Earlier this year, the 7th Circuit Court of Appeals decided a case with significant implications for all employers. It said that statements in an employee handbook and correspondence to employees may grant them rights beyond those to which they are entitled under the Family and Medical Leave Act (FMLA).
The case of Steven Peters v. Gilead Sciences, Incorporated points out the importance of clearly stating all conditions of FMLA leave in an employee handbook. It is equally important that employers not send letters identifying leave as FMLA leave if the employee is not eligible for FMLA.
Steven Peters suffered a shoulder injury while he was employed by Gilead Sciences, Inc. He took a relatively short medical leave to have corrective surgery, and when his condition did not improve after returning to work, he took another leave. During his second absence, Gilead filled his position with another employee, and when Peters returned to work, Gilead offered him a different position. He declined and Gilead terminated his employment.
Peters filed suit against Gilead, alleging a violation of the FMLA and a claim for promissory estoppel under Indiana law. Gilead moved for summary judgment on the FMLA claim, arguing that Peters was ineligible for FMLA leave based on a provision in the Act that excludes employees at worksites at which less than 50 employees are employed “if the total number of employees employed by that employer within 75 miles of that worksite is less than 50.”
It was undisputed that Gilead employed fewer than 50 employees within 75 miles of Peters’ worksite, making him statutorily ineligible for FMLA leave. Peters argued that Gilead was equitably estopped from asserting the FMLA’s 50/75 exclusion based on representations made in Gilead’s employee handbook and in letters it sent to Peters regarding his entitlement to 12 weeks of medical leave. The district court concluded Peters had not established the elements of equitable estoppel and granted summary judgment for Gilead.
The 7th Circuit reversed the district court and sent the case back to the lower court for trial.
Peters alleged a state-law claim for promissory estoppel—an equitable contract remedy that permits enforcement of a promise that induces actual and reasonable reliance on the part of the plaintiff, at least to the extent of the plaintiff’s reliance damages. The doctrine is available when a promise lacks the elements of contract; a threshold question is whether the promise created an enforceable contract.
The medical-leave representations contained in Gilead’s employee handbook (repeated in its letters to Peters) may have created an enforceable contract under Indiana law, giving Peters a contractual right to the equivalent of FMLA leave (that is, 12 weeks) regardless of his statutory ineligibility. If the representations in the handbook are not contractually enforceable, Indiana’s promissory estoppels cause of action allows enforcement of Gilead’s promises to the extent of the reliance harm Peters suffered.
State laws vary and employers should consult legal counsel regarding their exposure. Employers will want to identify all forms of written communications (such as the employee handbook or formal notices) that could be used as “contracts” and ensure that all these employee communications are accurate.
Beyond that, this case is a great reminder of the importance of accuracy in all employee communications. Regardless of state laws, employees will tend to assume they have full access to whatever benefits or rights appear to be promised in employer communications. Avoiding confusion can avoid lawsuits.