Category Archives: Exemptions

N.D.Ohio: Where Defendant Retains Right to Reject Contracts Obtained by Door-to-Door Solicitors, Otherwise Allowed by Law to Enter Into Contracts, Outside Sales Exemption Inapplicable

Hurt v. Commerce Energy, Inc.

Following the United States Supreme Court’s decision in Christopher v. SmithKline Beecham Corp., courts continue to grapple with the issue of who is engaged in making sales, within the definition of the FLSA’s outside sales definition versus who simply helps solicit or promote sales to be made by others. This recent case distinguished door-to-door solicitors, who worked for the defendant energy company, from Christopher, and held that their duties could be non-exempt and more akin to those of the student salesman and military recruiters that Christopher in turn had distinguished from the pharmaceutical sales reps involved in that case. As such, the court denied the defendant’s motion for summary judgment. In so doing, the court provided some needed guidance on the issue of who is engaged in sales and who is not, for purposes of application of the “outside sales exemption.”

The court discussed the following facts relevant to this issue:

The Plaintiffs worked as door-to-door salespeople for Just Energy Marketing. They worked at various times from 2009 to 2013 at Just Energy’s Beachwood, Ohio office. During most of that time, Dennis Piazza was the regional distributor for the Beachwood office. Just Energy says that Piazza is an independent contractor himself, and his business is separately incorporated as Star Energy, Inc.

A. Ohio Regulations & PUCO

Because Just Energy operates in multiple states, it adopted policies to have its door-to-door workers comply with Ohio regulations. Specifically, in Ohio, the Public Utilities Commission of Ohio (“PUCO”) regulates energy suppliers like Just Energy. Generally, PUCO requires suppliers who solicit door-to-door to provide customers with acknowledgment forms; have independent third-party verification of at least fifty percent of all its customers; print terms and conditions in tenpoint type or greater; and require the door-to-door solicitors to display a valid photo identification.

But Just Energy’s door-to-door solicitors have additional requirements. In 2010, Commerce Energy entered into a settlement agreement with the Ohio PUCO to renew its retail natural gas supplier certificate. That agreement resulted from an investigation into customer complaints about the sales, solicitation, and enrollment practices of Just Energy’s residential door-to-door solicitors.

In the settlement, Commerce Energy agreed to implement an in-state quality assurance program “to provide the company with additional oversight of its sales force, as well as retrain all Ohio sales agents to assure compliance with PUCO’s rules.” Commerce also agreed that all its new customers would be subject to a new third-party independent verification process. That process requires door-to-door solicitors to initiate a third-party verification call before leaving the premises. The solicitors cannot be present on the premises during the call, and they cannot return to the premises after the call. Just Energy’s policies for its Ohio door-to-door solicitors reflect these requirements.

B. Hiring and Orientation

For its door-to-door solicitors, Just Energy often hires low-skill workers, many without prior sales experience. At its Beachwood office, Just Energy regional distributors and supervisors conducted short interviews before hiring these workers, sometimes completing the interviews in large groups. After the interviews, Just Energy required its solicitors to sign employment contracts.

The contracts required the Plaintiffs to comply with federal, state, and local laws and regulations and Just Energy Marketing’s codes of behavior. Further, the contracts said that the Plaintiffs would be paid a commission “according to the commission schedule in place at the time.” During the Plaintiffs’ employment, the commission schedule said that Just Energy paid the Plaintiffs approximately $35 for every order that they obtained. According to Just Energy, the Plaintiffs also “enjoyed the potential to earn productivity bonuses and additional commissions if customers remained with Commerce for certain periods of time.” But if “a customer cancelled an agreement after signing, then no commissions were paid at all; if the customer cancelled after the commission was already paid, it was subject to recoupment.”

After signing their employment contracts, Just Energy required its door-to-door workers to attend an orientation session led by a regional distributor. These orientation sessions covered a number of topics “including company and industry background, the products and services being sold, and helpful sales techniques.” After the orientation, Just Energy generally required the Plaintiffs to shadow a more experienced solicitor in the field for one or two days before soliciting customers on their own. Just Energy provided a script for the workers to use with customers. The Plaintiffs used these scripts to varying degrees.

C. Disputed Roles and Responsibilities

Just Energy and the Plaintiffs disagree about their respective roles and responsibilities. According to Just Energy, the Plaintiffs’ primary responsibilities were “knocking on potential customers’ doors, selling Commerce’s services and obtaining signed sales agreements for Commerce’s energy supplies.” Just Energy says that the “Plaintiffs were absolutely allowed to travel and work independently.” It says that they worked free from supervision, and Just Energy did not require them to work particular hours. Both parties agree, however, that the Plaintiffs worked approximately six to seven days a week for approximately twelve hours a day.

In contrast, the Plaintiffs say that Just Energy subjected them to significant supervision. They say that Just Energy regional distributors and supervisors controlled the length of the Plaintiffs’ work week and work day by assigning them to a work crew and van, sending the vans to solicit specific neighborhoods, and prohibiting the vans from returning to the office before 9 p.m. The Plaintiffs also say that Just Energy regional distributors required the Plaintiffs to knock on a specific number of doors and obtain a certain number of orders, required the Plaintiffs to report to the office every morning, prevented the Plaintiffs from working independently, controlled the Plaintiffs’ break time, and required the Plaintiffs to purchase and wear Just Energy branded clothing.

Initially, the court rejected the defendant’s contention that the plaintiffs “made sales” as defined by the outside sales exemption, as a matter of law:

The Plaintiffs’ evidence raises a genuine issue of material fact about whether they were “making sales,” and thus, qualified as outside salesman. FLSA does not define “outside salesman,” instead leaving it to be “defined and delimited … by regulations of the Secretary [of Labor].” The Department of Labor defines “outside salesman” as “any employee … [w]hose primary duty is … making sales within the meaning of [29 U.S.C. § 203(k) ]” and who is “customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty.” Section 203(k) defines a “sale” as “any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.”

In Christopher v. SmithKline Beecham Corp., the United States Supreme Court found that pharmaceutical representatives were exempt outside salespeople even though they did not actually accomplish a “sale” of drugs to the patient. Because Congress meant to define sales broadly to “accommodate industry-by-industry variations in methods of selling commodities,” the Supreme Court said that courts should consider the impact of regulatory requirements or “arrangements that are tantamount, in a particular industry, to a paradigmatic sale of a commodity.” Thus, because federal regulations prevented the pharmaceutical representatives from engaging in the actual sale of drugs to the patient, the Supreme Court found it was enough that the representatives “promoted” sales to doctors who in turn made “nonbinding commitments” to prescribe the drugs to their patients.

In Clements v. Serco, the United States Court of Appeals for the Tenth Circuit held that military recruiters were not exempt outside salespeople because they lacked the authority to enlist a recruit. There, recruiters “sold” potential recruits on the idea of the Army, but the Army retained the authority to enlist recruits. The Tenth Circuit held that the recruiters did not “make sales” because the Army required the recruits to report to a military processing station for a physical, job selection, and an oath before enlisting. Because the Army retained discretion to enlist a recruit, the recruiters were not outside salesman.

Similarly, in Wirtz v. Keystone Readers, the United States Court of Appeals for the Fifth Circuit found that “student salesman” were not outside salesman. There, a company hired student salesman to “obtain orders” for magazine subscriptions by door-to-door solicitation. The company required the student salesman to give their order cards to a “student manager,” who then contacted the customer, verified the customer met the company’s qualifications, and passed the order on to a “verifier.” The verifier then checked the order to make sure that the customer met the company’s qualifications. Only then did the company execute a contract. The Fifth Circuit concluded that the student salesman were not outside salesman because they did not “mak[e] sales of their own.”

Taking the evidence in the light most favorable to the Plaintiffs, Just Energy fails to show, as a matter of law, that the Plaintiffs “made sales.” Just Energy says that Christopher should control because the Plaintiffs obtained “far more” than the nonbindinding commitments at issue in Christopher. The Court agrees that the Plaintiffs obtained contracts, but Christopher is distinguishable.

