After Issuing a Published Decision Rejecting DOL Guidance to Exclude HIL Pay from Overtime, District Court Approves Backpay Settlement for Richmond Firefighters

In a case of first impression, the federal District Court for the Northern District of California issued a published decision declining to follow a  Department of Labor (DOL) Regulation (29 C.F.R. section 778.219(a)(4)) enacted in December of 2019 to expressly exclude holiday in lieu (HIL) pay from the overtime rate. (Padilla v. City of Richmond. (N.D. Cal. 2020) 509 F.Supp.3d 1168.)  Because public safety employees must work their normal schedule regardless of holidays, they often receive extra pay instead of leave.  The DOL issued this Regulation to reverse a series of California district court decisions, and Padilla is the first and only decision addressing whether the courts must "defer" to or follow this DOL Regulation.  As a result, on April 28, 2022, the Court approved our FLSA collective action settlement totaling $464,520.51 for 85 Richmond firefighters claiming the City underpaid their overtime by excluding HIL pay.

 

On July 10, 2020 Mastagni Holstedt APC filed Padilla v. City of Richmond, seeking back pay for the underpayment of overtime. Plaintiffs’ complaint asserted the City was required to include their holiday-in-lieu payments in the “regular rate of pay” for the purposes of overtime payment. Employers typically argue FLSA section 207(e)(2) excludes holiday-in-lieu payments. However, numerous California federal district courts, including cases handled by Mastagni Holstedt APC have determined section (e)(2) does not exclude holiday-in-lieu payments. 

The City filed a motion to dismiss Plaintiffs’ complaint based on the Department of Labor’s “firefighter example” which took effect January of 2020.  The International Municipal Lawyers Association had successfully requested the DOL issue a Regulation determining public safety employees' holiday-in-lieu payments are excluded from the regular rate notwithstanding the district court decisions to the contrary. With almost no analysis, the DOL adopted IMLA’s proposed language and added an example that holiday-in-lieu payments made to firefighters working a 48/96 schedule can be excluded – “firefighter example.” The new Regulation stated:

An employee is scheduled to work a set schedule of two 24–hour shifts on duty, followed by four 24–hour shifts off duty. This cycle repeats every six days. The employer recognizes ten holidays per year and provides employees with holiday pay for these days at amounts approximately equivalent to their normal earnings for a similar period of working time. Due to the cycle of the schedule, employees may be on duty during some recognized holidays and off duty during others, and due to the nature of their work, employees may be required to forgo a holiday if an emergency arises. In recognition of this fact, the employer provides the employees holiday pay regardless of whether the employee works on the holiday. If the employee works on the holiday, the employee will receive his or her regular salary in addition to the holiday pay. In these circumstances, the sum allocable to the holiday pay may be excluded from the regular rate. (29 C.F.R. section 778.219(a)(4))

Based on the new “firefighter example,” the City filed a motion to dismiss Plaintiffs’ complaint on September 22, 2020 arguing the court must defer to the DOL.  So called Chevron deference is a judicial doctrine wherein courts defer to administrative agency interpretations of ambiguous statutes and in some cases ambiguous interpretations of their own regulations.  The Supreme Court has increasing called into question this practice, scrutinizing whether an ambiguity actually exists, and if so still requiring the agency interpretation to be reasonable and persuasive.

Plaintiffs' counsel, David E. Mastagni successfully opposed the motion arguing the court should not simply defer to the new DOL regulation, which attempted to replace reasoned jurisprudence of the California district court with the then-DOL administration's policy preferences.   Plaintiffs argued the rule-making process was defective due to lack of notice, and that the exclusion found in section 207(e)(2) of the FLSA unambiguous did not permit Defendant to exclude the payments. Plaintiffs further asserted that even if the statute was ambiguous, the firefighter example within the Regulation was not entitled to any deference because it conflicted with the Regulation it sought to exemplify.  

On December 23, 2020, Judge Phyllis J. Hamilton denied Defendant’s motion to dismiss reasoning that although 207(e)(2)’s language was ambiguous, the “firefighter example” was only entitled to deference to the extent it had the “power to persuade.” The court found that the “firefighter example” was not persuasive because it contradicts section 207(e)(2)’s requirement the payment is “made for occasional periods when no work is performed.” Similarly, the “firefighter example” conflicts with the regulation, which requires employees be “entitled” to paid leave and “forgo” the use of the leave. 

This published decision can be cited by firefighters and peace officers throughout the United States to seek the inclusion of HIL pay in their Regular Rate of Pay used to calculate overtime.  In addition to protecting HIL pay, the decision also demonstrates that courts do not blindly defer to administrative regulations and guidance.  As Justice Gorsuch noted in Kisor v. Wilkie (2019) 139 S.Ct. 2400, 2441, “[a]gency personnel change over time, and an agency's policy priorities may shift dramatically from one presidential administration to another.”  Here, a change in the DOL administrations should not change the meaning of the FLSA.  Thankfully, the Court recognized the outcome-based Regulation was not entitled to deference. 

The inclusion of holiday pay in FLSA overtime is a complex issue which also requires close consideration of the governing labor contracts and pay practices.  The Richmond Firefighters appreciate the Court's thoroughness in examining these legal issues and the City's willingness to reach an amicable resolution after the Court ruled on the DOL Regulation.