In Rhea v. General Atomics, WL 3565429, published July 21, 2014, Plaintiff, Lori Rhea, via a class action, challenged General Atomics’ employment practice of requiring exempt employees to use their annual leave hours when they are absent from work for portions of a day. Rhea contends that the prior holding of Conley v. Pacific Gas & Electric Co. (2005) 131 Cal.App.4th 260, 263, which established that California law does not prohibit an employer from following the established federal policy permitting employers to deduct from exempt employees’ vacation leave on account of partial-day absences, was wrongly decided. In the alternative, Rhea argued 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. The Court of Appeal concluded Rhea’s contentions to be without merit and affirmed the trial court’s judgment in favor of General Atomics.
Rhea was employed at General Atomics as an exempt salaried employee. Exempt employees at General Atomics accrue comprehensive annual leave which the employees can use to take paid time off for any reason. General Atomics requires exempt employees to use their annual leave hours when they are absent from work for partial days or full days.
Pursuant to Federal law and the United States Department of Labor, an employer can deduct from an employee’s vacation or leave time for partial-day absences. The only California case law addressing the issue is Conley, which concluded that California law requires the same result as federal law. Further, the California 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 for absences of less than a full day. (Dept. of Industrial Relations, DLSE, Chief Counsel Robert R. Roginson, Opn. Letter No.2009.11.23.)
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 because they failed to recognize that California law contains unique anti-forfeiture provisions that protect vacation pay from forfeiture.
The Court of Appeal agreed that under California law, vacation or annual leave is treated as a type of “wages” or “deferred compensation” earned by an employee, and that California law prohibits an employer from requiring forfeiture of wages, including accrued vacation or annual leave. The Court of Appeal, however, disagreed with Rhea’s argument that by deducting annual leave for partial-day absences, an employer is impermissibly requiring a forfeiture of wages. 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 Court of Appeal found that Conley’s analysis of this issue is sound and persuasive. Therefore, this case clarifies that employers may deduct partial-day absences in increments, including increments of less than four hours, from exempt employees’ accrued leave time bank without violating California law or losing the employees’ exempt status.
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