Rhea v. General Atomics: Vacation/PTO Deduction for Partial-day Absences Clarified

Under both California and federal law, when an exempt employee is absent from work for a partial day, an employer is prohibited from deducting monetary pay from the employee. However, in 2005, in the case of Conley v. Pacific Gas & Electric Co., the California Court of Appeals held that under California law, an employer could require exempt employees to use their accrued vacation time to offset partial-day absences without destroying the exemption. The Conley court addressed partial-day absences of four or more hours in duration.

Once the door had been opened by this legal decision, the California Division of Labor Standards Enforcement issued an opinion letter in 2009. The letter approved of employers allocating any amount of exempt employees’ partial-day absences to accrued vacation, paid time off (“PTO”), or sick time. Employers implemented cautious policies requiring exempt employees to use their accrued time to cover partial-day absences, but the courts had not specifically ruled on the legality of requiring the use of the accrued time for absences with durations of fewer than the four hour time amount addressed in the Conley decision.

In the case of Rhea v. General Atomics, 227 Cal.App.4th 1560 (2014), this issue was submitted to the court for determination of whether the applicability of the earlier court decision extended to absences of fewer than four hours. Lori Rhea brought the action on behalf of herself and other exempt employees of General Atomics. Rhea and General Atomics agreed to jointly submit the issues to the court on a motion for summary judgment. The court found in favor of General Atomic, establishing that employers were authorized to require employees to apply banked vacation time to cover partial-day absences.

Rhea’s first argument against using an exempt employee’s accrued vacation time to cover partial-day absences was that under California law, vacation pay constitutes wages. Requiring the use of an employee’s vacation pay to cover a partial-day absence would therefore constitute an unlawful forfeiture of wages. The court disagreed, noting first that California law does not require that employers provide vacation time to employees. If an employer decides to do so, requiring that an exempt employee use accrued vacation time in a certain way is merely affording the employer the right to control the terms and conditions under which vacation time may be created and used. The court pointed out that General Atomics’ policy does not require deductions from vacation or the PTO bank when an exempt employee has worked more than forty hours per week. The court concluded that allowing an employer to set parameters for the use of time accrued under a voluntary vacation policy did not amount to a forfeiture.

Rhea’s fall-back argument was based on a wage substitution theory. Essentially, Rhea argued that General Atomics failed to pay all of the wages it was obligated to pay during an employee’s partial-day absence when it required the employee to use accrued leave time. In other words, Rhea argued that General Atomics was impermissibly substituting its employees’ annual leave hours for the employees’ salary earned during the partial-day absence, making the use tantamount to wage substitution.

The court rejected this argument, finding that because General Atomics continues to pay its employee’s full salary during partial-day absences, and the employee continues to accrue annual leave during the partial-day absence as well, no shortfall in wages or compensation occurs.

The question of whether a partial-day absence had to be a minimum of four hours, or have a duration of any set amount at all in order to allow an employer to require the use of accrued leave, was very much in play after Conley. Rhea argued to limit the use of accrued time to cover partial-day absences of four or more hours only, basing her claim on the fact that the issue in Conley was of that duration. The court found no basis in the law for such a limitation, however. The fact that the partial-day absence in Conley was four hours did not justify the leap to limiting the use of accrued time to only those absences of the same duration. Instead, the court held that an employer can require an exempt employee to use accrued time to cover a partial-day absence of any duration without violating California law.

Having rejected all of Rhea’s arguments against the use of accrued time to cover partial-day absences, the court granted summary judgment in favor of General Atomics. The decision settles some nagging questions left open after Conley, and gives employers and employees a clearer understanding of expectations and duties with respect to use and accrual of vacation and sick time.

If you have questions concerning the use or accrual of your vacation or sick time, contact the employment attorneys at Nassiri Law Group. We practice in Orange, Riverside and Los Angeles. Call 714-937-202 today.