Company’s failure to follow its own written policy regarding wage payments during military leave violated the USERRA

For the week of March 10, 2008

Although employers are not obligated under the Uniformed Services Employment and Reemployment Rights Act (USERRA) to pay wages during absences caused by military leave, many employers include such policies in employee handbooks or procedural manuals. When a written policy is disseminated to employees, the company must follow that policy. In a recent unpublished opinion, the 6th U.S. Circuit Court of Appeals awarded unpaid wages, liquidated damages, and punitive damages against an employer that failed to follow its own written policy related to the payment of wages during military leave. Koehler v. PepsiAmericas, Inc., 6th Cir., No. 07-3093, March 6, 2008.

Kevin Koehler began his employment with PepsiAmericas, Inc. in 2000 as a route salesman based in Cincinnati, Ohio. In 2002, Koehler entered into an eight-year enlistment with the Army Reserve. After returning to Pepsi from a six-month military training conducted from March through August 2002, Koehler began to experience attendance-related disciplines, some of which were related to subsequent military duty absences. Although Koehler made attempts to address and resolve these issues, Pepsi was not responsive until Koehler sent an e-mail to Pepsi’s corporate website threatening to publicize how Pepsi treats its employees who serve in the armed forces.

The company then set up a meeting with Koehler, and provided to him a copy of the company’s Military Active Leave Policy and Procedures, which included a payment to "bridge the gap between Military Pay and normal pay received, so that employee is kept whole and does not lose money by going into military duty." At the pre-arranged meeting with Pepsi, which included HR managers, union representatives, and Koehler’s military unit commander, Koehler was told that the attendance disciplines related to military absences would be reversed. Further, in response to Koehler’s claim for differential pay under the policy, Koehler was told that he would be paid under the company’s policy.

After the meeting, Koehler withdrew a complaint that he had filed with the Department of Labor, as he had agreed to do in exchange for Pepsi’s promise to pay him. Two weeks later, Pepsi directly deposited the net pay owed into Koehler’s bank account. However, a month later, Pepsi withdrew the same amount from the account, without prior notice to or permission from Koehler. When Koehler asked for a reason for that action, he was told that Pepsi had "changed our minds" and that he should "let your attorney speak to our attorney." Koehler then retained counsel and filed a lawsuit under the USERRA, also claiming violation of a verbal contract to pay the wages, and claiming conversion of the amount originally deposited to his account.

At a non-jury trial, Koehler was awarded his unpaid wages. The court also awarded an equal amount of liquidated damages for Pepsi’s "willful" violation of the USERRA, and awarded punitive damages under Koehler’s state law conversion claim. On appeal, the Sixth Circuit affirmed the entire award.

Much of the outcome of the case – including the liquidated and punitive damage awards, both of which require "willful" violations of law – stemmed from the lower court’s determination regarding the credibility of the witnesses. Primarily, the court found that the company’s HR witness was not credible when she failed to acknowledge her familiarity with the company’s policy, and when she refused to admit that someone from Pepsi had initiated the original deposit into Koehler’s account. Here, Pepsi obviously knew that it had established a benefit related to military leave pay, and actually had paid the amount into Koehler’s account. The company had sufficient information to know that it was violating the USERRA when it withdrew the funds from that same account one month later.

The Sixth Circuit also supported the lower court’s imposition of punitive damages on Koehler’s state law conversion claim, specifically finding the "ill will" required for such damages in Pepsi’s failure to respond effectively to Koehler’s grievances and complaints regarding his attendance-related discipline.

Employers must recognize that once a written policy is disseminated, managers – especially HR personnel - must be trained to understand, implement, and consistently enforce such a policy. Failure to do so can lead to the events that occurred here, including the imposition against the company of both liquidated damages under the USERRA and punitive damages under related state-law claims.