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.
Paul Livingston, Attorney at Law, Placitas, New Mexico, (Sam Bregman and Eric Loman of Bregman & Loman, P.C., Albuquerque, New Mexico, with him on the briefs), for Plaintiffs-Appellants and Cross-Appellees.
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
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.”
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
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
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 FLSA regular rate for a certain pay period, the City multiplies the total hours worked by the straight time rate and adds the add-on payments. This sum is divided by the total number of hours worked, and the quotient is the hourly regular rate. Total FLSA wages are calculated by multiplying the hourly regular rate by total hours worked (paying the regular rate for each hour worked) and then adding one-half the regular rate multiplied by overtime hours (adding an overtime premium for the extra hours). The City does not count hours of paid leave towards the FLSA overtime threshold. Thus, under the City‘s calculations, an employee is not entitled to FLSA overtime unless he or she actually works more than forty hours in a week.
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 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
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.
Dual Calculation Method
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
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
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.
Compensation for vacation and sick days that are actually taken is not part
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 .
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.”
The Sixth and Eighth Circuit have considered the buy-back of sick time, but have reached conflicting conclusions. Compare Acton v. City of Columbia, Mo., 436 F.3d 969 (8th Cir. 2006) (holding that sick time buy-back must be included in the regular rate) with Featsent v. City of Youngstown, 70 F.3d 900 (6th Cir. 1995) (holding that sick time buy-back is not part of the regular rate). In Featsent, the Sixth Circuit held that sick time buy-back did not need to be included in police officers’ regular rates because:
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
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
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
The DOL‘s position is that FLSA overtime applies only to hours actually worked.
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, and similar add-ons, but did not state that these would be included in the regular rate. The plaintiff police officers argued that the defendant township violated the FLSA because it did not include add-on payments in the regular rate. In response, the township “argued that the Officers traded their right to have [add-on] pay added to their basic annual salary in the CBA‘s overtime calculation in exchange for the inclusion of non-work pay, which is not required under the FLSA.” Id. at 241.
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
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
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 divisor, the value of the add-ons decreases as an employee works more overtime. If the normal workweek is used, an employee would receive additional add-ons for each overtime hour worked. We hold that the proper divisor is the actual hours worked.
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.
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
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
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 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
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;
. . . .