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D.Mass.: Personal Day Buy-Back, Yearly Sick Day Incentive Pay, Yearly Sick Leave Buy-Back Pay And Sick Leave Buy-Back Upon Separation Must Be Included In Officers’ “Regular Rate” Under The FLSA
Lemieux v. City of Holyoke
This case was before the Court on several cross-motions regarding a variety of issues arising from the application of various principles of the FLSA. As discussed here, the Court determined that several types of incentive and “buy-back” pay necessarily had to be included in the plaintiffs’ “regular rate” of pay (and resulting overtime rates).
Discussing the issue of whether such pay need be included in the plaintiff-employees regular rate of pay under the FLSA, the Court held:
“Because the FLSA requires overtime compensation to be paid at “a rate not less than one and one-half times the regular rate at which [an employee] is employed,” 29 U.S.C. § 207(a), “[c]alculation of the correct ‘regular rate’ is the linchpin of the FLSA overtime requirement.” O’Brien, 350 F.3d at 294. Under the terms of the CBA, Holyoke firefighters, in certain circumstances, are entitled to receive augments to their base salary. At issue is whether the FLSA requires Defendants to include eight of these contractual remunerations-yearly personal day buy-back; yearly sick day incentive pay; yearly sick leave buy-back pay; sick leave buy-back upon retirement, resignation, or death; vacation buy-back upon retirement; yearly holiday pay; detail pay; and Student Awareness of Fire Education (“SAFE”) pay-in Plaintiffs’ “regular rate” for the purpose of calculating overtime compensation. Plaintiffs argue that the statute requires this; Defendants argue that it does not.
The FLSA defines “regular rate” to include “all remuneration for employment paid to, or on behalf of, the employee” unless it falls under one of the eight expressly provided exclusions listed in paragraphs (1) through (8) of subsection (e) of the FLSA. 29 U.S.C. § 207(e)(1)-(8). This “list of exceptions is exhaustive, the exceptions are to be interpreted narrowly against the employer, and the employer bears the burden of showing that an exception applies.” O’Brien, 350 F.3d at 294 (citations omitted).
For the reasons that follow, the court holds that Defendants are obligated to include yearly personal day buy-back, yearly sick day incentive pay, yearly sick leave buy-back pay, and sick leave buy-back upon retirement, resignation, or death in the officers’ “regular rate” under the FLSA.
a. Buy-Back Provisions.
The CBA entitles Holyoke firefighters, subject to certain conditions, to sell back to the city sick leave time, vacation time, personal time, and holiday time that they have accrued but not used. Plaintiffs argue that the city is required to include the value of these “buy-backs” in the “regular rate” because they are renumeration not falling under any of the exceptions listed in 207(e)(1)-(8). Defendants contend that none of these buy-backs are paid as compensation for Holyoke firefighters’ hours of employment, and that they are all, therefore, excludable under section 207(e)(2).
Section 207(e)(2) provides that “payments made for occasional periods when no work is performed due to vacation, holiday, illness, … or other similar cause; … [or] other similar payments to an employee which are not made as compensation for his hours of employment” are excludable from the “regular rate.” 29 U.S.C. § 207(e)(2). It is plain that the value of the accrued time in dispute, if utilized by the firefighters for its intended purpose, would be excluded under 207(e)(2). The question before the court is whether a lump sum payment, keyed to time accrued for the causes listed in section 207(e)(2), although paid later under a buy-back program, is also excludable under that section.
i. Holiday and vacation time buy-back.
As to payments for accrued holiday and vacation time, the law is clear that these payments are excludable under section 207(e)(2) regardless of whether they are paid contemporaneously for days missed or are deferred and paid in a lump sum. Department of Labor Regulations explicitly provide that the 207(e)(2) exclusion applies even when an employee foregoes a day off but still receives the pay. 29 C.F.R. § 778.219(a). Accordingly, holiday and vacation buy-back payments are excluded under section 207(e)(2) and need not be included in the regular rate under the FLSA.
ii. Personal time buy-back.
Similarly, buy-back payments for personal time are excludable from the regular rate under the FLSA. Personal time, like holiday and vacation time, is paid idle time which, subject to scheduling restrictions, may be used by firefighters at their discretion as a matter of right. Therefore, personal time buy-back payments are excludable under section 207(e)(2). 29 C.F.R. § 778.219(a).
However, one wrinkle remains. Under the terms of the CBA, unused personal time is cashed in at one hundred and ten percent (110%) of that year’s rate. (CBA ¶ 33.0(D)). It appears that this ten percent premium represents an incentive bonus for employees who forego taking personal days. Because the express terms of CBA make this ten percent bonus non-discretionary, see id. (“[t]he payout shall occur in January of the following year”), it must be included in the “regular rate” under the FLSA. 29 U.S.C. § 7(e)(3)(a); 29 C.F.R. 778.211(c). See also Walling v. Harnischfeger Corp., 325 U.S. 427, 431 (U.S.1945) (noting that employees “who receive incentive bonuses in addition to their guaranteed base pay clearly receive a greater regular rate than the minimum base rate”).
iii. Sick leave buy-back.
The slightly more difficult question concerns whether remuneration in the form of buy-back payments for unused sick leave time is includable in the “regular rate” under the FLSA. Article 11 of the CBA provides Holyoke firefighters with three opportunities to sell accrued but unused sick leave time back to the city. Unlike vacation and holiday time, the Department of Labor regulations do not address whether section 207(e)(2) excludes the value of deferred sick leave time from the FLSA’s regular rate. See 29 C.F.R. § 778.219(a) (discussing only vacation and holiday pay).
