Court Opinion

ID: 3062034
Source: CourtListenerOpinion
Date Created: 2015-10-14 07:47:04.361886+00
Date Added: 2024-06-11T11:49:32.628598
License: Public Domain

FILED
                                                      United States Court of Appeals
                                                              Tenth Circuit

                                                           January 12, 2011
                                  PUBLISH                 Elisabeth A. Shumaker
                                                              Clerk of Court
                  UNITED STATES COURT OF APPEALS

                             TENTH CIRCUIT

PATRICK CHAVEZ, on behalf of
himself and all other City employees
who have been paid overtime that was
improperly determined under the Fair
Labor Standards Act; JEANNINE
CHAVEZ; RUDY CAMPOS;
MICHAEL COCCHIOLA; FORTINO
ORTEGA, on behalf of themselves and
all other City employees who have
been paid overtime that was
improperly determined under 29
U.S.C.A. 207(a)(1) of the Fair Labor
Standards Act; ROBERT C.
GUTIERREZ,

      Plaintiffs-Appellants and Cross-
      Appellees,
v.                                            Nos. 09-2274 & 09-2288
CITY OF ALBUQUERQUE,

       Defendant-Appellee and Cross-
       Appellant.

        APPEAL FROM THE UNITED STATES DISTRICT COURT
               FOR THE DISTRICT OF NEW MEXICO
                 (D.C. No. 1:02-CV-00562-JCH-ACT)

Paul Livingston, Attorney at Law, Placitas, New Mexico, (Sam Bregman and Eric
Loman of Bregman & Loman, P.C., Albuquerque, New Mexico, with him on the
briefs), for Plaintiffs-Appellants and Cross-Appellees.
Edward W. Bergmann of Seyfarth Shaw LLP, Chicago, Illnois, (Robert J. Perry,
City Attorney, City of Albuquerque, New Mexico; Michael I. Garcia, City of
Albuquerque Legal Department, Albuquerque, New Mexico; Jerry A. Walz of
Walz & Associates, Cedar Crest, New Mexico, with him on the briefs), for
Defendant-Appellee and Cross-Appellant.

Before BRISCOE, Chief Judge, HOLLOWAY, and O’BRIEN, Circuit Judges.

BRISCOE, Chief Judge.

      This is a collective action brought under 29 U.S.C. § 216(b) by current and

former employees (collectively, the Employees) of the defendant City of

Albuquerque, New Mexico (the City), alleging violations of the Fair Labor

Standards Act, 29 U.S.C. § 201 et seq. (FLSA). The FLSA generally requires

employers to compensate overtime hours at one and one-half times an employee’s

“regular rate” of pay. The district court concluded that the City violated the

FLSA by failing to include compensation for unused vacation and sick time

(vacation and sick leave buy-backs) in the FLSA regular rate. The district court

ruled in the City’s favor on all other claims. Both the Employees and the City

have appealed from these rulings. Exercising jurisdiction under 28 U.S.C. §

1291, we affirm the district court in all regards, except we reverse and remand its

inclusion of vacation buy-backs in the FLSA regular rate.

                                         I

      The factual background of this case is best understood in the context of the

                                         2
relevant statute.

      The FLSA generally requires covered employers to pay its employees

overtime pay for work in excess of forty hours a week. 1 The purpose of FLSA

overtime is “to compensate those who labored in excess of the statutory maximum

number of hours for the wear and tear of extra work and to spread employment

through inducing employers to shorten hours because of the pressure of extra

cost.” Bay Ridge Operating Co. v. Aaron, 334 U.S. 446, 460 (1948). Overtime

hours must be compensated “at a rate not less than one and one-half times the

regular rate at which [the employee] is employed.” 29 U.S.C. § 207(a)(1). The

regular rate “shall be deemed to include all remuneration for employment paid to,

or on behalf of, the employee,” with eight exceptions. 29 U.S.C. § 207(e). 2

      1
        Police officers and firefighters are subject to slightly different overtime
thresholds. See 29 U.S.C. § 207(k).
      2
          The subsection defining the regular rate provides, in relevant part:

            As used in this section the “regular rate” at which an employee
      is employed shall be deemed to include all remuneration for
      employment paid to, or on behalf of, the employee, but shall not be
      deemed to include--

      (1) sums paid as gifts; payments in the nature of gifts made at
      Christmas time or on other special occasions, as a reward for service,
      the amounts of which are not measured by or dependent on hours
      worked, production, or efficiency;

      (2) payments made for occasional periods when no work is
      performed due to vacation, holiday, illness, failure of the employer to
      provide sufficient work, or other similar cause; reasonable payments
                                                                      (continued...)

