Wage & Hour Counsel : Wage & Hour Lawyer & Attorney : Littler Mendelson Law Firm : Employment Law, Labor Relations

FLSA2009-14 addresses deductions during voluntary and mandatory reduced workweeks and complete weeks off. First, it examines whether an employer risks destroying exempt status by seeking volunteers to take partial weeks off and allowing the volunteers to choose to take a salary deduction or to be paid with accrued vacation or personal time. If an employee chooses to use accrued time and receives the equivalent of his regular salary, then all is well. The problem arises if the employee chooses salary deduction. The DOL acknowledges that 29 CFR § 541.602(b)(1) allows deductions from an exempt employee’s pay if the employee is voluntarily absent for one or more full days for personal reasons. However, it then states, “the employee’s decision to take [voluntary time off] . . . must be completely voluntary and not ‘occasioned by the employer or by the operating requirements of the business.’” (emphasis added). The underlined text suggests an employer who relies on “volunteers” to work reduced workweeks and allows the volunteers to choose salary deduction does so at its peril. Should the employee decide after the fact that he was coerced into taking the reduced weeks, the employer will bear the very difficult burden of proving the “voluntary” nature of the decisions. This may not be a risk worth taking.

The letter next determines that an employer risks destroying exempt status by mandating partial weeks off and allowing employees to choose whether to take a salary deduction or use accrued vacation or personal time to be paid. If an employee uses the accrued time and receives the equivalent of full salary, there should be no problem. If, however, a salary deduction occurs, then exempt status will be destroyed. Under 29 CFR § 541.602(a), “[a]n employee is not paid on a salary basis if deductions from the employee’s predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business.” The DOL advises that “salary deductions due to a mandatory reduction of hours worked for short-term business needs” are exactly the sort of activities encompassed in the phrase “by the operating requirements of the business.” Any deduction in this situation – even one an employee chooses – destroys the exemption.

Third, FLSA2009-14 addresses whether an employer places exempt status at risk by mandating, or seeking volunteers to take, an entire week off. The letter quotes 29 CFR § 541.602 (a): “Exempt employees need not be paid for any week in which they perform no work.” So an employer does not harm exempt status by not paying exempt employees’ salaries for any week in which the employees do no work – regardless of whether employees volunteer to take the week off or the employer mandates the week off.

FLSA2009-18 combines issues addressed in the first two letters with slightly different twists. The letter first determines that an employer does not jeopardize employees’ exempt status by requiring use of PTO in periods where workload mandates reduced hours on certain work days. Consistent with Letter 2009-2, the DOL takes the position that requiring employees to use PTO for time off due to reduced workload is acceptable – even for mandated absences of less than a day – so long as employees receive an amount equal to their guaranteed salaries for any week in which they perform work.

Finally, FLSA2009-18 indicates that an employer will destroy exempt status if it occasionally reduces exempt employees’ working hours in times of low business volume and makes corresponding salary deductions. The letter contrasts two situations. In the first, an employer decides to run a plant only four days a week instead of five, makes a long-term scheduling change for all employees from 40- hour weeks to 32-hour weeks, and reduces salaries by a fifth. In the second, an employer makes short term reductions in scheduled hours depending on the day-to-day needs of the business. According to the DOL, the first situation does not circumvent the salary basis requirement. Employees are still receiving a fixed salary for each week in which they perform work. In contrast, the second situation – like the deductions for mandatory partial weeks off addressed in FLSA 2009-14 – circumvents the salary basis requirement and destroys the exemption because “deductions from salary due to day-to-day or week-to-week determinations of the operating requirements of the business are precisely the circumstances the salary basis test is intended to preclude.”

These letters should raise employers’ comfort levels when requiring employees to use accrued paid leave time during business downturns. However, the letters leave little doubt that while hour reductions based on day-to-day or week-to-week operating needs of a business are acceptable, any resulting deductions from exempt employees’ salaries will quickly destroy the employees’ exempt status. These letters also only interpret federal wage and hour law as it applies to these situations. Employers should take care to ensure compliance with individual state wage and hour laws, some of which differ from the federal law, as well.

This blog entry was written by Jane Ann Himsel.

In the second letter (FLSA2008-17), the DOL concluded that a school district’s Certified Occupational Therapist Assistants (COTAs), who assist occupational therapists in providing therapeutic educational programs for students, are not exempt from the minimum wage and overtime requirements. The DOL reasoned that (1) the 60-credit certification program required to become a COTA does not qualify as “a prolonged course of specialized intellectual instruction” under the professional exemption; (2) COTAs specifically do not meet the DOL’s definition of a “registered or certified medical technologist” under the same exemption; and (3) COTAs do not qualify for the administrative exemption for educational institutions because their jobs relate to the “health of . . . students,” and not academic instruction or training.

In the final opinion letter (FLSA2008-19), the DOL stated that store managers who otherwise satisfy the requirements of the Act's executive exemption do not lose that exemption when they participate in a seven-week training program aimed at preparing them for promotion to a similarly exempt area sales manager position. Despite the fact that the managers do not perform exempt work during some of the weeks of training, the DOL emphasized that the training does not change the character of the manager’s job as a whole – their “primary duty” under the executive exemption remains that of an exempt store manager.

This blog entry was authored by Casey Kurtz.

The court accepted Aon’s argument that the duties described in its claims adjuster job description qualify as exempt work. The court emphasized that there was no indication in the job description that these significant activities were closely supervised and these activities “entail[] specialized training, experience and knowledge.”

