Wage and Hour Traps for Massachusetts Municipalities - FLSA (Part I)

Seyfarth Synopsis:  Massachusetts municipalities have a lot on their plate.  They are large and complex organizations that provide critical services to their constituents in accordance with (often strict) budgets.  As cities and towns must deal with whatever problem walks through the door on any given day, they can be necessarily reactive organizations.  But as employers of large, diverse, and heavily unionized workforces, municipalities must be mindful of their compliance with the bevy of wage and hour laws that apply to them.  Those compliance obligations are made much more difficult by the fact that the governing statutes, which were intended primarily to regulate private employers, are often a clumsy fit for the municipal employment relationship and do not neatly align with obligations that have been enshrined in collective bargaining agreements between municipalities and the unions that have represented municipal workers for decades.  In recent years, unions and attorneys representing municipal employees have undertaken to weaponize the state’s stringent wage and hour laws, along with the inherent tension between those laws and the nature of municipal collective bargaining, to assert high-value, class and collective action claims against cities and towns across the Commonwealth.

This article is the first in a two-part series that explores the wage and hour laws that most frequently impact municipal employers.  In this Part I, we discuss the Fair Labor Standards Act (the “FLSA”), 29 U.S.C. § 201, et seq., which governs federal minimum wage and overtime obligations.  In Part II, we focus on state law considerations, particularly the Massachusetts Wage Act (the “Wage Act”), G.L. c. 149, §§ 148, 150.  Both laws impose significant (and often misunderstood) obligations on municipalities, while also providing certain concessions that municipalities should understand.  Municipal law departments would be wise to familiarize themselves with these laws, and to engage with experienced wage and hour counsel to ensure they understand the risks and safe harbors that those laws present.

I. A Brief Two-Paragraph History

The FLSA was originally enacted in 1938 and required that covered employers pay employees a minimum rate for all hours worked and overtime (at a premium rate of time-and-a-half their regular rate) for hours worked over forty in a work week.  For decades, these laws did not apply to municipal employers, likely in recognition of the lack of fit between those laws and the municipal employment relationship and the burdens that compliance would impose on cities and towns.  However, in 1974, Congress amended the FLSA to apply to state and local governments.  Initially, in 1976, the U.S. Supreme Court held that applying the FLSA to state and local governments was unconstitutional, to the extent that the statute served to regulate traditional state functions.  But nine years later, in 1985, the U.S. Supreme Court reversed course, and confirmed that the FLSA applied to state and local governments. 

Understandably, municipalities around the country expressed grave concerns regarding the potential costs, especially overtime-related costs of complying with the FLSA, in addition to their longstanding, collectively bargained wage obligations and any state-level wage and hour laws to which they were subject.  Municipal collective bargaining agreements (“CBAs”) often provide unionized employees with generous overtime provisions, including paying overtime in instances not required by the FLSA.  They also frequently provide various other forms of pay that are not as common in the private sector or non-union context, such as shift differentials, pay tied to educational attainment, and various other stipends or other pay for trainings, certifications, or other work.  Such municipal CBAs can provide significant compensation not normally available to workers who typically receive overtime pay under the FLSA, and those bargained-for benefits can become the basis for claims under the FLSA, if collective bargaining obligations are not harmonized with the relevant statutory requirements.

II.  FLSA Considerations for Municipal Bargained-For Employees

Although both the FLSA and municipal CBAs may provide for overtime to municipal workers, there are often significant differences between statutory and contractual obligations pertaining to when overtime must be paid and how that overtime pay is calculated.  As such, properly paying FLSA overtime does not necessarily satisfy contractual overtime requirements, and properly paying contractual overtime does not necessarily satisfy the FLSA overtime requirements. 

a. Calculation of FLSA Overtime and Contractual Overtime May Differ

The FLSA provides a specific (but not always clear) formula for how FLSA overtime must be calculated.  FLSA overtime must be paid at one-and-a-half times each individual worker’s regular rate of pay.  Generally speaking, the regular rate of pay is calculated by taking all compensation to an employee, divided by all hours worked by the employee during the work period, subject to certain exceptions permitted by the statute.  29 U.S.C. § 207(e).  Those statutory obligations are not subject to modification in the collective bargaining process, and depending upon their characteristics, additional forms of compensation provided by municipal CBAs may or may not meet the statutory exceptions.  As a result, disputes over whether certain payments and perquisites provided by municipal CBAs must be included in the calculation of municipal employees’ overtime rates for FLSA purposes have become common.

