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City victory scored in wage ruling.

The National League of Cities and cities and towns across the country won a significant legal victory last week when a federal appeals court overturned a lower court decision, ruling in favor of the position taken by the City of Omaha and NLC in a case concerning the Fair Labor Standards Act (FLSA).

The U.S. Court of Appeals (8th Cir.) decision in McDonnell v. City of Omaha, (No. 92-3073) heads off a potentially serious fiscal liability for municipal governments and will better define and limit the liability of municipal governments to pay overtime wages to their employees.

The Court of Appeals overturned a U.S. District Court decision against Omaha, by ruling that the city did not have to pay five current and former assitant fire chiefs overtime wages for extra work they had performed. The lower court decision would have cost the City of Omaha $67,000 in overtime payments to these chiefs.

The court ruled the chiefs were exempt from being paid overtime wages under FLSA since they were employed in a bona fide adminstrative capacity. This decision also reduced the possibility that any of the other 500 city employees covered by the overtime pay exemption will sue.

The ruling in this case resulted from the work of the City of Omaha and an unprecedented effort bY NLC, which participated in oral argument of the case and received financial support from state leagues across the country.

This is an extremely important decision for the nation's cities because it goes against the 9th Circuit Court of Appeals decision in Abshire v. County of Kern, a case similar to Omaha's.

The decision in Abshire created enormous potential costs for cities throughout the 9th Circuit, including Los Angeles which would have to pay millions of dollars a year in extra overtime wages if their employee compensation system is ruled to violate the FLSA.

The FLSA requires that employers pay overtime wages to any employee who works in excess of 40 hours per week. The Act however, exempts all bona fide executive and administive employees from overtime wages.

Employees are considered to be bona fide executives or administrators under the FLSA, if their duties are executive or administrative in nature, and they are salaried employees whose salary will not be reduced because of variations in the quantity or quality of the work they perform.

Under Omaha's compensation system, assitant fire chiefs are paid a set salary amount which will not be reduced for part days missed from work unless the employee has no accumulated leave time available to substitute for the. work time missed.

Omaha argued that the chiefs were exempt from receiving overtime wages under the system because their duties and salary met the FLSA's exemption requirements for a bona fide administrative employee.

The chiefs agreed that they met the "duties test" of a bona fide administrative employee, but claimed because of the decision Abshire, they could not be considered salaried employees because their pay was subject to reduction for absences of less than a day for personal reasons, sickness or disability.

In Abshire the 9th Circuit said that the mere possibility of an employee's wage being reduced was enough for the employee to lose the exemption against overtime pay, even if no actual deduction of wages was made.

The Court Of Appeals rejected this argument and agreed with Omaha and the NLC's that the reduction of personal leave time, while a part of an employee's compensation, did not constitute, a part of the employee's salary.

Therefore, the court found that an,employee will only loose the overtime wage exemption under the FLSA, when money from the employee's is actually used to compensate for time missed by that employee.

This decision is important because it allows municipal governments to continue to regulate the work of their essential employees. Municipal governments will also be able to continue important and necessary programs without the fear and encumbrance of having to pay their executive and administrative personnel enormous amounts in overtime wages.

The decision of the 8th Circuit in this case sets up the potential for Supreme Court review of this issue to decide which court case was correctly decided in light of the FLSA, Abshire or Omaha.
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Title Annotation:McDonnell vs. City of Omaha
Author:Provost, Thomas
Publication:Nation's Cities Weekly
Date:Jul 19, 1993
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