Working World

My company has mandated that we take the next 25 Fridays off and our salaries will be reduced by 20 percent. I thought a company couldn’t dock a salaried employee’s pay for lack of work? Is this legal? And can we collect unemployment for the Fridays off? 

Ordinarily, an employer cannot reduce the salary of an exempt worker for an occasional lack of work without the employer risking having those workers be “converted” to hourly. This is called the “salary test.” (Exempt workers are those that are properly not entitled to overtime.) If the furloughs are scheduled in advance on fixed dates, however, they will likely be considered legal. 

The federal Department of Labor issued an opinion letter that sets forth guidance for employers wishing to reduce the hours of exempt employees. It contrasted two scenarios. 

In the first, a company wishes to require exempt employees to stay home for a full day or leave work early when there is insufficient work, and to dock their pay if they do not have sufficient accrued vacation to cover the time off. In the second scenario, the company wishes to implement a schedule with five shortened workdays per year, docking pay for those weeks. Only the second scenario passed the “salary test.”

The Department of Labor opined that a company may furlough exempt workers and dock their pay only where the salary reduction occurs as a result of a fixed change in schedule. In contrast, a company may not dock an exempt worker’s salary because of ad hoc days off for lack of work. 

It is unclear under California law whether the company may require the exempt workers to use accrued vacation to be paid for the furlough days without giving at least 90 days’ notice. In 2005, the state labor commissioner took the position that this notice was necessary. 

Unless your salary is quite low, it is unlikely that you would qualify for unemployment benefits for the furlough days. These benefits may be payable when a full-time employee works less-than-normal full-time hours. However, if your gross earnings after deducting the first $25 or 25 percent of the total earnings (whichever is greater) total more than your weekly unemployment benefit amount, you would not be entitled to any such assistance. Go to www.edd.ca.gov for more information.  

Amy Semmel is a partner with the firm Donfeld, Kelley & Rollman, where her practice focuses on employment law. The information discussed here is a general explanation of the law, and is not intended to serve as legal advice. Readers requiring legal advice regarding a specific situation should consult an employment attorney.