WORKPLACE LAW - Employer Seeking Guidance
Question:
I heard that new guidance was issued by the California Division of Labor Standards Enforcement regarding deduction from exempt employees’ vacation leave for partial-day absences. When one of my exempt employees takes a half-day off, can I deduct the time from the employee’s accrued vacation bank, or will this jeopardize the employee’s exempt status? What is the current rule on this issue?
Answer:
In July 2006, the California Division of Labor Standards Enforcement (DLSE) published new guidance in the DLSE Enforcement Policies and Interpretations Manual, clarifying its agreement with the July 2005 California Appellate Court decision in Conley v. Pacific Gas & Electric. The Conley case concerns deductions from exempt employees’ vacation leave for partial-day absences due to personal reasons other than sickness or disability. This new DLSE guidance may be found on the DLSE website at http://www.dir.ca.gov/dlse/Manual-Instructions.htm.
The court in Conley held that employers may deduct from exempt employees’ vacation leave banks for partial-day absences without causing otherwise exempt employees to become non-exempt. An employee is exempt if the employee meets the duties and salary test specified in the applicable wage order, and is regularly paid a predetermined amount of compensation that is not subject to reduction based upon variations in the quality or quantity of the employee’s work. In Conley, the employer had a vacation leave policy that allowed deductions from exempt employees’ vacation leave banks for partial-day absences; but not from their pay. Affected employees filed suit and claimed this vacation leave policy constituted a reduction in the amount of compensation they received based upon the quantity of work they performed, making them non-exempt employees. These allegedly non-exempt employees sought overtime pay.
The court in Conley disagreed with the affected employees, and found the vacation leave policy did not operate as a forfeiture of wages, or prevent vacation pay from vesting, since the deductions from vacation leave were only taken for days the employees were actually off work for at least four hours or more. As a result, the effect of the leave policy was not a reduction in the employees’ compensation. Instead, the court construed the policy as merely regulating the timing of exempt employees’ use of their vacation time. The court determined the affected employees still retained their exempt status and were not entitled to overtime pay.
Prior to the Conley case, the DLSE guidance stated that deductions from employees’ vacation leave for partial-day absences would convert exempt employees into non-exempt employees. However, the recently issued guidance clarifies that the DLSE now agrees with the court decision in Conley, and employers may deduct from employees’ accrued vacation leave for partial day absences of four hours or more.
Based upon this new DLSE guidance and the Conley case, employers may deduct from an exempt employee’s vacation leave bank only for partial-day absences of four hours or more as long as the employee has sufficient vacation leave accrued, without jeopardizing the employee’s exempt status. If the employee does not have accrued vacation leave to deduct from, employers may not deduct from the employee’s pay for partial-day absences because this may be deemed a forfeiture of wages that will jeopardize the employee’s exempt status. Different rules apply to an exempt employee’s partial-day absences due to sickness or disability.
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