Thursday, December 2, 2010
The Devil’s in the Details: the Family and Medical Leave Act and the Accounting Workplace
I write a monthly column for the American Institute of Certified Public Accountants. The following is my latest submission.
The Devil’s in the Details: the Family and Medical Leave Act and the Accounting Workplace
Mitchell Langbert, Ph.D.
With October’s unemployment rate at 9.6% and Russia and China claiming that they are going to drop the dollar as their currency of choice, one of the laws that may wound job creation deserves a fresh look. The Family and Medical Leave Act (FMLA), passed on February 5, 1993, may at first glance seem to do little harm to efficiency but, at a second glance, it may. A fast-paced unionized service firm like Southwest Airlines and a manufacturer like Hallmark Cards have protested the law, while the AFL-CIO stoutly defends it. In academia, social workers argue that FMLA ought to be expanded and economists claim that the law’s employment and productivity effects are potentially beneficial. But social workers and economists do not focus on regulatory complexity. There has been a suspiciously heavy FMLA litigation docket for a law with supposedly benign effects on productivity. And with respect to regulatory costs, the devil is often in the details, even if the devilish details do not concern sociologists and economists.
Andrew E. Scharlach and Blanche Grosswald of the University of California published a 1997 summary of the social work implications of FMLA in the Social Service Review. Scharlach and Grosswald note that FMLA requires businesses with 50 or more employees to provide 12 weeks of leave for personal or family disability or the birth or adoption of a child. The leave may be unpaid but health insurance must be continued. The employee’s or an equivalent job must be held until he or she returns. Records must be kept and notices must be posted. They argue that the law should be expanded because it does not cover firms with fewer than 50 employees and because Swedish and other European employers offer more generous leave policies.
According to Uric Dufrene and G. Richard French of Indiana University Southeast, roughly 80% of accounting firms in their Indiana-based sample have fewer than ten employees. Since FMLA excludes firms with fewer than 50 employees, most accounting firms need not comply with it at all, although if Scharlach and Grosswald have their way all accounting firms will be added to the law’s purview.
On January 16, 2009 the Department of Labor (DOL) published new FMLA regulations. According to DOL’s Website employees can use leave for any period of incapacity such as periodic part-day visits to physicians and brief episodes of incapacity. The regulations define “serious health condition” as involving continuing treatment, which in turn means, according to DOL:
“(A) period of incapacity of more than three consecutive…days plus treatment by a health care provider twice, or once with a continuing regimen of treatment.”
As well, pregnancy, serious chronic health conditions, and incapacity for which treatment is ineffective are eligible for FMLA leave. The regulations are complex but vague, a recipe for inefficiency and workplace disruption.
To be eligible for FMLA leave employees must work 1250 hours for the prior 12 months at a location where there are at least 50 employees. But the 12 months do not need to be consecutive. Breaks in service count if the prior employment was at least seven years prior to the leave, with the exception of military service. Again, the DOL adds complexity that is bound to confuse.
The regulations require that employers must post a notice explaining FMLA and include a similar notice in employment manuals, or provide the information to new employees if there is no employment manual. The notice must tell the employee whether paid leave will be applied toward FMLA leave. Employers must notify employees whether leave will be considered FMLA leave within five days of learning of the employee’s intent to take a leave.
The employer must inform the employee of the number of hours, days or weeks that will be applied toward his or her FMLA entitlement. Failure to notify an employee that their leave counts as FMLA leave can increase the employee’s entitlement. If a leave can be foreseen employees are supposed to give 30 days notice, but verbal notice as soon as practicable is all that is required when circumstances change. To apply for FMLA leave the employee just needs to inform the employer about the leave and its timing.
Employees must follow the employer’s call-in procedures as well as provide “sufficient information,” some of the parameters of which the regulations describe in detail. Employees need not file a written application for the leave. A verbal notification to the supervisor is all that is required.
Employers can require certification of the serious condition. In fact, the regulations establish four certification forms, namely, for an employee’s illness, a family member’s illness, the need for a qualifying leave and the health condition of an eligible service man or woman. In verifying the employee’s information on the forms, the employee’s supervisor is not permitted to contact the health care provider directly. Rather, the supervisor must use a go-between such as a human resource professional when following up a certification. Employers can require recertification every 30 days or after the initially certified period of leave if greater. After the leave employers can require fitness for duty certification.
