By Wendy J. Baker - Oregon Employment Attorney
Difficult economic times require creative problem-solving. Employers must be careful, however, when they act creatively to avoid employee layoffs.
If your company is considering implementing a reduction in work hours or instituting short-term furloughs, you should determine whether those actions could jeopardize the exempt status of employees under the Fair Labor Standards Act ("FLSA") and Oregon law.
Consider, for example, a workforce where every employee agrees take a pay reduction so that no one at the company will have to be laid off. All employees, including top executives, managers and hourly employees, continue working full-time but forgo ten percent of their normal pay in the interest of saving their colleague's jobs. This can be a reasonable way of forestalling an economic crisis.
However, what if the employer decides to give everyone a day off on the last Friday of every month to save additional office expenses or, alternatively, to reward employees for their sacrifice? Now you have a potential violation of the FLSA and Oregon law.
Why?
In most companies, executives and managers are "exempt" employees who are not required to be paid overtime. Under the so-called "salary basis" test, an employee is considered exempt from overtime compensation if he or she receives a predetermined amount of pay (at least $455 a week) during each pay period, regardless of the number of hours worked. With few exceptions, an exempt employee's pay may not be reduced except in full-week increments.
If the exempt employee's pay is temporarily reduced at the mandate of the employer, the exempt status may be lost. In the example above, an enforcement agency could conclude that the exempt employees were, in fact, being "docked" their pay for those Fridays not worked.
Under the law, an employer can be liable for back overtime pay of up to two years (three years for a "willful" violation") for any non-exempt employee who has been misclassified as exempt. In addition, a single misclassification can trigger the loss of exempt status for an entire group of employees if the whole group has been treated similarly under the company's policies. In other words, even the Chief Executive Officer of a company could lose his or her exempt status under the circumstances described in the example above.
How, then, may hours reductions and furloughs be accomplished legally? Here are some options:
- The employer can make employees take time off for a full week and deduct a full week's salary. This is because the law provides that exempt employees "need not be paid for any workweek in which they perform no work." Be careful that the employee actually performs NO work, including responding by Blackberry to work-related inquiries.
- The employer may deduct from an employee's accrued vacation bank during a short-term layoff, as long as the employee's salary remains constant for the pay period. Of course, problems arise when employees have no accrued vacation time.
- An employee's regular workweek could be permanently reduced from five days to four, for instance, with a corresponding change in salary, as long as the salary remains higher than $455 per week.
In employment matters, it is wise to keep in mind that an action taken with the best of intentions can still be an unlawful action.
