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Salary-based Overtime Exemption Considered

November 5, 2007
Related Topics: Wages and Hours, Featured Article, Legal
Plaintiffs Tiffany Sumuel and Rudy Halim, on behalf of a class of employees and former employees of Advo Inc., sued the company and one of its managers for unpaid overtime pay and penalties. Advo was in the business of producing direct-mail coupon packages, and some of its California employees were paid on a salary basis and treated as exempt from overtime pay. The plaintiffs alleged that Advo made deductions from its employees' salaries, including deductions made when employees were out of work because of illness, which made their treatment as overtime-exempt employees improper.

    Specifically, the plaintiffs claimed that Advo's disability policies and practices failed to satisfy the salary basis test: Employees who returned to work after an illness were not paid their regular salary until payroll received the proper documentation confirming that the employees had returned to work; the employer deducted improper amounts from the employees' company-paid disability benefits based on imputed state disability benefits that the employees did not actually receive; Advo did not pay a full week's salary to employees who worked a partial week before going out on short-term disability leave; Advo's plan did not qualify as a bona fide plan because it did not operate as described to its employees, it was not administered impartially, and it relied in part on state disability payments funded by its employees; and Advo had no objective intent to pay its employees on a salary basis because it did not train and direct its responsible human resources employees to ensure that no improper deductions were made.

    The California Court of Appeal for the 1st District in San Francisco affirmed dismissal of the plaintiffs' claims. The court ruled that deductions were taken in accordance with a bona fide plan, policy or practice of providing compensation for loss of salary caused by disability. Sumuel v. Advo Inc., 1st App. Distr., Cal. A115921 (10/1/07).

    Impact: As long as an employee in fact receives a predetermined salary for each pay period that he or she works, such one-time deviations from the employee's regular pay schedule do not in themselves destroy the employee's salaried status.

Workforce Management, October 22, 2007, p. 7 -- Subscribe Now!

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