Paid Leave Liability: “We Kept Paying Them” Is No Longer Enough

The U.S. Court of Appeals for the Sixth Circuit recently revived discrimination and retaliation claims in Ahmed v. Hamtramck Public Schools, reinforcing an important point for employers: continued pay does not automatically eliminate paid leave liability.

When paid administrative leave lasts too long, removes an employee from meaningful duties or workplace visibility, or is not tied to a genuine and timely investigation, it may still qualify as an adverse employment action.  

If you or your company would like to review paid administrative leave practices, workplace investigation procedures, or disciplinary decision-making protocols, please contact the ILS legal team at contact@consultils.com. We work with employers to develop practical and defensible processes designed to reduce paid leave liability, discrimination claims, retaliation claims, and inconsistent-treatment risk.

Case Background

The plaintiff, a former school administrator, alleged that she was placed on paid administrative leave after taking protected leave under the Family and Medical Leave Act (“FMLA”) and was never returned to her position.

According to the complaint, the school district did not identify any specific misconduct allegations, did not provide her with a meaningful opportunity to respond, and did not complete a genuine investigation despite keeping her on leave for more than one year.

She brought claims for sex and national origin discrimination, along with FMLA retaliation. She also alleged that male employees and employees outside her protected class were treated more favorably in similar circumstances. The district court dismissed the claims, but the Sixth Circuit reversed and allowed them to proceed.

The court’s message was direct: an employer cannot defeat a discrimination or retaliation claim simply by pointing out that the employee remained on payroll.

Why Paid Leave Can Still Create Liability

The court relied on the U.S. Supreme Court’s decision in Muldrow v. City of St. Louis, which lowered the threshold for showing harm in employment discrimination cases.

An employee does not necessarily need to prove a major financial loss. A change in the terms or conditions of employment that causes some actual harm may be enough.

That means courts may look beyond salary and benefits and consider whether the employee:

• Lost core responsibilities or managerial authority;

• Was removed from contact with colleagues, clients, or decision-makers;

• Lost professional visibility or advancement opportunities;

• Suffered reputational harm;

• Remained in an indefinite and unresolved employment status.

For senior employees, managers, and client-facing professionals, prolonged removal from the workplace may have real career consequences even when pay continues.

Paid leave liability therefore depends on how the leave functions in practice, not merely on whether compensation remains unchanged.

A Weak Investigation Makes the Risk Worse

Paid administrative leave is often used to preserve evidence, protect witnesses, reduce workplace disruption, or allow an employer to investigate potential misconduct.

That can be legitimate. But the leave must be connected to a real and reasonably prompt investigation.

In Ahmed, the court found it significant that the employee was allegedly never told what she had done wrong, was never given a meaningful opportunity to respond, and remained on leave for more than a year without resolution.

Those facts made the leave look less like a temporary investigative measure and more like an indefinite removal from employment.

For employers, the difference is critical. A defensible investigation should have:

• A clearly defined purpose;

• Identified decision-makers;

• Documented investigative steps;

• A process for employee response;

• A reasonable timeline;

• Periodic review of whether continued leave remains necessary.

If the employer cannot show that the investigation was active and genuine, paid leave liability becomes much harder to manage.

Timing After Protected Leave Can Support Retaliation Claims

The Sixth Circuit also allowed the employee’s FMLA retaliation claim to proceed.

The court recognized a “first opportunity to retaliate” theory. Even if some time has passed since the employee engaged in protected activity, an adverse action taken at the employer’s first practical opportunity may still support an inference of retaliatory motive.

This matters when an employee returns from:

• FMLA leave;

• Medical leave;

• Pregnancy or parental leave;

• A discrimination complaint;

• A request for accommodation;

• Whistleblowing activity;

• Participation in an internal investigation.

If the employee is placed on leave, reassigned, disciplined, or removed from duties shortly afterward, the employer should be prepared to show a clear, independent, and contemporaneously documented business reason. A general statement that the decision was “business-related” may not be enough if the timing creates a plausible retaliation theory.

Inconsistent Treatment Can Keep a Case Alive

The court also rejected an overly strict approach to comparator evidence at the pleading stage.

