In this case, plaintiffs are Ventura County, California firefighters and law enforcement officers who (except for one plaintiff) are members of two unions, the Ventura County Professional Firefighters’ Association (PFA) and the Ventura County Deputy Sheriffs’ Association (DSA). The County sponsors various health insurance plans for its eligible employees and their dependents. Under agreements between the unions and the County, plaintiffs were eligible to enroll in union-sponsored health insurance plans instead of the County’s plans.
The County manages health benefits for union and non-union employees alike through its Flexible Benefits Program. As part of this “cafeteria plan,” the County provides its employees every pay period with a Flexible Benefit Allowance, also known as the “Flex Credit,” which employees may use to purchase health benefits on a pre-tax basis.
The amount of the Flex Credit for union members is set through negotiation between the County and the unions. If the premium for an employee’s chosen health insurance is more than the Flex Credit, the balance of the premium owed is deducted from the employee’s pre-tax earnings. If the premium is less than the Flex Credit, the remainder is paid to the employee in cash as taxable earnings.
Employees can also waive participation in the Flexible Benefits Program altogether, in which case they do not receive the Flex Credit.
In the early 1990s, the County, in consultation with union representatives, developed another option for employees who did not wish to purchase a sponsored benefits plan yet wanted to retain their Flex Credit. Specifically, an employee who already has medical insurance from another source, such as a spouse’s plan, may choose to “opt out” of the Flexible Benefits Program. Employees who opt out are allotted the same Flex Credit but must pay an opt-out fee.
Both the Flex Credit and opt-out fee appear on employees’ paystubs: the Flex Credit is listed under “Earnings” and the “opt-out fee” appears as a “before tax deduction.” The County subtracts the opt-out fee from the Flex Credit and then pays the balance to the employee in cash. Union members pay the same opt-out fee as all other County employees who opt out of the Flexible Benefits Program. The amount of the opt-out fee varies from year to year, but it generally comprises most of the Flex Credit.
Plaintiffs opted out of the Flexible Benefits Program and were paid in cash the balance of the Flex Credit less the opt-out fee. The County treated this residual cash payment as part of plaintiffs’ regular rate of pay when calculating their overtime compensation. But the County did not include in that calculation the value of the opt-out fee.
Plaintiffs filed this putative class action under the FLSA challenging that determination. See 29 U.S.C. § 216(b). They argued that the exclusion of the opt-out fee from their “regular rate” of pay resulted in the County underpaying plaintiffs for overtime work, in violation of the FLSA.
The district court granted summary judgment to the County, concluding that the opt-out fee was properly excluded from plaintiffs’ regular rate of pay under a statutory exception for health plan contributions. The 9th Circuit Court of Appeals affirmed in the published case of Anthony Sanders et. al. v The County of Ventura 22-55663 (November 2023).
Plaintiffs maintain that the FLSA requires the whole Flex Credit, including the opt-out fee, to be included in their regular rate of pay citing Flores v. City of San Gabriel, 824 F.3d 890 (9th Cir. 2016).
However in Flores, the City of San Gabriel provided its employees with a designated sum that they could use to purchase medical benefits, but any employee who supplied proof of alternate coverage could forgo the benefits and instead directly receive that sum in cash. The 9th Circuit concluded that these “cash-in-lieu of benefits payments” were not excluded under § 207(e)(4) because they were not paid “to a trustee or third person,” as that statutory exception requires.
The County here complied with this aspect of Flores: it treated the cash it paid to plaintiffs – the difference between the Flex Credit and the opt-out fee – as part of plaintiffs’ regular rate of pay when calculating overtime compensation.
But Flores did not consider opt-out fees like the ones at issue here, and nothing in Flores supports plaintiffs’ theory that the opt-out fee is itself part of plaintiffs’ regular rate of pay. In this case, the opt-out fee does not function like the cash payment in Flores. Indeed, the opt-out fee is not provided to the plaintiffs in cash at all, and employees have no right under the program to access that amount as cash-in-lieu.
For various reasons pointed out in the opinion, the 9th Circuit held that the County properly excluded the Flex Credit opt-out fee from plaintiffs’ regular rate of pay under 29 U.S.C. § 207(e)(4).
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