The court reasoned that unlike the pharmaceutical reps in Christopher, here the plaintiffs were not prohibited from entering into binding contracts as a matter of law, rather it was defendant’s internal policies alone that stopped them from doing so:

Unlike the pharmaceutical representatives in Christopher, the Plaintiffs are not prohibited from completing a contract by state or federal regulations. Instead, Just Energy prevented the Plaintiffs from completing a sale by retaining unlimited discretion to accept and reject the orders obtained by the Plaintiffs. For example, in Just Energy’s New Customer User Guide, Just Energy says: “This Agreement will become firm and binding when (i) Just Energy accepts this Agreement, and (ii) the LDC [local distributor] accepts and successfully implements the Customer’s enrolment submission from Just Energy.” Similarly, in Just Energy’s Regional Distributor Services Agreement, Just Energy says: “The Service Provider and the Principal understand and agree that JUST ENERGY or any Affiliate thereof retain the sole and unfettered discretion to reject any Energy Contract submitted (whether by an Independent Contractor, the Principal or the Service Provider).”

Here, neither Ohio law nor the PUCO agreement require Just Energy to retain unlimited rejection authority. And Just Energy has failed to provide evidence showing that this right to reject contracts was necessary to comply with regulations or the PUCO agreement. Just Energy has not shown that it accepts agreements that comply with the applicable regulations. The contracts the Plaintiffs bring to Just Energy are merely proposals until Just Energy accepts them. Therefore, because Just Energy retains an unlimited right of rejection, the Plaintiffs are more like the student salesman in Wirtz and the military recruiters in Serco whose employers retained discretion to accept and reject their orders.

Additionally, like the magazine company in Wirtz, Just Energy required the Plaintiffs to submit their orders for further review before Just Energy chose to accept or reject them. While it is true that Just Energy’s evidence shows that the PUCO agreement requires Just Energy to conduct third-party verification, Just Energy has failed to show that the regulations require a credit check and approval of the customer by the local distributor. Thus, the Plaintiffs’ evidence raises a genuine issue of material fact about whether the Plaintiffs were “making sales,” and thus, qualified for the outside salesman exemption.

The court also reasoned that the “external indicia” did not support defendant’s contention that the plaintiffs were engaged in outside sales, further distinguishing the case from Christopher. Last, the court relied on the FLSA’s purpose, and reasoned that here- unlike the $70,000 a year (plus) pharmaceutical reps at issue in Christopher– the FLSA’s guiding principles supported a finding that the plaintiffs were not outside sales exempt.

Subsequent to this decision, the defendant sought interlocutory review of the decision, but the motion for same was denied. Nonetheless, this one is likely headed to the Sixth Circuit, and it’s unclear what they will do with it. Stay tuned for a further update here if/when the Sixth Circuit ultimately weighs in.

Click Hurt v. Commerce Energy, Inc. to read the full Opinion and Order.

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N.D.Ga.: Where Weekly Compensation of RNs and PTs Not Guaranteed and Comprised of Fees Per Visit as Well as Other Pay Based on Time Worked, Not “Salary” or “Fee Basis;” Clinicians Entitled to Overtime

Rindfleisch v Gentiva Health Services, Inc

As discussed here, this case was before the court on the parties’ respective cross-motions for summary judgment. Plaintiffs, registered nurses (RNs) and physical therapists (PTs)(collectively “clinicians”), paid in part by-the-visit to defendant’s patient’s homes asserted that they were entitled to unpaid overtime under the FLSA. Defendant contended that plaintiffs were exempt from overtime pursuant to the so-called “professional exemption.” Granting the plaintiffs’ motion and denying that of the defendant, the court held that the plaintiffs did not qualify for such exemption, because they were not paid on a “salary basis” or “fee basis,” a requisite element for application of the exemption.

Describing the pay policy at issue, the court stated:

Gentiva provides home healthcare services to patients throughout the United States[Doc. No. 508, 1].1 To provide these services, Gentiva employs registered nurses and physical or occupational therapists to provide in-home healthcare to Gentiva’s patients (collectively “Clinicians”) [Doc. No. 508, 1]. Since December of 2008, Gentiva pays the majority of its Clinicians on a pay per-visit plan (the “PPV Plan”) [Doc. No. 586, 4–5].2 Under the PPV Plan, Clinicians are paid a set fee for a “routine visit” to a patient’s home (“visit fees”) [Doc. No. 586, 14]. These visit fees do not vary based on the time it takes Clinicians to complete a specific in-home visit [id. at 15]. In addition, Clinicians under the PPV Plan are also paid on what Gentiva describes as a “flat rate” for non-visit related work (“non-visit fees”) [id. at 19]. In setting the amount of non-visit fees, Gentiva factors in the amount of time it takes Clinicians to perform a specific non-visit related activity [id.].

Gentiva maintains that the PPV Plan constitutes a “fee basis” payment under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201 et seq. [id. at 14]. Therefore, Gentiva classifies all of its Clinicians compensated under the PPV Plan as professional employees exempt from overtime compensation under the FLSA [id. at 10].

The court framed the issue before it as follows: 

In summary, the only issue for the Court to determine at this stage of the litigation process is whether or not the PPV Plan is unlawful under the FLSA.

After explaining the elements required for the application of the professional exemption, and noting that here it was undisputed that plaintiffs me the duties prong of the exemption, the court addressed whether or not the defendant’s pay scheme was a “fee basis” or “salary basis” within the meaning of the applicable regulation:

The DOL regulations state that, in order to satisfy the salary basis test, a professional employee can be paid “on a fee basis, as defined in § 541.605.” 29 C.F.R. § 541.600(a). Section 541.605 states an employee can be paid on a “fee basis” that satisfies the salary basis test if “the employee is paid an agreed sum for a single job regardless of the time required for its completion.” 29 C.F.R. § 541.605(a). Subsection (b) of section 541.605 states that, in order for a particular fee payment to satisfy the salary basis test, “the amount paid to the employee will be tested by determining the time worked on the job and whether the fee payment is at a rate that would amount to at least $455 per week if the employee worked 40 hours.” 29 C.F.R. § 541.605(b).

In the alternative, the DOL regulations, under section 541.604, allow an employee exempt from overtime pay to receive “extra” compensation that does not satisfy the salary basis test. Specifically, section 541.604 allows two forms of “extra” payment, articulated respectively in subsections (a) and (b). Anani v. CVS RX Servs., Inc., 788 F.Supp.2d 55, 66 (E.D.N.Y.2011). Subsection (a) of section 541.604 allows an employee to receive “additional compensation,” that does not satisfy the salary basis test, “based on hours worked for work beyond the normal workweek.” 29 C.F.R. § 541.604(a). Subsection (b) allows an employee to receive payment on an hourly, daily, or shift basis without losing the overtime exemption, so long as he is guaranteed weekly payment of at least $455 and there is a “reasonable relationship” between the guaranteed weekly payment and the employee’s usual weekly earnings. 29 C.F.R. § 541.604(b).

Summarizing the parties’ respective positions, the court explained:

In its motion for partial summary judgment, Plaintiffs argue that the PPV Plan, because the non-visit fees vary based on the amount of time it takes a Clinician to complete a non-visit activity, violates the salary basis test. Therefore, Plaintiffs argue the PPV Plan violates the FLSA and, as a result, that they are owed overtime compensation. In its response to Plaintiffs’ motion, as well as in its own motion for partial summary judgment on the lawfulness of its fee payments, Gentiva asserts the following two arguments: 1. Pursuant to subsection (b) of section § 541.605, the non-visit fees can vary based on the time it takes Clinicians to complete a non-visit activity and still satisfy the salary basis test; and 2. Even if Gentiva’s non-visit fees improperly consider time, Gentiva’s visit fees properly satisfy the salary basis test and, therefore, the non-visit fees constitute “extra” payments under section 541.604. The Court will discuss each of Gentiva’s arguments below.

The court rejected both of the defendant’s arguments in this regard. First, the court concluded that the defendant’s payment of non-visit fees did not satisfy the salary basis test under 29 C.F.R. § 541.605, because they were variable and depended on the amount of time a clinician spent on non-appointment activities:

Subsection (a) of § 541.605 clearly states that a fee for an activity, in order to satisfy the salary basis test, cannot be based on “the time required for [the activity’s] completion.” 29 C.F.R. § 541.605(a). Subsection (a) further states that “[p]ayments based on the number of hours or days worked and not on the accomplishment of a given single task are not considered payments on a fee basis.” Id. Based on this clear and unambiguous language, a “fee” that varies based on the amount of time it takes to complete a specific activity does not satisfy the DOL regulation’s salary basis test. See Bread Political Action Comm. v. Fed. Election Comm’n, 455 U .S. 577, 580 (1982) (stating that, in the absence of clearly expressed legislative intention, the plain language of a statute controls its construction and must be considered conclusive); see also Evenson v. Hartford Life & Annuity Ins. Co., 244 F.R.D. 666, 667 (M.D.Fla.2007) (“As a general rule of interpretation, the plain meaning of a regulation governs.”).

