California Employees Roll the Dice … Pay Cuts vs. Layoffs
Given the dismal state of the economy, many California workers are walking around with the possibility of being laid off looming over their heads. Even if they are not laid off, they may see their work schedules and salaries reduced. Many companies are using temporary schedule and salary reductions to cut costs until business conditions improve. The key for affected employees is to know the guidelines for such reductions.
First and foremost is the question of whether affected employees have exempt or non-exempt status. Under California law, all employees are considered to be non-exempt, meaning that they are entitled to overtime pay. The only exception is for those employees that meet all the requirements of an applicable exemption, most commonly the executive, administrative, or professional exemptions. To qualify for these exemptions an employee must pass the salary test and duties test. The salary test requires an employee to earn a monthly salary that is no less than two times the minimum wage for full-time employment. The duties test requires an employee to be primarily engaged in managerial responsibilities.
With respect to non-exempt employees, it has long been established that an employer may temporarily reduce their workers’ schedules and wages. The issue is a bit more complicated for exempt employees. According to the California Department of Labor Standards Enforcement (DLSE), theLabor Code and Industrial Welfare Commission wage order provisions nor federal law prohibits an employer from reducing the work schedules and salaries of exempt employees. Therefore, absent an employment contract or other agreement that states otherwise, an employer can reduce an exempt employee’s salary as long as they continue to earn more than twice the minimum wage and engage in exempt job duties.
One restriction is that the salary reduction cannot be linked to any corresponding change in days and hours worked. For example, an employer could not reduce an employee’s salary by 15% in exchange for giving them Fridays off. According to the California Department of Labor Standards Enforcement (DLSE), this type of salary reduction structure would violate the salary test and destroy the employee’s exempt status and non-exempt labor requirements such as meal and rest breaks would apply. The rationale is that exempt employees are paid for their work product regardless of the amount of time they take to complete their duties. Tying work hours to earnings is not in accord with being a salaried employee.
Another consideration is that the salary reduction should also apply to all exempt employees or at least everyone with the same job duties. Applying a reduction to only certain exempt employees could violate anti-discrimination laws.
If your employer is attempting to reduce your work hours or salary, contact an experienced California labor law attorney. An attorney can advise you of your rights and evaluate your specific employment situation.
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