LORI RHEA, Plaintiff and Appellant, v. GENERAL ATOMICS, Defendant and Respondent.
No. D064517
Fourth Dist., Div. One.
July 21, 2014
227 Cal.App.4th 1560
LORI RHEA, Plaintiff and Appellant, v. GENERAL ATOMICS, Defendant and Respondent.
Cohelan Khoury & Singer, Michael D. Singer, J. Jason Hill; Locker Folberg, Miles E. Locker; Stephen Danz & Associates and Stephen Danz for Plaintiff and Appellant.
Paul Hastings, Paul W. Cane, Jr., Mary C. Dollarhide and Haley M. Morrison for Defendant and Respondent.
OPINION
IRION, J.—This appeal 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.
I
FACTUAL AND PROCEDURAL BACKGROUND
A. General Atomics‘s Annual Leave Policies for Exempt Employees
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),2 General Atomics had two different policies about the length of time that an employee could be absent during a day before a deduction from Annual Leave was required. Between January 3, 2009, and February 4, 2011, employees were required to use Annual Leave only if a partial-day absence was four hours or more. At all other times, General Atomics‘s policy has been to deduct from Annual Leave for partial-day absences of any length.
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.4
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.
B. The Litigation in the Trial Court
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
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.
II
DISCUSSION
A. Legal Standards
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.“].)
The issue presented requires us to interpret provisions of the Labor Code. “We apply the usual rules of statutory interpretation to the Labor Code, beginning with and focusing on the text as the best indicator of legislative purpose. [Citation.] ‘[I]n light of the remedial nature of the legislative enactments authorizing the regulation of wages, hours and working conditions for the protection and benefit of employees, the statutory provisions are to be liberally construed with an eye to promoting such protection.’ ” (Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1026–1027 [139 Cal.Rptr.3d 315, 273 P.3d 513] (Brinker).) More specifically, “under California law, exemptions from statutory mandatory overtime provisions are narrowly construed.” (Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785, 794 [85 Cal.Rptr.2d 844, 978 P.2d 2] (Ramirez).)
B. Applicable Law
Both the federal Fair Labor Standards Act of 1938 (FLSA) (
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. (
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.” (
California statutes and regulations contain no corresponding provisions. However, because California law was patterned to some extent on federal law, the general approach in interpreting California law has been to
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.” (
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.
Federal courts and the United States Department of Labor take the position that, under federal law, there is no prohibition on an employer‘s practice of deducting from an employee‘s vacation or leave time for partial-day absences. (McBride v. Peak Wellness Center, Inc. (10th Cir. 2012) 688 F.3d 698, 705; Schaefer v. Indiana Michigan Power Co. (6th Cir. 2004) 358 F.3d 394, 400; Barner, supra, 17 F.3d at pp. 1261–1262; York v. City of Wichita Falls (5th Cir. 1991) 944 F.2d 236, 242; U.S. Dept. of Labor, Opn. Letter No. FLSA2009-18 (Jan. 16, 2009) accessed at <http://www.dol.gov/whd/opinion/FLSA/2009/2009_01_16_18_FLSA.htm> [as of July 21, 2014]; U.S. Dept. of Labor, Opn. Letter No. FLSA2005-41 (Oct. 24, 2005) accessed at <http://www.dol.gov/whd/opinion/FLSA/2005/2005_10_24_41_FLSA.pdf> [as of July 21, 2014].) The reasoning is that “leave time is not salary.” (Webster v. Public School Employees (9th Cir. 2001) 247 F.3d 910, 917.)
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).)7 Although Conley specified that the employer‘s policy in that case required exempt employees to use their vacation leave only for absences of at least four hours (Conley, supra, at p. 267, fn. 6), the 2009 DLSE Opinion Letter concluded that Conley did not intend to establish a limitation under which employers may require deductions from exempt employees’ leave balances only when absences are at least four hours in length. (2009 DLSE Opn. Letter, supra, at p. 6.)
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
C. Rhea‘s Challenge to Conley Is Without Merit, and General Atomics‘s Policy Is Consistent with California Law
1. The Antiforfeiture Principles of California Law Do Not Apply Here
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 (
The first of Rhea‘s premises is sound. Our Supreme Court has stated that vacation pay is a type of wages or deferred compensation for services performed that vests throughout the course of employment. (Suastez v. Plastic Dress-Up Co. (1982) 31 Cal.3d 774 [183 Cal.Rptr. 846, 647 P.2d 122] (Suastez).) As Suastez explained, “vacation pay is simply a form of deferred compensation” (id. at p. 780), and is ” ‘simply an alternate form of wages, earned at the time of other wages, but whose receipt is delayed’ ” (id. at p. 779). Based on these observations, Suastez decided that an employer would violate the statutory rule against forfeiture of vested vacation time in
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]
The third premise is where Rhea‘s argument fails. We do not agree with Rhea‘s contention that by requiring employees to use vested Annual Leave for partial-day absences, General Atomics is requiring a forfeiture of vested Annual Leave as that term is used in California law. In Suastez and Boothby the vacation time was forfeited because the employer took away the employee‘s vested vacation time. Suastez and Boothby establish that if an employer provides a vacation benefit, the employer “is not free to reclaim it after it has been earned.” (Henry v. Amrol, Inc. (1990) 222 Cal.App.3d Supp. 1, 5, italics added.) Here, General Atomics does not take away or reclaim vested Annual Leave when an employee is absent for a partial day; it merely requires that the employee use the Annual Leave under the terms and conditions that it has created. “The law permits an employer to
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
In addition to relying on Suastez, Boothby and
Rhea cites
Finally,
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.
We begin by reviewing the main authority on which Rhea premises her argument—Armenta v. Osmose, Inc. (2005) 135 Cal.App.4th 314 [37 Cal.Rptr.3d 460] (Armenta). Armenta considered whether an employer impermissibly violated the state minimum wage law (
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
requiring “the execution of a release of a claim or right on account of wages due” in violation of
D. The Length of the Partial-day Absence Does Not Impact Whether an Employer May Require Exempt Employees to Use Vacation or Leave Time for Partial-day Absences
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
DISPOSITION
The judgment is affirmed. Respondent is awarded costs on appeal.
Huffman, Acting P. J., and McDonald, J., concurred.
Appellant‘s petition for review by the Supreme Court was denied November 12, 2014, S220939.