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Flores v. City of San Gabriel: What Your Agency Needs to Know

County Personnel Administrators Association of California (CPAAC) Fall Conference | September 29, 2016
Presented by: Lisa S. Charbonneau

Definition of a Bona Fide Plan

• General Rule under FLSA: Payments to a benefits plan are
excluded from the regular rate only if the plan is “bona fide”.
– A “bona fide” plan must not give employees the option to
receive any part of the employer’s contributions in cash,
unless the amount of cash is “incidental”.
– Where a plan is not bona fide, all payments to the plan must
be included in the regular rate, in addition to cash in lieu
payments.

• Per Flores: If total cash in lieu payments are greater
than 40% of the total plan payments, the payments are
more than “incidental” and the plan is not “bona fide”.
– This means all payments to the plan must be included in the
regular rate.

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Are the Cash Payouts “Incidental”
per Flores?

• What is “incidental”?

– The Ninth Circuit said little about the definition of
“incidental” except that the City’s payments, which were
42-46% of the City’s total plan payments, were not
incidental.

– We recommend assuming that cash payments over 40%
of the total are more than incidental, based on the Flores
decision.

– Even if your cash payments are less than 40%, your
plan may still be at risk under Flores.
 Evaluate each plan on a case-by-case basis.

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The Bona Fide / Incidental Analysis 5

• Step 1: Identify the plan and all plan participants.
• Step 2: Identify total plan payments.

– Total plan payments = cash in lieu payments + payments
employer made to the plan to cover premiums.

• Step 3: Calculate cash in lieu payments as a percentage
of the total plan payments.

• Step 4: What is the percentage? Is it over 40%? If less
than 40%, how close to 40%?

The analysis is plan-wide, i.e. in the
aggregate, not employee-by-employee.

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