                                           3
      The first step in many FLSA disputes is to determine an employee’s regular

rate. See Walling v. Youngerman-Reynolds Hardwood Co., 325 U.S. 419, 424

(1945) (“The keystone of Section 7(a) is the regular rate of compensation. On

that depends the amount of overtime payments which are necessary to effectuate

the statutory purposes. The proper determination of that rate is therefore of prime

importance.”). The regular rate is “the hourly rate actually paid for the normal,

non-overtime workweek.” Walling v. Helmerich & Payne, 323 U.S. 37, 40

(1944). It is determined by looking to the employment arrangement. See Bay

      2
       (...continued)
      for traveling expenses, or other expenses, incurred by an employee in
      the furtherance of his employer’s interests and properly reimbursable
      by the employer; and other similar payments to an employee which
      are not made as compensation for his hours of employment;
      ...

      (5) extra compensation provided by a premium rate paid for certain
      hours worked by the employee in any day or workweek because such
      hours are hours worked in excess of eight in a day or in excess of the
      maximum workweek applicable to such employee under subsection
      (a) of this section or in excess of the employee’s normal working
      hours or regular working hours, as the case may be;

      (6) extra compensation provided by a premium rate paid for work by
      the employee on Saturdays, Sundays, holidays, or regular days of
      rest, or on the sixth or seventh day of the workweek, where such
      premium rate is not less than one and one-half times the rate
      established in good faith for like work performed in nonovertime
      hours on other days;
      ....

29 U.S.C. § 207(e).

                                         4
Ridge, 334 U.S. at 461 (“Every contract of employment, written or oral, explicitly

or implicitly includes a regular rate of pay for the person employed.”). The

regular rate may include more than just an employee’s contractually-designated

hourly wage if the employee is, in fact, paid more than that hourly wage.

Contractual stipulations as to the regular rate are not controlling, because the

regular rate is an “actual fact,” rather than “an arbitrary label chosen by the

parties.” Youngerman-Reynolds, 325 U.S. at 424. This means that a contract

cannot designate an artificially low regular rate in order to reduce the minimum

statutory overtime due. See Walling v. Wall Wire Prods. Co., 161 F.2d 470, 473

(6th Cir. 1947) (explaining that parties cannot avoid the purposes of the FLSA by

designating a fictitious regular rate).

                                          II

                              The Employment Contracts

      The Employees include police officers, firefighters, transit workers, clerical

and technical workers, and others. They are members of labor unions that have

entered into collective bargaining agreements with the City (each, a CBA, and

together, the CBAs). 3 Employees other than firefighters have contractual

      3
       The CBAs at issue here are those between the City and: the Albuquerque
Police Officer’s Association (APOA); American Federation of State, County, and
Municipal Employees (AFSCME) Local 624; the Albuquerque Area Fire Fighters
Union (AAFU); AFSCME Local 3022; the Albuquerque Officers’ Association
(AOA) Local 1888; Albuquerque Clerical and Technical Employees (ACTE); the
                                                                   (continued...)

                                           5
“normal” workweeks of forty hours. All Employees are paid a base hourly (or

straight time) rate set out in the relevant CBA. In addition to straight time pay,

certain of the CBAs provide for various types of add-on pay, such as longevity,

hazard, shift differential, assignment, education, and firearms qualification pay

(collectively, add-on payments). These add-on payments are made as lump sums

on a bi-weekly basis.

      Generally, the CBAs provide overtime compensation for work beyond an

employee’s normal daily and weekly schedule, and on holidays. The contractual

overtime rate is one and one-half times an employee’s straight time rate. The

CBAs generally provide for paid sick leave and vacation leave, and count this

paid time off as hours worked for overtime purposes. Certain of the CBAs

provide that employees who have accumulated a minimum amount of unused

vacation or sick leave may sell that leave back to the City.

                           The City’s Wage Calculations

      For all employees other than police officers, the City calculates an

employee’s wage entitlements under the FLSA and under the applicable CBA, and

then pays the employee the greater of the two. No FLSA calculation is made for

police officers because the City has determined that their contractual entitlements

      3
       (...continued)
New Mexico Transportation Union (NMTU); and AFSCME Local 624 Transit
Union.

                                          6
will always exceed their FLSA entitlements. This is because police officers

receive overtime under the FLSA after working forty-three hours, whereas they

receive overtime under their CBA after working forty hours. City’s Opening Br.,

Attach. 5 at 14.

