On those (hopefully) rare occasions when a supervisor or other exempt employee must be suspended without pay for disciplinary reasons, employers should take special care to ensure that the unpaid suspension does not result in loss of the employee’s exempt status. Loss of exempt status could be costly to an employer, who may then be required to pay overtime to an employee who is typically not entitled to overtime wages.
Generally, exempt employees must be paid on a “salary basis,” meaning they are regularly paid a predetermined amount that cannot be reduced because of the quality or quantity of the employee’s work. However, the Fair Labor Standards Act (FLSA) allows employers to deduct pay of exempt employees in limited circumstances, including for unpaid disciplinary suspensions. Employers can impose an unpaid disciplinary suspension without risking loss of an employee’s exempt status only if the following criteria are met:
- The suspension is for one or more full days;
- The suspension is imposed in good faith for violations of workplace conduct rules; and
- The suspension is imposed pursuant to a written policy applicable to all employees.
See 29 CFR § 541.602(b)(5). If these criteria are not met, the unpaid suspension of an exempt employee could be considered an improper deduction, and therefore, a violation of the FLSA. This would jeopardize the employee’s exempt status and be a detriment to the employer.
Breaking Down the Disciplinary Exemption
1. One or More Full Days: Partial suspensions, for less than one day, are not allowed. Unpaid disciplinary suspensions must be imposed in full-day increments; otherwise, failure to pay the exempt employee for their time while out of work could be considered an improper deduction.
2. Suspension Imposed in Good Faith: When suspending an exempt employee without pay, the employer must have a reasonable, good faith belief that the employee violated a serious workplace conduct rule. Many employers suspend employees, without pay, pending an investigation into the misconduct. If the employee is found to be faultless, then the employer should reimburse the employee for the lost pay. Repayment of an improper deduction will not destroy the employee’s exemption status.
3. Violations of Workplace Conduct Rules: Employers can suspend exempt employees without pay for violations of workplace conduct rules. 29 C.F.R. § 541.602(b)(5). Courts have indicated that the term “workplace conduct” should be construed narrowly, only encompassing serious workplace misconduct, such as policies prohibiting discrimination and harassment, workplace violence, alcohol and drug violations, or violations of a state or federal law. Watkins v. City of Montgomery, Ala., 775 F.3d 1280, 1284 (11th Cir. 2014). Exempt employees should not be suspended without pay for poor performance or attendance issues.
Note: Employers may dock an exempt employee’s pay for penalties imposed in good faith for infractions of “safety rules of major significance.” 29 C.F.R. § 541.602(b)(4). To qualify as a “safety rule of major significance,” the rule must regulate conduct that can create a serious danger in the workplace or to other employees, such as rules prohibiting smoking in explosive plants, oil refineries and coal mines.” Id.
4. Pursuant to a Written Policy Applicable to All Employees: In order to comply with the FLSA, an exempt employee should only be suspended without pay if the employer has a written policy related to disciplinary suspensions that applies to all employees—not just exempt employees. 29 C.F.R. § 541.602(b)(5). The written policy need not include an exhaustive list of the specific violations that could result in an unpaid disciplinary suspension; however, the policy should provide sufficient notice to employees of the types of misconduct that could result in an unpaid disciplinary suspension.
Safe Harbor Provision
Improper unpaid disciplinary suspensions do not automatically result in loss of an employee’s exempt status. The FLSA “safe harbor” provision protects employees’ exempt status so long as employers: (1) have a “clearly communicated” policy prohibiting improper deductions, (2) a complaint mechanism for reporting improper deductions, (3) reimburse employees for any improper deductions, and (4) make a good faith commitment to comply with the FLSA. See 29 C.F.R. § 541.603. Employees’ exempt status will be lost if the employer continues to make improper deductions after receiving employee complaints.
Practical Guidance
Employers should review their disciplinary policies to ensure they have a written policy related to unpaid disciplinary suspensions applicable to all employees regardless of exemption status. The policy should also describe the circumstances in which employees may be suspended without pay. When notifying an exempt employee of an unpaid disciplinary suspension, employers should specify the workplace conduct rule that was violated (or allegedly violated) leading to the suspension. For example, the disciplinary form used should include reference to the specific workplace conduct or safety rule that was violated (or being investigated).
Employers should contact legal counsel when unsure of the legality of a deduction and to ensure compliance with the FLSA’s requirements for unpaid disciplinary suspensions for exempt employees.
