FMLA Matters: What Does It Mean to Be a “Key Employee”?

Published for Coates' Canons on January 04, 2023.

The Family and Medical Leave Act (FMLA) guarantees eligible employees up to 12 weeks of unpaid, job-protected leave for qualifying conditions. Any employee who has worked for their employer for a total of at least twelve months and a minimum of 1,250 hours in the past twelve months is eligible for FMLA leave, provided that they work for an employer who has at least 50 employees. That is the basic rule of FMLA eligibility for government employees. But what about the FMLA’s exception for so-called “key employees?” Can employers take away a key employee’s right to FMLA leave? Can a key employee be declared “ineligible” for FMLA leave? To understand who a key employee is and what their FMLA rights are, read on.

Who is a “Key Employee’?

First, a key employee is one who must be paid on a salary basis, as that term is used in the U.S. Department of Labor regulations governing the Fair Labor Standards Act (FLSA). In other words, the employee must be paid a predetermined amount each week that is not reduced because of variations in the quality or quantity of the work they perform. Employees who are exempt from the FLSA’s overtime requirements are among the class of employees who might qualify as key employees, as are nonexempt employees paid on a salary basis. Employees paid on an hourly basis may not be designated key employees.

Second, salary is used as a yardstick to determine which employees are “key.” “Key employees” are salaried employees who are among the highest paid 10 percent of all an employer’s employees — not just the highest-paid 10 percent of salaried employees, but the highest-paid 10 percent of all employees within 75 miles of the employee’s worksite. See here at (a).

Determining the Top 10 Percent

Which employees are among highest-paid 10 percent of all employees will vary from time to time. Whether an employee is a key employee must be determined at the time the employee requests FMLA leave or the employer becomes aware of an FMLA-qualifying condition. To determine who is in the highest-paid 10 percent, an employer must divide employees’ year-to-date earnings by the number of weeks they have worked (including any weeks during which the employee has used accrued paid leave). See here at (c)(1).

May an Employer Deny FMLA Leave to a Key Employee?

No. An employer may not deny FMLA leave to a key employee. An employer may, however, deny a key employee reinstatement to their job once FMLA leave concludes. How, you might wonder, is that any different than denying FMLA leave in the first place? Here’s how.

First, the FMLA regulations allow an employer to deny job restoration to a key employee only when “necessary to prevent substantial and grievous economic injury to the operations of the employer.” But the issue is not whether it is the employee’s use of FMLA leave is causing economic injury to the employer. Rather, the issue is whether it is the requirement that the employer reinstate the employee that is causing serious economic harm.

The regulations are not terribly helpful in understanding what might constitute “substantial and grievous economic injury” to an employer. The standard is, the regulations say, different from and more stringent than the undue hardship test under the Americans with Disabilities Act. Minor inconveniences don’t count. According to the regulations, it would be a substantial and grievous economic injury if returning the employee to their job threatened the economic viability of the organization. That’s a pretty tall order.

Employers sometimes hire replacements for employees who are out on FMLA leave or have other employees take on their responsibilities. The FMLA allows for this (the work must get done, after all) so long as the employee on FMLA leave is restored to the same or an equivalent position at the conclusion of leave. Replacement arrangements are therefore usually temporary. An employer is most likely to hire a replacement when the employee on FMLA leave is a key employee. After all, to be one of the most highly paid employees likely means that the employee is important to day-to-day operations. To get a new person of the same caliber might require offering a permanent position. The regulations themselves recognize that reinstating the employee on FMLA leave and supporting two positions where there had previously only been one could lead to economic harm:

An employer may take into account its ability to replace on a temporary basis . . . the employee on FMLA leave. 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; in other words, the effect on the operations of the company of reinstating the employee in an equivalent position.

See here at (b).

This was the situation in the case Oby v. Baton Rouge Marriott. The plaintiff was an executive housekeeper and the third highest paid employee at the employer hotel. The hotel’s housekeeping suffered while the plaintiff was on FMLA leave and, when she was unable to give her employer an approximate date for her return, the employer decided to replace her. When the employee requested reinstatement, the employer refused, explaining that it could not afford to have two executive housekeepers at the same salary. The plaintiff did not produce evidence to the contrary and the court ruled in favor of the employer hotel.

