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San Diego to Pay $3.4 Million to Settle Firefighters’ Overtime Claims

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Unanswered questions remain about calculation of workweek

San Diego, CAOn February 8, the U.S. District Court for the Southern District of California approved a proposed settlement of Kelley v. City of San Diego. The settlement ends a class action California labor lawsuit brought by San Diego firefighters who claim that their overtime payments were miscalculated under the provisions of the Fair Labor Standards Act. Under the terms of the settlement, San Diego will pay $1.575 million in back overtime and $1.575 million in liquidated damages as well as attorneys' fees and costs.

Did cash payments in lieu of flex plan benefits count toward overtime?      

The plaintiff firefighters were permitted to receive cash compensation in lieu of contributions towards the cost of their health insurance benefit coverage. They argued that they were consequently entitled to overtime compensation calculated on the basis of a “regular rate of pay” that included the flexible benefit contributions that they received as cash.

The FLSA requires that wage workers receive overtime pay for hours worked over 40 in a workweek at a rate not less than time and one-half their regular rates of pay. Thus, the calculation of the basic regular rate of pay is important; the greater the regular rate, the higher the amount of overtime.

The formula for calculating the regular rate is:

Total compensation in the workweek (except for statutory exclusions) ÷ Total hours worked in the workweek = Regular Rate for the workweek.

Ultimately, what initially appears to be a simple mathematical formula can become quite complicated because of all the moving parts.

Three big questions

Three big questions that regularly figure in wage disputes that are litigated under California wage and hour law and federal law are:
  • How to count hours;
  • What constitutes compensation; and
  • What is a workweek.
These are the issues that California workers must watch closely.

Many California labor lawsuits have focused on the first issue – how to count hours. This was at the center of recent decisions that, for example, have required employers to pay for the time that workers must spend going through mandatory security checks or time spent “on call.” Employers may not require employees to do even brief tasks “off-the-clock.”

Kelley focuses primarily on the second question – what counts as compensation. The firefighters’ argument relies heavily on the Ninth Circuit’s decision in in Flores v. City of San Gabriel. In Flores, the Court held that an employer must include cash payments made in lieu of benefits when calculating an employee’s overtime pay under the FLSA. But the situation is much muddier than that, which is likely why the Southern District of California approved the settlement.

What is a “workweek?”

Secondarily, Kelley also claims that San Diego violated the FLSA by implementing a pay system called “Cycle Time.” According to the complaint, Cycle Time is an averaging tool the city utilizes in lieu of paying firefighters for all hours worked every work period. This goes to the “workweek” factor used in the calculation above – the third question.

According to the Complaint, San Diego adopted a 28-day work period, which is an exception permitted under the FLSA. Under that exception, the city was required pay overtime when the firefighters worked more than 212 hours in the 28-day cycle.

In three twenty-eight-day work periods the firefighters worked two nine-shift work cycles (216 hours each) and one ten-shift work cycle (240 hours). In order to account for a consistent pay system, the city averaged time by subtracting eight hours from four consecutive paychecks and adding sixteen hours to two consecutive paychecks. The city calculated the regular rate of pay by dividing all remuneration by 224 hours, the average number of hours worked over three work periods. This system allegedly had the effect of failing to properly count all hours worked by firefighters for the pay periods in which the city subtracted eight hours from the actual work hours.

Pros and cons of settlement        

The settlement has the advantage for both parties of avoiding a drawn-out lawsuit. The firefighters will receive an amount of money designed to compensate them for the overtime they allegedly missed. In addition, they will receive liquidated damages, which are intended to take the place of the damages they might have received had they prevailed in a trial.

The disadvantage, however, is that workers have no answer to the question of whether the averaging system used by San Diego, or a similar system that might be used by employers in the future complies with the FLSA. This, presumably, will have to wait for future labor lawsuits.


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