3rd Circuit Court of Appeals rules in favor of employers docking salaried employees' PTO

The 3rd Circuit Court of Appeals reached a unanimous decision on Wednesday, allowing employers to deduct paid time off (PTO) from salaried employees in a groundbreaking case.

This ruling is a response to a class action lawsuit filed by workers of Bayada Home Care, Inc., a nationwide provider of at-home health and personal care services for seniors and people with disabilities.

In the lawsuit, originally filed in 2016, the plaintiff group argued that Bayada's practice of deducting PTO when employees failed to meet time-based productivity quotas was a violation of federal wage law. According to the suit, Bayada utilizes a "productivity points" system to establish the pay scale for salaried employees, including registered nurses, physical therapists, and medical social workers.

These employees are required to accumulate a certain number of points each week, with one point being equivalent to approximately 1.33 hours of work. If a Bayada employee does not meet their productivity point quota, the discrepancy between completed and expected work is deducted from their accumulated PTO, as claimed by the plaintiffs. Bayada maintains that its employees are salaried rather than hourly.

The plaintiffs contended that Bayada's productivity points system essentially serves as a means to compensate employees based on the total hours worked since the points value directly corresponds to the time Bayada expects tasks to take.

The plaintiffs further argued that this point system, in conjunction with Bayada's practice of deducting PTO from accumulated PTO or "leave banks" if employees failed to meet weekly productivity minimums, indicates that Bayada treats its healthcare employees as wage earners whose total compensation is tied to the number of hours they work.

As per the Department of Labor's definition, salaried employees should not have their compensation adjusted due to fluctuations in the quality or quantity of their work. Instead, salaried or exempt employees are intended to receive a set rate of pay, irrespective of hours worked. Consequently, salaried workers are not eligible for overtime pay.

In light of this official classification, the plaintiffs in the lawsuit argued that Bayada was unlawfully penalizing them. However, the appeals court judges did not concur with this argument. They ruled that paid time off does not constitute compensation, and reaffirmed the long-standing Labor Department position that no American worker, salaried or otherwise, has an entitlement to paid leave. In essence, the judges rejected the notion that "time is money" for employees. While working, an employee's time equates to company money, but PTO does not equate to pay.

If an employee fails to meet the desired productivity levels in a given week, the employer can simply deduct the "lost time" from their vacation days. Evidently, an “off” day at work or a task taking longer than expected is equivalent to a day off. This is despite the fact research repeatedly shows that giving workers time off can boost productivity.

The Wednesday ruling represents the first time a U.S. appeals court has determined whether PTO is considered part of a worker's salary, as per Reuters. This decision could have far-reaching implications for employee benefits if other companies choose to adopt a similar approach.

In the Bayada case, the judges' ruling appeared to be based on the minor detail that none of the employees involved in the lawsuit had ever depleted their PTO through point deductions. As a result, the company never proceeded to the presumed next step of reducing pay.

The judgment said; “The key question when determining the legal classification of an employee...is whether an employer made an actual deduction from an employee’s base pay. There is no evidence here that Bayada reduced the guaranteed base pay of any of the plaintiffs.”