Rhea v. General Atomics: Employer May Deduct Vacation Pay from Exempt Employee for Partial Day Absences

In Rhea v. General Atomics (7/21/14) --- Cal.App.4th ---, the plaintiff filed a putative class action challenging the employer's policy of requiring exempt employees to use annual leave hours to cover partial day absences from work. The plaintiff alleged that under this policy, exempt employees were not being paid on a salary basis for purposes of California law and could not be exempt.

The trial court granted summary judgment for the defendant, and the plaintiff appealed. The Court of Appeal affirmed, holding as follows:

California law on the issue is patterned after federal law, which allows employers to deduct from pay "for absences of one or more full days occasioned by sickness or disability." Slip op. at 8. 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 from the employee. Slip op. at 9. In Conley v. Pacific Gas & Electric Co. (2005) 131 Cal.App.4th 260, the Court of Appeal held that under California law, an employer may deduct vacation pay for partial day absences without destroying the exemption. Slip op. at 10-11.

California's law prohibiting the forfeiture of earned wages does not prohibit an employer from deducting leave pay for partial day absences. Slip op. at 11-18. Although vacation pay constitutes wages under California law, and although California law prohibits the forfeiture of vacation pay, requiring employees to use vacation pay to cover partial day absences does not constitute the forfeiture of wages. Slip op. at 13-15. Instead, requiring such use of vacation pay simply "affords an employer the right to control the terms under which vacation time may be exercised by employees." Slip op. at 15.

The deduction policy also does not constitute an "impermissible shifting of wages that an employee has already earned (i.e., Annual Leave benefits) to cover [the employer's] duty to pay wages for the period of the employee's partial-day absence." Slip op. at 19-20. Requiring an employee to use vacation pay does not mean that an employer has failed to pay all of the wages that it is obligated to pay during an employee's partial-day absence. Slip op. at 20.

Finally, California law does not prohibit use of vacation pay wages when a partial day absence is for less than four hours. Slip op. at 21-22.

The opinion is available here.