More than 500,000 members of the National Guard and Reserve have been called to active duty since the September 11, 2001 terrorist attacks, the most since World War II. Of these individuals, approximately 400,000 have completed their duty and either have returned, or are attempting to return, to civilian employment.

As servicemembers return to civilian employment, employers do not always welcome them with open arms. In a recent study conducted by the U.S. Department of Defense, approximately 15 percent of the returning servicemembers who participated in the study reported having problems returning to work. Numerous Web sites are dedicated to military members’ discussions of the difficulties they have encountered when attempting to return to work with civilian employers. The complaints range from delays in returning to work, to denial of leave benefits, denial of reemployment and discharge shortly after returning to work.

In response to the difficulties encountered by servicemembers attempting to return to civilian employment, the U.S. Department of Labor (DOL) recently issued interpretive regulations to guide employers in complying with the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA or the “Act”). USERRA prohibits discrimination and retaliation because of an employee’s military service, provides for leaves of absence for military service, and establishes reemployment rights for servicemembers who return to work after military service.

The regulations clarify and explain what obligations employers have to returning servicemembers under USERRA. The regulations come at a critical time for employers, as military commitments abroad continue to escalate and employees — many of whom who have had to extend their service or serve a second term — continue to be called to military duty.

Although the regulations do not impose new obligations on employers, the DOL and the courts will look to the new regulations to resolve USERRA complaints. It is therefore imperative that employers be familiar with and comply with the new regulations to avoid potential liability under USERRA. The regulations went into effect on January 18, 2006; a complete copy can be found on the DOL’s Web site at www.dol.gov.

This article provides an overview of the provisions of USERRA and the most significant regulations adopted by the DOL.

Who is a Covered Employer?

Unlike other federal discrimination statutes, which apply only to employers with a certain minimum number of employees, USERRA applies to all public and private entities in the United States, Puerto Rico, Guam and the Virgin Islands, regardless of their size. USERRA also covers foreign entities doing business in the U.S. or its territories, as well as U.S. entities doing business internationally.

The Act defines “employer” as any person who has control over employment opportunities. Unlike many other employment statutes, the preamble to the regulations confirms that individual supervisors and managers can be liable under USERRA, but excludes employers or plan sponsors who are responsible only for administration of employee benefits.

The regulations also confirm that the Act’s broad definition of “employer” includes an entity that has denied initial employment to an individual because of service obligations. Likewise, if an entity withdraws an offer of employment because the individual is called upon to fulfill an obligation of military service, the entity withdrawing the offer of employment is an “employer” for purposes of USERRA.

USERRA also applies to multiple employers. The regulations clarify that an “employer” includes not only the entity that pays an employee’s salary, but also a second entity that controls the employee’s employment. A common example of multiple employers occurs where the employee works for a temporary agency and is assigned to a customer’s worksite, such that the employee reports to both the temporary agency and the customer at the worksite. In this instance, both entities are considered to be joint employers under USERRA.

Who is a Covered Employee?

USERRA broadly defines “employee” as “any individual employed” by an employer. The regulations verify that the definition of “any individual employed” includes all current workers and applicants. The regulations also specifically identify high-level employees (such as executives and professionals) and temporary, seasonal, part-time and probationary employees as covered employees under the Act. The regulations emphasize, however, that an employer is not obligated to reemploy a seasonal or temporary worker where there was no expectation that the employee would be employed for any significant length of time.

The regulations also specify that certain classifications of employees who are not currently working are considered covered employees. For instance, if an employee is laid off with recall rights, or is on strike or on an eligible leave of absence, the employee is a covered employee for USERRA purposes.

The regulations also provide that USERRA is inapplicable to independent contractors. In making this determination, the regulations set out the following six factors to determine if an individual is an independent contractor for USERRA purposes: (1) the employer’s right to control the manner in which the work is performed; (2) the opportunity for profit or loss that depends on the individual’s managerial skill; (3) any investment in equipment or materials required for the individual’s tasks, or his or her employment of helpers; (4) whether the service the individual performs requires a special skill; (5) the degree of permanence of the working relationship; and (6) whether the service being performed is an integral part of the employer’s business. As is the case in other areas of employment law, the more direction and control an entity asserts over an individual, the more likely the individual will be considered an employee rather than an independent contractor.

What Military Service is Covered?

The Act covers all categories of military training and service, including voluntary or involuntary service during times of peace or war. In addition to applying to individuals who are called up for National Guard or Reserve duty, the Act applies to service and training for the Army, Navy, Air Force, Coast Guard and Marine Corps and their Reserves; Army and Air National Guards; commissioned corps of the Public Health Service; and the National Disaster Medical System.

