                FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

DANNY FLORES; ROBERT BARADA;          Nos. 14-56421
KEVIN WATSON; VY VAN; RAY                  14-56514
LARA; DANE WOOLWINE;
RIKIMARU NAKAMURA;                        D.C. No.
CHRISTOPHER WENZEL; SHANNON           2:12-cv-04884-
CASILLAS; JAMES JUST; STEVE              JGB- JCG
RODRIGUES; ENRIQUE DEANDA,
              Plaintiffs-Appellees/
                Cross-Appellants,       OPINION

               and

CRUZ HERNANDEZ,
             Plaintiff-Appellee,

               and

GILBERT LEE; RENE LOPEZ,
                       Plaintiffs,

                v.

CITY OF SAN GABRIEL,
             Defendant-Appellant/
                  Cross-Appellee.
2               FLORES V. CITY OF SAN GABRIEL

         Appeal from the United States District Court
             for the Central District of California
          Jesus G. Bernal, District Judge, Presiding

           Argued and Submitted February 10, 2016
                    Pasadena, California

                         Filed June 2, 2016

          Before: Stephen S. Trott, Andre M. Davis*,
             and John B. Owens, Circuit Judges.

                    Opinion by Judge Davis;
                  Concurrence by Judge Owens


                           SUMMARY**


                             Labor Law

    On an appeal and a cross-appeal, the panel affirmed in
part and reversed in part the district court’s summary
judgment partially in favor of the plaintiffs in an action under
the Fair Labor Standards Act, alleging that the City of San
Gabriel failed to include payments of unused portions of
police officers’ benefits allowances when calculating their



    *
   The Honorable Andre M. Davis, Senior Circuit Judge for the U.S.
Court of Appeals for the Fourth Circuit, sitting by designation.
  **
     This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
              FLORES V. CITY OF SAN GABRIEL                    3

regular rate of pay, resulting in a lower overtime rate and a
consequent underpayment of overtime compensation.

    The district court agreed with the plaintiffs that the City’s
cash-in-lieu of benefits payments were not properly excluded
from its calculation of the regular rate of pay, except to the
extent that the City made payments to trustees or third parties.
The district court held that the plaintiffs were restricted to a
two-year statute of limitations because the City’s violation
was not willful. The district court also found that the City
qualified for a partial overtime exemption, limiting its
liability for overtime to hours worked in excess of 86 in a
14-day work period.

    The panel held that the City’s payment of unused benefits
must be included in the regular rate of pay and thus in the
calculation of the overtime rate for its police officers. The
panel held that the City’s violation of the Act was willful
because it took no affirmative steps to ensure that its initial
designation of its benefits payments complied with the Act
and failed to establish that it acted in good faith. Accordingly,
the plaintiffs were entitled to a three-year statute of
limitations and liquidated damages for the City’s violations.
The panel also concluded, however, that the City had
demonstrated that it qualified for the partial overtime
exemption under § 207(k) of the Act, limiting its damages for
the overtime violations.

   Judge Owens, joined by Judge Trott, wrote that he
concurred fully in the majority’s opinion but believes that the
court’s willfulness caselaw is off track.
4             FLORES V. CITY OF SAN GABRIEL

                         COUNSEL

Brian P. Walter (argued) and Alex Y. Wong, Liebert Cassidy
Whitmore, Los Angeles, California, for Defendant-
Appellant/Cross-Appellee.

Joseph N. Bolander (argued), Brandi L. Harper, and
Christopher L. Gaspard, Gaspard Castillo Harper, APC,
Ontario, California, for Plaintiffs-Appellees/Cross-
Appellants.


                          OPINION

DAVIS, Circuit Judge:

    Plaintiffs-Appellees and Cross-Appellants Danny Flores,
Robert Barada, Kevin Watson, Vy Van, Ray Lara, Dane
Woolwine, Rikimaru Nakamura, Christopher Wenzel,
Shannon Casillas, James Just, Steve Rodrigues, and Enrique
Deanda and Plaintiff-Appellee Cruz Hernandez (collectively,
“Plaintiffs”) are current or former police officers employed
by the City of San Gabriel, California (“City”). The Plaintiffs
brought suit against the City for violations of the Fair Labor
Standards Act (“FLSA”), 29 U.S.C. §§ 201–19, alleging that
the City failed to include payments of unused portions of the
Plaintiffs’ benefits allowances when calculating their regular
rate of pay, resulting in a lower overtime rate and a
consequent underpayment of overtime compensation. The
Plaintiffs asserted that the City’s violation of the FLSA was
“willful,” entitling them to a three-year statute of limitations
for violations of the Act, and sought to recover their unpaid
overtime compensation and liquidated damages.
              FLORES V. CITY OF SAN GABRIEL                   5

    The City claimed that its cash-in-lieu of benefits
payments were properly excluded from the Plaintiffs’ regular
rate of pay pursuant to two of the Act’s statutory exclusions
and argued that it qualified for a partial overtime exemption
under § 207(k), which allows public agencies employing
firefighters or law enforcement officers to designate an
alternative work period for purposes of determining overtime.
The City denied that any violation of the FLSA was willful
and that the Plaintiffs were entitled to liquidated damages.

    For the reasons that follow, we conclude that the City’s
payment of unused benefits must be included in the regular
rate of pay and thus in the calculation of the overtime rate for
its police officers as well. And because the City took no
affirmative steps to ensure that its initial designation of its
benefits payments complied with the FLSA and failed to
establish that it acted in good faith in excluding those
payments from its regular rate of pay, the Plaintiffs are
entitled to a three-year statute of limitations and liquidated
damages for the City’s violations. We also conclude,
however, that the City has demonstrated that it qualifies for
the partial overtime exemption under § 207(k) of the Act,
limiting its damages for the overtime violations alleged here.

