By Russell W. Jackson
In Clemens v. Moody’s Analytics, Inc., (2d Cir. May 3, 2019), the Second Circuit Court of Appeals (the federal appeals court with jurisdiction over Connecticut, New York and Vermont) reaffirmed that denying a bonus or other payment to employees on Family and Medical Leave Act (FMLA) leave as a result of the employees’ failure to meet established goals pursuant to a neutral policy is lawful. Specifically, the Court held that an employer did not interfere with an employee’s FMLA rights when it prorated the employee’s bonus based on production goals the employee did not meet while out on FMLA leave.
Summary of Facts
Gregory Clemons worked for Moody’s Analytics, Inc. as a Solutions Specialist on its Stress Testing Team. In this role, Clemons provided guidance relating to stress testing for banks and other financial institutions.
Clemons received an annual salary of $175,000 and was eligible for additional compensation under Moody’s bonus plan. Under the applicable bonus plan, Clemons was eligible for incentives resulting from his own performance as well as the overall performance of the Stress Testing Team, which was based on an annual sales target. Clemons was eligible for 100 percent of his incentive payout if he recorded at least 160 “contribution units” and the Stress Testing Team met its sales target. The incentive plan provided that “contribution units generated by the associate during the commission period [are] subject to manager review.” The plan also stated that Moody’s reserved the right to review the plan and adjust incentives and objectives, in its sole and absolute discretion and amend or terminate the plan without notice, in its sole and absolute discretion.
Background on Clemons’ Contribution Unit Claims
During the 2015 year, Clemons recorded his contribution units using the Company’s Salesforce program. As his supervisors, Clemons’ Managing Director David Little and Team Lead Anna Krayn also reviewed the contribution units claimed by Clemons and other members of the Stress Testing Team.
On May 14, 2015, Clemons began a paid leave of absence after being diagnosed with colon cancer. Clemons was on leave until June 5, 2015 and thereafter worked from home several days per week through July 10, 2015. Clemons received a second leave of absence from October 13, 2015, through November 23, 2015, as a result of a surgery. In 2015, Clemons was on a medical leave of absence for a total of 63 days. In February 2016, Moody’s prorated Clemons’ 2015 incentive compensation based on the number of days he was on FMLA leave.
In February and March 2016, Little and Krayn identified a number of contribution units that raised red flags. Clemons had claimed multiple contribution units for what appeared to be related to two specific internal projects. The claimed contribution units for these two projects represented almost 20 percent of Clemons’ 164 claimed contribution units. Without these contribution units, Clemons would not be eligible for 100 percent of the target incentive compensation. Clemons also entered contribution units for client meetings that could not be verified through expense reports, Salesforce or other sources.
Little met with Clemons and informed Clemons he was removing 20 of his contribution units. Little advised Clemons he was surprised by the claimed contribution units given the amount of time Clemons has been out on leave. Little also removed an additional three contribution units related to a reported sales pitch. Little’s adjustments decreased Clemons’ 2015 contribution units for 2015 from 164 to 141. Accordingly, Clemons earned 80 percent of his targeted incentive compensation and was not eligible for an additional “over target” compensation.
Little also discussed Clemons’ contribution unit discrepancies with Moody’s Human Resources Department and contended that Clemons may have falsified records in Salesforce in order to receive an increased commission totaling approximately $100,000. Human Resources relayed the allegations to Moody’s Compliance Department.
Two attorneys within the Compliance Department conducted an investigation into the allegations. The investigators interviewed Clemons, Little, Krayn, Director of Business Analytics Charlotte Liu and members of the sales team relating to client meetings for which Clemons claimed contribution units. The investigators also reviewed Clemons’ Salesforce records, Clemons’ Outlook Calendar, and his work notebook. The investigation’s Compliance Report concluded that “it appears that Clemons entered false or inaccurate entries into Sales Force,” which “in their totality … violate Moody’s Business Code of Conduct.” The Code of Conduct stated that “[a]ny employee who creates … misleading or falsified records will be subject to disciplinary action up to and including termination.” Moody’s Investigation Review Committee reviewed the Compliance Report and determined that Clemons had violated Moody’s Code of Conduct and recommended termination of Clemons’ employment. Based on the Committee’s recommendation, Little advised Clemons his employment was being terminated.
