Opinion ID: 200756
Heading Depth: 2
Heading Rank: 3

Heading: Salary Augments and the FLSA Regular Rate

Text: 51 At last we reach the question at the heart of the officers' FLSA claim: whether the FLSA obligates the Town to include the officers' contractually guaranteed shift-differential pay, longevity pay, and career-incentive (Quinn Bill) pay in the officers' regular rate for purposes of overtime calculation under the FLSA. The officers say it does; the Town denies this proposition. 52 Calculation of the correct regular rate is the linchpin of the FLSA overtime requirement. The term is significant because under 29 U.S.C. § 207(a)(1), an employee who works overtime is entitled to be paid at a rate not less than one and one-half times the regular rate at which he is employed (emphasis added). The statute defines the term regular rate in § 207(e). Under that provision and the relevant case law and interpretative regulations, the regular rate cannot be stipulated by the parties; instead, the rate must be discerned from what actually happens under the governing employment contract. See 29 C.F.R. § 778.108; Bay Ridge Operating Co. v. Aaron, 334 U.S. 446, 462-63, 68 S.Ct. 1186, 92 L.Ed. 1502 (1948). The general rule, per the plain text of the FLSA, is that the regular rate shall be deemed to include all remuneration for employment paid to, or on behalf of, the employee. § 207(e). The statute includes a list of exceptions to this rule, see § 207(e)(1)-(e)(8), but the list of exceptions is exhaustive, see § 778.207(a), the exceptions are to be interpreted narrowly against the employer, see Mitchell v. Kentucky Fin. Co., 359 U.S. 290, 295-96, 79 S.Ct. 756, 3 L.Ed.2d 815 (1959), and the employer bears the burden of showing that an exception applies, see Idaho Sheet Metal Works, Inc. v. Wirtz, 383 U.S. 190, 209, 86 S.Ct. 737, 15 L.Ed.2d 694 (1966). 53 For the reasons that follow, we hold that the Town is obligated to include shift-differential pay, longevity pay, and career-incentive pay in the officers' regular rate under the FLSA.
54 The case law is unequivocal that shift-differential pay must be included in an employee's FLSA regular rate. The Supreme Court has specifically interpreted § 207(e) of the FLSA to include such payments: 55 Where an employee receives a higher wage or rate because of undesirable hours or disagreeable work, such wage represents a shift differential or higher wages because of the character of the work done or the time at which he is required to labor rather than an overtime premium. Such payments enter into the determination of the regular rate of pay. 56 Aaron, 334 U.S. at 468-69, 68 S.Ct. 1186 (emphasis added). The Secretary of Labor has also clearly adopted this view. See § 778.207(b) (The Act requires the inclusion in the regular rate of such extra premiums as nightshift differentials....). 57 The Town argues that the shift differentials are properly excluded from the officers' regular rate under 29 C.F.R. § 778.206, which is entitled Premiums for work outside basic workday or workweek. That regulation is flatly inapplicable to shift differential payments. Section § 778.206 addresses the calculation of excludable contract overtime premiums under § 207(e)(7), and in the paragraph quoted above, the Supreme Court in Aaron held that shift-differential pay is not an overtime premium. The officers are entitled to have their shift-differentials included in their regular rate.
