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Reproduced with permission from Tax Management
Compensation Planning Journal, Vol. 46, 9, p. 149,
09/07/2018. Copyright 姝2018 by The Bureau of National
Affairs, Inc. (800-372-1033) http://www.bna.com
Post-Flores v. City of San
Gabriel: What Other
Benefits Should Employers
Be Wary Of?
By MJ Asensio, Esq., and Greta E. Cowart, Esq.
*
Flores v. City of San Gabriel altered the way em-
ployers consider opt-out payments to employees for
not taking health insurance.
1
The U.S. Court of Ap-
peals for the Ninth Circuit determined that opt-out
payments were required to be included in the regular
rate of pay for purposes of calculating overtime. The
Supreme Court denied the writ of certiorari in May
2017, allowing the decision to stand.
The case concerned police officers who were al-
lowed to opt out of purchasing medical benefits, as-
suming they provided proof of alternative medical
coverage. Those employees would choose not to use
funds from their flexible benefit plan to purchase
medical coverage and would receive an opt-out pay-
ment as an addition to their paycheck. These pay-
ments were designated as ‘‘cash in lieu’’ payments.
In 2012, employees brought a lawsuit against the
City of San Gabriel, alleging that their opt-out pay-
ments must be included in their regular rate of pay for
purposes of calculating overtime under the Fair Labor
Standards Act (FLSA), because the opt-out payments
were compensation, not benefits. The City countered
that the cash in lieu payments were excluded from the
regular rate under FLSA §207(e)(2) because they
were not compensation for an employee’s hours of
work. The City also argued that the payments were
part of a ‘‘bona fide’’ benefit plan and were excluded
from the regular rate under FLSA §207(e)(4). The
U.S. District Court for the Central District of Califor-
nia found that the cash in lieu payments must be in-
cluded in the calculation of the regular rate of pay for
purposes of overtime.
On appeal, the Ninth Circuit held that the payments
must be included in the regular rate of pay, rejecting
the City’s arguments. The Ninth Circuit said that pay-
ments not directly related to any particular hours
worked but generally understood to be compensation
for services are not excluded. Also, the payments
were paid directly to the employees, so they were not
excludable, the court said. Finally, the court said the
benefit plan was not a ‘‘bona fide’’ benefits plan be-
cause 40% or more of the City’s total contributions
were paid directly to employees.
‘‘REGULAR RATE OF PAY’’ AS
DEFINED BY THE FLSA
Under the FLSA, the ‘‘regular rate’’ is defined as all
remuneration for employment paid to, or on behalf of,
an employee subject to certain statutory exclusions.
2
•§207(e)(1): Exempts sums and payments made as
gifts for special occasions or as a reward for ser-
vice, ‘‘which are not measured by or dependent
on the hours worked, production, or efficiency.’’
*
MJ Asensio is a nationally recognized labor relations practi-
tioner at Baker & Hostetler LLP, in Columbus, Ohio, representing
clients in the healthcare, aerospace, transportation, manufacturing,
and energy industries. He brings 30 years of experience to the
table handling negotiations, work stoppages, labor arbitration, em-
ployment ligation, executive compensation, and employment
counseling. He is a frequent lecturer and commentator on labor
matters who has been interviewed by numerous media publica-
tions.
Greta E. Cowart is a shareholder with Winstead PC in Dallas.
She practices in and has 30 years of experience in the areas of
employee benefits, tax, and executive and deferred compensation
with a focus on health and welfare and retirement benefits. She is
a frequent speaker and author on employee benefits. She was for-
tunate to be part of a very talented law school class that included
Mike Asensio.
Copyright 娀2018 Greta E. Cowart, Mike Asensio. All Rights
Reserved.
1
(2017).
2
29 C.F.R. §778.108; Bay Ridge Operating Co. v. Aaron, 334
U.S. 446 (1948) and Walling v. Youngerman-Reynolds Hardwood
Co., 325 U.S. 419 (1948).
Tax Management Compensation Planning Journal
姝2018 Tax Management Inc., a subsidiary of The Bureau of NationalAffairs, Inc. 1
ISSN 0747-8607
