Opinion ID: 171281
Heading Depth: 2
Heading Rank: 1

Heading: Relevant legal standard

Text: [A]n employer may prospectively reduce salary to accommodate the employer's business needs unless it is done with such frequency that the salary is the functional equivalent of an hourly wage. Wal-Mart, 395 F.3d at 1184. If ... the salary changes are so frequent as to make the salary the functional equivalent of an hourly wage, we will treat the `salary' as a sham and deny the employer the FLSA exemption for professional employees. Id. at 1189. The authorities we relied upon in reaching these conclusions shed light on how frequent an employer's prospective salary changes must be before they create a factual question as to whether they are a sham. See id. at 1184-87. In Wage and Hour Opinion Letter dated November 13, 1970, 1970 WL 26462, for example, the DOL indicated that an employer can prospectively (1) reduce its current fifty-two five-day workweeks per year down to forty-seven, and (2) have its employees work five four-day work weeks at the end of each year, without losing its exemption for salaried professionals. [7] This suggests that an employer could change all of its employees' salaries twice in one year without altering their exempt status. Further, in Wage and Hour Opinion Letter dated February 23, 1998, 1998 WL 852696, the DOL concluded that an employer can reduce its salaried employees' workweek because of a temporary work shortage without defeating the FLSA's professional exemption. [W]e have consistently taken the position that a bona fide reduction in an employee's salary does not preclude salary basis payment as long as the reduction is not designed to circumvent the requirement that the employees be paid their full salary in any week in which they perform work.... Consistent with this position, we have stated that a fixed reduction in salary effective during a period when a company operates a shortened workweek due to economic conditions would be a bona fide reduction not designed to circumvent the salary basis payment. Id. In Caperci v. Rite Aid Corp., 43 F.Supp.2d 83 (D.Mass.1999), the district court granted Rite Aid summary judgment, holding the employer's decision to shorten a salaried pharmacist's schedule and reduce her pay accordingly did not defeat the FLSA exemption for salaried professionals. See id. at 84-85, 96-98. In reaching this conclusion, however, the district court recognized there could be a sham exception to its conclusion where, for example, the employer had a regular practice each Friday of informing its professional staff of the work schedule for the following week and making prospective adjustments in compensation to reflect any changes.... It is highly doubtful that such employer would successfully claim the exemption. Id. at 97 n. 14 (dicta). Thomas v. County of Fairfax, 758 F.Supp. 353 (E.D.Va.1991), addressed such a situation. In that case, the County paid its fire department lieutenants on a cyclical basis: a lieutenant typically worked, and accordingly was paid for, either 96, 120, or 144 hours during any given biweekly pay period. Over 9 biweekly pay periods, this cycle of 96, 120, or 144 hours repeated itself, so that while a lieutenant's pay varied from paycheck to paycheck, it was, apart from overtime, constant over any given 18 week period. Id. at 357. The district court granted the fire fighters summary judgment, id. at 355-56, 366, holding that such a compensation scheme did not meet the salary basis test: The lieutenants' pay plainly varies every paycheck with the number of hours they are actually scheduled to work. While lieutenants receive a constant amount over an eighteen week period, their pay is not constant over their two week pay period; it fluctuates as a function of scheduled work. This fact points persuasively to the conclusion that under the ... pay scheme the lieutenants were not paid on a salary basis. Id. at 361. While this authority indicates that an employer can change its employees' salary at least twice during the course of a year, even in response to a shortage of work, without altering their exempt status under the FLSA, Caperci and Thomas suggest that weekly salary changes would be too frequent and would indicate, instead, that the employees are actually paid by the hour.