USERRA May Require Airlines to Pay Pilots While on Military Leave

Takeaway: Several federal circuit courts have allowed employee claims for military leave pay to proceed when they are paid for leave of similar frequency and duration. This should prompt employers to closely review their leave policies to determine whether they treat military leave differently than similar types of leave and consider how to justify or eliminate any differences in treatment.

The 3rd U.S. Circuit Court of Appeals revived a class-action lawsuit by American Airlines pilots claiming that the company should pay them for military leave like it does for bereavement leave and jury leave.

Two American Airlines pilots, a retired U.S. Air Force Reserve major general and a Delaware Air National Guard brigadier general, filed suit to represent a class of pilots who took short-term leave from employment to perform military duties between Jan. 1, 2013, and Oct. 31, 2021. They alleged that the airline’s failure to provide paid leave and profit-sharing-plan credit to pilots on military leave denied them rights and benefits that are given for comparable, nonmilitary leaves, thereby violating the Uniformed Services Employment and Reemployment Rights Act (USERRA).

Under American Airlines’ policies, pilots receive pay during jury-duty leave and bereavement leave. The company provides three days of paid bereavement leave upon the death of a qualifying relative. When pilots take leave for jury duty, the airline pays them the difference between their jury-duty payments and their airline compensation for the duration of the jury service.

American Airlines also maintains a profit-sharing plan for pilots. The plan vests a compensation committee and the individuals it designates with discretion to interpret its terms. The plan states that the airline shares 5% of its pretax profits with employees based on each employee’s eligible earnings. Eligible earnings are based on the employee’s compensation, which is defined as the sum of amounts paid to an employee for a plan year, less imputed income. Compensation was the same amount reported on the employee’s W-2 form, which included jury-duty pay and bereavement pay. Thus, pilots who take short-term military leave do not receive profit-sharing contributions for their unpaid leave.

The pilots claimed that the airline violated USERRA by failing to pay them for short-term military leave despite paying them for periods of jury-duty leave and bereavement leave and by failing to credit pilots under the profit-sharing plan for their imputed earnings during periods of short-term military leave despite crediting earnings from periods of jury-duty leave and bereavement leave. They also claimed that the airline breached its contractual obligations—that is, the terms of the profit-sharing plan—by refusing to credit imputed earnings during period of military leave as compensable for profit-sharing calculations.

The airline moved for summary judgment on all three claims, and the pilots cross-moved for summary judgment on the breach of contract claim. The district court granted summary judgment to American Airlines on all three claims, and the pilots appealed to the 3rd Circuit.

On appeal, the 3rd Circuit considered USERRA’s language to determine whether pay for periods of leave could fall within USERRA’s equal benefits rule for employees serving in the military. The plaintiff alleged that, like jury leave and bereavement leave, military leave often requires several days off work at a time.

The 3rd Circuit determined that USERRA may require employers to pay employees serving in the military if, in fact, the leave closely resembles other types of leave for which employees are paid. It determined that a reasonable jury could conclude that military leave shares common attributes to jury-duty leave and bereavement leave.

In reviewing the breach of contract claim for profit-sharing contributions, however, the 3rd Circuit agreed with the district court that the profit-sharing plan excludes imputed income from periods of military leave. Because the plan was governed by Texas law, the court looked to Texas contract principles. Under these principles, where an employer retains the right to interpret and change an incentive compensation plan, its interpretation governs unless the employer acted in bad faith. Because the airline consistently interpreted compensation as excluding imputed income, such as compensation attributable to military leave, and the pilots could not show that this interpretation was made in bad faith, the contract claim failed.

The 3rd Circuit remanded the case to the district court to proceed to trial on the issue of whether military leave by pilots is comparable to other forms of paid leave and must be compensated.

Scanlan v. American Airlines Group, Inc., 3rd Cir., No. 22-3294 (May 21, 2024).

Jeffrey Rhodes is an attorney with McInroy, Rigby & Rhodes LLP in Arlington, Va.