California City and Firefighters Reach Global Settlement following a 2016 FLSA Lawsuit

The City of San Luis Obispo has reportedly reached a settlement with city firefighters following a 2016 federal lawsuit regarding overtime pay. The firefighters alleged the city failed to include money paid in-lieu of receiving employer sponsored medical benefits in the firefighter’s regular rate of pay. Properly determining a firefighter’s regular rate is critical, since all FLSA overtime must be at least time and one-half of the regular rate.

According to CalCoastNews, the global settlement not only resolves the ongoing FLSA litigation, but also resolves numerous issues related to overall department staffing, overtime, pay raises, and overtime eligibility for battalion chiefs. The settlement calls for the city to pay a total of approximately $3,000 to firefighters for failing to calculate overtime correctly. In addition, the city will also pay the firefighters attorney fees of $39,650 and another $12,799 in costs associated with the litigation. However, the city and firefighters have also reached a new successor memorandum of understanding (MOU) spanning the next three years. Terms of that agreement require the firefighters to contribute more towards pensions, allow the city to increase overall department staffing in an effort to reduce overtime, and provide firefighters with pay raises totaling five percent over the next three years. Also, under the terms of the settlement battalion chiefs will not be eligible for FLSA overtime.

Although FLSA regular rate issues are only a small part of the global settlement, this is one of several recent settlements involving the regular rate and money paid to employees in lieu of receiving health benefits. These settlements follow a 2016 decision from the U.S. Ninth Circuit Court of Appeals, entitled Flores v. City of San Gabriel. In Flores, a federal circuit court of appeals ruled, for the first time, that money paid to employees in lieu of receiving employer sponsored health benefits must be included in the employee’s regular rate of pay for FLSA overtime purposes. Since many public safety collective bargaining agreements contain provisions allowing for cash payments in lieu of receiving medical benefits, it should not come as a surprise that numerous lawsuits were filed by police officers and firefighters following the Flores decision.

Including these types of payments in the regular rate can be especially challenging for individuals responsible for paying police officers and firefighters. First, due to the nature of shift work and minimum staffing levels, few professions work as many hours of overtime as public safety professionals. It is not uncommon for police officers and firefighters to work significant amounts of overtime on a weekly basis. Second, health insurance is expensive. As an example, paying an employee fifty percent of the actual cost of some medical insurance plans can raise that employee’s regular rate $3 or even $4 per hour. This could increase the employee’s overtime rate by as much as $6 per hour. In the event of an FLSA violation and lawsuit, that number will likely be doubled. The employee may be owed a total of $12 for every hour of overtime due. . . Third, typically these types of payments are made in arrears. The employee frequently receives the money after they have declined health benefits for a period of time. This requires employers look-back over the period of time the payments were intended to cover and make retroactive overtime calculations. That can be a time-consuming endeavor to say the least. These are just a few of the reasons why calculating the regular rate can prove challenging at times.

We will certainly be keeping our eyes peeled for future developments on this topic.

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