may receive a lower bonus than someone who had not taken a leave.

In this particular case Vanguard’s Partnership Plan provided a production bonus that required a minimum number of work hours for a 100% payout. While some forms of absence such as vacation and paid sick time counted toward work hours, other absences including short and long term disability leaves, whether FMLA protected or not, reduced work hours. In rejecting plaintiff’s interference claim the Third Circuit found the Plan did not interfere with his FMLA rights because it required some positive effort on the employee’s part while at work to receive the bonus.

Given the finely crafted distinction between the two concepts addressed by the court, employers must carefully draft any plan that reduces benefits for employees exercising their FMLA rights in order to successfully defend their position under the theory set forth by the Third Circuit.