In Anthony Sanders, et al. v. County of Ventura, current and former members of the Ventura County Deputy Sheriffs’ Association (“DSA”) and the Ventura County Professional Firefighters’ Association (“PFA”) filed an FLSA lawsuit challenging the County's unlawful pay practice of imposing an involuntary deduction from the earnings of employees who waive health insurance in order to defray the benefit costs of other employees. The suit alleges the fee constitutes an illegal kickback of wages. The County unilaterally imposed this "Opt-out Fee", which subsumes most of the Flexible Benefit Allowance (“Allowance”) paid to the Plaintiffs as income.
On August 22, 2023, David E. Mastagni argued this case before the Ninth Circuit Court of Appeals. This appeal seeks reversal of the district court’s error in granting the County's cross-motion for summary judgment/adjudication based entirely upon its finding that the involved Flexible Benefits Plans were “bona fide” and the County’s cash-in-lieu payments were “incidental.” The bona fide dispute is not dispositive of the claims raised in Plaintiffs/Appellants’ lawsuit.
The County admitted that the opt-out fee is first paid to Plaintiff as gross income within the meaning of I.R.C. § 61 and reflected in Plaintiffs’ paystubs as earnings. David argued that because the full Allowance is paid directly to Plaintiffs prior to the deduction of an “Opt-out Fee”, the fee cannot be excluded from the regular rate of pay. In short, plaintiffs contend direct payments to employees who waive health insurance, the opt out fee cannot be excluded from the employee’s “regular rate of pay” pursuant to 29 U.S.C. § 207(e)(4). Flores v. City of San Gabriel, 824 F.3d 890, 901-02 (9th Cir. 2016), cert. denied, 137 S. Ct. 2117 (2017).
However, this action is primarily a dispute over whether the fee constitutes an unlawful deduction for which Plaintiffs are entitled to restitution. Because the FLSA involves overtime claims, the suit seeks restitution by alleging no overtime can be deemed paid until these Opt-out Fee deductions are repaid. The FLSA also prohibits deductions unless they are voluntary and the employer derives no benefit from the deduction. Here, Plaintiffs contend the deductions are involuntary and benefit the County by defraying its labor costs. Finally, the FLSA requires overtime rates to be calculated on a pre-deduction basis. 29 C.F.R. § 531.37(b).
Watch the oral arguments below:
