care the cash payments that are made to employees who opt out of receiving health insurance should be included in the regular rate of pay for overtime purposes and we believe that that that was an error by the court to sit  to rule that out amount should should be treated in clued in the regular rate of pay because that amount is not compensation for specific hours of work or for specific services performed and therefore it falls  squarely within the exclusion or the the list that is set forth in the full essay in section two zero seven subdivision eat two what was it four what was the payment you  know the payment was for employees who employees were provided with a certain amount of money for their employee benefits and they were required to purchase health insurance unless they had health insurance from an alternative source so in this situation employees who already had health insurance through a spouse most likely but but could show proof of health insurance from another source were given the money the city would have contributed to the to the health insurer as a as a payment was the value of the health insurance considers taxable to the employees yes it was but in our view of the fact that was taxable there are certain types of expense payments for example that are considered taxable to employees but are not included in the regular rate if they hadn't taken the money was the value of the benefit taxable i know it was not in our view that now  that that mandates that it has to go into the regular rate of pay and in particular the section two hundred seventy two excludes payments any type of payment that is not made for specific hours of employment and there are several cases that support that position the reich side is in a breach of the right case in which there were in that case the court found that certain types of earned salary credits did go in the regular rate because those particular types of payments were essentially bad shift pay is that you're leaving case the right case well i think actually the local to  the signing boat bonus is not related to the hours of employment and we think that that case is more similar to the facts here because the employees in this case received their had the cash  loo for opting out of health insurance regardless of how much they work what position they worked what type of work they did it's not that it's not the same thing as a night shift differential some type of premium for working a particular type of position it really  has nothing to do with their actual simon their actual hours of work it's more of the type of benefit that employers provide to employees that's part of the job it's there are other benefits like for example paying for  parking provide paying for employees uniform and paying for different types of benefits and in this case it would operate to the employees detriment two for the  court to rule that this cash in lieu should be included in the regular rate because the employer doesn't have to give this money back to employees and it could take the position that employees who have who have who health insurance will get employer provided health insurance employees who don't will not get it option that orders do that they they could yes i mean that would be an incentive though if that amount was included it was  that you're freed from complying with federal law or the principle that no good deed goes on i mean i understand the city's feeling in that regard but you still got to comply with federal law i don't matter how generous you choose to be we're not disputing that you have to comply with federal law but i think from about from a policy standpoint saying that that amount should be included in regular rate it's consistent with the statutory framework which is which the language specifically says other similar payments that are not intended as compensation for hours worked but there is an antecedent principle a canon right and that's the plain reading plain language canon  law in the regulations here and you have a burden to prove clearly and convincingly that occasion of an exclusion or exemption well i would disagree that the language that this is an exemption this is a it's the l definition if you don't think you have a burden on that well you know we have a burden to show that this payment is does not go into the regular rate i would agree that the city does does have to meet that burden but i think when you look at the you mention the plain language of the statute and when you look at the plain language of the statute and particularly the section we believe it applies to a section two of seven a list three different types of payments that are excluded from regular rate and it mentions vacation or other periods when no work is performed it mentions expenses and then it has a third category which is the one that we believe this payment falls under for other similar payments that are not compensation for hours of employment and i think one of the reasons that congress included that language there is because in so many different types of job there are there are these different types of payments that you know every company has has sort of different forms of payments and they couldn't list every type of payment in the statute and in fact in one thousand thirty seven when when this was drafted and it went into effect in one nine hundred thirty eight there was  no cash cash in lieu of health insurance was a foreign concept at that point it's become much more prevalent in recent years as you have families that have multiple wage earners who don't wind up not needing necessarily health insurance but the health insurance is that type of payment like an expense like some other type of payment that is not specifically for hours worked or were particular shifts worked i think the feet sent case also address that that was a case where some of the payments were found to go into the regular rate of pay and some were not and in particular in that case the medical claim bonus was excluded from the regular rate of pay because it wasn't tied to specific hours of work or hours of service let's assume for for just a second that we don't agree with you i have a problem with the district court's conclusion that your side showed  good faith in making this determination because i