Category Archives: Coverage

March 5, 2013 · 9:07 pm

11th Cir.: Student Externs, Required to Complete Externship in Order to Graduate, Were Not “Employees”

Kaplan v.Code Blue Billing & Coding, Inc.

This case was before the court on the consolidated appeal of three student externs who sued the administrators of their respective externships asserting that they had not been paid proper minimum wages. The courts below had all granted the respective defendants summary judgment, holding that the plaintiffs could not satisfy the “economic reality” test, and therefore they were not “employees” subject to the FLSA’s coverage. The Eleventh Circuit affirmed, applying the DOL’s six-factor test applicable to trainees. In so doing, the court rejected the plaintiffs’ contentions that the defendants benefitted from their work, while they essentially received no academic or monetary benefit.

The court reasoned:

Although Kaplan and O’Neill argue that their externship experiences were of little educational benefit, they did in fact engage in hands-on work for their formal degree program. Kaplan and O’Neill also received academic credit for their work and, by completing an externship, were eligible to earn their degrees.

Kaplan and O’Neill argue that, because they were performing tasks for Defendants’ businesses, Defendants benefitted economically from their work. The undisputed evidence, however, demonstrates that Defendants’ staff spent time—time away from their own regular duties—training Plaintiffs and supervising and reviewing Plaintiffs’ work. Even viewing the evidence in the light most favorable to Plaintiffs, Plaintiffs caused Defendants’ businesses to run less efficiently and caused at least some duplication of effort. Defendants received little if any economic benefit from Plaintiffs’ work. Thus, under the “economic realities” test, Plaintiffs were not “employees” within the meaning of the FLSA. See New Floridian Hotel, Inc., 676 F.2d at 470.

The Eleventh Circuit applied the DOL’s six factor test, derived from the Supreme Court’s decision in Portland Terminal—pertinent to determining whether a trainee qualifies as an employee under the FLSA, to reach its holding.

As explained in footnote 2, under the Administrator’s test, a trainee is not an “employee” if these six factors apply:

(1) the training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school; (2) the training is for the benefit of the trainees; (3) the trainees do not displace regular employees, but work under close supervision; (4) the employer that provides the training derives no immediate advantage from the activities of the trainees and on occasion his operations may actually be impeded; (5) the trainees are not necessarily entitled to a job at the completion of the training period; and, (6) the employer and the trainees understand that the trainees are not entitled to wages for the time spent in training. Wage & Hour Manual (BNA) 91:416 (1975); see also Donovan v. Am. Airlines, Inc., 686 F.2d 267, 273 n. 7 (5th Cir.1982).

Reasoning that the externs at issue were not “employees” the court concluded:

The externship programs at Code Blue and EFEI satisfy all six of the Administrator’s criteria. The training provided was similar to that which would be given in school and was related to Plaintiffs’ course of study. The training benefitted Plaintiffs, who received academic credit for their work and who satisfied a precondition of graduation. Both Kaplan and O’Neill were supervised closely and did not displace Defendants’ regular employees. Defendants received no immediate advantage from Plaintiffs’ work and, at times, were impeded by their efforts to help train and supervise Plaintiffs. And both Kaplan and O’Neill admit that they were unentitled to a job after their externships and that they understood that the externship would be unpaid.

Click Kaplan v.Code Blue Billing & Coding, Inc. to read the entire decision.

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October 31, 2012 · 8:07 am

S.D.N.Y.: Where Successor Liability Alleged, “Successor in Interest” Need Not Meet the $500,000 Threshold As Long as the Previous Employer Did

Alvarez v. 40 Mulberry Restaurant, Inc.

This case was before the court on the defendant’s motion for summary judgment. Plaintiff alleged that the defendant at issue was a “successor in interest” to his actual employers, whom he actively worked for and whose failure to pay him pursuant to the FLSA gave rise to his claims. The defendant alleged to be the “successor in interest” such that it had derivative liability (of plaintiff’s actual employers), asserted that the case was due to be dismissed against it, because plaintiff could not show that it grossed $500,000.00 or more in annual sales during the periods relevant to the claim. Explaining that this was an incorrect reading of the law, the court reasoned that the successor employer was covered, so long as the plaintiff’s actual employers were subject to enterprise coverage under the FLSA. However, because neither the plaintiff, nor the defendants addressed the issue of whether the plaintiffs actual employers were covered enterprises, the court remanded the case for further discovery on this issue.

Discussing the issue, the court explained:

Defendants 40 Mulberry and Chin claim that, because it has not been established that AR Restaurant has ever grossed $500,000 or more in annual sales, Alvarez’s FLSA claim must be dismissed. That is incorrect.

The FLSA covers only those workers employed by an “enterprise” that is “engaged in commerce.” 29 U.S.C. § 207. “An entity constitutes an enterprise where ‘the related activities performed (either through unified operation or common control) by any person or persons [are] for a common business purpose.’ ” Rodriguez v. Almighty Cleaning, 784 F.Supp.2d 114, 121 (E.D.N.Y.2011) (quoting 29 U.S.C. § 203(r)). An enterprise is “engaged in commerce or in the production of goods for commerce” if, inter alia, it: (1) “has employees engaged in commerce or in the production of goods for commerce;” or “has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person;” and (2) its “annual gross volume of sales made or business done is not less than $500,000 (exclusive of excise taxes at the retail level that are separately stated).” 29 U.S.C. § 203(s)(1)(A)(i)-(ii).

