This appeals presents a challenge to General Atomics's employment practice of requiring exempt employees to use their annual leave hours when they are absent from work for portions of a day. Although Conley v. Pacific Gas & Electric Co. (2005) 131 Cal.App.4th 260, 263 [31 Cal.Rptr.3d 719] (Conley) established that California law does not prohibit an employer "from following the established federal policy permitting employers to deduct from exempt employees' vacation leave, when available, on account of partial-day absences," appellant Lori Rhea contends that Conley was wrongly decided, or in the alternative, that even under Conley, General Atomics is not permitted to deduct from an exempt employee's leave bank when the employee is absent for less than four hours.
We conclude that Rhea's contentions are without merit, and accordingly we affirm the trial court's judgment in favor of General Atomics.
Rhea is employed at General Atomics in a salaried position that qualifies her as an exempt employee for the purposes of overtime pay under the
Exempt employees at General Atomics are paid a salary and accrue comprehensive annual leave (Annual Leave) which can be used by employees to take paid time off for any reason, including vacation, sickness, medical appointments, family obligations and leisure pursuits. An exempt employee's salary at General Atomics does not fluctuate based on the number of hours worked by the employee during a pay period, and General Atomics does not pay overtime to exempt employees.
The amount of Annual Leave accrued by an employee depends on the employee's length of service at the company, ranging from 15 days per year for an employee with less than one year of service, to 32 days per year for an employee with 19 years or more of service. General Atomics specifies a maximum amount of Annual Leave balance that an employee may carry over to the next year, depending on length of service. When an exempt employee reaches the maximum accrual amount during a calendar year, the employee continues to accrue Annual Leave past the maximum through the end of the calendar year, but any Annual Leave hours in excess of the maximum at the end of the year are automatically cashed out and included in the employee's January paycheck.
General Atomics requires that exempt employees use their Annual Leave hours when they are absent from work for partial days or full days. Over the course of the time period relevant to this lawsuit (Jan. 2008 to the present),
Although General Atomics has no written policy directing employees to record partial-day absences in any particular minimum increment, it is
Whether absent for a full or partial day, employees continue to receive their full salary and continue to accrue Annual Leave during the period of absence. Further, even if absent for a full or partial day during a particular week, an employee is not required to use Annual Leave for an absence in any week in which the employee works a total of more than 40 hours.
General Atomics's policy allows an exempt employee to use Annual Leave hours that have not yet accrued, up to 7.9 hours, with the deficit being made up by a deduction of Annual Leave hours when they accrue. When an exempt employee terminates employment at General Atomics with a negative Annual Leave balance, General Atomics does not reduce the amount of salary in the employee's final paycheck to offset the negative balance.
Rhea filed this lawsuit as a proposed class action on January 10, 2012, on behalf of a proposed class of General Atomics's exempt employees in California subject to Annual Leave deductions for partial-day absences of less than four hours in the four years prior to filing the lawsuit. The complaint alleged causes of action for (1) illegal wage deduction and forfeiture of vested vacation wages in violation of Labor Code section 221 et seq.; (2) failure to pay overtime wages at the required overtime rate in violation of Labor Code sections 510 and 1194; (3) failure to comply with itemized employee wage statement provisions in violation of Labor Code section 226, subdivision (a); and (4) violation of the unfair competition law (Bus. & Prof. Code, § 17200 et seq.).
After considering the parties' summary judgment briefing and argument, the trial court ruled in favor of General Atomics, concluding that California law did not prohibit General Atomics's policy of requiring exempt employees to use Annual Leave for partial-day absences of any length. Rhea appeals from the judgment.
Both because we are reviewing a ruling on motions for summary judgment, and because the issue presented to us is purely one of law on undisputed facts, we apply a de novo standard of review. (Biancalana v. T.D. Service Co. (2013) 56 Cal.4th 807, 813 [156 Cal.Rptr.3d 437, 300 P.3d 518] [on "`appeal after a motion for summary judgment has been granted, we review the record de novo'"]; Shapiro v. Board of Directors (2005) 134 Cal.App.4th 170, 178 [35 Cal.Rptr.3d 826] ["We apply a de novo standard of review where, as here, our task consists of applying a statute to underlying facts that are not in dispute."].)
Both California and federal law provide that employees are exempt only if they (1) perform certain types of work and (2) are paid on a salary basis. (Lab. Code, § 515; 29 U.S.C. § 213; 29 C.F.R. § 541.600 (2014).)
Federal regulations define what it means to be paid on a salary basis. Subject to certain exceptions, "[a]n employee will be considered to be paid on a `salary basis' within the meaning of these regulations if the employee regularly receives each pay period ... a predetermined amount constituting all or part of the employee's compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed." (29 C.F.R. § 541.602(a) (2014).) The main exception applicable here is that salary may be deducted for full day absences for personal reasons, sickness or disability. "Deductions from pay may be made when an exempt employee is absent from work for one or more full days for personal reasons, other than sickness or disability." (29 C.F.R. § 541.602(b)(1) (2014).) "Deductions from pay may be made for absences of one or more full days occasioned by sickness or disability (including work-related accidents) if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for loss of salary occasioned by such sickness or disability." (29 C.F.R. § 541.602(b)(2) (2014).)
