SCOTUS Declines to Resolve Whether “Cash-in-Lieu” of Benefits Impacts Overtime Calculations

Last week, the U.S. Supreme Court declined a California city’s petition to resolve a split between federal circuits as to whether payments made as part of a “cash-in-lieu” of benefits program must be factored into an employee’s regular rate of pay for overtime considerations. Flores v. City of San Gabriel (U.S. 2017).

The issue arose when a group of police officers sued the City of San Gabriel, California, alleging the City’s failure to include cash payments provided to employees who declined to purchase medical, vision, and dental benefits (employees who may, for example, have coverage under a spouse’s plan) in the determination of their regular rate of pay for overtime considerations was a violation of the Fair Labor Standards Act. Despite arguments that the cash payments are “entirely unrelated” to an employee’s hours of employment, both the District Court and the Ninth Circuit Court of Appeals agreed with the police officers and held that such payments must be factored into an employee’s regular rate of pay for overtime calculation purposes. In January 2017, the City of San Gabriel petitioned the U.S. Supreme Court to resolve this issue, contending that the Ninth Circuit’s position was directly contrary to that of other federal circuits. The U.S. Supreme Court denied the City’s petition earlier this week.

The U.S. Supreme Court’s determination not to resolve the issue leaves many employers in limbo, particularly those who may have similar programs in different states where federal circuit courts have different opinions on whether these sorts of “cash-in-lieu” payments must be factored into an employee’s regular rate of pay for overtime purposes.

If you have questions or concerns about similar programs in your own organization, contact your MSEC representative.