• Score One for Common Sense: A Full Day Personal Leave Policy Does Not Destroy the Professional Exemption
  • September 3, 2013 | Author: Michael J. Neary
  • Law Firm: Lerch, Early & Brewer, Chartered - Bethesda Office
  • So, as summer winds to a close, what can you be thankful for? Well, if you run a business, start with the Fourth Circuit!

    In late August, the Fourth Circuit affirmed a decision by the Honorable Ellen L. Hollander of the United States District Court for the District of Maryland in a wage and hour collective action brought against Rite Aid. The plaintiffs were pharmacists for Rite Aid who alleged that they were entitled to overtime pay because Rite Aid had a policy of allowing unpaid personal leave only in full-day increments once employees exhausted their other paid leave. The pharmacists claimed they were entitled to overtime pay because the unpaid leave policy destroyed the exemption from federal and state wage and hour laws that otherwise would have applied to them. Yes, you read that right, the company provided a benefit to its employees and the employees claimed that the benefit destroyed their exempt status.

    At the heart of the case was the salary basis test, which, along with other criteria, is necessary for an administrative, executive, or professional employee to be exempt from the overtime requirements of federal and state wage and hour laws. If an employer makes improper deductions from an otherwise exempt employee’s salary, the employer can lose the benefit of the exemption. The pharmacists argued Rite Aid’s unpaid personal leave policy did just that.

    Specifically, the pharmacists claimed that because Rite Aid’s policy only allowed for unpaid leave in full-day increments it required exempt employees to take full days off when they might have wanted to take only two or three hours off, or forced them not to take time off that they otherwise would have. As plaintiffs asserted, Rite Aid created this policy for its benefit; therefore, when an employee took a full day of unpaid leave although the employee only wanted a few hours off, the policy had the effect of improperly deducting employee wages for less than a full-day absence. In other words, according to the pharmacists, the policy forced a deduction in employee salary for an absence “occasioned by the employer or the operating requirements of the business.”

    Rite Aid admitted that it created the policy partially for its benefit. Rite Aid must have a pharmacist on staff at all times when the pharmacy is open. As such, partial-day absences are problematic for its business operations. The company, however, argued that the unpaid-leave policy did not destroy the exemption because the applicable implementing regulations of the wage and hour laws specifically allow for deducting from wages for full-day absences without affecting the exempt status of administrative, executive, or professional employees.

    Judge Hollander agreed with Rite Aid and rejected the plaintiffs’ novel theory. Central to the decision was her observation that the employees elected to take the leave. Rite Aid did not force anyone to take time off when the business was open. In coming to her conclusion, Judge Hollander astutely pointed out that companies simply would not offer the benefit of unpaid personal leave in full-day increments if it meant their exempt employees would lose their exempt status. In a brief unreported decision, the Fourth Circuit affirmed the trial court’s ruling.

    The decision does not change the need for businesses to be particularly vigilant about complying with wage and hours laws. It does, however, provide a moment at the end of the summer to pause and give thanks for the Fourth Circuit for having the good sense to reject a troubling interpretation of the wage and hour laws that would have hurt both employers and employees.