don't see anything that suggests that your side did make this determination i mean you've got to show good faith and reasonable grounds to believe in what i'd like to know is what did you do what the the city do to make the make the determination that you're trying to get us to buy into today what the city did in regards to good faith was when it first offered this benefit in one thousand nine hundred three it looked at the benefit and it determined that that this was in fact  benefit it wasn't a premium for hours worked and therefore decided doesn't go to the regular right of nor does the record show that you actually looked into this and made a determination the it is in the undisputed decide the city decided to do what the city do though it seems to be the city just sort of knee jerk then to the whole thing benefit doesn't go into it didn't look into it seems the cases require some kind of affirmative action on your part in order to to be able to support this you've got to show that you actually endeavored to ensure compliance and i'm not seeing anything that suggests that well i think if you are you a city attorney just gave to the city of san gabriel  have a city attorney yes it does did they turn to the city attorney for an opinion on something like this no they did not to my knowledge why not i mean wouldn't that be something that ought to be done in a situation like this where cash is going to employees and that that triggers this idea of how  calculate the overtime rate and i mean it seems that it seems that your side i'm not criticizing you but it seems that your side did nothing well i think in response your question there's at the cities and everyone other cities there's dozens of different payments that go it's not just one or two so i mean and as a practical matter employers don't go to their legal counsel and ask every single type of benefit or payment whether or not that's including our days race to under the f l s in order to get something to show some kind of good faith you got to show that you acted in good faith and you had a reason why grounds to believe and i'm not finding anything that suggests that you had a reasonable ground to believe that this was correct you just automatically jump from a label to a conclusion well if you're suggesting you have to ask your legal counsel for an opinion under awful a say i don't believe good for my master you but you didn't so what who did you ask what did you do woman who is the person who made the decision that this is the way it ought to go you simply say the city looked at it i mean that to me that leaves me in the dark well i was  a human resources a fishel human resources official yes a lawyer no is this the deposition testimony that's in the record you're referring to yes it is ok so aside from that deposition testimony is there anything else to get the judge trots question showing that the city of san gabriel actively endeavored to get an answer to this question to this specific question other than that no so doesn't that suggest that you don't have any ground to stand on is the city's burden to establish good faith and it seems that there's nothing to support it well i would disagree that the it i guess it depends on to what extent the court believes that the links the city had to go to but in this situation the city as a received regular updates on the law and from various publications that they would follow and there was never any indication in any of those documents that this type of specific payment should be included in regular rate of pay you have any authority i shall use authority that would show those types of actions were in fact meets the act actively endeavoring standard not specifically but i mean the good faith it requires a subject of an object of component here and from an object of standpoint also i point out that there simply aren't there's not a single case on this issue right but it seems to me that your god that we're kind of conflating two things there's there's good faith and there's willfulness and i agree and that's my question for the other side is going to be on willfulness what you described to me shows no willfulness because no one ever told them what they did was wrong but for good faith as the case law  it it has to be you actually reach out and say this is what we're doing is this does this sound ok and i guess what you're saying is that that is far you know that didn't happen they didn't hear any bad news no one told them anything was wrong but you can't point to where they actually reached out to some of the department of labor reached out to the city attorney or someone not very knowledgeable like yourself on this question that's the way you describe the facts is correct  enough lack of bad faith isn't enough general good faith isn't enough there has to be something more than that accorded alvarez in the other cases is that right yes that's that's correct that they talk about there has to be an employer has to believe they're in compliance and that belief asked to be human resources person whose job was to determine look at each payroll item as it came in and figure out is this something we include in regular rate or not decided that it was a benefit and who was that who was that human resources person i believe the deposition testimony in that came from ms tang and ms spina and they were the human resources person yes and did they explain what they knew about understood about all of this not resources or those payroll  that there is some coordination there between different employees to to get the paychecks out each week and determine how payments are characterized is this this is properly decided on summary judgment well the facts are not really  excluded from the regular rate as it relates there is across appeal here as a relates to the cross appeal we believe the judgment should be reversed the specific to the cross appeal obviously subject to the court's questions  like to address the determination that this was a bona fide plan in addition to the liquidated damages and will finish its use of the court was addressing but all i'll start with the the appeal i believe i think that's us seventy four briefly i think it's a more straightforward question at least but i think it's important to keep in mind the principle