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Knowing about USERRA is Just the Beginning

With such high mobilization rates, HR professionals are increasingly dealing with the reemployment rights of National Guard and Reserve members. But as in other areas of labor and employment law, there are many practical issues that arise in the workplace for which the law does not provide an easy answer. A legal expert on USERRA offers some guidance.

Tuesday, August 1, 2006
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By now, most HR professionals know from experience the basic rights and obligations of employers and employees under the Uniformed Services Employment and Reemployment Rights Act of 1994 and the law's new, implementing federal regulations which became effective on Jan. 18, 2006.

Military leave is no longer an isolated occurrence in the workplace. Since Sept. 11, 2001, when our nation was attacked, many civilian employees in the Reserve component or National Guard have volunteered or been called to active duty in the military services.

Of a total of 1.2 million Reserve component and National Guard members, nearly 550,000 have been mobilized. Approximately 445,000 have returned to civilian life, with some 104,000 remaining on active duty. In addition, approximately 200,000 service members leave active duty annually. For many in the Reserve and National Guard, and their civilian employers, military service is no longer weekend and summer guard duty. It has meant putting their civilian careers on hold, often through multiple redeployments and lengthy, extended tours of duty, resulting in sacrifices for them and their families, as well as logistical and other workplace problems for their employers.

At the same time, HR professionals have become familiar with USERRA in other ways. The basics of USERRA can be found here. While most employers want to comply with the law, the fact remains that as mobilization has increased, so too has there been an increase in USERRA complaints.

In fiscal year 2004, for example, there were 1,465 complaints; that is, one in every 81 demobilized service members filed a USERRA complaint. Invariably, HR professionals together with legal counsel are called upon to help resolve such complaints filed with the U.S. Department of Labor's Veterans' Employment and Training Service before the complaint leads to costly litigation and damaging public relations.

Thus, most HR professionals have studied USERRA and its implementing regulations, enrolled in seminars, participated in electronic programs hosted by law firms, business associations or professional societies, or visited the DOL/VETS Web site for compliance assistance. They "know" the law. But as in other areas of labor and employment law, there are many practical issues that arise in the workplace for which the law does not provide an easy answer, or which require professional judgment rather than legal expertise.

In its regulations, DOL/VETS ominously reminds us that in interpreting USERRA, just as interpreting prior military leave laws, the U.S. Supreme Court has admonished that "this legislation is to be liberally construed for the benefit of those who left private life to serve their country in its hour of great need . . . . And no practice of employers or agreements between employers and unions can cut down the service adjustment benefits which Congress has secured the veteran under the Act." See Fishgold v. Sullivan Drydock and Repair Corp., 328 U.S. 275, 285 (1946).

In other words, most doubts about interpretation of USERRA and its implementing regulations are to be decided in favor of the service member.

Practical Problems and Counter-Intuitive Solutions

Even with the helpful guidance of the new USERRA regulations available on the Labor Department's Web site, unanswered and unanticipated problems have arisen for HR professionals.

When to Deliver Bad News? What should an HR professional do to notify the service member and/or the service member's family of a layoff or reduction-in-force affecting the service member's position? There is no requirement under USERRA that the employer must notify the employee on military leave of such an occurrence (although depending on the nature and size of the layoff there may be an obligation under the WARN Act).  

USERRA regulations state by way of example: "if an employee's seniority or job classification would have resulted in the employee being laid off during the period of military service, and the layoff continued after the date of reemployment, reemployment would reinstate the employee to layoff status." If the layoff or reduction-in-force is permanent, obviously the pre-service position and the escalator position no longer exist.

Thus, should the employer give the service member or the service member's family the "bad news" when the service member is on active duty and in harm's way, thus adding to their burden, knowing that there may not be a job to return to after military service? Or, since the service member's right to reemployment does not "vest" until after the employee returns from military service and submits a timely application for reemployment, should the employer wait until then?

There is no single "correct" answer, although it might be best to wait before delivering the "bad news" until after the service member returns and actually submits an application for reemployment. Bear in mind, also, that the employer still may have a USERRA obligation to consider reemploying the returning service member to a position "comparable" to the escalator or pre-service position, or to the "nearest approximation" to one of these positions.