                     I. BACKGROUND

   A. Statutory background

    Under the FLSA, an employer must pay its employees
premium overtime compensation of one and one-half times
the regular rate of payment for any hours worked in excess of
forty in a seven-day work week. Cleveland v. City of Los
Angeles, 420 F.3d 981, 984–85 (9th Cir. 2005) (citing
§ 207(a)). The “regular rate” is defined as “all remuneration
6             FLORES V. CITY OF SAN GABRIEL

for employment paid to, or on behalf of, the employee,”
subject to a number of exclusions set forth in the Act.
§ 207(e). The FLSA also provides “a limited exemption from
the overtime limit to public employers of law enforcement
personnel or firefighters.” Adair v. City of Kirkland, 185 F.3d
1055, 1059 (9th Cir. 1999) (citing § 207(k)). The partial
overtime exemption in § 207(k) “increases the overtime limit
slightly and it gives the employer greater flexibility to select
the work period over which the overtime limit will be
calculated.” Id. at 1060 (citation omitted).

    The FLSA provides a private cause of action for
employees to seek unpaid wages owed to them under its
provisions. § 216(b). The Act has a two-year statute of
limitations for claims unless the employer’s violation was
“willful,” in which case the statute of limitations is extended
to three years. § 255(a). An employer who violates the
FLSA’s overtime provisions is liable in the amount of the
employee’s unpaid overtime compensation, in addition to an
equal amount in liquidated damages. § 216(b). The Act
provides a defense to liquidated damages for an employer
who establishes that it acted in good faith and had reasonable
grounds to believe that its actions did not violate the FLSA.
§ 260.

    B. Factual and procedural background

       1. Flexible Benefits Plan

   The City provides a Flexible Benefits Plan to its
employees under which the City furnishes a designated
monetary amount to each employee for the purchase of
medical, vision, and dental benefits. All employees are
required to use a portion of these funds to purchase vision and
              FLORES V. CITY OF SAN GABRIEL                  7

dental benefits. An employee may decline to use the
remainder of these funds to purchase medical benefits only
upon proof that the employee has alternate medical coverage,
such as through a spouse. If an employee elects to forgo
medical benefits because she has alternate coverage, she may
receive the unused portion of her benefits allotment as a cash
payment added to her regular paycheck.

    In 2009, an employee who declined medical coverage
received a payment of $1,036.75 in lieu of benefits each
month. This amount has increased each year, so that
employees who declined medical coverage received
$1,112.28 in 2010, $1,186.28 in 2011, and $1,304.95 in 2012.
This payment appears as a designated line item on an
employee’s paycheck and is subject to federal and state
withholding taxes, Medicare taxes, and garnishment.

    In 2009, the City paid $2,389,468.73 to or on behalf of its
employees pursuant to its Flexible Benefits Plan, and it paid
$1,116,485.77 of that amount, or 46.725% of total plan
contributions, to employees for unused benefits. While the
exact figures vary each year, the percentage of the total plan
contributions that the City pays to employees for unused
benefits has remained somewhat consistent. In 2010, the City
paid $1,086,202.56 to employees for unused benefits,
reflecting 42.842% of total plan contributions; in 2011,
$1,138,074.13, or 43.934% of total plan contributions; and in
2012, $1,213,880.70, or 45.179% of total plan contributions.

    At some time prior to 2003, the City designated its cash-
in-lieu of benefits payments as “benefits” that were excluded
from its calculation of a recipient’s regular rate of pay, and,
accordingly, has not included the value of the payments in its
8             FLORES V. CITY OF SAN GABRIEL

calculation of employees’ regular rate of pay. The City has
not revisited its designation since that time.

        2. Calculation of overtime

    Since at least 1994, the City’s police officers have been
paid overtime when they have worked more than eighty hours
in a fourteen-day work period. Since at least 2003, the City’s
eighty-hour/fourteen-day work period has been memorialized
in several documents. A 2003 City resolution concerning the
“work week” states that police officers work eighty hours in
a bi-weekly period. This same eighty-hour/fourteen-day
work period was restated in the City’s Salary, Compensation
and Benefit Policy Manual, dated July 3, 2010, and in the
2005–2007 Memorandum of Understanding between the City
and the police officers’ collective bargaining unit. Because
the City’s cash-in-lieu of benefits payments are excluded
from its calculation of an officer’s regular rate of pay, the
benefits payments are not incorporated into the City’s
calculation of the officer’s overtime rate.

        3. Litigation between the parties

    The Plaintiffs instituted this suit against the City in 2012.
Following discovery, both parties moved for partial summary
judgment on the Plaintiffs’ claims. The district court agreed
with the Plaintiffs that the City’s cash-in-lieu of benefits
payments were not properly excluded from its calculation of
the regular rate of pay, except to the extent that the City
makes payments to trustees or third parties. Flores v. City of
San Gabriel, 969 F. Supp. 2d 1158, 1169–77 (C.D. Cal. 2013)
(“Flores I”). Finding that the City’s violation of the Act was
not willful, however, it held that the Plaintiffs were restricted
to the two-year statute of limitations for their claims. Id. at
              FLORES V. CITY OF SAN GABRIEL                   9

1177. The district court also found that the City qualified for
the § 207(k) partial overtime exemption and thus limited the
City’s liability for overtime to hours worked in excess of
eighty-six in a fourteen-day work period. Id. at 1177–79.
After receiving supplemental briefing, the district court
denied the Plaintiffs’ motion for partial summary judgment
on the issue of liquidated damages and sua sponte entered
summary judgment in favor of the City on that issue. Flores
v. City of San Gabriel, No. CV 12-04884-JDB (JCGx), 2013
WL 5817507, at *1 (C.D. Cal. Oct. 29, 2013) (“Flores II”).

    The City timely appealed the district court’s rulings
concerning the exclusion of the cash-in-lieu of benefits
payments from the regular rate of pay. The Plaintiffs cross-
appealed, challenging the district court’s rulings that the
payments qualified for exclusion under the Act if made to a
trustee or a third party, that the City qualified for a § 207(k)
partial overtime exemption, that the applicable statute of
limitations was two years, and that the Plaintiffs were not
entitled to liquidated damages.

