United States: Courts Reject Labor Commissioner Policies

Courts Reject Labor Commissioner Policies¹

In Conley v. Pacific Gas & Electric Company,2 a California Court of Appeal ruled that employers may make vacation deductions for partial-day absences of employees without jeopardizing their exempt status. While federal law has allowed such deductions under the FLSA, California’s Division of Labor Standards Enforcement ("DLSE") had a different interpretation of California law. In order to be exempt under California law, employees generally must be paid on a "salary basis." This means that an exempt employee’s pay cannot be subject to reduction because of variations in the number of hours the employee works. Until recently, the DLSE took the position that a vacation deduction for a partial-day absence was inconsistent with an employee’s exempt status even though the employee received the same amount of pay as if he or she had not been on vacation. Accordingly, employers were advised not to deduct vacation leave for exempt California employees who worked any portion of a workday.

In Conley, the plaintiffs sued their employer for overtime pay on the theory that they were non-exempt employees. Relying in part on the DLSE opinion letters, the plaintiffs argued that PG&E charged the vacation leave banks of its exempt employees for partial-day absences, thus making the employees non-exempt as a matter of California law. When the trial court denied class certification, the plaintiffs appealed. The Court of Appeal rejected the DLSE’s old interpretation and declined to adopt the DLSE’s approach, holding that such advice letters do not have the force of law and are not controlling. Instead, the court concluded that "nothing in California law precludes an employer from following the established federal policy permitting employers to deduct from exempt employee’s vacation leave, when available, on account of partial-day absences from work."³

It is important to note that this holding is limited to deductions from available vacation leave banks. Indeed, the court noted in dicta that "the federal salary basis test may require PG&E to give exempt employee’s additional time off for partial-day absences after they exhaust their vacation leave banks."⁴ Employers should not therefore deduct from an exempt employee’s salary for partial-day absences when no vacation leave is available.

The question presented in Reynolds v. Bement ⁵ was whether officers, directors, and shareholders of a corporation can be liable to employees for unpaid overtime compensation. The plaintiff brought a class action against the employer as well as eight defendant shareholders and agents (current or former officers or directors), alleging violations of California Labor Code sections 1194 and 5. Plaintiff asserted that a corporate representative could be individually liable as an "employer" under the applicable statutes. The court disagreed, concluding that the plaintiff "[could not] state a section 1194 cause of action against the individual defendants." Under common law, corporate agents are not personally liable for an employer’s failure to pay wages. But the Reynolds plaintiff urged the court to adopt an interpretation of sections 5 and 1194 that differed from the common law. The court declined to do so, concluding that common law was controlling because the legislature did not clearly indicate an intent to depart from it. The court also declined to adopt the DLSE’s practice of extending liability to corporate agents who exercise requisite control and, according to the Labor Commissioner, satisfy the definition of "employer" set forth in the IWC Wage Orders. It remains unclear what effect this decision will have on claims brought before the Labor Commissioner. Nonetheless, Reynolds represents an important victory for corporate directors, officers, and shareholders.

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Layoffs: A 12-Step Program for Getting Through Down(sizing) Times

While the worst may be over (we hope), layoffs continue to be one of the most challenging aspects of a human resource professional’s job. Whether emanating from outsourcing, a merger, or an acquisition, or simply from a shift in corporate structure or cost-cutting – or any combination thereof – the elimination of positions and separation of employees means the same thing from a human resource perspective: layoffs. The specter of layoffs, especially mass layoffs, can be daunting. Tension is in the air, uncertainty reigns, morale is in jeopardy, and the threat of legal claims looms. With adequate forethought and planning, however, the challenges presented by layoffs are surmountable.

Morrison & Foerster LLP will host a series of briefings focusing on handling layoffs that result from outsourcing and M&A transactions. The program will provide practical steps for any company to take when faced with layoffs.

Northern Virginia - October 18, 2005
Ritz Carlton
1700 Tysons Boulevard
McLean, Virginia
Registration: 7:30 am – 8:00 am
Program: 8:00 am – 9:30 am
Breakfast briefing with Daniel Westman

Palo Alto - October 19, 2005
Crowne Plaza Cabaña Palo Alto
4290 El Camino Real
Palo Alto, California
Registration: 11:30 am – Noon
Program: Noon – 1:30 pm
Lunch briefing with Christine Lyon and David Murphy

San Francisco - October 25, 2005
Four Seasons Hotel
757 Market Street
San Francisco, California
Registration: 8:00 am – 8:30 am
Program: 8:30 am – 10:00 am
Breakfast briefing with Judith Droz Keyes

Los Angeles - October 26, 2005
Morrison & Foerster LLP
555 West Fifth Street, 34th Floor
Los Angeles, California
Registration: 8:00 am – 8:30 am
Program: 8:30 am – 10:00 am
Breakfast briefing with Janie Schulman

San Diego - November 10, 2005
Morrison & Foerster LLP
12531 High Bluff Drive, Suite 100
San Diego, California
Registration: 7:30 am – 8:00 am
Program: 8:00 am – 9:30 am
Breakfast briefing with Richard Bergstrom

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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