Employers can require that employees use up paid leave, including vacation and sick days and employees can choose to do so if the employer doesn’t require them to do so.
In a 2005 article in the Journal of Corporation Law, which preceded the 2009 DOL regulations, Kenza Bemis Nelson notes that there has been considerable litigation surrounding FMLA provisions, particularly the definition of serious health conditions and the employee notice requirements. Looking at the Eighth Circuit, which covers the western strip of states going north from Arkansas to North Dakota, Nelson discusses cases such as Caldwell v. Holland of Texas, which mandated that a three-year old’s earache count as a serious health condition. Quoting Nelson:
“(T)he Eighth Circuit offered a sharp warning to employers who are tempted to discharge employees when FMLA might be involved…The court held that an employer cannot avoid liability for firing an employee who took leave for a situation later found to qualify under the FLMA” (emphasis added).
As the law becomes murky and unknowable, costs of compliance rise and inefficiency is enhanced.
In the case of Rankin v. Seagate Technologies the Eighth Circuit held that FLMA can cover minor illnesses such as flu as serious health conditions. In the case of Spangler v. Federal Home Loan Bank of Des Moines Spangler was repeatedly absent because of depression. On one occasion she simply told a co-worker that she was taking off because of depression. She failed to comply with the firm’s call-in procedures and was fired.
The Eighth Circuit held that by telling a co-worker that she was taking off there was sufficient notice even though this violated the firm’s call-in procedures (which DOL says can be required). The failure of the federal courts to pay attention to regulatory requirements is nothing new. I noticed this repeatedly in a review of ERISA cases that I did in the early 1990s.
Chamber of Commerce Protests
The US Chamber of Commerce devotes a page of its Website to its claim that FMLA has led to workplace abuse. Written before the DOL regulations, the Chamber argues that the definition of “chronic serious health condition” needs to be clarified and that the requirement for tracking of leaves of as little as six minutes ought to be eliminated. The DOL’s 2009 regulations did not revise the definition, leaving the prospects for extensive litigation and lawyers’ fees bright, nor did it change the partial day leave requirements.
In a 1997 testimony linked to the Chamber site, Hallmark Cards states that its paid leave costs increased by 35 percent from 1993 to 1996 following the passage of FMLA and that employees have abused the Act by claiming that absences for other reasons were FMLA absences. The firm quotes employees who say that FMLA is being abused by a small minority of shirkers. In contrast, Ellen Bravo of the AFL-CIO says that FMLA should be expanded and that ten minute breaks ought to count as FMLA leaves of absence. Indubitably, the AFL-CIO expects further bailouts.
In an elegant 1997 article in the Journal of Economic Perspectives, Christopher Ruhm argues that the effects of FMLA might be minimal because of the law’s limited requirements and that it might even contribute to increasing efficiency because firms may contract with the median worker and so overlook the needs of employees who benefit from leaves. Hallmark Cards, in contrast, argues that there are neighborhood or externality effects that Scharlach and Grosswald and Ruhm themselves overlook. As Freidrich Hayek pointed out in his 1945 American Economic Review article “Use of Knowledge in Society” central planners (and by implication regulators) lack the information needed to intelligently manage a complex economy from the center.
The details of execution and management are too often assumed away by economists and sociologists. But the Devil, and his leave of absence, is in the details.
 Scharlach, Andrew E. and Grosswald. B. 1997. Social Service Review 71:3, 335-359
Dufrene, U. and French, G. Richard. December 2, 2010. “An Investigation of the CPA Firm Industry Across Indiana Metropolitan Areas.” Retrieved from http://rwahlers.iweb.bsu.edu/abd2007/papers/p07_dufrene_french.pdf.
 US Department of Labor. “Frequently Asked Questions and Answers About the Revisions to the Family and Medical Leave Act, January 16, 2009.” Retrieved December 2, 2010.
Nelson, Kenza Bemis. 2004. “Employer Difficulty in FMLA Implementation: A Look at Eighth Circuit Interpretation of “Serious Health Condition” and “Employee Notice Requirements.” 30 J. Corp. L. 609
 Langbert, Mitchell. 1991. Firm Compliance and Employee Voice under the Retirement Income Security Act of 1974. Doctoral Dissertation. Columbia University Graduate School of Business.
 Chirstopher Ruhm. 1997. “The Family and Medical Leave Act,” Journal of Economic Perspectives, 11:3, 175-86