Docking Employees for Long Lunches
An exempt employee cannot be docked pay under the FLSA in increments of less than one full day for disciplinary reasons. Thus, if an exempt employee takes a long lunch, or is really sick but has used up all sick time, then you run a risk by docking his or her pay. You can, though, impose other disciplinary penalties, however (so long as it is not a suspension without pay without complying with federal and state wage and hour laws).
Check with your state labor department for more information.
Source: Epstein, Becker & Green, November 10, 1998, New York.