Reverses earlier policy restricting practice; ‘big issue’ for companies

CALIFORNIA – State labor officials have unexpectedly reversed their position on furloughs for salaried employees, saying their previous stance restricting them was based on “misguided” information.

The opinion is one of several recent indicators that the state’s historically strict labor enforcement policies appear to be moderating, according to local experts.

On Aug. 19, the California Department of Industrial Relations Division of Labor Standards Enforcement released an opinion essentially reversing an earlier conclusion that furloughs for salaried employees could not be done without threatening their exempt status.

“I think it’s a sign that you have to be more flexible in these times,” said Nancy Watson, a partner with Santa Rosa-based Bozman-Moss & Watson and chair of the labor and employment section for the Sonoma County Bar Association.

“A lot of workplace rules interpretations have been really unrealistic in application, and it is good the commission is taking an approach more in line with federal regulations.”

Even though the state employs the practice with public workers, a 2002 position letter on the same topic said federal regulations preclude an employer from reducing salaries with an adjusted work week, citing a New York District case, Dingwall v. Friedman Fisher Assoc. In the recent letter, the commissioner called the decision “not well-reasoned and misguided.”

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“This is a huge reversal of the agency’s prior position on what salaried employees can do with regard to a reduced schedule, and it has been a big issue for a lot of my clients,” said Carle, Mackie, Power & Ross partner Dawn Ross.

“Employers have not been able to use the practice because it would jeopardize the employees’ exempt status or be found illegal, and the change in opinion is really refreshing and shows that the department is falling more in line with the reality of the work place.”

The August letter said a salary reduction for exempt employees is permissible as long as the wage adjustment matches the shift in work week, reducing salary by 20 percent for example, if one out of five weekly work days are removed. The employer would also have to prove in the event of a dispute that the business had an economic need and made the change to avoid a layoff. The wage adjustment must also be considered temporary.

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“Even though the recession has slowed, the economy hasn’t quite restarted yet, and employers are still looking for ways to reduce costs without laying people off,” said Napa-based Employment Law Advocates Partner Richard Rybicki.

“When it comes to hourly employees, it’s simple, just schedule them less hours. But for businesses, particularly those with a majority salary employees, they really had limited options other than a staff reduction.”

He said some of his clients were already implementing furloughs with salary reductions without knowing that until recently the move was not permitted in the eyes of the labor commissioner. Though the opinion letter is not binding, and the court could ignore it in the case of a dispute, it does represent an apparent shift by California labor officials. Labor commissioners attorneys and hearing officers are required to follow the opinion.

Also recently, leaders said they would change their enforcement policy regarding meal and rest periods to a more practical interpretation of codes. Though the landmark “Brinker” case on the topic is still going through appeals, commissioners have said businesses will be protected as long as they can prove they are allowing appropriate rest periods, without actually policing staff to ensure they are taking the breaks.

“This is a concrete example of a greater shift in labor codes during the past decade, especially since the state created one agency that sits over all of the other labor divisions,” Mr. Rybicki said.

“It’s not that the commission is becoming more business friendly, but leaders are shifting to a more realistic view on the conditions of the work place while maintaining sensitivity to employee protections.”

The California Labor & Workforce Development Agency was created in 2002 to oversee several worker and business government divisions, including the Department of Industrial Relations, Agricultural Labor Relations Board, the Workforce Investment Board and others.