In a closely analogous case, however, the Eighth Circuit has held that “sick leave buy-back monies constitute remuneration for employment” because “in contrast to § 207(e)(2) payments, [they] are awarded to employees for coming to work consistently, not for work that was never performed.” Acton v. City of Columbia, 436 F.3d 969, 977 (8th Cir.2006). In so holding, the Acton court reasoned 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” and concluded that the buy-back payments awarded to employees for not using accrued sick leave were akin to non-discretionary bonuses that compensated them for fulfilling their general attendance duties. Id. at 979.
This interpretation has not been adopted by all courts. The Sixth Circuit, in a case cited by Defendants, has come to the opposite conclusion, holding simply 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) ].” Featsent v. City of Youngstown, 70 F.3d 900, 905 (6th Cir.1995). The First Circuit, for its part, has yet to weigh in on the issue.
Having considered all of the available authority, the court finds the reasoning of Acton persuasive. Here, as in Acton, firefighters must have worked for a period of time sufficient to accumulate a certain amount of leave in order to qualify for buy-back pay. Moreover, by its own terms, the CBA refers to its various sick leave buy-back provisions as “incentive days” and “sick leave buy back bonuses.” These facts militate toward the conclusion that sick leave buy-back payments provided for in the CBA are more akin to non-discretionary incentive bonuses includable under 29 C.F.R. 778.211(c) than remuneration for work that was never performed and therefore excludable under 207(e)(2). See 29 C.F.R. 778.211 (expressly including “[a]ttendance bonuses” in the regular rate of pay). It is also pertinent that this position has been adopted by the Department of Labor in a 2009 wage and hour opinion letter, 2009 DOLWH LEXIS 23 (DOLWH 2009). Finally, the court finds this position to be the most consistent with the First Circuit’s gloss on section 207(e), that its “exceptions are to be interpreted narrowly against the employer….” O’Brien, 350 F.3d at 294.
For these reasons, the court finds that sick leave buy-back pay is remuneration that must be included in the calculation of the FLSA regular rate of pay.
b. Off Duty/Detail pay.
In addition to their regular duties, some Plaintiffs perform additional outside work-referred to as “details” or “off-duty work”-that is assigned to them on a voluntary basis when they are not regularly scheduled to be on duty. The FLSA is clear that “special detail” compensation for hours worked on behalf of “separate and independent” employers is excludable from the calculation of FLSA overtime. 29 U.S.C. § 207(p). Department of Labor regulations specify that the hours worked for another entity will be exempt under § 207(p)(1)‘s special detail work exemption so long as (1) the special detail assignment is undertaken and performed solely at the employee’s option, and (2) the two employers are “in fact separate and independent.” 29 C.F.R. § 553.227(b). See also Nolan v. City of Chicago, 125 F.Supp.2d 324, 336 (N.D.Ill.2000).
Plaintiffs do not dispute that a Holyoke firefighter’s decision to perform off-duty detail work is purely voluntary. Their sole contention is that the outside vendors for whom they perform duty work are not, in fact, separate and independent because: (1) when firefighters perform duty work, they receive payment via their regular payroll check; (2) the amount of pay received by firefighters for detail work is non-negotiable (except by the Union during collective bargaining); (3) firefighters do not receive insurance benefits or retirement benefits, or worker’s compensation from the third-party vendors; and (4) firefighters are required to wear their uniforms while working detail or off duty.
Each of these assertions, however, is contrary to the applicable Department of Labor regulations which provide:
The primary employer may facilitate the employment or affect the conditions of employment of such employees. For example, a police department may maintain a roster of officers who wish to perform such work. The department may also select the officers for special details from a list of those wishing to participate, negotiate their pay, and retain a fee for administrative expenses. The department may require that the separate and independent employer pay the fee for such services directly to the department, and establish procedures for the officers to receive their pay for the special details through the agency’s payroll system. Finally, the department may require that the officers observe their normal standards of conduct during such details and take disciplinary action against those who fail to do so. 29 C.F.R. § 553.227(d) (emphasis added).
Accordingly, the FLSA does not require that Plaintiffs’ “detail” work be included in the calculation of the regular rate of pay.
c. Student Awareness of Fire Education (“SAFE”) Pay.
Some Holyoke firefighters receive pay for fire prevention and education duties performed under the grant-funded Student Awareness of Fire Education (“SAFE”) program. SAFE work performed while a firefighter is on regularly scheduled duty is compensated at the standard contractual rate of pay, while SAFE work performed outside of a firefighter’s regular duty cycle is compensated as overtime at one and one half times the contractual rate of pay. (Dkt. No. 157, Ex. D, LaFond Dep. 37: 8-18.
Here, to the degree that SAFE payments represent additional remuneration at all (i.e., to the degree that they are not already included in Plaintiffs’ regular pay), they are excludable from the regular rate under sections 207(e)(5) and (7) of the FLSA. Each of these provisions permits employers to exclude properly compensated overtime payments from the “regular rate” of pay under the FLSA. See 29 U.S.C. § 207(e)(5) (excluding “extra compensation provided by a premium rate paid for certain hours … in excess of the employee’s normal working hours or regular working hours”); 29 U.S.C. § 207(e)(7) (excluding time and a half compensation “for work outside of the hours established in good faith by the contract or agreement as the basic, normal, or regular workday”). See also 29 C.F.R. 778.202. Because, as the record demonstrates, SAFE work performed outside of a firefighter’s regular duty cycle is already compensated as overtime, the FLSA does not require that Defendants include such time in the calculation of the FLSA’s regular rate of pay.”
Although the Court addressed issues that rarely come up in the context of FLSA litigation, its reliance on the general principle that any type of compensation not specifically excluded from calculating an employee’s regular rate under the FLSA must necessarily be included is instructive to employers who use any type of incentive or bonus pay.
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