In the Trenches: Government pay differential mishandled by Acme

March 10, 2009
In this edition of "In the Trenches," Acme learns how to handle the government's pay differential.

Acme was just the place for an engineer who wanted to make a difference during unfavorable economic conditions. Acme’s management was forced to adjust ongoing operations at each Acme plant to the evolving market conditions. The plants already terminated their consultants, eliminated overtime and reduced the staffing on both night shifts to the few people needed to keep the bioreactors and digesters idling overnight. Workers who weren’t laid off were rewarded with a 10% pay cut, but “only until things pick up,” they were assured. On the upside, Acme’s upper management finally embraced the need for a heavy dose of cutting-edge maintenance best practices to help ensure they continue to receive their quarterly bonuses.

Wyatt Madders was thrilled to be in the right place at the right time. Confident that his knowledge of those best practices could make a difference, Wyatt positioned himself as the go-to guy when it came to maintenance. He refashioned himself into a trainer/coach, a guru who brought the gospel of maintenance best practices to each Acme plant across the state. And, the numbers revealed the financial value of the words he preached. In that sense, Wyatt had made a difference during the past three years, but was now bored with the routine and repetition.

Wyatt felt he owed some obligation to the country that made his success possible. Ever the thrill junkie, he thought it might be fun to get involved with one of the country’s several overseas military ventures. Afraid that playing soldier would affect his current situation, he engaged Al LeGateur, his supervisor, in a series of discussions during which Wyatt refined the expression of his new-found patriotic fervor. Al agreed with Wyatt about owing a duty to the flag. After a month of talking, Wyatt pulled the trigger and enlisted in the Army Reserves, which involved a multi-year contract. Less than two months after signing the papers, he went on his first stint of active duty to participate in hands-on training, which lasted six months.

When he returned to the Acme fold, he didn’t expect to be treated like a conquering hero, but he certainly didn’t expect the reception he received. He learned that Acme stopped the direct deposits of his paycheck on the day he left for training. Now that he could access his corporate e-mail again, he found that Acme’s HR department sent him a message that was tagged as “urgent.” It revealed that he had been charged with gross infractions of the company’s attendance policies during the time he was on active duty. The memo also threatened him with termination if such absences recurred.

He asked Al if this wasn’t a big clerical mistake on someone’s part. Wyatt also showed him a photocopy of a page from the employee handbook that cited a company policy that promised “pay calibration while an employee is on active military duty.” Taken in context, this meant Acme would pay the difference between one’s civilian pay and military pay. Al recommended that he go directly to the HR department to voice his complaint. Wyatt left four calm voice mails and sent three civilized e-mails to the HR department seeking an appointment to resolve the matter.

But, his initiatives were ignored and he was unable to find anyone to meet with him. Deciding that the meek approach isn’t going to be effective, he sent a series of complaining e-mails to every executive in the HR department. When those messages weren’t acknowledged, he raised the ante. He called in sick and went to the local office of the Labor Department to complain about the way Acme was treating him.

That move didn’t get an immediate response either. Wyatt then sent another e-mail to Ray Cloose, the head of the HR department, saying that he planned to talk to the local newspaper and radio station to air his complaint about how Acme treats employees who are active in the military. That move elicited an almost immediate response from Ray granting the meeting he sought.

At this meeting, Ray agreed that the attendance points should not have been applied to Wyatt’s record and apologized for his clerical people having done so. When questioned about that company policy promising “pay calibration,” Ray agreed that Acme owes him the difference between his Acme pay and his military pay. But, Wyatt must provide proof of his military pay. On the strength of that commitment, Wyatt withdrew his Labor Department complaint.

After Wyatt showed Ray his military pay stubs, Acme made a direct deposit of $12,658 to Wyatt’s bank account. Four days later, Acme withdrew the same amount from the account. When Wyatt questioned the withdrawal, Ray told him that the company changed its mind because, in the opinion of Acme’s corporate counsel, the company owes him nothing. Ray ended the conversation by saying that Wyatt could let his attorney talk to Acme’s corporate counsel.

Wyatt filed suit in the U.S. District Court and alleged that Acme denied him the benefit of the “pay calibration” clause of the company policy during the time he was on active duty and that Acme made an unauthorized withdrawal from his bank account.

How could this situation have been avoided? Beyond preserving the job, what obligations does a company have to an employee who joins the military? What if the employee-soldier is incompetent? How much notice should an employee give before going off to war? Should banks allow a unilateral reversal of a deposit transaction? How responsive should the HR department be to uncomfortable queries?

An academician says:

My first reaction would be to tell Wyatt to “get it in writing!” That is, he should have sat down with HR before his active-duty stint and worked out the details of whether he would have a job when he came back, what would be the pay arrangement while on active duty, what would happen to his health-care benefits, as well as other issues such as seniority rights. There also are questions about whether the supplemental pay is taxable (military combat pay usually isn’t), and whether vacation days and sick days accrue while on active duty, etc. That information should have been put in writing (by HR) so that there would be no questions regarding these issues during or after his active duty.

