PATRICK CHAVEZ, on behalf of himself and all other City employees who have been paid overtime that was improperly determined under the Fair Labor Standards Act; JEANNINE CHAVEZ; RUDY CAMPOS; MICHAEL COCCHIOLA; FORTINO ORTEGA, on behalf of themselves and all other City employees who have been paid overtime that was improperly determined under 29 U.S.C.A. 207(a)(1) of the Fair Labor Standards Act; ROBERT C. GUTIERREZ, Plaintiffs-Appellants and Cross-Appellees, v. CITY OF ALBUQUERQUE, Defendant-Appellee and Cross-Appellant.
Nos. 09-2274 & 09-2288
United States Court of Appeals, Tenth Circuit
January 12, 2011
PUBLISH. Elisabeth A. Shumaker, Clerk of Court.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW MEXICO (D.C. No. 1:02-CV-00562-JCH-ACT)
Edward W. Bergmann of Seyfarth Shaw LLP, Chicago, Illnois, (Robert J. Perry, City Attorney, City of Albuquerque, New Mexico; Michael I. Garcia, City of Albuquerque Legal Department, Albuquerque, New Mexico; Jerry A. Walz of Walz & Associates, Cedar Crest, New Mexico, with him on the briefs), for Defendant-Appellee and Cross-Appellant.
Before BRISCOE, Chief Judge, HOLLOWAY, and O‘BRIEN, Circuit Judges.
BRISCOE, Chief Judge.
This is a collective action brought under
I
The factual background of this case is best understood in the context of the relevant statute.
The FLSA generally requires covered employers to pay its employees overtime pay for work in excess of forty hours a week.1 The purpose of FLSA overtime is “to compensate those who labored in excess of the statutory maximum number of hours for the wear and tear of extra work and to spread employment through inducing employers to shorten hours because of the pressure of extra cost.” Bay Ridge Operating Co. v. Aaron, 334 U.S. 446, 460 (1948). Overtime hours must be compensated “at a rate not less than one and one-half times the regular rate at which [the employee] is employed.”
The first step in many FLSA disputes is to determine an employee‘s regular rate. See Walling v. Youngerman-Reynolds Hardwood Co., 325 U.S. 419, 424 (1945) (“The keystone of Section 7(a) is the regular rate of compensation. On that depends the amount of overtime payments which are necessary to effectuate the statutory purposes. The proper determination of that rate is therefore of prime importance.“). The regular rate is “the
II
The Employment Contracts
The Employees include police officers, firefighters, transit workers, clerical and technical workers, and others. They are members of labor unions that have entered into collective bargaining agreements with the City (each, a CBA, and together, the CBAs).3 Employees other than firefighters have contractual “normal” workweeks of forty hours. All Employees are paid a base hourly (or straight time) rate set out in the relevant CBA. In addition to straight time pay, certain of the CBAs provide for various types of add-on pay, such as longevity, hazard, shift differential, assignment, education, and firearms qualification pay (collectively, add-on payments). These add-on payments are made as lump sums on a bi-weekly basis.
Generally, the CBAs provide overtime compensation for work beyond an employee‘s normal daily and weekly schedule, and on holidays. The contractual overtime rate is one and one-half times an employee‘s straight time rate. The CBAs generally provide for paid sick leave and vacation leave, and count this paid time off as hours worked for overtime purposes. Certain of the CBAs provide that employees who have accumulated a minimum amount of unused vacation or sick leave may sell that leave back to the City.
The City‘s Wage Calculations
For all employees other than police officers, the City calculates an employee‘s wage entitlements under the FLSA and under the applicable CBA, and then pays the employee the greater of the two. No FLSA calculation is made for police officers because the City has determined that their contractual entitlements will always exceed their FLSA entitlements. This is because police officers receive overtime under the FLSA after working forty-three hours, whereas they receive overtime under their CBA after working forty hours. City‘s Opening Br., Attach. 5 at 14.
The City includes straight time and add-on payments in an employee‘s FLSA regular rate, but does not include vacation or sick leave buy-back. To calculate an employee‘s
Procedural History
The Employees claim that the City violates the FLSA in the following ways: it improperly calculates FLSA and contractual wage entitlements separately; it does not include vacation and sick leave buy-backs in the regular rate; it improperly uses total hours worked rather than the normal workweek as the divisor when calculating an employee‘s hourly regular rate; it incorrectly multiplies the regular rate by one-half rather than one and one-half; and it improperly takes credits or offsets against its FLSA liability.
