Thursday, July 24, 2008

Don't estop yourself into coverage

Lots of statutes have thresholds that must be met for coverage. For example, the FMLA only applies to employees with at least 1 year of tenure who worked at least 1,250 hours in the preceding year for an employer with 50 or more employees. As Peters v. Gilead Sciences (7th Cir. 7/14/08) illustrates, those thresholds are not the only way an employee can be covered.

There was no dispute that Peters was not eligible for statutory FMLA leave. Nevertheless, at the outset of his medical leave of absence, Gilead sent him a letter stating that "all employees" were eligible. Gilead's employee handbook makes a similar promise of 12 weeks of medical leave. Because of those representations, Peters might be eligible for medical leave under a promissory estoppel theory, and it may have been illegal for Gilead to replace him while on such leave:

Gilead’s handbook does not exclude any employees from the entitlement to 12 weeks of family and medical leave except those who do not meet the basic prerequisites of 12 months’ employment with the company and 1,250 hours of work in the preceding 12 months. There is no reason employers cannot offer FMLA-like leave benefits using eligibility requirements less restrictive than those in the FMLA .... and that is what Gilead did. Peters’ statutory ineligibility is irrelevant....

In other words, because Gilead promised leave, Peters was entitled to rely on that promise and enforce it to the extent that he relied on it to his detriment.

There are two critical lessons for employers to take away from this case:

  1. Triple-check employee handbooks for appropriate disclaimers. The key to a promissory estoppel claim is that any detrimental reliance was reasonable. A disclaimer in a handbook that tells employees that the handbook is not a contract but a general statement of company policy, that the company has the ability to modify such policy at any time, and that employees are not to rely upon anything in the handbook as binding on the company, would go a long way to showing that an employee's reliance was not reasonable.
  2. Be careful what you tell employees. The handbook notwithstanding, if you represent to an employee that s/he is entitled to a benefit (such as FMLA leave) you better be prepared to stand behind that statement and live up to everything that goes along with it. Before you tell an employee that s/he is covered by the FMLA, it is best to check whether that statement is accurate. That checking may require a 15 minute phone call to your employment counsel. That 15 minute phone call, however, could save your company 2 years of litigation hell.