In Rhea v. General Atomics, a California appellate court confirmed that employers may require salaried exempt employees to use accrued vacation/PTO for partial day absences in any increment of time. At times during the relevant time period, General Atomics’ annual leave policy allowed General Atomics to deduct annual leave for partial-day absences of any length. Plaintiff filed a class action challenging the policy, claiming it violated the salary basis test under California law.

The court of appeal upheld the trial court’s grant of summary judgment, holding that exempt employees satisfied California’s salary basis test notwithstanding the use of paid vacation/PTO for partial-day absences.  The court of appeal expanded a 2005 decision, Conley v. Pacific Gas & Electric Co., which upheld an employer’s policy of requiring exempt employees to use their accrued vacation time to offset partial day absences of at least four hours. Answering the question left open in the PG&E case, theGeneral Atomics court held that there was nothing to suggest that a policy requiring salaried exempt employees to use vacation / PTO for partial day absences of less than four hours would lead to a different result.

As such, the court held applying paid vacation/PTO in any time increment does not impact employee’s exempt classifications under California law.

PLANNING TIP

In the past 10 years beginning with PG&E and leading up toGeneral Atomics, California’s law in this regard has changed.

California employers should re-evaluate their vacation / PTO policies, and can now require salaried exempt employees to use accrued vacation / PTO for partial day absences in any increment of time, including less than four hours.