Gentiva argues that subsection (b) of § 541.605 allows it to alter the amount of its non-visit fees based on the time it takes Clinicians to complete a non-visit activity. Subsection (b) of § 541.605 provides that, in order for a fee to satisfy the salary basis test, the fee must “amount to at least $455 per week if the employee worked 40 hours.” 29 C.F.R. § 541.605(b). To illustrate this point, subsection (b) provides the following example: “[t]hus, an artist paid $250 for a picture that took 20 hours to complete meets the minimum salary requirement for exemption since earnings at this rate would yield the artist $500 if 40 hours were worked.” Id. Based on this language, Gentiva argues that subsection (b) allows an employer to alter the amount of a fee based on the time it takes an employee to complete a specific activity, so long as the fee is not set on a straight hourly basis.

In essence, Gentiva argues that it can consider the amount of time it takes Clinicians to perform certain non-visit activities prospectively, thereby allowing its non-visit fees to vary based on time. Specifically, Gentiva argues that its non-visit fees factor in time “for the purpose of accommodating the clinician for missed visits that she would have otherwise performed” [Doc. No. 512–1, 25]. In support of this argument, Gentiva provides the following example:

in accordance with one of its conversion charts, Gentiva may pay a visit rate equivalent of $30 for a training that lasted 45 minutes and a rate of $60, equivalent to two visits, for a different training that lasted 3 hours. If, however, Gentiva simply set a flat rate for all trainings at the visit rate equivalent of $30, the training that took 3 hours would not qualify as a bona fide fee ($30 ÷ 3=$10 an hour or $400 over a 40–hour work week)

[id. at 54]. In comparison, Plaintiffs argue that subsection (b) of § 541.605 “describes how to evaluate the payments after the job is completed to determine whether the clinician has been compensated sufficiently to meet the exemption or is instead overtime eligible” [Doc. No. 584, 13]. In summary, Gentiva argues that subsection (b) is in place to allow an employer, in setting a fee for a specific activity, to vary the fee based on the amount of time it takes to complete said activity before it is complete. In contrast to Gentiva’s position, Plaintiffs argue subsection (b) is in place for the purpose of determining if a set fee satisfies the $455/40 hour requirement after the specific activity is complete.

The 2003 version of the fee basis regulation, former 29 C.F.R. § 541.313, is persuasive authority on this point. In the preamble to rule 29 C.F.R. § 541.605, the Department of Labor (the “DOL”) states that “[p]roposed section 541.605 simplified the fee basis provision in the current rule, but made no substantive change.” Dep’t of Labor, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees, 69 Fed.Reg. 22122, 22184 (Apr. 23, 2004). Based on the lack of substantive change, it can be inferred that 29 C.F.R. § 541.605 is consistent with the language of former 29 C.F.R. § 541.313. See Belt v. Emcare, Inc., 444 F.3d 403, 414 (5th Cir.2006) (“The amendments effectively adopted § 541.314 after notice and comment, without substantive change, [ ] thereby tending to show that the text of § 541.3(e) does not contradict the former § 541.314.”).

Former 29 C.F.R. § 541.313 provides that “[t]he adequacy of a fee payment … can ordinarily be determined only after the time worked on the job has been determined.” 29 C.F.R. § 541.313(c) (2003) (emphasis added). To illustrate this point, 29 C.F.R. § 541.313 provides the following example:

An illustrator is assigned the illustration of a pamphlet at a fee of $150. When the job is completed, it is determined that the employee worked 60 hours. If the employee worked 40 hours at this rate, the employee would have earned only $100. The fee payment of $150 for work which required 60 hours to complete therefore does not meet the requirement of payment at a rate of $170 per week and the employee must be considered nonexempt.

29 C.F.R. § 541.313(d)(3) (2003). Based on this language, the Court agrees with Plaintiffs that 29 C.F.R. § 541.605(b) articulates how to determine a fee for a specific activity satisfies the salary basis test after the activity is completed. Therefore, 29 C.F.R. § 541.605(b) does not authorize an employer to prospectively alter a fee based on the amount of time it takes an employee to perform a specific work activity.

Without question, Gentiva’s non-visit fees vary based on the amount of time it takes Clinicians to complete a specific non-visit activity. Therefore, the non-visit fees violate the clear language of 29 C.F.R. § 541.605(a), which specifies a fee only satisfies the salary basis test when it is “an agreed sum for a single job regardless of the time required for its completion.” Subsection (b) of 29 C.F.R. § 541.605 merely provides a basis for determining whether or not a fee for a specific activity satisfies the salary basis test after the activity is complete. Therefore, Gentiva cannot rely on subsection (b) as justification for varying its non-visit fees based on the amount of time it takes Clinicians to complete a non-visit activity. Such a reading of subsection (b) would completely contradict and negate the clear and unambiguous language of subsection (a). Therefore, Gentiva’s non-visit fees do not satisfy the salary basis test under 29 C.F.R. § 541.605.

The court also rejected the defendant’s alternative argument that the non-visit fees constituted an “extra” payment under 29 C.F.R. § 541.604:

Section 541.604 provides that “[a]n employer may provide an exempt employee with additional compensation without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly-required amount [$455] paid on a salary basis.” 29 C.F.R. § 541.604(a). Gentiva argues that, because its visit fees satisfy the salary basis test, its non-visit fees constitute extra payments under section 541.604. The Court does not find this argument persuasive under either subsection (a) or subsection (b) of section 541.604.

Subsection (a) of section 541.604 allows an exempt employee to receive “extra” payment as “additional compensation … paid on any basis (e.g., flat sum, bonus payment, straight-time hourly amount, time and one-half or any other basis), and may include paid time off.” Id. However, such “extra” or “additional” compensation is only available under subsection (a) for “extra” or “additional” work, meaning “hours worked for work beyond the normal workweek.” Id. Under subsection (a), “beyond the normal workweek” signifies hours worked in excess of forty. See Anani, 788 F.Supp.2d at 67 (stating “common sense as well as the purpose of the FLSA supports the interpretation that the words ‘the normal workweek’ clearly contemplate a forty (40) hour workweek because the FLSA itself generally establishes the right to overtime for hours worked in excess of forty (40) hours.”) (internal quotation marks, alterations and citation omitted).

Here, Gentiva does not designate non-visit activities as additional work only performed after Clinicians have completed forty hours of in-home visits [Doc. No. 586, 34–35]. Instead, in the weeks non-visit activities are performed, non-visit fees are a part of the Clinicians’ compensation for a normal forty hour workweek. Therefore, non-visit fees are not a form of compensation separate from the Clinicians’ forty hour workweek, but are instead a part of the Clinicians’ compensation for a forty hour workweek that includes non-visit activities. Because non-visit activities, and by extension the non-visit fees, are not designated as separate from the Clinicians’ normal workweek, it is irrelevant that Gentiva’s visit fees satisfy the salary basis test. The visit fees do not encompass the complete form of payment for a Clinicians’ normal workweek and, therefore, do not justify payment of the non-visit fees which do not satisfy the salary basis test. As a result, the non-visit fees cannot be considered “extra” payment under subsection (a) of 29 C.F.R. § 541.604.

Subsection (a) of 29 C.F.R. § 541.604 does not allow an employee to receive two forms of payment, with one form failing to satisfy the fee basis test, for two forms of activities completed as part of an employee’s forty hour workweek. An additional form of payment that does not satisfy the salary basis test can only be awarded for work outside of an employee’s normal workweek. As Gentiva’s non-visit fees are a part of the Clinicians’ compensation for a normal workweek that includes non-visit activities, they do not constitute an “extra” payment under subsection (a) of section 541.604.

 Subsection (b) of section 541.604 allows an employer to pay its employee on an hourly, daily or shift basis without negating the overtime exemption “if the employment arrangement also includes a guarantee of at least the minimum weekly required amount paid on a salary basis [$455] regardless of the number of hours, days or shifts worked, and a reasonable relationship exists between the guaranteed amount and the amount actually earned.” 29 C.F.R. § 541 .604 (emphasis added). In summary, subsection (b) allows an employee to be paid on an hourly, daily, or shift basis without losing the overtime exemption, so long as the “reasonable relationship” test is met. Anani, 788 F.Supp.2d at 62. Subsection (b) provides that “[t]he reasonable relationship test will be met if the weekly guarantee is roughly equivalent to the employee’s usual earnings at the assigned hourly, daily or shift rate for the employee’s normal scheduled workweek.” 29 C.F.R. § 541.604(b).

