“Key employee” status under the Family Medical Leave Act / California Family Rights Act

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An employer can be severely impacted by an extended leave of absence taken by a high-ranking or functionally indispensable employee. If such an employee needs a leave of absence that is covered under the Family Medical Leave Act and/or California Family Rights Act, the employer may analyze whether the “key employee” provisions of these acts apply. A key employee designation may impact an employer’s ability to replace the employee and deny reinstatement of the employee to their job after the leave.

What is a “key employee?”

Under these laws, a “key employee” is defined as: a salaried employee who is among the highest-paid 10 percent of the employer’s workforce within 75 miles of the worksite at the time of the leave request.

What is the effect of a key employee designation?

An employer is not obligated to reinstate a key employee from the FMLA/CFRA leave if:

  • The employer’s refusal to reinstate is necessary because the employee’s reinstatement causes substantial and grievous economic injury to the operations, such as threatening the economic viability of the business or causing substantial, long-term economic injury. Minor inconveniences and costs that the employer would experience in the normal course of doing business do not constitute substantial and grievous economic injury.
  • The employer notifies the key employee of the employer’s intent to refuse reinstatement when it is determined that the refusal is necessary due to economic injury to the business.

What must an employer do to deny reinstatement to key employee?

  • Written notice of the key employee designation and its potential consequences- The employer must inform the employee in writing at the time it has notice of the employee’s need for FMLA/CFRA leave that the employee is a key employee and how this could impact the employee’s reinstatement rights if it is determined that reinstatement would result in “substantial and grievous economic injury” to its operations. An employer who fails to provide this notice will lose its right to deny reinstatement even if substantial and grievous economic injury will result from reinstatement. If the employer makes a good faith determination that substantial and grievous economic injury to its operations will result if it reinstates a key employee, the employer must notify the employee in writing that it cannot deny CFRA/FMLA leave, but that it intends to deny reinstatement on completion of the leave. The employer must serve the notice either in person or by certified mail. The notice must explain the basis for the employer's finding that substantial and grievous economic injury will result, and provide the employee a reasonable time in which to return to work.
  • Maintain the key employee’s FMLA/CFRA leave rights- The key employee’s status does not eliminate all of that employee’s rights under FMLA/CFRA—only his/her reinstatement rights. As such, If a key employee does not return from leave in response to the employer's notification of intent to deny reinstatement, the employee continues to be entitled to maintenance of health benefits coverage and the employer must continue to cover any contribution it has made to the cost of the employee’s medical insurance premiums. The key employee's other rights under FMLA/CFRA continue through the course of the covered leave until the leave ends.
  • Review denial of reinstatement at employees request for reinstatement- Even after the employer provides the written notice, above, if the employee requests reinstatement at the end of the leave, the employer must again determine whether reinstatement will result in substantial and grievous economic injury, based on the facts at that time If the employer determines that substantial and grievous economic injury will result, the employer must notify the employee in writing (in person or by certified mail) of the reinstatement denial.

The substantial and grievous economic injury standard is a high one to meet, and employers should be very cautious about denying reinstatement from any covered medical leave, including for key employees. Employers should also remain mindful that it may have additional obligations to provide a medical leave of absence and/or reinstatement from such leave as a reasonable accommodation under the Americans with Disabilities Act and/or Fair Employment and Housing Act. As such, any decision to deny reinstatement should be reviewed by legal counsel for compliance and to assess any risks.