Called to Duty: Military Leave and the Law
In response to many client and subscriber inquiries, we have amended the original article, to include enhanced information regarding compensation and benefits issues.
50,000 reservists and National Guard members are being called to duty to help defend our nation in this time of crisis. More will surely follow. It is the largest troop activation in nearly a decade, since Operations Desert Shield and Desert Storm. It undoubtedly will have a significant impact on our workforce. Employers must be prepared to meet this challenge.
Military leave policies should be reviewed now. Likewise, employers should review company policies and company-sponsored benefit plans and programs for compliance with USERRA and applicable state law. These documents also should be reviewed to determine how a military leave impacts employees' participation in these plans and programs. Both federal and state laws must be considered. Here are some important starting points. Employers are advised to seek legal counsel as to the application of USERRA and state law in particular situations.
USERRA Covers All Civilian Employers
The Uniformed Services Employment and Reemployment Rights Act (USERRA), 38 U.S.C. §4301 et seq., enacted in 1994, covers all civilian employers and prohibits employment discrimination against members of the "Uniformed Services." The term Uniformed Services means the Armed Forces, the Army National Guard and the Air National Guard when engaged in active duty for training, inactive duty training, or full-time National Guard duty, the commissioned corps of the Public Health Service, and any other category of persons designated by the President in time of war or emergency. Particularly important for employers to understand during this current crisis, is that USERRA provides Uniformed Service members with significantly enhanced job security. USERRA is comprehensive and quite detailed.
The term "employer" includes any person or entity that pays salary or wages to employees. Employers include the federal or a state government and other governmental agencies. It also includes a successor in interest to a person or entity covered by USERRA. Coverage by USERRA is not dependent on an employer having a minimum number of employees. A single employee can subject the employer to USERRA.
State Laws May Apply In Addition to USERRA
In addition to USERRA, a number of states have enacted laws protecting employees who serve in the Uniformed Services. These state laws address a number of issues, including reemployment rights, discrimination against members of the military and preservation of benefits while on leave due to military service. Although USERRA preempts state law, it does not preempt any state law that provides better protection or increases the rights of Uniformed Service members. In other words, USERRA provides minimum protections to individuals who serve their country.
Notice from Departing Employees
USERRA and most state laws require employees to give their employers some advance notice, written or oral, of their military service. How much advance notice is not specified. In fact, the employees’ notice obligation under USERRA can be waived entirely based upon military necessity or if notice is unreasonable under the circumstances. Some states, such as Massachusetts, require employees embarking on military training or other exercises of limited duration to advise their employers of their expected dates of departure and return.
Notice to Departing Employees
Federal law does not require employers to give any particular notice or information to employees departing on military leave. State laws may be more stringent. To avoid any confusion, however, it makes sense to give copies of the employer’s military leave policy to all employees departing on military leave. A description of how an employee's participation in various employer-sponsored benefit plans and programs is affected should also be provided. In particular, employers should notify such persons about their right under USERRA (or applicable state law) to elect to continue their health insurance, and if applicable, other benefits such as life insurance.
Compensation During Military Leave
Military leave may be with or without pay, at the employer’s discretion. Some employers may choose to make up any deficiency between an employee’s military pay and his regular wage, but there is no federal obligation to do so. Some states, however, do have pay requirements for military leave.
Uniformed Service members may, but cannot be required, to use paid vacation or similar leave while on duty. An employee may wish to use vacation time during a military leave when his military pay is less than his regular pay and the difference is not made up by the employer. Upon reemployment (as more fully discussed below), the employee is entitled to be credited with service credit for the period he or she was on military leave. This service will result in the accrual of vacation days under most employers' vacation policies. An employer should review the company's vacation policy and determine how unused vacation time is treated when the Uniformed Service member's military leave extends beyond the end of the period in which vacation must be used. In particular, this is an issue when the employer has a "use it or lose it" policy. Employers may want to consider adding an exception for employees called to military service.
Health Plan Continuation
Uniformed Service members have the right to elect to continue their health plan participation under the COBRA-like terms of 38 U.S.C. § 4317. Unlike COBRA, however, the employer need not employ 20 individuals for USERRA to apply. This means that employers who are otherwise exempt from COBRA are not exempt from USERRA.
To comply, the health plan must permit an employee to elect continued coverage for himself and covered dependents for up to 18 months, or if earlier, the day after the employee fails to apply for or return to employment. Like COBRA, the Uniformed Service member can be required to pay up to 102% of the cost of coverage, unless the period of military service is less than 31 days or state law provides otherwise. In that case, only the normal employee payment can be charged. The 18-month continuation period under COBRA runs concurrently with the 18-month continuation period required by USERRA.
In Wyoming, and possibly other states, an employee on military leave cannot be charged more than what he or she would have paid for coverage in the employer's health plan. As such, employers in this state must pay what they would otherwise have paid for health care coverage for these employees. Employers who have Uniformed Service members should check their state law and determine what, if any, health care continuation coverage requirements apply.
