March 27, 2003

Employees In Uniform: What Employers Need to Know About Military Leave

Holland & Knight Newsletter
Paul G. Lannon

War, and the preparations for war, always have a significant impact on our workforce.  Thousands of reservists are being called to active duty; others are enlisting or seeking commissions; troops are being deployed, and tours of duty are being extended.  Employers face the dual challenges of coping with the absence of employees on military leave and then fitting those employees back into the workforce when they return.  Employers must be prepared to meet these challenges.

Now is the time to review and revise military leave policies.  The first step is to consult with legal counsel about the state and federal laws applicable to your company.  This article highlights the critical starting points.

USERRA Covers All Civilian Employers

The key federal law is the Uniformed Services Employment and Reemployment Rights Act (USERRA), 38 U.S.C. § 4301 et seq., enacted in 1994.  USERRA provides enhanced job and benefits security to full- and part-time employees who are or become 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.  USERRA applies to all “employers,” defined as persons or entities who pay salary or wages to employees or who have “control over employment opportunities,” regardless of the number of employees.   USERRA establishes four general guidelines for employers: 

  • do not discriminate against employees on the basis of membership in the uniformed services
  • do not terminate service members, except for cause, for up to one year after they return to work
  • do re-employ returning service members to the position they would have attained but for their military service, subject to certain notice, length of service and other qualifications
  • do allow service members to maintain insurance coverage and accrue seniority-based benefits while on military leave 

Recent decisions indicate that courts will strictly enforce these safeguards for service members.

State Laws May Also Apply

USERRA sets the minimum standards by which employers may treat employees who are uniformed service members.  State laws may provide additional benefits and protections, but state laws cannot conflict with or abrogate the protections afforded by USERRA.

No Discrimination

USERRA and some state laws specifically prohibit employers from denying employment, retention, re-employment, 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.

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 on 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.  In particular, employers should notify such persons about their rights to continue their insurance coverage and other applicable benefits.

Compensation During Military Leave

Military leave may be with or without pay, at the employer’s discretion.  Many employers choose to make up any deficiency between an employees’ military pay and their regular wages, but there is no federal obligation to do so. Some states, however, do have pay requirements for military leave.

Vacation Time

Uniformed service members may, but cannot be required, to use paid vacation or similar paid leave while on duty.  Nonetheless, an employee is likely to do so when the military pay is less than the regular pay and the employer does not make up the difference.  While an employee is on military leave, vacation time should accrue in the same manner as for other types of leave involving employees with similar seniority, status and pay.  If, however, a vacation policy has a “use it or lose it” provision, employers should consider an exception for employees on military leave given that service members typically have little or no opportunity to use their vacation time before reporting for duty. 

Health Plan Continuation and Other Benefits During Military Leave

USERRA and some state laws require employers to continue benefits for employees on military leave in the same manner as they would for employees taking other types of leave.  USERRA also provides special protection for health care continuation.  Uniformed service members have the right to elect to continue their health plan participation under COBRA-like terms.  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 health plan continuation under 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 percent 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.

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 illnesses are covered by the medical care provided by the uniformed services.  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.

Re-employment and the Escalator Principle

With very few exceptions, uniformed service members who have missed less than five years of employment due to military service are entitled to re-employment, provided they comply with certain notification obligations discussed below.  Moreover, employers are obligated to “escalate” employees to the position, compensation and seniority-based benefits they would have attained but for their military service, if that can be determined with reasonable certainty. 

Thus, employers must include time spent on military leave in calculating a re-employed uniform service member’s vacation time, severance pay, annual bonuses, hourly rates, commissions, promotions and other seniority-based benefits, consistent with the employer’s other leave policies.  If, for example, the “escalated” compensation is based on job performance, discretionary factors or is otherwise not determinable with reasonable certainty, then an automatic, “escalated” increase is not required.  In such circumstances, an employer may revert to the average rate of compensation paid to the employee for the period immediately preceding the military leave until the employee has demonstrated after a reasonable period that he or she is entitled to the discretionary compensation increase, or else an employer may in its discretion provide enhanced compensation immediately upon re-employment based on other nondiscriminatory factors, such as pre-leave or post-leave evaluations or the average compensation of other employees who had similar seniority, status and pay at the time the military leave began.    

A service member’s position upon re-employment depends to some extent on the number of days he or she was absent from civilian employment due to military service.  If an employee’s military service was less than 91 days, the employee must be re-employed 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. If the employee fails to qualify for the “escalated” position, then the employee may be re-employed in the position held at the commencement of military service.  If military service was for more than 90 days, then the employer may substitute for the “escalated” job another position of like seniority, status and pay.

Persons disabled during military service are also granted re-employment 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.

Exceptions occur when (1) re-employment would impose an undue hardship on the employer; (2) the employer’s circumstances have so changed as to make re-employment impossible or unreasonable; (3) the job was a nonrecurrent, temporary position, or (4) the employer had legally sufficient cause to terminate the employee at the time the employee left for military service.  The employer shoulders the burden of proving that an exception applies.

Notice of Return to Work

Employees returning from military leave must notify their employers 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 re-employment within 90 days after active military service ceases.  If the military leave was between 31 and 180 days, an application for re-employment must be made within 14 days after active military service ceases.  No re-employment application is required if the military leave is less than 31 days.  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 re-employment.

No Discharge Except for Cause

Under USERRA, a re-employed uniformed service member cannot be discharged, except for cause, for one year after re-employment if the employee had worked more than 180 days for the employer before the military leave began.  If the returning employee’s period of pre-service employment was more than 30 days but less than 180 days, then the returning employee cannot be terminated, except for cause, for six months after re-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 state law re-employment protection is not dependent on the length of the employee’s military leave. 

Retirement Benefits Upon Re-employment

Re-employed uniformed service members are deemed to have no break in employment for purposes of calculating pension benefits.  Thus, employers must count the military leave period when determining employees’ accrued benefit and vested status.  Employers are required to contribute to the plan the amount needed to fund the returning uniformed service member’s benefit for this period of service. If the plan involves multi-employers, the employer who bears funding liability will be either the one designated in the plan or the employer at the commencement of military leave.  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 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, returning uniformed service members must be given the opportunity to make up lost contributions.  The period of time during which they 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 employees may contribute is the amount they could have contributed if not on leave.  Employer matching contributions or other contributions based on plan participation also must be made by the employer on the employee’s make-up contributions. Earnings and forfeitures do not have to be allocated to returning employees.

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 does not count toward 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. 

Enforcement and Penalties

An aggrieved uniformed services member may complain to the Secretary of Labor or file suit directly in federal court. If the employee complains to the Secretary of Labor, the Secretary will investigate to determine if a violation has occurred. If attempts at voluntary compliance fail, the complaining uniformed services member may request that the complaint be forwarded to the U.S. Attorney General, who may then bring suit against the employer on behalf of the uniformed services member.

If the uniformed services member files suit in the federal court directly, the Secretary of Labor, through the Veterans’ Employment and Training Service, shall provide assistance upon request.

In particular, employers also should be aware of retaliatory discharge claims. USERRA and many state laws contain strict no-retaliation provisions.

A better understanding of these rights and responsibilities should ease the concerns of both uniformed service members and their civilian employers.  Employers may be held liable for back wages and benefits, costs, attorneys’ fees and limited punitive damages. Courts also are authorized to order an employer to re-employ a uniformed service member or otherwise to comply with the provisions of USERRA.

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