Perhaps most significantly, the court noted that the defendant apparently conceded that there was no guarantee that the clinicians would receive at least $455.00 per week, regardless of the characterization of the non-visit fees:

In its reply brief regarding its motion for summary judgment on the lawfulness of its fee payments, Gentiva appears to concede that the visit fees do not guarantee Clinicians paid under the PPV Plan even $455 in a given week [Doc. No. 617, 24–25]. Based on this concession, Gentiva argues that “fee-based employees need not be guaranteed pay of at least $455 per week to be eligible for extras under section 541.604, they only need to be guaranteed fees that pay them at a rate that would result in at least $455 if they were to work a full 40–hour week performing those fee-compensated tasks” [id. at 25]. This argument, when applied to Clinicians and their usual weekly earnings, supports the very form of payment scheme that the reasonable relationship test of subsection (b) is attempting to guard against…

Here, Gentiva argues in favor of a compensation framework, without even establishing a set amount of “guaranteed” weekly payment, that allows an even greater discrepancy between the Clinicians’ normal weekly earnings and their “guaranteed” weekly payment. Specifically, Gentiva argues that Clinicians can receive one visit fee in a given week and still meet the guarantee requirement of subsection (b), so long as that single fee satisfies the fee basis test under section 541.605. However, under that scenario, Clinicians would have to receive an amount of non-visit fees that is significantly greater than the amount received from the one visit fee. For example, Gentiva asserts “the more productive opt-in clinicians in this action were able to earn more than $150,000 per year, and one plaintiff earned over $240,000″ [Doc. No. 512–1, 15].11 To earn this amount of compensation in a given year, Clinicians have to receive a weekly amount of earnings that greatly exceeds $455, let alone an undetermined amount that is less than $455. Therefore, under the compensation framework put forth by Gentiva, Clinicians’ “guaranteed” payment is an illusion, having no reasonable relationship to the amount of pay that Clinicians usually receive in a given week. See Dep’t of Labor, 69 Fed.Reg. at 22184 (stating “if an employee is compensated on an hourly basis, or on a shift basis, there must be a reasonable relationship between the amount guaranteed per week and the amount the employee typically earns per week. Thus, if a nurse whose actual compensation is determined on a shift or hourly basis usually earns $1,200 per week, the amount guaranteed must be roughly equivalent to $1,200; the employer could not guarantee such an employee only the minimum salary required by the regulation.”). Therefore, Gentiva’s non-visit fees do not constitute an “extra” payment under subsection (b) of 29 C.F.R. § 541.604.

Thus, the court held that the defendant’s payment plan failed to satisfy the salary or fee basis requirement and thus the professional exemption was inapplicable to the plaintiffs.

Click Rindfleisch v. Gentive Health Services, Inc to read the entire Order.

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S.D.Fla.: Contractor Engaged in Heavy-Duty Cleaning of Airplanes Not Air-Carrier Exempt Under Railway Labor Act (RLA)

Roca v Alphatech Aviation Services, Inc.

In this case, an employee sued his employer, a company that provided heavy-duty cleaning of airplanes, alleging failure to pay overtime in violation of the Fair Labor Standards Act (FLSA). The case was before the court on the defendant cleaning company’s motion for summary judgment. Specifically, the defendant asserted that it was entitled to the air-carrier exemption under the Railway Labor Act (RLA), because its work involved cleaning airplanes pursuant to contracts with air carriers covered that were covered by the exemption. The court disagreed and denied the defendant’s motion.

Describing the facts relevant to its inquiry, the court explained:

Alphatech specializes in heavy-duty cleaning of airplanes operated by commercial and freight airlines. In addition to cleaning airplane interiors and exteriors, Alphatech personnel replace components, perform light maintenance, preventive maintenance, and carry out related servicing of the aircraft. D.E. 22–1. As explained by Plaintiff, Alphatech employees “leave the plane clean; all the bathrooms, the galleys, everything, seats, carpeting[,] …. leave like the shell of the plane.” D.E. 25–1, at 13:13–16. In other words, cleaning is performed when an aircraft’s cabin is completely disassembled. D.E. 24–1, at 24:25. This work is primarily performed at the Miami International Airport complex, in a facility owned by AAR Aircraft Services (“AAR”), though Alphatech’s administrative work is performed out of its own office space adjacent to the airport. D.E. 22–1, at 35:3–6.

Alphatech does work for various air carriers, maintaining a separate contractual relationship with each. See D.E. 26–4. The work performed for each air carrier is executed in accordance with that air carrier’s maintenance manual. D.E. 24–1, at 9:12–14. Each air carrier specifies the manner in which it desires for its planes to be cleaned. Id. at 17:17–18. Alphatech employees sometimes work on the same exact model plane for two different air carriers and nevertheless perform their assignments differently, in accordance with each air carrier’s manual for that air craft. Id. at 17:19–22. The air carriers separately contract with AAR to inspect and certify the work that Alphatech performs. Id. at 15:10–13, 16:15–19. AAR “professors” are also responsible for administering the air carrier-specific training that Alphatech personnel must receive before servicing an aircraft. The air carrier representatives “walk [through the plane], they turn around, and they leave.” D.E. 15:9–10. Defendant Brullo testified that he could not remember the names of any air carrier supervisors because they change all the time, coming and going with the particular aircrafts that Alphatech personnel service. D.E. 23–1, at 29:19–22.

Giving an overview of the air-carrier exemption, and concluding that the defendant could not satisfy its burden to demonstrate the applicability of same, the court stated:

The question presented by this Motion is whether Plaintiff is an “employee of a carrier by air” for purposes of the FLSA’s air carrier exemption. Under the FLSA, employers are required to pay their employees at overtime rates for work in excess of 40 hours per week. See
29 U.S.C. § 207. However, certain classes of employers are exempt from this overtime requirement. Thus, the air carrier exemption removes from coverage “any employee of a carrier by air subject to the provisions of Title II of the Railway Labor Act.” Id. § 213(b)(3). Title II of the Railway Labor Act (“RLA”), in turn, covers “every common carrier by air …, and every air pilot or other person who performs any work as an employee or subordinate official of such carrier or carriers, subject to its or their continuing authority to supervise and direct the manner of rendition of his service.” 45 U.S.C. § 181.

Defendants have failed to show that Plaintiff is exempt from overtime coverage. The application of an exemption under the FLSA is an affirmative defense on which the employer has the burden of proof. Corning Glass Works v. Brennan, 417 U.S. 188, 196–97, 94 S.Ct. 2223, 41 L.Ed.2d 1 (1974). The Eleventh Circuit has found that Title II of the RLA “is certainly unambiguous” in scope, Valdivieso v. Atlas Air, 305 F.3d 1283, 1287 (11th Cir.2002), yet Defendants urge the Court to find that Plaintiff qualifies as an air-carrier employee under a two-pronged conjunctive test promulgated by the National Mediation Board (“NMB”)2 in cases where the employer does not itself fly aircraft. Plaintiff no more satisfies this two-part test than she does the plain text of the subject exemption. Under the NMB’s two-pronged conjunctive test, an employee is covered by the air-carrier exemption if: (1) the nature of the work is that traditionally performed by employees of air carriers (the “function” test); and (2) the employer is directly or indirectly owned or controlled by or under common control with an air carrier (the “control” test). Verrett v. The Sabre Grp., 70 F.Supp.2d 1277, 1281 (N.D.Okla.1999). Both prongs must be satisfied in order for the RLA exemption to apply. Here, neither prong is satisfied.

Discussing each prong in more detail, and finding that defendant here could satisfy neither prong, the court reasoned:

1. Function Test

Defendants have not shown that the work performed by Alphatech employees is of the sort traditionally performed by air-carrier employees. Indeed, Defendants’ own witnesses have severely undercut their position. Mr. Pichardo testified that the air carriers hire outside contractors to perform the sort of heavy-duty cleaning work performed by Alphatech. When Alphatech works on an aircraft, it does so for an extended period of time, rather than between scheduled flights. In fact, Alphatech’s witnesses repeatedly clarified at deposition that the company’s work is not at all akin to the rapid cabin cleanup performed by air carrier personnel between flights. Indeed, Defendants have not presented any evidence tending to show that the work performed by Alphatech is ever performed by air-carrier employees, let alone that it is “traditionally” performed by those workers.