Defendants argue that, because the summary judgment record would not permit a fact finder to conclude that AR Restaurant has ever grossed $500,000 or more in annual sales, Alvarez cannot sue 40 Mulberry and Chin under the FLSA. But that does not logically follow. It is correct that, on the record before the Court, AR Restaurant’s financial condition would prevent an employee from suing under the FLSA based on work done at AR Restaurant. But Alvarez is not seeking to impose liability on 40 Mulberry and Chin based on AR Restaurant’s activities. Instead, he is claiming that, during his employment at the former Asia Roma, which ended in July 2010, the former Asia Roma (1) had $500,000 or more in annual sales; and (2) violated the FLSA’s substantive obligations as to overtime and other pay. He further alleges that defendants 40 Mulberry and Chin are responsible for those violations as successors in interest. Assuming arguendo that Asia Roma had $500,000 in annual revenues required by the FLSA in, say, 2009, the fact that AR Restaurant has not had such revenues would not shield defendants, if properly held to be responsible for Asia Roma’s conduct, from liability for FLSA violations during 2009. The financial condition of AR Restaurant is thus not determinative. The relevant question is, instead, whether Asia Roma was a qualifying “enterprise engaged in commerce” when it employed Alvarez, and whether 40 Mulberry and Chin are answerable for Asia Roma’s liabilities.

It does not appear that the parties have focused their discovery efforts on the critical question of whether Asia Roma had the requisite sales during Alvarez’s employment. However, this question is potentially dispositive, and the Court believes it must be addressed promptly.

The Court, accordingly, grants the parties one month to conduct further discovery—by means including, but not limited to, subpoenas to Asia Roma, Chan, Lee, or any other relevant party, person, or entity—on the question of whether Asia Roma constituted an “enterprise engaged in commerce” during the period of Alvarez’s employment. After the close of discovery, the Court will afford the defendants two weeks to move for summary judgment on the issue of whether Asia Roma was an “enterprise engaged in commerce” during the years it employed Alvarez. If summary judgment is granted for the defendants on that ground, such that Alvarez’s FLSA claims cannot go forward, the Court expects to dismiss, without prejudice, his state law claims. If, on the other hand, the FLSA sales threshold is met by competent evidence for all or some of these years, discovery may then go forward on the remaining issues in the case.

The court also denied the defendants’ motion for summary judgment to the extent they sought a finding that the subsequent business was not a successor in interest, reasoning that under the relevant tests (the traditional common law test OR the “substantial continuity test”) a finder of fact could certainly find that the subsequent business was a successor in interest to plaintiff’s actual employers.

Click Alvarez v. 40 Mulberry Restaurant, Inc. to read the entire Opinion & Order.

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September 24, 2012 · 7:12 am

E.D.Cal.: Plaintiff Could Simultaneously Be Part-Owner of Closely-Held S-Corp. and Its FLSA-Covered Employee

Hess v. Madera Honda Suzuki

This case was before the Court on the defendant’s motion for summary judgment regarding all of plaintiffs’ claims. As discussed here, one of the issues the court was asked to resolve was whether someone can simultaneously be a part-owner of a closely held s-corporation and an employee thereof. The court distinguished the case from one concerning a business structured as a partnership, and held indeed the plaintiff could simultaneously be a part-owner of the defendant and its employee. Thus, the court denied defendant’s motion for summary judgment with regard to her FLSA claim for unpaid wages on this ground.

As relevant to this discussion, the court recited the following facts (following a period of employment where the plaintiff was solely defendant’s employee):

As support for the contention Plaintiff was not their employee, Defendants point to evidence in the record, primarily from Plaintiff’s deposition testimony, establishing the following. After investing $100,000 ($50,000 allocated to stock and $50,000 as a business loan) with her husband, Terry Hess, Plaintiff became a co-owner of Madera Honda Suzuki, controlling 24 percent of the 100,000 shares of common stock originally issued by Harry D. Wilson, Inc. (Terry controlled 25 percent; defendant Robert Wilson controlled 26 percent while his wife, Lisa, controlled 25 percent.) Plaintiff was then elected as a director and chief financial officer of the corporation. Pursuant to their investment, it appears Plaintiff and her husband provided personal guarantees to Central Valley Bank for money presumably borrowed by the company. Plaintiff further stated she and her husband provided personal guarantees to American Honda and Suzuki, presumably to cover debts and obligations that might be incurred by the company through its sale of Honda and Suzuki motorcycles. Plaintiff understood it was possible she might lose some or all of her investment, and that even if the business were successful, it would take some time before it would start showing a profit. Plaintiff further understood that although the shares of stock were split 51 percent/49 percent between the Wilsons and the Hesses, everything else—including profits—would be divided equally (i.e., 50/50 between the Wilsons and the Hesses). According to Plaintiff, the business never made a profit.

Plaintiff testified it was her responsibility to pay bills and that she had authority to pay certain expenses, such as rent and dealership insurance, without consulting the other officers. Plaintiff was authorized to issue payroll checks to herself and others if the company had sufficient funds, and it appears Plaintiff issued a check to herself at least once during her tenure as CFO. At his deposition, Wilson testified he and Plaintiff interviewed prospective employees together and that Plaintiff “had a say in everybody [the company] hired.” Wilson further testified Plaintiff handled employee disciplinary matters “95 percent of the time” and that she was not required to consult with him before terminating an employee. It also appears Plaintiff was afforded special benefits. Plaintiff testified “if [she or Wilson] took days off, since [they] were on salary, [they] would be paid the days.” Other employees also had paid vacation, but only for a limited number of days. The company paid for vehicles and fuel for the Wilsons and the Hesses, whereas other employees did not have a vehicle allowance. Per Wilson, the company paid the cost of health insurance for shareholders, including Plaintiff, whereas it covered only part of the premiums for employees, who had to contribute the rest. All of this evidence, Defendants contend, shows Plaintiff was a co-owner, not an employee.

