Employee handbooks can provide useful policies to guide employees and employers in handling various work-related issues. These same policies can help protect employers from liability. However, some employee handbooks contain policies that create unnecessary liability.
In a recent federal court case, plaintiffs survived summary judgment by showing that their employer had a policy of docking exempt workers for partial day absences and disciplinary reasons. Ergo v. International Merchant Services, No. 04-06789 (N.D.Ill. September 13, 2007). The Fair Labor Standards Act (“FLSA”) prohibits docking exempt employees except in very limited circumstances. In Ergo, the court found that an impermissible docking policy and practice prevented employees from being classified as exempt under the FLSA’s salary basis test. Under this test, an exempt employee must receive the same predetermined amount of money for each week worked. An employee whose pay is subject to reduction because he or she is late or leaves early, for example, will not be considered “salaried” because such an employee’s pay varies according to hours worked.
International Merchant argued that any deduction based on its policy occurred only in “unusual circumstances.” The court was not swayed and found that 12 such instances were sufficient, together with the employer’s policy, to establish FLSA violations. The court emphasized that even if the plaintiff employees had not actually been subjected to any improper deductions, the mere existence of a policy permitting such deductions showed that the salary basis test was not satisfied and the employees could not be properly classified as exempt.
The Ergo decision teaches that employers should review their employee handbooks and other personnel policies to ensure that they comply with the salary basis test and that exempt employees’ salary is not subject to impermissible “docking.” It is also important for employers to have a safe harbor policy to help protect them from liability. A “safe harbor” provision may minimize the impact of inadvertent improper deductions from an exempt employee’s salary. The “safe harbor” is a brief period of time in which employers have the opportunity to correct inadvertent improper deductions that may have made from an exempt employee’s the salary. This safe harbor is available to an employer only if it (a) has a clearly communicated policy prohibiting improper pay deductions, (b) reimburses employees for any such deductions, and (c) makes a good faith commitment to future FLSA compliance.