The RLA’s definition of a “carrier” sheds additional light on what should be considered work traditionally performed by carrier employees. Under the RLA, the term “carrier” includes actual carriers as well as “any company … which operates any equipment or facilities or performs any service (other than trucking service) in connection with the transportation, receipt, delivery, elevation, transfer in transit, refrigeration or icing, storage, and handling of property transported.” 45 U.S.C. § 151. The focus, then, tends to be on companies performing the auxiliary functions of loading, unloading, and shipping to and from carriers’ depots and terminals for the ultimate transportation of whatever is being carried in interstate commerce.

What Defendants have presented in their defense are NMB decisions purporting to hold that aircraft cleaning is a function traditionally performed by air-carrier employees. The Court finds these non-precedential decisions to be distinguishable and otherwise unpersuasive.3 Defendants also rely on Moyano v. Professional Contractors Services, Inc., No. 1:07–cv–22411 (S.D.Fla. Mar. 7, 2008), a case involving mechanic contractors. Moyano offers little analysis under either prong, but does rely on the NMB’s analysis in In re Empire Auto Center, Inc., 33 NMB 3, 2005 WL 3089356 (Oct. 13, 2005). In that case, the employees also worked for an independent contractor and performed their tasks according to maintenance manuals provided by the air-carrier clients. 2005 WL 3089356, at *6. However, Empire’s chief financial officer testified that Empire employees performed maintenance work identical to maintenance work performed by aircraft employees employed by commercial air carriers. Alphatech’s owner, by contrast, acknowledges that the work performed by Alphatech is traditionally contracted out by the air carriers. Moreover, the nature of the work at issue in Empire does not at all appear to be similar to the work Plaintiff performed while at Alphatech. Empire’s employees all fell into one of four categories: exhibit air frame and power plant mechanic; non-destructive test technician; aircraft sheet metal technician; and aircraft avionics and electrical mechanic. Id. at 10. These maintenance and repair operations are similar to the work at issue in Moyano, but not similar to the work performed by Plaintiff. The Court finds that Defendants have failed to show that Plaintiff satisfies the function prong of the NMB test.

2. Control Test

Defendants’ argument that Alphatech’s air carrier clients indirectly control the company’s operations would convert most independent contractors into “carriers” for purposes of the RLA, so long as their clients are air carriers. But entering into a contractual relationship, while perhaps necessary, is certainly not sufficient to satisfy the control test. Courts find that carriers control a contractor’s employees “[w]here the carrier controls the details of the day-to-day process by which the contractor provides services—for example, the number of employees assigned to particular tasks, the employees’ attire, the length of their shifts, and the methods they use in their work.” Cunningham v. Elec. Data Sys. Corp., No. 06–3530, 15 Wage & Hour Cas.2d (BNA) 1891, 2010 WL 1223084, at *6 (S.D.N.Y. Mar.31, 2010) (citing In re Ogden Aviation Serv., 23 NBM 98, 104 (Feb. 5, 1996)). Defendants insist that the air carriers have ultimate control over Alphatech employees because they have an absolute say over the means by which their aircrafts are cleaned, and because individual Alphatech employees must be approved to work on each given aircraft. But Defendants’ deposition testimony establishes that the air carriers have absolutely no control over what Alphatech pays its employees, when and how they are promoted or given pay raises, which shifts they work, how many hours they work per shift, or how many employees are scheduled to work on an aircraft at once.

Meticulous work instructions and prior approval of an independent contractors’ employees will not convert those employees into a carrier’s employees for RLA purposes. See Dobbs Houses, Inc. v. N .L.R.B., 443 F.2d 1066, 1070 (6th Cir.1971). In Dobbs Houses, the court found that while an airline caterer was “engaged in a business which requires it to please some very meticulous and demanding customers, that fact alone does not establish their ‘control directly or indirectly’ of it or its employees.” Id. at 1072. In so finding, the Sixth Circuit distinguished the case of a catering company employed by a rail carrier under circumstances more indicative of “control.” It found that control was exercised in that case because: the catering company could not do any work for any other client except by the carrier’s explicit permission; the carrier reimbursed the caterer for the total cost of its workers’ wages; the carrier had the explicit right to discharge the caterer’s employees; and the catering employees were directly subject to the carrier’s supervision. Id. at 1071. None of those factors were present in the Dobbs Houses case, and none are present here.

Thus, the court held that the defendant was not an exempt air-carrier and denied the defendant’s motion for summary judgment. Subsequently, the plaintiff moved for partial summary judgment regarding the same issue, and the court granted the motion for virtually identical reasons as stated here.

Click Roca v. Alphatech Aviation Services, Inc. to read the entire Opinion and Order on [Defendant’s Motion for] Summary Judgment. Click Roca v. Alphatech Aviation Services, Inc. to read the Order on [Plaintiff’s Motion for Partial] Summary Judgment.

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What Defines Commercial Motor Vehicles (CMVs) for Application of MCA Exemption Under Technical Corrections Act (TCA)? Courts Disagree

Two recent cases—one from the Eighth Circuit and one from a District court within the Ninth Circuit—continue to demonstrate that when it comes to application of the Motor Carrier Act’s exemption to the FLSA, for employees who drive commercial motor vehicles (CMVs) in interstate commerce, courts continue to be confused. Within days of the Eighth Circuit’s holding that it is the Gross Vehicle Weight Rating (GVWR) dictates whether a motor vehicle weighs 10,000 pounds or more, and thus reaches the threshold to be considered a CMV, a court in the District of Idaho held that the actual weight when loaded and not the GVWR dictates the weight for purposes of application of the MCA under the Technical Corrections Act (TCA). Both cases are discussed below.

8th Cir.: GVWR, Not Actual Weight, Is the Appropriate Criterion for Determining if the TCA Applies

McCall v. Disabled American Veterans

Initially, the Eighth Circuit discussed the historical background of the TCA, with respect to the MCA and SAFETEA-LU, the amendment that preceded the TCA:

Under the FLSA, “[e]mployees engaged in interstate commerce” are to be paid “one and one-half times” their regular salary rates for all work performed in excess of 40 hours per week. 29 U.S.C. § 207(a)(1). However, under the MCAE, the overtime-pay provision of § 207 does not apply to “any employee with respect to whom the Secretary of Transportation has power to establish qualifications and maximum hours of service pursuant to the provisions of section 31502 of Title 49.” 29 U.S.C. § 213(b)(1). “The Secretary of Transportation may prescribe … maximum hours of service of employees of … motor carrier[s] and … motor private carrier[s].” 49 U.S.C. § 31502(b)(1) and (2). As relevant here, “motor private carrier” is a person “transporting property by motor vehicle when … the property is being transported for sale, lease, rent, or bailment or to further a commercial enterprise .” 49 U.S.C. § 13102(15)(C).

In 2005, the SAFETEA–LU amended the definition of “motor private carrier” to mean “a person, other than a motor carrier, transporting property by commercial motor vehicle (as defined in section 31132).” 49 U.S.C. § 13102(15) (2005) (emphasis added). Section 31132 defines a “commercial motor vehicle” as one which “has a gross vehicle weight rating or gross vehicle weight of at least 10,001 pounds, whichever is greater.” 49 U.S.C. § 31132(1). Therefore, following enactment of the SAFETEA–LU, the overtime-pay provision of § 207 began to apply to drivers of vehicles with a GVWR less than 10,001 pounds.

Reasoning that the TCA did not do away with SAFETEA-LU’s measure of 10,000 pounds by using the GVWR, the court explained:

In 2008, the TCA deleted the § 13102(15) reference to a “commercial motor vehicle (as defined in section 31132)” and inserted the more generic language “motor vehicle,” which is its current form. 49 U.S.C. § 13102(15) (2008). Section 306 of the TCA also extended FLSA overtime protections to “covered employees,” defined as individuals who are employed as motor private carriers, “who perform[ ] duties on motor vehicles weighing 10,000 pounds or less.” (Emphasis added). Pub.L. 110–244, Title III, § 306, 122 Stat. 1572, 1621 (2008). In the Bulletin, the Department of Labor’s Wage and Hour Division stated that it “will continue to use the gross vehicle weight rating2 (GVWR) or gross combined vehicle weight rating in the event that the vehicle is pulling a trailer” to determine if a vehicle is one “weighing 10,000 pounds” or less. Therefore, the overtime-pay provision of § 207 applies to vehicles with a GVWR of 10,000 pounds or less. We accord appropriate deference to this interpretation of the FLSA by the Secretary of Labor. See Donovan v. Bereuter’s, Inc., 704 F.2d 1034, 1036 (8th Cir.1983) ( “[T]he Secretary[ of Labor]’s interpretations are entitled to considerable weight.”).