that judge davis spoke of which is that these exemptions are very narrowly construed against players trying to assert them and that's an important premise to keep in mind seventy of the statute starts from the default that all  included and then we work down to other than these very seven or eight very narrowly construed exemptions to that and as it pertains to to us seventy four and frankly i think this hundred seventy four case and it goes to some of the discussion about why the city chose initially to exclude these benefits they turned them to be a benefit it comes from the benefit plan and therefore their like some benefits under two hundred seventy four the problem with that is that to all seventy four very explicitly in the plain language of the statute only allows for the exclusion of payments or contributions made to a trustee or third person there is no it is undisputed in this case that that was not so here so that takes us into to a seventy two and i think frankly that was a a default position for the city and one of the litigation began and i think the district court got it right these are not other similar payments within the meaning of section two hundred seventy two this court unseated in local to forty six that what works what really matters is is this compensation for work is it compensation for services that and clearly it is it is on it from a  commonsense perspective that health benefits are part of an employee's compensation package they're not just given to persons not employed by the city if that if a person ceased to employ poit by the city their health benefits would stop so any cash also wouldn't be compensation for services now are those taxable those benefits health benefits the the no health benefits right itself i think honestly i don't know  tax treatment of health benefits you don't know of these health benefits or health benefits generally might minor standing is they would not be here i agree that there should be taxable their compensation for work well it's part of the not right well i think there it's compensation in the sense that it's an exchange for the employees services it's part of the overall compensation package the i r s might but depends what is is the the i r s may treat them differently based on policy considerations but i don't think there's anything detaching the value received the value of those benefits from an employee's compensation and the issue you know with with what's what's the other side's argument the other side's argument is that to all seven the two that these these payments are not related to specific hours of in point isn't that right it is that they're not related to specific hours of employment but it's not right that they're not related they're not compensation for hours of work as i stated this this court in the bill two forty six told us that it doesn't matter that we're talking about a regular hourly wage or weekly wage what matters is is this compensation for services and these clearly are they're part of the the city's comp and flexible compensation salary and benefits manual they stated that the cash payments themselves come in the form of taxable wages on employee paychecks medicare withholdings subject to garnishment if there is any treated no differently than any other wage by the city and i think what's important to go to i think judge charts question one thing to keep in mind is the value of health benefits assume there are no cash in lieu payments but for section two hundred seventy four those would not be excluded under section two hundred seventy two meaning if congress had envisioned two hundred seventy two applying so broadly that it would eliminate any payment that's not directly related to the act doesn't mean fluctuate based on the hours worked or productivity then there would be no need for to us seventy four are you arguing that the entire value of the health benefits ought to be included in in the  calculation over time rate not just the cash in lieu of payments yes and that i'm sorry health benefits the entire value gets calculated yes and that's and that's the cross appeal that's across so so you know we're talking about compensation for services and and i think that my my my colleague was inserting that word specific you know us but these aren't really specific hours it's not you know specific services but that's not in the statute and i would also submit that we're also too broadly construing the other similar payments language i think the district court got it right and if you look at the minute moneta dissent it also addresses this issue and the department  regulations additionally takes this position that i'm so it was your answer to judge trott that you believe not just the cash portions but the non cash portions of dent to is section two hundred seventy four allows for the exclusion of benefit contributions made on behalf of an employee so long as they're made pursuant to a bonafide plan oh that's  clause that's not just other similar payments generally it's related to the other similar payments to two other categories identified in two hundred seventy two which are payments for periodic periods of time in which no work is performed like vacation like sick leave something like that or reimbursements and this is neither this is neither and i'd like to point out to the arguments being made by the city that cash in lieu payments are somewhat analogous to the vacation buyback line of cases like chavez out of the out of the tenth circuit under this idea that it's really this buyback of a of a unused benefit and first i'd like to say that i don't think practically that's not really help this works not really a buyback the employee at open enrollment or the beginning of year goes to h r and says i have proof of alternative insurance he's making an election forward going that says i will then he will now receive taxable wages in l benefits for the rest of the year same or the employee can say well i'm just an employee plus one as opposed to plus two so he'll get a smaller portion depending on the value so it's not correct to say that it's a buyback in the sense that they accumulate credits or something you know at the end of the year whatever you haven't put towards health benefits you know it's paid back to the movie a lot of different