• Paul Peter Nicolai

Paid Administrative Leave Not Necessarily Safe Harbor

Employers needing to investigate a situation with one or more employees frequently use a paid administrative leave to remove those being investigated from the worksite. This is frequently recommended because, uniformly, appellate courts have ruled it was not a material adverse change which gives rights under employment discrimination laws.

This has changed. A US District Court in Boston has for the first time ruled that paid administrative leave could be a material adverse action. The employee had exercise rights under the False Claims Act by reporting the employer had engaged in fraudulent activity. Even though she was paid $80,000 in commissions while on administrative leave and given a raise, the employee claimed imposing administrative leave meant she could not maintain contact with her accounts and could not grow herself professionally. She was also prohibited from attending an awards trip and could not earn commissions above the 100% level.

The court said calling something a paid administrative leave is not the end of the analysis – as is usually the case in these situations. The court said all of the facts had to be considered in deciding whether the imposition of paid administrative leave was a materially adverse change. Because this employee could argue that the development of her career was impeded, there was enough to continue the litigation. The court refused to dismiss the case.

WHY THIS IS IMPORTANT… Imposing paid administrative leave needs to be sensitively done. Under the theory accepted by the court here, a paid administrative leave must not only leave the employee whole on a week to week basis. It also has to not materially adversely affect the employee’s future career prospects. It is likely we will be hearing more about this when the case is appealed.

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