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

3. Posted by: J. Ashman

   I was told at the end of the year my hours and salary were being cut by 25% because the parent company could not sustain the salaries of the management goup, there are 7 employees. Instead of sharing the salary reduction between all 7 employees, they only cut hours and pay between 2 employees, myself, Director of HR and the Director of Accounting. The Director, Accounting resigned and one of my co-workers was promoted into her position. I was also told that my performance was not up to standard for the last 6 months, this was the 1st time that was ever mentioned to me. I was shocked, no coversations, no due process, only that my work was diffferent for the last 6 months. During the 6 months in question, they had paperwork of the extensive medical tests I was undergoing, knew my husband was living out of State to take care of my mother-in-law who was dying of brain cancer and knew I was going to have to place my mother in assisted living,There’s no policy in regards to cutting salary or hours and the parent company is still handing out 6 figure bonus’, hiring new employees, and increasing salary for a certain job class. I have asked if this was a temporary reduction, or something that was going to last all year. I was told I would have to speak to the owner who has stopped talking to me.I am in 3 protected classes, female, over 40, with a disability which they are aware of. Because of my exempt classification and working 30 hours per week, can they cut my pay? Your advice would be greatly appreciated.

4. Posted by: Amelia

   Hi J. Ashman! Yes, this is probably legal, even in California. An employer can simply decide that an employee in a particular postion is overpaid, and reduce the salary accordingly. There is no requirement for the employer to plead financial hardship to do this. There is no requirement that the employer reduce an employees hours as well.This change in salary is probably permanent.

   In addition, an employer can decide that a certain position only requires 30 hours instead of 40, and reduce the pay and hours accordingly.

   If you and the Director of Accounting were the only two female exempt employees, or the only two over 40, or the only two with disabilities, then this might be illegal discrimination. But if the employer has other workers who are in those protected groups whose salary was not affected, and there is a valid business reason for the change, then it is probably lawful.

   In addition, there is a performance issue here. The employer has one standard of performance for the Director of HR. The employee is expected to meet that standard, regardless of what is going on in her personal life. So the facts that your husband was living out of state and that you will have to put your mother in assisted living are irrelevant. Your raising those issues is a tacit admission that you know your performance has not been up to the employer’s standard.

   You may be able to take unpaid time off under FMLA or CFML for your medical tests. However, you are expected to meet the same performance standard as usual during the hours when you are at work. You could always contact a lawyer and try to file a lawsuit for illegal discrimination, but to be honest, you would spend a lot of money on attorney’s fees and you don’t have much of a case. HTH, and thanks for reading the blogs!~ Amelia

   PS You might be interested in also posting this question on our site for HR pros, http://www.humanresourceblog.com.