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Employer may prorate bonus during FMLA leave
Family and Medical Leave Act; Robert Sommer vs. Vanguard Group Inc.; Case overview
HR Magazine
December 2006

Sommer v. Vanguard Group, 3rd Cir., No. 05-4034 (Aug. 24, 2006).

In a case of first impression, the 3rd U.S. Circuit Court of Appeals ruled that employers may prorate production-based bonuses of employees taking leave under the Family and Medical Leave Act (FMLA).

Robert Sommer alleged that the FMLA prohibits employers from reducing bonuses based on hours worked when the targeted hours were misseddue to FMLA leave. In affirming a district court ruling dismissing the claim, the appellate court held that employers are allowed to prorate "production bonuses," even though "absence-of-occurrence" bonuses, such as those awarded for perfect attendance, could not be reduced.

Sommer worked for the Vanguard Group as a financial administrator.In late 2000 and early 2001, Sommer took two months of FMLA leave, claiming major depression and generalized anxiety. Due to this absence, Vanguard prorated Sommer's bonus under its partnership plan, reducing it by $1,788.23.

Vanguard terminated Sommer in 2004 for misrepresenting his qualifications to act as a financial administrator. Sommer sued, alleging Vanguard violated the FMLA by prorating his partnership plan bonus.

Vanguard established its partnership plan in 1984 to reward employees for personal and corporate achievement. Under the plan, employeesworking at least 1,950 hours received a full bonus. Those working fewer hours received a prorated bonus.

Company policy specifically stated that "time spent on leave is not considered time worked" and the bonus was "always prorated for leave time." The policy made no distinction between types of leave.

The district court dismissed Sommer's claims, finding the partnership plan bonus was production-based, for which proration is allowed.

On appeal, Sommer contended the district court incorrectly classified the partnership plan as a production bonus rather than an absence-of-occurrence bonus.

In considering this argument, the appellate court noted that, under the FMLA and a 1994 Department of Labor opinion letter, an employermay prorate a production bonus for FMLA leave, whereas an absence-of-occurrence bonus, such as for perfect work attendance, cannot be compromised by FMLA leave. Sommer argued he qualified for a full absence-of-occurrence bonus because he was employed on the last day of the year, the date of distribution and all days between.

The appeals court disagreed, affirming the lower court and holding, "Sommer's argument that the plan is an absence-of-occurrence bonus because qualification hinges upon continued employment ignores the simple fact that, beyond the plan's qualification requirements, there is an hours-based annual production requirement."

Professional Pointer:

In establishing compensation plans, it is critical to distinguish between "production bonuses," which are paid due to accomplishments of employees while at work, such as total annual hours worked, and "absence-of-occurrence bonuses," which reward compliance with company rules, such as safety and attendance policies. As long as all types of company unpaid leave are treated equally, prorating a production bonus due to unpaid leave will not violate the FMLA.