by Michael P. Maslanka

Take great caution in tinkering with the job duties and requirements of an exempt employee. A miscalculation can result in the loss of exempt status and liability for unpaid overtime. For an employer who gambled and won, read on.

Gamble

Bayada Home Healthcare hires registered nurses who visit patients in their homes and provide healthcare-related services. They are exempt from overtime as professional employees.

The nurses are required to meet certain productivity minimums every week that are calculated based on performing certain tasks. By way of example, the visit to a home was allocated 1.33 hours. The hours were then placed into a paid time off (PTO) bank available for use while employed or in cash upon leaving employment.

If the employee dropped below a certain threshold of productivity hours in a given week, then the difference between what they were supposed to earn and what was actually earned was deducted from the hours in the bank. Employees were allowed to ask for a reduction of the weekly minimum.

Challenge

Bayada was hit with a class action lawsuit. The employees argued that a hallmark of exempt status—a set and guaranteed minimum salary every week—wasn’t satisfied. No set salary, no exemption.

Essentially, in exchange for not getting overtime, the employee is given a preset and guaranteed salary that isn’t reduced based on productivity and is given no matter how little the employee works in the week.

The employees made two arguments.

Argument No. 1: “The company docked my preset salary whenever I failed to meet the productivity requirement.”

This would be an excellent argument except the employee in question testified this was her “impression.” The problem for the employees is that an “impression” is not evidence.

Argument No. 2: “The PTO bank is the functional equivalent of a salary, and making PTO deductions is the same as making deductions from my preset salary.”

No, said the U.S. 3rd Circuit Court of Appeals. Look at the dictionary. Salary is defined as “an agreed compensation for services—especially professional or semiprofessional—usually paid at regular intervals.”

By contrast, the PTO in this case sounds very much like the dictionary definition of a fringe benefit: “an employment benefit—such as a pension or a paid holiday—granted by an employer that has a monetary value but does not affect wage rates.” (Dictionaries come in so handy in all aspects of life!)

Result

The law forbids deductions from salary, not from fringe benefits. So, the employer didn’t forfeit the right to treat employees here as exempt by using and enforcing a productivity system. Higgins et al v. Bayada Home Health Care Inc., (3rd Cir., March 15, 2023).

Bottom Line

A few thoughts. Even though this case comes to us from a federal appeals court in the northeast, I think the federal appeals court covering Texas would follow its reasoning. But ask whether, as the expression goes in the military, is the juice worth the squeeze? Does the employer really need to incentivize its employees in this fashion? Is it so important that you are willing to risk lawsuit and the attorneys’ fees that go with it, even if you end up winning? Or the liability for unpaid overtime if you end up losing? Check with an employment lawyer in the design and implementation of any such fringe benefit.

Oh, by the way, here are a few deductions you can make that won’t result in forfeiting the salaried basis:

• Full-day absences for personal reasons other than sickness or disability;
• Penalties imposed in good faith for violating a safety rule of major significance; and
• An unpaid disciplinary suspension of one or more full days that are imposed in good faith for violating workplace rules under a written policy applicable to all employees.

Michael P. Maslanka is an assistant professor at the UNT-Dallas College of Law. He practiced law from 1981 until he joined the faculty in July 2015. He was Chair of the Labor and Employment section of a large Dallas firm and was the managing partner of the Dallas office of two national law firms prior to July 2015. You can reach him at michael.maslanka@untdallas.edu.