The parties filed cross-motions for summary judgment. The district court granted summary judgment to the City on the divisor and multiplier claims. It held a bench trial on the remaining issues. The district court found that the Employees did not show that the City failed to pay any Employee FLSA overtime that he or she was owed. J.A. at 135-38. It compared the FLSA and contractual entitlements of various Employees and found that each Employee‘s CBA compensation was higher than what was required under the FLSA. Because the Employees failed to show that the City had any FLSA liability to offset, the district court found that the Employees could not show that the City was taking improper credits against FLSA liability. Id. at 143. It also determined that hours paid but not worked did not count towards the FLSA overtime threshold. Id. at 125. Finally, it determined that the City was required to include vacation and sick leave buy-back in its calculation of the regular rate. Id. at 141-42. This was the only claim upon which the Employees prevailed.
III
Jurisdiction
After the district court entered its order on summary judgment and its findings of fact and conclusions of law, the parties entered into a stipulation as to damages and the district court entered a final judgment. Therefore, we have jurisdiction under
Standard of Review
The district court made its determinations regarding the divisor, multiplier, and inclusion of bonuses on summary judgment. It made its determinations regarding the buy-backs, threshold hours, and credits after a bench trial.
“We review the grant of summary judgment de novo, applying the same standard as the district court . . . .” Gwinn v. Awmiller, 354 F.3d 1211, 1215 (10th Cir. 2004). Summary judgment is appropriate if there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law.
The City calculates compensation due under the CBAs and under the FLSA and then pays the employee the higher of the two. The Employees argue that the City should calculate what is due under the CBAs and then apply the FLSA on top of that. The Employees misinterpret the FLSA. The FLSA is not a statutory enhancement of negotiated compensation, and the regular rate does not necessarily include all compensation provided for in the CBAs. There is nothing inherently wrong with the City‘s approach of calculating wage entitlements under the FLSA and under the applicable CBA, and then paying the greater of the two.
The FLSA guarantees minimum overtime compensation. See Barrentine v. Ark.-Best Freight Sys., Inc., 450 U.S. 728, 737 (1981) (describing the FLSA as a “statute designed to provide minimum substantive guarantees to individual workers“). It is not a supplement to contractual compensation. If an employee‘s contractual pay exceeds what the FLSA would require, an employer has no additional FLSA liability. See
The Employees cite to the City‘s Personnel Rule 302.2, which states that “when overtime is required for non-exempt employees, compensation must be in accordance with the [FLSA] and any applicable collective bargaining agreement.” Employees’ Answer Br. at 2 (emphasis in original). This language means that the City must comply with the FLSA and the CBAs. It does not mean that employees are to receive FLSA wages plus CBA wages. Further, the Employees did not bring a claim for violation of Personnel Rule 302.2, and the rule has no bearing on the City‘s FLSA liability. We conclude the City‘s dual calculation method does not violate the FLSA.
Vacation and Sick Leave Buy-Back
The City currently includes add-on payments in the regular rate, but does not include payments for buy-back of sick time and vacation time.4 The Employees argue that these buy-backs must be included in the regular rate and the district court agreed and included both. We conclude that the district court was correct to include sick leave buy-back in the FLSA regular rate, but the court erred by also including vacation buy-back.
The Department of Labor‘s (DOL) position is that vacation buy-back is not part of the regular rate, but sick leave buy-back is. DOL issues interpretive bulletins that constitute the agency‘s official interpretation of the FLSA overtime requirements.
[C]ertain payments made to an employee for periods during which he performs no work because of a holiday or vacation are not required to be included in the regular rate because they are not regarded as compensation for working. [Where] an employee who is entitled to .
. . a paid vacation foregoes his . . . vacation and performs work for the employer . . . during the vacation period . . . [i]f, under the terms of his employment, he is entitled to a certain sum as . . . vacation pay, whether he works or not, and receives pay at his customary rate (or higher) in addition for each hour that he works on the . . . vacation day, the certain sum allocable to . . . vacation pay is still to be excluded from the regular rate.