An employer's health plan is not required to cover injuries or illnesses that are the result of a Uniformed Service member's military service. These injuries or illness are covered by the medical care provided by the Uniformed Service. When an employee's medical coverage is terminated due to a military leave, any waiting periods or preexisting condition provisions that apply upon a return to active employment with that employer must be waived when the Uniformed Service member returns to work. Of course, employers should check their medical plans to determine the coverage for military-related injuries and illnesses.
Continuation in Other Benefit Plans
In Wyoming, and possibly other states, Uniformed Service members must be given the opportunity to continue their life insurance coverage while on military leave. The Uniformed Service member must pay for his or her coverage during the leave period, in the same amount as he or she would have paid for this coverage if employed by the sponsoring employer. Any other benefit that may be continued during a paid or unpaid leave of absence must also permit for continuation during a military leave. For instance, an employer may provide for an employee on leave to continue his or her spousal and/or dependent life insurance coverage. When this is the case, the employer must permit Uniformed Service members to keep this coverage in place during the military leave period, subject to any payment obligations that apply.
USERRA and some state laws specifically prohibit employers from denying initial employment, retention, reemployment, promotion or any employment benefit on the basis of military membership or obligation. The test for discrimination under USERRA is weighted in favor of the employee. Discrimination is presumed where a person’s military membership or obligation is a "motivating factor" in an employment action, unless the employer can prove that the action would have been taken in the absence of such military membership or obligation.
With very few exceptions, Uniformed Service members who have missed less than five years of employment due to military service are generally entitled to reemployment with full benefits, provided they comply with certain notification obligations discussed below. They also are entitled to the additional seniority rights and benefits they normally would have received if continuously employed during the time of their military service, as more fully discussed below. An employer, however, is not required to reemploy Uniformed Service members where reemployment would impose an undue hardship on the employer, the employer’s circumstances have so changed as to make reemployment impossible or unreasonable, or where the job was a nonrecurrent, temporary position.
Employees returning from military leave must notify their employer of their intent to return to work. Under USERRA, the length of service determines how much notice returning employees must provide. If an employee’s service was 181 days or more, then the employee must submit an application for reemployment within 90 days after active military service ceases. If the military leave was between 31 and 180 days, an application for reemployment must be made within 14 days after active military service ceases. No reemployment application is required if the military leave is less than 31 days. In that case, generally the employee need only report for work on the next regularly scheduled workday after a reasonable period for travel and rest. Uniformed Service members who are unable to report back to work because they are in the hospital or recovering from an injury or illness suffered during active duty have up to two years to apply for reemployment.
The job to which a Uniformed Service member may be reemployed depends to some extent on the number of days he or she was absent from civilian employment due to military service. For example, if an employee’s military service was less than 91 days, the employee must be reemployed in the position he or she would have had without the military service interruption unless the person is not qualified to perform the duties of that position after reasonable efforts by the employer to qualify the employee for that position. If military service was for more than 90 days, the employer may substitute a position of like seniority, status and pay.
Persons disabled during military service are also granted reemployment protection. Such persons should be granted, at a minimum, a position that is the nearest approximation to his or her former position in terms of seniority, status and pay, consistent with the person’s ability to perform the job duties with reasonable accommodation efforts by the employer. If the employee, after reasonable training and reasonable accommodation efforts by the employer, is still unable to perform his or her job duties, the employer must employ that person in any position that provides similar pay and status, with full seniority, that is consistent with the person's current circumstances.
USERRA and some state laws restrict an employer's ability to discharge a returning Uniformed Service member. Under USERRA, a reemployed Uniformed Service member cannot be discharged, except for cause, within one year of his or her return to work if the employee's period of service was more than 180 days before the military leave began. If the returning employee's period of employment before his or her leave began was more than 30 days but less than 180 days, the returning employee cannot be terminated, except for cause, within 180 days of his or her return to employment. In at least three states, returning Uniformed Service members cannot be terminated, without cause, for at least one year after they return to work. This reemployment protection period is not dependent on the length of the employee's military leave.
Retirement Benefits Upon Reemployment
Employee pension plans are governed by 38 U.S.C. § 4318, which generally deems reemployed Uniformed Service members as not having incurred a break in employment for purposes of calculating pension benefits. Among the plans covered by USERRA are Internal Revenue Code (Code) Section 401(a) tax-qualified defined benefit and defined contribution plans. Also covered are Code Section 403(b) plans sponsored by tax-exempt organizations and Code Section 457 tax-deferred compensation plans, which are sponsored by tax-exempt organizations and governmental entities.
USERRA requires that the period of military leave be counted for plan purposes when the Uniformed Service member returns to active employment. Upon reemployment, the employer must count the military leave period when determining the employee's accrued benefit and vested status. The employer is required to contribute to the plan the amount needed to fund the returning Uniformed Service members benefit for this period of service. If the plan is a multiemployer plan, the terms of the plan will determine which employer bears the funding liability. If the plan document is silent, the employee's employer at the time his or her leave began is liable. If that employer is no longer in business, the plan itself becomes liable for funding the benefit.