      The City includes straight time and add-on payments in an employee’s

FLSA regular rate, but does not include vacation or sick leave buy-back. To

calculate an employee’s FLSA regular rate for a certain pay period, the City

multiplies the total hours worked by the straight time rate and adds the add-on

payments. This sum is divided by the total number of hours worked, and the

quotient is the hourly regular rate. Total FLSA wages are calculated by

multiplying the hourly regular rate by total hours worked (paying the regular rate

for each hour worked) and then adding one-half the regular rate multiplied by

overtime hours (adding an overtime premium for the extra hours). The City does

not count hours of paid leave towards the FLSA overtime threshold. Thus, under

the City’s calculations, an employee is not entitled to FLSA overtime unless he or

she actually works more than forty hours in a week.

                                Procedural History

      The Employees claim that the City violates the FLSA in the following

ways: it improperly calculates FLSA and contractual wage entitlements

separately; it does not include vacation and sick leave buy-backs in the regular

rate; it improperly uses total hours worked rather than the normal workweek as

                                         7
the divisor when calculating an employee’s hourly regular rate; it incorrectly

multiplies the regular rate by one-half rather than one and one-half; and it

improperly takes credits or offsets against its FLSA liability.

      The parties filed cross-motions for summary judgment. The district court

granted summary judgment to the City on the divisor and multiplier claims. It

held a bench trial on the remaining issues. The district court found that the

Employees did not show that the City failed to pay any Employee FLSA overtime

that he or she was owed. J.A. at 135-38. It compared the FLSA and contractual

entitlements of various Employees and found that each Employee’s CBA

compensation was higher than what was required under the FLSA. Because the

Employees failed to show that the City had any FLSA liability to offset, the

district court found that the Employees could not show that the City was taking

improper credits against FLSA liability. Id. at 143. It also determined that hours

paid but not worked did not count towards the FLSA overtime threshold. Id. at

125. Finally, it determined that the City was required to include vacation and

sick leave buy-back in its calculation of the regular rate. Id. at 141-42. This was

the only claim upon which the Employees prevailed.

                                         III

                                    Jurisdiction

      After the district court entered its order on summary judgment and its

findings of fact and conclusions of law, the parties entered into a stipulation as to

                                          8
damages and the district court entered a final judgment. Therefore, we have

jurisdiction under 28 U.S.C. § 1291.

                                 Standard of Review

      The district court made its determinations regarding the divisor, multiplier,

and inclusion of bonuses on summary judgment. It made its determinations

regarding the buy-backs, threshold hours, and credits after a bench trial.

      “We review the grant of summary judgment de novo, applying the same

standard as the district court . . . .” Gwinn v. Awmiller, 354 F.3d 1211, 1215

(10th Cir. 2004). Summary judgment is appropriate if there is no genuine issue as

to any material fact and the movant is entitled to judgment as a matter of law.

Fed. R. Civ. P. 56(c). We view the record on summary judgment in the light most

favorable to the nonmoving party. Gwinn, 354 F.3d at 1215. “In an appeal from

a bench trial, we review the district court’s factual findings for clear error and its

legal conclusions de novo.” Keys Youth Svcs., Inc. v. City of Olathe, Kan., 248

F.3d 1267, 1274 (10th Cir. 2001).

                              Dual Calculation Method

      The City calculates compensation due under the CBAs and under the FLSA

and then pays the employee the higher of the two. The Employees argue that the

City should calculate what is due under the CBAs and then apply the FLSA on top

of that. The Employees misinterpret the FLSA. The FLSA is not a statutory

enhancement of negotiated compensation, and the regular rate does not

                                           9
necessarily include all compensation provided for in the CBAs. There is nothing

inherently wrong with the City’s approach of calculating wage entitlements under

the FLSA and under the applicable CBA, and then paying the greater of the two.

      The FLSA guarantees minimum overtime compensation. See Barrentine v.

Ark.-Best Freight Sys., Inc., 450 U.S. 728, 737 (1981) (describing the FLSA as a

“statute designed to provide minimum substantive guarantees to individual

workers”). It is not a supplement to contractual compensation. If an employee’s

contractual pay exceeds what the FLSA would require, an employer has no

additional FLSA liability. See 29 U.S.C. § 216(b) (providing that an employer

who violates the minimum overtime provisions shall be liable in the amount of

unpaid overtime compensation (emphasis added)); cf. Valerio v. Putnam Assocs.,

Inc., 173 F.3d 35, 40 (1st Cir. 1999) (noting that an employer’s “obligation under

the FLSA was extinguished” where the employee received more overtime

payment than she was entitled to receive under the FLSA). Therefore, we reject

the Employees’ contention that the FLSA requires that they receive compensation

on top of whatever they are due under the CBAs. The FLSA guarantees the

Employees a minimum of one and one-half times the regular rate for overtime

hours. The regular rate does not include all compensation due under the CBAs.

