Exempt Employees and Disciplinary Suspensions

By Mindy Dale

In order to qualify as an “exempt” employee under the Fair Labor Standards Act (FLSA), the employee must meet the criteria for executive, administrative, professional or outside sales status and must be paid on a “salary” basis. This means that the employee must receive in each pay period a predetermined amount, which is not subject to reduction because of variation in the quantity or quality of work performed or the number of days or hours worked.

Many employers who have progressive discipline policies include suspension without pay as a disciplinary option. One, two or three day suspensions without pay is a typical disciplinary suspension, depending on the severity of the offense. The problem with such a policy, if applied to exempt employees, is it may violate the salary basis test.
As the salary basis test applies on a work week by work week basis, an employee need not be paid if they perform no work for the employer during a particular week. Therefore, disciplinary suspensions of a full work week are permissible under the salary basis test. The Seventh Circuit Court of Appeals clearly stated in Mueller v. Reich, 54 F.3d 438, 443 (1995), that “all the salary basis test prevents is suspensions without pay for less than a week.” The court noted in Mueller that if an employee is subject to suspensions without pay for less than a week, that is conclusive evidence that the employee is an hourly, not a salaried employee.

Prior to August 23, 2003, the only exception was for disciplinary suspensions for violations of major safety rules. The FLSA regulations clearly stated that exempt employees may not have their pay reduced for disciplinary reasons unless such penalties (full or partial day) were imposed in good faith for infractions of safety rules of major significance. In August, a new provision was added to the FLSA regulations allowing for deductions for unpaid disciplinary suspensions of one or more full days imposed in good faith for infractions of workplace conduct rules. Such a suspension must be imposed pursuant to a written policy applicable to all employees. The preamble to the final rules suggests that “workplace conduct” violations should be of a serious nature, such as sexual harassment, violence, drug or alcohol violations, or violations of state or federal laws. The provision would not apply to discipline taken for performance or attendance issues. The Department of Labor cautions that the regulations should be narrowly construed so as not to undermine the essential guarantees of the salary basis test. The Department of Labor notes that “the written policy need not include an exhaustive list of specific violations that could result in a suspension, or a definitive declaration of when a suspension will be imposed. The written policy should be sufficient to put employees on notice that they could be subject to an unpaid disciplinary suspension.”
Employers could lose an employee’s exempt status for subjecting employees to improper disciplinary deductions. To the extent that employers have disciplinary policies which include unpaid suspensions, the policies should be made clear that exempt employees will only be suspended in full work week increments unless it is for violation of a major safety rule or a workplace conduct rule imposed pursuant to a written policy applicable to all employees. The policy should make clear the differences between how exempt and non-exempt employees will be treated for disciplinary purposes.

So far, the new FLSA regulations are still in place although efforts have continued to derail them. If the new regulations are rescinded, employers lose flexibility in imposing discipline on exempt employees. Continue to communicate with your legislative representative on the importance of maintaining the new FLSA regulations.
This article is intended for general informational purposes only, and should not be construed as legal advice. Always contact your legal counsel for advice or answers to your questions.