In light of the above undisputed facts, the defendant argued “that Plaintiff [could not] be considered an employee because Plaintiff assumed significant business risk, had involvement and discretion in the corporate decision-making process and was entitled to benefits not available to Madera Honda Suzuki’s other employees, none of which was consistent with employee status.” However, the court disagreed.

The court distinguished case law that has held that partners of a partnership cannot simultaneously be FLSA employees, in part discussing a case previously discussed here, from the situation before it where the alleged employee had a part-ownership interest in an s-corp. The court explained:

Defendants have provided no authority—and the Court’s research reveals no authority—stating categorically that a co-owner and shareholder of a closely held corporation who works for the corporation in another capacity, as was apparently the case here, cannot also be the corporation’s employee for the purpose of the FLSA. Indeed, case law seems to suggest otherwise. See Goldberg v. Whitaker House Co-op, Inc., 366 U.S. 28, 32, 81 S.Ct. 933, 6 L.Ed.2d 100 (1961) (“There is nothing inherently inconsistent between the coexistence of a proprietary and an employment relationship. If members of a trade union bought stock in their corporate employer, they would not cease to be employees within the conception of [the FLSA]. For the corporation would ‘suffer or permit’ them to work whether or not they owned one share of stock or none or many”).

While the court noted similarities between the structures of a partnership and the closely-held s-corp. at issue here, ultimately it reasoned that the differences permitted a co-owner who lacked the ability to use the corporate assets as her own and lacked the ability to use the corporate assets as she thought fit. Further, contrary to the relationship partners have in a partnership where they are primarily investors, the court noted that shareholders such a plaintiff remain economically dependent on the s-corporation and their primary source of income is typically wages earned from the s-corporation:

The fact the company is a closely held corporation is key because shareholders view closely held corporations precisely as a means of acquiring corporate assets through employment: “Unlike the typical shareholder in a publicly held corporation, who may be simply an investor or a speculator and does not desire to assume the responsibilities of management, the shareholder in a close corporation considers himself or herself as a co-owner of the business and wants the privileges and powers that go with ownership. Employment by the corporation is often the shareholder’s principal or sole source of income. Providing employment may have been the principal reason why the shareholder participated in organizing the corporation. Even if shareholders in a close corporation anticipate an ultimate profit from the sale of shares, they usually expect (or perhaps should expect) to receive an immediate return in the form of salaries as officers or employees of the corporation, rather than in the form of dividends on their stock. Earnings of a close corporation are distributed in major part in salaries, bonuses and retirement benefits[.]” Hollis v. Hill, 232 F.3d 460, 467 (5th Cir.2000).

Having determined that part-ownership of an s-corporation does not preclude a finding of an employer-employee relationship under the FLSA, the court held that—taking the facts most favorably for plaintiff, the non-movant—plaintiff could meet the economic reality test and demonstrate that she was an employee subject to FLSA coverage. Thus, the court denied defendant’s motion for summary judgment on this ground.

Click Hess v. Madera Honda Suzuki to read the entire Order re: Motion for Summary Judgment or Summary Adjudication.

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October 28, 2011 · 7:56 am

S.D.Fla.: “Gross Volume of Sales” For Purposes of Determining Enterprise Coverage Does Not Include Unrealized Revenue Attributable to Coupons or Discounts

Marckenson v. LAL Peker, LLC

Anyone who has been following for the last few years knows that the issue of “enterprise coverage,” relatively dormant for decades, has been hotly litigated throughout the Southern and Middle Districts of Florida-2 hotbeds of FLSA litigation- in recent years.  In another recent decision weighing in on the issue, Judge Michael Moore in the S.D.Fla. was asked to decide whether the $500,000 annual gross sales requirement must take into account unrealized sales/revenues attributable to coupons or discounts a business gives to its customers.  Specifically, here it was undisputed that the defendant-employer recorded actual sales of less than $500,000.00 per year during the relevant years.  However, when discounts and coupons (unrealized revenue) were factored in, its sales rose above the $500,000.00 threshold.  The defendants moved for summary judgment asserting that they were not a “covered enterprise” under the FLSA.  The court agreed and granted the defendants summary judgment.

Discussing the issue, the court stated:

“The issue before the Court is whether “gross volume of sales made or business done” as used in 29 U.S.C. § 203(s)(1)(A) incorporates unrealized revenue attributable to coupons or discounts provided to customers. Interpretations of the FLSA are determined ultimately by the Court. See Mitchell v. Zachry, 362 U.S. 310, 80 S.Ct. 739, 4 L.Ed.2d 753 (1960); Kirschbaum v. Walling, 316 U.S. 517, 62 S.Ct. 1116, 86 L.Ed. 1638 (1942); see also 29 C.F.R. § 779.8 (2011). In interpreting the FLSA, the Court may rely on official interpretations of the FLSA promulgated by the Department of Labor. Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S.Ct. 161, 89 L.Ed. 124 (1944) (“[T]he rulings, interpretations and opinions of the Administrator under [the FLSA], while not controlling upon the courts by reason of their authority, do constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance.”); Dade Cnty. Fla. v. Alvarez, 124 F.3d 1380, 1385 (11th Cir.1997).  Title 29 C.F.R. § 779.259 provides helpful guidance in interpreting “gross volume of sales made or business done”:

The gross volume of sales made or business done means the gross dollar volume (not limited to income) derived from all sales and business transactions including, for example, gross receipts from service, credit, or other similar charges. Credits for goods returned or exchanged and rebates and discounts, and the like, are not ordinarily included in the annual gross volume of sales or business…. Gross volume is measured by the price paid by the purchaser for the property or service sold to him …

29 C.F.R. § 779.259 (2011) (emphasis added). When a coupon or discount is provided to a customer free of consideration, a true price reduction occurs, and the new price paid by the customer represents the sale amount. This is consistent with the Department of Labor’s view that “gross volume of sales” is measured by the price actually “paid by the purchaser for the property or service sold to him.” Id. Consequently, having found this interpretation reasonable, this Court adopts a view of “gross volume of sales made or business done” that excludes lost revenue attributable to coupons or discounts provided to customers.