58 The officers are also entitled to have their contractual longevity pay included in their regular rate. Such longevity payments do not appear to fall within the literal terms of any of the statutory exclusions in § 207(e); if that is so, they must be included. See 29 C.F.R. § 778.200(c) ([A]ll remuneration for employment paid to employees which does not fall within one of these seven exclusionary clauses must be added into the total compensation received by the employee before his regular hourly rate of pay is determined.). Indeed, the annual longevity payment is essentially a form of bonus. See § 778.208 (bonus payments, for purposes of the FLSA, are payments made in addition to the regular earnings of an employee). Bonuses that are explicitly promised to employees — as the longevity payments are in the CBA — must be included in the employees' regular rate. § 207(e)(3); § 778.211 (any bonus paid pursuant to a contract must be included in the regular rate). 59 In a closely analogous case, the Sixth Circuit held that police officers' longevity payments must be included in their FLSA regular rate because they are by definition compensation for the length of service. See Featsent v. City of Youngstown, 70 F.3d 900, 905 (6th Cir.1995). The Fifth Circuit has rejected this argument on the ground that longevity pay may constitute a discretionary gift excludable under § 207(e)(2), but in so holding, the court distinguished longevity payments that are promised to employees in a collective bargaining agreement. See Moreau v. Klevenhagen, 956 F.2d 516, 521 (5th Cir.1992). Either way, the longevity payments here must be included in appellants' regular rate. 60 The Town argues that longevity pay is properly excluded for two reasons: (1) because it is only paid on an annual basis; and (2) because it does not constitute compensation for hours worked. The first argument is without merit: the regulations expressly contemplate retroactive calculation of overtime to accommodate compensation not given on a weekly basis, see, e.g., § 778.209 (methods of including bonuses in regular rate), and courts have had little difficulty handling such calculations when they arise, see, e.g., Reich v. Interstate Brands Corp., 57 F.3d 574, 575-76 (7th Cir.1995) (explaining how to incorporate an annual lump-sum payment into an employee's regular rate). 61 The Town's second argument is more problematic in light of this court's suggestion in Plumley v. Southern Container, Inc., 303 F.3d 364 (1st Cir.2002), that § 207(e) reflects Congress's focus on hours actually worked in the service and at the gain of the employer. Id. at 370. Plumley, however, should not be read for the proposition that § 207(e)'s definition of regular rate incorporates only compensation that is literally paid on an hourly basis. The regulations provide to the contrary, see, e.g., § 778.207(b) (providing that under § 207(e), lump sum premiums which are paid without regard to the number of hours worked ... must be included in the regular rate), and courts have consistently rejected such a hard rule, see, e.g., Interstate Brands, 57 F.3d at 578 (not all lump-sum payments can be excluded from the regular rate calculation). Accordingly, we hold that the Town must include the officers' contractually guaranteed longevity pay in their FLSA regular rate.
62 The most difficult question concerns whether the career-incentive pay available to police under the Quinn Bill, Mass Gen. Laws ch. 41, § 108L, must be included in the officers' FLSA regular rate. Quinn Bill payments are nondiscretionary sums paid to police officers based on accumulated educational credits. See id. The Town relies on Bienkowski v. Northeastern Univ., 285 F.3d 138 (1st Cir. 2002), in which this court concluded that the Portal-to-Portal Act relieves employers of any need to pay FLSA overtime for the time that officers spend receiving education (in that case, EMT training) covered by the Quinn Bill. See id. at 141-42. Because employers are not obligated to pay overtime for Quinn-Bill-eligible education, the Town argues, any compensation the officers receive under the corresponding career incentive provisions of the CBA should not be included in the officers' FLSA regular rate. 63 Though initially appealing, the Town's argument fails. The question in Bienkowski — whether the FLSA requires an employer to pay overtime for hours spent in education off-site — is logically distinct from the question in this case, which is whether the increased pay that the officers receive once that education is completed should be included in their FLSA regular rate. Bienkowski did not address the $850 lump-sum payment that the officers in that case received as career-incentive pay pursuant to their CBA. See 285 F.3d at 140. Similarly, the career-incentive pay in this case is nondiscretionary compensation guaranteed to the officers under their CBA. 26 Accordingly, it must be included in the officers' regular rate because it is part of the remuneration for employment paid to the officers. § 207(e). As the Sixth Circuit held on closely analogous facts: 64 The [CBA] does not provide for increased wages based on the police officers' educational levels. Educational advancement, however, enhances the quality of an employee's job performance.... Therefore, to the extent that the police officer's salaries do not [otherwise] account for their educational background, the bonuses attributable to educational degrees compensate the plaintiffs for their services and cannot be excluded from the regular rate under Section 7(e)(2). 65 Featsent, 70 F.3d at 904-05. Accordingly, the Town is obligated to include the officers' career-incentive pay in the calculation of their FLSA regular rate.