              II. STANDARD OF REVIEW

    We review a grant of summary judgment or partial
summary judgment de novo, applying the same standard of
review as the district court under Federal Rule of Civil
Procedure 56. Adair, 185 F.3d at 1059; Local 246 Utility
Workers Union of Am. v. S. Cal. Edison Co., 83 F.3d 292, 294
n.1 (9th Cir. 1996). Under Rule 56, a court “shall grant
summary judgment if the movant shows that there is no
genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a). When the parties file cross-motions for summary
judgment, we review each separately, giving the non-movant
10            FLORES V. CITY OF SAN GABRIEL

for each motion the benefit of all reasonable inferences. Ctr.
for Bio-Ethical Reform, Inc. v. L.A. Cty. Sheriff Dep’t,
533 F.3d 780, 786 (9th Cir. 2008) (citation omitted).

                      III. ANALYSIS

    “The FLSA is construed liberally in favor of employees;
exemptions ‘are to be narrowly construed against the
employers seeking to assert them . . . .’” Cleveland, 420 F.3d
at 988 (quoting Arnold v. Ben Kanowsky, Inc., 361 U.S. 388,
392 (1960)). The employer bears the burden of establishing
that it qualifies for an exemption under the Act. Id. We will
not find a FLSA exemption applicable “except [in contexts]
plainly and unmistakably within [the given exemption’s]
terms and spirit.” Id. (alterations in original) (quoting Klem
v. Cty. of Santa Clara, 208 F.3d 1085, 1089 (9th Cir. 2000)).

     A. Calculation of regular rate of pay

        1. Section 207(e)(2)

    The City’s primary contention on appeal is that its cash-
in-lieu of benefits payments are properly excluded from the
regular rate of pay pursuant to § 207(e)(2) because they are
not compensation for hours worked by the Plaintiffs. Section
207(e)(2) excludes from the regular rate of pay

        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
                FLORES V. CITY OF SAN GABRIEL                          11

         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.

The City argues that this final phrase—“other similar
payments to an employee which are not made as
compensation for his hours of employment”—permits
exclusion of any payments that do not depend on when or
how much work the employee performs. The City does not
contend that its cash-in-lieu of benefits payments are not
compensation. Rather, because its payments of the Plaintiffs’
unused benefits are not tied to hours worked or amount of
services provided by the Plaintiffs, the City reasons, the
payments are properly excluded under § 207(e)(2). This is a
question of first impression in this and other circuits. While
a close question, we conclude that the City’s cash-in-lieu of
benefits payments may not be excluded under § 207(e)(2) and
therefore must be included in the calculation of the Plaintiffs’
regular rate of pay.

    The Department of Labor’s interpretation of § 207(e)(2)’s
final phrase is set forth at 29 C.F.R. § 778.224,1 which


  1
    Section 778.224 is an interpretative bulletin containing an “official
interpretation[] . . . issued by the Administrator on the advice of the
Solicitor of Labor, as authorized by the Secretary.” 29 C.F.R. § 778.1.
“Interpretations such as those in opinion letters—like interpretations
contained in policy statements, agency manuals, and enforcement
guidelines, all of which lack the force of law—do not warrant Chevron-
style deference.” Christensen v. Harris Cty., 529 U.S. 576, 587 (2000)
(citations omitted). Such interpretations are instead “entitled to respect”
under Skidmore v. Swift & Co., 323 U.S. 134 (1944), but only to the extent
that the agency’s interpretation has the “power to persuade.” Id. (quoting
Skidmore, 323 U.S. at 140). Because the City does not challenge
12             FLORES V. CITY OF SAN GABRIEL

provides, in part:

        Since a variety of miscellaneous payments are
        paid by an employer to an employee under
        peculiar circumstances, it was not considered
        feasible to attempt to list them. They must,
        however, be “similar” in character to the
        payments specifically described in section
        7(e)(2). It is clear that the clause was not
        intended to permit the exclusion from the
        regular rate of payments such as bonuses or
        the furnishing of facilities like board and
        lodging which, though not directly attributable
        to any particular hours of work are,
        nevertheless, clearly understood to be
        compensation for services.

29 C.F.R. § 778.224(a). Section 778.224 also provides three
examples of payments that constitute “other similar
payments” under § 207(e)(2) and are thus properly excluded
under that subsection—amounts paid to an employee for the
rental of her vehicle; loans or advances made to the
employee; and “[t]he cost to the employer of conveniences
furnished to the employee such as parking space, restrooms,
lockers, on-the-job medical care and recreational facilities.”
§ 778.224(b). The Department of Labor’s interpretation of
§ 207(e)(2) is thus directly contrary to the interpretation of
the “other similar payments” clause that the City urges here.
Under § 778.224(a), a payment may not be excluded from the
regular rate of pay pursuant to § 207(e)(2) if it is generally
understood as compensation for work, even though the


§ 778.224 as unpersuasive, we consider it here without expressing an
opinion on its persuasiveness.
             FLORES V. CITY OF SAN GABRIEL                13

payment is not directly tied to specific hours worked by an
employee. And indeed, the examples given in § 778.224(a)
of payments that were not intended to be excluded under the
“other similar payments” clause, such as bonuses or room and
board, are commonly considered to be compensation even
though such payments do not fluctuate in accordance with
particular hours worked by an employee.

    We have similarly interpreted the “other similar
payments” clause to focus on whether the character of the
payment was compensation for work. In Local 246 Utility
Workers Union of America v. Southern California Edison
Co., the employer argued that payments made to supplement
the wages of disabled workers performing lower-wage work
than they had performed prior to their disability were not
“made as compensation for [the employee’s] hours of
employment” because the workers were paid a weekly, not
hourly, wage. Local 246, 83 F.3d at 295 (alteration in
original). We rejected this argument, explaining that “[t]he
key point is that the pay or salary is compensation for work”
and “[t]hus it makes no difference whether the supplemental
payments are tied to a regular weekly wage or regular hourly
wage.” Id. (emphasis added). In other words, the question of
whether a particular payment falls within the “other similar
payments” clause does not turn on whether the payment is
tied to an hourly wage, but instead turns on whether the
payment is a form of compensation for performing work.
Indeed, we opined that, “[e]ven if payments to employees are
not measured by the number of hours spent at work, that fact
alone does not qualify them for exclusion under section
207(e)(2).” Id. at 295 n.2 (citing Reich v. Interstate Brands
Corp., 57 F.3d 574, 577 (7th Cir. 1995)).
14            FLORES V. CITY OF SAN GABRIEL

    The City contends that Local 246 must not be read so
broadly because the distinction at issue there was between
weekly and hourly wages, not between compensation that
was tied to hours worked and compensation that was not.
That is true. However, the City fails to grapple fully with our
reasoning for rejecting the employer’s distinction between
weekly and hourly wages—that the “key point” is whether
the payment is “compensation for work”—and makes no
mention of our observation that payments that “are not
measured by the number of hours spent at work” are not
automatically excludable under § 207(e)(2). This reasoning
forecloses the City’s interpretation of § 207(e)(2).