Premised on the salary basis test as expressed in the federal regulations, it is well established and acknowledged by the parties that under both California and federal law when an exempt employee is absent from work for a partial day, an employer is prohibited from deducting monetary pay. (Conley, supra, 131 Cal.App.4th at p. 267; Barner v. City of Novato (9th Cir. 1994) 17 F.3d 1256, 1261 (Barner); Martin v. Malcolm Pirnie, Inc. (2d Cir. 1991) 949 F.2d 611, 615.) This is based on the wording of the federal regulations we have quoted above, authorizing "[d]eductions from pay" only for "full-day absences." (29 C.F.R. § 541.602(b)(1), (b)(2) (2014), italics added.)
The dispute here is whether, under California law, an employer may set a policy requiring that exempt employees use their vacation or leave time — rather than monetary pay — when they are absent from work for partial days. We begin by reviewing the federal law on that issue.
The only case law addressing the issue under California law is Conley, supra, 131 Cal.App.4th 260, which concluded that California law requires the same result as federal law. Conley concluded that "nothing in California law ... precludes employers from following the federal rule that permits them to require the use of vacation leave for partial-day absences without causing otherwise exempt employees to become nonexempt under the salary basis test." (Id. at p. 271.) California's Division of Labor Standards Enforcement (DLSE) expressly follows Conley, taking the position in a November 23, 2009 opinion letter that "while it is impermissible to deduct from a salary for partial[-]day absences, [an employer] may deduct from leave time balances in connection with absences due to vacation or sickness of less than a full day under a bona fide plan providing for such leaves without the employee losing his or her exempt status." (Dept. of Industrial Relations, DLSE, Chief Counsel Robert R. Roginson, DLSE Opn. Letter No. 2009.11.23, Deductions for Partial and Full Day Absences of Exempt Employees (Nov. 23, 2009) p. 7 <https://www.dir.ca.gov/dlse/opinions/2009-11-23.pdf> [as of July 21, 2014] (2009 DLSE Opinion Letter).)
Rhea contends that Conley and the DLSE wrongly concluded that California law permits employers to require exempt employees to use their vacation or leave time when absent for partial days without violating the salary basis test. According to Rhea, Conley and the DLSE fail to recognize that "any use of vested vacation to account for any partial-day absence of less than one full day violates the `salary basis' test under California law due to its unique wage antiforfeiture statutes...." Therefore, the issue before us is whether anything in California law requires that the federal salary basis test be interpreted differently under California law, so that the rule against deducting
Throughout her briefing Rhea repeats different versions of the same basic argument, namely that Conley was wrongly decided because it failed to recognize that California law contains unique antiforfeiture provisions that protect vacation pay from forfeiture.
Rhea's argument has three premises: (1) under California law, vacation or annual leave is treated as a type of "wages" or "deferred compensation" earned by an employee; (2) California law prohibits an employer from requiring forfeiture of wages, including accrued vacation or annual leave; and (3) by deducting annual leave for partial-day absences, an employer is impermissibly requiring a forfeiture of wages. Taking these three premises together, Rhea contends that when the federal salary basis test is imported into California's overtime laws, the federal prohibition on making "[d]eductions from pay" for a partial-day absence (29 C.F.R. § 541.602(b)(1), (b)(2) (2014)), must be read to prohibit deductions from vacation or leave time for partial-day absences on the ground that vacation pay in California is part of an employee's "wages" or "compensation" and is protected by California's antiforfeiture laws.
Rhea's next premise — that California law prohibits an employer from requiring the forfeiture of vacation time — is also sound as a general principle. As Boothby explained, California has a policy of "jealously protect[ing]" wages, and the effect of "[Labor Code] section 227.3 and Suastez" is to "prohibit any forfeiture of a private employee's vested vacation time." (Boothby, supra, 6 Cal.App.4th at p. 1601.) Thus, Boothby concluded that an employer was not permitted to adopt a "`use it or lose it'" policy under which employees' already vested vacation time was forfeited if it was not used within a specific time period. (Ibid.)
Conley's analysis of this issue is sound and persuasive. As Conley explained, 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." (Conley, supra, 131 Cal.App.4th at p. 270.) Thus the employer's policy requiring that vacation time be used for partial-day absences "neither imposes a forfeiture nor operates to prevent vacation pay from vesting as it is earned. All it does 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...." (Ibid., some italics added.)