It is “remuneration for employment paid to, or on behalf of, the employee,” not

within an exception. 29 U.S.C. § 207(e). Not all CBA compensation meets this

definition.

                                        10
      The Employees cite to the City’s Personnel Rule 302.2, which states that

“when overtime is required for non-exempt employees, compensation must be in

accordance with the [FLSA] and any applicable collective bargaining agreement.”

Employees’ Answer Br. at 2 (emphasis in original). This language means that the

City must comply with the FLSA and the CBAs. It does not mean that employees

are to receive FLSA wages plus CBA wages. Further, the Employees did not

bring a claim for violation of Personnel Rule 302.2, and the rule has no bearing

on the City’s FLSA liability. We conclude the City’s dual calculation method

does not violate the FLSA.

                        Vacation and Sick Leave Buy-Back

      The City currently includes add-on payments in the regular rate, but does

not include payments for buy-back of sick time and vacation time. 4 The

Employees argue that these buy-backs must be included in the regular rate and the

district court agreed and included both. We conclude that the district court was

correct to include sick leave buy-back in the FLSA regular rate, but the court

erred by also including vacation buy-back.

      Compensation for vacation and sick days that are actually taken is not part

      4
        The APOA, AFSCME Local 624, and AAFU CBAs provide for buy-back
of sick time and vacation time. The AFSCME Local 3022, AOA, and ACTE
CBAs provide for buy-back of sick time. The AFSCME Local 624 Transit Union
CBA provides for buy-back of vacation time. The NMTU CBA does not provide
for buy-back of any leave time. See City’s Opening Br. Attach. 5, at 5-11.

                                        11
of the regular rate. See 29 U.S.C. § 207(e)(2). The instant issue arises when an

employee works instead of using a vacation or sick day. Under the CBAs, the

employee is essentially paid double on such a day: he or she is paid for the day

worked, and also paid some portion of a day’s worth of vacation or sick pay. 5

      The Department of Labor’s (DOL) position is that vacation buy-back is not

part of the regular rate, but sick leave buy-back is. DOL issues interpretive

bulletins that constitute the agency’s official interpretation of the FLSA overtime

requirements. 29 C.F.R. § 778.1. The rulings, interpretations, and opinions of

DOL, while not controlling, are entitled to the level of deference announced in

Skidmore v. Swift & Co., 323 U.S. 134 (1944). They “constitute a body of

experience and informed judgment to which courts and litigants may properly

resort for guidance.” Id. at 140; see also Rodriguez v. Farm Stores Grocery, Inc.,

518 F.3d 1259, 1268 n.5 (11th Cir. 2008) (noting that 29 C.F.R. § 778.113 is an

interpretive bulletin, not a regulation, and that it is entitled to Skidmore

deference). One such bulletin states that extra pay for foregone vacation is not

included in the regular rate:

      [C]ertain payments made to an employee for periods during which he
      performs no work because of a holiday or vacation are not required
      to be included in the regular rate because they are not regarded as
      compensation for working. [Where] an employee who is entitled to .

      5
        At oral argument, counsel explained that the buy-backs occur annually
and are pro-rated over the year. Any resulting increase in the regular rate must
also be pro-rated over the year.

                                          12
      . . a paid vacation foregoes his . . . vacation and performs work for
      the employer . . . during the vacation period . . . [i]f, under the terms
      of his employment, he is entitled to a certain sum as . . . vacation
      pay, whether he works or not, and receives pay at his customary rate
      (or higher) in addition for each hour that he works on the . . .
      vacation day, the certain sum allocable to . . . vacation pay is still to
      be excluded from the regular rate.

29 C.F.R. § 778.219(a). According to DOL, an employee who is entitled to be

paid for a week’s vacation does not increase his regular rate by working instead

of taking vacation, even though he or she is paid for the week of work and for an

additional week of vacation time. See 29 C.F.R. § 778.219(a)(1).