The situation that arose in the case has been somewhat controversial. Illinois National Guard units that have been activated often are in Iraq for a year, and some have been called up twice. As a consequence, the companies who employ the reservists are faced with a dilemma in that they want to be patriotic and support the reservists but, on the other hand, it can be expensive if they’re paying salary and benefits for a replacement person as well as paying the salary and benefits of the on-duty reservist. There was one interesting case where police officers were receiving full pay and benefits from both the military and the police force while on active duty and, to cover for their absence, the police force was using current officers and paying them time-and-a-half or double time for the overtime they were putting in. So, the situation proved to be quite expensive for the town in question.

So, my advice would have been for Wyatt to get the details in writing before going on active duty and to have those issues settled before leaving. A company doesn’t have to supplement the reservists’ pay, although many do. But, the company must reinstate the reservist once he or she returns from active duty, and the company cannot take “a negative job action” against the employee because he or she is a member of the armed forces. Further, they can’t fire them without cause for a year after their return. Thus, even in at-will states, the returning activist is protected for one year, unless, of course, there are causes for termination.

Professor Homer H. Johnson, Ph.D.
Loyola University Chicago
(312) 915-6682
[email protected]

An attorney says:

Acme needs some lessons in patriotism — and in how to treat military veterans. An employer has no obligation to pay wages to employees who are serving in the military, but a company has certain obligations to men and women serving in the armed forces.

At the outset, an employer is required to grant a leave of absence to an employee in order for the employee to fulfill the military obligations. This means that an employer can’t discipline an employee for being absent while the employee is on military duty. Once the employee completes military duty, generally, the employer must reinstate the employee to the position he would have had absent military duty. This includes restoration of benefits and salary increases the employee would have had without going on military duty. The laws protecting service members are designed to ensure that an employee suffers no loss of the perquisites of employment due to serving the country.

The term "pay calibration" isn’t a commonly used term. It also is extremely unusual for an employer to offer to pay the difference between an employee's regular wages and his military pay while on active duty. I’ve never seen or heard of such a policy. Some employers offer to pay an employee regular wages or the difference between regular salary and military pay for up to two weeks a year while the employee is participating in training. But to offer payment of a wage differential for the duration of regular military duty, which could last for years, is a novel concept.

In all likelihood, Acme's corporate counsel concluded that the company owed Wyatt no wages on the theory that the employee handbook didn’t constitute a contract with employees and created no obligation on the part of Acme to adhere to its provisions. Prudent employers are careful to have their employee handbooks reviewed to make certain they don’t create enforceable contracts with employees.

Julie Badel, partner
Epstein Becker & Green, P.C.
(312) 499-1418
[email protected]

A maintenance consultant says:

Acme’s HR employees must understand the rules for Citizen-Soldiers. The company made a promise of paying differential pay. This is a special and good company policy, but not required by law. Most companies don’t do this. For self-employed reservists, deployment is extremely difficult. Acme simply changed its mind based upon the opinion of Acme’s corporate counsel. Ray and incompetent HR departments are reasons we have and, at times, need unions. In most cases that have gone to court, the soldier wins and the company loses much more than Acme’s $12,658 in terms of intangibles/image/goodwill.

If the soldier is given an Other Than Honorable (OTH) discharge, rehiring isn’t guaranteed. Soldiers have a responsibility to provide employers with advance notice, written or verbal, of service and to return to work, or apply for reemployment, in a timely manner. Notice might be provided by the employee or by an appropriate officer of the branch of the military in which the employee will be serving. However, no notice is required if military necessity prevents the giving of notice, or the giving of notice is otherwise impossible or unreasonable.

In addition, soldiers must be discharged under honorable conditions. If a soldier is proved to be incompetent during service and receives an OTH discharge, then a competence, character or service deficiency has been documented by the military service branch.

HR must be responsive in the cases of many Reservist and National Guard soldiers who train extensively before being deployed to Iraq and Afghanistan. A good HR function understands the explicit regulations. The Uniformed Services Employment and Reemployment Rights Act (USERRA) protects the employment rights of individuals who leave civilian employment positions to undertake military service. USERRA also prohibits employers from discriminating against past and present members of the uniformed services.

Ralph W. "Pete" Peters
The Maintenance Excellence Institute
(919) 270-1173
[email protected]

Plant Services is searching for plant professionals willing to match wits with our group of experts and provide an “In the Trenches” guest response. It’s a way to put your thoughts in front of magazine-reading peers and online readers. For further information, contact Executive Editor Russ Kratowicz at [email protected] or (630) 467-1301 x 309.

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