In light of this interpretation, it is clear that enterprise coverage does not apply to Defendants. Excluding approximately $103,000 in discounts provided to customers from Plaintiff’s FY 2010 gross sales calculation, Defendants “gross volume of sales made or business done” falls well short of the $500,000 threshold required by 29 U.S.C. § 203(s)(1)(A). This is substantiated by the tax forms submitted on behalf of Defendants for fiscal years 2009 and 2010. Moreover, Plaintiffs alleged personal knowledge that Defendants’ weekly sales revenues “averaged above $8,000.00 per week and on occasions exceeded $11,000.00,” is insufficient to create a genuine issue of material fact in light of Plaintiff’s implicit acceptance and overt reliance on Defendants’ monthly sales reports from August 2009 through April 2011. Even discounting Plaintiffs acceptance of Defendants’ monthly sales reports, Plaintiffs’ alleged personal knowledge in no way conflicts with the amount of income reported by Defendants. Without any further specificity as to how much revenue Defendants’ collected, or without any articulation by Plaintiff as to how often and for what duration he closed Defendants’ register, Plaintiff’s assertion does not amount to more than a conclusory allegation. Thus, summary judgment on the issue of enterprise coverage is awarded in favor of Defendants.”

Click Marckenson v. LAL Peker, LLC to read the entire Order.

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June 25, 2011 · 9:55 am

9th Cir.: Group Home Housing “Severely Emotionally Disturbed” Children Not An “Institution Primarily Engaged in the Care of the Sick, the Aged, Mentally Ill”

Probert v. Family Centered Services of Alaska, Inc.

This case was before the Ninth Circuit on the defendant’s appeal of an order granting plaintiffs- house parents at their various group homes of emotionally disturbed children- summary judgment, holding that each of defendant’s homes were subject to FLSA coverage as an “institution primarily engaged in the care of the sick, the aged, mentally ill or defective who reside on the premises of such institution.” 29 U.S.C. § 203(r)(2)(A).  The Ninth Circuit reversed, holding that defendant’s homes were not primarily engaged in such care, although it was undisputed that they provided housing for same.  In so doing, the Ninth Circuit ignored long-held jurisprudence requiring that courts liberally construe the FLSA’s coverage to serve the statute’s remedial goals.

Describing the relevant background facts, the Ninth Circuit explained:

“Plaintiffs Loretta and Robert Probert and Plaintiffs–Intervenors Debra and Eric Cloninger, Donna and John Grimes, Gene and Sandra Grissom, and Kenneth and Leona McDaniels are married couples who worked as “house parents” in FCSA’s Homes. Each Home housed up to five children. All the children were “severely emotionally disturbed” as defined by the Alaska law that qualifies the Homes for Medicaid funding, 7 Alaska Admin. Code § 43.471, and each of the children had at least one diagnosed mental disorder under Axis–I of the current Diagnostic and Statistical Manual of Mental Disorders. The children attended local public schools and participated in other activities away from the Homes. The children participated in group therapy conducted by clinicians in the Homes, but received most of their medical and psychological treatment outside the Homes. Plaintiffs were not licensed medical or social service professionals.

Plaintiffs sued FCSA for overtime pay under the FLSA.  After denying Plaintiffs’ first motion for partial summary judgment, the district court granted a similar motion for partial summary judgment in their favor, concluding that FCSA through its Homes, was operating “an institution primarily engaged in the care of the … mentally ill or defective who reside on the premises of such institution,’ “ 29 U.S.C. § 203(r)(2)(A), and was therefore an enterprise subject to the FLSA’s overtime provisions, id. § 207(a)(1). The district court observed that the FLSA does not define “institution.” As an analogy, the district court looked to a federal Medicaid regulation, not directly applicable to this situation, that defined “institution” as “an establishment that furnishes (in single or multiple facilities) food, shelter, and some treatment or services to four or more persons unrelated to the proprietor,” 42 C.F.R. § 435.1010, and concluded that the “Homes (either individually or as a group) could be considered an ‘institution.’ “ The court also relied on FCSA’s own website, which described the Homes as “provid[ing] quality residential care to male and female youth ages 6–18 that are experiencing mental health and behavioral issues and are at imminent risk of psychiatric placement outside of their community.”

Holding that the defendant did not fall within the definition of 203(r)(2)(A), the court reasoned:

“Plaintiffs argue that each of the FCSA Homes in which they worked is covered by the statute as “an institution primarily engaged in the care of … the mentally ill … who reside on the premises of such institution.”  The FLSA is a remedial statute that is “to be liberally construed to apply to the furthest reaches consistent with Congressional direction.” Dent v. Cox Communications Las Vegas, Inc., 502 F.3d 1141, 1146 (9th Cir.2007) (internal quotation marks omitted); see also 29 C.F.R. § 779.101 (“An employer who claims an exemption under the Act has the burden of showing that it applies.”). Nonetheless, we conclude that the language of the statute does not cover the FCSA Homes, for two primary reasons.

The first reason is that the Homes were not “primarily engaged” in providing “care,” as that term is used in the statute. The statute refers to “care” in relation to groups with special needs, namely “the sick, the aged, the mentally ill or defective.” 29 U.S .C. § 203(r)(2)(A). As such, we understand “care” in this context to include something more like treatment. What the Homes primarily provided, as their name suggests, was a home or a residence. As noted above, the children attended school, engaged in activities, and received most of their medical and psychological treatment from medical and mental health professionals outside the Homes. Obviously, for children a home should be more than simply a place to live, and the children presumably benefitted from Plaintiffs’ “care” as house parents. But Plaintiffs were not medical or social service professionals and were not primarily focused on providing the type of “care” that those professionals provide.