Unlike pay for foregone vacation, DOL includes production and attendance bonuses in the regular rate. “Bonuses which are announced to employees to induce them to work more steadily or more rapidly or more efficiently or to remain with the firm are regarded as part of the regular rate of pay. Attendance bonuses . . . are in this category. They must be included in the regular rate of pay.”
These payments are unrelated to the police officers’ compensation for services and hours of service. Moreover, awards for nonuse of sick leave are similar to payments made when no work is performed due to illness, which may be excluded from the regular rate. Thus, bonuses for the absence of medical claims and nonuse of sick leave may be excluded from the regular rate.
In contrast, the Eighth Circuit has held that sick leave buy-back must be included in the regular rate. The Acton plaintiffs were firefighters who could sell back unused sick days in exchange for seventy-five percent of their straight time
pay. 436 F.3d at 976. The Acton court found that “the primary effect of the buy-back program is to encourage firefighters to come to work regularly over a significant period of their employment tenure.” Id. at 977. It reasoned that consistent workplace attendance is a general duty of employment and, therefore, “sick leave buy-back monies constitute remuneration for employment.” Id. The Acton court rejected Featsent‘s reasoning, stating that the Sixth Circuit “did [not] recognize and explain how payments awarded to an employee for not using accrued sick leave, which necessarily requires employees to work more days than they are required, is not tantamount to payment for services rendered.” Id. at 979.
We agree with the reasoning of the Wage and Hour Division and the Eighth Circuit and hold that sick leave buy-back payments must be included in the regular rate. We further hold that vacation buy back-payments are not part of the regular rate. To be sure, both vacation and sick leave buy-back reward attendance, in some sense, because they reward an employee for not taking days off.7 The key difference lies in the way each type of day off operates. A sick day is usually unscheduled or unexpected, and is a burden because the employer must find last-minute coverage for the sick employee. In contrast, vacation days are usually scheduled in advance, so their use does not burden the employer in the
way that unscheduled absences do. An employee has a duty not to abuse sick days, whereas there is no corresponding duty not to use vacation days. Buying back sick days rewards an employee for consistent and as-scheduled attendance, which are the aspects of good
FLSA Overtime Threshold
For employees other than police officers and firefighters, the FLSA sets an overtime threshold of forty hours. This means that employees are entitled to FLSA overtime payments for each hour worked in excess of forty. The Employees argue that the City should count paid time off towards the FLSA overtime hours threshold because the CBAs count paid time off as time worked for the purposes of contractual overtime. We hold that the City is not required to count this time as time worked for FLSA purposes.
The Employees argue that, just as the FLSA regular rate incorporates some CBA compensation provisions, the FLSA should incorporate the CBAs’ definitions of hours worked. The First Circuit has rejected this contention, and we do as well. See O‘Brien v. Town of Agawam, 350 F.3d 279, 289 (1st Cir. 2003) (“The CBAs label such extra pay ‘overtime,’ but that does not control. For purposes of the FLSA, all hours worked under the statutory maximum are non-overtime labor.“). Contractual overtime and FLSA overtime are not the same things. The FLSA‘s policy goals are not implicated when an employee does not actually work over forty hours in a week.
The DOL‘s position is that FLSA overtime applies only to hours actually worked.
hours of work. An employee in that situation would not be subject to the stresses of long hours. However, were we to adopt the Employees’ interpretation of the FLSA, statutory overtime compensation would be required. We hold that compensated non-work hours do not count towards the overtime threshold.
The Employees argue that the Third Circuit‘s decision in Wheeler v. Hampton Township, 399 F.3d 238 (3d Cir. 2005), should be persuasive here. The CBA at issue in Wheeler provided for paid vacations, holidays, and sick days (described as “non-work pay“), and stated that these payments would be included in the regular rate. It also provided for lump-sum yearly payments for longevity, educational attainment,
The Wheeler court determined that the township had to include add-on pay and non-work pay in the regular rate. It held that the township could not contract away the officers’ right to FLSA overtime on add-on pay. Regarding the non-work pay, the Wheeler court reasoned that, while the FLSA itself did not require non-work pay to be included in the regular rate, the CBA required non-work pay to be included in the regular rate for FLSA purposes. See id. at 244. Relying on the language “shall not be deemed,” in
The Wheeler court, like the Employees, conflated the CBA and the FLSA. In an FLSA case, the issue is the FLSA regular rate, not the contractual overtime rate. Including or not including vacation pay in the FLSA regular rate is not a matter of “deeming that the CBA include non-work pay,” id. (emphasis added), because the CBA rate is not affected by the FLSA rate. The proper way to calculate the FLSA regular rate is to look at all the compensation provided for in the CBA and identify what part of that compensation is “remuneration for employment paid to, or on behalf of, the employee,” not within an exception.
