Clarification: Employers Can Deduct For Partial-Day Absences of Exempt Employees
There still appears to be some confusion regarding the issue as to whether or not California employers may deduct partial-day absences from an exempt employee’s accrued vacation without fear of rendering the employee non-exempt. Although partial-day deductions have been permitted under federal law for a number of years, California law had been in limbo since a 2002 opinion letter from the Division of Labor Standards Enforcement (DLSE) suggested that such deductions may jeopardize exemptions under the “salary basis” test and expose employers to significant risks of having to pay overtime to exempt workers. However, in Conley v. Pacific Gas & Electric, which was decided in July 2005, confirmed that employers can make partial-day deductions from vacation or PTO banks and also suggested employers may have more control over when employees can use vacation time than previously thought.
In Conley, a group of exempt PG & E employees filed a class action, disputing PG & E’s classification of all exempt PG & E employees. Arguing that PG & E’s express and documented policy of deducting partial-day absences from the banked vacation of exempt employees rendered them non-exempt as a matter of law, the employees claimed years of unpaid overtime. The trial court disagreed and refused to certify the class. The Court of Appeal affirmed and found for the employer.
Although the Court agreed that a reduction in actual compensation for partial-day absences would defeat exempt classification, they found no such reduction in Conley. The Court of Appeal distinguished the Conley situation in stating that by deducting from banked vacation, the employer was not reducing compensation, only requiring that employees use accrued vacation when they were actually on vacation.
For employers ready to implement policies related to this new ruling, a bit of advice:
(1) The ruling applies only to accrued vacation or PTO; employers still may not deduct from an exempt employee’s pay for partial-day absences. If the employee has exhausted his or her accrued vacation leave, the employer may be required to give an exempt employee additional time off for partial-day absences.
(2) The Conley court defined “partial-day” as “four hours or more in a single day.” Making deductions in smaller increments have yet to be tested in the courts.
(3) Finally, employers should keep in mind that exempt employees typically work more than enough time to make up for the partial-day absences so use some common sense. If you have an exempt person really abusing the opportunity then that person may be different than the exempt person who rarely takes any time off.
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