    Neither Reich v. Interstate Brands Corp. nor Minizza v.
Stone Container Corp. Corrugated Container Division East
Plant, 842 F.2d 1456 (3d Cir. 1988), persuades us that our
reading of § 207(e)(2) is incorrect. Reich concerned the
classification of payments made to bakers for working a
schedule without two consecutive days off. 57 F.3d at
575–76. While the Seventh Circuit concluded that the “other
similar payments” clause “refers to other payments that do
not depend at all on when or how much work is performed,”
it rejected the employers’ interpretation that the clause
excluded any payment “not measured by the number of hours
spent at work,” the same reading of the statute that the City
espouses here. Id. at 577–78. The Reich court determined
that a payment for working an inconvenient schedule is
unlike vacation pay and the reimbursement of expenses—the
other two kinds of payment enumerated in § 207(e)(2)—and
is instead similar to “a higher base rate compensating the
employee for smelly or risky tasks, foul-tempered
supervisors, or inability to take consecutive days off.” Id. at
578–79. Accordingly, the court held that the schedule
payments could not be excluded under § 207(e)(2). Id. At
             FLORES V. CITY OF SAN GABRIEL                 15

bottom, the Seventh Circuit’s reading of the statute is not so
different from our own—both look to whether the payment at
issue is generally understood as compensation to the
employee, not whether the payment is tied to specific hours
worked by the employee.

    In Minizza, the Third Circuit considered the treatment of
lump sum payments made to employees pursuant to a
collective bargaining agreement. 842 F.2d at 1458. The
payments were made in lieu of a wage increase and as an
inducement to ratify the agreement. Id. The Third Circuit
determined that these lump sum payments were properly
excluded under § 207(e)(2), rejecting the district court’s
conclusion that the payments could not be excluded because
they were not sufficiently similar to vacation time and
reimbursements. Id. at 1461–62. The Third Circuit
interpreted § 207(e)(2)’s “other similar payments” clause to
encompass “payments not tied to hours of compensation, of
which payments for idle hours and reimbursements are only
two examples.” Id. at 1461. This reading, too, ultimately
focuses on whether a given payment is a form of
compensation for an employee’s service or, like vacation time
and reimbursements, is instead a payment that would not
generally be considered compensation for an employee’s
work. Admittedly, the Third Circuit’s greater focus on a
direct tie to hours worked or services provided hews more
closely to the interpretation that the City urges here. We
decline to adopt a similar requirement. We observe, however,
because the purpose of the payments in Minizza was to secure
the employees’ ratification of a collective bargaining
agreement, such payments are not compensation for work
performed, and would similarly be excludable under our
interpretation of § 207(e)(2).
16           FLORES V. CITY OF SAN GABRIEL

    Accordingly, consistent with our precedent and the
Department of Labor’s interpretation, we focus our inquiry on
whether a given payment is properly characterized as
compensation, regardless of whether the payment is
specifically tied to the hours an employee works, when
determining whether that payment falls under § 207(e)(2)’s
“other similar payments” clause.

    As noted previously, the City does not contend that its
cash-in-lieu of benefits payments are excluded from the
regular rate of pay because they are not compensation, but
rather because they are not compensation for hours of work
performed or an amount of services provided. Even if the
City had not made this concession, however, we would
conclude that the payments at issue here are properly
considered compensation for work. The other payments we
have found to be excluded under § 207(e)(2)’s “other similar
payments” clause are payments for non-working time, similar
to vacation or sick time, which are expressly excluded under
§ 207(e)(2). See Balestrieri v. Menlo Park Fire Prot. Dist.,
800 F.3d 1094, 1103–04 (9th Cir. 2015) (leave buyback
payments); Ballaris v. Wacker Siltronic Corp., 370 F.3d 901,
909 (9th Cir. 2004) (lunch periods). The payments at issue
here are not similar to payments for non-working time or
reimbursement for expenses.

    Moreover, the FLSA’s inclusion of a separate exemption
specifically addressing benefits, § 207(e)(4), suggests that
payments related to benefits would otherwise be considered
compensation. Inclusion of a separate exemption also
indicates that Congress did not understand § 207(e)(2)’s
“other similar payments” clause to already exempt payments
related to benefits. See Reich, 57 F.3d at 578. To be sure,
“the subsections of § 7(e) are not mutually exclusive; that a
              FLORES V. CITY OF SAN GABRIEL                 17

payment cannot be excluded under one subsection does not
imply that every other subsection is inapplicable.” Id. While
the inclusion of a separate exemption addressing benefits is
by no means dispositive, it provides insight into the intended
scope of § 207(e)(2). As the Seventh Circuit reasoned, “we
hesitate to read § 7(e)(2) as a catch-all, one that obliterates
the qualifications and limitations on the other subsections and
establishes a principle that all lump-sum payments fall
outside the ‘regular rate,’ for then most of the remaining
subsections become superfluous.” Id.

