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The activation of military reservists requires employers to consider the impact of the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA). USERRA applies to employees who leave work to serve in the armed forces, whether they enlist voluntarily, are conscripted as part of a new draft or serve under their obligation as military reservists or National Guard members. USERRA prohibits employment discrimination against employees who are on military service leave and guarantees re-employment to those returning from military leave. Moreover, USERRA provides up to 18 months of continuing health-care coverage and guarantees re-employed persons pension-plan benefits that accrued during military service, regardless of whether the plan is a defined benefit plan or a defined contribution plan.

Applicability

USERRA covers persons who serve, voluntarily or involuntarily, in the Army, Navy, Marine Corps, Air Force, Coast Guard, Public Health Service commissioned corps and in the reserve components of those services. USERRA also applies to persons serving in the Army National Guard and the Air National Guard.

USERRA protects the employment rights of members of these armed forces while in uniformed service. Uniformed service includes active duty, active duty training, inactive duty training (such as drills) and funeral honors duty. It also includes tests to determine fitness to perform in the uniformed services.

USERRA applies to virtually all U.S. employers, regardless of size. Further, it protects all employees, except those employed in short-term temporary positions.

Eligibility

In general, an employee returning from military leave is guaranteed re-employment and other rights as long as he or she complies with notification and other requirements. Employees are protected by USERRA if they meet the following five criteria:

In some circumstances, USERRA will protect employees who serve longer than five years. For example, persons who enroll in certain specialized programs are required to sign up for an initial period of six years. In such cases, the five-year limitation would not apply. The five-year limitation also does not apply in cases of national emergency.

The period of time within which an employee must return to work after the completion of his or her service depends on the duration of the military service. Employees who serve less than 31 days are required to return to employment by the beginning of the first regularly scheduled work period after the completion of military service. Such employees, however, are excused for the amount of time required to return home safely and for an eight-hour rest period. If an employee served between 31 and 180 days, he or she must file an application for re-employment within 14 days after the completion of military service. If an employee served more than 180 days, he or she must file an application for re-employment no later than 90 days after completion of military service. In all cases, if compliance with the time limits becomes impossible or unreasonable through no fault of the employee, he or she must be allowed additional time. Furthermore, reporting and application deadlines are extended for up to two years for persons who are hospitalized or convalescing from a service-related illness or injury.

Re-employment

USERRA provides that employees returning from the armed services must be re-employed in the job that they would have attained if they had not been absent for military service. This requirement is called the "escalator principle." To the extent a position held by a person who served in the armed forces received an increase in compensation, status or benefits, the employee is considered to have risen to the higher level despite serving in the military. For example, if all employees received a 7 percent raise in January, an employee serving in the Navy from December until April would be entitled to a 7 percent raise upon a return to work. Similarly, if an employee held a director position that was upgraded to assistant vice president and resulted in additional benefits, the employee would be entitled to return to work in the higher position with the new status, compensation and benefits.

USERRA also requires employers to train returning service members or to provide other assistance to help them refresh or upgrade their skills to qualify for re-employment. To the extent an employee cannot qualify for a changed position, USERRA requires employers to try to find available alternative positions for which the employee is qualified.

Health Care Benefits

Employee participants in the employer's health plan may continue health care coverage for themselves and their dependents for up to 18 months from the date their military leave begins. Generally, employers may charge up to 102 percent of the full health care premium for this coverage. If, however, the employee will be gone 31 days or less, the employee is required to pay only his or her regular share of the premium. Health benefit plans subject to USERRA's continuation requirements include insurance policies or contracts, medical service agreements, membership or subscription contracts or other arrangements providing health services or reimbursing health expenses. Unlike COBRA, there is no exception for health care plans offered by small employers. An employer's health plan need not cover injuries or illness that are attributable to military service -- the uniformed services will cover those.

USERRA also provides reinstatement rights in the employer's health plan when the employee returns from military service. The employer cannot impose waiting periods or pre-existing condition exclusions on either the employee or dependents. Any injury or illness incurred or aggravated during the military service leave will be the responsibility of uniformed service coverage. Because there is no coordination of benefits provision in USERRA, a plan may have to pay for benefits and try to recoup such expenses from the Department of Veterans Affairs.

Retirement Benefits

Retirement plans cannot treat returning employees as having incurred a break in service by reason of military leave. After the employee is re-employed, employers must provide make-up contributions for plan service periods during which the employee was in uniformed service. The employee is not required to re-qualify for participation in the retirement plan. Moreover, USERRA applies to top-hat plans, government plans and tax-sheltered annuities in addition to qualified retirement plans.

Make-up contributions are subject to the limits for the year to which they relate, not the year in which made. Compensation is adjusted to reflect pay that would have been earned but for the period of military service. Nondiscrimination tests that were performed without contributions for the absent veteran are left undisturbed. Contributions required by USERRA rights are "not subject to" any otherwise applicable limitation contained in the Internal Revenue Code.

