SEPTEMBER 2005

II. JUDICIAL UPDATE

Vacation Deductions for Exempt Employees

In Conley v. Court of Appeal, a California court of appeal held that employers may deduct from exempt employees’ accrued vacation leave balances for partial day absences from work without compromising the employees’ exempt status.

Generally, an exempt employee must be paid his or her entire weekly salary for any workweek in which he or she works, no matter how many hours or days he or she works. The Federal Code of Federal Regulations, however, provides that “[d]eductions 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.”

California’s Division of Labor Standards Enforcement (“DLSE”) has opined (through its opinion letters and interpretive bulletins) that an employer’s policy to deduct from accrued vacation balances in partial day increments would render the affected employee non-exempt. In Conley, however, the court stated that such deductions are permissible, and do not negate the exempt status of the affected employees. The court noted that “advice letters” from the DLSE “are properly considered by the courts, and may be entitled to some weight, but they do not have the force of law and are not controlling on us.”

Thus, according to Conley, it would be permissible for a California employer to deduct partial day absences from exempt employees’ accrued vacation balances without affecting the employees’ exempt status. The following should be noted, however:

1. If the exempt employee has no available
   vacation time, the employer must pay the employee’s entire wages for the day, if he or she works any portion of the day; and
   
2. Although the First Appellate District’s
   holding certainly sets a favorable precedent for California employers, other districts may reach conflicting determinations of this issue.

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