Benefits, Leave Management, Policy, and Compliance

Fedex Miscalculated Pension Benefits for Employee Who Took Military Leave

The 6th Circuit—which covers Kentucky, Michigan, Ohio, and Tennessee—recently heard a claim by an employee who alleged that his pension credits were improperly calculated and did not give him sufficient credit for compensation he received during military leave.military

Facts

“Larry” worked as an aircraft mechanic for FedEx for 11 years. During his employment, he took military leave 55 times and missed 2,166 hours of scheduled work.

In June 2012, Larry complained to FedEx that the compensation imputed to him during his military leave for purposes of calculating his pension benefits was understated. His pension benefit was based on his earned compensation, including the compensation he would have received while he was on military leave. According to Larry, the calculation wrongly reduced his defined benefit pension payments.

In August 2012, Larry took military leave again. In early September 2012, his name appeared in a random audit of employees who had used FedEx’s discounted shipping rates. FedEx’s discount shipping policy prohibited employees from using the company’s shipping for commercial benefit, including shipping items sold on eBay. Records showed that Larry used the shipping discount 90 times between March and August 2012. In late September 2012, FedEx terminated him for violating its discount shipping policy.

Larry sued FedEx, claiming it violated the Uniformed Services Employment and Reemployment Rights Act (USERRA) when it miscalculated his pension. He also claimed that his termination constituted retaliation and discrimination in violation of USERRA (i.e., he was fired for exercising his right to take military leave and for complaining about his pension calculations). Larry appealed after his claims were dismissed by the trial court.

Court’s Ruling

The court of appeals affirmed the dismissal of Larry’s discrimination and retaliation claims. According to the court, FedEx proved that his termination would have occurred even if he had never engaged in “protected activity” by taking military leave and complaining about the pension calculation.

In dismissing the claims, the 6th Circuit addressed the heightened protection given to military members. Specifically, Larry presented evidence that three other employees had violated the discount shipping policy but were not terminated. FedEx argued that those employees were not proper comparators because they were not “similarly situated” to Larry since they had different supervisors and jobs.

The 6th Circuit reaffirmed its prior rulings by holding that FedEx’s argument was proper in other types of cases, but under USERRA, the “similarly situated” test is limited solely to whether the misconduct and discipline are comparable. Even after using the test, the court agreed that FedEx terminated Larry because of his violation of the discounted shipping policy, not because he engaged in protected activity under USERRA.

The 6th Circuit, however, reinstated Larry’s pension calculation claim. The decision was the first time the 6th Circuit had addressed how compensation should be calculated for an employee on military leave. USERRA requires employers to treat military leave as compensated time for purposes of calculating pension benefits. If the amount of pay an employee would have earned during military leave is not “reasonably certain,” USERRA requires the employer to “look back” 12 months to estimate how much his compensation would have been during leave.

Larry’s compensation was not “reasonably certain” because he received different rates of overtime pay, shift differentials, and license premiums. Thus, FedEx looked back over the previous 12 months to determine an average hourly rate of pay and then applied the rate to Larry’s scheduled work hours each day during his military leave.

Larry claimed the “two-step” calculation violated USERRA’s “look back” rule. According to him, FedEx should have determined only his average compensation for the previous 12 months and applied it to his military leave. In essence, he argued that FedEx was denying him credit for the overtime hours he would have worked.

USERRA specifically states that an employer should apply the “average rate of compensation during the 12-month period immediately preceding” an employee’s military leave. The 6th Circuit concluded that FedEx’s interpretation did not comply with the statutory provision. Rather, the one-step average-compensation test advocated by Larry should have been used. Kenneth Savage v. Federal Express Corporation, et al., No. 16-5244 (6th Cir., May 10, 2017).

Bottom Line

Employers that have a pension plan need to evaluate the methodology used to calculate missed compensation due to military leave and ensure compliance with this decision. “Look back” calculations are evaluated on a case-by-case basis, and the numbers can differ from employee to employee.

Tony C. Coleman, contributor to Kentucky Employment Law Letter, can be reached at tcoleman@fbtlaw.com.