Failure to Include Cash In-lieu Payments in Regular Rate Costs A California City More than $1.2 Million

The City of Davis, California recently settled an FLSA lawsuit filed by a small group of city firefighters for a total of $1,268,912. The lawsuit, which was filed on July 26, 2016, in the U.S. District Court for the Eastern District of California, was centered around whether payments made directly to firefighters in lieu of receiving employer sponsored medical benefits can be properly excluded from their regular rate of pay.

Proper calculation of an employee’s regular rate is critical. All FLSA overtime must be paid at a rate not less-than time and one-half of the employee’s regular rate. Failure to include all remuneration in an employee’s regular rate will result in shorting that employees overtime rate of pay, which will in-turn likely violate the FLSA. Calculating the correct regular rate can be especially challenging for finance and human resource professionals tasked with paying firefighters and other public safety professionals. In fact, allegations of regular rate violations continue to be the leading claim made by firefighters in FLSA lawsuits today.

As a general rule, the FLSA requires that all remuneration [i.e. the money an employee receives from his or her employer] be included in the employee’s regular rate of pay. Like all general rules, there can be limited exceptions. However, in 2016, the U.S. Ninth Circuit Court of Appeals held that money paid directly to employees, in lieu of receiving employer sponsored medical benefits, did not qualify under any exception, and therefore must be included in the employees’ regular rate of pay. As a result of this decision numerous lawsuits and eventual settlements emerged.

Here, the original plaintiff Bobby Weist, who is also the president of the City’s firefighters’ association, IAFF local 3494, filed the lawsuit on behalf of himself and other “similarly situated individuals”. Shortly after the initial complaint was filed, another thirty firefighters chose to “opt in” on the lawsuit. Additionally, as the litigation moved forward, the parties recognized as many as 222 additional current and former city employees [not firefighters] were also “eligible to assert claims” for unpaid overtime under the same theory as the plaintiff firefighters. While none of these potential plaintiffs opted into the current lawsuit, the settlement includes funds for those individuals.

In total, the city agreed to pay up to $1,268,912 to a total of 253 plaintiffs and potential plaintiffs. Of that amount, $943,912 was earmarked as backpay and liquidated damages. The 31 firefighter plaintiffs received approximately half of that figure, while the remaining 222 potential plaintiffs will all share the other half. The settlement also called for the firefighters’ attorneys to receive a total of $325,000 in fees and costs.

This case and eventual settlement is noteworthy for a number of reasons.

• First, correctly calculating an employee’s proper regular rate is essential. Failure to include all remuneration in an employee’s regular rate will likely prove a violation of the FLSA. Regular rate mistakes are easy to make, but not always easy to correct.
• Second, it is imperative that employers, especially public agency employers, have a basic understanding of overtime and hours worked principles found in the FLSA and Department of Labor (DOL) regulations. This is especially true for individuals that are responsible for paying firefighters and other first responders. There are few professions, if any, that require employees work the amount of overtime that is common in today’s fire service. This factor alone exponentially increases an employer’s potential liability from even small errors.
• Finally, employers need to stay abreast of recent developments related to the FLSA, Department of Labor (DOL) regulations, case law, and even DOL opinions. A small change in a DOL regulation, a new interpretation of an existing regulation, or even a change in DOL opinion will have an impact on an organization’s wage and hour requirements.

Do you have questions about how the FLSA impacts firefighters and other emergency service workers? Please consider joining us for one of our FLSA for Fire Departments live webinars. The next offering is scheduled for May 11-14, 2021. You can save $100 if you register on-line before April 1, 2021.

Also, there is a special offer that is only available for past attendees. Past registered attendees (previous 3 years) are eligible for a discounted $99 rate for the 4-day FLSA for Fire Departments live-webinar.

Click here for more information.

Here is a copy of the approved settlement.