Defined Benefit Plan

USERRA requires employers to fund pension benefits that would have accrued during the leave period to a plan in which a returning individual is a participant. Moreover, each period served by a person in the uniformed services shall, upon re-employment, be deemed to constitute service with the employer maintaining the plan for the purpose of determining the nonforfeitability of the person's accrued benefits and for the purpose of determining the accrual of benefits under the plan.

Example: The employer maintains a traditional defined benefit plan for which the monthly benefit equals $50 multiplied by the employee's years of service. Employee A works for four years then has two years of qualified military service. Employee A is re-employed for another four years. Under USERRA, Employee A's two years of military service must be included in his or her years of service. Consequently, Employee A's monthly benefit will be $500 ($50 x 10 years of service [4+2+4]).

Defined Contribution Plan

Although an employer is required to provide make-up contributions, if accrued benefits are based on employee contributions or elective deferrals, returning employees are entitled to those benefits only to the extent that they make such contributions or deferrals. Upon returning to employment, employees who participate in defined contribution plans may make up "missed" contributions to their plan. Employers must make up any matching contributions that would have been required if the employee's contributions had been made during the period of military service. However, USERRA does not require an employer to make an allocation to an employee's account until after the employee returns to his job with the employer and, if applicable, makes the corresponding employee contribution or elective deferral .

Any make-up contributions as described above must be made during the period beginning with the date of re-employment and ending the earlier of three times the period of the person's uniformed services or five years.

Example 1: The employer maintains a defined contribution plan that allows deferrals of up to 15 percent of compensation and a 50 percent match of elective deferrals up to 5 percent of compensation. Employee B leaves for qualified service and returns after two years. At the time of his departure, Employee B was earning $20,000 and making elective deferrals of 10 percent of compensation. The employer generally gives annual raises of 5 percent. Therefore, for Year 1 of leave, the employer should assume that Employee B earned $21,000, would have deferred $2,100 and would have earned a match of $1,050. For Year 2, the employer should assume that Employee B earned $22,050 and would have deferred $2,205 with a match of $1,102.50. The employer does not have to contribute the match until Employee B makes up the contributions. Employee B has five years to make up the contributions.

Example 2: If during the years that Employee B was on leave, the employer did not give annual raises, then the employer could assume that Employee B's annual salary remained at $20,000.

Plan Loans

A plan may suspend loan repayment obligations while an employee is in uniformed service. The suspension does not cause the loan to be a deemed distribution, even if the suspension exceeds one year and the term of the loan is extended.

To ensure that there is not a deemed distribution, the loan repayments must resume upon the completion of the military service period. At a minimum, the repayments, upon resumption, must be in the same amount and payable with the same frequency as the repayments under the original loan terms. Further, the loan must be repaid in full, including any interest that accrues during the period of military service, by the end of a period equal to the original term of the loan plus the period of military service.

Stock Options

Stock options are not specifically mentioned in the definition of rights and benefits under USERRA. However, the Treasury Regulations concerning incentive stock options provide that the employment relationship will remain intact while a person is on military leave if the leave does not exceed 90 days or the person has a right of re-employment guaranteed by statute.

Other Provisions

Employees on leave for military service are considered to be on furlough or leave of absence and are entitled to any other rights or benefits accorded to similarly situated employees on leave of absence. The legislative history provides that if the employer has different types of benefits depending on the type of leave of absence, the most favorable benefits would apply to employees on military leave.

Rights and benefits include any advantage, profit, privilege, gain, status, account or interest that accrues based on an employment contract or agreement or an employer policy, plan or practice. These rights and benefits also include insurance coverage and awards, bonuses, severance pay, supplemental unemployment benefits, vacations and the opportunity to choose work hours or location of employment. Any insurance benefits, disability coverage, dependent care accounts and/or cafeteria plan eligibility must be reinstated.

If they request it, employees on leave for military service may use any of their vacation, annual or similar leave during the period of service. An employer may not force employees to use vacation time when on leave for military service. Any unused vacation should be reinstated upon re-employment.

Enforcement

The Department of Labor has primary responsibility for providing assistance to workers regarding their rights under USERRA and its implementing regulations. If a federal court finds violations of USERRA, the employer may be required to:

1.	Comply with the provisions of the Act;
2.	Compensate the aggrieved persons for any loss of wages and/or benefits; and
3.	Pay liquidated damages in an amount not to exceed the amount ordered to be paid for the loss of wages and/or benefits if the court determines that the employer's violation was willful.

The award of lost wages, benefits and liquidated damages is in addition to any other rights and benefits provided by USERRA.

A prevailing party may be awarded reasonable attorney fees, expert witness fees and other litigation expenses. A court may use its full equity powers to assure compliance and vindicate the rights of a prevailing employee.

In addition, employees can file a civil action directly without first filing a charge with the government.

Finally, other states and municipalities may have enacted their own laws that create additional protections. Although USERRA pre-empts any laws that reduce, limit or eliminate a right or benefit under USERRA, it does not pre-empt any laws that are more beneficial to or provide additional benefits for employees on military leave.

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For more information about the issues covered in this report, please contact David S. Foster in our San Francisco office at 415-369-7020 or at dsfoster@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.





©2001 Thelen LLP