What If "Timely" Notice is Untimely? The time for reporting to work or submitting a timely application for reemployment depends upon the length of military service. Allowing a returning service member 90 days to submit an application for reemployment following military service of more than 180 days seems to be a perfectly reasonable and eminently fair requirement.

However, under USERRA, if the employee fails to timely report or apply for reemployment, the returning service member does not forfeit entitlement to USERRA's reemployment and other rights and benefits. Rather, the employee merely becomes subject to the conduct rules, established policy and general practices of the employer relating to an absence from scheduled work, which may or may not prevent reinstatement. If an employer has reinstated other employees after absence from scheduled work, the employer is well advised to reemploy the returning service member so as to avoid discrimination charges.

Also, the returning service member does not forfeit those rights -- even if the returning employee works for another employer before submitting a timely application for reemployment with the pre-service employer. The USERRA regulations provide that an exception is where such alternative employment during the application period would violate an employer's policy against working concurrently for a direct competitor, subjecting the employee to discipline.

Calculating Performance-Based Pay, Performance Bonuses or Commission Sales. With regard to the appropriate rate of pay upon reemployment, the regulations provide that consistent with the "escalator principle" the returning service member is entitled to any pay increases, differentials, step increases, merit increases, or periodic increases (discretionary and non-discretionary bonuses), that the returning service member would have attained with "reasonable certainty."

But what's "reasonable certainty" where the bonus is based on performance criteria, or where commissions are based on sales performance? The regulations do not define "reasonable certainty" but instead resort to the circular logic of referring to the "escalator principle." That's what the employee would have earned if continuously employed, but that begs the question: How do you know how the service member would have performed?

Certainly service members should not be penalized for their military service by not receiving scheduled pay increases that occurred during the period of service and which they clearly would have received if continuously employed. But that's not the nature of performance bonuses which fluctuate and often vary in amount year-to-year.

In attempting to clarify the certainty of "reasonable certainty," the regulations provide that an employer may consider the service member's past work history or the history and pay practices of employees in the same or similar jobs. But doesn't that, too, beg the question? If everyone always gets a performance bonus, is it really a bonus? Presumably not everyone gets a bonus because not everyone's performance merits it in a particular pay period. Aren't performance-based bonuses supposed to reward an exceptionally good performance?

How about commission-based compensation? With regard to benefits, employer and employee contributions to pension plans are often computed based upon a percentage of earnings. Where the service member was paid based on commission sales -- since it is impossible to determine precisely how many sales or how much commission earnings the service member would have realized if continuously employed -- USERRA provides that the computation of employee and employer contributions to the pension plan will be based on the earnings during the previous 12 months immediately preceding entry into the uniformed services, even if commission sales tailed off in the interim.

Making these types of assumptions is what troubles many employers. However, remembering the DOL/VETS admonition, borrowed from the Supreme Court, that USERRA is to be "liberally construed for the benefit of the [service member]," the safest course is simply to assume that the service member always would have performed exceptionally well and would have qualified for a performance bonus which should be included in every returning service member's compensation package.

Penalizing Differential Pay. There is no requirement under USERRA that military leave must be paid leave. However, in some cases employers voluntarily provide employees their full civilian pay in addition to the military pay the service member receives, or more often they provide civilian payments that represent the difference between the employee's military pay and civilian pay. Many employers consider "differential pay" as a generous show of support for their employees who are in service to their country.

Unfortunately, the Internal Revenue service penalizes such generosity.

A 1969 IRS Revenue Ruling (69-136) prevents an employer from withholding taxes on civilian pay provided to an employee on military leave since in the eyes of the IRS such person has been "terminated" from employment for certain tax purposes. Even though a provision of USERRA, which has been incorporated in every reemployment rights statute since 1940, requires that a person absent from a position of employment on account of service in the uniformed services is to be considered on furlough or leave of absence, thus entitled to the same treatment as employees on other types of leave (for whom taxes may continue to be withheld), IRS has refused to conform its policies.

