Employer may deduct vacation leave time from accumulated bank of vacation leave for salaried exempt employees who miss partial days of work

A California court of appeals has rejected a claim that exempt employees who miss partial days of work for personal reasons cannot have their accumulated vacation time deducted by the employer. The case is Conley v. Pacific Gas and Electric Company, decided on July 21, 2005. While the case involved a question of first impression in California, the court followed federal case law to hold that employers can require exempt employees to use their vacation time when they absent themselves for all or part of the work day for reasons other than sickness or disability.

Under both federal and state wage and hour law, there is no requirement to pay overtime premiums to "exempt" employees; i.e., employees who qualify as administrative, executive or professional employees. However, to be considered as an exempt employee under either law, the employee must be paid a minimum salary on a weekly or less frequent basis, which salary generally cannot be deducted or "docked" when the employee is absent. The theory behind this rule is that exempt salaried employees are paid for their service to the employer, and not merely for the amount of hours they put in. If the no-docking rule is violated, the employer loses the benefit of the exemption and must pay the employee on a non-exempt basis. This in turn means that the federal and state overtime and other wage and hour laws applicable to non-exempt employees come into play.

An exception to the no-docking rule is that "an exempt employee who is absent from work for one or more full days for personal reasons, other than sickness or disability" can be subject to deductions in pay for that absence. 29 CFR section 541.602(b)(1). The clear inference arising from this exception is that exempt employees cannot be docked for partial day absences. Relying on California law, which provides that paid vacation leave is a form of "vested" compensation to the employee, the plaintiffs in this case maintained that by deducting the employee's accumulated vacation time for partial day absences, the employer essentially was "docking" the employee's pay.

The court did not agree. The court reasoned that while the salary test "may require the employer to give exempt employees additional time off for partial-day absences after they exhaust their vacation leave banks, under [the employer]'s vacation leave policy, [the] exempt employees do in fact receive all of the paid time off they have earned - they must simply use that accrued vacation time to make up for partial-day absences. In other words, because the deductions made from vacation leave banks of exempt employees represent days on which those employees have, in fact, taken at least four hours off work, [the employer]'s vacation leave policy neither imposes a forfeiture nor operates to prevent vacation pay from vesting as it is earned. All it does do is regulate the timing of exempt employees' use of their vacation time, by requiring them to use it when they want or need to be absent from work for four or more hours in a single day."

Persons wishing further information or who have questions or comments about either this case or any of the cases that have appeared on this website can contact any of the attorneys at Epstein, Turner & Song.