Public accountability exception to the FLSA for "ghost employment" Demos v City of Indianapolis, CA7, 302 F3d 698. Alan L. Demos, an administrative employee, and Ronald Graham, a city executive, sued the City of Indianapolis claiming they were denied overtime pay and vacation time credits to which they alleged they were entitled under the Fair Labor Standards Act, 29 USC 201-219. Demos and Graham contended that because the City's policy required that their pay be docked if they failed to work an eight-hour day, they were not salaried employees within the meaning of the Act. The district court rejected their argument, and the Circuit Court, Seventh Circuit, affirmed the lower court's ruling. The reason given by the Circuit Court for holding that both Demos and Graham were not entitled to overtime compensation under the FLSA: they were excluded from the Act's coverage under to the Department of Labor's public accountability exception to its no docking of pay rule. Persons who are employed "in a bona fide executive, administrative, or professional capacity" are exempt from the Act's overtime provisions. However, Department of Labor rules provided that if an employee's salary is docked for partial day absences, it is presumed that the employee is not paid on a salary basis and thus covered by FLSA. Because some public jurisdictions are required by law to make payroll deductions in the event the individual is absent from work without charge to leave credits, the Department of Labor developed a regulation — referred to as the public-accountability rule — allowing government employers to dock an executive, administrative or professional employees salary if the docking is pursuant to a "system of public accountability." The regulations provides that: An employee of a public agency . . . shall not be disqualified from exemption . . . on the basis that such employee is paid according to a pay system established by statute, ordinance, or regulation, or by a policy or practice established pursuant to principles of public accountability, under which the employee accrues personal leave and sick leave and which requires the public agency employee's pay to be reduced or such employee to be placed on leave without pay for absences for personal reasons or because of illness for not less than one workday when accrued leave is not used by an employee because accrued leave has been exhausted; or the employee chooses to use leave without pay. Here the City cited Indiana's "Ghost Employment Statute,"* contending that the statute makes it publicly accountable for preventing non-working employees who do not request, or who are denied, leave time from receiving compensation. In addition, the City argued that its Code of Ethics prevents it from paying employees for not working during a regularly scheduled workday, which, said the court, "is evidence of its public accountability." * Indiana Code 35-44-2-4 provides that "a person employed by a governmental entity who, knowing that he has not been assigned any duties to perform for the entity, accepts property from the entity commits ghost employment, a Class D felony."
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