Federal Court Rejects Exclusion of Holiday-in-Lieu Payments From Overtime

By David E. Mastagni and Tashayla D. Billington
Mastagni Holstedt, APC


Our law enforcement and firefighter clients know all too well that they won’t have every holiday off with their families. Public safety services are required every day of the year. This means that if your schedule lands on a holiday, you are required to work. To compensate employees for these schedules, public agencies and their unions often negotiate “holiday-in-lieu” pay.

Just a few days before Christmas 2020, plaintiff and president of the Richmond Firefighters Association, IAFF Local 188, Luis Padilla won a motion to dismiss the association’s complaint based on the City of Richmond’s failure to include “holiday-in-lieu” payments in the regular rate of pay under the Fair Labor Standards Act (FLSA). The Mastagni firm filed Padilla v. City of Richmond, 4:20-cv-04597-PJH (N.D. Cal.) on July 10, 2020, seeking back pay for the underpayment of overtime.

The plaintiffs’ complaint asserted the City was required to include holiday-in-lieu payments in the “regular rate of pay” for the purposes of overtime payment. Generally, all compensation is included in the regular rate, unless subject to one of the FLSA’s exclusions. Employers typically argue that FLSA section 207(e)(2) excludes holiday-in-lieu payments. Section (e)(2) provides that “payments made for occasional periods when no work is performed due to … holiday” may be excluded from the regular rate.

Numerous California federal district courts, including cases handled by the Mastagni law firm, have determined that section (e)(2) does not exclude holiday-in-lieu payments. However, the Department of Labor (DOL) cursorily stated that it disagreed with these well-reasoned opinions when it issued amendments to its regulations, effective January 2020.

The DOL issued notice that it intended to amend its regulations, essentially codifying the Ninth Circuit’s ruling in Baletrieri v. Menlo Park Fire Protection District that held that cash-outs of leave banks can be excluded from the regular rate of pay. The International Municipal Lawyers Association (IMLA) seized the opportunity to pitch its policy request and asked the DOL to determine that firefighters’ 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 — the “firefighter example.” Employers would like to assert that the “firefighter example” applies equally to law enforcement schedules.

Based on the new “firefighter example,” the City filed a motion to dismiss the plaintiffs’ complaint on September 22, 2020, arguing that the court must defer to the DOL.

The plaintiffs’ counsel, David E. Mastagni and Tashayla Billington, successfully opposed the motion through briefing and oral argument before Judge Hamilton in the Northern District. The plaintiffs argued that the court should not simply defer to the new DOL regulation, which attempted to replace reasoned jurisprudence of the California district court with this DOL administration’s policy preferences.

The plaintiffs argued that the rule-making process was defective due to lack of notice that would let law enforcement and fire unions know the DOL planned to overrule the district courts and exclude holiday-in-lieu pay. They also argued that the exclusion found in section 207(e)(2) of the FLSA unambiguously did not permit the City to exclude the payments. The plaintiffs further asserted that even if the statute was ambiguous, the firefighter rule was not entitled to any deference because it conflicted with the regulation it sought to exemplify.

On December 23, 2020, Judge Hamilton denied the City’s motion to dismiss. While the court found section 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 reasoned that the “firefighter example” was not persuasive because it contradicts section 207(e)(2)’s requirement that the payment is “made for occasional periods when no work is performed.” Similarly, the “firefighter example” conflicts with the regulation that requires employees be “entitled” to paid leave and “forgo” the use of the leave. As the plaintiffs argued, public safety employees can never forgo the use of leave they are not entitled to.

This ruling represents a significant victory for public safety employees nationwide and a warning against reliance on the DOL’s arbitrary “firefighter example” to exclude holiday-in-lieu payments from the regular rate of pay under the FLSA.

Partner David E. Mastagni and Senior Associate Tashayla D. Billington in the Labor & Employment Department of Mastagni Holstedt, APC, represented Local 188 members in this case.

Mastagni Holstedt, APC, is the general counsel for LAAPOA. The firm provides legal services in the following areas for our members: workers’ compensation, personal injury, criminal defense, civil litigation defense and retirement law.