    For these reasons, and in light of the command that we
interpret the FLSA’s exemptions narrowly in favor of the
employee, we conclude that the City has failed to carry its
burden to demonstrate that its cash-in-lieu of benefits
payments “plainly and unmistakably” constitute excludable
payments under § 207(e)(2). Cleveland, 420 F.3d at 988.
The City warns us that a ruling in favor of the Plaintiffs in
this case will encourage municipalities to discontinue cash-in-
lieu of benefits payment programs due to the consequent
increase in overtime costs to the detriment of municipal
employees. As we have observed before, such arguments are
“more appropriately . . . made to Congress or to the
Department of Labor, rather than to the courts.” Bratt v. Cty.
of Los Angeles, 912 F.2d 1066, 1071 (9th Cir. 1990). The
potential effect of our ruling on municipal decision-making
does not give us license to alter the terms of the FLSA.
Accordingly, we affirm the district court’s ruling that the
City’s cash-in-lieu of benefits payments are not properly
excluded under § 207(e)(2).
18            FLORES V. CITY OF SAN GABRIEL

        2. Section 207(e)(4)

    The City also argues that its cash-in-lieu of benefits
payments are properly excluded pursuant to § 207(e)(4).
Section 207(e)(4) excludes from the regular rate of pay
“contributions irrevocably made by an employer to a trustee
or third person pursuant to a bona fide plan for providing old-
age, retirement, life, accident, or health insurance or similar
benefits for employees.”

    Because the City pays the unused benefits directly to its
employees and not “to a trustee or third person,” its cash-in-
lieu of benefits payments cannot be excluded under
§ 207(e)(4). We rejected a similar argument in Local 246
when the employer had proffered no evidence that any of the
payments at issue were made to a trust rather than directly to
the employees because “[s]ection 207(e)(4) deals with
contributions by the employer, not payments to the
employee.” Local 246, 83 F.3d at 296. That reasoning
applies equally here.

     The City urges us to find that its cash-in-lieu of benefits
payments fall within the ambit of § 207(e)(4) even though the
payments are not made to a trustee or third party because the
payments “generally” meet the requirements of that
subsection, arguing that it should not be penalized for
administering its own flexible benefits plan. But “[w]here
‘[a] statute’s language is plain, the sole function of the courts
is to enforce it according to its terms,’ because ‘courts must
presume that a legislature says in a statute what it means and
means in a statute what it says there.’” Cleveland, 420 F.3d
at 989 (quoting United States v. Ron Pair Enters., Inc.,
489 U.S. 235, 241 (1989); Conn. Nat’l Bank v. Germain,
503 U.S. 249, 253–54 (1992)). The City’s cash-in-lieu of
                FLORES V. CITY OF SAN GABRIEL                         19

benefits payments are not made to a trustee or third party, and
therefore those payments do not meet the requirements of
§ 207(e)(4). We are not at liberty to add exceptions to the
clear requirements set forth in the statute for payments that
“generally” satisfy the requirements of that provision. This
is particularly true here, where exemptions to the FLSA’s
requirements are to be narrowly construed in favor of the
employee. Cleveland, 420 F.3d at 988 (citing Arnold,
361 U.S. at 392). We thus have no trouble concluding that
the City’s cash-in-lieu of benefits payments are not properly
excluded from the regular rate of pay pursuant to § 207(e)(4).

    Whether benefit payments made directly to a trustee or
third party pursuant to the City’s Flexible Benefits Plan are
properly excluded from the regular rate of pay under
§ 207(e)(4) is a closer question. The district court answered
the question in the affirmative, a holding that the Plaintiffs
challenge in their cross-appeal. The Plaintiffs argue that the
Flexible Benefits Plan is not a “bona fide plan” under
§ 207(e)(4), and thus even payments made to a trustee or third
party pursuant to the Plan are not properly excluded under
that subsection. We agree.

     Under § 207(e)(4), payments made to a trustee or third
party “pursuant to a bona fide plan for providing old-age,
retirement, life, accident, or health insurance or similar
benefits for employees” may be excluded from the regular
rate of pay. The statute does not define the term “bona fide
plan.” The Department of Labor’s interpretation of that term
is set forth at 29 C.F.R. § 778.215.2 The parties’ dispute


 2
  Like § 778.224, § 778.215 is an interpretative bulletin accorded respect
under Skidmore to the extent that the interpretation has the “power to
persuade.” Christensen, 529 U.S. at 587 (quoting Skidmore, 323 U.S. at
20              FLORES V. CITY OF SAN GABRIEL

concerns only one provision of that section:

         The plan must not give an employee . . . the
         option to receive any part of the employer’s
         contributions in cash instead of the benefits
         under the plan: Provided, however, That if a
         plan otherwise qualified as a bona fide benefit
         plan under section 7(e)(4) of the Act, it will
         still be regarded as a bona fide plan even
         though it provides, as an incidental part
         thereof, for the payment to an employee in
         cash of all or a part of the amount standing to
         his credit . . . during the course of his
         employment under circumstances specified in
         the plan and not inconsistent with the general
         purposes of the plan to provide the benefits
         described in section 7(e)(4) of the Act.

§ 778.215(a)(5).

   The Department of Labor interpreted this provision in a
2003 Opinion Letter, which states that cash-in-lieu of benefits


140). Because neither party challenges the district court’s reliance on
§ 778.215 to determine whether the City’s payments to a third party may
be excluded under § 207(e)(4), we apply § 778.215 here without
expressing an opinion as to its persuasiveness. To the extent that the City
later suggests that we need not consider the Department’s interpretation
because the term “bona fide” in § 207(e)(4) is unambiguous, we disagree.
The City cites Black’s Law Dictionary, which defines “bona fide” as “1.
Made in good faith; without fraud or deceit. 2. Sincere; genuine,” as
evidence that the term has an ordinary, unambiguous meaning. The very
definition that the City quotes, however, illustrates that the term “bona
fide” has multiple reasonable interpretations. The term is thus ambiguous
and resort to the Department of Labor’s interpretation for guidance is
appropriate.
              FLORES V. CITY OF SAN GABRIEL                 21

payments are “incidental” under § 778.215(a)(5) if they
account for no more than 20% of the employer’s total
contribution amount. July 2, 2003 Dep’t of Labor Op. Letter,
2003 WL 23374600, at *2. The Opinion Letter explains that
the Department has historically used a 20% limitation on cash
payments per employee to determine if such payments are
more than “incidental” under § 778.215(a)(5). Id. However,
the 2003 Opinion Letter modifies the application of the 20%
cap:

       We continue to believe that this 20% cap is an
       appropriate method for assessing whether any
       cash payments are an incidental part of a bona
       fide benefits plan under 778.215(a)(5)(iii).
       However, because section 7(e) of the FLSA
       provides for the exclusion of employer
       contributions for benefits that are made
       pursuant to a bona fide plan, on further review
       we believe that the focus of the question
       should be whether the plan as a whole is a
       bona fide benefits plan. Therefore, we believe
       that the 20% test should be applied on a plan-
       wide basis. Moreover, such a plan-wide 20%
       test is more consistent with the regulatory
       language which allows “all or a part of the
       amount” standing to an employee’s credit to
       be paid in cash, so long as it occurs under
       circumstances which are consistent with such
       a plan’s primary purpose of providing
       benefits.

