On February 11, 2008, the Department of Labor (“DOL”) issued the much-anticipated proposed regulations (the “Proposed Regulations”) under the Family and Medical Leave Act of 1993 (“FMLA”). Once finalized, the Proposed Regulations will replace the final regulations which have been in effect since April 6, 1995 (the “1995 Final Regulations”). Comments regarding the Proposed Regulations are due on or before April 11, 2008.

The 1995 Final Regulations explain the rules governing administration of benefits during and following an employee’s FMLA leave. While the DOL received many comments, it has left the rules contained in the 1995 Final Regulations largely intact. While the changes in the Proposed Regulations are minimal, they do set forth in greater detail how employee benefits are to be treated with respect to an FMLA leave. The Proposed Regulations also serve as the notice for proposed rulemaking and request for comments relating to the FMLA amendments that were part of the National Defense Authorization Act of FY 2008 (“NDAA”). NDAA amendments are effective (in part) January 28, 2008.

This Legal Alert summarizes the rules and any changes or clarifications contained in the Proposed Regulations relating to employee benefits. For an analysis of the Proposed Regulations’ other changes and clarifications, please see our related Labor & Employment Alert, which provides a comprehensive discussion of the employment law aspects of the Proposed Regulations, except as indicated below.

Health Plan Coverage for Employees on FMLA Leave

Group Health Plan. The Proposed Regulations require employers to give employees who take FMLA leave the option to continue coverage under their health plan at the same level and under the same conditions as provided prior to the leave. This means, for example, that if the employer subsidizes some or all of an employee’s premium for group health coverage, the employer must continue to do so while the employee is on leave. For this purpose, a “group health plan” includes coverage for medical, dental, vision, health flexible spending arrangements, health reimbursement arrangements and employee assistance programs (EAP). However, individual health insurance policies which satisfy the safe harbor exemption from ERISA set forth in DOL Reg. § 2510.3-1(j) are not considered “group health plans” under the Proposed Regulations. If an employee elects not to continue health coverage while on FMLA leave, upon return to work, the employee must be reinstated in the group health coverage on the same terms and conditions as existed prior to the leave. Accordingly, an employee cannot be subject to a waiting period or an exclusion for pre-existing conditions upon reenrollment to the extent that those rules were satisfied prior to the FMLA leave.

Employee Premiums. If the employee takes paid FMLA leave, the employee’s share of the applicable premiums must be paid by the method usually used during any other paid leave (e.g., payroll deduction). If the employee takes unpaid FMLA leave, the employee may be required to pay his or her share of the premiums for the cost of health coverage in one of the following ways: 

  • At the same time that it would be made by payroll deduction;
  • On the same schedule as COBRA payments; 
  • Prepaid pursuant to a cafeteria plan if certain requirements are met; or 
  • Some other method voluntarily agreed to by the employer and the employee.

If the employee participates in a cafeteria plan when the FMLA leave begins, the employer should also consult Treas. Reg. 1.125-3 regarding payment of premiums for coverage provided during the leave.

The employer must provide the employee with advance written notice of how premiums must be paid during the leave and the possible consequences of failing to make such payments in a timely manner. However, if the employer has an existing policy for payment of premiums by an employee on unpaid non-FMLA leave, the employer may require the employee to pay premiums in the same manner as long as the policy does not require prepayment by an employee without the employee’s consent.

If the employee’s share of a premium payment is more than 30 days late, the employer may terminate the employee’s health plan coverage after providing written notice at least 15 days prior to termination of the coverage. Alternatively, the employer may elect to pay the employee’s share of the premiums and recover the payments from the employee once the employee returns to work. The employer may recover premiums through deductions from any amounts due to the employee, such as wages or vacation pay, provided that the deductions do not violate other laws, such as state or federal wage payment laws.

If the employee fails to pay health plan premiums and coverage is terminated, upon return to work, the employer must still restore the employee to the same level of coverage he or she had before commencing FMLA leave. The DOL received a number of comments about this aspect of the 1995 Final Regulations. However, the DOL did not make any changes other than to add a provision clarifying that if an employer fails to restore an employee’s health coverage after the employee’s return from FMLA leave, the employer may be liable for the benefits lost, direct monetary damages or other equitable relief.

Employer Premiums. Generally, if an employee fails to return from unpaid FMLA leave, the employer can recover its share of any health plan premiums it paid during the leave, subject to the following two exceptions: 

  • If an employee fails to return to return to work because of the continuation, recurrence, or onset of a serious health condition of the employee or the employee’s family member which would otherwise entitle the employee to FMLA leave, the employer cannot recover its share of the health plan premiums. The employer can require medical certification of the employee’s or the family member’s serious health condition.
  • If an employee fails to return to work for reasons outside of the control of the employee, the employer cannot recover its share of the health plan premiums. Reasons outside the control of the employee include the decision to stay home with a family member who has a serious health condition or a spouse’s unexpected transfer to a job in a different geographical area.

The DOL received comments from employers and practitioners noting that it is difficult for an employer to recover the cost of premiums from an employee who does not return to work and that, consequently, these rules may be subject to abuse by employees who take FMLA leave without any intention of returning to work. However, the DOL indicated that it was unable to change these rules under current law.

