Although wage and hour litigation continues to keep California courts busy, employers receive much day-to-day guidance about administration of wage and hour issues not from court decisions, but from the Department of Labor Standards Enforcement (DLSE). This agency, part of the Department of Industrial Relations, enforces wage and hour requirements in the state. As part of this duty, the DLSE occasionally issues opinion letters interpreting provisions of California wage and hour law. These opinions are not binding on the courts, but are very instructive as to how the DLSE will rule on particular issues. In the past several months, the DLSE issued a number of important opinion letters, each of which is summarized below.

Deductions from Leave Banks for Partial-Day Absences for Exempt Employees

Until recently, it was unclear whether California employers could reduce the pay or leave banks of “exempt” employees. To be properly classified as an executive, administrative, or professional exempt employee (the most common exemptions), an employee must generally satisfy two tests: a “salary basis” test that requires the employee to be paid a monthly salary of at least twice the state’s minimum wage (currently $33,280 per year) and a “duties” test that requires the employee spend more than 50% of working time performing specific types of tasks.

To meet the salary basis requirement, exempt employees must be paid a fixed salary regardless of the quantity and quality of their work. Previous guidance from the DLSE specified that, subject to a handful of statutory exceptions, employers could not reduce the salary of exempt employees for “partial-day” absences. However, the DLSE also took the position that employers could reduce the accrued leave balances (but not the salary) of exempt employees in increments of four hours or more. The DLSE relied on a 2004 court decision (Conley v. PG & E) that interpreted PG & E’s policy of allowing time off in increments of four hours or more. Because it was not clear whether employers could reduce leave banks in smaller quantities, many employers followed this “four hour” rule.

In a recent opinion letter, the DLSE clarified that although employers still can not reduce salary for partial-day absences, in most cases they may reduce vacation and sick leave banks in less than four-hour increments. DLSE Opinion Letter 2009.11.23 (available at www.dir.ca.gov/dlse). Reducing an exempt employee’s salary, the DLSE reasoned, violates the salary basis test. On the other hand, a reduction in the same employee’s leave balances is simply a method of regulating the timing of an exempt employee’s use of leave.

With this new guidance from the DLSE, at-will employers may amend their vacation and sick leave policies to provide that all employees’ leave banks will be reduced based on the amount of time actually taken off, holding exempt employees to the same rules as non-exempt employees. Of course, if an exempt employee does not have any leave available, the employer cannot reduce the employee’s salary in partial-day increments unless one of the very limited exceptions applies (e.g., the employee is taking intermittent leave under the federal Family and Medical Leave Act).

Reducing Work Hours and Salary for Exempt Employees

In another opinion letter about exempt employees, the DLSE responded to a particularly important question in the current challenging economic climate—whether an employer may reduce the work schedule and salary of exempt employees as an alternative to layoffs. DLSE Opinion Letter 08.19.2009. The DLSE considered a proposal to reduce schedules from five days a week to four days, with a corresponding 20% reduction in pay for all employees.

For non-exempt employees, the proposal does not cause a legal problem, because those employees can simply be paid for hours they actually work. However, as explained above, exempt employees must receive a fixed salary regardless of the quantity or quality of their work. Until the new opinion, the DLSE took the position that reducing an exempt employee’s schedule and salary in proportional amounts converted that employee to non-exempt status, which resulted in the employee’s entitlement to all the wage and hour protections afforded to non-exempt employees, such as overtime.

Fortunately, the DLSE clarified that these work schedule and salary reductions may not compromise an employee’s exempt status. In deciding that such a reduction is permissible as long as it does not violate the salary basis test, the DLSE relied on federal regulations, cases, and opinion letters from the federal Department of Labor (DOL). Such a reduction is permissible, according to the DOL, provided it is not “designed to circumvent the requirement that the employees be paid their full salary in any week in which they perform work.” In other words, if the purpose of the adjustment is not a “sham,” the employer may reduce an exempt employee’s workweek and salary by a proportionate amount.

Although most employers hope not to need to take advantage of this provision, today’s economic realities make cutting costs a top priority for many. Employers seeking to avoid layoffs may be able to do so by reducing schedules and salaries in the manner covered by the DLSE’s new opinion.

