The Pros and Cons of Outsourcing Employee, Family and Medical Leave Administration

By Julie S. Lucht, JLucht@perkinscoie.com

One of the biggest human resources challenges for retail employers is administering the maze of disability and family medical leave restrictions – the Americans With Disabilities Act ("ADA"), the Family and Medical Leave Act ("FMLA"), and overlapping state and local leave and disability accommodation requirements. Complying with the law and managing attendance issues can be difficult in a retail store environment where maintaining the appropriate level of staffing can be critical to success. The Perkins Coie Retail and Consumer Products Industry Group recently conducted a survey to find out how some of the nation's leading retail companies are handling leave administration and found that the majority of respondents handle employee leave internally versus outsourcing the function.

Managing leave under the FMLA can be time consuming and keeping current with recent changes in the FMLA regulations and federal and state law developments can be challenging. So why are more employers reporting that they are choosing not to outsource despite the growing supply of outsourcing services available?

One major reason is control. Although outsourcing may lower the cost of leave administration, employers who handle leave internally maintain greater control over issues or complicated sets of relationships that can easily develop into costly claims or litigation from disgruntled employees. When a vendor administers leave, the employer remains liable for any violations of the FMLA and other leave laws. The Department of Labor's ("DOL") statistics regarding FMLA enforcement show FMLA complaint cases increased by more than 21% last year alone (http://www.printing.org/page/6490) and the Equal Employment Opportunity Commission's ("EEOC") statistics show disability charges up by more than 25% last year (http://www.eeoc.gov/eeoc/statistics/enforcement/charges.cfm). Those are daunting figures and enough to get the attention of any Human Resources professional. By keeping leave administration in house and controlling the process, employers may be in a better position to avoid potential claims.

Given the growing number of legal claims by employees related to leave, employers outsourcing leave administration should consider what type of indemnification the vendor providing the service will offer the employer if an employee brings a claim. Even if a vendor makes all of the leave decisions, an employee still can sue the employer for denial of leave or interference with leave rights. Although the vendor may be contractually obligated to indemnify the employer for the cost of defending and/or the damages arising out of a claim, the employer still has to contend with the headaches involved in defending a claim.  Busy retail store managers are never happy about devoting time to talking with lawyers, being interviewed by the DOL or EEOC, or having their depositions taken.

The continued development of online resources also may be driving a trend towards handling leave internally. Although the FMLA requires a significant amount of paperwork and compliance with certain deadlines, the DOL has recently issued updated forms and guidance on its website (http://www.dol.gov/whd/fmla/) that can help ease the burden on employers. There also are a variety of software programs available to assist employers with tracking employee leave. With these tools, employers can minimize the time it takes to process routine FMLA leave requests.

The more complex leave cases are where HR may add value through internal administration. For issues such as employees who require more than 12 weeks of leave per year (the maximum required under the FMLA), employees who need job modifications or other accommodations in addition to leave, employees who are on leave due to a workers compensation covered injury or illness or employees suspected of abusing leave, having an internal person involved can help manage risk and curb abuse. When an employee is communicating with an outside vendor regarding leave requests, HR may not become aware of disability accommodation issues that may need to be addressed.

Reliable attendance is an essential function of most jobs in a retail store environment. Last minute absences may be very difficult to accommodate, but prior to implementing discipline, an employee's rights to job-protected leave under the FMLA, the ADA and any other applicable laws must be considered to avoid a potential claim. Where leave is handled in-house, all types of available leave should be considered in connection with an absence. Where FMLA leave is administrated by an outside vendor, employers should make sure that whenever a request for FMLA leave to cover an absence is denied, a determination is made regarding whether the absence should be excused as an accommodation of a disability.

Failure to offer leave as an accommodation of a disability can lead to significant liability.  An example of this is the EEOC's recent $20 million settlement with Verizon, the largest ADA settlement in EEOC history (http://www.eeoc.gov/eeoc/newsroom/release/7-6-11a.cfm). In that case, the EEOC brought a class action alleging that Verizon's inflexible administration of its "no fault" attendance plan and leave policies violated the ADA.

By keeping leave administration in house, HR may be in a better position to spot disability issues early and ensure consistent handling of leave issues across the organization. Employers who have opted to ease the administrative burden of leave by outsourcing, should be sure to have measures in place to alert HR of potential disability issues. Rapid and fluid communication is essential to managing risk in leave administration. And regardless of whether FMLA leave is handled internally or outsourced, in order to avoid potential liability, HR will need to continue to devote attention to the growing number of leave issues in today's retail workplace.

Julie S. Lucht is a partner in the labor & employment practice of Perkins Coie LLP, practicing in the Seattle office. She has extensive experience counseling companies, including those in the retail sector, in employment-related claims and litigation. She can be reached at 206.359.3154 or JLucht@perkinscoie.com.

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