The defense that it was necessary to hire a permanent replacement will not always work, however. When Rex Kephart, the Cherokee County tax assessor took FMLA leave, the county concluded that it had to have a tax assessor on the job and therefore appointed the tax appraiser to take his place. When Kephart challenged the county’s decision to deny his reinstatement as a key employee, the county argued that it could not restore him to the tax assessor position because that position was now filled, and no equivalent position existed. Reinstating Kephart to an equivalent position, it argued, would result in the expenditure of unbudgeted funds – a situation that would cause grievous economic harm to the county. In reversing the trial court’s award of summary judgment to the county, the federal Fourth Circuit Court of Appeals found a jury might conclude that the board of commissioners could have returned the replacement assessor to her position as tax appraiser and reinstated Kephart with no economic injury resulting. See Kephart v. Cherokee Cnty., N.C. (unpublished decision from the 4th Cir. [2000] available at 2000 WL 1086802).

Proceeding with a Key Employee Designation

If an employer plans to designate someone as a key employee to deny that employee reinstatement at the end of their FMLA leave, it must proceed carefully. Failure to give the employee the required notice at the right time will result in the employer having to allow the employee to return regardless of whether it results in economic injury to the organization.

Step One: An employer must give an employee written notice that the employee is a key employee at time the employee requests FMLA leave or at the time leave begins if the employee has not been able to give prior notice. In the notice, the employer must explicitly say that it might deny the employee reinstatement if the employer determines that substantial and grievous economic injury will result from the employee’s return. The employer must also explain that even if it subsequently decides not to reinstate the employee, the employee is still entitled to take their full complement of FMLA leave and that the employer will continue to pay its share of the employee’s health insurance premiums until the leave is over and employment is terminated.

Step Two: Once the employer determines that restoration will result in substantial and grievous injury to the employer’s operations, it must give the employee written notice of that fact. Remember, the injury to operations must be caused by the return of the employee, not by the fact of their absence. The written notice must include a representation that the employer is not denying FMLA leave but plans to deny restoration of the employee to their previous position once FMLA leave is over. The employer must also explain how restoration will cause the employer significant and grievous economic harm. Failure to include an unambiguous statement that the employer will deny reinstatement forfeits the employer’s right to designate the employee as a key employee and deny restoration. See here and here. Employers should have the written notice reviewed by legal counsel. It would be an important piece of evidence if the key employee were to challenge their ultimate dismissal. The written notice must be delivered in person or sent by certified mail.

The regulations say that ordinarily, an employer should be able to determine that it will deny reinstatement before the employee begins leave. This is to allow the employee an opportunity to reevaluate their need for FMLA leave and, if possible, continue working rather than be denied restoration to their position after FMLA leave ends. If, for some reason, an employer is not able to make this determination until after the employee begins their leave, the employer must allow the employee a reasonable amount of time to decide whether to go ahead and return to work so as not to be denied reinstatement.

Step 3: The key employee will either return to work in order not to be denied reinstatement or will remain on FMLA leave. If the employee stays on FMLA leave, they will remain an employee entitled to the same rights (other than restoration) and benefits as any other employee on FMLA leave up until the time when the employee seeks to return to work and the employer denies restoration. The employer must continue to pay its share of the employee’s health insurance premium during this period. It may not seek reimbursement of the costs of the premium after employment ends.

Final Step:  When a key employee who has been given notice that they will not be reinstated completes their FMLA leave, the employee may still ask to be restored to their original position. At this time the employer must make an updated assessment as to whether the employee’s return will cause grievous and substantial economic harm to the employer’s operations (maybe the replacement didn’t work out, for example). If the employer determines that such economic injury will result, it must notify the employee in writing (hand-delivered or by certified mail) one final time that it is denying the employee restoration.


Employers wishing to avail themselves of the key employee exemption to the FMLA’s reinstatement requirement should first do a rigorous analysis showing that restoration of the employee to their position will have serious economic consequences to jurisdiction. It must then follow the requirements set forth in the regulations to the letter.

The post FMLA Matters: What Does It Mean to Be a “Key Employee”? appeared first on Coates’ Canons NC Local Government Law.

Topics - Local and State Government