New DLSE Opinion Letter Authorizes Furlough of Exempt Employees
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A recent opinion letter from the California wage and hour authority, the Division of Labor Standards Enforcement ( the "DLSE") reverses a long held position on the ability of employers to furlough exempt employees without losing the overtime exemption. It has long been the law in California that an employee who is characterized as exempt from overtime must be paid on a salaried as opposed to an hourly basis. It has also long been settled that, with certain exceptions, an exempt employee must be paid for a full workweek if the employee performs any work in that workweek. In prior opinions, the DLSE has interpreted this rule to mean that an employer could not reduce the salary of an exempt employee when they furlough that employee for a day because of a lack of work. Previously an employer who chose to reduce the workweek of an exempt employee to four days was required to pay the employee for the full five days of work.
Last week the DLSE issued a new opinion letter contrary to its earlier ruling. Now the rule appears to be that employers may safely furlough employees, reduce the workweek to four days and reduce the salary proportionately, all without losing the employee's exempt status.
While the new ruling provides some guidance and a little relief for employers in these challenging times, it does not answer all the questions about the types of deductions which can safely be made from the salaries of exempt employees. Thus this area of the law continues to pose significant risk and exposure for employers who wish to reduce their overhead by limiting the workweeks of exempt employees. Employers should approach all decisions regarding deductions from the salary of exempt employees with great caution and should seek counsel when it doubt.
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