McCall argues that he was a covered employee with overtime rights under the FLSA because the trucks that he operated actually weighed less than 10,000 pounds despite having GVWRs greater than 10,000 pounds. Upon review, we agree with the district court that GVWR, not actual weight, is the appropriate criterion for determining if the TCA applies to place a driver’s wage regulation under the FSLA rather than the Transportation Secretary. McCall operated trucks with GVWRs in excess of 10,000 pounds. He is not entitled to overtime under the FSLA.

Click McCall v. Disabled American Veterans to read the entire Opinion.

D.Idaho: Actual Weight, Not GVWR Determinative of Whether Vehicle Qualifies as CMV Under TCA

Garcia v. Western Waste Services, Inc.

In the second case, a court within the District of Idaho examined the identical issue and reached the opposite conclusion. That is the Idaho court held that the same regulation relied upon by the Eighth Circuit was not entitled to deference, because the statute at issue, the TCA, unambiguously eliminated SAFETEA-LU’s prior definition of a CMV (utilizing the GVWR) for vehicles not pulling a trailer. As such, the Garcia court held that the actual weight of the vehicle and not the GVWR dictates whether a vehicle is a CMV within the jurisdiction of the Secretary of Transportation (and whether the MCA applies).

Framing the issue, the court explained:

Garcia asserts that he is a “covered employee” under the TCA small vehicle exception due to his work as a mechanic and/or driver. To qualify for overtime pay as a mechanic, Garcia must show that: (1) he was a mechanic for a DOT-regulated motor carrier, (2) his work affected, in part, the safety of vehicles weighing 10,000 pounds or less, and (3) that the vehicles were in transportation in interstate commerce. Pub.L. No. 110–244, § 306(c). It is undisputed that Garcia worked as a mechanic for Western Waste, and that Western Waste is a DOT-regulated motor carrier. It is also clear that Garcia’s work affected the safety of all of Western Waste’s vehicles, which all travel in interstate commerce. Molitor Aff., ¶¶ 13–16, Dkt. 33–4. The main questions at issue are whether any of Western Waste’s vehicles weigh 10,000 pounds or less, and whether Garcia’s work on any such vehicles is sufficient to qualify him for the TCA exception.

Reasoning that the actual weight of the vehicle and not the hypothetical GVWR governs whether a vehicle meets the definition of a CMV under the TCA, the court explained:

(1) Vehicle Weight

The issue is how do you weigh a truck? Garcia asserts that Western Waste’s fleet has a number of service vehicles that weigh less than 10,000 pounds. Western Waste has 5 service vehicles that are used to transport portable toilets, run errands, and do service on other trucks and equipment. When the parties weighed three of Western Waste’s service vehicles on June 13, 2012, the actual weight of each vehicle, without a trailer, was less than 10,000 pounds. Thorne Aff., Dkt. 37–2. However, Western Waste argues that actual weight is not the appropriate measure of vehicle weight under the TCA. Instead, the GVWR or GCWR should be used. Western Waste points out that all of its service vehicles are equipped to pull, and regularly pull, a 5,740 pound trailer. Additionally, Western Waste states that there are several other trailers of unknown weight that the service vehicles regularly pull. Accordingly, Western Waste argues that all of its service vehicles have GCWRs that exceed 10,000 pounds.

The TCA does not specify how vehicle weight is to be determined. As mentioned above, SAFETEA–LU specifically provided that the GVWR or GCWR was used to determine vehicle weight. 49 C.F.R. § 390.5. The TCA dropped any reference to GVWR or GCWR, and simply refers to “motor vehicles weighing 10,000 pounds or less.” Thus, Congress appears to have abandoned the GVWR and GCWR standard for determining availability of the exemption.

After Congress passed the TCA, the Department of Labor (“DOL”) issued Field Assistance Bulletin No.2010–2 (“the Bulletin”) to explain its interpretation of the TCA. Specifically, the Bulletin announced that the Wage and Hour Division “will continue to use the [GVWR] or [GCWR] in the event that the vehicle is pulling a trailer” to determine vehicle weight. Id. This raises the question of whether the Bulletin’s interpretation of the TCA is entitled to deference.

After a discussion of the types of deference that a court owes to administrative regulations of that administrations own regulations, the court rejected DOL’s interpretation of the TCA, and held that the regulation at issue (defining the weight of a CMV) was unambiguous:

Under these standards, the Court concludes’ that the DOL’s interpretation of the TCA is not entitled to deference. It is not an attempt to interpret its own ambiguous regulation, and therefore is not entitled to deference under Auer. Additionally, it is not entitled to Chevron deference. When Congress enacted the TCA, it had the language of the SAFETEA–LU before it, and chose not to rely upon GVWR or GCWR to measure a vehicle’s weight for purposes of the TCA exception. In the Court’s view, the language in the TCA is not ambiguous. Therefore, the DOL’s interpretation, which is contrary to the plain language of the statute, is not warranted.

Moreover, the DOL Bulletin is not persuasive and runs afoul of the charge that the TCA exception be construed broadly. The DOL offers no explanation as to why it will continue to use GVWR or GCWR, despite the clear language of the statute not adopting that standard. Furthermore, using GVWR or GCWR narrows the number of employees covered by the TCA exception. Such a reading does not allow the Court to construe the TCA exception “to apply to the furthest reaches consistent with Congressional direction.” Klem, 208 F.3d at 1089. Therefore, in absence of any guidance from Congress and “a specific definition in the TCA, the ordinary meaning of ‘weight’ controls.” Glanville v. Dupar, Inc., CIV.A. H–08–2537, 2009 WL 3255292, *8 (S.D.Tex. Sept. 25, 2009).

Even under the ordinary meaning of weight, however, the weights of a truck and trailer which are commonly used together should be combined. Id. (holding that because the plaintiffs “operated vehicles, truck and trailer combined, with an actual weight of greater than 10,000 pounds,” the TCA was inapplicable). When Western Waste’s service vehicles are combined with the trailer, they exceed 10,000 pounds. However, there are unresolved factual questions as to whether all of the service trucks actually pull the trailer. Garcia contends that only one of the service trucks pulled the trailer during his employment. Garcia Decl., ¶ 4, Dkt. 37–1. Garcia’s allegations raise doubt as to whether all of the trucks should have a weight rating combined with the trailer. If vehicles # 25 and # 27 do not pull the trailer, as Garcia asserts, then they will have an actual weight and GVWR under 10,000 pounds. Thus disputed issues of fact remain.

Click Garcia v. Western Waste Services, Inc. to read the entire Memorandum Decision and Order.

Although not discussed here, the courts also fell on opposite sides of the “mixed fleet” question. For anyone facing this issue—whether an employee who drives both CMVs and non-CMVs for his or her employer within the same week—you would be well-advised to read these opinions on that issue as well.

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D.Mass.: Where 10% of Business Comprised of Sales of Automobiles, Defendant Not “Primarily Engaged in the Business of Selling Such Vehicles”

Carroca v. All Star Enterprises and Collision Center Inc.

Although not often the subject of litigation, pursuant to 29 U.S.C. § 213(10)(a), certain employees of automobile dealerships are exempt from the FLSA’s overtime requirements. Specifically, that statute exempts from overtime:

any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers…

In this case, the court was called upon, in part, to decide whether defendant—90% of its business was the repair of automobiles, with the remaining 10% of the business comprised of the sale of automobiles—qualified as such an automobile dealership. The court held, as a matter of law, that such a business does not qualify for the exemption.

