3rd Circuit Holds PTO Deductions Permissible Under FLSA

Recently, the U.S. Court of Appeals for the Third Circuit held that paid time off (PTO) does not qualify as “salary” under the Fair Labor Standards Act (FLSA); therefore, the defendant’s practice of deducting PTO based on productivity was permissible under the FLSA. 

The plaintiffs argued to the district court and on appeal that the defendant’s practice of deducting PTO from employees that failed to meet productivity point minimums was a reduction in its employees’ salaries.  The plaintiffs argued the monetary value of PTO meant that it was different from other “fringe benefits” under the FLSA, like insurance.  The district court rejected this argument, and the Third Circuit affirmed, holding that there is a meaningful distinction between “salary” and “fringe benefits” (including PTO) under the FLSA.  Therefore, deductions from PTO are not deductions from “salary” under the FLSA.  There was no evidence that the employer reduced salary if the employee’s PTO was exhausted.  Thus, the practice of deducting PTO (which is not salary) did not violate the FLSA.

The Third Circuit also found that the plaintiffs forfeited an argument that their claim could be brought under the Pennsylvania Minimum Wage Act, because it had not been raised properly below or on appeal.