b. Offsets of FLSA Overtime Based on Contractual Premium Pay

Certain forms of additional compensation provided by municipal CBAs are not only excludable from the regular rate calculation (which thus lowers the FLSA overtime rate), but also can offset against FLSA overtime that an employee is due.  29 U.S.C. § 207(e)(5)-(7); 29 U.S.C. § 207(h)(2).  Two common examples are certain premiums paid for working on holidays and weekends, or outside an employee’s normal working hours.  For instance, if a CBA provides that an employee will be paid contractual overtime at a rate of one-and-a-half times their base rate of pay, the municipality may be able to offset the premium portion of that contractual overtime pay (e.g. the “one-half” of the “one-and-a-half”) from any overtime obligations under the FLSA.  Given that municipal CBAs can provide multiple types of premium pay, these potential offsets can be substantial and can be leveraged to decrease payroll costs or as a defense to certain claims that employees might assert under the FLSA.

c. Compensatory Time

The FLSA permits municipalities to provide employees compensatory time off in lieu of FLSA overtime, but only if certain conditions are met.  While use of compensatory time can ease municipal coffers, this reprieve can be short-lived if compensatory systems do not satisfy all of the conditions and lead to claims for unpaid overtime.  Municipalities must be aware of these conditions to ensure compliance with the FLSA.

d. Specific Provisions for Fire Protection and Law Enforcement Employees

The FLSA contains additional provisions applicable only to fire fighters and police officers.  Generally speaking, these provisions provide limited relief from overtime pay requirements due to the unique nature of fire and police departments, including their atypical schedules and performance of detail work.  Although not discussed in detail here, there are also special rules for occasional and sporadic work for other agencies (29 U.S.C. § 207(p)(2)) and shift swaps (29 U.S.C. § 207(p)(3)), which can come into play as well.  Municipalities that seek to take advantage of the benefits of these provisions must comply with the technical requirements of those provisions in order to avoid potential overtime violations under the FLSA.

i. A 207(k) Extended Work Period

Section 207(k) of the FLSA permits municipalities to implement a work period, in lieu of FLSA’s standard, 7-day workweek, of up to 28 days and 171 hours (for police officers) or 212 hours (for fire fighters).  Such longer work periods can reduce the overtime cost for municipalities by smoothing out spikes in hours that can result from varying work schedules over a longer work period.  Notably, under the FLSA there is no obligation to bargain with unions over the implementation of the FLSA, but the Massachusetts Supreme Judicial Court has held that where the change would result in a change to the amount of overtime they receive, it is a bargainable issue. 

ii. Police / Fire Details

In many Massachusetts municipalities, police officers (and sometimes fire fighters) have the opportunity to work paid details, outside of their regularly assigned shifts and duties.  29 U.S.C. § 207(p)(1).  A typical example is a police officer directing traffic when construction or other work is performed on a municipal road.  The FLSA permits details worked for parties that are separate and independent from the municipal employer to be excluded from overtime pay obligations under the FLSA, but details worked directly for a municipality cannot be similarly excluded.  Considerable litigation has arisen from municipal employers’ detail pay practices, including with respect to the rate paid for such details and how they are treated for overtime purposes.  Municipalities need to be cognizant of how they distinguish between municipal details and those worked for separate third parties to ensure that the premium rates typically paid for details do not become fodder for overtime claims.

III. Risks, Mitigation and Takeaways

The FLSA offers a host of pitfalls for even the most overtime-savvy municipalities in the Commonwealth, and the consequences of an error can be severe.  Successful plaintiffs will be able to recover back wages for a period of at least two years from the date of filing the lawsuit, and up to three years if they can prove a willful violation.  Moreover, courts often award liquidated damages in the amount of twice the back wages at issue, unless the municipality can demonstrate that it operated in good faith.

Municipalities should assess their overtime practices and compliance with the FLSA, with a particular eye toward ensuring that their employees’ collectively bargained wages and benefits are properly handled under the statute.  Consultation with counsel who have experience in municipal wage and hour matters can also help to ensure that a municipality’s overtime practices are compliant, and if there is any question, assist in designing appropriate changes.  As importantly, good faith reliance on the advice of experienced counsel can serve as a defense to an award of double damages in an FLSA lawsuit and rebut a claim that an alleged violation was willful and subject to an extended limitations period under the statute, thus materially reducing exposure, if a lawsuit is brought.