Among the most straight-forward components of the FLSA exemption analysis is the salary basis test, which requires that employees exempted pursuant to the “white collar exemptions” generally receive a fixed salary of at least $455a week (higher under many state laws). At times, however, challenges arise based on certain deductions from the salary paid to such an exempt employee. Specifically, employees challenge whether such deductions were authorized by the governing regulation 29 CFR § 541.602. In a new decision following a jury trial, an Alabama federal judge upheld a salary basis finding (and thus exempt status) despite a handful of unpaid “disciplinary suspensions.” Watkins v. City of Montgomery, 2013 U.S. Dist. LEXIS 37370 (M.D. Ala. Mar. 19, 2013).
In Watkins, the defendant City of Montgomery maintained a published policy prohibiting improper deductions from exempt employees’ pay, but further clarified that deductions would be permitted for “suspensions for violation of workplace safety rules and workplace conduct rules.” The deductions at issue in Watkins were full day deductions for suspensions resulting from various violations of safety or disciplinary policies by the fire department lieutenant plaintiffs, including:
- driving to the wrong address;
- missing a street;
- making an arguably sexist remark about a female district chief;
- being overweight;
- receiving a reckless driving ticket, and other infractions.
The court ruled that all of the misconduct giving rise to these suspensions constituted either a violation of “safety rules of major significance” or of “workplace conduct rules.” 29 CFR § 541.602(b)(4) and (5). Because each of the suspensions fell within one of these exceptions to the general rule that deductions cannot be made from exempt employees’ salary, the salary basis and exempt status were preserved.
Watkins constitutes an employer-friendly decision in the limited, but growing body of authority interpreting 29 CFR § 541.602. Employers must analyze their own written policies and actual deduction practices with respect to exempt employees, to ensure any deductions fall within the authorized categories. At the least, all employers must reserve the right via written policy to make deductions for these purposes. And, of course, as relevant, state law always must be considered.