kinds of buybacks it sounds awfully like a buyback to me i think it's similar but but it but it's forward looking as opposed to  didn't say any buyback of an unused benefit is is no longer subject to the regular rate they've they promised their rulings very centrally on the language of two hundred seventy two in that we're talking about vacation time which is by its very nature pay for time spent not working and the civically identified in the statute there's an that could not be considered compensation under your argument i think it's it's you have a very up broad that premise so unless you fall very specifically into a category of exclusion then that applies and the vacation buybacks under chalk is those courts have identified that they believe they fall very specifically within that the language of the  create a compensation scheme like the following ten dollars per hour of our leave for hourly work in addition to we will provide you lodging and we value that lodging at twelve hundred dollars a month but if you have an employee you can show us that you have alternate lodging we'll put we'll give you that twelve hundred dollars a month in taxable wages on your paycheck and the money wouldn't vary based on the amount of work performed or the quality of the work  it would just come in as a monthly lodging it cash in lieu of watching basically there is no argument that would remove that payment from the from the regular rate calculation it's clearly compensation for services it doesn't need to fluctuate by the by the amount of services performed and i point the court to seven seven eight point two two four it discusses this notion that we're not we don't need to be looking directly at a ok i'll start there than then and it goes to the liquidated damages argument as well the with respect to the what we see as the issue here with respect to liquidated damages inspection the objective basis to believe that the act the conduct conform with the law is in addition to i don't think there is evidence the city took any really affirmative steps to determine what was right but in addition to that i think the district court got it wrong and in looking at which provision they should be he should be doing the the willfulness or liquidated damages objective reasonable miss analysis based off of what i want to make sure we keep these distinct because there's good faith correct it is it is and the reason i'm i'm addressing them together is because i think the the issue is and i think i going to will from this it's this idea that reckless disregard also gets you to willfulness and how do you get reckless disregard out of this case i think it best you might get negligence but how do you get reckless disregard out of this case on the evidence the evidence suggests that reckless disregard that in at least as of two thousand and three because that's when miss tang came to the came to the city that and the evidence suggests i can sit with what counsel said that a determination was made and whenever this benefit plan with started that these cash in lieu payments were not included in the regular rate because they're a benefit and how it's not reckless well in our view that's wrong maybe it's wrong but i don't see anything at all that suggests that it's reckless we think it's completely inconsistent with the language of the statues that make it well i think it becomes reckless when you look at the fact that once a determination is made never revisit it over a period of at least would your clients realize it was quote wrong the suit was filed in two thousand and twelve and nobody did it just sort of floated you know reckless means more than just that it happened or that it was negligent and i want you to tell me why it was reckless disregard is one thing ok but that acted to mean something and what shows that it was reckless i think that the failure to to take any steps to so ascertain a mission reckless by omission well that the statute doesn't require or the case law in order to case or require intentional knowing it requires more than negligence general negligence if true but i think op you can say as they didn't do anything and that's what was reckless not to have done anything is that your case for the amount of time here and given yes and yes but for the amount of time that the the there was no looking into this and given that we believe how plainly against the statute it is i think that's that factors in as well so  and there were no legal cases that the side of this issue not specifically but i think the district but strikes specifically not period well the case law on to all seventy two within the ninth circuit we believe it's been settled that we're talking about compensation for services and to take the position that these are not included want to regulate these cash cash and move payments is to somehow take the position that your benefits are part of the compensation package what's the case that you want me to read before i make my think what's important on that point judges is the exclusion here was not made by the city under two a seventy two the evidence shows that they excluded it as benefit as part of the benefit plan without conferring with coun all we know is right down the hall correct there's no evidence why why isn't it reckless disregard if you have evidence that somebody in the office had a discussion about it whether the asked for counsel's opinion and decided not to with that the records it would help if there was an affirmative decision to not to see counsel's advice but in a way i think i think we we have that because they didn't five the twenty percent rule is reasonable it is consistent with previous interpretations of again the department of labor's own agency interpretation but the court disregarded the court differe guarded it on the grounds that and what was it i'm sorry that a two thousand and three department of labor one in later opinion letter correct and is that entitle to chevron like deference or not or better not ever on like difference what kind of difference if any skidmore difference however i would i would say this is an agency interpretation of the an agency's own regulation the incidental there to language which is what  there to say twenty seven seven eight point one five says you can make cash