The court reasoned:

All Star admits that Carroca was employed as an auto body repairman. D. 19 ¶ 5; D. 23 ¶ 5. Assuming without deciding that an auto body repairman is a “salesman, partsman, or mechanic,” the next question, which the parties dispute, is whether Carroca was “employed by a nonmanufacturing establishment primarily engaged in the business of selling [automobiles, trucks, or farm implements] to ultimate purchasers.” The Department of Labor has issued 29 C.F.R. § 779.372, which defines what it means to be “primarily engaged” in said business. According to the regulation, “[a]s applied to the establishment, primarily engaged means that over half of the establishments [sic] annual dollar volume of sales made or business done must come from sales of the enumerated vehicles.” Id.; see Donovan v. Bereuter’s, Inc., 704 F.2d 1034, 1036–37 (8th Cir.1983) (construing “the legislative history as indicating that Congress intended the exemption to be narrowly applied and was not designed to exempt those dealers who engage in the retail sales of automobiles to a limited degree”).

Here, as All Star acknowledges, D. 22 at 2, All Star has the burden of proof with respect to the applicability of the exemption. Hines v. State Room Inc., 665 F.3d 235, 240 (1st Cir.2011). Here, All Star has not met that burden where All Star admits that only “approximately ten percent” of All Star’s business constitutes automobile sales. Pl. Stmt. of Facts, D. 19 ¶ 2; Def. Resp., D. 23 ¶ 2; see Def. Resp. to Interrog. ¶ 5 (stating that “vehicle sales constitute approximately 10% of the business of Allstar; approximately 90% of the business consists of vehicle repair”). Thus, All Star is incorrect that it falls within the FLSA overtime exemption under 29 U.S.C. § 213. Accordingly, the exemption does not apply to All Star and it is bound by the overtime provisions under 29 U.S.C. § 207.

Click Carroca v. All Star Enterprises and Collision Center Inc. to read the entire Memorandum and Order.

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N.D.Tex.: Debt Settlement Company Not a “Retail or Service Establishment”

Parker v. ABC Debt Relief, Ltd. Co.

This case was before the court on the parties’ cross motions for summary judgment, regarding a variety of issues. As discussed here, one of the issues concerned the applicability of the so-called retail sales exemption, commonly referred to as 7(i), to defendant, a debt settlement company. The court held that the defendant was not a “retail or service establishment” within the meaning of 7(i), and held that the plaintiffs were not retail or service exempt as a matter of law.

Rejecting the defendant’s argument that the plaintiffs were subject to the retail exemption, because they engaged in telephone sales of a specific retail product to the general public, the court explained:

To determine whether an employer is a “retail or service establishment,” courts look to the former statutory definition in Section 13(a)(2) of the FLSA, 29 U.S.C. § 213(a)(2), which defines a “retail or service establishment” as one in which 75% of the annual dollar volume of sales of goods or services is “not for resale” and “is recognized as retail sales or services in the particular industry.” See 29 C.F.R. 779.319; Geig, 407 F.3d at 1047.

“Determination of whether a business fits the retail concept is not without difficulty.” Brennan, 477 F.2d at 296. In making their determinations, courts consistently rely on the expertise of the Department of Labor, which has promulgated an extensive series of regulations and interpretive rules that accompany the statute. See 29 C.F.R. § 779.300 et seq. Although courts are not bound by interpretative bulletins, they do provide guidance because they reflect the position of those most experienced with the application of the Act. Brennan, 477 F.2d at 296–97. Courts must consider all circumstances relevant to the business at issue. 29 C.F.R. 779.318(b).

After quoting the relevant section of the CFR, the court reasoned:

The Department of Labor’s regulations consistently emphasize that the exemption is meant to apply to “traditional” local retail establishments. 29 C.F.R. §§ 779.314, 779.315, 779.317. To assist the public, the regulations identify certain establishments as traditional local retail or service establishments—e.g., restaurants, hotels, barber shops, and repair shops. The regulations also seek to assist the public by identifying establishments that do not fall within the exception—e.g., insurance companies that sell insurance and electric companies that sell power. 29 C.F.R. §§ 779.316, 779.317. The Fifth Circuit has noted this ” ‘demonstrates that not everything the consumer purchases can be a retail sale of goods or services’ and ‘industry usage is not controlling.’ ” Brennan, 477 F.2d at 295 (citation omitted).

The regulations elaborate further on the definition by stating that “an establishment, wherever located, will not be considered a retail or service establishment within the meaning of the Act, if it is not ordinarily available to the general consuming public.” 29 C.F.R. § 779.319. “An establishment does not have to be actually frequented by the general public in the sense that the public must actually visit it and make purchases of goods or services on the premises in order to be considered as available and open to the general public. A refrigerator repair service shop, for example, is available and open to the general public even if it receives all its orders on the telephone and performs all of its repair services on the premises of its customers.” Id.

In this case, Defendants operated a debt settlement business from the eighth and tenth floors of an office building in Dallas, Texas. There were three main aspects to this debt settlement operation—sales, customer service, and negotiation with creditors. The Salespeople recruited the clients. They were constantly making telephone calls (around 300 calls a day)—to prospective customers all over the country—trying to sell a service. This is not the type of service that is utilized by the general public in the course of their daily living. Defendants were not “serv[ing] [an] everyday need [ ] of the community.” Defendants did not operate from a store front. They did not serve the general public by providing a retail product or service in the traditional sense. Defendants’ debt negotiation and settlement business was similar to other establishments that lack a “retail concept”—such as banks, brokers, credit companies, and loan offices. 29 C.F.R. § 779.317.

For these reasons, the Court finds that Defendants did not establish their burden of proving they operate a retail or service establishment within the meaning of the FLSA. The Court hereby DENIES Defendants’ motion for summary judgment on the retail or service establishment exemption and finds as a matter of law the salespeople Plaintiffs are not exempt from overtime pay under the retail or service exemption.

Click Parker v. ABC Debt Relief, Ltd. Co. to read the entire Memorandum Opinion and Order.

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2 Recent Decisions Discuss the Applicability of the Secondary Agricultural Exemption

The so-called “secondary” agricultural exemption, is one of the lesser known and litigated exemptions. Two recent cases shed light on how far the exemption actually reaches. Discussing the exemption, 2 courts reached different conclusions regarding whether the employees at issue were in fact exempt as secondary agricultural employees. In the first case, the Eleventh Circuit held that employees of an agricultural business, who were employed in Home Depot retail store locations, solely to care for their employer’s plants prior to sale to third parties, were subject to the exemption. In the second case, a district court in the Eastern District of California held that a truck driver who occasionally transported feed for the dairy cows to his employer’s dairy ranch was not exempt under the agricultural exemption, and held that the transport of milk that had been ultra filtrated might not qualify as “agricultural” work. Notably, each decision turned on a different element of the exemptions requirements as discussed below.

Rodriguez v. Pure Beauty Farms, Inc.

In the first case, the Eleventh Circuit held that employees who worked for their employer, a commercial nursery, and maintained their employer’s plants at Home Depot locations, for ultimate sale to third-party customers were subject to the secondary agricultural exemption. The court reasoned that the plaintiffs’ work caring for plants displayed in stores was incident to or in conjunction with nursery farming operations, and so qualified for secondary agricultural exemption. In so holding, the court rejected the plaintiffs’ contention that the employees were engaged in separate business enterprise of selling plants, since they handled only their employers’ plants, albeit in Home Depot locations, and held that the Home Depots where they performed their work qualified as “farms” within the meaning of the regulation.

Initially the court laid out the three prerequisites for application of the secondary agricultural exemption: (1) the “practice must be performed either by a farmer or on a farm”; (2) it must “be performed either in connection with the farmer’s own farming operations or in connection with farming operations conducted on the farm where the practice is performed”; and (3) it must be “performed ‘as an incident to or in conjunction with’ the farming operations.” 29 C.F.R. § 780.129; see also Sariol, 490 F.3d at 1279–80.

The court quickly disposed of the first two elements, finding that they clearly applied. Turning to the third element, the court held that the work performed by the employees was indeed incident to or in conjunction with the defendant’s farming operations, reasoning:

The parties’ dispute focuses primarily on the third requirement—whether the practices Rodriguez and Hernandez performed for the Farms, but on Home Depot store-sites, were “incident to or in conjunction with” the Farms’ farming operations. See 29 C.F .R. § 780.129. “Generally, a practice performed in connection with farming operations is within the statutory language only if it constitutes an established part of agriculture, is subordinate to the farming operations involved, and does not amount to an independent business.” 29 C.F.R. § 780.144. When, as here, the practice is performed on “agricultural or horticultural commodities,” to determine whether “the practice is conducted as a separate business activity rather than as a part of agriculture,” consideration is given to, among other things: (1) whether “the type of product resulting from the practice” remains in its raw or natural state or changes; (2) “the value added to the product as a result of the practice and whether a sales organization is maintained for the disposal of the product”; and (3) whether the product is “sold under the producer’s own label rather than under that of the purchaser.” 29 C.F.R. § 780.147. A farmer or his employees selling the farmer’s own agricultural commodities is also a practice “incident to or in conjunction with the farming operations” as long as “it does not amount to a separate business.” 29 C.F.R. § 780.158(a).