Id. The City urges us to disregard the 2003 Opinion Letter as
insufficiently reasoned and inconsistent with § 778.215(a)(5).
Like the Department’s interpretative bulletins, opinion letters
22            FLORES V. CITY OF SAN GABRIEL

are “entitled to respect” under Skidmore only to the extent
that the agency’s interpretation has the “power to persuade.”
Christensen, 529 U.S. at 587 (quoting Skidmore, 323 U.S. at
140). Under Skidmore, whether an agency’s interpretation is
accorded deference “will depend upon the thoroughness
evident in its consideration, the validity of its reasoning, its
consistency with earlier and later pronouncements, and all
those factors which give it power to persuade, if lacking
power to control.” Skidmore, 323 U.S. at 140.

    We agree with the City that the 2003 Opinion Letter is
unpersuasive. The Department of Labor wholly fails to
explain its reasoning for the adoption of the 20% ceiling.
Rather, the agency explains that it previously used a 20% cap
on cash payments per employee and then discusses its
reasoning for transitioning to a 20% cap on cash payments
plan-wide. Nowhere does it provide any rationale for why
20% was chosen as the percentage at which cash payments
are no longer an “incidental” part of a plan.

     Even setting aside the 20% threshold in the 2003 Opinion
Letter, however, we cannot find that the City’s Flexible
Benefits Plan qualifies as a “bona fide” plan under
§ 778.215(a)(5). Forty percent or more of the City’s total
contributions are paid directly to employees rather than
received as benefits. While the City correctly points out that
its cash-in-lieu of benefits payments are less than half of its
total contributions, benefits payments constitute only a bare
majority of its total contributions. The City’s cash payments
are simply not an “incidental” part of its Flexible Benefits
Plan under any fair reading of that term. Because the City’s
Flexible Benefits Plan is not a “bona fide plan” under
§ 207(e)(4) pursuant to the requirements of § 778.215(a)(5),
even the City’s payments to trustees or third parties under its
              FLORES V. CITY OF SAN GABRIEL                    23

Flexible Benefits Plan are not properly excluded under
§ 207(e)(4).

    B. Section 207(k) partial overtime exemption

    In response to the Plaintiffs’ FLSA claims, the City had
argued before the district court that it was entitled to a partial
overtime exemption under § 207(k). The court agreed and
granted summary judgment to the City on this issue. The
Plaintiffs do not contest the City’s eligibility for the
exemption; the only question before us is whether the City
has actually established a § 207(k) work period.

    The City bears the burden of establishing that it qualifies
for the exemption. Adair, 185 F.3d at 1060 (citations
omitted). “Generally, the employer must show that it
established a [§ 207(k)] work period and that the [§ 207(k)]
work period was ‘regularly recurring.’” Id. (citing McGrath
v. City of Philadelphia, 864 F. Supp. 466, 474 (E.D. Pa.
1994); 29 C.F.R. § 553.224). “Whether an employer meets
this burden is normally a question of fact.” Id. (citing
Spradling v. City of Tulsa, 95 F.3d 1492, 1505 (10th Cir.
1996); Barefield v. Vill. of Winnetka, 81 F.3d 704, 710 (7th
Cir. 1996)).

    It is undisputed that the City adopted an eighty-
hour/fourteen-day work period for its police officers at least
as early as 2003 and that the City has paid overtime in
accordance with this work period since at least 1994. Nor do
the Plaintiffs dispute that the City memorialized its adoption
of the eighty-hour/fourteen-day work period in a 2003 City
resolution and restated it in the City’s Salary, Compensation
and Benefit Policy Manual, dated July 3, 2010, and in a
2005–2007 Memorandum of Understanding between the City
24            FLORES V. CITY OF SAN GABRIEL

and the Plaintiffs’ collective bargaining unit. The Plaintiffs
nonetheless argue that the City does not qualify for a § 207(k)
exemption because the City does not reference § 207(k) in
any of these documents. They contrast the City’s references
to its work period for police officers with language in the
City’s Salary, Compensation and Benefit Policy Manual
expressly stating that the City and the firefighters’ collective
bargaining unit “agree to use the 7k partial overtime
exemption.”

    An employer need not expressly identify § 207(k) when
establishing a § 207(k) work period in order to qualify for the
exemption. In Adair, we held that the employer carried its
burden to show that it had established a § 207(k) exemption
“when it specified the work period in the [Collective
Bargaining Agreement] and when it actually followed this
period in practice.” 185 F.3d at 1061. The Collective
Bargaining Agreement read, “[f]or purposes of complying
with the Fair Labor Standards Act, the Patrol Division work
period shall be eight days and the Detective Division seven
days.” Id. at 1060 (alteration in original) (citations omitted).
While the Plaintiffs attempt to distinguish Adair by pointing
to that provision’s specific reference to the FLSA, we placed
no weight on this language when discussing whether the
employer established the § 207(k) exemption. All we
required then—and all we require now—is that the employer
show that it established a § 207(k) work period and that the
§ 207(k) work period was regularly recurring. Id. (citations
omitted). Specific reference to § 207(k) is not necessary to
satisfy this standard. Consistent with our sister circuits, we
decline to require more of employers to qualify for the
§ 207(k) exemption. See Rosano v. Twp. of Teaneck,
754 F.3d 177, 187–88 (3d Cir. 2014); Calvao v. Town of
Framingham, 599 F.3d 10, 16–17 (1st Cir. 2010); Brock v.
              FLORES V. CITY OF SAN GABRIEL                   25

City of Cincinnati, 236 F.3d 793, 810 (6th Cir. 2001);
Freeman v. City of Mobile, 146 F.3d 1292, 1297 n.3 (11th
Cir. 1998); Spradling, 95 F.3d at 1505; Barefield, 81 F.3d at
710; see also Milner v. Hazelwood, 165 F.3d 1222, 1223 (8th
Cir. 1999) (per curiam) (holding that employer need not
establish the exemption through public declaration).

