What is the FMLA key employee provision?

December 18, 2018
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Under the Family and Medical Leave Act (FMLA), reinstatement of a key employee may be denied at the conclusion of FMLA leave if reinstatement would cause "substantial and grievous economic injury" to the employer. Many employers are under the misconception that FMLA leave can be denied for highly compensated "key" employees; however, key employees do have the right to take FMLA leave. What the law does is place limits on the right of key employees to reinstatement.

As defined in FMLA regulation 825.217, "A 'key employee' must be 'among the highest paid 10 percent' of all the employees—both salaried and non-salaried, eligible and ineligible—who are employed by the employer within 75 miles of the worksite. In determining which employees are among the highest paid 10 percent, year-to-date earnings are divided by weeks worked by the employee (including weeks in which paid leave was taken). Earnings include wages, premium pay, incentive pay, and non-discretionary and discretionary bonuses. Earnings do not include incentives whose value is determined at some future date, e.g., stock options, or benefits or perquisites. The determination of whether a salaried employee is among the highest paid 10 percent shall be made at the time the employee gives notice of the need for leave. No more than 10 percent of the employer's employees within 75 miles of the worksite may be key employees."

After identifying an employee as a "key employee," the employer must determine whether reinstatement after FMLA leave would cause "substantial and grievous economic injury" to the operations of the employer. The regulatory language of "substantial and grievous economic injury" is difficult to satisfy. It is more stringent than the "undue hardship" test under the Americans with Disabilities Act. Employers should consider whether reinstatement threatens the economic viability of the organization or whether it will cause long-term economic injury. In addition, employers may consider the ability to replace the employee on a temporary basis during the leave period or simply temporarily do without the employee during the leave. Substantial and grievous economic injury would not result from the minor inconveniences and costs experienced in the normal course of doing business. 

To invoke the key employee exception to reinstatement, the employer must provide the employee with written notice that the employee is considered a key employee at the time the FMLA leave is requested; see sample Key Employee Notification Form. The employer must also inform the employee of the potential that reinstatement to his or her job and maintenance of benefits may be denied. Failure to provide such timely notice will result in the employer being unable to deny reinstatement.

Once the employer determines that substantial and grievous economic injury will occur to the operations and reinstatement will be denied, the employer must provide notice to the employee, including the determination that the employee's leave will cause such injury and the basis for the decision. In addition, the notice must inform the employee that he or she is still entitled to take the FMLA leave. If the employee is already on leave at the time the notice is given, the employer must provide the employee with a reasonable period to return to work so as not to be denied job reinstatement. The notice must be provided as soon as practicable and must be delivered either in person or by certified mail.

It is important to note that the key employee is still entitled to FMLA leave and upon completion may still seek to return to work. If this occurs, the employer is required to make another assessment of whether substantial and grievous economic injury will occur to the operations if the employee is reinstated. If such injury would occur, the employer must again provide written notice of the reinstatement denial, along with the basis for the determination. The notice must be delivered in person or via certified mail. 

The key employee exception to reinstatement places a difficult burden on the employer to meet the standard of a substantial and grievous economic injury and provide related timely notices. While it may be beneficial in some cases to use this exception, employers should exercise caution in doing so and should ensure compliance with all notice requirements. 

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