The 9th U.S. Circuit Court of Appeals—which covers California, Alaska, Arizona, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington—has given employers another thing to worry about in light of the new overtime regulations.
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In a case of first impression, the court ruled that when an employer pays an employee cash for opting out of its health insurance, that payment must be considered part of the employee’s “regular rate of pay” under the Fair Labor Standards Act (FLSA). This means it must be used in calculating compensation for overtime hours.
In Flores v. City of San Gabriel, Nos. 14-56421, 14-56514 (9th Cir. June 2, 2016), the court said the city of San Gabriel owed back overtime pay to its police officers; the employer’s liability was limited, however, by a partial overtime exemption for police and fire departments.
Background
The city of San Gabriel provided a cash payment to employees who declined to participate in its health insurance. The “cash-in-lieu of benefits” payment was provided through workers’ regular paychecks and, as of 2012, amounted to about $1,305 per employee per month. This payment appeared as a designated line item on an employee’s paycheck and was subject to withholdings.
The city, however, did not consider the payment part of employees’ regular rate of pay and therefore did not include it when calculating their overtime rates.
San Gabriel paid its police officers overtime when they worked more than 80 hours in a 14-day period. (Employers generally must pay overtime for hours worked beyond 40 in a single workweek but public police departments may use FLSA §207(k)’s partial overtime exemption; it only requires overtime when workers engaged in law enforcement activities work more than 171 hours in a 28-day work period.)
A group of officers sued, alleging that the city violated the FLSA by failing to include the benefits payment in their “regular rate of pay.” The U.S. District Court for the Central District of California agreed but found that because the violation was not willful, the officers only were entitled to recovery for the FLSA’s 2-year statute of limitations period. It also determined that the city qualified for the FLSA’s “partial overtime exemption.”
Read the full article for more, including key takeaways for California businesses.