On December 19, 2005, the United States Department of Labor (“DOL”) published final regulations interpreting the Uniformed Services Employment and Reemployment Rights Act of 1994 (“USERRA”), which is the federal law that establishes employment and reemployment rights for individuals who leave their jobs to perform military service and related activities. At the same time, the DOL published final regulations regarding the employer notice obligations under USERRA. This is the first time since USERRA’s passage in 1994 that the DOL has developed final regulations to explain and clarify USERRA. These regulations will be effective on January 18, 2006.

The final regulations provide detailed guidance in a question-and-answer format on important employer and employee obligations and rights under USERRA, including how USERRA protects against discrimination and retaliation because of military service, prevents service members from suffering employment disadvantages due to performance of their military obligations, and affords service members ample time to report back to work following completion of their service obligations. This Legal Alert discusses some of the most significant employment and employee benefits issues addressed in the final regulations.

Employment Issues Under the Final Regulations

The final regulations discuss and clarify a number of important employment issues under USERRA. Of particular importance are the following:

> Uniformed Services. National Guard service under the authority of state law is not protected by USERRA. However, federal National Guard service is protected.

> Time for Employee Notice. Employees may give their employers advance notice of a period of military service either orally or in writing, but this notice must be given “as far in advance as is reasonable under the circumstances.”

> Intent to Return. An employee leaving employment to begin a period of military service is not required to tell the employer that he or she intends to seek reemployment after completing service. In addition, even if an employee tells the employer before entering or completing service that he or she does not intend to seek reemployment, the employee does not forfeit the right to reemployment after completing the period of military service.

> Period of Military Service. An employee does not have to begin service immediately after leaving his or her employment in order to have reemployment rights, but should be allowed adequate time to rest after completing his or her last work day, arrange affairs, and travel safely to the uniformed service site.

> Failure to Report After Military Service. If the employee fails to report for or apply for reemployment in a timely fashion after a period of military service, he or she does not automatically forfeit entitlement to USERRA’s reemployment rights. Instead, the employee becomes subject to the employer’s policies and practices pertaining to an absence from scheduled work.

> Reemployment. Generally, an employee is entitled to reemployment in the job or position that he or she would have attained with reasonable certainty but for the period of military service. Depending upon the circumstances, the employee may have to be placed in a higher or lower position, laid off, or even terminated. The rate of pay to which the employee is entitled upon reinstatement is the rate he or she would have attained with reasonable certainty but for the period of military service. In determining whether the employee would have received merit- or performance-based increases that were implemented during the period of service, the employer may consider the particular employee’s history of merit increases and the work and pay history of employees in the same position or in similar positions.

> Covered Employees. If an employee is on layoff status or a leave of absence at the time the period of military service begins, he or she is an employee for purposes of USERRA and may be entitled to reemployment on return from service if the employee would have otherwise returned to work during the period of service.

> Five-Year Limitation. The employee may perform uniformed service for a cumulative period of up to five years and retain reemployment rights with the employer, but the five-year limit is not a lifetime maximum for the employee. When the employee takes a new position with a new employer, he or she is entitled to a new five-year maximum service period.

> Military Fitness Evaluations. USERRA’s definition of “service in the uniformed services” includes a period for which an employee is absent from a position of employment to determine his or her fitness to perform duty in the uniformed services, whether it is an initial or recurring determination, and whether the determination is a physical examination or other fitness determination.

> Reemployment. Depending on the length of the employee’s absence for military service, the employee may have up to ninety days after completing service to seek reemployment with his or her pre-service employer. The employee may accept employment with another employer during the window period for seeking reemployment without losing reemployment rights (unless the employment with another employer is of a type that would constitute grounds for termination under the pre-service employer’s policies, such as employment with a direct competitor).

> Termination After Military Service. Employees returning to work after military service lasting more than thirty days are protected from discharge without cause for a period of up to one year, depending on the length of the military service. However, employees may be discharged for cause without violating this provision. In this context, discharge for cause is not limited to discharge based on the employee’s conduct. Discharge because of job elimination and layoff for legitimate, nondiscriminatory reasons also constitute discharges for cause.

Benefits Issues Under the Final Regulations

The final regulations also interpret and clarify a number of important employee benefits issues, discussed as follows:

> Cafeteria Plans. The final regulations confirm that pre-tax premium plans and health care flexible spending account plans are considered health plans under USERRA. This means that employees on paid military leave must be allowed to pay for health plan coverage and other health care expenses on a pre-tax basis while they are on leave.

