How are Employers in the Retail and Consumer Products Industry Administering Employee Family and Medical Leaves? What are the Pros and Cons of Outsourcing? 

One of the biggest human resources challenges for employers in the retail and consumer products industry is administering the maze of disability and family medical leave restrictions – the American With Disabilities Act ("ADA"), the Family Medical Leave Act ("FMLA"), and overlapping state and local leave and disability accommodation requirements. In our kickoff of the Retail& Consumer Products industry group's first national retail client survey, we asked some of the nation's leading retail and consumer product companies how they approached the issue, the extent to which they outsourced the function and if they handled it in-house and how they managed these maddeningly complicated issues. 

The vast majority of our survey respondents indicated that they handle employee leave internally. Fewer than 17% of the respondents outsourced leave administration. The majority of both smaller (fewer than 100 employees) and larger employers opted to keep leave administration in house. Some respondents to our survey had more than 10 employees with human resources ("HR") responsibilities handling leave, but most respondents delegated leave administration to a smaller number of individuals in HR. 

Managing leave under the FMLA can be time consuming and keeping current with recent changes in the FMLA regulations and federal and state law developments can be challenging. So why are more employers reporting that they are choosing not to outsource despite the growing supply of outsourcing services available? 

One major reason is control. Although outsourcing may lower the cost of leave administration, employers who handle leave internally maintain greater control over issues or complicated sets of relationships that can easily develop into costly claims or litigation from disgruntled employees. When a vendor administers leave, the employer remains liable for any violations of the FMLA and other leave laws. The Department of Labor's ("DOL")statistics regarding FMLA enforcement show FMLA complaint cases increased by more than 21% last year alone and the Equal Employment Opportunity Commission's ("EEOC") statistics show disability charges up by more than 25% last year (http://www.eeoc.gov/eeoc/statistics/enforcement/charges.cfm). Those are daunting figures and enough to get the attention of any HR professional. By keeping leave administration in house, employers may be in a better position to avoid potential claims. 

Also, although the FMLA requires a significant amount of paperwork and compliance with certain deadlines, the DOL has recently issued updated forms and guidance on its website that can help ease the burden on employers. There also are a variety of software programs available to assist employers with tracking employee leave. With these tools, employers can minimize the time it takes to process routine FMLA leave requests. 

The more complex leave cases are where HR may add value through internal administration. For issues such as employees who require more than 12 weeks of leave (the maximum under the FMLA), employees who need job modifications or other accommodations in addition to leave, employees who are on leave due to a workers compensation covered injury or illness or employees suspected of abusing leave, having an internal person involved can help manage risk and curb abuse. When an employee is communicating with an outside vendor regarding leave requests, HR may not become aware of disability accommodation issues that may need to be addressed. 

Failure to offer leave as an accommodation of a disability can lead to significant liability. For example, the EEOC recently secured a whopping $20 million settlement with Verizon, the largest ADA settlement in EEOC history (http://www.eeoc.gov/eeoc/newsroom/release/7-6-11a.cfm). In that case, the EEOC brought a class action alleging that Verizon's inflexible administration of attendance and leave policies violated the ADA. 

By keeping leave administration in house, HR may be in a better position to spot disability issues early and ensure consistent handling of leave issues across the organization. Employers that have opted to ease the administrative burden of leave by outsourcing should be sure to have measures in place to alert HR of potential disability issues. Rapid and fluid communication is essential to managing risk in leave administration. And regardless of whether FMLA leave is handled internally or outsourced, in order to avoid potential liability, HR will need to continue to devote attention to the growing number of leave issues in today's workplace. 

Survey Results are Below:

Number of employees 

• 49% - fewer than 100 employees 
• 33% - more than 100 employees, fewer than 500 employees 
• 18% - more than 500 employees, fewer than 1,500 employees 

Number of Locations 

• 67% - fewer than 25 locations in the United States 
• 33% - more than 25, fewer than 50 locations in United States 

Revenue 

• 100% - Under $500M 

Does your company handle its ADA/ FMLA or other leaves of absence administration, or does it outsource any or all functions? 

• 83.3% - handled internally 
• 16.7% - outsourced 

If administration is handled internally, how many people do you have performing the services? (Please include capacity) 

• 66% - 1 to 2 with HR responsibilities 
• 17% - more than 2, fewer than 10 with HR responsibilities 
• 17% - more than 10 with HR responsibilities

We encourage suggestions for future surveys, comments on improving our reporting or commentary, or other feedback that can make the survey and reports more useful to you. Thank you to all who participated in our first survey – stay tuned for the second. 

© 2011 Perkins Coie LLP