District Court Decision
On January 19, 2017, Clemons filed a lawsuit in the Southern District of New York. Clemons alleged interference and retaliation claims under the FMLA, a retaliation claim under the New York City Human Rights Law, a wage violation under New York Labor Law, and a breach of contract claim.
The Southern District of New York dismissed the FMLA interference claim. The Court first noted that employers are permitted to prorate incentive bonuses to be paid to an FMLA taker by the amount of lost production (e.g., hours or another quantifiable measure of productivity) caused by the FMLA leave. The court held it was undisputed Clemons did not contribute to the Stress Testing Team’s production during his leaves. Accordingly, Moody’s did not violate the FMLA by prorating the incentive compensation to account for any lost production. Therefore, the court held, Clemons’ FMLA interference claim failed as a matter of law.
On the FMLA retaliation claim, the court held Clemons failed to produce any evidence of retaliatory animus. The court noted there were no remarks by any Moody’s employee suggesting a disapproval of Clemons’ FMLA leave. Clemons admitted Little never voiced an objection to the two requests, and nobody made any derogatory or negative statements about the leave. Clemons acknowledged Little was supportive of Moody’s accommodations during his leaves. The Court found noteworthy an e-mail stating, “I am also very grateful for how Moody’s, and in particular, you, David [Little] and the management team accommodated me during my cancer surgery and recovery this summer.” The court also found there was no temporal proximity as four months had passed between the FMLA leave and the contribution units reduction and seven months between the leave and the termination decision. Finally, the court held Moody’s produced a legitimate, non-discriminatory reason for the reduction and the termination because Clemons had falsely claimed credit for work activities to inflate his incentive compensation.
Similar to the FMLA retaliation, the District Court held Moody’s was also entitled to summary judgment on the state law retaliation claim because there was no evidence of discriminatory animus based on Clemons’ disability or medical leaves. The court held Clemons’ breach of contract claim failed as a matter of law because the plan expressly stated contribution units were subject to manager review, and it was highly doubtful that Clemons was entitled to the contribution units he falsely claimed. Clemons’ state wage and hour claim failed because the court held the incentive compensation did not constitute wages under New York state law. Specifically, the court held incentive payments do not qualify as wages where they are based on a combination of individual and group performance or where the employer retains discretion not to pay the incentive plan.
Appellate Court Decision
Clemons appealed the District Court’s ruling to the Second Circuit Court of Appeals. On appeal, Clemons argued 1) Moody’s interfered with his FMLA rights by prorating his incentive compensation; 2) he was entitled to a trial on his FMLA retaliation claim; 3) Moody’s reduction of his contribution units breached the contract between the parties; and 4) payments under the incentive compensation plan were “wages” protected by New York state law.
With respect to the FMLA interference claim, the court affirmed summary judgment for Moody’s. The evidence revealed that Moody’s prorated all payments paid under the incentive plan based on the length of the leave, regardless of the leave’s reason – FMLA or otherwise. The court held Moody’s neutrally applied its prorating policy to incentive payments – as opposed to payments based merely on attendance. Accordingly, the court held there was no indication of an FMLA interference violation.
The Second Circuit also held that Clemons did not produce evidence that would permit a reasonable factfinder to conclude that the removal of the contribution units and his termination were motivated by retaliation. The Appellate Court determined that Little had met with Clemons prior to deducting the contribution units and that there was no evidence indicating a retaliatory animus. The court noted that Clemons even testified he did not believe he had been discriminated against because of his leave of absence requests. There was no evidence that Little’s actions were motivated by anything other than his legitimate skepticism of the units claimed by Clemons in light of his reduced working hours and Little’s own personal knowledge of Clemons’ activities.
The Appellate Court vacated the lower court’s decision pertaining to the state law claims because it was unable to determine why it exercised supplemental jurisdiction over those claims.
Employers’ Takeaway
This particular decision is an affirmation that employers may prorate or withhold bonus payments when the bonus is tied to a specific quantifiable goal and the goal was not met due to FMLA leave. The only exception is if the employer pays employees on non-FMLA leave the bonus when the bonus is not met. To that end, employers should remember that FMLA mandates that FMLA absences should be treated the same as non-FMLA absences.
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