The Seventh Circuit Court of Appeals recently held that an Indianapolis worker who was deemed ineligible for leave under the Family and Medical Leave Act (FMLA) may sue his former employer under state law for either breach of contract or promissory estoppel. According to the federal appellate court, statements in the employee handbook and two letters received by the employee that promised him 12 weeks of FMLA leave may have been sufficient to create an enforceable contract under Indiana law. Alternatively, the court held that the worker may be able to prove his claim for promissory estoppel because he relied to his detriment on the company’s promises. Peters v. Gilead Sciences, Inc., No. 06-4290, Seventh Circuit Court of Appeals (July 14, 2008).

Factual Background

Steven Peters was employed as a therapeutic specialist for Gilead Sciences, Inc. (GSI), a pharmaceutical company. Peters worked from his home in Indianapolis representing and marketing GSI’s products to physicians and healthcare professionals in the Midwest region.

In November 2001, Peters suffered a work-related injury to his neck and right shoulder. After reaggravating his shoulder in October 2002, he reported the injury to GSI and filed a workers’ compensation claim. Shortly thereafter, his physician imposed lifting restrictions on Peters and he worked under these restrictions until he underwent corrective surgery in December. Peters then took what he believed to be protected leave under the FMLA from December 5 through December 16, 2002.

The day after his leave started, Peters received a letter from GSI stating his rights under the FMLA. The letter stated in part: “You will retain your employee status during the period of your FMLA leave. This includes accrual of tenure and vacation, in addition to continued health benefits coverage. You will be guaranteed reinstatement in your position, or equivalent position, if you return to work by the time your FMLA leave expires. In this case, since your leave began December 5, 2002, you will need to return to work by February 28, 2003 to be guaranteed such reinstatement.”

The company’s employee handbook also provided under the heading “FAMILY AND MEDICAL CARE LEAVE” and the subheading “ELIGIBILITY”: “A request for family and medical care leave will be granted for all employees employed by the Company for at least twelve months and who have worked 1,250 hours during the twelve months preceding the commencement of leave.” The handbook also guaranteed 12 weeks of family and medical leave during a 12-month period and reinstatement to the same (or an equivalent) position with the company upon return to work.

On December 16, Peters returned to work under medical restrictions that limited him to left hand and arm work. On March 4, 2003, however, Peters took a second leave of absence after his doctors placed him on pain medication that had significant side effects. This second leave lasted until May 5, 2003. At the start of the second leave, GSI again sent a letter to Peters outlining the terms and conditions of the leave and stating that he would need to return to work by April 4, 2003 to be guaranteed reinstatement to his position. The company miscalculated the return date because it had erroneously identified January 26 (rather than December 16) as the date Peters returned from his first leave. Nonetheless, Peters did not receive this second letter.

In early April, GSI decided to replace Peters with another employee. On April 25, the company sent a letter to Peters stating that because he held a “key” position, it could not keep his job open. Under the FMLA, that designation – which includes the highest paid 10% of all salaried employees – allows a company to replace such a key employee rather than hold his position open. The letter advised Peters that his position had been filled, but offered an alternative position to him. Peters declined the alternative position, and GSI terminated his employment.

Peters then filed suit against his former employer, alleging claims under the FMLA, Title VII of the Civil Rights Act, the Americans with Disabilities Act (ADA) and state law. GSI argued that Peters was not an “eligible employee” as defined by the Act. Peters countered that the company was equitably estopped from raising that defense. The trial judge granted GSI’s motion for summary judgment on the Title VII and ADA claims, as well as the state-law claim for retaliatory discharge. The FMLA claim was allowed to proceed, however, and the state-law promissory estoppel claim was not specifically addressed. GSI then filed a motion for reconsideration as to the FMLA claim, which the court granted, concluding that Peters had not established the elements of equitable estoppel. The case was ultimately heard by the Seventh Circuit Court of Appeals.

Legal Analysis

To be eligible for FMLA leave, an employee must work for a covered employer and: (1) have worked for that employer for at least 12 months; (2) have worked at least 1,250 hours during the 12 months prior to the start of the FMLA leave; and (3) work at a location where at least 50 employees are employed at the location or within 75 miles of the location. Although the employee handbook and two letters to Peters both included the 1,250 hour/12 month language, neither included the 50/75 requirement and, in fact, GSI did not have 50 employees within a 75-mile radius.

On appeal, the Seventh Circuit pointed out that the trial judge “did not address whether [GSI’s] promises were actionable as a contract or under promissory estoppel.” The court pointed out that Peters had filed a state-law claim based upon his own reliance on GSI’s representations – both in the handbook and the letters – which characterizes his entitlement to leave based on the FMLA. Promissory estoppel is applicable to a situation in which a promise may lack the elements of a binding contract, but has induced detrimental reliance on the part of the promisee. In this case, GSI’s handbook promised 12 weeks of medical leave, and had repeated that promise in its letters to Peters. Because Peters relied upon those representations, and had assumed that he would be reinstated to his position, the Seventh Circuit remanded the case for consideration of GSI’s liability under state law.

Practical Impact

According to Matthew Effland, a shareholder in Ogletree Deakins’ Indianapolis office: “The Seventh Circuit makes it clear that following established company policy is a two-way street. So, while companies may rely on their handbooks to enforce policy, employees are entitled to rely on company representations in those handbooks without fear that doing so may cost them their jobs. Therefore, employers should make sure their handbooks only make promises that the company is willing to keep.”

Effland continues: “While the Seventh Circuit does not limit its opinion just to situations involving employee leave, that is likely to be an area where many companies will face issues similar to the one GSI faced here. Employers that are not covered by the FMLA can, and often do, offer FMLA-style benefits to their employees. Such offers should be made with care, however, and only after discussion with legal counsel regarding the effects of such handbook or policy language. To fail to do so may result in unintended liability under state law.”

Note: This article appeared in the August 28, 2008 issue of the Indiana eAuthority.