Of course, there may be negative consequences to such an action. for this decision. While layoffs often provide employers with an opportunity to eliminate the lowest performers and retain top talent, reducing exempt employees’ salary may motivate top performers to seek full-time, higher-paying employment elsewhere. And morale is likely to be negatively affected by a reduction in work hours and pay, particularly if the reduction in hours does not correspond with a proportionate reduction in workload. In other words, employees are likely to feel discouraged if they are simply expected to perform the same quantity of work in less time. (State workers are keenly aware of this phenomenon due to the furloughs to which many of them are subject.)

Still, many employees may prefer a relatively short-term reduction in hours and pay to the risk that they, or their co-workers, will be laid off. Fortunately, employers now know they can take such temporary measures without compromising the status of their exempt employees.

On-Duty Meal Periods

Most California employers are aware of the importance of complying with meal and rest period rules—and the potential penalties for failing to do so. In most circumstances, a non-exempt employee who works more than five hours in a workday is entitled to an unpaid (and duty free!) meal period of at least 30 minutes. An employee and employer may waive the meal period if the total hours worked in the day will be six hours or less.

Usually, employees must be completely relieved of all duties during a meal period. In limited circumstances, however, when the nature of the business requires it, an employee may take an “on duty” meal period, meaning the employee is paid during the meal period and the employer is not subject to the one-hour missed meal period penalty that usually applies when an employee cannot take an off-duty meal period. In those instances, an employer must obtain a signed on-duty meal period agreement from the affected employee, which can be revoked by the employee at any time.

Recently, the DLSE considered when on-duty meal periods may be appropriate for drivers subject to federal regulations that required them to remain with their vehicles at all times. DLSE Opinion Letter 06-09-2009. The employees at issue transported fuel to service stations. Under the applicable federal regulations governing hazardous explosive material, the employees could not leave their trucks unattended.

The DLSE (and the courts) have always taken the position that if an employee is not permitted to leave the worksite, the meal period is on duty. The question has been whether the nature of the work precluded the employee from taking an off-duty meal period so they could take a legitimate on-duty meal period. The DLSE found that because the drivers could not leave their trucks unattended, the “nature of the business” requirement applied and the employees could execute on-duty meal period agreements.

On a related topic, the DLSE also ruled that the employees, who worked 12-hour shifts, could waive their second meal period even if the first meal period was “on duty.” And the DLSE decided that the employees could sign “blanket” on-duty meal period agreements, provided the on-duty meal period requirements are met.

Alternative Workweeks Schedules During Summer Months

Under California law, employers can follow a set rigid procedure to establish an “alternative workweek schedule” for specific groups of employees. Under this arrangement, non-exempt employees may work more than eight hours per day (but no more than 10 hours per day) without receiving overtime. For example, an employer might adopt an alternative workweek schedule of four 10-hour days, instead of five eight-hour days.

However, employees must be given the opportunity to participate in a secret ballot election to adopt or reject the proposed alternative workweek schedule. The employer must comply with various requirements to properly adopt the alternative workweek schedule, all of which are detailed in the applicable I.W.C. wage order.

Recently, an employer sought advise from the DLSE regarding whether it could propose employees adopt an alterative workweek schedule for the summer months only, without going through the revocation and approval process each year. DLSE Opinion Letter 03.23.2009. The employer wanted to allow employees to work nine-hour days Monday through Thursday and a four-hour day on Friday in the months of June through September, and eight-hour days, five days a week during the rest of the year.

In approving the proposed schedule, the DLSE reasoned that California law does not require that an alternative workweek schedule be implemented for each week of the year. Instead, the schedule must be “regularly recurring.” The logic of this limitation is to preclude an employer from creating a system of “on call” employment in which “the days and hours of work are subject to continual changes, depriving employees of a predictable work schedule.” In the DLSE’s view, the proposal at issue was “stable, predictable, and not subject to continual changes.” As such, it was permissible under California law.

Conclusion

Employers should continue to closely follow the DLSE’s opinion letters at http://www.dir.ca.gov/dlse/DLSE_OpinionLetters.htm. Employers who do so will be better positioned to defend themselves before the DLSE and potentially in court as well.

X