A job description may—or may not—accurately describe the work performed by any group of persons covered by that job description. But Aon succeeded in showing—based primarily on testimony of the class representatives themselves—that the work actually performed by the adjusters also constituted non-manual office work “directly related to the general business operations” of Aon/Cambridge and its customers. Of significance to the court were the class representatives’ admission that their decisions whether to accept a workers’ compensation claim directly affected the amount of money expended by their clients. Moreover, the adjuster’s responsibility to set reserves for each claim required clients to set aside cash to cover these potential liabilities, and in the aggregate, claims adjusters established reserves as high as $50 million dollars. The failure to set adequate reserves properly can have dire consequences for clients, including causing insolvency and even bankruptcy. The court rejected plaintiffs’ contention that this reserve-setting process did not fulfill a critical role for clients in discharging the client’s obligation to comply with the state workers’ compensation laws.

The court also found that the adjusters “customarily and regularly” exercised discretion and independent judgment in handling workers compensation and other liability claims. The “relative uniformity” of the testimony in describing the spectrum of issues impressed the court. While the adjusters argued that the company’s “best practices manual” curtailed their exercise of independent judgment or discretion, Judge Sabraw agreed with Aon that the manual was merely a “guideline” or “resource” for adjusters, not “a rigid template for how to handle every claim.”

Plaintiffs’ argument that these adjusters were analogous to non-exempt “inspectors” did not carry the day either. The court found that adjusting workers’ compensation claims requires far more discretion than that exercised by inspectors, noting that one class member admitted that 75 to 80 percent of her daily decisions were made without supervision, another plaintiff conceded that the process “is not rote work,” and a third noted that different claims adjusters can reach different conclusions evaluating the same medical evidence.

Although the adjusters showed they were required to obtain supervisor approval for certain decisions such as denying a claim or setting a reserve above the adjuster’s authority level, the court next determined that the adjuster operated under only general supervision. Critical to the court’s decision was its conclusion that adjusters were largely unsupervised and free to work independently. Once again, key admissions from plaintiffs themselves were critical to Aon’s success, such as one adjuster’s observation that, “I don’t need someone looking over my shoulder for me to get my job done.” Further, adjusters needed specialized education because each must pass a state-mandated certification test, obtain continuing education credits, and stay current with changes in the laws impacting workers’ compensation coverage.

Finally, to qualify as exempt, Aon/Cambridge had to prove that the adjusters spent more than one-half of their work time engaged in exempt duties. According to Judge Sabraw, little evidence was offered at trial to show that class members spent anything approaching less than half of their time performing the exempt duties outlined in the company’s job description. The class representatives themselves admitted to performing exempt duties as often as 100 percent of the time.

Since there was no dispute that the adjusters were paid well above twice the minimum wage, the court concluded that the class as a whole met each of the criteria for the administrative exemption, and that Cambridge did not violate minimum wage laws, nor engage in any unlawful or unfair conduct proscribed by Business and Professions Code section 17200.

Interestingly, the court nevertheless provided its analysis of plaintiffs’ request for the equitable remedy of restitution, apparently to avoid a retrial should plaintiffs overturn the judgment on appeal. If the plaintiffs were to prevail on the issue of exempt status, then the court found the statistical evidence offered by competing experts sufficient to award lost overtime of 4.35 hours per week to the class. Sorting through the evidence based on depositions of 187 class members, the court found more reliable the testimony of current as opposed to former adjusters, noting that former adjusters reported nearly twice the weekly overtime as current adjusters (8.23 hours compared to 4.35 hours). The court commented that the farther back in time the adjuster was asked to estimate the amount of overtime worked, the higher the overtime hours reported. The court thus opined that if the plaintiffs were to prevail on liability, the court would accept the average of 4.35 overtime hours per week in order to calculate lost overtime, albeit calibrated to reflect different pay rates at different times.

Aon’s victory comes after a long legal battle. The first trial before a jury in 2005 resulted in a mistrial. Plaintiffs already have announced their intention to appeal Judge Sabraw’s decision. Whatever the final outcome, this case illustrates that insurance companies and other employers can establish the applicability of California’s administrative exemption, even when employees receive general guidance from manuals and supervisors.

Alison Hightower authored this blog entry.

The Court held that California’s overtime laws apply to nonresident employees for those periods of time that the employees worked in California. The Court reasoned that California clearly intended its labor laws to apply to work done in California by nonresidents. 

The Court rejected the employer’s due process arguments, reasoning that the company had a sufficient presence in the state such that it could be required to comply with California law. The Court noted that principles of due process require “significant contact or significant aggregation of contacts, creating state interests, such that choice of its law is neither arbitrary nor fundamentally unfair.” In this case, the Court held that the employer had sufficient contacts with California (including that its headquarters and principal place of business were in California).

The one bright spot for employers was the Court’s holding that California’s Unfair Competition Law did not apply to acts based on alleged federal wage law violations that occur outside of the state.

Following the Court’s decision, multi-state employers who conduct business in California will have to determine whether they have a sufficient presence in California to require them to comply with that state’s Labor Code with respect to nonresidents who temporarily work in the state. Since California law is considerably more strict than federal law and the law of most other states with regard to the classification of employees as exempt or nonexempt, the right to receive daily overtime, and the provision of meal and rest breaks, among other things, the Sullivan decision could prove to be an administrative burden for employers whose employees are assigned to work on a temporary basis in California.

UPDATE: Following this decision, both parties submitted Petitions for Rehearing En Banc to the Ninth Circuit.  On December 5, 2008, the Court ordered both parties to file a response to the other’s Petition. 

Tami Falkenstein-Hennick authored this blog entry.