Employer Mandated Days Off During Holiday Week Do Not Affect Exempt Status Under State Wage Law

The First District Illinois Appellate Court recently held that an employer did not void executive, administrative, and professional employees' exemptions from state overtime rules by requiring them to take unpaid days off as a cost-cutting measure. Robinson v. Tellabs, Inc.

Under Illinois and federal law, executive, administrative, and professional employees are exempt from overtime requirements only if they perform certain kinds of job duties and are paid on a "salary basis," meaning that they must receive a guaranteed salary each pay period, without deductions for the quality or quantity of work performed.

In April 2001, Tellabs Inc. experienced a dramatic and unexpected decline in profits. As such, the salaries of its officers were reduced, employee salary increases were frozen, several hundred employees were laid off, and budgets for travel, training, and advertising were eliminated. In spite of these measures, business continued to decline. To further reduce costs, Tellabs adopted a policy under which employees were required to take unpaid days off several times over the course of the year.

One of the employees affected by this policy, Theodore Robinson, sued Tellabs claiming that he was entitled to overtime pay. Robinson argued that because the company took deductions from his salary and the salaries of other exempt employees during weeks in which they were required to take unpaid days off, they were not paid on a "salary basis," and were therefore not exempt from the overtime requirements of the Illinois Minimum Wage Law. The lower court rejected this argument and ruled for Tellabs. Robinson then appealed. The Appellate Court affirmed the trial court's ruling, holding that salary reductions during weeks in which exempt employees were required to take unpaid time off were not impermissible salary deductions because the employees were told of these reductions in advance and were still provided a fixed and determined (albeit reduced) salary for those pay periods.

This ruling is obviously a boon for employers seeking ways to cut costs without resorting to more drastic measures such as layoffs. However, the Appellate Court's decision may be appealed to the Illinois Supreme Court, and it is not clear whether federal courts would reach the same conclusion under federal overtime rules. Consequently, employers considering cost-saving measures such as temporary furloughs or unpaid holiday programs should proceed with caution to avoid exposing themselves to even greater costs under state and federal employment laws.