Leave Management, Policy, and Compliance, Leave Policy/Compliance

Ask the Expert: Can We Deny Reinstatement to Key Employee?

We have an employee who is nearing the end of her 12 weeks of FMLA. The employee is by definition a key employee. At the time she went on leave, the workplace wasn’t experiencing any changes or growth or the need to replace the position. Therefore, we did not communicate to her that there was a possibility she would not be restored to her position.

Since the employee has been out on leave, we have undergone a restructuring. Now that the business need has changed and we are considering not restoring the employee’s job are we still within the legal realm to communicate that?

Thank you for your inquiry regarding a key employee on FMLA leave.

Under the FMLA, an employer is required to provide specific information and notice to key employees:

  • Alert the employee that he or she qualifies as a “key” employee and that reinstatement may be denied. This notice to the employee must be delivered in person or by certified mail and made as soon as the employee requests leave, or as soon thereafter as is practical.
  • Inform the employee of the possible consequences of his or her designation as a key employee vis-à-vis reinstatement and benefits. This notification to the employee must be in writing and must be done at the same time that the employee is told of key employee status. Employers that don’t provide the appropriate notification lose their right to deny restoration.
  • Provide the employee with notice that restoration is being denied, if applicable, as soon as the employer has made a good-faith determination that substantial and grievous economic injury will result if the worker is reinstated. This notification must be in writing and delivered either in person or by certified mail. Such notification also requires the employer to explain its findings.
  • Give the employee a reasonable amount of time to return to work if the notice of nonreinstatement is given to an employee after leave has already begun. In deciding what is “reasonable,” an employer must consider the circumstances of the leave as well as the need to have the employee back on the job.
  • Provide a second and final determination at the end of the leave period, at the employee’s request, that substantial and grievous economic injury will result from reinstatement, based on the facts at that time.

Failure to Alert Employee of Status

An employer that fails to alert a key employee of the company’s intent to deny reinstatement in a timely fashion loses the right to deny the employee reinstatement. An employer in this case is required to restore the job to the employee, even if substantial and grievous injury would result from the reinstatement of the worker.

Substantial and Grievous Economic Injury

Denial of reinstatement to employees who are among the highest-paid 10 percent of the employees within 75 miles of the employee’s worksite is not automatic. It is allowed only when restoration of the employee to the job would cause substantial and grievous economic injury to the employer’s operations. Note that the economic injury matters only in reinstating the employee.

It does not matter how much the employer’s operations are affected financially because a key employee initially goes on leave; it only matters what happens financially to the company if the employee returns from the leave. Because the test focuses on the injury caused by reinstatement, rather than the injury caused by leaving, satisfying the key employee exception will be rare.

The regulations do not establish a clear test to determine if an employer has suffered a substantial and grievous economic injury. The DOL makes it clear that this injury is not minor. The standard is intended to be more stringent than the ADA’s “undue hardship” standard.

On the other hand, according to the DOL regulations, the impact does not have to be so severe that an employer would be forced to close its doors if a key employee returned to the job. However, minor inconveniences and costs that the employer would experience in the normal course of doing business would certainly not constitute “substantial and grievous economic injury.”

It is the employer’s responsibility to determine if economic harm will occur because of reinstatement. The regulations say that the employer is allowed to consider the cost of replacing the employee temporarily or temporarily doing without the employee to determine if there is substantial and grievous economic injury. And, if the employer must assure “permanent” replacement while the employee is on leave, the employer is allowed to consider the cost of reinstating the employee to a different, equivalent position if the person were to return.

Based on this information, it appears that an employer may make a determination while the employee is on leave that substantial and grievous economic injury will occur because of reinstatement.  However, it also appears that an employer forfeits its right to deny reinstatement if it has not provided the key employee at the beginning of her leave with notice of her key employee status and the potential consequences.

Because of the complexity of these requirements, we strongly recommend consultation with legal counsel before denying the employee reinstatement.