In addition to providing time off for service or training, the regulations contain a provision that permits an employee to take time off to organize his personal affairs before beginning military service. The regulations provide that the preparation time can be taken all at once or intermittently depending upon the employee’s individual situation. The regulations do not contain a specific limit as to how much preparatory time an employee can take. Instead, an employer must consider the length of military service, the amount of notice given to an employee, and the location to which the employee must report.

USERRA provides that employees can perform military service for up to five years and retain reemployment rights with an employer. Significantly, the new regulations clarify that the five-year service period only includes time actually spent in service and does not include absences to prepare for service. As a result, if an employee leaves work one week prior to leaving for service to organize personal affairs, the one-week absence prior to the employee’s deployment should not be counted toward the five-year service total. In contrast, for purposes of calculating seniority and benefits, the regulations mandate that an employee is entitled to have both the preparation time and active duty time included in the determination.

What Type of Notice Must an Employee Provide?

USERRA directs that an employee must provide advance notice, either verbally or in writing, of his military service to his employer or employers, when applicable. USERRA is silent on any other requirements for notice. The regulations now recommend, but do not require, that an employee provide at least 30 days notice of service when it is feasible to do so. The regulations also prohibit an employer from requiring an employee to state an intent to return to work before the employee has completed military service.

What Benefits Are Employees Entitled to While on Leave?

USERRA requires that, for purposes of nonseniority benefits, an employee who is on leave for military service should be treated the same as an employee on a leave of absence. For example, if an employer allows employees on other extended leaves of absence to receive holiday pay, accrue vacation or continue disability or life insurance benefits, the employer must offer the same benefits to employees on military leave. The most significant addition of the regulations in this regard is that vacation-leave benefits are considered nonseniority benefits, meaning that employees are permitted to accrue vacation while on military-service leave if an employer allows other employees who are out on leave to accrue vacation benefits.

Compensation/Leave. USERRA provides that an employee on military leave is not entitled to compensation, but employers may choose to pay employees if they desire to do so. USERRA and the regulations also direct that employees can use accrued vacation time or similar leave during military service, but cannot be forced to do so. Employees are usually not entitled to use sick leave while out on military leave, unless the employer permits other employees on leaves of absence to use sick leave for such purposes.

Health Insurance. The regulations incorporate USERRA’s requirements that employees are entitled to maintain health insurance benefits while on military leave for the lesser of 24 months or the period of service beginning on the date the leave begins and ending on the day after the servicemember fails to apply for reemployment according to the schedule described later in this article. For employees who serve less than 30 days, the employee is only obligated to pay the employee’s monetary share to continue health insurance benefits. For service greater than 30 days, an employer can require the employee to pay 102 percent of the premium (the employee’s share, the employer’s share and a two-percent administrative fee).

Who is Eligible for Reemployment After Military Service?

An employee is entitled to reemployment with his civilian employer if he meets the following criteria: (1) the employee provided advance notice of service; (2) the employee has five years or less of cumulative service in the uniformed services in his employment relationship with a particular employer; (3) the employee returns to work or applies for reemployment; and (4) the employee was not separated from service with a disqualifying discharge or other-than-honorable conditions. If an employee meets the first two requirements for reemployment (i.e., he has provided advance notice and has five years or less cumulative service), the employee is required to return to work or apply for reemployment upon the conclusion of service, depending upon the length of time the employee was absent from work. The regulations incorporate USERRA’s reemployment procedures as follows:

Service for less than 31 days: Employees who are absent for less than 31 days must report back to work no later than the beginning of the first full regularly scheduled work period on the first full calendar day after completion of service and the expiration of eight hours.

Service for more than 30 days, but less than 181 days: If an employee has been absent for more than 30 days, but less than 181 days, the employee must submit an application for reemployment to the employer no later than 14 days after completing service. If it is impossible or unreasonable for an employee to apply within 14 days, he must submit the application no later than the next full calendar day after it becomes possible to do so.

Similar to the notice provisions, USERRA fails to contain specific requirements for the application for reemployment, with the exception that it can be verbal or written. The new regulations do state that the application should indicate that the employee is a former employee returning from service and that he seeks reemployment. The new regulations also direct that application for reemployment should be submitted to the human resources department or a first-line supervisor where appropriate.

If an employee is absent for more than 30 days, an employer can request documentation from the employee to establish that the reemployment application is timely and that the separation or dismissal from service is not disqualifying.

Service for more than 180 days: For employees who are absent for more than 180 days, the employee has 90 days after completing service to submit an application for reemployment. The requirements for the application are the same as set forth above.

Notably, the new regulations specifically allow employees to work for another employer during the 90-day period after service, unless the employment would violate the employer’s policy. For instance, if an employer has a policy prohibiting employees from working for competitors and the policy was in place prior to the employee’s departure for service, the employee could lose reemployment rights if he went to work for a competitor during the 90-day period.