The language of the statute clearly suggests a covered institution must provide more than the general care of a residence. In addition to requiring that the institution’s patrons “reside on the premises of [the] institution,” the institution must provide “care” of the type that is provided to “the sick, the aged, the mentally ill or defective.” If residing on the premises were enough by itself to define the given premises as covered by the statute, then the requirement that the institution be “primarily engaged” in the “care” of the individuals residing there would be superfluous. We are to avoid interpreting a statute in that manner. See TRW Inc. v. Andrews, 534 U.S. 19, 31 (2001) (“It is a cardinal principle of statutory construction that a statute ought, upon the whole, to be so construed that, if it can be prevented, no clause, sentence, or word shall be superfluous, void, or insignificant.” (internal quotation marks omitted)).

Second, the Homes do not appear to us to be “institutions” as that term is used in this statute. Around the time the 1966 amendment was drafted, the Oxford English Dictionary offered the following definition of “institution”:

An establishment, organization, or association, instituted for the promotion of some object, esp. one of public or general utility, religious, charitable, educational, etc., e.g. a church, school, college, hospital, asylum, reformatory, mission, or the like; as a literary and philosophical institution, a deaf and dumb institution, the Royal National Life-boat Institution, the Royal Masonic Benevolent Institution …, the Railway Benevolent Institution, etc.  5 Oxford English Dictionary 354 (1933, reprinted 1961). The FCSA Homes do not fit well within that definition.

Nor do the Homes fit well with the neighboring parts of the relevant statute. They are not very much like

a hospital, …, a school for mentally or physically handicapped or gifted children, a preschool, elementary or secondary school, or an institution of higher education (regardless of whether or not such hospital, institution, or school is operated for profit or not for profit).  29 U.S.C. § 203(r)(2)(A).”

Similar to reasoning in Christopher v. SmithKline Beecham Corp., broadly construing the outsides sales exemption and refusing to adopt the guidance of the DOL outside of regulations promulgated by the Administrator of the DOL, the court further reasoned:

“Plaintiffs argue that we should interpret § 203(r)(2)(A) to include FCSA’s Homes because guidance from the Department of Labor indicates that a reference to “nursing homes” in that provision should be interpreted broadly. See Dep’t of Labor, Wage and Hour Division, Field Operations Handbook (FOH), ch. 12, § 12g02 (“[Institutions primarily engaged in the care of the aged] are not limited to nursing homes, … but include those institutions generally known as nursing homes, rest homes, convalescent homes, homes for the elderly and infirm, and the like.”). Plaintiffs argue that by the same reasoning, “institution primarily engaged in the care of the … mentally ill” should be interpreted broadly to include FCSA’s Homes. We disagree.

The FCSA Homes are very different from nursing homes and the related facilities listed in the handbook. The children who live at the FCSA Homes spend much of their time, perhaps a majority of their waking hours, elsewhere. They leave the Homes to attend school, participate in activities, and receive medical and psychological treatment. Residents of nursing homes are not necessarily confined completely to those facilities, but the expectation is that the vast majority of their time is spent there. Those facilities are also staffed with professionals, not simply house parents, and residents may be expected to receive substantially greater “care” in those facilities.”

Combined with its recent decision in Christopher v. SmithKline Beecham Corp., this decision is particularly disturbing.  It appears the Ninth Circuit is quickly moving away from long held tenets of FLSA jurisprudence, the twin constructs that FLSA coverage is to be liberally construed, while exemptions/exceptions to coverage are to be narrowly construed against employers.  In any case, it clear that here, that the Ninth Circuit construed FLSA coverage as narrowly as possible in holding that defendant was not a covered enterprise.

Click Probert v. Family Centered Services of Alaska, Inc. to read the entire Opinion.

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June 9, 2011 · 7:10 am

Are the FLSA’s Enterprise Coverage Requirements Outdated in Today’s Economy?

In his recent article, “Taking the Employer Out of Employment Law? Accountability for Wage and Hour Violations in an Age of Enterprise Disaggregation,” Professor, Timothy P. Glynn of Seton Hall School of Law makes a compelling argument that the answer is yes.

In the abstract to his article, Professor Glynn explains:

“Violations of wage and hour mandates are widespread at the low end of the labor market. The disaggregation of business enterprises into smaller, independent parts has been an important factor in this growing problem. Limitations on liability for work-law violations invite such arrangements since statutory protections for workers usually impose duties only on “employers.” That status, in turn, hinges on the level of control a firm exercises over the work, and when exacting control is not necessary, firms usually can avoid accountability by shifting work to independent third-party suppliers. This creates severe enforcement obstacles: detection becomes difficult, labor suppliers often are undercapitalized, and coverage uncertainties lead to unprosecuted claims and discounted settlements. Thus, disaggregation does far more than shift legal responsibility from one entity to another: it allows end-user firms to avoid noncompliance risks while benefiting from labor at a price discounted by the unlikelihood of enforcement.”

Thus, Professor Glynn proposes “eliminating the ‘employer’ coverage barrier altogether.”  Under his approach, “commercial actors would be held strictly liable for wage and hour violations in the production of any goods and services they purchase, sell, or distribute, whether directly or through intermediaries. The only limitation is that a firm’s liability would not exceed the proportion of the violations attributable to the goods or services it purchases, sells, or distributes.”