      Unlike pay for foregone vacation, DOL includes production and attendance

bonuses in the regular rate. “Bonuses which are announced to employees to

induce them to work more steadily or more rapidly or more efficiently or to

remain with the firm are regarded as part of the regular rate of pay. Attendance

bonuses . . . are in this category. They must be included in the regular rate of

pay.” 29 C.F.R. § 778.211(c). Thus, we must determine whether vacation and

sick leave buy-backs are more analogous to payments for “periods when no work

is performed due to vacation . . . [or] illness,” or attendance bonuses. The Wage

and Hour Division of DOL (the Wage and Hour Division) takes the position that

vacation buy-back is not part of the regular rate, but that sick leave buy-back is

part of the regular rate because sick leave buy-back is analogous to an attendance

bonus. U.S. Department of Labor, Wage & Hour Opinion Letter FLSA 2009-10

                                          13
dated Jan. 16, 2009, 2009 WL 649021. 6 We reach the same conclusion.

      The Sixth and Eighth Circuit have considered the buy-back of sick time,

but have reached conflicting conclusions. Compare Acton v. City of Columbia,

Mo., 436 F.3d 969 (8th Cir. 2006) (holding that sick time buy-back must be

included in the regular rate) with Featsent v. City of Youngstown, 70 F.3d 900

(6th Cir. 1995) (holding that sick time buy-back is not part of the regular rate). In

Featsent, the Sixth Circuit held that sick time buy-back did not need to be

included in police officers’ regular rates because:

      These payments are unrelated to the police officers’ compensation
      for services and hours of service. Moreover, awards for nonuse of
      sick leave are similar to payments made when no work is performed
      due to illness, which may be excluded from the regular rate. Thus,
      bonuses for the absence of medical claims and nonuse of sick leave
      may be excluded from the regular rate.

Id. at 905.

      In contrast, the Eighth Circuit has held that sick leave buy-back must be

included in the regular rate. The Acton plaintiffs were firefighters who could sell

back unused sick days in exchange for seventy-five percent of their straight time

      6
         “The [Wage and Hour Division] issues opinion letters to explain the
requirements of the FLSA and its regulations and how they apply to particular
circumstances.” In re Wal-Mart Stores, Inc., 395 F.3d 1177, 1184 (10th Cir.
2005) (internal quotation omitted). This court gives “great weight” to these
letters when they interpret the DOL’s own ambiguous regulations. Id. Although
the opinion letter referenced herein does not interpret regulations, it “nonetheless
provide[s] some persuasive authority, [as it is issued] by the government agency
responsible for the enforcement of the federal wage and hour laws . . . .” Myers
v. Copper Cellar Corp., 192 F.3d 546, 554 (6th Cir. 1999).

                                         14
pay. 436 F.3d at 976. The Acton court found that “the primary effect of the buy-

back program is to encourage firefighters to come to work regularly over a

significant period of their employment tenure.” Id. at 977. It reasoned that

consistent workplace attendance is a general duty of employment and, therefore,

“sick leave buy-back monies constitute remuneration for employment.” Id. The

Acton court rejected Featsent’s reasoning, stating that the Sixth Circuit “did [not]

recognize and explain how payments awarded to an employee for not using

accrued sick leave, which necessarily requires employees to work more days than

they are required, is not tantamount to payment for services rendered.” Id. at 979.

      We agree with the reasoning of the Wage and Hour Division and the Eighth

Circuit and hold that sick leave buy-back payments must be included in the

regular rate. We further hold that vacation buy back-payments are not part of the

regular rate. To be sure, both vacation and sick leave buy-back reward

attendance, in some sense, because they reward an employee for not taking days

off. 7 The key difference lies in the way each type of day off operates. A sick day

is usually unscheduled or unexpected, and is a burden because the employer must

find last-minute coverage for the sick employee. In contrast, vacation days are

usually scheduled in advance, so their use does not burden the employer in the

      7
       The City’s contention that “payments for vacation and sick leave buy-
back are intended to provide employees with compensation for days they are not
at work,” City’s Opening Br. at 30 (emphasis in original), is simply untrue. The
buy-backs are extra compensation for days that the employees do come to work.

                                         15
way that unscheduled absences do. An employee has a duty not to abuse sick

days, whereas there is no corresponding duty not to use vacation days. Buying

back sick days rewards an employee for consistent and as-scheduled attendance,

which are the aspects of good attendance that provide additional value to an

employer. Thus, sick leave buy-backs are compensation for additional service or

value received by the employer, and are analogous to attendance bonuses. In

contrast, payments for non-use of vacation days are analogous to holiday work

premiums or bonuses for working particular undesirable days.

                            FLSA Overtime Threshold

      For employees other than police officers and firefighters, the FLSA sets an

overtime threshold of forty hours. This means that employees are entitled to

FLSA overtime payments for each hour worked in excess of forty. The

Employees argue that the City should count paid time off towards the FLSA

overtime hours threshold because the CBAs count paid time off as time worked

for the purposes of contractual overtime. We hold that the City is not required to

count this time as time worked for FLSA purposes.

