What is a ‘Key Employee’ Under FMLA & Why You Should Care

Even many veteran HR pros will admit that they are occasionally stumped by the intricacies of the Family and Medical Leave Act (FMLA). Case in point: the “key employee” exception. 

Understanding when to employ this rarely used exception can help you reinforce the idea that HR can be a strategic business partner and deserves a seat at the table.

Let’s take a deep dive into the FMLA.

The ‘key employee’ exception

Under very narrow circumstances, the FMLA allows employers to deny job restoration to “key employees” who have taken leave under the law. 

This is known as the “key employee” exception – and it is one of six ways that employers can legally deny reinstatement after FMLA leave.

What is the definition of a key employee under the FMLA?

Under the FMLA, a “key employee” is defined as “a salaried, FMLA-eligible employee who is among the highest paid 10 percent of all the employees employed by the employer within 75 miles of the employee’s worksite.” (Bold in original.)

What is a ‘substantial and grievous economic injury’ under the FMLA?

To deny job reinstatement to a key employee, an employer must determine that restoring the employee’s job would cause “substantial and grievous economic injury” to the employer’s operations. 

Importantly, the decision about the injury must be based on restoration — not on whether the employee’s absence would cause the injury, according to the DOL.

So how do you determine what constitutes a “substantial and grievous economic injury” under the FMLA? Unfortunately, there is no exact definition for the term. 

The good news is, FMLA regs provide general guidelines to help employers make the call on a case-by-case basis: 

• An employer may consider its ability to temporarily replace or do without the employee on FMLA leave in the short term. If permanent replacement is unavoidable, the cost of then reinstating the employee can be considered in evaluating whether substantial and grievous economic injury will occur from restoration.
• A precise test cannot be set for the level of hardship or injury to the employer that must be sustained. However, minor inconveniences and costs that the employer would experience in the normal course of doing business would certainly not constitute “substantial and grievous economic injury.”
• FMLA’s “substantial and grievous economic injury” standard is different from (and more stringent than) the “undue hardship” test under the Americans with Disabilities Act.

Notification requirements

As you know, dealing with FMLA leave involves lots of paperwork with very specific requirements – and the key employee exception is proof of that. Here’s what you need to know about notification requirements. 

1. Written notice

An employer who believes that reinstatement may be denied to a key employee must give written notice to the individual that they qualify as a key employee. 

This written notice must be given either when the employee provides notice of the need for FMLA leave or when the FMLA leave begins, if earlier. 

Moreover, the employer must also “fully inform the employee of the potential consequences with respect to reinstatement and maintenance of health benefits if the employer determines that substantial and grievous economic injury will result if the employee is reinstated from FMLA leave.”

2. Determination notice

As soon as an employer makes a good faith determination that substantial and grievous economic injury to its operations will result if a key employee is reinstated, the employer must notify the employee in writing of its determination, that it:

• cannot deny FMLA leave, and 
• intends to deny job restoration on completion of the FMLA leave. 

The determination notice must also explain the basis for the employer’s finding that job restoration would cause substantial and grievous economic injury. This written notice may be served in person or by certified mail. 

If leave has already commenced, the notice must provide the employee a reasonable time to return to work, taking into account the circumstances, such as the length of the leave and the urgency of the need for the employee to return. 

Importantly, an employer that fails to provide timely notice will lose its right to deny job restoration, even if substantial and grievous economic injury will result from reinstatement.

What if a key employee doesn’t return after getting the determination notice?

If an employee on leave doesn’t return to work after receiving the employer’s notification of intent to deny job restoration, the employee is still entitled to the maintenance of health benefits – and the employer can’t recover its costs of healthcare premiums.

Bottom line: A key employee’s rights under the FMLA continue until: 

• the employee gives notice that they will not return to work, or 
• the employer actually denies reinstatement at the conclusion of the leave period.

What happens when the leave period ends?

A key employee who was provided with a determination notice that job restoration would cause substantial and grievous economic injury is still entitled to seek job reinstatement at the end of the leave period – and that’s true even if the person didn’t return to work in response to the employee’s notice.

If the person does seek reinstatement, the employer must again determine whether job reinstatement would cause substantial and grievous economic injury. 

And if the employer again determines that job restoration would cause the aforementioned economic injury, then the employer must again notify the person in writing – delivered in person or via certified mail – of the denial of restoration.

For even more help handling tricky FMLA compliance issues, download our comprehensive new blueprint, The Family and Medical Leave Act: An Employer’s Guide.