In a recently issued opinion letter, the California Division of Labor Standards Enforcement (“DLSE”) changed its position regarding partial-week furloughs of exempt employees. In 2002, the DLSE ruled that employers could furlough exempt employees for an entire workweek without pay, but they could not reduce the work schedule of exempt employees for part of a workweek with a corresponding reduction in their salary. This conclusion was at odds with the federal Department of Labor’s (“DOL”) interpretation of federal law on this issue.
Federal regulations (29 C.F.R. § 541.602) provide that an employee is paid on a salary basis if the employee receives, on at least a weekly basis, a fixed salary that is not reduced based on a difference in the kind of work or amount of work performed in a given workweek. The regulation does not require an employer to pay an employee for any workweek in which the employee performs no work. However, an exempt employee must receive a full salary for any workweek in which the employee performs work, regardless of the number of days or hours worked in that workweek.
The DOL has issued numerous rulings and opinion letters stating that the federal regulations do not prohibit an employer from reducing the salary of an exempt employee to correspond with a reduction in the exempt employee’s normal workweek schedule. The DOL has followed this approach so long as the salary reduction did not reduce the exempt employee’s weekly salary to an amount less than the minimum required to be paid under federal law to meet the salary basis qualification of an exempt employee. The DOL often noted that such reductions were designed to address specific needs of an employer in dealing with difficult economic conditions and were not intended to be permanent in nature.
The DLSE’s recent opinion is consistent with the DOL’s interpretation of federal law. It approves an employer’s proposal to reduce the number of its employees’ scheduled work days from five days to four days per week with a corresponding salary reduction, based on severe economic difficulties. The DLSE made clear that its expectation was that as soon as business conditions permit, the employer would restore the full five-day workweek schedule and full salaries of its exempt employees.