The California Department of Labor Standards Enforcement (DLSE) has issued an opinion letter in which it concludes that California law does not prohibit an employer from temporarily reducing the work schedule of an exempt employee from five days a week to four days a week, and correspondingly reducing the employee’s salary by 20 percent.  The employer in question was experiencing significant economic difficulty and wanted to temporarily reduce the schedules and salaries of exempt employees to avoid or limit the need for layoffs.  The DLSE concluded that this practice does not violate the salary basis test and the affected employees would not lose their exempt status.

Although this conclusion is consistent with well-settled principles of federal law, it represents a reversal of the DLSE’s opinion.  The DLSE reached the opposite conclusion — that an employer cannot reduce the salary of an exempt employee during a period in which the company operates a shortened workweek due to economic conditions — in a 2002 opinion letter.  The 2002 opinion letter relied on a federal court decision that the DLSE now characterizes as "not well-reasoned and misguided."

Although DLSE opinion letters are not binding authority, California courts usually give them a great deal of weight.  Additionally, DLSE opinion letters provide insight into how the DLSE will interpret the law in cases it pursues as California’s wage and hour enforcement agency.