The U.S. Court of Appeals, which is the primary federal appellate court for New Jersey, Pennsylvania and Delaware, has just decided an issue of national first impression. In Sommer v. The Vanguard Group the court confronted the interesting question whether an employee who took a leave of absence under the Family & Medical Leave Act [FMLA] was entitled to his full annual bonus, or whether his employer could prorate it because he did not work a full year. If the former, Mr. Sommer would have been entitled to the considerable remedies accorded by the FMLA. If the latter, Mr. Sommer would not receive a part of his annual bonus.
When the court ruled, Mr. Sommer was a little poorer. The court found that Vanguard did not interfere with Mr. Sommer's FMLA rights. The court distinguished, however, between bonuses that are based upon production, and bonuses that are based upon “the absence of an occurrence.” Production bonuses are based, in one way or another, on performance. “Absence of occurrence” bonuses, on the other hand, reward things that do not happen. Common examples are safety achievements and perfect attendance.
Vanguard's bonus plan fully rewarded employees (“crew members” in Vanguard parlance) who worked a minimum of 1,950 hours per year. Sommer had taken about eight weeks of FMLA leave and did not reach the hourly requirement. Under Vanguard policy, his full bonus was prorated downward to account for the shortfall. The court found that this reduction did not constitute interference with Sommer's FMLA rights.
Two initial thoughts come to mind. First, it is important to remember that “absence of occurrence” bonus rights are protected by FMLA. Second, good drafting of the employer's bonus plan may be critical. To reach the conclusion that Vanguard's plan was production based, the court analyzed the “jargon-laden” language of the plan itself. The question was not free from doubt. The best the court could do was to conclude that the Vanguard plan “is more akin to a bonus program that rewards employee production,” which is hardly a ringing endorsement for the clarity of the language.
The lesson? For employers, review your bonus policy to be sure that it clearly and understandably explains employee rights. For employees, as always, read what your employer provides, know your rights, and if you don't understand something, ask.