Acknowledging that an employer is generally permitted to control the conditions under which vacation or annual leave benefits may be exercised, Rhea contends that an employer may nevertheless not require that vacation or annual leave be used for partial-day absences because that provision would violate the salary basis test as it should be applied in California and would accordingly constitute an illegal contract in violation of the Labor Code. (See Lab. Code, § 219 [Lab. Code wage provisions cannot "be contravened or set aside by a private agreement"].) Rhea's argument fails because, as General Atomics correctly points out, it is circular. Rhea is unable to point to anything establishing that under the salary basis test, as applied in California, it is illegal to require an employee to use vacation or annual leave time for a partial-day absence. That is the principle Rhea is trying to establish with her forfeiture argument, but she has failed to do so.
In addition to relying on Suastez, Boothby and Labor Code section 227.3 to argue that General Atomics is impermissibly requiring employees to forfeit vested compensation, Rhea points to Labor Code sections 221 through 223, which she contends represent California's antiforfeiture provisions for earned wages. However, none of those provisions advance Rhea's argument.
Labor Code section 221 states: "It shall be unlawful for any employer to collect or receive from an employee any part of wages theretofore paid by said employer to said employee." Rhea apparently contends that if vacation benefits are categorized as "wages," then an employer impermissibly collects wages from an employee when it requires that the employee use vacation
Rhea cites Labor Code section 222, which states: "It shall be unlawful, in case of any wage agreement arrived at through collective bargaining, either willfully or unlawfully or with intent to defraud an employee, a competitor, or any other person, to withhold from said employee any part of the wage agreed upon." This provision does not apply here because (1) there is no evidence that General Atomics is subject to a collective bargaining agreement, and (2) General Atomics's practice of requiring exempt employees to use Annual Leave for partial-day absences does not constitute a withholding of any agreed-upon wage.
Finally, Labor Code section 223 provides that "[w]here any statute or contract requires an employer to maintain the designated wage scale, it shall be unlawful to secretly pay a lower wage while purporting to pay the wage designated by statute or by contract." (Italics added.) As we understand the argument, Rhea contends that this provision applies because requiring employees to use some of their Annual Leave to cover a partial-day absence constitutes the secret payment of a lower wage. Without even addressing whether an exempt employee at General Atomics receives a "lower wage" when exercising Annual Leave, we conclude that Labor Code section 223 plainly does not apply here because there is nothing secret about General Atomics's policy.
Apart from relying on California's antiforfeiture provisions to support her argument, throughout her briefing Rhea repeatedly raises a second point, which she interweaves with her antiforfeiture argument. Rhea contends that California law prohibits General Atomics's practice of requiring employees to use Annual Leave for partial-day absences because it amounts to an impermissible shifting of wages that an employee has already earned (i.e., Annual Leave benefits) to cover General Atomics's duty to pay wages for the period of an employee's partial-day absence. Put another way, Rhea argues that General Atomics is impermissibly "substituting" the employee's Annual Leave hours for the employee's salary earned during the partial-day absence.
Rhea takes a broad view of Armenta, citing it for the principle that, even in contexts other than the minimum wage law, wages from one period may not be shifted to cover the employer's independent duty to pay wages for another period. Applying that principle here, Rhea reasons (1) Annual Leave is a form of wages (see Suastez, supra, 31 Cal.3d at pp. 779-780); (2) General Atomics fails to pay all of the wages that it is obligated to pay for partial-day absences, creating a shortfall; and (3) General Atomics impermissibly requires that employees use their "wages" (i.e., their Annual Leave) to "make up" or "substitute" for the shortfall in wages incurred during partial-day absences.
Without even deciding whether Rhea's broad statement of Armenta's holding is correct, we conclude that Rhea's argument fails because she has not established that General Atomics fails to pay all of the wages that it is obligated to pay during an employee's partial-day absence. It is undisputed that General Atomics continues to pay an employee's full salary during a
In an alternative argument, Rhea contends that even if we decide that Conley was correctly decided, Conley establishes a limitation, which we should follow, approving the deduction of Annual Leave for partial-day absences only if the absence is four hours or longer. As we will explain, we reject Rhea's argument.
In Conley, the employer's policy required deductions from vacation leave banks for partial-day absences only when the employee was absent for at least four hours. (Conley, supra, 131 Cal.App.4th at p. 267, fn. 6.) Accordingly, Conley expressly stated that when it used the term "`partial-day absence'" it was not including an absence of less than four hours. (Ibid.) Although Conley made that factual clarification, it did not discuss whether its analysis would have differed had the employer followed a policy of deduction from vacation leave banks for absences of less than four hours. Further, we perceive nothing in Conley's analysis to suggest that a different result would be required had Conley considered an employer's policy applying to partial-day absences of less than four hours.
As we have discussed, we find no basis in California law for concluding that an employer is prohibited from requiring exempt employees to use their vacation or leave time when they are absent from work for a partial day. Rhea has not identified any reason for us to distinguish between partial-day absences of different lengths. Instead, she simply points out that the employer's policy in Conley only covered absences of at least four hours. We conclude that regardless of whether the absence is at least four hours or a
The judgment is affirmed. Respondent is awarded costs on appeal.
Huffman, Acting P. J., and McDonald, J., concurred.
