By Anthony Rice
In Bozzo v. City of Gilroy, a California Federal District Court ruled that a reduction in pay in exchange for “furlough time,” does not entitle City of Gilroy Fire Chiefs’ to overtime under the FLSA. The court rejected the Chief’s argument that the City’s furlough plan violated the “salary basis” test of the FLSA causing the positions to lose their exempt status.
In 2009, the City of Gilroy experienced significant revenue difficulties due to losses in the local, state, and national economy. Since the City expected these losses to continue for multiple years, it requested to meet and negotiate with all bargaining units to address the City’s financial crisis.
Plaintiffs were part of the Gilroy Management Association, the City’s bargaining unit for its management employees. The City negotiated a 9.23% reduction in pay for GMA employees in exchange for what the City claims was a bank of paid leave time, labeled “furlough time.” The Fire Chiefs asserted that this pay reduction plan caused them to lose their exempt status under the FLSA, thereby entitling them to overtime pay. The Chiefs noted the furlough days were being reported to the California PERS as unpaid days off which, in their view, made the salary reduction program a “pretend” furlough program. The City, however, classified them as exempt from overtime under the FLSA because of their management job duties and because they received the same amount of pay each month.
The court identified the issue in front of it:
The dispute in this case centers around § 541.710(b), which provides that: 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.
The court viewed it as a matter of “first impression” explaining that the regulation had been “rarely” cited in other courts. The court turned to the Department of Labor’s published opinion on Section 541.710(b) to help it reach a conclusion. In doing so, it found the Department of Labor was concerned that if a salaried employee was furloughed for a certain period of time and had their paycheck for that period of time reduced due to the furlough the employee would lose their exempt status entirely. The court acknowledged that the phrase in the regulation the salary basis would be maintained “except in the workweek in which the furlough occurs and for which the employee’s pay is accordingly reduced” was ambiguous. But after reviewing the history and comments on the regulation, it concluded:
Thus, the type of furlough to which the Department of Labor intended the regulation to apply are furloughs that would disrupt an employee’s salaried status, i.e., furloughs that cause variations in an employee’s pay in a particular time period due to the quantity of work performed in that time period. The City’s pay reduction plan did not cause variations in Plaintiffs’ pay due to the quantity of work performed — Plaintiffs were paid the same amount each month regardless of the numbers of hours they worked in that month.
Moreover, the court stated that if Plaintiffs were non-exempt employees, the result would be overtime pay greater than the negotiated reduction in salary. “This surely is not the result the Department of Labor had in mind when promulgating a regulation intended to help public agencies implement budget-required furloughs.
Editor’s Note (Jim Cline): It is odd that there is not more case law on this subject. The regulation certainly appears ambiguous and the interpretation adopted by the court may not be the final one if this is appealed to the Ninth Circuit. At least a plausible reading, and one consistent with the purposes of the FLSA, is that the salary exemption would have been lost, as these employee argued, during the weeks in which the furlough was applied.