Adopting this less restrictive coverage requirement would lead to easier enforcement of wage and hour laws and thus, fewer abuses at the low end of the labor market.  It doesn’t appear that there’s any push to adopt these logical changes which would no doubt further the remedial goals of wage and hour laws, but it’s a refreshing perspective nonetheless.  In this day and age, Professor Glynn’s recognition that a modern fractured economy is far different than the economy of the past, with fewer larger actors, is largely unaddressed by wage and hour laws that are currently on the books.

Click Abstract to read more on Professor Glynn’s work.

Thanks to the Workplace Prof Blog for bringing this to our attention.

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May 13, 2011 · 2:21 pm

C.D.A.C.: Court Declines to Adopt “Economic Reality” Test and Confirms Prisoners Are Not Covered by FLSA

Shipley v. Woolrich, Inc.

This case was before the court on plaintiff’s appeal of an order dismissing his FLSA case below, based on the fact that, as a federal prisoner, he was not an employee subject to FLSA coverage.  The district court sua sponte dismissed the complaint, relying on the D.C. Circuit’s decision in Henthorn v. Dep’t of the Navy, 29 F.3d 682, 686 (D.C . Cir.1994), in which they noted that convicted criminals are not protected by the Thirteenth Amendment against involuntary servitude and that a prisoner is barred from asserting a claim under the FLSA where the prisoner’s labor is compelled and/or where any compensation he receives is set and paid by his custodian.

On appeal the plaintiff argued that the court should adopt an “economic reality” test based on whether the labor in question involves a “service,” such as the janitorial chores performed in Henthorn, or rather involves a “good,” such as the making of clothes performed by the plaintiff.

Rejecting this argument, the court reasoned:

“In Henthorn the appellant asked us to adopt a somewhat similar “economic reality” test that would have made a distinction, for purposes of applying the FLSA, between work inside or outside the prison compound. We declined the request, holding instead that a prerequisite to finding that an inmate is covered “under the FLSA is that the prisoner has freely contracted with a non-prison employer to sell his labor.” 29 F.3d at 686. Here we likewise reject Shipley’s request and follow our holding in Henthorn.

In Henthorn we stated that at the pleading stage “a federal prisoner seeking to state a claim under the FLSA must allege that his work was performed without legal compulsion and that his compensation was set and paid by a source other than the Bureau of Prisons itself.” Id. at 687. Here, Shipley has made no allegation that his work was voluntary or that he was paid by anyone other than UNICOR, an entity within the organizational structure of the Bureau of Prisons.”

While the court made clear that work performed for a private entity may sometimes qualify a prisoner as an “employee” subject to the FLSA coverage, such facts were not present here.

Click Shipley v. Woolrich, Inc. to read the entire Opinion.

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May 1, 2011 · 10:52 am

6th Cir.: Applying “Primary Benefit” Test, Students in Work-Study Program Were Not Employees Under FLSA

Solis v. Laurelbrook Sanitarium and School, Inc.

This case was before the Sixth Circuit on the Secretary of Labor’s appeal of the decision below, holding that the student-workers at Defendant’s sanitarium were not “employees” under the FLSA, and thus, were not entitled to the child labor protections afforded by the FLSA.  Of interest here, the Sixth Circuit clarified the test to be used under circumstances where students perform work as part of a work-study program, in which they are not compensated for such work monetarily.  After surveying the applicable case law, the DOL’s regulations and its interpretations of same, the court held that the applicable test was the “primary benefit” test.  In other words, the issue of whether such student-workers are covered by the FLSA or not turns on whether the “employer” or they themselves derive the “primary benefit” of the work performed.  Here, reviewing the specific facts of the case, the Sixth Circuit held that the trial court had properly concluded that the student-workers were non-employees, properly excluded from the coverage of the FLSA.

Describing the general factual background, the court explained:

“In conformity with its beliefs, Laurelbrook operates a boarding school for students in grades nine through twelve, an elementary school for children of staff members, and a 50–bed intermediate-care nursing home that assists in the students’ practical training (the Sanitarium). The school has been approved and accredited by the Tennessee Department of Education since the 1970s. The State of Tennessee accredits certain private schools through independent authorized accrediting agencies. The E.A. Sutherland Education Association (EASEA) is one such agency, whose purpose is to consider and adjudicate requests for accreditation from self-supporting (as opposed to denominational) schools, like Laurelbrook, which are operated by members of the Seventh–Day Adventist Church. Laurelbrook is currently accredited through EASEA.”

After surveying the applicable law and deeming the “primary benefit” test to be the proper test for determining whether the student-workers were employees, the court reasoned the student-workers here were not “employees” under the FLSA:

“In applying the primary benefit test, the district court recognized that students’ activities at Laurelbrook contribute to Laurelbrook’s maintenance, thereby benefitting Laurelbrook’s operations. Laurelbrook receives payment for services it provides to patients at the Sanitarium; some of these services are performed by students at no cost to Laurelbrook.  Hours worked by students in the Sanitarium also contribute to the Sanitarium’s satisfaction of its licensing requirements. Laurelbrook sells flowers and produce grown at Laurelbrook with student help. The proceeds from these sales go directly to Laurelbrook’s operations. As part of a course on collision repair, students assist in repairing cars for the public. Beneficiaries of these services pay Laurelbrook directly and the money is recycled back into school programs. Laurelbrook also earns revenue from the sale of wood pallets the students help build.

