We seem to have come across a conflict related to exempt employee leave banks. We want to deduct from our exempt employees’ leave banks for partial-day absences. We understand that the California Labor Commissioner has indicated that accrued leave time may not be used to replace salary for partial-day absences. However, I see that a California appeals court in Conley v. Pacific Gas and Electric held that employers may observe the federal rule permitting the substitution of leave time pursuant to an established, written policy. If I’ve got the situation right, which rule do I follow?—Martin, HR Manager in San Mateo
Our HR Management & Compliance Report: How To Comply with California and Federal Leave Laws, covers everything you need to know to stay in compliance with both state and federal law in one of the trickiest areas of compliance for even the most experienced HR professional. Learn the rules for pregnancy and parental leaves, medical exams and certifications, intermittent leaves, required notices, and more.
We asked Lloyd W. Aubry, Jr., to tackle this technical wage and hour question.
It is true that before May 31, 2005, the Labor Commissioner took the position that an employer could not deduct from exempt employees’ leave banks to cover partial day absences and, by so doing, still pay the full salary for the week. That is, if an exempt employee only worked a partial day, he or she was still entitled to the full salary for that day and that week without any deduction from the leave bank. This position was inconsistent with federal law and was very controversial.
On May 31, 2005, then-Labor Commissioner Donna Dell withdrew former Labor Commissioner Art Lugan’s August 20, 2002, opinion letter that had articulated this position. Curiously, she did this in an internal memo to Division of Labor Standards Enforcement (DLSE) staff with the admonition “***For DLSE Internal Use Only***”, which may be why you had not heard of the change in the DLSE’s position.
In any case, the Conley v. PG & E decision was issued on June 21, 2005, and essentially rejected the Labor Commissioner’s pre-May 31, 2005, position, pointing out that DLSE opinion letters do not have the force of law and are not controlling on the courts. The Conley court held that “nothing in California law precludes an employer from following the established federal policy permitting employers to deduct from exempt employees’ vacation leave, when available, on account of partial-day absences from work.”
The Labor Commissioner is required to follow applicable court precedents, and any opinion letter contrary to the Conley decision is of no effect. Indeed, the current Labor Commissioner amended his Policies and Procedures Manual to conform to the Conley decision. This new material can be found at page 51-9 of the manual in section 51.6.15 on the DIR website
A final caveat: if the employee does not have an available balance in his or her leave bank, no partial day deduction can be made from the employee’s salary. Doing so would destroy the exemption and require overtime to be paid in that week. However, if the employee takes a full day off, a deduction of one full day can be made without violating the salary basis rule.
Lloyd W. Aubry, Jr., former California Labor Commissioner, is of counsel at the San Francisco office of law firm Morrison & Foerster.