In a decision handed down on July 21, 2014, a California Court of Appeal held employers can require employees to use their accrued leave for absences of less than half a day without undermining overtime exempt status.
In the case, Rhea v. General Atomics, the employer required exempt employees to use accrued leave for any partial day absences, regardless of length. Lori Rhea sued General Atomics, arguing that the company’s practice did not comply with the “salary basis test,” a California and federal law requiring that exempt employees receive a guaranteed salary without deductions for most partial day absences. The Court of Appeal held that since the policy required that employees use the paid leave they have accrued for such absences, it did not constitute a compensation reduction under the salary basis test. The Court noted that the policy did not take away or reclaim accrued paid leave. Furthermore, employers are not required to provide paid leave and may set terms and conditions for the use of any paid leave time that is given.
The plaintiff further argued that the policy at issue was an improper collection or withholding of wages, a secret payment of a lower wage, or a shifting of wages from one pay period to another. The Court rejected this argument as well.
The opinion relied on a prior California Court of Appeal decision, which approved of employer policies allowing for the deduction of accrued leave from exempt employees for partial day absences. The prior case reasoned that reducing a leave-time bank is not the same as reducing cash salary. Employers had assumed that the Court’s authorization in this case to deduct accrued leave from exempt employees for partial day absences was limited to absences of at least half a day. Rhea clarifies that the limit is not at least half a day.
The plaintiff has until August 30, 2014 to appeal the decision to the California Supreme Court. If the decision is upheld, employers will have greater flexibility in requiring the use of incremental paid leave for partial day absences.