On May 19, 2009, the Sixth Circuit Court of Appeals found that the operator of health and fitness centers violated the salary basis requirements under the Fair Labor Standards Act (FLSA) when it deducted money from the base compensation of employees to reclaim previously paid bonuses. (Baden-Winterwood v. Life Time Fitness, 6th Cir., No. 07-4437, 5/19/09). Accordingly, the employer could not establish that the employees from whom money was deducted were exempt, salaried employees.
In its decision, the Court held that the salary basis test adopted by the U.S. Supreme Court in Auer v. Robbins, 519 U.S. 452, 117 S. Ct. 905, 137 L. Ed. 2d 79 (1997), should be applied to pay periods occurring before August 23, 2004, and the salary basis test stated in 29 C.F.R. § 541.603 should be applied to pay periods occurring after August 23, 2004. Under the Auer test, an employee is not paid on a salary basis, and thus loses exempt status, if (1) there is an actual practice of salary deductions or (2) an employee is compensated under a policy that clearly communicates a significant likelihood of deductions. In the revised Regulations, which became effective on August 23, 2004, the Department of Labor (DOL) noted that "[a]n actual practice of making improper deductions demonstrates that the employer did not intend to pay employees on a salary basis." 29 C.F.R. § 541.603(a). Under the Regulations, there is no violation of the salary basis requirements and, therefore, no loss of the exemption, unless there is an actual practice of improper deductions.
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