      The Employees argue that, just as the FLSA regular rate incorporates some

CBA compensation provisions, the FLSA should incorporate the CBAs’

definitions of hours worked. The First Circuit has rejected this contention, and

we do as well. See O’Brien v. Town of Agawam, 350 F.3d 279, 289 (1st Cir.

2003) (“The CBAs label such extra pay ‘overtime,’ but that does not control. For

                                        16
purposes of the FLSA, all hours worked under the statutory maximum are

non-overtime labor.”). Contractual overtime and FLSA overtime are not the same

things. The FLSA’s policy goals are not implicated when an employee does not

actually work over forty hours in a week.

      The DOL’s position is that FLSA overtime applies only to hours actually

worked. 29 C.F.R. § 778.101 states that “[h]ours worked in excess of the

statutory maximum in any workweek are overtime hours under the statute; a

workweek no longer than the prescribed maximum is a nonovertime workweek

under the Act, to which the pay requirements of section 6 (minimum wage and

equal pay) but not those of section 7(a) are applicable.” Similarly, 29 C.F.R. §

778.102 states that “[i]f no more than the maximum number of hours prescribed

in the Act are actually worked in the workweek, overtime compensation pursuant

to section 7(a) need not be paid.” One of the FLSA’s purposes is to compensate

employees for the strain of working long hours. This purpose is not implicated if

the employee does not actually work the requisite number of hours in a week,

regardless of whether the employee is compensated as though he or she did work. 8

It would be illogical to conclude that the FLSA would require overtime payments

where, for example, an employee takes a full week’s vacation but also does three

      8
       The interpretive bulletins and cases treating meals or “on call” time as
hours worked are not relevant here. In those circumstances, the issue is whether
the employee should be considered working while on call. Here, there is no
question that employees are not working while on paid leave.

                                         17
hours of work. An employee in that situation would not be subject to the stresses

of long hours. However, were we to adopt the Employees’ interpretation of the

FLSA, statutory overtime compensation would be required. We hold that

compensated non-work hours do not count towards the overtime threshold.

      The Employees argue that the Third Circuit’s decision in Wheeler v.

Hampton Township, 399 F.3d 238 (3d Cir. 2005), should be persuasive here. The

CBA at issue in Wheeler provided for paid vacations, holidays, and sick days

(described as “non-work pay”), and stated that these payments would be included

in the regular rate. It also provided for lump-sum yearly payments for longevity,

educational attainment, and similar add-ons, but did not state that these would be

included in the regular rate. The plaintiff police officers argued that the

defendant township violated the FLSA because it did not include add-on payments

in the regular rate. In response, the township “argued that the Officers traded

their right to have [add-on] pay added to their basic annual salary in the CBA’s

overtime calculation in exchange for the inclusion of non-work pay, which is not

required under the FLSA.” Id. at 241.

      The Wheeler court determined that the township had to include add-on pay

and non-work pay in the regular rate. It held that the township could not contract

away the officers’ right to FLSA overtime on add-on pay. Regarding the non-

work pay, the Wheeler court reasoned that, while the FLSA itself did not require

non-work pay to be included in the regular rate, the CBA required non-work pay

                                          18
to be included in the regular rate for FLSA purposes. See id. at 244. Relying on

the language “shall not be deemed,” in 29 U.S.C. § 207(e)(2), the Third Circuit

reasoned that “the function of [that subsection] is to forbid this Court from

deeming that the CBA include non-work pay.” Id. As the CBA already provided

that non-work pay would be included in the regular rate, the Third Circuit

concluded that there was nothing for the court to “deem.” Id.

      The Wheeler court, like the Employees, conflated the CBA and the FLSA.

In an FLSA case, the issue is the FLSA regular rate, not the contractual overtime

rate. Including or not including vacation pay in the FLSA regular rate is not a

matter of “deeming that the CBA include non-work pay,” id. (emphasis added),

because the CBA rate is not affected by the FLSA rate. The proper way to

calculate the FLSA regular rate is to look at all the compensation provided for in

the CBA and identify what part of that compensation is “remuneration for

employment paid to, or on behalf of, the employee,” not within an exception. 29

U.S.C. § 207(e).

