In Sumuel v. ADVO, Inc., a California Court of Appeal affirmed a lower court ruling that there were no triable issues as to whether an employer made impermissible deductions for absences related to illness for employees classified as exempt. In this case, the employer's disability policy required California employees who were absent more than seven consecutive days to apply for State Disability Insurance. While the employer deducted the insurance disability payments from the employee's salary, the total amount the employee received each pay period remained the same. The plaintiff alleged this policy violated the "salary basis test" for exempt employees because the deductions were not made according to a bona fide disability plan. The court rejected this claim, holding that the deductions were taken as part of a bona fide plan, practice or policy of providing compensation for loss of salary occasioned by sickness or disability. Additionally, the plan did not violate the "salary basis test" for "exempt" status because it was communicated to the employees, operated as described to the employees, was administered impartially, was not designed with the intent to evade overtime pay requirements, and complied with the requirements in the DLSE Enforcement Manual.
Because disability policies and wage deductions for exempt employee status can be problematic, employers should carefully examine their own programs to ensure compliance with state and federal requirements.