Further, Wheeler is not apposite to the Employees’ hours threshold argument. There is a difference between what compensation is included in the regular rate and which hours count toward the FLSA overtime threshold. While the FLSA regular rate incorporates the negotiated compensation rate, the FLSA overtime threshold is defined in the statute itself. The Wheeler defendant argued that the plaintiffs agreed to take certain compensation out of the FLSA regular rate that, by statute, is part of that regular rate. Here, the City does not argue that the Employees agreed to give up anything to which they would otherwise be entitled under the FLSA. The FLSA does not provide a right to overtime until an employee has first worked forty hours; therefore, the City is not attempting to take away any compensation guaranteed by the FLSA.
The Proper Divisor When Calculating the Hourly Regular Rate
In this case, the first step in calculating the regular rate over a particular week is to total the week‘s straight time pay and add-ons. The parties disagree as to the second step: whether this total should be divided by the CBA‘s “normal workweek,” or the hours actually worked by the employee. Conceptually, the issue is whether the add-ons are additional compensation for forty hours9 worth of work, or whether they are additional compensation for all work an employee may do in a given week. If actual hours is used as the
Some courts have characterized longevity payments and other add-ons as “reflect[ing] the greater value of an experienced employee‘s labor.” See Scott v.
City of New York, 592 F. Supp. 2d 475, 488 (S.D.N.Y. 2008). If the add-ons are meant to compensate for additional value of each hour of labor, then it makes sense to compensate for this additional value in every overtime hour as well. See id. (“[T]he value of that experience is received by the employer for every hour that the employee works.“). The problem with this approach is that the CBAs do not discuss the add-ons in terms of an hourly rate increase; the add-ons are described as biweekly lump-sum payments and are not dependent on hours worked. Sums paid as a reward for service, “the amounts of which are not measured by or dependent on hours worked, production, or efficiency,” are not part of the regular rate.
According to DOL, “the regular hourly rate of pay of an employee is determined by dividing his total remuneration for employment (except statutory exclusions) in any workweek by the total number of hours actually worked by him in that workweek for which such compensation was paid.”
If the employee receives, in addition to his earnings at the hourly rate, a production bonus of $9.20, the regular hourly rate of pay is $6.20 an hour (46 hours at $6 yields $276; the addition of the $9.20 bonus makes a total of $285.20; this total divided by 46 hours yields a rate of $6.20). The employee is then entitled to be paid a total wage of $303.80 for 46 hours (46 hours at $6.20 plus 6 hours at $3.10, or 40 hours at $6.20 plus 6 hours at $9.30).
DOL views a lump-sum production bonus as general compensation rather than additional hourly compensation. This interpretation is consistent with the language of
The Employees argue that using an hours worked divisor causes the bonus to diminish as overtime increases. This is the case any time there is a fixed and hourly component to an employee‘s compensation. Absent evidence of an intent to manipulate compensation to avoid FLSA liability, this result does not violate the FLSA. See Helmerich & Payne, 323 U.S. at 42 (explaining that parties are free to set the regular rate through contract, but that the regular rate may not be calculated “in a wholly unrealistic and artificial manner so as to negate the statutory purposes [of the FLSA]“). It is also the result for which the parties bargained under the CBAs, because CBA overtime is based solely on the straight time rate. Under the CBAs’ overtime schemes, the value of the add-on payments decreases if an employee works overtime. Therefore, the Employees cannot claim that this result is unfair or surprising. Cf. Overnight Motor Transp. Co. v. Missel, 316 U.S. 572, 580 (1942) (stating that “the longer the hours the less the rate and the pay per hour” was not a persuasive argument against using hours worked to determine the regular rate of a salaried employee), superseded on other grounds by statute,
DOL‘s interpretation — that the proper divisor is hours worked — is consistent with the statutory language and is not illogical, unreasonable, or unfair. We find no reason to adopt a contrary position. Therefore, we hold that the FLSA hourly regular rate is calculated by dividing the relevant weekly compensation by the actual hours worked, rather than the normal workweek.