      Further, Wheeler is not apposite to the Employees’ hours threshold

argument. There is a difference between what compensation is included in the

regular rate and which hours count toward the FLSA overtime threshold. While

the FLSA regular rate incorporates the negotiated compensation rate, the FLSA

overtime threshold is defined in the statute itself. The Wheeler defendant argued

that the plaintiffs agreed to take certain compensation out of the FLSA regular

                                         19
rate that, by statute, is part of that regular rate. Here, the City does not argue that

the Employees agreed to give up anything to which they would otherwise be

entitled under the FLSA. The FLSA does not provide a right to overtime until an

employee has first worked forty hours; therefore, the City is not attempting to

take away any compensation guaranteed by the FLSA.

          The Proper Divisor When Calculating the Hourly Regular Rate

      In this case, the first step in calculating the regular rate over a particular

week is to total the week’s straight time pay and add-ons. The parties disagree as

to the second step: whether this total should be divided by the CBA’s “normal

workweek,” or the hours actually worked by the employee. Conceptually, the

issue is whether the add-ons are additional compensation for forty hours 9 worth of

work, or whether they are additional compensation for all work an employee may

do in a given week. If actual hours is used as the divisor, the value of the add-ons

decreases as an employee works more overtime. If the normal workweek is used,

an employee would receive additional add-ons for each overtime hour worked.

We hold that the proper divisor is the actual hours worked.

      Some courts have characterized longevity payments and other add-ons as

“reflect[ing] the greater value of an experienced employee’s labor.” See Scott v.

      9
        The firefighters’ normal workweek is not forty hours, and is set forth in
the AAFU CBA. For brevity’s sake, we use forty hours as shorthand for an
Employee’s normal workweek. This opinion applies with equal force to the
firefighters.

                                           20
City of New York, 592 F. Supp. 2d 475, 488 (S.D.N.Y. 2008). If the add-ons are

meant to compensate for additional value of each hour of labor, then it makes

sense to compensate for this additional value in every overtime hour as well. See

id. (“[T]he value of that experience is received by the employer for every hour

that the employee works.”). The problem with this approach is that the CBAs do

not discuss the add-ons in terms of an hourly rate increase; the add-ons are

described as biweekly lump-sum payments and are not dependent on hours

worked. Sums paid as a reward for service, “the amounts of which are not

measured by or dependent on hours worked, production, or efficiency,” are not

part of the regular rate. 29 U.S.C. § 207(e)(1); see also Zumerling v. Devine, 769

F.2d 745, 751 (Fed. Cir. 1985) (holding that the proper divisor is hours worked

because lump-sum premium pay is “not received in return for any particular hours

of work . . . [rather, it is] a means of generally compensating the employees”).

      According to DOL, “the regular hourly rate of pay of an employee is

determined by dividing his total remuneration for employment (except statutory

exclusions) in any workweek by the total number of hours actually worked by him

in that workweek for which such compensation was paid.” 29 C.F.R. § 778.109.

The parties offer differing constructions of this statement. The City argues that it

means that compensation is divided by total hours worked. The Employees argue

that overtime hours are not hours “for which [add-on] compensation was paid,” so

overtime hours are not included in the divisor. We believe that 29 C.F.R. §

                                         21
778.110(b) forecloses the Employees’ interpretation. It provides:

      If the employee receives, in addition to his earnings at the hourly
      rate, a production bonus of $9.20, the regular hourly rate of pay is
      $6.20 an hour (46 hours at $6 yields $276; the addition of the $9.20
      bonus makes a total of $285.20; this total divided by 46 hours yields
      a rate of $6.20). The employee is then entitled to be paid a total wage
      of $303.80 for 46 hours (46 hours at $6.20 plus 6 hours at $3.10, or
      40 hours at $6.20 plus 6 hours at $9.30).

DOL views a lump-sum production bonus as general compensation rather than

additional hourly compensation. This interpretation is consistent with the

language of 29 U.S.C. § 207(e)(1).

      The Employees argue that using an hours worked divisor causes the bonus

to diminish as overtime increases. This is the case any time there is a fixed and

hourly component to an employee’s compensation. Absent evidence of an intent

to manipulate compensation to avoid FLSA liability, this result does not violate

the FLSA. See Helmerich & Payne, 323 U.S. at 42 (explaining that parties are

free to set the regular rate through contract, but that the regular rate may not be

calculated “in a wholly unrealistic and artificial manner so as to negate the

statutory purposes [of the FLSA]”). It is also the result for which the parties

bargained under the CBAs, because CBA overtime is based solely on the straight

time rate. Under the CBAs’ overtime schemes, the value of the add-on payments

decreases if an employee works overtime. Therefore, the Employees cannot claim

that this result is unfair or surprising. Cf. Overnight Motor Transp. Co. v.

