DOL issues final military leave regulations

By G. Phillip Shuler

In December, the U.S. Department of Labor issued final regulations under the Uniformed Services Employment and Reemployment Rights Act of 1994, as amended (USERRA), which became effective January.

These regulations, the first ever issued under USERRA, turn the internal guidance of the DOL into binding regulations.

The posting requirement originally publicized in March 2005 under the Veterans Benefits Improvements Act of 2004, has been incorporated in and revised by the regulations. Employers are urged to immediately download and post the newest version of the employment posting. A revised USERRA-posting for private employers is available at: http://www.dol.gov/vets/programs/userra/USERRA_Private.pdf.

A brief overview of the most frequently raised issues will be addressed in this update.

Discrimination and retaliation. The regulations affirm the protections afforded to employees and applicants regarding discrimination and retaliation based on military status. Employers must not deny initial employment, reemployment, retention in employment, promotion or any other benefit of employment because of an individual's membership, application for membership, performance of service, application for service, or obligation for service in the uniformed services.

Employers are prohibited from taking adverse employment actions against employees for exercising their rights or attempting to enforce their rights under USERRA. It is noted that the regulations provide that a claim for failure to rehire a returning service member may be a claim for discrimination, but additionally, is a separate cause of action under USERRA.

Employee's notice to employer of leave. An employee must give advanced notice, oral or written, within a time that is reasonable under the circumstances, to his/her employer of the impending leave. Certain circumstances will eliminate this requirement.

Employee's intent to return to work. An employee is not required to inform his/her employer of his/her intent to return to work until after his/her military service has concluded. The regulations specifically state that, even if an employee, prior to taking leave, informs the employer that he/she does not intend to return to work after active duty, this does not waive the employee's reemployment rights upon conclusion of his/her active duty. The employee has a limited timeframe for requesting reemployment, which is dependant on the length of the employee's leave for military service.

Reemployment: employer's time frame. An employer must reemploy a returning service member, absent unusual circumstances, generally, "within two weeks of the employee's application for employment." An employee returning from a short duration (such as weekend duty) should be rehired by the next regularly scheduled shift. "Prompt reemployment" may require additional time if the employer is actively attempting to reassign or give notice to another employee in the position originally held by the returning service member, or is attempting to place more than one returning service member.

Reemployment: escalator provision. The regulations discuss extensively the escalator provisions of USERRA. Generally, a returning service member is entitled to be reemployed at "the position the employee would have attained if his or her continuous employment had not been interrupted due to uniformed services." This includes seniority, pay and status. There are exceptions to this, as well as employer responsibilities similar to those under the American's with Disabilities Act for reemploying an injured returning service member, or for training a returning service member in order to qualify that member for the civilian job.

USERRA retirement, health rules require close look. The new rules also fill in some details on how to administer health and retirement benefits in compliance with the USERRA require proactive employer responses but leave some issues unresolved. When the rules do not expressly address a particular situation, they advise employers to make a reasonable judgment and document the process.

1. Retirement benefits. The broad principle of the pension section of the rules [sections 1002.259-1002.267], is that employees who are away on military duty are treated as if the military leave had not occurred - as if they were still with the employer. The rules keep accruing pension benefits, and the level of employer contribution does not drop to the level of the military salary.

2. Contributory plans. For employees that contribute to an employer-sponsored retirement plan (such as a 401(k)), the rules grant a generous time frame - the greater of three times the period of military service, or five years - to make up the contributions that they otherwise would have made during the period of service.

The rules also provide guidance on whether to count differential pay for purposes of employee pension contributions. "Differential pay" refers to employers' voluntary payments - usually the difference between military and civilian pay - to employees on military duty. Employers who offer the discretionary payments asked DOL whether employees receiving it are entitled to contribute to their retirement plans on the basis of the differential pay.

The DOL addressed the question in the final rules by deferring to the Internal Revenue Service's (IRS) approach, which allows employees in military service to continue to contribute to their employer's retirement plan while on duty.

3. Noncontributory plans. USERRA also requires employers to make retroactive contributions to defined benefit pension plans, that is, those that provide a formula-based benefit and are not dependent on employee contributions. The time deadline for those contributions is the later of 90 days after an employee's return to work, or the date on which the contributions otherwise would have been due for the period of military service.

The 90-day deadline represents one employer-friendly change made between the proposed and final version of the rules. The proposed rules granted employers only 30 days to catch up on contributions.

One issue that the rules do not address is how long the employee must remain at work for the retirement plan rights to apply. The law is silent and is a big problem area for employers.

