Opinion ID: 1971577
Heading Depth: 1
Heading Rank: 4

Heading: Salary

Text: Appellants first contend that they are not exempt employees under the FLSA because they are not salaried employees. Appellants argue: [Appellants] have no set minimum which they receive regardless of the number of hours worked. Rather, they are paid only for hours worked or hours for which they have eligible leave available for their use. There is no predetermined amount of pay to which [appellants] are entitled. . . . If [appellants] do not work or are not otherwise on paid leave, they are not paid. DPSCS argues that there is substantial evidence to support the ALJ's finding that appellants were salaried employees. DPSCS contends that appellants' claim that they do not receive a predetermined amount of compensation because they are paid only for hours actually worked or hours for which they have eligible leave available for their use is incorrect. DPSCS, citing to 29 C.F.R. § 541.5d(a) (2002), Shockley v. City of Newport News, 997 F.2d 18, 25 (4th Cir.1993) and Demos v. City of Indianapolis, 302 F.3d 698, 701-03 (7th Cir.2002), states: The Department of Labor's FLSA regulations specifically provide that a public agency plan, which reduces compensation . . . pursuant to principles of public accountability, is consistent with a finding that the employee is paid on a salary basis. In reviewing the record, we hold that the ALJ did not err in concluding that appellants were employed on a salary basis. An employee is employed on a salary basis within the meaning of the regulations if under his employment agreement he regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of his compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. Subject to the exceptions provided below, the employee must receive his full salary for any week in which he performs any work without regard to the number of days or hours worked. This policy is also subject to the general rule that an employee need not be paid for any workweek in which he performs no work. 29 C.F.R. § 541.118(a) (2002) (emphasis added); see also 29 C.F.R. § 541.212 (2002) (cross-referencing 29 C.F.R. § 541.118(a) to apply to administrative employees). In the case sub judice, it is clear from the record as well as undisputed that appellants earn a set amount of money per year, depending on the position they hold. The record shows that Lieutenants earn between $35,660 and $54,988, while Captains earn between $38,007 and $58,596 per year. Appellants claim, however, that despite this stated yearly salary, they do not receive a predetermined set amount each pay period, as required by the federal regulations. Rather, according to their argument, appellants are paid for only those hours they actually work or have leave available for their use. Appellants' argument fails to consider two federal regulations interpreting the FLSA. First, 29 C.F.R. § 541.118(b) specifically clarifies that an employee's salaried status will not be affected if deductions are made to his or her salary when the employee absents himself from work for a day or more for personal reasons, other than sickness or accident. Moreover, in 1992, in response to many government employers reducing wages of their salaried employers for unexcused absences in the name of public accountability, the Department of Labor developed a specific regulation, 29 C.F.R. § 541.5d, which permitted government employers to continue this practice without risking the overtime exemption for their salaries employees. See Demos, 302 F.3d at 702-03. 29 C.F.R. § 541.5d reads as follows: (a) An employee of a public agency who otherwise meets the requirements of § 541.118 shall not be disqualified from exemption under §§ 541.1, 541.2, or 541.3 on the basis that such employee is paid according to a pay system established by statute, ordinance, or regulation, or by a policy or practice established pursuant to principles of public accountability, under which the employee accrues personal leave and sick leave and which requires the public agency employee's pay to be reduced or such employee to be placed on leave without pay for absences for personal reasons or because of illness or injury of less than one work-day when accrued leave is not used by an employee because  (1) permission for its use has not been sought or has been sought and denied; (2) accrued leave has been exhausted; or (3) the employee chooses to use leave without pay. (b) Deductions from the pay of an employee of a public agency for absences due to a budget-required furlough shall not disqualify the employee from being paid on a salary basis except in the workweek in which the furlough occurs and for which the employee's pay is accordingly reduced. We agree with DPSCS that, under this Department of Labor regulation, deductions made to public employees' salaries, as required by the principles of public accountability, do not disqualify appellants from the overtime exemption. Therefore, the State of Maryland's practice of deducting a salaried employee's wages for unexcused absences would not automatically disqualify the employee from the FLSA overtime exemption. Appellants also urge that the ALJ erred in finding that there was no evidence that [appellants'] salaries are subject to, `. . . reduction because of variation in the quality or quantity of work performed.' Appellants claim that this finding is in error because, under Md.Code (1993, 1997 Repl. Vol., 2000 Supp. Vol.), § 11-104 of the State Personnel and Pensions Article, they are subject to disciplinary suspension without pay. [13] DPSCS counters, arguing that the possibility of a disciplinary suspension does not render an employee, who would be otherwise salaried and exempt, subject to the FLSA. Rather, DPSCS asserts that case law requires an actual practice or policy for making such deductions to disqualify an otherwise exempt employee. See Auer v. Robbins, 519 U.S. 452, 117 S.Ct. 905, 137 L.Ed.2d 79 (1997). In addition, DPSCS claims that § 11-104 of the State Personnel and Pensions Article precludes an exempt employee from experiencing a disciplinary deduction in pay that would compromise the employee's FLSA-exempt status. In other words, DPSCS asserts that the State policy is that any such suspension must be for one or more full workweek(s), so that . . . the employee receives no compensation for a full week in which the employee performed no work, rather than receiving a disciplinary deduction in pay for a week during which some work is performed. Under the Department of Labor regulations, a salaried employee's pay may not be subject to reduction because of variations in the quantity or quality of the work performed. 