Missel, 316 U.S. 572, 580 (1942) (stating that “the longer the hours the less the

                                          22
rate and the pay per hour” was not a persuasive argument against using hours

worked to determine the regular rate of a salaried employee), superseded on other

grounds by statute, 29 U.S.C. § 260, as recognized in Trans World Airlines, Inc.

v. Thurston, 469 U.S. 111, 128 n.22 (1985). Further, the suggestion that the

normal workweek divisor is more appropriate because it would produce a

consistent regular rate is unpersuasive. “The regular rate may vary from week to

week.” 10 Bay Ridge, 334 U.S. at 460.

      DOL’s interpretation — that the proper divisor is hours worked — is

consistent with the statutory language and is not illogical, unreasonable, or unfair.

We find no reason to adopt a contrary position. Therefore, we hold that the FLSA

hourly regular rate is calculated by dividing the relevant weekly compensation by

the actual hours worked, rather than the normal workweek.

                                 Proper Multiplier

      The Employees contend that the City’s use of a one-half multiplier, rather

than one and one-half, violates the FLSA. The City uses a one-half multiplier

because it first applies the regular rate to all hours worked. To the extent that the

Employees argue that the FLSA requires that they receive the regular rate for all

hours worked and the regular rate and one-half for overtime hours, such an

      10
        Including sick leave buy-backs in the regular rate will also cause it to
change from week to week. The fact that the term “regular rate” includes the word
“regular” does not mean that it must be consistent.

                                         23
argument is without merit. Under that scenario, the Employees would receive two

and one-half times the regular rate for each overtime hour worked, which is more

than the one and one-half that the FLSA requires.

      The same result is achieved if the City pays straight time for all hours and

an additional one-half straight time on overtime hours, or if the City pays straight

time for non-overtime hours and one and one-half straight time on overtime

hours. To illustrate, assume that an employee’s straight time pay is $10.00 an

hour and he or she receives $55.00 in add-on pay each week. The employee

works 44 hours in a particular week. To calculate the hourly regular rate for that

week, divide the add-on by the total hours worked ($55.00/44 = $1.25) and add

that to the straight time rate ($1.25 + $10.00 = $11.25). 11

1.    ($11.25)(44) + (.5)($11.25)(4) = $495.00 + $22.50 = $517.50

2.    ($11.25)(40) + (1.5)($11.25)(4) = $450.00 + $67.50 = $517.50

      This is because the two equations are mathematically the same.

1.    (x)(44) + (.5)(x)(4) = (x)(44) + (2)(x) = (46)(x)

2.    (x)(40) + (1.5)(x)(4) = (x)(40) + (6)(x) = (46)(x).

      The City’s use of a one-half multiplier does not violate the FLSA.

                                        Credits

      11
        This is the same as multiplying the straight time rate by forty hours,
adding the add-ons, and dividing the sum by hours worked. ($10.00)(40) =
$400.00. $400.00 + $55.00 = $455.00. $455.00/44 = $11.25.

                                          24
      The Employees assert that the City is taking improper credits against its

FLSA liability. If an employer actually pays an employee certain compensation

that is not included in the regular rate, the employer may credit those payments

towards any FLSA liability. See 29 U.S.C. § 207(h). However, if an employer

has no FLSA liability, there is nothing against which to take credits.

      The district court ruled in the City’s favor on this issue because the

Employees failed to show that the City had any FLSA liability at all. Instead of

pointing to evidence that the City improperly calculates FLSA credits, the

Employees simply assert that this is so. They have not identified a single instance

of an improper credit. In fact, they did not identify any actual FLSA

underpayment at the summary judgment or trial phases of this matter. The

Employees had ample opportunity to support their allegations of improper credits,

but they failed to do so. Their credits claim fails.

                                          IV

      In summary, we hold the following: the City’s dual calculation method

does not violate the FLSA; buy-back of unused vacation time is not part of the

FLSA regular rate; buy-back of unused sick time is part of the FLSA regular rate;

paid time off does not count towards the FLSA overtime threshold; when

calculating the hourly regular rate, weekly compensation is to be divided by total

hours worked, rather than an employee’s regular workweek; the City’s use of a

one-half multiplier does not violate the FLSA; and the City is not improperly

                                          25
taking credits against its FLSA liability.

      Therefore, the district court’s decision is affirmed in part and reversed in

part. The decision is reversed with respect to the buy-back of vacation time, and

the remainder is affirmed. This case is remanded for further proceedings not

inconsistent with this opinion.

                                             26