Local 246 Utility Workers Union of America v. Southern California Edison Co.

• Decision Date: 06 May 1996
• Docket Number: No. 94-56051,94-56051
• Citation: 83 F.3d 292
• Parties: , 131 Lab.Cas. P 33,393, 3 Wage & Hour Cas.2d (BNA) 449, 96 Cal. Daily Op. Serv. 3152, 96 Daily Journal D.A.R. 5206 LOCAL 246 UTILITY WORKERS UNION OF AMERICA; Local 47 International Brotherhood of Electrical Workers; Cyril Douglas Payne; Walter R. Pierce, Plaintiffs-Appellants, v. SOUTHERN CALIFORNIA EDISON COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 292

83 F.3d 292

64 USLW 2764, 131 Lab.Cas. P 33,393,

3 Wage & Hour Cas.2d (BNA) 449,

96 Cal. Daily Op. Serv. 3152,

96 Daily Journal D.A.R. 5206

LOCAL 246 UTILITY WORKERS UNION OF AMERICA; Local 47 International Brotherhood of Electrical Workers Cyril Douglas Payne; Walter R. Pierce Plaintiffs-Appellants, v. SOUTHERN CALIFORNIA EDISON COMPANY, Defendant-Appellee.

No. 94-56051.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Nov. 13, 1995.

Decided May 6, 1996.

Anthony R. Segall, Pasadena, California, for plaintiffs-appellants.

Kenneth E. Johnson, Los Angeles, California, for defendant-appellee.

Appeal from the United States District Court for the Central District of California; J. Spencer Letts, District Judge, Presiding.

Before: FLETCHER, CANBY, and HAWKINS, Circuit Judges.

CANBY, Circuit Judge:

I.

Two employees, joined by their unions, brought this action against their employer, Southern California Edison Company, alleging that Edison's method of calculating overtime compensation for partially disabled workers violates the Fair Labor Standards Act ("Act" or "FLSA"), 29 U.S.C. §§ 201-19. The question at issue is whether certain supplemental payments, designed to bring the wage of a partially disabled worker up to his or her predisability wage level, should be included in the base figure upon which time-and-a-half overtime pay is calculated. For many years, Edison had not included such payments in determining the amount to be paid for overtime, and until recently the unions had voiced no objection. The district court found that the relevant terms of the Collective Bargaining Agreement ("Agreement") and the Comprehensive Disability Plan ("Plan") were ambiguous. It then ruled that the parties' longstanding practical construction of the agreements indicated that their intent was not to treat the supplemental payments as part of the regular base wage for purposes of calculating overtime rates. The district court therefore granted Edison's motion for summary judgment. We reverse. ¹

II.

Edison negotiated collective bargaining agreements with each of the plaintiff unions, covering the bargaining units in which the two plaintiff employees worked. Edison also separately negotiated the benefit Plan. Under the Plan,

An employee who recovers from a disability but cannot perform his/her regular and customary work and is reassigned to other duties at a lower weekly wage than his/her former Regular Weekly Wage (as defined in Section 11) will, upon reassignment to such other duties and lower classification, receive benefits that are designed to provide supplemental disability payments equal to the difference between the employee's former Regular Weekly Wage at the time of disability and the weekly wage applicable to his/her current lower classification.

The Regular Weekly Wage is defined in the Plan as "[t]hat compensation paid each covered employee for services of 40 hours per week rendered at the specific straight time hourly wage rate last in effect prior to the commencement of disability." In other words, an employee reassigned to a lower classification because of a disability receives, on his or her pay check, wages for hours worked at the lower rate as well as the "supplemental payment" constituting the difference between the lower wage rate and the employee's previous regular weekly wage. At least since November 1992, Edison has paid all of these supplemental payments from its general funds, not from a trust. Payroll taxes are deducted from the supplemental payments.

Employees working overtime must be compensated at not less than one-and-one-half times the regular rate of compensation. 29 U.S.C. § 207(a)(1). Because Edison does not consider the supplemental payments as part of the employee's regular rate of compensation, it computes overtime pay at one-and-one-half times the wage rate applicable to the lower classification. The employees contend that this method of computation violates 29 U.S.C. § 207(a)(1) by paying them for overtime at a rate less than one-and-one-half times their regular rate, properly calculated. We conclude that the employees are correct.