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The effect, of course, is for the service member to be hit with a fat, lump sum tax liability for the differential pay received from the generous employer. When I first disclosed this travesty during testimony before the House Armed Services Committee, there was a hue and cry by members of Congress about forcing the IRS to rescind its 1969 ruling.

Unfortunately, that has not happened. When the same issue was presented in written comments to the DOL during the USERRA rulemaking, the department responded, in effect, that it was beyond its ability to change the IRS Revenue Ruling. The department stated: "Therefore, for the purposes of compliance with USERRA, an employee should be treated as though on furlough or leave of absence, and for the purposes of compliance with the Internal Revenue Code (IRC), the IRS guidance should be followed. See IRS Revenue Ruling 69-136 (1969)."

When is a "Waiver" Not a Waiver? An employer may not require an employee departing for uniformed service to state whether the employee intends to seek reemployment after completing service. Even if the employee states in writing that he or she intends not to return to the civilian job, it does not waive their right to reemployment upon completion of service nor the right to be treated as continuously employed for seniority purposes. It will amount to a waiver of their right to non-seniority benefits only, and then only if the waiver is made knowingly, voluntarily, and in writing.

What Are the Obligations to Employees Who Were Someone Else's Employees? USERRA covers "successors in interest." An employer can be liable as a successor in interest even if it was unaware that an employee may claim reemployment rights when the employer acquired the business. It is not necessary for an employer to have notice of a potential reemployment claim at the time of merger, acquisition, or other form of succession.

This has caused practical, as well as legal problems for employers where, for example, the previous employer's employee and an employee of the successor employer both take military leave from the same position, and then return simultaneously, or even subsequently, claiming reemployment rights to the same position. Although this scenario may seem remote, in fact, it has occurred and will occur with more frequency as the periods of deployments are lengthened and as the trend toward mergers and acquisitions continue.

The only practical advice for HR professionals of successor employers is always to inquire whether any employees of the previous employers are on military leave. Also, it would be courteous for the previous employer to so inform the successor employer at the time of the merger or acquisition.

How does USERRA address such contingencies? It provides that if two or more employees are entitled to the same position and more than one employee has reported or applied for employment in that position, the employee who first left the position for uniformed service has the first priority. The remaining employee is entitled to be reemployed in a similar position, to be determined in accordance with the rules for reemployment positions generally. 

Conclusion

In 2005, the percentage of Reserves, National Guard, and Individual Ready Reserves in Operation Iraqi Freedom was about 40 percent, according to military sociologist Charles Moskos, a professor at Northwestern University. They come from all walks of life and all civilian careers. According to one observer quoted in a New York Daily News story, "An increasing number of U.S. soldiers deployed in Iraq have gray mustaches, bald heads, and noticeable paunches as more reservists and National Guard units are being sent to war."

It's true that employers are faced with increasing difficulties resulting from their employees' military responsibilities. At times, USERRA and its implementing regulations may seem in some respects to be counter-intuitive, but the regulatory scheme is neither illogical nor irrational. It is designed simply to provide reemployment rights and other job protections to the nation's citizen-soldiers on whom we rely for the all-volunteer uniformed services in Iraq, Afghanistan, and elsewhere around the world. It's difficult to quarrel with that laudable and patriotic objective.

Harold P. Coxson Jr. is a shareholder in the law firm Ogletree Deakins, based in the Washington office, where he also serves as the head of its government relations practice through Ogletree Governmental Affairs, Inc. He has 30 years of experience in all aspects of workplace law, and has practiced before the National Labor Relations Board and other federal administrative agencies; litigated important labor and employment cases in the federal courts; and helped shape national workplace law and policy in several landmark cases before the federal courts of appeals and U.S. Supreme Court. He currently serves as the chairman of the U.S. Chamber's Subcommittee on Workplace Trends and International Perspectives and as a member of its Labor Relations Committee.  In addition, he has served as a labor law advisor and member of the U.S. Employer delegation to conferences of the U.N.-sponsored International Labor Organization in Switzerland. He can be reached at hal.coxson@ogletreedeakins.com

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