When the retirement plan is a defined contribution plan, such as a 401(k) plan, the returning Uniformed Service member's plan account must be credited with employer contributions using the same allocation formula used to determine employer contributions for those employees not on leave. If the plan provides for employee elective deferrals, the returning Uniformed Service member must be given the opportunity to make up lost contributions. The period of time during which he or she may make-up contributions is either three times the length of the Uniformed Service member's military service, or if less, five years. The maximum amount the employee may contribute is the amount he or she could have contributed if not on leave. Employer matching contributions or other contributions based on plan participation must also be made by the employer on the employee's make-up contributions. Earnings and forfeitures do not have to be allocated to returning employees, irrespective of the type of contribution being made to the plan on his or her behalf.
For purposes of determining a returning Uniformed Service member's compensation for restoration purposes, his or her compensation is the amount he or she would have received if the employee had not been on a military leave. If this is not determinable, then generally the average rate of compensation paid to the employee for the 12-month period (or if shorter, his or her actual period of employment) immediately preceding his or her leave is used.
Contributions required or permitted by USERRA are not subject to the applicable limits imposed by the Code. For instance, make-up contributions are not subject to the annual deferral limit of $10,500 (as adjusted for cost-of-living in 2001) in the year in which it is made. The make-up contribution is subject, however, to the annual limit for the year in which the elective contribution would have been made but for the military leave.
If the defined contribution plan in which the Uniformed Service member participates permits participant loans, the plan may provide that loan repayments are suspended during a military leave. The suspension period may exceed one year and this suspension period does not count towards the five-year limit on loans. Although loan repayments are suspended, interest on the loan continues to accrue. Loan repayments must begin when the Uniformed Service member returns to active employment with the sponsoring employer in an amount that is not less than what the employee was paying at the time his or her military leave began. In many cases, loan repayments are recalculated to take into account the interest that accrued during the period loan repayments were suspended. Alternatively, a single payment of the additional accrued interest may be required to be paid when the loan is otherwise due to be paid in full.
The period of a Uniformed Service member's military service must be counted for vesting purposes. A retirement plan subject to USERRA could provide that an employee's military leave be counted for eligibility purposes, but is not required to.
An employer should review the plan documents to determine how a military leave is treated by the plan for eligibility, vesting, benefit accruals, loans and other plan purposes. An employer who has questions concerning the plan and military leaves should direct these inquiries to a benefits attorney.
Compensation, Vacation and Other Benefits Upon Reemployment
USERRA generally requires a returning Uniformed Service member to be restored to the position he or she would have been in but for the interruption for military service. This means that all seniority related benefits include the period of his or her military leave. For example, the returning employee's compensation should reflect any pay adjustments he or she would have received during this leave period. Likewise, vacation time must reflect the employee's period of military leave. The same applies to year-end bonus payments, hourly rates, commissions, job promotions and similar employment related items. If a wage increase is based upon the employee's job performance, ability or qualifications, an automatic increase upon return to employment is not required. Instead, the increase is required after a reasonable time during which the returning Uniformed Service member demonstrates his or her eligibility for the increase.
An employer should keep in mind that a military leave, to the extent not otherwise required by USERRA or state law, is treated like any other paid or unpaid leave provided to employees. As such, the employer should treat a Uniformed Service member and the benefits to which he or she is entitled in accordance with the employer's other policies for paid or unpaid leave.
Enforcement and Penalties
USERRA and most state laws contain a number of enforcement and penalty provisions. Employers also should be aware of retaliatory discharge claims. USERRA and many state laws contain strict no-retaliation provisions. As noted above, under USERRA and in some states, an employer's ability to discharge an employee for other than cause is limited for a specified period of time after a Uniformed Service member returns to work.
Uniformed Services members may seek enforcement of their rights under USERRA by petitioning the Secretary of Labor or by bringing suit in federal court. Petitioning the Secretary of Labor is not required before a federal court action can be brought. The Secretary of Veteran Affairs must provide, upon request, assistance to Uniformed Service members with a claim. Additionally, the Secretary must conduct an investigation to determine if a violation has occurred. If it has, the Secretary is required to make a reasonable effort to get the employer to comply with USERRA. If those attempts fail, the complaining Uniformed Service member may request that the complaint be forwarded to the U.S. Department of Justice. The Department of Justice may institute action against the employer and appear in that lawsuit on behalf of the Uniformed Service member. Or, the Department of Justice may act as the attorney for that person.
Employers may be held liable for back wages and benefits, costs, attorneys’ fees and limited punitive damages. Courts are also authorized to order an employer to reemploy a Uniformed Service member or otherwise to comply with the provisions of USERRA.
A better understanding of these rights and responsibilities should ease the concerns of both Uniformed Service members and their civilian employers.