Edison argues that its exclusion of the supplemental payments from the overtime pay calculation is justified under the final clause of 29 U.S.C. § 207(e)(2). That section excludes from the "regular rate"

payments made for occasional periods when no work is performed due to vacation, holiday, illness, failure of the employer to provide sufficient work, or other similar cause; reasonable payments for traveling expenses, or other expenses, incurred by an employee in the furtherance of his employer's interests and properly reimbursable by the employer; and other similar payments to an employee which are not made as compensation for his hours of employment....

29 U.S.C. § 207(e)(2) (emphasis added). We conclude, however, that the supplemental payments fail to qualify as "similar payments which are not made as compensation for [the employee's] hours of employment." The entire function of these supplemental payments is to ensure that the workers are paid for their new, lower-classified work at the rate that they used to be paid for their pre-disability work. The payments necessarily compensate for hours of employment because they supplement a regular wage paid for work performed. As a consequence, they may not be excluded from the regular rate.

Edison argues that the Plan's reference to a "regular weekly wage" implies that the supplemental payments are not tied to hours but rather to the regular weekly wage, which is set at forty hours per week. But pay or salary that is paid by the week or longer period is still counted in calculating the regular hourly rate. 29 C.F.R. § 778.109. The key point is that the pay or salary is compensation for work, and the regular rate therefore must be calculated by dividing all compensation paid for a particular week by the number of hours worked in that week. Id. Thus it makes no difference whether the supplemental payments are tied to a regular weekly wage or regular hourly wage. ²

Edison further argues that the supplemental payments are not compensation for hours worked, but rather are paid because the employee is disabled. The two purposes, however, are not mutually exclusive. It is true that these supplemental payments are normally paid only to employees disabled from performing a higher-paying job, but their function is to permit those employees to be paid at a higher rate for working at an otherwise lower-paying job. Because the payments are compensation for that lower-classification work, they are not exempt under section 207(e)(2). Moreover, in some instances supplemental payments are made to employees who are not disabled. The letter that Edison sent to one of the employees receiving supplemental payments states:

Should you receive a full medical release for your regular and customary occupation, and when an opening occurs, you are eligible to bid, transfer, or apply through the Company's JOIS system to become a candidate for your former classification. If this should occur, you will be treated like all other SCE employees in contention for the position. If your regular and customary occupation is not available, or should you fail at attempts to re-obtain that job, your benefits will continue as described above.

(emphasis in original). Thus, a supplemental payment is not solely tied to disability, but is akin to a so-called "red circle" rate--a rate higher than that normally called for by the job--to which an employee may be entitled for any number of reasons. Such "red circle" wages are clearly compensation for hours worked. ³ Although it is rare for Edison to make supplemental payments to employees who are no longer disabled at all, the fact that the Plan permits the practice lends support to our conclusion that supplemental benefits are best characterized as compensation for hours worked.

Because Edison has failed to demonstrate that supplemental payments may be excluded from the regular rate of compensation, it must include these supplemental payments in the regular rate used to calculate overtime. See Idaho Sheet Metal Works, Inc. v. Wirtz, 383 U.S. 190, 209, 86 S.Ct. 737, 748-49, 15 L.Ed.2d 694 (1966) (employer bears burden of establishing exemption under portion of Fair Labor Standards Act).

III.

Edison contends that, even if its argument under section 207(e)(2) is rejected, some of the supplemental payments should be excluded from calculation of the regular rate under section 207(e)(4). That section provides that an employee's regular rate of pay shall not include

contributions irrevocably made by an employer to a trustee or third person pursuant to a bona fide plan for providing ... accident, or health insurance or similar benefits for employees....

29 U.S.C. § 207(e)(4). On this record, however, there is no indication that any of the supplemental payments to the employees consisted of contributions made by Edison irrevocably to a trust. Section 207(e)(4) deals with contributions by the employer, not payments to the employee. If the employer meets the requirements of section 207(e)(4) in making irrevocable contributions to a trust, then those contributions will not be added to the regular pay rate on the theory that they are a form of indirect bonus to the worker. See 29 C.F.R. § 778.214(c) ("It should be emphasized that it is the employer's contribution made pursuant to the benefit plan that is excluded from or included in the regular rate according to whether or not the requirements set forth in § 778.215 are met."). The supplemental payments made to the employees pursuant to the Plan were measured by the difference between the employees' pre-disability pay rates and their pay rates at the lower-paying jobs they performed after disability. Edison has not shown that any part of this differential was composed of payments that Edison made irrevocably to a trust....