California Labor &
Employment Law Blog
Aug 23, 2009

California’s DLSE Now Allows Pro-Rata Reduction of Exempt Salaries

Topics: Legal Information, Wage & Hour Issues

Reversing one of its earlier opinion letters from 2002, California's Department of Labor Standards Enforcement issued a new opinion letter on August 19 stating that employers may implement a pro-rata reduction of exempt employee salaries, in exchange for a shortened workweek. Specifically, the opinion letter addresses whether an employer may shorten the workweek from five days to four days and reduce salaries by a proportionate 20%. The DLSE opined that an employer could properly do this, without violating the salary basis test and without jeopardizing the exempt status of its employees under federal or California law. The DLSE relied on several federal Department of Labor opinion letters and related federal caselaw upholding the lawfulness of a pro rata salary reduction in circumstances where an employer shortens its employees' workweek due to economic necessity.

As many California employers know, the DLSE's new opinion letter flatly contradicts a prior opinion letter on the same subject, in which the DLSE concluded that employers could not reduce an exempt employee's salary in exchange for a commensurate reduction in the hours of work, without violating the salary basis test and jeopardizing the employee's exempt status. In the DLSE's prior opinion letter, the DLSE reasoned that tying an employee's compensation to the amount of hours or days the employee works is inconsistent with the notion of being a salaried employee and, therefore, violates the salary basis test.

The DLSE's new guidance on the subject is consistent with federal law and provides employers more flexibility in making necessary reductions in exempt salaries during tough economic times, by allowing employers to provide affected employees with a reduced workload in exchange for the salary reduction. That being said, the DLSE's shifting positions on the requirements of California's wage and hour laws (shifts that are notable not only in this area, but also in many others, including the subject of meal period requirements) begs the question: if the agency charged with the responsibility of interpreting California's wage and hour laws cannot seem to decide what the laws require, how is it fair to hold California employers strictly responsible for understanding the specific requirements on threat of having to defend costly class action litigation and potentially pay a judgment for getting it wrong based on the interpretation of the day?

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For over 25 years, CDF has distinguished itself as one of the top employment, labor and immigration firms in California, representing employers in single-plaintiff and class action lawsuits and advising employers on related legal compliance and risk avoidance. We cover the state, with five locations from Sacramento to San Diego.

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About the Editor

Robin Largent has a regular presence in California state and federal courts and has been lead defense counsel and appellate counsel for large and small California employers in litigation (and arbitration) ranging from individual discrimination and harassment claims to complex wage and hour representative and class actions. She also leads the firm’s appellate practice, having substantial experience and success handling appeals, writ petitions, and amicus briefs in both state and federal court on issues such as class certification (particularly in the wage and hour arena), manageability and due process concerns associated with class action trials, exempt/non-exempt misclassification issues, meal and rest break compliance, trade secret/unfair competition matters, and the scope of federal court jurisdiction under the Class Action Fairness Act.
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