> Entitlement to Non-Seniority Based Benefits. During a period of military service, an employee must be offered the same non-seniority based benefits that are available to similarly situated employees on the most generous form of comparable non-military leave of absence. The regulations provide several factors to consider when comparing leaves, including the duration of the leave (which may be the most significant factor), the purpose of the leave, and the ability to choose when to take the leave. The employee may waive the right to such benefits if the employee notifies his or her employer in writing that the employee does not intend to return to work at the end of the military service.

> Health Care Continuation Provisions.

  • Dependents and Retirees. The final regulations confirm that the right to continue health care coverage during a period of military service is employment-based. As a result, where the service member is a retiree or a dependent of a covered employee, the employer is not required to extend health care coverage to the dependent or retiree during the period of military service.
  • Election for Continuation Coverage. The preamble to the final regulations provides that the DOL is adverse to imposing rigid election rules, such as those that apply under COBRA. Therefore, the final regulations provide that health plans may establish any reasonable rules governing continuation coverage elections under USERRA, and these rules may be similar to the COBRA time frames. However, an employee cannot be precluded from electing USERRA continuation coverage under circumstances where it is unreasonable or impossible to make a timely election. The DOL was unwilling to change the regulation to provide a separate election for dependents under USERRA in situations where the employee does not make a continuation coverage election. However, the DOL notes that plans are free to allow such a separate election in their election procedures.
  • Failure to Elect Continuation Coverage. The final regulations provide that if an employee leaves without giving advance notice of his or her military service, a plan may cancel the employee’s health plan coverage. However, if the employee’s failure to provide advance notice is excused because such notice was impossible, unreasonable, or precluded by military necessity, then the plan must retroactively reinstate coverage upon the employee’s election of continuation coverage and payment of the required premiums. Similarly, if an employee has given notice of military service, the plan has established reasonable procedures addressing election of health care coverage, including reasonable election periods, and the employee has not made an election at the time of his or her departure, then the plan may cancel health plan coverage upon the employee’s departure, subject to retroactive reinstatement of coverage during the election period established by the plan. However, if the plan has not established reasonable procedures governing election periods, then the plan must retroactively reinstate coverage at any time during the maximum 24-month continuation period if the employee elects continuation coverage and pays the required premiums. Plans that are subject to COBRA should consider adopting COBRA-like procedures regarding USERRA continuation coverage elections. These procedures should be placed in the plan document and/or summary plan description.
  • Failure to Pay for Continuation Coverage. The final regulations allow health plans to adopt reasonable procedures regarding cancellation of coverage if timely payment is not made. Plans that are subject to COBRA should consider adopting COBRA-like procedures regarding timely payment of premiums for USERRA continuation coverage. These procedures should be placed in the plan document and/or summary plan description.

    > Health Benefits Upon Reemployment. The preamble to the final regulations makes it clear that employers are responsible for negotiating provisions in a third-party insurance contract that permit the plan to comply with USERRA (e.g., reinstatement of coverage upon reemployment without any waiting periods or exclusions other than the minor exceptions allowed by USERRA).

    > Retirement Plan Issues.

    • Entire Period of Military Service. The final regulations clarify that an employee’s entire period of absence necessitated by military service must be taken into account for purposes of participation, vesting, and benefit accruals. This period includes certain time off prior to the beginning of the period of military service and, with some limitations, the period following the military service during which an employee may apply for reemployment and/or recover from an illness or injury incurred during the military service.
    • Loss of Reemployment Rights. The final regulations confirm that if an employee lawfully loses his or her USERRA reemployment rights, a retirement plan is not required to provide any participation, vesting, or benefit accrual rights as a result of the military service.
    • Time Period for Employer Contributions. An employer is not required to make any required employer contributions until the employee is reemployed. The final regulations clarify that the employer must make the employer contributions no later than 90 days after reemployment, or when plan contributions are normally due for the year in which the uniformed service was performed, whichever is later.
    • Repayment of Plan Distributions. The final regulations clarify that only defined benefit plans are required to permit an employee to repay amounts distributed from the plan in connection with a period of uniformed service upon reemployment with the same employer.

      Employer Notice of USERRA Rights

      In March 2005, the DOL issued a proposed version of a notice informing employees of USERRA rights. The final regulations contain a final version of the notice, found at http://www.dol.gov/vets/programs/userra/USERRA_Private.pdf. The requirement that employers provide the notice to employees can be satisfied by posting the notice where employers customarily place notices for employees. The final version of the employer notice should be posted prior to the January 18, 2006 effective date of the final regulations.

      The information contained in this Legal Alert is not intended as legal advice or as an opinion on specific facts. For more information about these issues, please contact the author(s) of this Legal Alert or your existing firm contact. The invitation to contact the author is not to be construed as a solicitation for legal work. Any new attorney/client relationship will be confirmed in writing. You can also contact us through our web site at www.KilpatrickStockton.com.

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