Wide-Ranging Decision On FLSA Implications Of Premium Pay

A group of paramedics working for the Chicago Fire Department sued the City, claiming that the City violated the Fair Labor Standards Act (FLSA) by failing to include in the overtime rate a variety of premium pays. The dispute led to a wide-ranging decision by a federal district judge on whether different forms of premium pays should be included in the overtime rate.

First up were (1) the Fitness Pay of $350 if a paramedic participated in a voluntary, off-hours fitness test and passed the minimum standard; (2) the Specialty Pay to paramedics for maintaining Hazmat or Scuba certifications; and (3) the Duty Availability Pay based on education achievement or certification. The Court found that all three of these payments should be included in the FLSA overtime rate.

The question was whether the payments fell within an exception known as Section 207(e)(2), which states that payments “not made for hours worked” need not be included in the overtime rate. The Court found that the exception did not apply to the premium payments: “Courts have held that Section 207(e)(2) does not exclude every payment not measured by hours of employment from the regular rate. One court held that payments for shift differentials, hazardous duty pay, bonuses for education degrees, and longevity pay did not fall within Section 207(e)(2) and must be included in the regular rate upon which overtime is calculated.

“Other courts have also held that payments that compensate for service, even when not attributable to particular hours worked, must be included in the regular rate in calculating overtime pay. For example, one court held that incentive payments for longevity, education, and senior officers must be added into the basic annual salary in calculating overtime.

“Here, the payments at issue do not fall within Section 207(e)(2). The payments here do not share the essential characteristic of the other types of compensation for non-work identified in Section 207(e)(2), such as holiday pay or traveling expenses. Instead, Fitness Pay, Specialty Pay, and Duty Availability Pay can be viewed as compensation for services provided to the City by the paramedics. The fact that the payments are not tied to specific hours does not mean that they fall within the statutory exclusions. Indeed, these payments are akin to nondiscretionary bonuses; under the CBA, the City has no discretion whether to pay them if the paramedics fulfill the conditions required for the payment. Nondiscretionary bonuses must be included in the regular rate for purposes of overtime.”

Next up were Driving Pay and Acting Pay, additional sums paid for the additional duties of driving an ambulance and working in a higher rank, respectively. The Court found that these too must be included in the overtime rate: “The City has not responded to the paramedics’ argument regarding these payments and therefore has waived this issue. Such temporary raises in pay must be factored into the FLSA pay calculations for the week in which they were earned.”

Last up was the question of offsets against the City’s FLSA liability. The City paid overtime for work outside of the paramedics’ regularly-scheduled shifts at the rate of time and one half. Under Section 207(h) of the FLSA, the City was entitled to a credit for the half-time portion of that pay because the half-time portion represents “extra” compensation under the FLSA. The question was whether the credit was available to the City only to offset overtime worked in the same work period or whether the credit could be applied against overtime liability in other work periods.

The Court found that the City was “only permitted to credit that half-time portion towards the paramedics’ FLSA pay only when the paramedics had earned both FLSA pay and overtime in the same workweek. In other words, if a paramedic was regularly scheduled for one 24-hour shift and then also worked an overtime shift during that same week, the City could not credit that overtime toward FLSA pay earned in another week.”

Caraballo v. City of Chicago, 2013 WL 4552255 (N.D. Ill. 2013).