labor lawAdivision of labor law center

The California Labor Agency recently issued an opinion allowing employers to reduce an exempt employee’s salary and hours worked, at the same time, without endangering the worker’s status as a salaried exempt employee.

 

In the example used, the state labor agency permitted an employer faced with economic difficulties to reduce the work schedule of exempt employees from five days to four days. The state DLSE or Department of Labor Standards Enforcement ruled in a recent opinion letter that simultaneously reducing the employee’s salary by 20%  “did not violate the ‘salary basis’ for the workers’ overtime exemption under the state Labor code and wage orders” as long as the employer’s action is a temporary measure.

 

This is a radical change, since the DLSE took the opposite position in 2002. In an opinion letter issued in that year, the California agency ruled that the employer could reduce an employee’s salary. However, if the employee’s work hours were also reduced, that change the employee from exempt to non-exempt status.

 

This is a primary concern for California employers, since non-exempt employees are entitled to overtime under state law. California has the strictest overtime regulations of any state, requiring overtime after 8 hours per day, double-time after 12 hours per day, and special premiums on the 7^th consecutive day of work.

 

The new California policy on exempt employees includes several crucial conditions: 

• When economic conditions permit, the exempt employee must be restored to full salary
•  The salary reduction is permitted only when the employer is experiencing “significant economic difficulties”
•  Affected employees whose new salary is not at least twice the state minimum wage for full-time employment, will become eligible for overtime
•  The employer cannot alter the employees salary so often that the salary basis becomes a “sham.”  

This newest California exempt employee regulation puts the state law on a par with federal regulations under FLSA, the Fair Labor Standards Act. However, there is one important exception: under FLSA, the salary reduction must be in effect for at least 3 months. Under California regulations, the original salary must be restored as soon as economic conditions permit.

 

 

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1. Posted by: S Del

   I am an exempt employee in California working as a General Manager for a restaurant. One year ago, the restaurant owner informed me that he would need to drop my days from 5 to 4 days and to reduce my salary by 20%. I have continued to work the 4 days and perform all of the same management functions. A few days ago, the owner told me that he would have to drop my salary another 13%, and that I would need to layoff a bartender. I would then have to work as the bartender and the manager 3 days/wk at night. I do not want to be a bartender and I can’t effectively perform my management functions when I’m performing 2 roles. A few questions: 1) I have started working with the reduced salary (so I understand that means I have accepted it), but if I quit now will I be entitled to unemployment. 2) Doesn’t the dual role change my exempt status to hourly and I would be overtime eligible (my hours have increased on the days I bartend. 3) I work 4 standard days/week. Can they have me work additional days during the week without paying me any more? 4) If the law is that the 5 to 4 days should be temporary, isn’t a year longer than temporary and does that with the decreased pay entitle me to quit and apply for unemployment?
   Any advice is greatly appreciated.

2. Posted by: Amelia

   Hi S Del! This is a tough situation and you have our sympathy. Unfortunately, we are not able to give you the answers that you prefer. The measure your employer is taking (laying off an hourly employee and having an exempt employee fill that poisiton) is a very common way to save payroll, that many hotels and restaurants use. The situation is the same as when a manager fills in because a bartender or cook calls in sick — the manager is expected to handle his or her management duties and the hourly position, as well. We do not recommend that you tell the owner you cannot do both. The reasonable reaction would be for him to fire you, and hire a manager who can handle both positions.

   To answer your specific questions 1) You are correct that you have accepted the reduced salary. If you quit due to the salary reduction now, you will not be eligible for unemployment. 2) No, the dual role does not change your exemption status, because you are expected to complete your primary duties as a manager in addition to making drinks. For example, if a customer complains, you would still be expected to handle that problem. So you are not eligible for overtime, regardless of how many hours you work in the week. 3) Yes, they can have you work additional days without more pay. In fact, many restaurant managers have been working 6 to 7 days per week, every week, during the current recession (for more than a year.) If you cannot get all your management duties done while tending bar, the reasonable expectation would be to have you come in additional days to get your work done. 4) You misunderstood the article above. The law is that the 4 or 5 day week must be permanent. The law defines permanent as lasting at least 3 months — but it can last forever. So the salary reduction was never temporary, and if you quit, you will not qualify for unemployment.

   We feel your pain, especially since several of our HR advisors started out in hospitality management. However, this is a very common tactic that restaurants use to control costs. If you find filling in for hourly employees or working additional days per week intolerable, you might want to look for a job in another field. HTH, and thanks for reading your blogs!~ Amelia