When Alice Repa underwent surgery for a non-work related injury, she asked for a leave of absence to recuperate. Her employer–trucking company Roadway Express–approved her request. But in accord with its FMLA policies, the company required Repa to use her accrued sick days and paid-vacation time as part of the 12 weeks of medical leave that FMLA guaranteed.

Repa didn't want to spend her vacation days recovering from surgery, so after she returned to work she sued Roadway in a Wisconsin district court, arguing her employer violated Department of Labor (DOL) regulations. The court granted summary judgment to Repa in 2005, ruling Roadway couldn't force her to use her paid leave as part of her time off because her absence was “not unpaid.” During her absence, Repa collected $300 a week in disability-insurance payments from a Teamsters Union policy.

Roadway appealed to the 7th Circuit, and in February 2007 a three-judge panel affirmed the district court's ruling. The court said the DOL's FMLA regulations–specifically 29 CFR ?? 1/2 825.207 (d)(1)–prohibit employers from substituting paid leave for unpaid leave when the employee is collecting temporary-disability benefits.

Although the ruling is binding only in the 7th Circuit, any court could use it as an instructive precedent. As a result, the decision created a stir among employment lawyers and benefits administrators across the country who thought FMLA allowed employers to substitute paid leave in cases such as Repa's surgery.

“I've always taken the position that if it's not pregnancy or workman's comp, you're good,” says D. Gregory Valenza, a partner with Shaw Valenza. “That position isn't valid anymore in light of this decision. If there is a disability-insurance benefit, you can't require the employee to use sick or vacation leave.”

Not Unpaid

Congress enacted the FMLA in 1993 to ensure employees could take time off for serious health conditions–including pregnancies and extended illness–without losing their jobs or insurance benefits. The law guaranteed up to 12 weeks of time off, including paid and unpaid leave, and let employers decide which to require employees to use.

Congress gave the DOL the task of defining which employees qualify for FMLA benefits and how employers should administrate those benefits. The resulting DOL regulations left significant room for interpretation in many areas, including how employers should handle disability benefits and FMLA leave. The regulation regarding whether employers can force workers to use paid leave while receiving disability benefits states, “Because the leave pursuant to a temporary disability benefit plan is not unpaid, the provision for substitution of paid leave is inapplicable.”

The DOL included this provision in the regulations to prevent employers from disqualifying workers from receiving disability benefits to which they are entitled under disability-insurance policies.

“If the employer could require someone to take sick or vacation time, the disability-insurance benefit could be reduced,” Valenza says. “The DOL regulation avoided such situations.”

At the same time, however, the regulation created the potential for conflicts between employers and workers with disability insurance who request time off under FMLA. In Repa, Roadway argued the DOL's exclusion applied only to maternity or paternity leave, because the first sentence of the relevant paragraph refers to “disability leave for the birth of a child.” The court rejected this argument, saying the rest of the paragraph discusses disability benefits generically.

Roadway also asserted it should be allowed to substitute paid leave because Repa's disability benefits were not part of an employer-sponsored plan. But the court declared Roadway's assertion irrelevant because the regulation doesn't distinguish disability benefits sponsored by a third-party (such as a union) from employer-sponsored disability benefits.

“It wasn't clear before in the regulation,” Valenza says. “This decision makes it a bright-line rule.” Namely, if an employee collects disability benefits for any reason–not just childbirth and work-related injuries–the leave is not unpaid and the employer cannot require the employee to use paid leave.

Extended Leave

In its appeal to the 7th Circuit, Roadway challenged the validity of the DOL regulations. The company said the regulation contravenes Congress' intent and overreaches the DOL's authority by allowing employees with disability insurance to extend their leave beyond the 12 weeks the FMLA provides. The appeals court declined to consider the challenge, however, because Roadway did not bring the argument in the trial court and therefore waived it.

“This is a substantial question that still needs to be addressed,” says Carla J. Rozycki, partner and co-chair of the employment group at Jenner & Block. “The idea of FMLA wasn't to add 12 weeks of unpaid leave to whatever benefits the employer was offering, but to ensure the employee had 12 weeks of leave. I think we'll hear more on this issue.”

Although at press time Roadway has not appealed the 7th Circuit panel's decision, another court could hear a similar validity challenge–or the DOL might amend its FMLA regulations. Until then, however, the Repa decision puts paid-disability leave in the same FMLA category as maternity and workers' compensation leave, and employers should review their paid-leave substitution policies accordingly.

At the same time, however, the decision does not change employers' right to limit an employee's FMLA leave of absence to 12 weeks total.

“FMLA leave is guaranteed and comes with the right of reinstatement,” Valenza says. “Non-FMLA vacation time is different. If someone takes 12 weeks of unpaid leave and then says, 'Now I want to take my vacation,' the employer can deny the request.”