Docking an exempt employee’s salary is fraught with risk. If your policy is to dock for disciplinary infractions or you improperly dock on a consistent basis, you lose the opportunity to correct illegal deductions—and run the risk of forfeiting exempt status for all workers covered by the policy. A new Ninth Circuit Court of Appeals decision sheds light on when your policies could strip workers of their exempt status.
Workers Attack Disciplinary Policy
A group of exempt workers employed by the city of Los Angeles and the Los Angeles Department of Water and Power (DWP) sued for back overtime. The workers claimed they were improperly classified as exempt because city policy permitted disciplinary suspensions and didn’t distinguish between exempt and nonexempt employees. The employees also claimed that over six years, 19 exempt city workers and seven exempt DWP employees had received partial-week disciplinary suspensions.
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The employees in the case, some of whom had never been suspended, said both the policy and the suspensions were illegal because exempt employees are usually entitled to their full salary under federal rules if they perform any work in a given week. They pointed to a U.S. Supreme Court ruling that a policy that permits disciplinary or other salary deductions will cause employees to lose their overtime exemption if you make the deductions or if the policy language makes it likely docking will occur.
Employers Deny Docking Practice
The city and the DWP countered that the policy didn’t specifically permit illegal docking. And they pointed out that the mayor had issued a directive that prohibited suspending exempt employees for less than a week except for a major safety violation. (Note that although suspensions for major safety violations are permitted under federal rules, it’s unclear whether California law permits them because of a recent controversial Labor Commissioner opinion on docking exempt employees that was later withdrawn. Plus, the employers argued, a few isolated illegal deductions didn’t indicate they made a practice of docking.
A federal trial court found that the written policy didn’t create a significant likelihood of illegal deductions, but that both the city and the DWP had a practice of deducting illegally. The city and the DWP appealed.
Court Rules On When Improper Docking Affects Exempt Status
The Ninth Circuit explained that there’s no simple test for determining how many illegal suspensions constitute an actual practice of making impermissible deductions. Considerations include the number of deductions, the time period in which they occurred and whether there were extenuating circumstances.
The court found that 13 of the city’s improper suspensions—most of them after the mayor’s directive—demonstrated an intention not to pay exempt employees on a salary basis. Therefore, the court upheld the ruling that the city failed to prove the employees were exempt from overtime laws.
However, the court found that the DWP did not have an actual practice of making illegal deductions. One of the seven disciplinary suspensions didn’t violate the rules against docking because the DWP subsequently reimbursed the employee. Three others occurred before the mayor’s directive. And one was disregarded on technical grounds. And, said the court, the two remaining improper suspensions weren’t sufficient to establish an actual docking practice.
How To Steer Clear Of Trouble
This case underscores that you can lose your ability to correct deduction mistakes and your employees’ exempt status if you’re not careful about docking. Here are some tips:
- Review your policies. Make sure nothing in your employee handbook or other materials suggests that exempt workers’ salaries can be improperly docked. Mention that you won’t permit deductions that are inconsistent with maintaining exempt status under state and federal overtime laws. To make your policy absolutely clear, spell out the few common situations when docking is permitted.
- Avoid illegal deductions. If an exempt employee performs any work during a given week, you shouldn’t dock for a) disciplinary infractions, b) absences of less than a day (except for family leave), or c) time off for jury or military duty or to appear as a witness.
- Correct mistakes quickly. If you inadvertently or erroneously make an illegal deduction for reasons other than lack of work, you may be able to remedy it without putting the exempt employee’s status at risk. You must promptly reimburse the worker for the improper deduction and promise, in writing, to comply in the future. But this special amnesty won’t help if you continue to dock illegally or have a policy or actual practice specifically permitting illegal docking.