The Third Circuit Court of Appeals decided this week that an employer may reduce the amount of an employee’s bonus because of absences protected by the Family Medical Leave Act.

In the case, Sommer v. Vanguard Group, the Vanguard Group’s bonus plan depended on job level, length of service, and the actual hours an employee worked, excluding those spent on short and long term disability or leaves of absences. Employees who worked part-time could also have their bonuses prorated.

The plaintiff, Robert Sommer, took eight weeks of FMLA leave. When he received his year-end bonus, it had been reduced for the time that he was on leave. Sommer challenged this, claiming it violated the FMLA’s prohibition against an employer interfering with FMLA time. Sommer claimed he was entitled to the full bonus, in spite of his leave time.

In making its decision, the Court distinguished between “production” bonuses and “occurrence” bonuses. Production bonuses require a certain positive effort on the part of the employee, for example, billing a certain number of hours or selling a certain number of products. Occurrence bonuses reward employees for complying with the rules. These bonuses might be rewards for perfect attendance. The Court decided that employers could prorate production bonuses, but not occurrence bonuses, for absences related to FMLA leave.

Because more employers are offering bonuses, up from 51% to 88% in the last fifteen years, employers need to be particularly aware of the types of bonuses their company is offering. Providing bonuses helps to motivate employees, while helping to manage fixed costs. Employers who want the capability of prorating employee bonuses to reflect FMLA leave, must make sure that their bonus is a production bonus plan. These are the determining factors of a production plan:

1. it was designed to recognize an employee’s contributions to the employer’s growth and success
2. during the time of the leave, the employee was not contributing to their employer’s overall performance
3. qualifying bonus amounts were based on hours worked and were prorated for every hour that employees were below an annual goal
4. the bonus payment was always prorated for leave time, no matter how short
5. a numerical target had to be met
6. the bonus was prorated for other leaves, not just FMLA.