    The City has satisfied the criteria for application of the
§ 207(k) exemption by adopting an eighty-hour/fourteen-day
work period for its law enforcement officers and by paying
overtime in accordance with that period since 1994—facts
that are not disputed by the Plaintiffs. Accordingly, we
affirm the district court’s grant of summary judgment to the
City on this issue.

    C. Liquidated damages

     The Plaintiffs also challenge the district court’s finding
that they are not entitled to liquidated damages. An employer
who violates the FLSA “shall be liable to the employee or
employees affected in the amount of their unpaid minimum
wages, or their unpaid overtime compensation, as the case
may be, and in an additional equal amount as liquidated
damages.” § 216(b). However, if the employer shows that it
acted in “good faith” and that it had “reasonable grounds” to
believe that its actions did not violate the Act, “the court may,
in its sound discretion, award no liquidated damages or award
any amount thereof not to exceed the amount specified in
section 216.” § 260. To avail itself of this defense, the
employer must “establish that it had ‘an honest intention to
ascertain and follow the dictates of the Act’ and that it had
‘reasonable grounds for believing that [its] conduct
complie[d] with the Act.’” Local 246, 83 F.3d at 298
(alterations in original) (quoting Marshall v. Brunner,
26            FLORES V. CITY OF SAN GABRIEL

668 F.2d 748, 753 (3d Cir. 1982)). If an employer fails to
satisfy its burden under § 260, an award of liquidated
damages is mandatory. Id. at 297 (citing EEOC v. First
Citizens Bank of Billings, 758 F.2d 397, 403 (9th Cir. 1985)).
Whether the employer acted in good faith and whether it had
objectively reasonable grounds for its action are mixed
questions of fact and law. Bratt, 912 F.2d at 1071 (citing
29 C.F.R. § 790.22(c)). Questions involving the application
of legal principles to established facts are reviewed de novo.
Id.

      To establish its good faith, the City relies exclusively on
the deposition testimony of Linda Tang, an employee in its
payroll department, who testified about the City’s process for
determining whether a particular payment must be included
in the regular rate of pay. Ms. Tang testified that the City’s
payroll and human resources departments work together to
determine whether a particular type of payment should be
included in the calculation of the regular rate of pay when the
payment is first provided. After a payment’s initial
classification, the City conducts no further review of a
payment’s designation, although Ms. Tang testified that the
human resources department notifies the payroll department
if it learns of new authority concerning the classification of a
payment. Because the cash-in-lieu of benefits payments were
classified as a “benefit” in the payroll system during this
initial review, they have never been included in the
calculation of the regular rate of pay.

    Such paltry evidence is not sufficient to carry the City’s
burden to demonstrate that it acted in good faith. The City
has presented no evidence of what steps the human resources
department took to determine that the cash-in-lieu of benefits
payments were appropriately classified as a “benefit” under
              FLORES V. CITY OF SAN GABRIEL                 27

the FLSA and excluded from the calculation of the regular
rate of pay. That the payroll department consulted the human
resources department to find out how a given payment should
be categorized in the City’s payroll system sheds no light on
how either department determined that the payment’s
designation as a “benefit” complied with the FLSA. An
employer who “‘failed to take the steps necessary to ensure
[its] [] practices complied with [FLSA]’” and who “offers no
evidence to show that it actively endeavored to ensure such
compliance” has not satisfied § 260’s heavy burden. Alvarez
v. IBP, Inc., 339 F.3d 894, 910 (9th Cir. 2003) (alterations in
original) (emphasis added) (quoting Herman v. RSR Sec.
Servs. Ltd., 172 F.3d 132, 142 (2d Cir. 1999)); see also Chao
v. A-One Med. Servs., Inc., 346 F.3d 908, 920 (9th Cir. 2003)
(upholding an award of liquidated damages where the
employer believed that it was not required to pay overtime
because employees divided their hours between two legal
entities that were operated together, but had failed to consult
an objective authority or seek advice on the legality of its
position).

    Grasping at straws, the City argues that its good faith is
also demonstrated by its inclusion of other types of payments
in the regular rate of pay and its payment of overtime more
generously than the FLSA requires. These arguments miss
the mark. Evidence that the City complied with its other
obligations under the Act or that it agreed to pay overtime
more generously than required by law do not demonstrate
what the City has done to ascertain whether its classification
of the payments at issue here complied with the FLSA.

    Because the City has failed to demonstrate that it
attempted to comply with the Act in good faith, we conclude
that the Plaintiffs are entitled to liquidated damages and
28            FLORES V. CITY OF SAN GABRIEL

remand this case to the district court to enter judgment for the
Plaintiffs accordingly.

     D. Statute of limitations

     Pursuant to § 255(a), the two-year statute of limitations
for actions under the FLSA may be extended to three years if
an employer’s violation is deemed “willful.” Alvarez,
339 F.3d at 908 (citing McLaughlin v. Richland Shoe Co.,
486 U.S. 128, 135 (1988); § 255(a)). A violation is willful if
the employer “knew or showed reckless disregard for the
matter of whether its conduct was prohibited by the [FLSA].”
Chao, 346 F.3d at 918 (alteration in original) (quoting
McLaughlin, 486 U.S. at 133). An employer need not violate
the statute knowingly for its violation to be considered
“willful” under § 255(a), Alvarez, 339 F.3d at 908, although
“merely negligent” conduct will not suffice, McLaughlin,
486 U.S. at 133. The three-year statute of limitations may be
applied “where an employer disregarded the very ‘possibility’
that it was violating the statute,” Alvarez, 339 F.3d at 908–09
(citing Herman, 172 F.3d at 141), “although [a court] will not
presume that conduct was willful in the absence of evidence,”
id. at 909 (citing Cox v. Brookshire Grocery Co., 919 F.2d
354, 356 (5th Cir. 1990)). Like its determination regarding
liquidated damages, a district court’s determination of
willfulness under § 255(a) is a mixed question of fact and
law, with de novo review of the district court’s application of
the law to established facts. See id. at 908 (citations omitted).

