I’m an Family and Medical Leave Act geek – I find the twists and turns and intricacies of this law and its regulations just fascinating. ( I know, that’s really geeky). I was recently advising a client on the key employee exemption under the FMLA, which reminded me of how technical the rules are with regard to this particular issue. I thought some of you might appreciate a primer on this exemption – what it is and how to apply it.golden-key

Under the FMLA regulations, a key employee may be denied restoration to his job position if such restoration would cause “substantial and grievous economic injuries to the employer’s operations.” 29 C.F.R. Section 825.216. A key employee is a salaried FMLA-eligible employee who is among the highest paid 10 percent of all the employees employed by the employer within 75 miles of the employee’s worksite. (Keep in mind that overtime payments to non-exempt employees can increase their income significantly and throw off the top 10%!)

The regulations discuss what “substantial and grievous economic injury” means. Of particular note, the “substantial and grievous economic injury” must be based on the restoration, and “not whether the absence of the employee will cause such substantial and grievous injury.” (Emphasis added). 29 C.F.R. Section 825.216. This is a very important distinction – several courts have found the employers failed to establish “substantial and grievous economic injury” where the employer focused on the effect of the employee’s absence rather than the impact of the employee’s restoration on its operations. Let me repeat that – FOCUS ON THE IMPACT OF THE RESTORATION, NOT THE ABSENCE!

As to what must actually be shown to establish this injury, the regulations offer the unhelpful (and wishy-washy) guidance that:

A precise test cannot be set for the level of hardship or injury to the employer which much  be sustained. If the reinstatement of a “key employee” threatens the economic viability of the firm, that would constitute “substantial and grievous economic injury.” A lesser injury which causes substantial, long-term economic injury would also be sufficient. 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.”

More helpfully, the regulations do state that whether an employee can be temporarily replaced or whether the employer can temporarily do without the employee must be part of the analysis. But “[i]f permanent replacement is unavoidable, the cost of then reinstating the employee can be considered in evaluating whether substantial and grievous economic injury will occur from restoration.”

Several cases have explored whether an employer has been able to meet this “stringent” standard (as the regulations call it), and they turn on whether the employer can show a permanent replacement is actually required. In Oby v. Baton Rouge Marriott, the facility was suffering when the plaintiff, the Executive Housekeeper, left on FMLA leave and the business decision was made to replace her. When the plaintiff sought to return to work, the employer determined that reinstatement would cause it substantial and grievous economic injury if it had to pay the salaries of two Executive Housekeepers. The court found this to be a sufficient showing of injury.

In other cases, however, the employer’s stated need for a permanent replacement was found to be suspect. For example, in Kephart v. Cherokee County, N.C., the county employer argued that it needed a Tax Assessor, was therefore forced to replace the plaintiff, could not reinstate the plaintiff to the position because it was filled, and could not reinstate plaintiff to an equivalent position because that would have resulted in the expenditure of unbudgeted funds. However, the replacement had been appointed only as an “Interim” Tax Assessor at the time that the plaintiff sought reinstatement, and therefore could have been returned to her regular Tax Appraiser position, while reinstating the plaintiff – with no economic injury to the county. Similarly, in Meadows v. Texar Fed. Cred. Union, the employer failed to make the showing of injury where the employee who permanently replaced the plaintiff had previously replaced the plaintiff on a temporary basis during the plaintiff’s prior FMLA leaves.

In addition, the regulations make clear that the “substantial and grievous economic injury” analysis must be performed at several points – initially, when the leave is requested by a key employee, and also if and when the employee requests reinstatement, which he is entitled to do even as a key employee, at the end of FMLA leave. So if a permanent replacement has not been hired by the time the employee can return to work, the employee would be entitled to reinstatement – because there would be no substantial and grievous economic injury by doing so at that point. In addition, if the position has been filled, the Company should still consider if there are any open positions that are available for the employee – this could be required under the Americans with Disabilities Act as a reasonable accommodation, if the employee’s serious health condition (which triggered the FMLA leave) also qualifies as a disability under the ADA.

In Part II of this discussion, we will explore the very technical notice requirements that must be met in order to invoke this Key Employee exemption. Stay tuned!