The federal Uniformed Services Employment and Reemployment Rights Act (USERRA) protects the employment rights and benefits of military service members on their return from military duty. The Act specifically prohibits an employer from denying “any benefit of employment” to a person who has served “in a uniformed service.” The potential damages for a USERRA violation are significant. Under the federal statute, an employer may be required to compensate the aggrieved employee for the value of any benefits of employment denied in violation of USERRA and, if the violation is willful, the court may award double damages. Attorney’s fees and litigation expenses are also authorized.

In Koehler v. PepsiAmericas Inc., a recent decision from the Sixth Circuit (the federal court of appeals that includes Ohio), the court applied these penalties for USERRA and related state law violations.

Facts

Kevin Koehler, a driver for Pepsi’s Cincinnati plant, enlisted in the Army Reserve and was called to active duty in 2002. Several times thereafter, he was ordered to report for duty, but each time the deployment was canceled. Nevertheless, under Pepsi’s attendance policy, Pepsi held some of those absences against him and Koehler faced attendance-related discipline.

Koehler filed a complaint with the U.S. Department of Labor, but then met with Pepsi officials to attempt to resolve the matter. In the meantime, Koehler discovered that Pepsi had adopted a policy to bridge the gap between military pay and an employee’s normal pay. After meeting with Pepsi officials, Koehler agreed to drop his complaint and Pepsi agreed to pay the difference between his military and civilian pay for his period of active duty and to excuse two of his absences. After the meeting, Pepsi deposited approximately $10,000 into Koehler’s bank account, but several days later unilaterally withdrew the money. Pepsi defended its action on the ground that its practice toward employees in the military was simply an internal guideline and that the company’s practice covered only those who volunteer for the active duty, not those who enlist in the reserves, as Koehler had done.

Koehler filed a complaint in federal court and alleged that Pepsi violated USERRA by denying him the benefit of the company policy. He also alleged that the company’s breach of its oral promise to pay him $10,000 constituted a breach of contract under Ohio law, and that by making an unauthorized withdrawal of this money from his bank account, the company committed the tort of conversion.

Trial Court

The trial court agreed with Koehler, finding that while an employer is not obligated to pay the wages of an employee who is called for active military service, an employer may, as Pepsi did, adopt a policy of providing a benefit of employment equal to the difference between the active-duty employee’s military pay and civilian pay. The court explained that if the employer adopts such a policy, USERRA protects the employee’s right under the policy. Applying these rules, the court found that Pepsi’s military gap pay policy conferred a benefit that Pepsi violated when it denied Koehler the benefit of the pay differential.

For violating USERRA, the court ordered Pepsi to pay Koehler $16,962.86 in back pay, as well as an equal amount in liquidated damages. The trial court also agreed that the company’s refusal to follow its own policy was a breach of contract and that the company’s act of withdrawing money from the employee’s account, without his consent, constituted conversion and awarded Koehler $50,000 in punitive damages. Thus, Pepsi was ordered to pay approximately $83,000 in damages, plus Koehler’s attorney’s fees and expenses.

The Sixth Circuit

On appeal, Pepsi did not challenge the lower court’s determinations regarding its liability to Koehler, but did challenge the type and amount of damages awarded to Koehler.

USERRA permits a court to award liquidated damages in the same amount as the actual damages, for “willful violations.” USERRA does not define the term “willful.” Other courts have held that liquidated damages are appropriate where an employer’s conduct shows a “willful” disregard for the question of whether its conduct is unlawful. The court explained that liquidated damages would not be appropriate against an employer acting “reasonably and in good faith.”

Pepsi argued that it did not act with “willful disregard.” However, the Sixth Circuit disagreed, finding that there was sufficient evidence which proved that “Pepsi knew of or showed reckless disregard for its obligation to pay the pay differential as a benefit of Koehler’s employment.” The evidence noted by the court included the company’s own policy, the fact that Pepsi received confirmation of Koehler’s military pay, and most significantly, the fact that the company actually deposited funds into Koehler’s account. The logical explanation for the deposit, the court explained, is that Pepsi thought it owed Koehler these funds as a benefit under its policy and USERRA.

Pepsi also argued that under Ohio law, courts have not generally awarded punitive damages based on breach of contract. However, the court disagreed pointing to a state law exception, which allows for the recovery of punitive damages when the breach of contract is also a tort under state law for which punitive damages are recoverable. The tort in this case was the act of conversion. Applying the exception, the court held that the evidence of willfulness that supported liquidated damages under USERRA was also sufficient to support a finding of malice, which justified an award of punitive damages under state law.

Practical Points to Remember

Under USERRA, employers are not obligated to pay wage differentials for civilian versus military pay. However, if an employer represents that it will do so, through a policy, by contract, or otherwise, then under federal law the employer is obligated to pay the wage differential. An employer’s failure to make good on its promise, particularly if there is evidence that an employer’s actions demonstrate a willful disregard for an employee’s right to benefits, can, as this case demonstrates, ultimately result in significant monetary costs to an employer far in excess of the employer’s employment benefit obligation, such as payment of a wage differential.