Edward Bassett Jul. 18, 2016, 9:29am


SAN FRANCISCO (Legal Newsline) – A recent federal appeals court ruling on an issue that had never been decided by any court in the country said municipalities and employers must include cash paid to employees in lieu of health care benefits in the calculation of overtime pay.

Dean R. Dietrich
Dean R. Dietrich

The U.S. Court of Appeals for the Ninth Circuit ruled against an appeal by the California city of San Gabriel on a lawsuit by some of it police officers (Flores v. City of San Gabriel) seeking three years of unpaid overtime because the city had allegedly not included the cash in lieu of benefits when it calculated overtime pay for these police officers.

The federal Fair Labor Standards Act (FLSA) says that overtime pay must be “at least” equivalent to one-and-a-half times an employee’s hourly regular rate.

The court further held that the FLSA liquidated damages provision requires the city to pay double the amount of unpaid overtime compensation for the three years before the complaint was filed. The court noted that the city’s violation of FLSA regulations was willful because it had been put on notice of the FLSA requirements, but had taken no action to assure compliance.

“It is not likely that this case will be appealed to the United States Supreme Court,” labor relation attorney Dean Dietrich told Legal Newsline. “The decision is well-written, and I do not think this is an issue that would warrant review by the United States Supreme Court."

San Gabriel’s flexible benefits plan gave each employee money to buy medical, vision and dental benefits. Although required to purchase these benefits, employees could get cash instead if they could prove that they had alternate medical coverage.

“Often, an individual will reject health insurance benefits provided by a company because they have health insurance benefits from their spouse’s employment,” Dietrich said.

The requirement to have health insurance benefits can be accomplished in many different ways.

"Often, a business will incentivize an employee to not take an insurance benefit because the employee has coverage elsewhere," Dietrich said.

City workers that elected to forgo medical benefits got the unused portion of the benefit as cash. The monthly payment to employees who declined medical coverage was $1,000 to $1,300 a month between 2009 and 2012.

There are similar lawsuits filed against municipalities around the country, Dietrich said, but not many. Many public and private businesses, he said, “rely upon computerized payroll systems to determine the appropriate pay rate for an employee working overtime hours, but each situation is different and requires significant oversight from company officials.”

“I would not say that this is a new strategy, although more and more plaintiff attorneys are taking class-action lawsuits both on compliance with the federal Fair Labor Standards Act and compliance with other federal laws," Dietrich said. "It is sometimes difficult to obtain class-action status (because) if the court approves class-action status, the potential liability to the business is significant.”

Organizations in this Story

9th Circuit Appellate Court, San Francisco
95 7th Street
San Francisco, CA 94103

U.S. Supreme Court
1 First St NE
Washington, DC 20543

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