Proper Multiplier
The Employees contend that the City‘s use of a one-half multiplier, rather than one and one-half, violates the FLSA. The City uses a one-half multiplier because it first applies the regular rate to all hours worked. To the extent that the Employees argue that the FLSA requires that they receive the regular rate for all hours worked and the regular rate and one-half for overtime hours, such an
argument is without merit. Under that scenario, the Employees would receive two and one-half times the regular rate for each overtime hour worked, which is more than the one and one-half that the FLSA requires.
The same result is achieved if the City pays straight time for all hours and an additional one-half straight time on overtime hours, or if the City pays straight time for non-overtime hours and one and one-half straight time on overtime hours. To illustrate, assume that an employee‘s straight time pay is $10.00 an hour and he or she receives $55.00 in add-on pay each week. The employee works 44 hours in a particular week. To calculate the hourly regular rate for that week, divide the add-on by the total hours worked ($55.00/44 = $1.25) and add that to the straight time rate ($1.25 + $10.00 = $11.25).11
- ($11.25)(44) + (.5)($11.25)(4) = $495.00 + $22.50 = $517.50
- ($11.25)(40) + (1.5)($11.25)(4) = $450.00 + $67.50 = $517.50
This is because the two equations are mathematically the same.
- (x)(44) + (.5)(x)(4) = (x)(44) + (2)(x) = (46)(x)
- (x)(40) + (1.5)(x)(4) = (x)(40) + (6)(x) = (46)(x).
The City‘s use of a one-half multiplier does not violate the FLSA.
Credits
The Employees assert that the City is taking improper credits against its FLSA liability. If an employer actually pays an employee certain compensation
The district court ruled in the City‘s favor on this issue because the Employees failed to show that the City had any FLSA liability at all. Instead of pointing to evidence that the City improperly calculates FLSA credits, the Employees simply assert that this is so. They have not identified a single instance of an improper credit. In fact, they did not identify any actual FLSA underpayment at the summary judgment or trial phases of this matter. The Employees had ample opportunity to support their allegations of improper credits, but they failed to do so. Their credits claim fails.
IV
In summary, we hold the following: the City‘s dual calculation method does not violate the FLSA; buy-back of unused vacation time is not part of the FLSA regular rate; buy-back of unused sick time is part of the FLSA regular rate; paid time off does not count towards the FLSA overtime threshold; when calculating the hourly regular rate, weekly compensation is to be divided by total hours worked, rather than an employee‘s regular workweek; the City‘s use of a one-half multiplier does not violate the FLSA; and the City is not improperly taking credits against its FLSA liability.
Therefore, the district court‘s decision is affirmed in part and reversed in part. The decision is reversed with respect to the buy-back of vacation time, and the remainder is affirmed. This case is remanded for further proceedings not inconsistent with this opinion.
Notes
As used in this section the “regular rate” at which an employee is employed shall be deemed to include all remuneration for employment paid to, or on behalf of, the employee, but shall not be deemed to include--
(1) sums paid as gifts; payments in the nature of gifts made at Christmas time or on other special occasions, as a reward for service, the amounts of which are not measured by or dependent on hours worked, production, or efficiency;
(2) payments made for occasional periods when no work is performed due to vacation, holiday, illness, failure of the employer to provide sufficient work, or other similar cause; reasonable payments for traveling expenses, or other expenses, incurred by an employee in the furtherance of his employer‘s interests and properly reimbursable by the employer; and other similar payments to an employee which are not made as compensation for his hours of employment;
. . .
(5) extra compensation provided by a premium rate paid for certain hours worked by the employee in any day or workweek because such hours are hours worked in excess of eight in a day or in excess of the maximum workweek applicable to such employee under subsection (a) of this section or in excess of the employee‘s normal working hours or regular working hours, as the case may be;
(6) extra compensation provided by a premium rate paid for work by the employee on Saturdays, Sundays, holidays, or regular days of rest, or on the sixth or seventh day of the workweek, where such premium rate is not less than one and one-half times the rate established in good faith for like work performed in nonovertime hours on other days;
. . . .