New England Biz Law Update
(DEPOSIT PHOTOS)
If employees are failing to meet productivity quotas, a new ruling from a federal appeals court says that employers can go ahead and dock their paid time off (PTO).
The opinion from the 3rd U.S. Circuit Court of Appeals only applies in Delaware, New Jersey, and Pennsylvania. However, this is the first time a federal appeals court has been asked whether PTO counts as part of an employee’s salary. The groundbreaking ruling could impact compensation and benefit practices nationwide.
In the case of Higgins v. Bayada Home Health Care, the court ruled that an employer did not violate the Fair Labor Standards Act (FLSA) when it deducted paid time off from salaried workers who failed to meet productivity goals.
Bayada Home Health Care established a productivity system for its salaried employees. Employees who exceeded productivity minimums got paid extra. Meanwhile, employees who missed their weekly minimums had their PTO banks reduced.
A group of Bayada employees, including nurses, physical therapists, and medical social workers, sued the company in federal court in 2016. The workers argued their PTO was part of their salary and therefore deductions violated the FLSA.
A federal district court disagreed with the workers and dismissed their claim. Now, the 3rd Circuit has affirmed that ruling in a unanimous decision. The court held that PTO is not part of an employee’s salary, so deductions are not a violation.
Bayada’s compensation system
Bayada is headquartered in New Jersey, employs approximately 28,000 employees, and provides home health care services to patients in 23 states. Bayada clinicians are paid a salary but must accumulate a specified number of “productivity points” each week.
Each point is equal to roughly 1.33 hours of work. A routine visit to a patient’s home, for example, is worth one point. If an employee anticipates they will not meet their productivity minimum, they can make up the deficit with office work or additional home visits. Employees can request an adjustment in their productivity minimums, with corresponding adjustments in pay.
When Bayada employees exceed their productivity minimums, they receive additional compensation. On the other hand, when an employee falls short, Bayada withdraws from their available PTO to cover the discrepancy between the completed and expected work.
Higgins, the lead plaintiff in the suit, said she believed Bayada would reduce her base salary if she failed to meet her minimums and did not have a sufficient PTO balance to cover the shortfall. However, she never exhausted her PTO, and no evidence suggested Bayada docked the salary of any plaintiff.
Plaintiffs also argued that by using the point system Bayada effectively treated its employees as wage earners whose total compensation was tied to the number of hours they worked. The court did not agree.
“Neither the FLSA nor its related regulations explicitly define the term ‘salary.’ There nevertheless appears to be a clear distinction between salary and fringe benefits like PTO,” the court said.
The court went on to explain that deductions to PTO do not violate salary requirements because the predetermined amount the employee receives at the end of a pay period does not change.
“That an employee might at some point be able to convert her PTO into cash does not alter that fact,” the court added.