payments at your benefit plan and it will remain a bona fide plan as long as those cash payments are not nothing more than incidental part of the plan the department of labor's opinion later the twenty percent cap is what they created to determine whether or not payments become something more than incidental and so i think it does in that way require to some our deference a view robyn's an agency interpretation of its own regulation which is a higher standard and if you're right and the plan is not bonafide what is the what consequence flows from that the entire value of the health benefits go into the i see my took my time is coming to an end if the court has any questions you well i wanted to address a couple of points that my colleague made first of all in he referred to section seven seventy eight as a regulation it's not a regulation it's an interpretive bulletin it didn't go through formal room making procedures so it's not entitled to the same level of deference that a regulation would be entitled to and as as we noted in our briefs this is an issue on which the department of labor has as changed its opinion over time  in regards to this twenty percent test i also want to respond back to the earlier question as far as the city's evidence on good faith and they were the relevant evidence would be in the excerpts of the record  for seventy nine through forty four and that's the deposition testimony of linda tang it's i think consistent with what we've already discussed as far as the evidence summarize that for me and us in a sentence or two and good for in a good faith context well this is the summary of the evidence is that that little tang who is an accountant or works has accounting duties testified that part of that and in ninety three i don't believe she was so we still don't know what happened in ninety three correct once i got the label on it that was the end of the game well i once i was in a game once it got the label on it this there was no  evidence from one thousand nine hundred three for twenty something years that caused the city to have any reason to think it was that was an incorrect one when it tank do then just look at it and say well that's a benefit that's the end of the game so far as payrolls concerned  and payroll just took that designation as definitive payroll believed it was a benefit and it didn't go into regular rate where's the good faith i mean there's a lack of bad faith but there's that become good faith in this context well i mean i think that goes to i guess whether whether the interpretation of twenty nine u s c two sixty is that an employer actually has to go out and seek legal opinions and this is not even do anything they even look at it look at it from an awful a say standpoint you know no there's no evidence of that but again i mean these the employers are dealing any employer deals with a lot of different payroll issues on a making the determination weren't qualified to make the determination they saw a benefit that was the end of it i i think that well i would agree with that they weren't qualified i think again an employer has to delegate some of these duties to to their h r and their accounting staff i mean they can't run every single payroll issue generally accounting staff is qualified to make legal determinations on f l s a matters me it seems to me that's kind of thing you balance to a city attorney or something a lawyer doesn't run every peril decision by its attorney that's just not practical and that shows a lack of good faith doesn't it i don't think so good faith requires something more than just sitting on your hands well but a good a conscious decision was made was an evaluation is this a benefit or is this something that goes into to your original decision was made there's no subject there it's a passive voice who made the decision and and on what i mean i'm beating a to what i just said first though and point out that from one thousand nine hundred three until now there's not there's not been a single case saying what the city has done saying that that this type of benefit has to be included in regular rate there's no evidence that you asked  opposing counsel there's no evidence that that anyone ever complained about that there is evidence in the record that the city had regular labor negotiations with the police officers who rep who had an attorney and this was never raised  d the fact that for there to be reckless disregard it there would have to be some further evidence that there was some reason the city should have known it was not in compliance i mean that the first time a court settles  question under an exemption or an exclusion there's a lack of will for this as a matter of law no i wouldn't go that far so how far how far do you go because what you just said essentially i there's no case law this is a case of first impression so we couldn't possibly act willfully because nobody knew the answer well and and if that was the only i guess set of facts i would agree that that that under the mclachlan supreme court case when it's talking about there has to be some evidence some type of conduct by the employer that indicates a a disregard for the law if nobody knows what the law is the only seems to suggest under the category of willful behavior that employer has to take some kind of affirmative action to ensure compliance with the act what was the affirmative action here showing compliance with the act well i wouldn't agree with with that reading of of alvarez i think that's a little bit little bit broader than what alvarez says and what the employer did hear it i mean we've we've gone over this the right way what do you think be something affirmative well it kind of a step i mean sure compliance to say that there have to be some sort of step two to investigate a false a compliant i interrupted you what does alvarez hold in your view  where the city never had any indication from anyone internally externally that there was any violation of the law and when the city looked at this issue you can you can agree or disagree with whether the should have done more in the payroll stuff should have done more but they didn't have any reason to think that they were actually in violation of the full of say i thank you very much counsel thank you this case is now submitted