Authored by Laura Reasons

In an important victory for the City of Albuquerque, the Tenth Circuit in Chavez v. City of Albuquerque issued an opinion upholding a decision of the District of New Mexico.

The Tenth Circuit held:  (1) the City’s dual calculation method does not violate the Fair Labor Standards Act (“FLSA”); (2) sale back proceeds for sick leave are includable in the regular rate calculation while those for vacation days are not; (3) paid time off, paid under the CBA but not required under the FLSA, is not hours worked for purposes of calculating the regular rate under the FLSA; (4) the proper divisor for calculating the regular rate is the number of hours actually worked, not 40; and (5) the City’s use of a one-half multiplier is also proper.

Plaintiffs filed suit on behalf of themselves and all similarly situated employees, arguing that the City’s method of calculating the regular rate violates the FLSA because it fails to include certain add-ons and bonuses.  They argued further that the City improperly calculates overtime by dividing by the total number of hours worked in the regular workweek, rather than by 40; and by using a one-half multiplier rather than a one-and-one half multiplier.

Plaintiffs also argued that the City’s “dual calculation method” is improper.  The City calculates the amount of overtime due to an employee under the FLSA, then makes a separate and distinct calculation under applicable CBAs.  It compares the two amounts and pays employees whichever is greater, ensuring employees are always paid at least as much as they are entitled to under the FLSA, if not more.  Plaintiffs argued that the City should, instead, somehow combine requirements of the CBAs with requirements of the FLSA.

The District Court ruled for the City on all claims, except the claim that the City improperly fails to include the proceeds of vacation and sick leave buy back in the regular rate calculation.  The City and Plaintiffs appealed.

Until this decision, only two other Courts of Appeal had ruled on the issue of the inclusion of sick leave sale back proceeds in the regular rate calculation.  This issue arises when an employee does not use all of his or her vacation or sick days and, as provided for in the CBAs, sells the vacation or sick days back to the City.  Previously, the Eighth Circuit in Acton v. City of Columbia held that sick leave buy back must be included in the regular rate calculation; while the Sixth Circuit in Featsent v. City of Youngstown ruled the opposite way. 

Following a Department of Labor (“DOL”), Wage & Hour Division Opinion Letter, the Tenth Circuit split the baby, so to speak, ruling that sick leave sale back proceeds must be included in the regular rate calculation, while those for vacation days need not be.  This case creates important precedent in a not often litigated area.