Depending upon what a bonus program rewards, bonuses may be prorated without violating the Family and Medical Leave Act. The U.S. Court of Appeals for the Third Circuit recently ruled that if the program rewards employee production, then prorating bonuses for FMLA absences is generally allowed; if it rewards the absence of an occurrence (like no on-the-job injuries or accidents or perfect attendance), then prorating bonuses is not allowed.

That ruling involved a situation questioning whether an employer illegally interfered with an employee's rights upon his return from eight weeks of short-term disability FMLA leave when it did not award him a full annual bonus payment under its Partnership Plan. Instead, he received a payment prorated on the basis of the time he was absent. The appeals court agreed that the Partnership Plan was a production bonus and prorating the bonus was permitted.

FMLA regulations provide that an employee is not entitled to the accrual of any right of employment, but is entitled to those rights of employment to which the employee would have been entitled had the employee not taken the leave. As applied to bonuses, the court said, this means that an employer may not reduce an absence of occurrence bonus paid to an FMLA leave taker if the employee was otherwise qualified but-for the taking of the FMLA leave. However, that employer may prorate any production bonuses to be paid to an FMLA leave taker by the amount of any lost production (be it hours or another quantifiable measure of productivity) caused by the FMLA leave.

The employee had argued that it was an absence of occurrence bonus, that all that was required was that he be employed, not fired. No, the appeals court said, the company's focus is to incent employees "to contribute to Vanguard's performance and production by meeting a predetermined hours goal." The appeals court also rejected the argument that the Plan unlawfully discouraged the taking of FMLA leave since it did not prorate for vacation and sick leave. Proration occurs for many other types of leave and the FMLA regulations did not require the equal treatment of those who take unpaid and paid leave.

The appeals court held that the hours-based Partnership Plan was a bonus program designed to reward employee production, which could be prorated to account for the hours not worked by those employees who take FMLA leave. Prorating the bonus for time spent on short-term disability leave did not interfere with the employee's FMLA rights.

The court explored the distinction between absence of occurrence bonuses and production bonuses: “production bonuses are those types of bonus programs that ‘require some positive effort on the employee’s part at the workplace,’ as distinguished from a bonus that merely rewards an employee for ‘compliance with the rules.’” Because it can be difficult for a court to shift through the jargon-laden terms of an organization’s bonus program to ascertain the goal actually being rewarded, employers who wish to prorate bonuses should state their intent to reward employee production and clearly articulate the program’s productivity goals.