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Outsourcing Administration of Employee Leaves of Absence to a Third-Party Vendor Did Not Insulate Dollar General Store from Responsibility to Rehire Returning Service Member under USERRA

Administering employee leaves of absence is complicated. For employers of 50 or more employees there obviously are the Family and Medical Leave Act (FMLA) and D.O.L. regulations to deal with. Then there is the EEOC, which has interpreted the Americans with Disabilities Act (ADA) to require leaves of absence, or extending them under certain circumstances as a reasonable accommodation of an individual’s disability. Add worker compensation laws that provide for reinstatement of employees following a work-related illness or injury, as well as an ever growing list of other federal, state and, more recently, local laws governing what employers may or may not do about employee absences and even the most experienced HR professionals have their hands full. Monitoring FMLA leave (especially intermittent leave), work-related absences, military leave, leave as an accommodation and all the legalities of when and how to return workers from such leaves, can be overwhelming. Not surprisingly, many employers have turned to outsourcing these functions, ostensibly to avoid all the hassles and legal pitfalls they present. However, as a recent U.S. Court of Appeals decision demonstrates all too clearly, turning these responsibilities over to a third party does not rid an employer of responsibility, or liability, for complying with the many workplace leave laws that are at play.

Scudder v. Dollar General Store was decided August 17th by the U.S. Court of Appeals for the 8th Circuit, which oversees Minnesota, Iowa, Missouri, the Dakotas and Nebraska. The plaintiff in the case, Sam Scudder, had been employed as a store manager of a Dollar General store in Arkansas when he was called to active duty as a sergeant with the National Guard. Deployed to action in Afghanistan, he was injured and returned to a medical transition facility where he remained for well over a year. Dollar General outsourced coordination of Scudder’s military leave to a third party: Matrix Absence Management (Matrix). According to the Court’s decision, the day before Scudder’s approved leave was to expire he contacted a representative from Matrix, expressing frustration that his calls to Dollar General were not being returned. He asked (apparently rhetorically, from his perspective) whether he needed to “put in [his] two weeks” because he was not yet able to return to work. The Matrix employee took this as Scudder’s resignation and communicated it as such to Dollar General, who then processed employment separation notices and other paperwork.

Upon receiving notice from Dollar General that his employment was ended Scudder responded by email, noting that he was called to active duty in Afghanistan as part of Operation Enduring Freedom, again expressing frustration that he was unable to reach someone in human resources or the district manager where he previously worked. Scudder then applied for a store manager position opening at another store, indicating that he had worked as a store manager for Dollar General but had been let go after returning from military service, where he was injured. After he did not get the job Scudder sued, claiming his rights to reemployment under the Uniform Services Employment and Reemployment Rights Act of 1994 (USERRA), were violated. The trial court granted summary judgment to Dollar General, dismissing Scudder’s lawsuit without a trial. The trial court judge reasoned that Dollar General reasonably expected Scudder to seek reemployment through Matrix, its third party leave coordinator. Therefore, the judge concluded that none of Scudder’s separate communications with Matrix and Dollar General’s management, were sufficient by themselves to constitute and “application for reemployment” as required by USERRA. However, on appeal, the appellate court disagreed, reversing the trial court’s decision.

It is clear from the appellate court’s analysis in this case that, unlike the trial court, it would not assess Scudder’s communications with Matrix separately from what he communicated directly to Dollar General. Consequently, despite the fact that Matrix’s representative interpreted Scudder’s comments as his resignation, in the court’s view his near simultaneous communications directly to Dollar General suggested otherwise. Specific to USERRA, the court noted that an employee’s request for reinstatement need not be in writing or any particular form. Rather, the question is merely “whether… a reasonable employer would be put on notice that the applicant is a returning veteran who seeks reemployment.” The court went on to say that “[a]lthough Dollar General may have preferred Scudder to seek reemployment through Matrix, he was under no obligation to do so.”

In sum, even though Scudder appears to have caused any confusion between this employer and its third-party leave coordinator, Matrix, the court of appeals refused to let Dollar General off the hook over any misunderstandings. These same sorts of problems might occur in the context of any other type of leave employers commonly outsource to a third-party administrator, such as FMLA, worker’s compensation, STD and other forms of leave. Therefore, this decision holds important lessons for employers who outsource administration of employee leaves of absence, or are considering using a third-party coordinator, including:

1. Legal responsibilities can never be truly outsourced; employers bear the ultimate responsibility for compliance with workplace laws.

2. It follows from lesson #1, then, that where an employee communicates with both a third-party vendor and the employer, the two should share that information with one another so as to be on the same page.

3. Termination decisions always rest with the employer, so relying solely on a vendor for facts can be risky (as this case demonstrates with the misunderstanding that Scudder quit, communicated to Dollar General).

4. The lessons of this USERRA case may apply in the context of FMLA and a host of other leave management scenarios. Besides misunderstandings between employers and third-party vendors, problems also arise where there are misunderstandings or miscommunications between members of management in the same organization.

QUESTIONS? Contact Attorney James Sherman in our Minneapolis office at (952) 746-1700 or by email at or contact the attorneys in our other offices.

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