An employee does not necessarily need to identify another worker who is identical in every respect. It may be enough to plausibly allege that other employees engaged in similar conduct but received more favorable treatment.

That means paid leave liability can increase when:

• Similar employees were not placed on leave;

• Leave periods were materially different;

• Some employees were allowed to respond while others were not;

• Discipline varied without a documented reason;

• Protected characteristics or protected activity appear to track the different outcomes.

Before placing an employee on leave, employers should review how comparable situations were handled in the past and document any legitimate reasons for treating the current matter differently.

What This Means for Employers

Ahmed does not make paid administrative leave unlawful. It does, however, make clear that paid leave is not a risk-free substitute for suspension, discipline, or termination.

The legal risk increases when the leave:

• Continues without a clear end point;

• Removes the employee from meaningful work for an extended period;

• Follows protected leave or protected complaints;

• Is unsupported by a documented investigation;

• Is applied inconsistently;

• Causes reputational or professional harm.

Employers should also avoid treating paid leave as a holding pattern when management is unsure what decision to make. A temporary measure can become much harder to defend when it continues without progress, review, or resolution.

Practical Steps to Reduce Paid Leave Liability

Before placing an employee on paid administrative leave, employers should document why removal is necessary and whether a less restrictive option would address the same concern.

The investigation should begin promptly and proceed according to a defined process. The employee should receive notice of the basic concerns and a meaningful opportunity to respond at an appropriate stage.

The employer should also review the leave periodically. A decision that was reasonable on day one may become difficult to justify weeks or months later if the investigation stalls.

Where the employee recently engaged in protected activity, legal review should focus on timing, decision-makers, comparator treatment, and whether the stated reason is supported by records created at the time.

Finally, employers should ensure that internal policies distinguish between short-term investigatory leave and indefinite removal from duties. Paid leave liability is easier to control when the process has a defined purpose, regular oversight, and a documented path to resolution.

Conclusion

Paid leave liability turns on more than whether the employee continues to receive a paycheck.

Courts may also examine the duration of the leave, the loss of responsibilities, the impact on professional standing, the timing of the decision, the quality of the investigation, and whether similarly situated employees were treated consistently.

For employers and HR teams, the best protection is not simply to keep paying the employee. It is to use paid administrative leave as a structured, temporary, and well-documented measure supported by a genuine investigation and a legitimate business reason.

If you or your company would like to review paid administrative leave practices, workplace investigation procedures, or disciplinary decision-making protocols, please contact the ILS legal team at contact@consultils.com. We work with employers to develop practical and defensible processes designed to reduce paid leave liability, discrimination claims, retaliation claims, and inconsistent-treatment risk.

Disclaimer: The materials provided on this website are for general informational purposes only and do not, and are not intended to, constitute legal advice. You should not act or refrain from acting based on any information provided here. Please consult with your own legal counsel regarding your specific situation and legal questions.

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As Managing Partner at ILS, Richard Liu ranks among the leading U.S. attorneys in corporate, employment, and regulatory law. He is known for crafting legal strategies aligned with clients’ business objectives and advising Fortune 500 companies, startups, and executives on corporate transactions, financing, privacy, and employment matters across the technology, healthcare, and financial sectors.

Before founding ILS, Richard practiced at top defense firms, where he developed a reputation for anticipating risks and designing strategies that balance protection with growth. He has secured favorable outcomes in contract and intellectual property disputes, represented clients in state and federal courts, and is recognized for combining large-firm expertise with boutique-firm agility. Richard is also a frequent speaker at industry and legal conferences.

Email: contact@consultils.com | Phone: 626-344-8949

法律策略，为《财富》500 强企业、初创公司及高管提供公司交易、融资、隐私及劳动法咨询，服务覆盖科技、医疗、金融等行业。

加入 ILS 之前，刘启光律师曾在顶级辩护律所执业，擅长预判风险、设计保护与发展并重的策略，在合同纠纷、知识产权等案件中屡获有利结果，在各级法院出庭，兼具大所专业度与精品所响应力，是业内热门演讲嘉宾。

Email: contact@consultils.com | Phone: 626-344-8949