In Rhea v. General Atomics, the California Court of Appeal issued an important ruling confirming that employers may require salaried exempt employees to use accrued vacation/PTO time for partial day absences in any increment, including increments of less than four hours, without violating the salary basis requirements for exempt status under California wage and hour law. Rhea puts to rest a lengthy dispute on this issue and is welcome news for many employers in California that previously adopted policies requiring employees to use vacation/PTO time for any partial day absences of any length.
California’s white collar exemptions (executive, administrative, and professional) all require employees to be paid on a salary basis. Generally this means, subject to certain exceptions, if a salaried exempt employee performs any work during a workweek, the employee must be paid his/her entire salary for that week. One exception allows deductions from the weekly salary for certain full day absences occasioned by the employee, but no deductions may be made to the salary for a partial day absence. Reasoning that an employer is obligated to pay a salaried exempt employee his/her full salary for any day in which at least some work is performed, California’s Division of Labor Standards Enforcement (DLSE) previously took the position that an employer could not offset this payment obligation by requiring salaried exempt employees to use their accrued vacation or PTO time to cover the partial day absence.
In 2005, the California Court of Appeal refused to accept this reasoning in Conley v. Pacific Gas & Electric Co., 131 Cal.App.4th 260 (2005). The Conley court upheld an employer’s policy requiring exempt employees to use their accrued vacation time to offset partial day absences of at least four hours in duration. However, the court refused to address whether a policy providing for the use of vacation time in an amount less than four hours was lawful. A number of years after Conley, the DLSE issued an opinion letter on November 23, 2009, approving the practice of allocating any amount of an exempt employee’s partial day absence to vacation, PTO, or sick time. Based on Conley and the DLSE’s opinion letter, many employers implemented policies requiring employees to use vacation/PTO time in increments of an hour or less, but the courts had yet to address whether such policies were lawful under California law.
The Rhea decision has finally addressed this issue. The plaintiff in Rhea was a salaried exempt employee who brought a putative class action challenging her employer’s policy of requiring exempt employees to use vacation for partial day absences of any length. The plaintiff claimed the company violated the salary basis test under California law by requiring exempt employees to use vacation for partial day absences. The court of appeal upheld the trial court’s grant of summary judgment, finding exempt employees met the salary basis test under California law even though the company required them to use vacation for partial day absences of any duration. The court reasoned Conley was correctly decided and there was nothing in Conley to suggest that a policy requiring exempt employees to use vacation for partial day absences of less than four hours should be struck down.
This decision provides California employers with certainty regarding the issue of deducting vacation/PTO time for exempt employees’ partial-day absences. Going forward, employers will benefit from Rhea’s confirmation of their right to require salaried exempt employees to use accrued vacation/PTO time in any increment to cover partial day absences.