On May 22, 2015, a federal District Court ruled that the City of Sanger violated the federal Fair Labor Standards Act (FLSA) by failing to properly compute the overtime rate for its police officers.  The Court’s order is groundbreaking, as it expands the definition of what must be included in the overtime rate of pay.  It further means that the City must immediately recalculate the overtime rate of pay for every sworn peace officer employed by the City going back three years.  Attorney Michael McGill represented the Sanger POA and its members throughout the litigation, and is the first attorney in the state of California and the Ninth Circuit, to prevail on the issue presented.    

The FLSA requires an employer to pay its non-exempt employees premium overtime compensation at one and one-half times their “regular rate” of pay.  29 U.S.C. § 207(a)(1).  As a matter of law, generally every extra incentive pay, whether it is paid as a percentage of salary or a flat dollar amount, must be included in that overtime “regular rate” of pay.  Under the FLSA, there is a presumption that any monies paid (excluding overtime) to an employee in any form, must be included in the regular rate calculation.  

In Sanger, the officers receive a 5% merit pay, which is given to the members simply for receiving a satisfactory annual evaluation.  The Court easily found that this incentive must be included in the regular rate, as there was no exemption that would exclude it.  

However, the more controversial part of the ruling is that officers (and all city employees for that matter) also are eligible to receive a “cash in lieu” of their medical insurance.  In other words, officers who decide to opt out of the City’s medical insurance, could receive a monetary cash out in their pay check.  This structure is common with most public employers, and many employees take advantage of it.  The cash out value appears in their regular pay check and the member is taxed on the payment.  

As a recognized expert on the FLSA, attorney Michael McGill had previously questioned the common practice of why cities and counties fail to include this cash out value in the overtime rate of pay.  Disregarding conventional wisdom and unhappy with the status quo, attorney McGill sought to clarify the law.  And in the May 22, 2015 Court’s ruling, he did just that.  The Court sided with the employees and ruled that the cash out value must be treated as any other income and must be included in the regular rate of pay.

Finally, the Court awarded liquidated damages, or double damages, to the officers.  “An employer who violates the law is liable not only for unpaid overtime compensation but also in an additional equal amount as liquidated damages.”  29 U.S.C. § 216(b).  The Court awarded liquidated damages based on the presentation of evidence that the City did not act in “good faith” and that it did not have “reasonable grounds” for believing that it was not violating the FLSA.  

The impacts of this ruling are important to note.  Most public employers do not include the cash out value of medical insurance in the overtime rate of pay.  Thus, most public employers are in violation of the FLSA and could be exposed to costly litigation.  It is imperative that you contact Adams Ferrone & Ferrone to determine what your rights are and to develop a comprehensive plan as to how to best deal with your unique situation.  The Sanger Police Officers’ Association feels vindicated in that the City now must comply with the law in the payment of their overtime wages.  They would like to thank attorney Michael McGill for his success in prosecuting their case.    

ABOUT THE FIRM: Adams, Ferrone & Ferrone serves as general counsel to over 100 public safety associations in California, and has successfully prosecuted numerous FLSA actions against employers throughout the state.     

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