    An employer’s violation of the FLSA is “willful” when it
is “on notice of its FLSA requirements, yet [takes] no
affirmative action to assure compliance with them.” Id. at
909; see also Haro v. City of Los Angeles, 745 F.3d 1249,
1258 (9th Cir. 2014) (citing Alvarez, 339 F.3d at 909). Such
              FLORES V. CITY OF SAN GABRIEL                  29

is the case here. Ms. Tang’s testimony regarding the City’s
process for designating payments as either a “premium” or a
“benefit” to distinguish between payments included in the
City’s calculation of an officer’s regular rate of pay shows
that the City was aware of its obligations under the FLSA.
And despite notice of the Act’s requirements, the record
yields no evidence of affirmative actions taken by the City to
ensure that its classification of its cash-in-lieu of benefits
payments complied with the FLSA. Indeed, it is undisputed
that the City failed to investigate whether its exclusion of
cash-in-lieu of benefits payments from the regular rate of pay
complied with the FLSA at any time following its initial
determination that the payments constituted a benefit.

    To be sure, as the district court correctly noted, there was
no case authority on the proper treatment of cash-in-lieu of
benefits payments under the FLSA in this circuit. But the
absence of binding authority directly on point is not
dispositive here. It is likely to be the exception, rather than
the rule, that controlling case law addresses the precise
question faced by an employer trying to determine its
obligations under the FLSA, and thus only a small subset of
FLSA violations would be considered willful if the existence
of binding authority on the subject were our only
consideration. More to the point here, the absence of
controlling case authority cannot be dispositive when the City
has put forth no evidence that it ever looked to see whether
such authority existed. Cf. Serv. Emps. Int’l Union, Local
102 v. Cty. of San Diego, 60 F.3d 1346, 1355–56 (9th Cir.
1994) (finding that evidence that employer relied on
substantial legal authority and consulted with experts and the
Department of Labor on its obligations under the FLSA
established that the employer’s violation was not willful).
30           FLORES V. CITY OF SAN GABRIEL

     The City has put forth no evidence of any actions it took
to determine whether its treatment of cash-in-lieu of benefits
payments complied with the FLSA, despite full awareness of
its obligation to do so under the Act. We therefore conclude
that its violation of the FLSA was willful and that the Act’s
three-year statute of limitations applies. We accordingly
reverse the district court’s ruling concerning the statute of
limitations, and remand the matter for further proceedings.

                    IV. CONCLUSION

    For the reasons set forth above, we hold that the City’s
cash-in-lieu of benefits payments are not properly excluded
from the calculation of the regular rate of pay under either
§ 207(e)(2) or (e)(4). And because the City’s Flexible
Benefits Plan is not a “bona fide plan” under § 207(e)(4),
even the City’s payments to trustees or third parties may not
be excluded from the regular rate of pay under that
subsection. The City does, however, qualify for the partial
overtime exemption in § 207(k). We further hold that the
City has not shown that it attempted to comply with the
FLSA in good faith and that the Plaintiffs are therefore
entitled to liquidated damages under the Act. Finally,
because the City’s violation of the FLSA was willful, we hold
that the Act’s three-year statute of limitations applies. We
therefore affirm in part, reverse in part, and remand this
matter to the district court for further proceedings and entry
of a judgment consistent with this opinion. Each party shall
bear its own costs on appeal.

  AFFIRMED IN PART, REVERSED IN PART, AND
REMANDED.
              FLORES V. CITY OF SAN GABRIEL                  31

OWENS, Circuit Judge, with whom TROTT, Circuit Judge,
joins, concurring:

    I concur fully in the majority’s opinion. I write separately
because I believe that our willfulness caselaw in the context
of the FLSA statute of limitations is off track.

    In McLaughlin v. Richland Shoe Co., 486 U.S. 128
(1988), the Supreme Court stressed that willfulness was more
than mere negligence, and that “[i]f an employer acts
unreasonably, but not recklessly, in determining its legal
obligation,” the two-year FLSA statute of limitations would
apply. Id. at 132–35 & n.13. In formulating this definition,
the Court emphatically rejected the so-called “Jiffy June”
standard that expanded the statute of limitations anytime “an
employer knew that the FLSA ‘was in the picture.’” Id. at
132 (quoting Coleman v. Jiffy June Farms, Inc., 458 F.2d
1139, 1142 (5th Cir. 1972)); see also Hazen Paper Co. v.
Biggins, 507 U.S. 604, 615 (1993) (noting that
“[s]urprisingly, the Courts of Appeals continue to be
confused about the meaning of the term ‘willful’ in” the Age
Discrimination in Employment Act, even though McLaughlin
“[o]nce again . . . rejected the ‘in the picture standard’”).

    In Alvarez v. IBP, Inc., 339 F.3d 894, 908–09 (9th Cir.
2003), aff’d on other grounds, 546 U.S. 21 (2005), a panel of
this court correctly cited McLaughlin when analyzing an
FLSA willfulness question. But then the panel concluded that
the employer acted willfully because it “was on notice of its
FLSA requirements, yet took no affirmative action to assure
compliance with them,” and that it “‘could easily have
inquired into’ the meaning of the relevant FLSA terms and
the type of steps necessary to comply therewith.” Id. at 909
32           FLORES V. CITY OF SAN GABRIEL

(quoting Herman v. RSR Sec. Servs. Ltd., 172 F.3d 132, 142
(2d Cir. 1999)).

    This gloss on McLaughlin comes very close to a
qyburnian resurrection of the Jiffy June standard. And it is
this gloss – and not the tougher standard that the Supreme
Court set out – which compels me to join Part III.D of the
majority opinion. Absent Alvarez, I would affirm the district
court on the statute of limitations question.