Failing to reapply or timely report: The regulations provide that if an employee fails to report back to work timely or fails to apply for reemployment timely, the employee does not automatically forfeit his reemployment rights. Instead, the employee becomes subject to his employer’s attendance policy that would govern absences from scheduled work.

What Position and Benefits is an Employee Entitled to Upon Return to Work?

Prompt Reemployment. The Act requires that employers provide “prompt” reemployment of returning servicemembers who request it. In response to complaints from servicemembers regarding delays in reemployment, the regulations now direct that employers should reinstate employees as soon as practicable, but no longer than two weeks after receiving an application for reemployment. In light of the adoption of a two-week period by the regulations, employers must be sure to respond in timely fashion to requests for reemployment so as to avoid any potential violations of USERRA.

Escalator Principle. One of the most significant additions created by the new regulations is the adoption of the “escalator principle.” The escalator principle requires reemployment in the position the employee would have had if he had not been called for military service. Further, the escalator principle requires that the individual be reemployed in a position that reflects the pay, benefits, seniority and other job benefits the employee would have been able to obtain if not for the period of service. The escalator position can go up or down depending upon the business developments of the employer while the employee was absent. In other words, if the employee’s department was eliminated while he was absent, then under the escalator principle his position has disappeared and he has no right to reemployment.

Seniority Rights and Benefits. Under USERRA, upon returning to work, an employee is entitled to all seniority rights and benefits (1) that he had on the date that he left for service, and (2) that he would have attained if the employee had remained continuously employed. These rights and benefits include those that are provided for the employee by the employer and by law.

For instance, the regulations specifically discuss the Family Medical Leave Act (FMLA) and how it interacts with military leave. Under the FMLA, an employee who works 1,250 hours for an employer is entitled to 12 weeks of unpaid leave in qualifying circumstances. Leaves of absence normally are not included in the calculation of 1,250 hours worked because an employee is not working while on a leave of absence. However, the regulations specifically require that the time an employee is absent for military service will count towards the 1,250 hours-worked threshold. Therefore, for purposes of determining FMLA eligibility, time off for military service must be counted as actual hours worked.

Retirement Benefits. Employees are also entitled to have their retirement benefits determined as if they had not been called to service. For retirement plans that are contributory, such as a 401(k) plan, the employee is entitled to make up missed contributions. The regulations set out the technical requirements by which benefits must be restored and require that an employer make any required contributions to a plan within 90 days after reemployment, except for contributions that are based upon employee contributions.

Disabled Employees. The regulations also provide separate guidance for reemploying disabled employees. It is important to note that the new regulations specify that the definition of “disabled” for USERRA is much broader than the definition of “disabled” under the Americans with Disabilities Act.

Like other employees, a disabled employee is entitled to return to work in the “escalator” position — the position he or she would have attained but for the military service. If the employee is unable to perform the escalator position because of the disability, the employer is obligated to make reasonable efforts to accommodate the employee’s disability. If the employee is still unable to perform the escalator position, the employer must employ the employee in a position that is equivalent in seniority, pay and benefits.

Discharge Protection. A unique aspect of the Act is that it limits an employer’s ability to terminate without cause employees who return from military leave. The new regulations incorporate the Act’s protection and specify that employees serving for more than 30 days, but less than 181 days, can for 180 days after returning to work be discharged only for cause. Employees serving more than 180 days are entitled to one full year of discharge protection. The new regulations supplement USERRA’s discharge protection and define “cause” as misconduct for which the employee had express or fairly implied notice that the conduct would be a basis for termination or other legitimate nondiscriminatory reasons (e.g., position elimination/layoff) if the employer can show that the same action would have been taken irrespective of the military leave.

What Notice is Required to Employees?

All employers are responsible for providing notice to employees of their USERRA rights. The DOL has updated its notice-of-rights language and has created separate notices for federal and nonfederal employees. The new poster should be displayed where an employer posts other employee notices and required postings, such as in an employee break room. The new posters can be obtained at www.dol.gov/elaws/userra.htm.

What Can You Do to Ensure You Comply with USERRA?

If USERRA is violated, a court may order an employer to compensate a claimant for lost wages or benefits. USERRA also authorizes an award of liquidated damages for intentional, or “willful,” violations. As a result, USERRA compliance should be among an employer’s priorities.

Overall, the new regulations provide valuable technical assistance to employers in complying with USERRA. Employers should review their employment policies and practices to ensure compliance with the regulations. Also, as individual liability under USERRA is possible, employers should conduct management training classes on USERRA compliance to ensure managers and supervisors understand the law. Finally, employers should determine whether the states in which it does business have enacted state-specific military-leave laws. To the extent the state law is more stringent than USERRA, the employer must comply with the state law as well. Please do not hesitate to contact us if you have USERRA questions or for review of your company’s military-leave and related policies and practices.