With large numbers of soldiers returning home and, presumably, to the jobs they held before being called to active duty, employers would do well to brush up on the re-employment obligations imposed by the Uniformed Services Employment and Re-employment Rights Act (USERRA). Not only must an employer reinstate a returning servicemember (assuming reinstatement was requested in a timely manner), but that employer must place the servicemember in a position equivalent to the position the employee would have held but for the fact of the employee’s military leave.
Complying with this obligation—which is commonly referred to as the Escalator Principle—can present some challenges for employers struggling to determine how far an employee would have advanced (up the escalator) in terms of position, pay and benefits, had the employee worked the entire period of time spent in the military. This analysis is even more difficult when the returning employee held a position that does not entail lockstep increases or seniority-based promotions or benefits.
In late 2011, the US Court of Appeals for the Second Circuit (Connecticut, New York and Vermont) issued an opinion in Serricchio v. Wachovia Securities LLC that underscores the sort of complex analysis in which employers must engage when reinstating employees and determining their post-service compensation rate.
Background of the Case
Michael Serricchio worked as a financial advisor for Prudential Securities (whose retail brokerage business was subsequently subsumed by Wachovia Securities) from late 2000 through September 2001, when he was called to active duty in the United States Air Force Reserve. Serricchio earned approximately $75,000 in commissions during his predeployment employment. While serving his country abroad, however, most of Serricchio’s accounts were reassigned and several were taken by the partner to his new firm.
When Serricchio returned from active duty in October 2003, he requested reinstatement, but had to wait five months before Wachovia re-employed him. When he was finally reinstated in late March 2004, Wachovia offered Serricchio an advisor position with his preservice commission rate. Serricchio, however, objected to this, citing the fact that the account list provided to him by Wachovia was not nearly as lucrative as the one he managed before deployment. Indeed, the court noted in its opinion that the book of business provided by Wachovia would “generate virtually no commissions.” Wachovia made matters worse, since it provided no assistance to Serricchio in re-establishing either his book of business or his higher, preservice commissions. Serricchio thus filed a lawsuit in US district court, accusing the company of violating USERRA by failing to re-employ him in a position that would provide him with the same earnings opportunities that he had prior to his deployment.
The Serricchio Decision
Following trial, a jury determined that Wachovia had not satisfied its obligation to provide Serricchio with the position that he would have held had his employment not been interrupted by military service or, in the alternative, to a position of “like seniority, state and pay” upon return from active duty. As such, the jury found that Wachovia had a) failed to offer Serricchio re-employment within two weeks of his request; b) failed to reinstate him to a position with pay comparable to his pre-service earnings; and c) constructively discharged him by failing to offer a suitable and appropriate position.
After a bench trial on the issue of damages, the district court awarded Serricchio $778,906 in back pay and liquidated damages, $830,107 in attorneys’ fees and costs, plus $36,567 in prejudgment interest, and reinstated him as a Wachovia financial advisor with a three-month fixed salary and a nine-month draw. Wachovia appealed both the jury’s decision and the district court’s apportionment of damages, arguing that it had complied with its USERRA obligations by offering Serricchio his preservice commission rate. The Second Circuit disagreed.
Noting that Serricchio presented a USERRA issue that was a matter of first impression, the Second Circuit held that Wachovia’s provision of a position with the “same preservice commission rate” did not comply with USERRA because it disregarded the “amount of actual commissions” that Serricchio had earned from his preservice book of business. The court held that offering a commission-based employee the same commission rate “without regard to volume or size of the accounts in the servicemember’s pre-activation book of business” does not satisfy USERRA. Where an employee has received commission-based pay, the appropriate USERRA analysis must therefore include the amount of prior earnings. Thus, Wachovia violated USERRA because the position that it offered to Serricchio upon his return from active duty would have resulted in much lower actual earnings—despite the same commission rate—and “did not provide the same opportunities for advancement, working conditions and responsibility that [Serricchio] would have had but for his period of military service.”
With thousands upon thousands of soldiers returning to the workforce, employers should ensure that the individuals responsible for making decisions relating to the employee’s position, pay and benefits understand what USERRA generally requires with respect to re-employment, how to properly apply the Escalator Principle and what the Serricchio decision means for employees who are compensated in ways other than straight salary. If at all possible, employers should provide USERRA training to these decision makers so that they understand the broad requirements of the law with respect to re-employment, as well as to other employment rights accorded to the men and women in our military. Finally, all re-employment-related decisions affecting a returning service- member should be reviewed by human resources, and employment counsel should be consulted if any questions arise.
Aaron R. Gelb is a shareholder at Vedder Price P.C. and a member of the firm’s Labor and Employment Practice Area. He represents employers in all aspects of equal employment opportunity, wrongful discharge and labor relations litigation before federal and state courts, federal, state and local fair employment and administrative agencies such as the EEOC, Illinois Department of Human Rights, Cook County Civil Rights Commission, the Department of Labor and National Labor Relations Board.