The value of these benefits to Laurelbrook, however, is offset in various ways. The district court found that Laurelbrook students do not displace compensated workers, and instructors must spend extra time supervising the students at the expense of performing productive work. Specifically, the court found that Laurelbrook is sufficiently staffed such that if the students did not perform work at the Sanitarium, the staff members could continue to provide the same services there without interruption. And while not specifically mentioned by the district court in its findings, there was evidence at trial that the same was also true of the work performed by students outside the Sanitarium. There was also testimony that, were it not for the instructors’ supervisory responsibilities, instructors would be able to complete more productive tasks in less time. Moreover, as the district court found, Laurelbrook is not in competition with other institutions for labor, so Laurelbrook does not enjoy an unfair advantage over other institutions by reason of work performed by its students…

Students do not receive wages for duties they perform. They are not entitled to a job with Laurelbrook upon graduation, and are expected to move on after graduation.”

On the other side of the ledger are the tangible and intangible benefits that accrue to the students. The district court found that Laurelbrook provides it students with significant tangible benefits. Students are provided with hands-on training comparable to training provided in public school vocational courses, allowing them to be competitive in various vocations upon graduation. Students learn to operate tools normally used in the trades they are learning, while being supervised by instructors. Students engage in courses of study that have been considered and approved of by the state accrediting agency. In short, the educational aspect of the instruction at Laurelbrook is sound, in contrast to the training program at issue in Baptist Hospital, where the supervision was inadequate, the exposure to various aspects of the trade limited, and the overall value to the students nil. None of these educational shortcomings is present here. Indeed, the Tennessee Department of Education, through EASEA, has determined that Laurelbrook’s vocational program provides benefits to the students sufficient to warrant accreditation.

Significant, too, are the intangible benefits students receive at Laurelbrook. As the district court found, receiving a well-rounded education—one that includes hands-on, practical training—is a tenet of the Seventh–Day Adventist Church. Laurelbrook provides students with the opportunity to obtain such an education in an environment consistent with their beliefs. The district court found that the vocational training portion of the education teaches students about responsibility and the dignity of manual labor. Thought not mentioned in the district court’s opinion, there is ample evidentiary support for these findings. Parents testified to the benefits their children received from the program, stating that the students learn the importance of working hard and seeing a task through to completion. Some parents testified that their children have become more responsible and have taken on leadership roles since participating in Laurelbrook’s program. Service in the Sanitarium engenders sensitivity and respect for the elderly and infirm. Laurelbrook alumni testified that the leadership skills and work ethic developed at Laurelbrook have proved highly valuable in their future endeavors. Employers also testified that Laurelbrook alumni have a strong work ethic, leadership skills, and other practical skills that graduates of other vocational programs lack.

The Secretary discounts the value of these intangible benefits, but we agree with the district court that they are of significant value. Courts that have addressed the value of such benefits have likewise concluded that they are significant enough to tip the scale of primary benefit in the students’ favor even where the school receives tangible benefits from the students’ activities. See, e.g., Blair, 420 F.3d at 829; Woods, 400 F.Supp.2d at 1166; Bobilin, 403 F.Supp. at 1108. The overall value of broad educational benefits should not be discounted simply because they are intangible.

After considering all of the evidence, the district court found that there is benefit to Laurelbrook’s operations from the students’ activities, but the primary benefit of the program runs to the students. We find no error in the district court’s application of the primary benefit test.”

Click Solis v. Laurelbrook Sanitarium & School to read the entire opinion.

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January 28, 2011 · 7:48 am

11th Cir.: Joint Enterprises’ Cumulative Gross Revenues Properly Considered For Enterprise Coverage Analysis Where All Corporate Defendants Working For Common Purpose and Plaintiffs’ Work Furthered Purpose

Cornell v. CF Center, LLC

This was an appeal from a jury verdict in favor of the Appellees for Appellants’ alleged failure to pay overtime in violation of the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 207(a)(1).  The issue on appeal was whether the trial court property added together the gross revenues of the various Defendants, in order to determine that the “joint enterprises” met the $500,000.00 requirement for enterprise coverage.

The Court framed the issue as follows:

“While [Plaintiffs] worked primarily for CF Center, LLC, they contend that the corporate entities were, as a matter of economic reality, jointly engaged in the floor covering business and acted as their joint employers. The corporate Appellants-owned by Jay Meltzer before he sold his interest to Nicholas Elliot-contend that the district court improperly allowed Cornell and Harp to conflate and combine separate corporate entities in order to meet the annual gross sales requirement of the FLSA and establish joint liability. Appellants argue that Cornell and Harp failed to meet their burden at trial to establish that they were improperly denied overtime pay.  Appellants now appeal the district court’s denial of their motion for judgment as a matter of law on these points. Appellants further appeal the district court’s denial of their motion for a new trial based on their claim that the jury’s verdict was against the great weight of the evidence.”

Reasoning that the trial court properly considered the cumulative gross earnings of all Defendants, the Eleventh Circuit explained:

“This court has broadly construed the coverage requirements under the FLSA. The FLSA allows for coverage under a joint enterprise theory. Donovan v. Easton Land & Dev., Inc., 723 F.2d 1549, 1551 (11th Cir.1984). The FLSA states, “ ‘Enterprise’ means the related activities performed (either through unified operation or common control) by any person or persons for a common business purpose, and includes all such activities whether performed in one or more establishments or by one or more corporate or other organizational units including departments of an establishment operated through leasing arrangements, but shall not include the related activities performed by such enterprise by an independent contractor….” 29 U.S.C. § 203(r). In Patel v. Wargo, we explained that “the legislative history of the FLSA and the case law demonstrate that the enterprise analysis was included in the FLSA solely for the purpose of expanding the scope of coverage of the statute. The legislative history clearly states the congressional purpose to expand the coverage of the Act, i.e., to lump related activities together so that the annual dollar volume test for coverage would be satisfied.” 803 F.2d 632, 636 (11th Cir .1986). The enterprise and liability analyses are distinct. “The finding of an enterprise is relevant only to the issue of coverage. Liability is based on the existence of an employer-employee relationship.” Id. at 637.

