Labor Panel Opinion Targets Pay for Exempt
California companies planning temporary shutdowns must pay white-collar employees’ salaries for up to a month--three weeks longer than current practice, according to a controversial new legal opinion by the state labor enforcement agency’s top lawyer.
The opinion also forbids companies from forcing exempt employees to take vacation time and bans partial vacation days--all of which could hamper plans by companies to hold down costs by sending workers home.
Some fear the new pay requirements could trigger more layoffs.
“Right now, companies are doing all sorts of things to prevent layoffs, and cost-cutting is certainly the chief strategy to avoid having to take away people’s job,” Industrial Welfare Commissioner Leslee Coleman said. “So I think if this interpretation stands, we could see more layoffs. And I don’t think that’s something most people would like to see.”
Coleman said she is uncertain whether the commission can or should do anything about the opinion. But she has asked that a discussion of its effect be added to the agenda of the regulatory board’s next meeting.
Employers are overreacting, said Miles Locker, chief counsel for the Division of Labor Standards Enforcement, who issued the opinion in a May 30 letter to a Los Angeles employment lawyer.
“To employers, it’s like Chicken Little--the sky is falling,” Locker said. “But it’s really not as dramatic as it sounds.”
Locker, who issued the opinion after receiving queries from businesses, said requiring a month’s pay for exempt workers is only fair. Exempt workers, he said, are required to put in as many hours as necessary when the work is there--without collecting overtime.
“In a month when things slow down and the employer says to the worker, ‘We don’t have that much work for you now, and we want to shut down for a few days or weeks--and we’re going to deduct from your salary,’ ” he said. “That upsets the quid pro quo.”
Because of the level of concern the opinion has generated, Locker acknowledged he may have to issue some clarifications.
Lockyer said employers may avoid paying exempt employees’ salaries during shutdowns, but not without consequence. To do so, he said, they must reclassify them as nonexempt and pay the premium for any overtime they work.
“It’s the employer’s choice,” Locker said. “And the employer will, of course, choose whatever is the cheapest.”
Locker said the opinion was intended to fill gaps in AB 60 enforcement policy that have not been covered by Industrial Welfare Commission regulations. AB 60 is a 2-year-old law that requires overtime pay for nonexempt employees after eight hours a day.
The opinion was issued without warning, and business groups, including the California Manufacturers and Technology Assn., which represents 800 companies, said they will seek to block it.
“Clearly it’s onerous for us,” said CMTA spokesman Gino DiCarlo. “Manufacturers basically live or die on their production and operational costs. We will talk to the rest of the business associations in town and try and go back to the Legislature and try and clarify this.”
The Division of Labor Standards Enforcement got so many calls questioning the opinion that it put the letter on its Web site late last week. That touched off even more criticism, including an alert from the California Chamber of Commerce to its members Thursday, warning of the “major change in California wage and hour regulations.” Chamber help line manager Susan Kemp said employers were greeting the news with disbelief.
The opinion has sent corporate executives racing to lawyers’ offices to scrutinize vacation pay policies and time-off plans, many of which were scheduled to include the paid holidays of July 4th and Labor Day.
Palo Alto-based Sun Microsystems Inc., for instance, announced in April that it would cut costs by requiring all but a few of its 38,000 U.S. employees (including 16,000 in California) to take the week of July 4 off.
“Our attorneys and H.R. people here at Sun are examining the interpretation to see how that will impact our planned forced vacation,” said spokeswoman Diane Carlini. “Clearly one option would be to make it voluntary.”
Until now, exempt employees sent home during plant shutdowns at Sante Fe Springs’ Trojan Battery Co. have been told to use vacation time, said Mary Long, vice president of human resources.
“Now, as I understand the open letter, we can’t do that,” she said. “Vacation pay is something that we owe them already. So that’s kind of muddied the waters a bit. I’m not so clear whether it’s law. Is it just an opinion letter? Where’s the real change in terms of how we have to operate. So there is still some fuzz on it.”
Richard J. Simmons, the Los Angeles lawyer to whom Locker addressed the letter, said the opinion is rife with errors of law and logic and has no grounds in AB 60. But, he said, employers “can’t ignore the labor commission’s policy. It is the way this labor commission will enforce the law, and you will get nailed.”
Employers “have to decide whether there are problems, and I think 99% of the employers will find problems,” he said. Then “they have to accept the risk and do nothing, change their policies to conform, or fight.”
