Employer's Inclusion of FMLA Benefits In Handbook May Bind Company, Even Without the Requisite 50 Employees

Under the Family and Medical Leave Act (FMLA) a qualified employee is one who has worked for at least 1250 hours during the previous 12 months.  In addition, an employer is subject to the FMLA if it has at least 50 employees within a 75 mile radius.  Recently, the 7th U.S. Circuit Court of Appeals held that an employee can proceed with state-law claims for breach of contract or promissory estoppel based on handbook language granting FMLA-type leave, even though the employer had less than 50 employees.  Peters v. Gilead Sciences, Inc., 7th Cir., No. 06-4290, July 14, 2008.

Steven Peters was employed by Gilead Sciences as a pharmaceutical sales representative when he suffered a work-related injury in 2001.  He re-aggravated the injury in 2002, and underwent corrective surgery in December of that year.  At that time, he took what he thought was FMLA leave for 12 days.  The day after beginning his leave, Peters received a letter from Gilead, stating the terms of his “FMLA” leave, and informing him of his right to reinstatement after leave.  The letter tracked language that was set forth in the company’s employee handbook regarding employees’ entitlement to family and medical leaves.  Although the letter and the handbook both included the 1250 hour/12 month language, neither included the 50-employees-within-a-75-mile-radius (“50/75”) language and, in fact, Gilead did not have 50 employees within a 75 mile radius. 

Peters returned to his position on December 16, 2002.  In March, 2003, Peters began to experience an adverse reaction to his medication and took a second leave from March 4 until May 5, 2003.  At that time, a letter was sent to him setting forth the terms and conditions of the leave, and again the letter omitted the 50/75 language.  However, Peters did not receive this second letter.

In April of 2003, Gilead decided to replace Peters with another employee.  On April 25, Gilead sent a letter to Peters, designating him as a “key” employee.  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, which he declined.

Peters then filed suit against Gilead, alleging a number of claims, including FMLA and state-law claims.  Gilead filed a motion for summary judgment, which was granted on all claims except for Peters’ FMLA claim.  His state-law promissory estoppel claim was not addressed – instead the lower court incorrectly allowed Gilead to re-characterize that claim as an “equitable estoppel” response to Gilead’s affirmative defenses.  Gilead then filed for reconsideration, which the court granted, dismissing the FMLA claim. 

On appeal, the Seventh Circuit pointed out that the lower court “did not address whether Gilead’s promises were actionable as a contract or under promissory estoppel.”  It pointed out that Peters had filed a state-law claim based upon his own reliance on Gilead’s representations – both in the handbook and the letters – which characterizes his entitlement to leave as based upon 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, Gilead’s handbook had 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 Gilead’s liability under state law.

Employers who do not come within the 50/75 requirement of the FMLA can offer FMLA-like benefits to their employees.  However, a decision to offer such a benefit should be made consciously and after discussion with and recommendation from legal counsel regarding the effects and ramifications of such handbook or policy language.  To fail to do so may result in unintended liability for damages under state law contract or promissory estoppel claims.