Coverage under Other Welfare Benefit Plans

An employee’s right to benefits other than group health benefits during FMLA leave is to be determined by the employer’s established policy for providing these benefits when the employee is absent from work due to other forms of leave. Accordingly, an employer is not required to maintain other welfare benefits (e.g., disability insurance or life insurance) for an employee who is on FMLA leave as long as the employer does not provide this benefit continuation to employees who take other types of leave. As with health benefits, upon a return to work, the employee is entitled to receive benefits equivalent to those provided by the employer prior to taking leave without being subject to any waiting periods or other limitations to the extent those limitations were satisfied prior to the leave.

Before discontinuing non-health benefits for FMLA leaves, the employer should confirm that the insurers of any insured plans will provide coverage, without any restrictions, to the employee upon a return from leave. To ensure reinstatement at the same level of coverage, the employer may have to pay the employee’s premiums for these benefits during unpaid FMLA leave. If the employer chooses to maintain non-health coverage while the employee is on unpaid FMLA leave, at the end of the leave, the employer may recover the employee’s share of the premiums whether or not the employee returns to work, but the employer’s share of the premiums are not recoverable.

FMLA Amendments – Expanded Protections for Military Families

The NDAA amended FMLA to extend and expand the protections to employees whose family members are serving in the armed forces. The FMLA amendments were included in earlier legislation, which was vetoed on December 28, 2007 by President Bush (for reasons unrelated to the FMLA amendments). These same FMLA amendments were then included in the NDAA, which was signed by President Bush on January 28, 2008. (See our Labor & Employment Legal Alert of December 19, 2007 for a discussion of the FMLA amendments.)

The FMLA amendments have a staggered effective date. The provisions dealing with leave for family members of individuals serving in the armed forces are effective January 28, 2008, while the provisions dealing with qualifying exigency leave will not be effective until the DOL issues final regulations defining a “qualifying exigency.” The DOL is aware of the need to issue final regulations regarding the FMLA amendments quickly. As a result, the Proposed Regulations also serve as the notice for proposed rulemaking and a request for comments regarding the final regulations relating to the FMLA amendments.

Military Family Leave. Under the FMLA amendments, an employee may take up to 26 weeks of leave during any twelve-month period to care for a servicemember who is the spouse, son, daughter, parent or next of kin of the employee while the servicemember is undergoing treatment or is on the temporary disability retired list for a serious injury or illness (“Military Family Leave”). The FMLA amendments provide that Military Family Leave may only be taken within a single 12-month period. In the preamble to the Proposed Regulations, the DOL sets forth possible interpretations and seeks comments on how the single 12-month period should be interpreted. For example, the single 12-month period may be read as a one-time entitlement for each employee, a one-time entitlement with respect to each covered servicemember or a one-time entitlement with respect to each serious injury or illness of a covered servicemember.

Under the FMLA, if an employee fails to return to return to work because of the continuation, recurrence, or onset of a serious health condition of the employee or the employee’s family member which would otherwise entitle the employee to FMLA leave, the employer cannot recover the employer’s share of health premiums. The FMLA amendments apply this same exception to employees who are on Military Family Leave. The DOL recognizes, however, that a “serious injury or illness” of a servicemember that entitles an employee to Military Family Leave is not the same as a “serious health condition” under the Proposed Regulations. Accordingly, the DOL anticipates that it will need to clarify how this exception applies to Military Family Leave in the final regulations and asks for comments regarding this issue.

Qualifying Exigency Leave. Under the FMLA amendments, an employee of a covered employer also may take up to twelve weeks of leave in any twelve month period in the event of a “qualifying exigency” arising from the fact that a spouse, son, daughter, or parent of the employee is on active duty or ordered to active duty in the armed forces in support of a military operation. This provision is not effective until the DOL issues final regulations, but the DOL encourages employers to provide this type of leave to qualifying employees in the interim.

What Should Employers Do Now?

Review FMLA Policies and Related Documents. Employers should inventory all of their FMLA policies, handbooks, notices, forms and other related documents to determine what revisions are needed to incorporate the Military Family Leave provisions. As part of this review, employers should take this opportunity to confirm that their FMLA policies and related documents correctly reflect the treatment of an employee’s benefits during FMLA as outlined in the Proposed Regulations.

Review Plan Documents and Summary Plan Descriptions. Employers should review their health and welfare plan documents, summary plan descriptions and other related documents to ensure that the documents are amended to incorporate the changes required by the Military Family Leave provisions. Until final regulations are issued regarding the FMLA amendments, employers are expected to comply with the NDAA in good faith and may look to their existing FMLA policies for guidance as to how the military-related FMLA leaves should be administered. In that regard, employers should confirm that their plan documents provide for benefits to continue consistent with the Proposed Regulations for an employee taking Military Family Leave. Because Military Family Leave lasts for a longer period than other FMLA leaves (26 weeks instead of 12 weeks), employers may need to amend their plan documents, insurance policies and other related documents to provide for such benefits during the leave.

Consider Adopting the Qualifying Exigency Leave Provisions. Although Qualifying Exigency Leave is not effective until the DOL issues final regulations, the DOL encourages employers to comply with the Qualifying Exigency Leave provisions now. Employers who elect to provide Qualifying Exigency Leave before the issuance of final regulations should confirm the treatment of their insured coverages during this leave, because their insurance policies may only cover leave required by FMLA.