Courts Disagree on Employer Substitution of Paid Leave for Unpaid FMLA Leave

The Family and Medical Leave Act granted eligible employees a total of 12 workweeks of leave during any 12-month period. Since FMLA leave is unpaid, Congress also provided eligible employees could elect to substitute certain accrued paid leave and, alternatively, that employers could require such substitution, 29 U.S.C. Sec. 2612(d)(2). Many employers immediately established written policies requiring substitution of paid leave. Other employers left that option to individual employees.

Into every employer’s life some rain must fall. The U.S. Department of Labor issued detailed FMLA regulations making that federal law one of the more complex employment statutes in memory. Those regulations made it the employer’s responsibility “in all circumstances” to designate leave, either paid or unpaid, as FMLA-qualifying leave. If the poor employer failed to give such notice, the employee’s full 12-week FMLA entitlement remained, 29 C.F.R. Sec. 825.208. Moreover, if the employer belatedly designated paid leave as FMLA qualifying leave, that designation only operated prospectively, not retroactively. Under these regulations, employer mistakes or delays could easily give employees more than “a total of 12 work weeks of leave.”

Several district courts follow the literal language of the resolution and penalize employers who make late FMLA designations. They hold those employers must grant employees a brand-new allotment of 12 weeks of unpaid FMLA leave despite earlier paid leave. Total leave for the same serious health condition can far exceed 12 weeks in those circumstances. More significantly, the employer’s obligation to maintain the employee’s position until his/her return following the end of the employee’s FMLA leave can itself be extended for many more weeks since FMLA-qualifying leave doesn’t begin until the employer makes its official designation.

District courts upholding the regulation include Dintino v. Doubletree Hotels Corp., 1997 U.S. Dist. Lexis 18145 (E.D. Pa. 1997); Viereck v. City of Gloucester City, 961 F. Supp. 703 (D.N.J. 1997); Blankenship v. Buchanan General Hospital, 999 F. Supp. 832 (W.D. Va. 1998) and Ritchie v. Grand Casinos of Mississippi, 49 F. Supp. 2d 878 (S.D. Miss., February 17, 1999). There is significant contrary authority with two other district courts holding that the FMLA statute, with its 12-week “total,” takes precedence over the regulations and limits any leave accordingly. These courts bail out employers who neglect to designate paid leave as a substitute for unpaid FMLA leave. They hold the regulation is invalid and unenforceable. See McGregor v. Autozone, Inc., 990 F. Supp. 1369 (M.D. Ala. 1998) and Covey v. Methodist Hospital, 1999 U.S. Dist. Lexis 11122 (W.D. Tenn., June 23, 1999).

On July 14, 1999, the Eleventh Circuit became the first appeals court to weigh in on this issue. Despite a friend-of-the-court brief from the Department of Labor, the Eleventh Circuit unanimously affirmed the district court. It held the Department’s FMLA regulation requiring employers to designate substitute paid leave for FMLA leave was inconsistent with the statute, invalid and unenforceable. McGregor v. Autozone, Inc., 180 F.3d 1305 (11th Cir.). The Court held Autozone did not have to tell Alicia Cox, the employee seeking FMLA leave, that the 13 weeks of paid disability leave it granted ran concurrently (and not consecutively) with her 12-week FLMA entitlement. The Court noted Congress did not suggest that 12-week statutory entitlement “may be extended” and stated “where an employer such as [Autozone] exceeds the baseline 12 weeks by providing not only more leave than FMLA, but also paid leave, the employer should not find itself sued for violating FMLA.”

As this case could be headed for the Supreme Court, the facts are important. Alicia Cox was a manager at an Autozone franchise in Birmingham, Alabama. She began working for Autozone in April 1992 and was clearly eligible for FMLA leave in 1995 when, one month following her promotion to manager, she took temporary disability leave due to pregnancy. Autozone provided 13 weeks of paid leave under its short-term disability plan. Ms. Cox received her pay for the full 13 weeks. She then stayed out another two weeks. It is unclear whether there were any communications between her and the company. Apparently, she never told Autozone what her plans were and, on its part, Autozone never officially designated her paid disability leave as FMLA-qualifying leave. Autozone may have been relying on its employee handbook which specifically stated that paid disability leave ran concurrently with FMLA leave. There was a dispute whether Cox ever saw this handbook provision, which was not added until 1994. As a result, the district court did not rely on the notice possibly provided by the handbook.

This is a no-notice case. Ms. Cox returned to work after 15 weeks’ leave. She was reassigned to an assistant manager’s position, a demotion with a pay cut. She protested, arguing she was entitled to a brand-new 12-week FMLA allotment even following her 13-week paid disability leave because Autozone never specifically notified her that her paid disability leave was in fact being substituted for her FMLA leave. Cox therefore argued she was entitled to be restored to her pre-leave manager’s job. She claimed she had the option to retroactively designate her 13th, 14th and 15th week of leave as covered FMLA leave since Autozone itself never made any designation while she was on leave. When Autozone disagreed, Cox quit, claiming constructive discharge. Walking away from her assistant manager’s job was not a smart financial move; Cox later declared bankruptcy while her FMLA suit was working its way through the courts.

The statute does not tell us what type of notice must be given when an employer wants to designate paid leave in substitution for unpaid FMLA leave. As the Eleventh Circuit also noted, the statute never states when that substitution designation notice must be given. The regulations fill this large gap by allowing only prospective employer designations. The Department of Labor contends employers only have to notify the employee that they are requiring substitution of paid leave and that is neither an onerous nor impossible requirement. The Department allows only prospective notice. It also presumably prefers individual notices to employees for each leave even where employee handbooks or other written policies clearly state the employer has already adopted a concurrent leave substitution policy rather than a consecutive leave policy and/or a policy subject to the employee’s option.

The basic question is whether employer mistakes or inaction can determine an employee’s FMLA eligibility. In this case, the regulation takes away the employer’s statutory option to require substitution of paid leave for FMLA leave “[i]f the employer fails to give prospective notice that an absence is being counted as FMLA leave.” A similar issue arose when employers mistakenly told employees who were clearly not eligible for FMLA leave that they were eligible either affirmatively or because the employer “failed” to tell the ineligible employee that they were not eligible within two business days after receiving the employee’s FMLA leave request as another DOL regulation provides. The courts have universally agreed this other DOL regulation is invalid on the ground that employer mistakes cannot convert ineligible employees into FMLA-eligible employees. See Wolke v. Dreadnought Marine, Inc., 954 F. Supp. 1133 (E.D.Va. 1997); Seaman v. Downtown Partnership of Baltimore, Inc., 991 F. Supp. 751 (D.Md. 1998); Fisher v. State Farm Mutual, 999 F. Supp. (E.D. Tex. 1998); Dormeyer v. Comerica Bank, 1998 U.S. Dist. LEXIS 16585 (N.D. Ill. 1998) and June/July 1998 Employment Law Alert., pp. 7-8 (“You Can Escape From FMLA Eligibility Errors”).

We recommend employers follow the regulation and provide notice to employees whenever paid leave will be or is being substituted for unpaid FLMA leave. Employers within the Eleventh Circuit (Alabama, Florida and Georgia) should consult counsel. Employers who are presently litigating this issue now can cite to a favorable appeals court decision. The Eleventh Circuit’s decision is by no means the final word. There will be more appeals court decisions which, like the district court decisions, will probably be divided as well. Eventually, the Supreme Court will have to step in and resolve this issue.