29 C.F.R. § 541.118(a) (2002). There is, however, an exception to this rule: Penalties imposed in good faith for infractions of safety rules of major significance will not affect the employee's salaried status. Safety rules of major significance include only those relating to the prevention of serious danger to the plant, or other employees, such as rules prohibiting smoking in explosive plants, oil refineries, and coal mines. 29 C.F.R. § 541.118(a)(5) (2002). We are required to narrowly construe exemptions to FLSA in order to further Congress' goal of providing broad federal employment protection. Abshire v. County of Kern, 908 F.2d 483, 487 (9th Cir.1990). Appellants point to § 11-104 of the State Personnel and Pensions Article as proof that they are subject to disciplinary suspension without pay. Section 11-104, entitled Disciplinary Action permitted, reads as follows: An appointing authority may take the following disciplinary actions against any employee: (1) give the employee a written reprimand; (2) direct the forfeiture of up to 15 work days of the employee's accrued annual leave; (3) suspend the employee without pay; (4) deny the employee an annual pay increase; (5) demote the employee to a lower pay grade; or (6) with prior approval of the head of the principal unit: (i) terminate the employee's employment, without prejudice; or (ii) if the appointing authority finds that the employee's actions are egregious to the extent that the employee does not merit employment in any capacity with the State, terminate the employee's employment, with prejudice. Essentially, appellants contend that because § 11-104 nominally subjects all State employees to a range of disciplinary sanctions, including suspension without pay, they are subject to reduction [in pay] because of variations in the quantity or quality of the work performed, and therefore are non-exempt under FLSA. We disagree. In Auer v. Robbins, supra , the United States Supreme Court was asked to review a situation similar to the one presented before this Court. In that case, several sergeants and one lieutenant of the St. Louis Police Department sued for overtime compensation under the FLSA. Auer, 519 U.S. at 455, 117 S.Ct. at 908, 137 L.Ed.2d at 86. The officers argued in that case that they were not salaried employees because they were subject to suspension without pay as a possible disciplinary action. Auer, 519 U.S. at 460-63, 117 S.Ct. at 910-12, 137 L.Ed.2d at 89-91. The Court rejected the officers' argument that the possibility of a disciplinary suspension among a range of disciplinary options rendered them non-exempt employees. Auer, 519 U.S. at 461, 117 S.Ct. at 911, 137 L.Ed.2d at 90. The Court, in deferring to the Secretary of Labor's interpretation of the salary-basis test, stated: The Secretary of Labor, in an amicus brief filed at the request of the Court, interprets the salary-basis test to deny exempt status when employees are covered by a policy that permits disciplinary or other deductions in pay as a practical matter. That standard is met, the Secretary says, if there is either an actual practice of making such deductions or an employment policy that creates a significant likelihood of such deductions. The Secretary's approach rejects a wooden requirement of actual deductions, but in their absence it requires a clear and particularized policy  one which effectively communicates that deductions will be made in specified circumstances. This avoids the imposition of massive and unanticipated overtime liability (including the possibility of substantial liquidated damages . . .) in situations in which a vague or broadly worded policy is nominally applicable to a whole range of personnel but is not significantly likely to be invoked against salaried employees.    The Secretary's approach is usefully illustrated by reference to this case. The policy on which petitioners rely is contained in a section of the police manual that lists a total of 58 possible rule violations and specifies the range of penalties associated with each. All department employees are nominally covered by the manual, and some of the specified penalties involve disciplinary deductions in pay. Under the Secretary's view, that is not enough to render petitioners' pay subject to disciplinary deductions within the meaning of the salary-basis test. This is so because the manual does not effectively communicate that pay deductions are an anticipated form of punishment for employees in petitioners' category, since it is perfectly possible to give full effect to every aspect of the manual without drawing any inference of that sort. If the statement of available penalties applied solely to petitioners, matters would be different; but since it applies both to petitioners and to employees who are unquestionably not paid on a salary basis, the expressed availability of disciplinary deductions may have reference only to the latter. No clear inference can be drawn as to the likelihood of a sanction's being applied to employees such as petitioners. Nor, under the Secretary's approach, is such a likelihood established by the one-time deduction in a sergeant's pay, under unusual circumstances. Auer, 519 U.S. at 461-62, 117 S.Ct. at 911-12, 137 L.Ed.2d at 90-91 (emphasis added). Like in Auer, § 11-104, the statutory provision upon which appellants in the instant case rely to support their argument that they are not salaried employees, contains a list of several possibilities for disciplinary action for an offending employee, only one of which is suspension without pay. Under the Secretary of Labor's interpretation of the salary-basis test, the mere possibility of a disciplinary suspension without a significant practice or policy of suspending correctional supervisors for disciplinary infractions is not enough to render [appellants]' pay `subject to' disciplinary deductions. Auer, 519 U.S. at 462, 117 S.Ct. at 911, 137 L.Ed.2d at 90. Just as the Supreme Court concluded with regards to the police manual at play in Auer, § 11-104 does not effectively communicate that suspension without pay is an anticipated form of punishment for employees in [appellants'] category. Id. Appellants provided no evidence before the ALJ that suspension without pay had ever been utilized as a disciplinary action by DPSCS against any correctional supervisors. Indeed, it is clear that the penalties of § 11-104 do not apply solely to correction supervisors; instead, these seven disciplinary sanctions are applicable to all employees in the State Personnel Management System within the Executive Branch. Therefore, we hold that the ALJ did not err in finding that appellants are paid on a salary basis.