Court Finds that Overtime Calculations Must Include Cash-In-Lieu of Benefits Payments

On May 15, 2017, the United States Supreme Court declined to review a case in which the Ninth Circuit Court of Appeals ruled that “cash-in-lieu of benefits payments” must be included in overtime calculations. By declining to review, the Supreme Court leaves intact the Ninth Circuit ruling.

The city of San Gabriel had provided a Flexible Benefits Plan to its employees in which employees received money to purchase medical, dental, and vision benefits. The city required that a portion of this amount go to the purchasing of benefits. If an employee could show that he or she had alternate medical coverage, such as through a spouse, then the remaining portion would be added to his or her regular paycheck. This addition is considered the “cash-in-lieu of benefits payment.”

The case, Flores v. City of San Gabriel, 824 F.3d 890 (9th Cir. 2016), involved police officers bringing a lawsuit against the city of San Gabriel for violating the FLSA. Specifically, the police officers alleged that the city willfully violated the FLSA by excluding cash-in-lieu of benefits payments from their regular rate of pay calculations. As a result, police officers argued that their overtime compensation was unduly low.

The Ninth Circuit ruled that the cash-in-lieu of benefits payments must be included in overtime calculations. The decision hinged on statutory interpretation, and the Court focused on whether the payments were considered compensation for work, regardless of whether the payments were attributable to specific hours that the police officers worked.

The significance of this decision is that cash payments made to employees for opting-out of benefits coverage should be included in overtime calculations. And further, it is a signal that courts can interpret the FLSA to include compensation for work in overtime calculations.