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Home » Regular Rate » N.D.Cal.: “Annual Leave” Buy-Back, Consisting of Both Vacation and Sick Leave, Need Not Be Included in Regular Rate (or OT) Calculations

N.D.Cal.: “Annual Leave” Buy-Back, Consisting of Both Vacation and Sick Leave, Need Not Be Included in Regular Rate (or OT) Calculations

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Andrew Frisch

Balisteri v. Menlo Park Fire Protection Dist.

This case was before the court on the parties’ cross-motions for summary judgment. Plaintiffs asserted 2 distinct claims: one for time spent donning and doffing their firefighter uniforms for temporary assignment, and one based on their assertion that defendant erred in failing to include payments made for buy-back of “Annual Leave” in their regular rates (and corresponding overtime rates). As discussed here, the court granted the defendant’s motion and held that the “Annual Leave” buy-back need not be included in the calculation of plaintiffs’ regular rate, while denying plaintiffs’ motion. In so doing the court distinguished the case from others reaching the opposite conclusion regarding a similar issue.

The court framed the issue as follows:

Plaintiffs’ second claim alleges that Defendant violated the FLSA by failing to include Annual Leave buy-backs for unused “sick leave” in their regular rate of pay which, in turn, negatively affected their overtime pay. The FLSA requires employers to pay their employees overtime based on one and a half times the employee’s “regular rate” for hours worked in excess of 40 hours a week. 29 U.S.C. § 207(a)(2)(c). The “regular rate” of pay “at which an employee is employed shall be deemed to include all remuneration for employment paid to, or on behalf of, the employee,” subject to certain enumerated exceptions. Id. § 207(e). One exception is for payments made for periods when no work is performed. Id. § 207(e)(2). The exception states that the regular rate should not include:

Payments for occasional periods when no work is performed due to vacation, holiday, illnesses, failure of the employer to provide sufficient work, or other similar cause …; and other similar payments to an employee which are not made as compensation for his hours of employment.

Id. (emphasis added). The regulations implementing this exclusion reiterate that when an employee is not at work due to vacation or illness but nonetheless is paid, said payment need not be used in calculating the employee’s regulate or overtime rate of pay. 29 C.F.R. § 778.218(a). The exclusion also applies when an employee foregoes a vacation but still receives vacation pay in addition to his or her customary pay for all hours worked. Id. § 779.218(a); see Chavez v. City of Albuquerque, 630 F.3d 1300, 1307–309 (10th Cir.2011) (citing, inter alia, 29 C.F.R § 779.218(a) and holding that “vacation buy back-payments are not part of the regular rate.”).

Discussing the relevant law, the court explained:

The Ninth Circuit has not yet addressed the issue of whether buy-back compensation for unused sick leave must be included in an employee’s regular rate for purposes of the FLSA, and other circuits are split on the issue. In Featsent v. City of Youngstown, 70 F.3d 900 (6th Cir.1995), the Sixth Circuit held that a cash-out for unused sick leave is not pay for hours worked, and need not be included in the employee’s regular rate. Id. at 905. The court reasoned that “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” under 29 U.S.C. § 207(e)(2). Id. In contrast, the Eighth Circuit in Acton v. Columbia, 436 F.3d 969 (8th Cir.2006) reached the opposite conclusion. In its analysis, the Acton court relied on 29 U.S.C. § 207(e), which requires money paid for general or specific work-related duties to be included in the regular rate of pay. Id. at 976–77. Noting 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,” the court concluded that work attendance was a specific work-related duty and that the buy-back payments must be included as remuneration for employment. Id. at 977.

Following Action, as well as a Department of Labor interpretive bulletin, the Tenth Circuit in Chavez held that sick leave buy-backs—but not vacation buy-backs—must be included in the regular rate. 630 F.3d at 1309;
see U.S. Dept. of Labor, Wage and Hour Opinion Letter FLSA–2009–10, dated Jan. 16, 2009,
2009 WL 649021. The Chavez court explained this distinction as follows:

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. 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 attendance that provide additional value to an employer. Thus, sick leave buy-backs are compensation for additional service or value received by the employer, and are analogous to attendance bonuses. In contrast, payments for non-use of vacation days are analogous to holiday work premiums or bonuses for working particular undesirable days.

Id. at 1309–1310.

Rejecting plaintiffs’ assertion that the payments at issue must be included in the regular rate calculations and distinguishing out-of-circuit case law, the court reasoned:

Plaintiffs urge the Court to follow Acton and Chavez and to find that the District’s buy-backs under its Annual Leave program should have been included in Plaintiff’s regular rate. The Court disagrees. Both of those cases involved dedicated buy-back programs specifically for sick time. This case is different. The District no longer separates sick leave from vacation time. Rather, the District now maintains an Annual Leave program which makes no distinction between vacation or sick time when time is withdrawn from the Annual Leave Bank. As discussed, under the terms of the governing MOU, Annual Leave accrues pursuant to separate formulas for “sick leave” and “vacation.” MOU § 10.1 & Ex. B. However, once sick leave and vacation time have accrued, they are deposited into an Annual Leave Bank. Once in the Annual Leave Bank, the employee’s accrued time is simply treated as Annual Leave, which can be used for both unscheduled and scheduled absences. In other words, an employee may use his or her Annual Leave without regard to the reason the employee is taking time off. Thus, unlike the sick leave buy-back program in Chavez, the District’s buy-back of annual leave does not “reward[ ] an employee for consistent and as-scheduled attendance” and is not “analogous to attendance bonuses.” 630 F.3d at 1309–310.

The court rejected plaintiffs argument regarding the significance of the fact that under the MOU, leave time accrues separately on either the vacation or sick leave schedule, and that when time is debited from the Annual Leave Bank, it is classified as either “annual level scheduled” or “annual leave unscheduled.” The court also questioned the significance of the fact that the hours accrued at the vacation rate are segregated into an Annual Leave Restricted Bank until they can be scheduled and used. Because no deductions could be made from the Annual Leave Restricted Bank nor does the District buy-back any leave in that bank. Id. Instead, only at the end of the calendar year in which the leave accrued are those hours are rolled in the Annual Leave Bank where they can be used for any purpose. Finally, the court dismissed plaintiffs argument that, as a practical matter, the “vast majority” of them use their Annual Leave for scheduled absences, meaning that any leftover hours cashed-out are, in effect, for sick leave, due to the lack of evidence in support of this proposition.

Click Balisteri v. Menlo Park Fire Protection Dist. to read the Order Granting Defendant’s Motion for Summary Judgment, and Denying Plaintiffs’ Motion for Summary Judgment.

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