Appellants claim that their separate tax identifications, banking accounts, and tax returns establish that they are not engaged in a joint enterprise. Questions such as these, however, require courts to “look beyond formalistic corporate separation to the actual pragmatic operation and control, whether unified or, instead, separate as to each unit.” Donovan v. Grim Hotel Co., 747 F.2d 966, 970 (5th Cir.1984). Cornell and Harp have provided a wealth of evidence to show that, practically speaking, the corporate defendants functioned as a single unit for the purpose of selling and installing flooring. Business cards issued by the Appellants identify the business simply as “Coastal Floors” without identifying a particular corporate entity. Furthermore, these cards refer to locations in Port St. Lucie, Vero Beach, and Stuart. CF Center is located in Vero Beach, whereas Granite by Coastal is in Port St. Lucie. Granite by Coastal banners were hung in CF Center’s showroom. Moreover, the corporations share a website which, like their business cards, treats the corporations interchangeably, listing four business locations without indicating which corporation is located in which city. A liability release signed by Harp includes a number of the corporate defendants, contradicting their claim that there is no relationship between them. Harp, upon beginning his employment with CF Centers, was required to sign a safety policy that listed his employer as Coastal Floors I, Inc. Meltzer summed up the business reality best when he testified regarding the companies’ health plan, stating, “Contractors Flooring was an existing company for tax purposes. Coastal Floors-see, Contractors Flooring was probably the initiator of the plan early, early on. Coastal Floors I, II or III were established-I don’t know if my bookkeeper had made a name change to the policy as required or not. I own them all, so I don’t think it mattered.” (R.117 110:13-18.) This evidence was more than sufficient to allow coverage under the FLSA subject to an enterprise analysis.

While the question of liability is different than coverage under the FLSA, many of the same factors support both the district court and the jury’s finding that, effectively, Cornell and Harp were employed by all of the entities. As with the joint enterprise analysis, whether a party qualifies as a joint employer for liability purposes depends on whether “as a matter of economic reality, the individual is dependent on the entity.” Antenor v. D & S Farms, 88 F.3d 925, 929 (11th Cir.1996). Under the FLSA “[a] determination of whether the employment by the employers is to be considered joint employment or separate and distinct employment for purposes of the act depends upon all the facts in the particular case.” 29 CFR 791.2. This case-by-case inquiry turns on no formula, but the court will consider factors such as control, supervision, right to hire and fire, ownership of work facilities, investment, and pay-roll decisions. Antenor, 88 F.3d at 932-37.

It is clear from the evidence discussed above that the multiple corporate defendants were acting in one purpose, a purpose that the employment of Cornell and Harp furthered. Appellants often conflated what corporation conducted what activity. This confusion included matters of employment, as evidenced by the Coastal Floors I safety plan and Contractors Flooring health plan applying to CF Centers’s employees. Appellants’ argument that these companies are completely separate ignores the economic reality analysis required by the FLSA. Thus, the district court’s refusal to grant Appellants’ motion for judgment as a matter of law was proper.

Nor did the district court abuse its discretion in denying Appellants’ motion for a new trial. Appellants’ claim that the jury verdict was against the great weight of the evidence appears to be based almost entirely on their contention that the jury gave too much weight to the testimony of Cornell and Harp and should have found them not credible. But as this court has said before, “we do not assume the jury’s role of weighing conflicting evidence or inferences, or of assessing the credibility of witnesses.” Ledbetter v. Goodyear Tire & Rubber Co., 421 F.3d 1169, 1177 (11th Cir.2005). Cornell and Harp testified in detail regarding their claims that they were not permitted to take lunch breaks and were not compensated for this extra hour of work. While Appellants were able to solicit testimony from Cornell and Harp that possibly contradicts some of their claims, it was for the jury to assess their credibility. While Appellants may believe that the jury came to the wrong conclusion, they have failed to show that the great weight of the evidence so undermines the jury’s decision as to warrant a new trial, and the district court did not abuse its discretion in denying one.

Accordingly, for the aforementioned reasons, we affirm the district court’s order denying Appellants’ motion for a judgment as a matter of law and the order denying Appellants’ motion for a new trial.”

Click Cornell v. CF Center, LLC to read the entire opinion.

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September 1, 2010 · 7:53 pm

11th Cir.: FLSA Means What It Says; When An Enterprise Grosses $500,000 Per Annum And Two Or More Employees Handle Goods That Previously Traveled In Interstate Commerce, There Is Enterprise Coverage

Polycarpe v. E&S Landscaping Service, Inc.

This consolidated appeal was before the Court after each one of the six (6) cases was dismissed for lack of enterprise coverage.  In five (5) of the six (6) cases there was proof that the Defendants had gross revenues of $500,000.00 per year or more.  Thus, the only question is whether otherwise “local” businesses came under the coverage of the FLSA, due to the fact that each had two (2) or more employees who handled goods or products that had previously traveled in interstate commerce (the “handling clause”).  Answering in the affirmative, the Eleventh Circuit ended a battle of statutory misinterpretation that had gained steam in the past few years, and read the statute as written.  In so doing, the Court rejected the “coming to rest” doctrine in the context of enterprise coverage and made clear the doctrine only applies in the individual coverage context.

In each instance, the Court held that the district courts below  incorrectly relied on the “coming to rest” doctrine and misinterpreted the ultimate consumer exception in concluding that Plaintiffs could not show enterprise coverage under the FLSA.  In some instances, the Court also noted that the district court failed to consider whether the evidence that Plaintiffs presented raised a genuine and important question of fact under the handling clause; instead of analyzing that portion of the FLSA, the district court mistakenly relied on the interpretive framework of an individual-coverage case.

To read the entire opinion, click here.

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