Exempt Employee Paid At An Hourly Rate While Working A Reduced Schedule For FMLA-Qualifying Reasons Not Eligible For Overtime Pay

The U.S. Court of Appeals for the Ninth Circuit Court of Appeals recently ruled that an injured employee’s reduced work schedule was properly characterized as protected, unpaid leave under the Family Medical Leave Act (“FMLA”) despite the employer’s failure to designate such leave as FMLA leave. Accordingly, the exempt employee in question was not converted to non-exempt status while she worked a reduced work schedule at a reduced rate of pay. Rowe v. Laidlaw Transit, Inc., 2001 WL 322207 (9th Cir. April 4, 2001).

The plaintiff, Rowe, sued Laidlaw Transit, Inc., her former employer, under the Fair Labor Standards Act (“FLSA”) and the Oregon wage and hour statute, both of which require employers to pay employees at the overtime rate for hours worked in excess of forty in a workweek. 29 U.S.C. § 207(a)(1); Or. Rev. Stat. § 653.261. However, under both the federal and state statutes at issue, overtime does not have to be paid to a “bona fide executive, administrative, or professional” employee. 29 U.S.C. § 213(a)(1); Or. Rev. Stat. § 653.020.

Rowe was employed by Laidlaw as a supervisor of driver development and safety from 1995 until 1998. Prior to holding this position, she had been a non-exempt bus driver and driver trainer for the company. When she was promoted to supervisor in 1995, however, Laidlaw informed Rowe that she was now considered an exempt employee under the Fair Labor Standards Act, and was thus ineligible for overtime. Instead, she was paid a fixed biweekly salary that was not subject to change based on the number of hours she actually worked.

In 1997, Rowe was absent from work due to a serious ankle injury. After she exhausted all of her sick leave and vacation time as a result of the injury, she was instructed by her physician not to work more than five hours per day. Accordingly, Rowe requested that Laidlaw allow her to return to work on a part-time schedule. Laidlaw agreed to this request, and compensated Rowe on an hourly basis during the time she worked a reduced schedule. At no time did Laidlaw indicate to Rowe that the period during which she was working a reduced scheduled was covered by the FMLA.

After Rowe recovered from her injury and returned to work full time, Laidlaw resumed paying her on a salary basis. In 1998, Rowe resigned from her position with Laidlaw. Shortly thereafter, she sued, claiming, inter alia, that she should have been paid on an hourly basis (and thus should have been paid overtime), given the fact that Laidlaw had reduced her salary while she was working a reduced schedule. Rowe’s claim was based on regulations under the FLSA which provide generally that an otherwise exempt employee will be considered non-exempt (and therefore eligible for overtime pay) if his or her weekly salary is “subject to reduction because of variations in the quality or quantity of the work performed.”

After granting summary judgment to Laidlaw on unrelated claims, the district court entered judgment after trial against Rowe on the grounds that she was an exempt employee throughout the period during which she worked as a supervisor, and was therefore not entitled to overtime compensation.

On appeal, Rowe contended that Laidlaw had effectively converted her to a non-exempt employee (eligible for overtime) when it reduced her salary while she was working a reduced schedule for medical reasons. The Ninth Circuit disagreed, citing regulations promulgated under the FMLA, which expressly provide that “the employer may make deductions from the employee’s salary for any hours taken as intermittent or reduced FMLA leave within a workweek, without affecting the exempt status of the employee.” 29 C.F.R. § 825.206(a).

Rowe also argued that the period during which she worked a reduced schedule was not covered by the FMLA because Laidlaw had not designated it as FMLA leave prior to consenting to her request for a reduced work schedule. This argument likewise proved unavailing: the Ninth Circuit concluded that the leave was covered by the FMLA, and that Laidlaw’s failure to designate the leave as FMLA leave did not alter this result.

Two conclusions can be drawn from the Rowe decision. First, as the FMLA regulations state, employers need not be concerned that granting a reduced leave schedule under the FMLA will effectively convert an exempt employee to a non-exempt employee. Second, while employers should take care to designate requests for reduced schedule as FMLA leave where appropriate, failure to do so will not render that leave unprotected by the FMLA.