Employers are increasingly offering periods of leave as a benefit for employees to combat burnout and retain high-quality workers. Employees are also asking for leave more frequently.
Supporting these trends, on January 17, 2023, AbsenceSoft released its “2023 Employee Leave of Absence Forecast Survey” of 600 corporate and human resource leaders to learn about the current state and future of leave management at their organizations.
More than a quarter of the survey respondents reported that they expected employee leave requests to increase by 41–60 percent in 2023, including for reasons related to burnout and mental wellness. Additionally, 23 percent of respondents indicated they had added or were considering the addition of company-sanctioned sabbaticals.
Companies enjoy a wide range of flexibility to craft a sabbatical benefit that serves the company and its employees’ best interests. However, while a sabbatical benefit can provide an attractive advantage for an employer in the ongoing battle for top talent, it does not come without potential legal pitfalls.
1. Effects on Requests for Leave as an Accommodation to a Disability
A sabbatical benefit may affect the separate issue of whether an extended period of leave is a reasonable accommodation that an employer must provide to an individual with a disability.
Under the Americans with Disabilities Act (ADA), leave may be a form of reasonable accommodation that an employer must provide to an individual with a disability if granting such leave does not impose an undue hardship. While multiple jurisdictions have held that an indefinite leave of absence cannot be a reasonable accommodation, some hold open that a long-term leave of up to multiple months with an identifiable end date may be a reasonable accommodation that an employer must consider granting unless it can demonstrate an undue hardship.
For example, the Ninth Circuit Court of Appeals (which covers district courts in Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington) has not eliminated the possibility that a definite, long-term period of leave may be a reasonable accommodation under the ADA.
A sabbatical benefit in a jurisdiction such as the Ninth Circuit may impact whether a leave request is considered a reasonable accommodation the employer must provide or an undue hardship. Whether a potential accommodation presents an undue hardship that an employer does not have to provide is a fact-intensive analysis that will depend on the details of the circumstances.
A sabbatical benefit could be cited as evidence that a long-term period of leave will not present an undue hardship to an employer because the employer voluntarily offers similar periods of leave to nondisabled individuals for personal reasons. Employers may want to consider that sabbatical leave may be used to support an employee’s request for long-term leave as an accommodation when determining the length of leave to include as part of their programs.
2. State or Other Local Family and Medical Leave Substitution Rights
A paid sabbatical benefit may also become leave that an employee may substitute for other unpaid leave rights under state or other local laws. Under the federal Family and Medical Leave Act, employees enjoy limited rights to substitute accrued paid leave for the unpaid leave benefit the law provides. Additionally, federal law allows employers to compel employees to substitute paid leave benefits. However, state and local laws may provide different substitution rights.
Differences among state and local laws may include that an employee enjoys a stronger right to substitute accrued paid leave than a sabbatical benefit may provide for unpaid leave.\
Whether state and local laws allow for employee control over leave substitution may factor into an employer’s consideration of whether a sabbatical benefit will be paid or unpaid and its duration. Policy language to craft the sabbatical benefit may be key to determining whether substitution may or must be allowed. For example, policy language that is not clear on when and how sabbatical benefits accrue may impact whether an employee can substitute paid sabbatical leave for unpaid family and medical leave, or other similar leave under local law.
3. Financial Incentives to Return to Work
Incentive bonuses designed to ensure a return to work from sabbatical leave may have implications under the Fair Labor Standards Act (FLSA) and state wage and hour laws for nonexempt employees.
As part of a sabbatical program, whether an employer offers paid or unpaid leave, employers may consider including a financial incentive for employees to return to work and maintain the employment relationship for an extended time after the benefit period concludes. These amounts may be paid immediately upon return from leave or after a defined period for which the employee continues employment to improve the likelihood of a long-term relationship.
Under the FLSA, such a financial incentive that is predictable to an employee may be considered a nondiscretionary bonus. Nondiscretionary bonuses must be included in the total compensation a nonexempt employee receives to determine the employee’s regular rate of pay from which the overtime rate is calculated. These bonuses can include what may be known as “longevity bonuses,” which are financial awards paid to employees in recognition of service or for maintaining employment.
Longevity bonuses can be one type of nondiscretionary bonus that must be included to calculate a nonexempt employee’s regular rate. In 2020, the U.S. Department of Labor (DOL) published Opinion Letter FLSA2020-3, which described a “longevity award” for an employee who worked for five years as a nondiscretionary bonus that needed to be included in the regular rate of pay. The DOL found the bonus to be nondiscretionary because the employer did not maintain the authority to deny the award to an eligible employee. However, the DOL noted that policy language that allowed the employer to maintain discretion to award the payment, such as the use of “may” instead of “shall,” could make the bonus discretionary and not required for inclusion to determine the regular rate of pay.
One factor an employer may want to consider when drafting a sabbatical benefit policy is whether hourly, nonexempt employees will be eligible for sabbatical leave and whether the employer will provide a financial incentive to return to work. If nonexempt employees are eligible to participate in the benefit, employers may want to be mindful of any financial incentive the employees are eligible to receive for returning and continuing employment, and the potential overtime rate-of-pay implications.
4. Effects of Limiting Benefits to Certain Employees
To militate against potential FLSA concerns, a company may consider limiting access to a sabbatical benefit to certain positions, such as management employees. However, such a strategy may raise other risks. Limiting access to such benefits may have detrimental consequences on employee relations.
Employers continue to experience a tight labor market with the national unemployment rate remaining at near an all-time low level. Union organization is also a subject of high interest in the national workforce. At the conclusion of the most recent agency fiscal year (FY), the National Labor Relations Board reported a 53 percent increase in union representation petitions filed in FY 2022 compared to FY 2021.
While a company may explore a sabbatical benefit to keep certain employees engaged and satisfied, it may inversely affect those who are ineligible for the same type of leave. Selective benefit administration may serve as an anchor on employee morale for those whom the company determines cannot take part in the same benefit. In the ongoing competition for talent at all levels, employers may wish to consider how sabbatical benefits will be perceived both by those who receive them and those who do not receive them.
5. Continuation of Benefits During Leave Periods
Employee eligibility for certain insurance and other benefits an employer may retain to attract top talent may be impacted by lengthy periods of unpaid leave that occur with a sabbatical benefit.
Benefit plans can dictate whether employees are eligible based on, for example, full-time employment status or average hours per week. Knowledge of current benefits policies, their definitions, and their limits may affect whether an employer is able to offer a sabbatical benefit and the length of leave that may be permitted.
If employee benefits are affected by sabbatical leave, an employer may consider communicating the potential effects on the employee (or the employee’s dependents) to maintain a positive employment relationship. This information could impact an employee’s decision to take a sabbatical or the length of leave the employer ultimately decides to include in its benefit program.
In the fight for talent, it is unsurprising that many employers are considering sabbatical leave as a benefit to promote employee well-being. However, there is not a one-size-fits-all approach to these types of leave and they are not without potential legal consequences. A carefully crafted sabbatical benefit policy can provide an attractive hiring and retention benefit while avoiding these risks.
A version of this article was previously published in Law360.