[SunDeck]

I'm curious what is meant by "hours not worked".
Usually with an exempt position, the expectation is that an employee probably works more than the 40 hours per week, which is why the Feds created the distinction in the first place; to allow employers to get more work out of employees in management in times of need without having to pay them more.
Well, maybe that's not exactly the reason, but that's the way it is viewed at every place where I have been an exempt employee.

Anyway, I am curious because as an exempt employee I have probably never worked under 40 hours a week. So my first reaction is that the employer just saying to those exempt employees "You're not pulling your weight".

Is it legal? Well, I think that depends on your state laws, too, but my initial guess is that there is nothing illegal about reducing an employee's pay, which is really what this sounds like. But I'm not a legal mind- just another middle manager like you Sava.