In addition, the Department of Labor has specific regulations addressing employees of nurseries. If nursery employees are engaged in “[p]lanting, cultivating, watering, spraying, fertilizing, pruning, bracing, and feeding the growing crop,” they are employed in agriculture. 29 C.F.R. § 780.205. “Employees of a grower of nursery stock who work in packing and storage sheds sorting the stock, grading and trimming it, racking it in bins, and packing it for shipment are employed in ‘agriculture’ provided they handle only products grown by their employer and their activities constitute an established part of their employer’s agricultural activities and are subordinate to his farming operations.” 29 C.F.R. § 780.209 (emphasis added). However, if the “grower of nursery stock operates, as a separate enterprise, a processing establishment or an establishment for the wholesale of retail distribution of such commodities, the employees in such separate enterprise are not engaged in agriculture.” Id. (citations omitted). “Although the handling and the sale of nursery commodities by the grower at or near the place where they were grown may be incidental to his farming operations, the character of these operations changes when they are performed in an establishment set up as a marketing point to aid the distribution of those products.” Id.

After briefly discussing similar cases, the court explained:

Here, the Farms handles and sells only its own plants, and Rodriguez and Hernandez watered, pruned, and cared for only the Farms’ plants situated at the Home Depot stores. Unlike the employees in Mitchell, Rodriguez and Hernandez did not work in a wholesale distribution center for other growers’ horticultural products. Cf. Mitchell, 267 F.2d at 290–91; see also Adkins v. Mid–American Growers, Inc., 167 F.3d 355, 357 (7th Cir.1999) (explaining that when an employer “buys plants and then resells them without doing significant agricultural work it is operating as a wholesaler rather than as a grower, and wholesalers of agricultural commodities are not exempt from the Act”); Wirtz v. Jackson & Perkins Co., 312 F.2d 48, 51 (2d Cir.1963) (stating that “[w]ere any significant portion of the stock handled in defendant’s storages purchased from … independent sources” the agricultural exemption would not apply because it “is inapplicable to services performed by employees of mere distributors of agricultural products”). Rodriguez and Hernandez are more akin to the flower shop employees in Walling, who handled and sold only their employer’s own nursery stock. See Walling, 132 F.2d at 6.

In any event, the kind of work Rodriguez and Hernandez performed on the Farms’ plants is explicitly identified in the regulations as “agricultural,” such as watering them, pruning away dead limbs, leaves and buds and preparing them for market by handling, inspecting and sorting them. See 29 C.F.R. § 780.205. Nothing Rodriguez and Hernandez did to the plants changed them from their natural state, such that they could be said to be engaged in the separate enterprise of processing or manufacturing. Cf. Mitchell v. Budd, 350 U.S. 473, 480–82, 76 S.Ct. 527, 532, 100 L.Ed. 565 (1956) (concluding that workers at tobacco-bulking plant, where a lengthy fermentation process substantially changed the tobacco’s physical properties and chemical content, were not exempt as agricultural workers). Indeed, by ensuring that the Farms’ plants continued to receive adequate water and light and were pruned and insect-free while in the staging areas, Rodriguez and Hernandez’s work was directly connected with and subordinate to the Farms’ own nursery-farming operations.

Click Rodriguez v. Pure Beauty Farms, Inc. to read the entire Opinion.

Williams v. Hilarides

In the second case, there were three issues regarding the application of the agricultural exemption before the court: (1) whether the fact that Plaintiff occasionally transported feed for the dairy cows to Defendant’s dairy ranch has any effect on the court’s determination of Plaintiff’s exempt status; (2) whether Plaintiff’s usual activity of hauling milk from the farm constituted agricultural work within the meaning of the exemption; and (3) whether application of the agricultural exemption is appropriate where the product shipped by Defendant to the cheese plant was a product which Plaintiff characterizes as being manufactured from raw milk by a process of ultrafiltration which removes significant amounts of water.

The court quickly disposed of the first issue, noting that the amount of time that an employee spends on so-called “agricultural” activities each week is determinative of whether the exemption applies (week-to-week):

The first issue—whether the fact that Plaintiff occasionally hauled feed for the dairy cows to Defendant’s farm—requires little discussion. Put simply, exemption from overtime pay entitlement under FLSA is an all-or-nothing proposition. If any portion of the employee’s workweek is spent in work that is not agricultural and therefore not exempt, no exemption may be claimed by the same employer for any amount of work that is agricultural under FLSA. Wyatt v. Holtville Alfalfa Mills, Inc., 106 F.Supp. 624, 629 (S.D.Cal.1952). In other words, an employee’s hours worked in a given workweek are not exempt under the agriculture exemption unless all the work performed that week was exempt agricultural work. Thus, it is of no import to the court’s determination of Plaintiff’s overtime exemption status that Plaintiff may have spent some small amount of time hauling hay for feed for the cattle if it is determined that Plaintiff’s trips to the Hilmar Cheese Plant are determined to be not agricultural in nature.

Discussing the second issue, the court analyzed the CFR regulations and case law pertaining to employees engaged in hauling agricultural goods and concluded that the hauling of such goods necessarily constitutes secondary agricultural work falling within the scope of the exemption.

Turning to the final issue, whether the transport of the raw milk that had been subject the ultra filtration process constituted agricultural work, the court held that issues of fact precluded a finding of same:

Plaintiff’s opposition to Defendant’s motion for summary adjudication raises the issue of whether the product that Plaintiff transported from Defendant’s farm to the cheese plant was a “dairy product” or was an industrial product such that the agriculture exemption was inapplicable. Defendant’s reply to Plaintiff’s contention is essentially limited to the claim that the product hauled by Plaintiff to the cheese plant was milk destined to be made into cheese and the fact that it was treated by ultrafiltration is of no consequence. Plaintiff cites two cases, Mitchell v. Budd, 350 U.S. 473, 76 S.Ct. 527, 100 L.Ed. 565 (1956) and N.L.R.B. v. Tepper, 297 F.2d 280 (1961), to support the contention that the hauling of a dairy product that is the result of the application of a process that removes the dairy product from its raw, natural state does not constitute employment in agriculture for purposes of the FLSA. As the court previously noted, at the time these cases were decided, the overtime provisions of section 7 of the FLSA contained a subsection that exempted those employed in agriculture from overtime but providing that the exemption applied only to activities carried out with respect to commodities in their “raw or natural state.” 29 U.S.C. §§ 207(c), (d) (repealed 1972); Hodgson v. Twin City Foods, Inc., 464 F.2d 246, 250 n. 3 (9th Cir.1972).

Finding no specific regulation directly on point, as to whether the milk that had undergone the ultra filtration was still milk in its “raw” state, the court denied defendant’s motion, noting it had failed to carry its burden of proof on the issue:

As noted above, Defendant has the burden to show that there is no issue of material fact as to whether Plaintiff is exempt from the overtime provisions of 29 U.S.C. § 207(b). Where Defendant fails to carry his burden is in the failure to show the process of transforming milk into the ultrafiltered product that Plaintiff transported to the cheese factory is, in fact, an agricultural, as opposed to manufacturing, function. If the court has no basis upon which it can conclude that the product Plaintiff was hauling to the cheese plant was a “dairy product” (as opposed to a manufactured product), the court cannot conclude that Defendant was engaged in “agriculture” when he shipped his product to the cheese plant or that Plaintiff was correspondingly carrying out an agricultural function. Defendant’s motion for summary adjudication must therefore fail. There is no question that reasonable minds could differ as to both sub-parts (B) and (C) of this opinion. However, the court finds that the application of guidelines established by Congress clearly prevent Defendant from meeting the high burden of production of proof that would allow the court to grant summary adjudication.

Click Williams v. Hilarides to read the entire Memorandum Opinion and Order on Defendant’s Motion for Summary Adjudication.

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