4. Health care benefits. USERRA and the health care provisions of the regulations (sections 1002.163 to 1002.171) grant employees who leave work for military service the right to continue their employer-based health coverage for up to 24 months while they are in the military. If they do not elect continuation, the employer must reinstate them in the plan upon their reemployment, without waiting periods or exclusions. The rules offer new guidance on how employees choose continuation or reinstatement.

In respect to health care continuation, USERRA is similar, but not identical, to the Consolidated Omnibus Budget Reconciliation Act (COBRA). For example, USERRA covers all employers, regardless of size, but COBRA covers only employers of 20 or more. Also, the time periods for election and continuation under USERRA are vague.

Election issues. In contrast to COBRA, there is no set timetable for electing continuation coverage under USERRA. The DOL said it decided to allow employers and health plan administrators to develop their own reasonable rules, rather than using the COBRA timetables, as some interested parties had suggested. But, the DOL noted, employers may adopt the COBRA timetables if they like. Or, they may establish shorter or longer timeframes, as long as those requirements are "reasonable."

According to its regulatory preamble, the DOL decided to adopt the more flexible approach because it did not want to impose rigid deadlines on the smaller firms that are covered by USERRA but not by COBRA.

USERRA election rights are available only to employees who enter military service, not to retirees or [their] dependents who enter military service, or to dependents of employees who enter military service. COBRA election rights, on the other hand, are available to both employees and retirees and to their dependents.

Employers must offer employees both USERRA and COBRA continuation. An employer should treat an election for continuation coverage by an employee who enters military service as a concurrent election under COBRA and USERRA. That way the employee gets the best of both worlds.

If an employer establishes reasonable USERRA rules that track the COBRA election rules, the employee must elect USERRA coverage within 60 days after the employee receives a USERRA election form from the employer. If the employee elects after that 60-day period ends, the employer is not required to provide USERRA continued coverage.

The ability of a plan to cancel coverage where there is no election of continuation depends on whether the plan has established reasonable rules for notification and payment for continued coverage.

If, however, an employer does not establish reasonable USERRA election rules, employees have until the end of the 24-month USERRA coverage period to elect continuation. If the employee so elects, and pays the required premiums at any time before the end of the 24-month period, the employer must provide coverage retroactive to the date the employee entered military service until the end of the 24-month period. If the employer's insurer won't reinstate coverage for the employee retroactively, the employer must self-insure that retroactive coverage.

Continuation issues. The interplay between USERRA and COBRA also adds complexity to issues surrounding the duration of continued coverage. Whenever USERRA gives the employee a more favorable result than COBRA, the employer has to follow USERRA.

Under COBRA, the employee and the employee's dependents are entitled to a maximum of 18 months continued coverage.

Under USERRA, the employee and the employee's dependents are entitled to a maximum of 24 months of continued coverage. But under COBRA, if the employee or the employee's dependents experience a second qualifying event during the first 18 months of COBRA coverage, the COBRA coverage period can be extended to 27 or 36 months (depending on the nature of the second qualifying event). USERRA, on the other hand, does not offer an extension of the maximum coverage period for a second qualifying event occurring during the 24 months of USERRA coverage.

If an employee goes out on military service, which is a qualifying event under COBRA, and dies within the first 18 months of combined USERRA and COBRA coverage, the maximum coverage period for the employee's dependents can be extended for an additional 18 months under COBRA (for a total of 36 months from the date the employee's military service began).

But, if the employee dies after the first 18 months of coverage ends, and before the end of the 24-month USERRA coverage period, or if no other second qualifying event occurs during the first 18 months of continued coverage, there is no extension of the 24-month maximum USERRA continuation coverage period available.

Employee contribution. Under USERRA, the employee's contribution for continued coverage depends on the duration of military service. If it's fewer than 31 days, the employee pays the regular employee share. If it's 31 or more days, the employee may be required to pay up to 102 percent of the full premium, which represents both the employer's and the employee's share plus a 2 percent administrative cost. If an employee elects but fails to pay for continuation, the employer or plan may develop reasonable rules to permit termination of coverage.

Reinstatement. Employees who do not elect continuation coverage must be reinstated immediately upon reemployment, without the imposition of exclusions or waiting periods. Employees may be allowed to delay reinstatement until a date later than the employment start date, however.

Enforcement of USERRA. Employees can make a complaint with the Department of Labor or commence a private lawsuit to enforce his/her rights under USERRA. USERRA provides no statute of limitations, although some jurisdictions may apply the "catch-all" four-year limit for filing an action under USERRA against an employer.

Nearly one-half million military personnel have been called to serve in Iraq, Afghanistan and elsewhere who were previously employed by private industry. While the DOL claims these new regulations do not impose new obligations on employers, they do result in the DOL's internal guidance becoming binding regulations.