Caution to Employers: When Paid Administrative Leave Constitutes Unlawful Retaliation

by Robert P. Rudolph

A recent ruling by the U.S. District Court for the District of Massachusetts indicates that, depending on the circumstances, the longtime practice of placing an employee on paid administrative leave during an investigation may constitute a materially adverse employment action sufficient to establish a claim for unlawful retaliation.

An employee’s claim for unlawful retaliation generally requires proof of harm as a result of the employer taking an adverse employment action (i.e., termination, demotion, loss of benefits…) against the employee. Placing an employee on paid administration leave with no loss of benefits is frequently viewed as a safe way to remove an employee from the work environment during an investigation without causing any materially adverse change in the employee’s terms and conditions of employment. This is true even if the employee has engaged in some type of protected activity.

In US. Ex rel. Herman v. Coloplast Corp., the employee alleged one of her clients was engaging in an illegal kickback scheme involving the sale of certain medications. The specific whistleblower statute pursuant to which the employee complained, similar to many Massachusetts anti-discrimination statutes, contained an anti-retaliation provision that shields employees from being “discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment.” After reporting the scheme, the employee alleged that her employer, during its investigation, took certain administrative actions against her which were materially adverse and constituted retaliation.

The Judge noted that whether termed “suspension” or “paid administrative leave,” it was undisputed that the employee was required to immediately cease performing any services on behalf of the company. However, the employer took many steps to avoid any implication of having taken a material adverse employment action against the employee. It continued to pay her salary and commissions, granted her a minimum commission payment of 100 percent of the eligible target incentive each month, and promised her full eligibility for enrolled benefits. The employer even gave the employee a raise during the leave and allowed her continued use of a company-issued vehicle and fuel card. However, the analysis did not end there.

The Judge found that, while on leave, the employee was prohibited from working for about one year and was unable to perform services on behalf of her employer or have contact with her customers or co-workers on work-related matters. Those prohibitions, according to the employee, prevented her from growing her professional career. The employee also lost opportunities to attend a “Presidents Circle” trip and earn commissions above the 100 percent quota level (which she had earned in the prior two years). As a result, the Judge held that a jury could conclude that a reasonable person in the employee’s position might be dissuaded from engaging in protected activity by the threat of adverse changes in the terms and conditions of employment and the employee’s claim for unlawful retaliation could proceed.

The takeaway is clear. Paid administrative leave is not guaranteed to insulate an employer from an unlawful retaliation claim. Before placing an employee on paid administrative leave ensure that such leave will not cause any materially adverse change in the employee’s terms and conditions of employment. A detailed analysis of the implications of the leave must be scrutinized.