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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.

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.

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.

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.

Health Care Reform Law Amends FLSA to Require Breastfeeding Breaks, Thompson Reports

Under the new Health Care Reform Law, the FLSA has been amended in several important respects.  In addition to the highly publicized provision of healthcare for previously uninsured people, Thompson reports that employers must now provide breaks for women who are breastfeeding:

“Employers must now provide “reasonable” unpaid breaks to nursing mothers to express milk for their infants under an amendment to the Fair Labor Standards Act included in the landmark health care law signed by President Obama on March 23.

The health care law adds a new provision to the FLSA, 29 U.S.C. §207(r)(1), which allows nursing mothers to take a break every time they need to express breast milk and requires employers to provide a private location, other than a bathroom, where such employees may express milk. Employees must be allowed such breaks for up to one year after their child’s birth.

Employers of fewer than 50 employees are exempt if the breastfeeding requirements would “impose an undue hardship by causing the employer significant difficulty or expense.”

A number of states already mandate breastfeeding breaks, and under the FLSA, employers must comply with the standard that is more favorable to the employee (29 U.S.C. §218).

The health care law also amends the FLSA to require employers of more than 200 employees to automatically enroll new employees in existing employer-offered health plans.”

To read the entire article click here.

S.D.Fla.: Assistants At Medical Office Properly Allege Individual Coverage Under The FLSA, Based On Evidence Of Regular Communications With Out-Of-State Insurers, Patients And Vendors

Lopez v. Pereyra

Plaintiffs brought this action to recover unpaid overtime wages under the Fair Labor Standards Act (“FLSA”). Defendant was an obstetrics and gynecological doctor’s office located in Hollywood, Florida.  Plaintiff Carmen Lopez was a medical assistant in the Office from October 31, 2006 through January 23, 2009.  Plaintiff Dawn Serra was an administrative assistant in the Office from May 2, 2006 through May 1, 2009.  Plaintiffs alleged that the Office met the requirements of an enterprise under the FLSA and that each Plaintiff also qualified for individual coverage because they engaged in commerce.  Defendant moved for summary judgment arguing that the Office was not an enterprise as defined by the FLSA and Plaintiffs were not individually engaged in interstate commerce so as to trigger individual coverage.  The Court agreed that Defendant was not an enterprise engaged in commerce, based on its tax returns showing revenue of less than $500,000.00 per year.  However, the Court denied Defendant’s Motion as to individual coverage, holding that Plaintiffs’ allegations of regular communications with out-of-state insurers, out-of-state patients and out-of-state vendors, if true, satisfied the “engaged in commerce” test for individual coverage.

Discussing the applicability of individual coverage, the Court stated:

“For individual coverage to apply under FLSA, an employee must present evidence that he or she was (i) engaged in commerce or (ii) engaged in the production of goods for commerce. See Thome v. All Restoration Services, Inc., 448 F.3d 1264, 1265-1266 (11th Cir.2006).FN4 The Eleventh Circuit found that to “engage in commerce,” a plaintiff must “directly participat[e] in the actual movement of persons or things in interstate commerce.” Thome, 448 F.3d at 1266. When determining individual coverage, the character of the employee’s activities is determinative, not the nature of the employer’s business. Overstreet v. N. Shore Corp., 318 U.S. 494, 498 (1943).

FN4. The Department of Labor takes the position that the “[s]hipment of goods from another State direct to a customer located in the same State as the distributor who ordered the shipment, constitutes interstate commerce by virtue of which [ ] the distributor’s employees who procured the shipment … are covered by the FLSA as being engaged in interstate commerce.” Field Operations Handbook (FOH), Wage and Hour Division, U.S. Dep’t of Labor, § 11 i15 (1994). Although not entitled to Chevron deference, the Department of Labor’s Field Operations Handbook has been held to be persuasive and entitled to some weight in judicial interpretations of the FLSA. See Martin v. Occupational Safety and Health Review Comm’n, 499 U.S. 144, 157, 111 S.Ct. 1171, 113 L.Ed.2d 117 (1991); Morgan v. Family Dollar Stores, Inc., 551 F.3d 1233, 1275 (11th Cir.2008).

A key factor in determining if a plaintiff engaged in commerce for purposes of individual coverage under the FLSA is whether such activities were a “regular and recurrent” part of the plaintiff’s employment duties. 29 C.F.R. 776.10(b). The “employee’s interstate activity must be regular and recurrent and not simply isolated or sporadic for jurisdiction to exist.” Dent v. Giaimo, 606 F.Supp.2d 1357, 1360 (S.D.Fla.2009) (citing Scott v. K.W. Max Investments, Inc., 256 Fed. App’x 244, 247 (11th Cir.2007)); see also Curry v. High Springs Family Practice and Diagnosis Center, Inc., 2009 WL 3163221 (N.D.Fla. Sept.30, 2009) (granting summary judgment on FLSA claim by doctor’s assistant who performed primarily administrative functions and had only sporadic contact with out-of-state insurers).

The Court finds that there is a factual dispute regarding whether individual coverage applies to each Plaintiff. Defendants rely heavily on the Dent case where the court found no individual coverage for a medical assistant working in a local doctor’s office. Judge Ryskamp’s decision in Dent presents a similar, though distinguishable, factual scenario. Dent can be distinguished on two grounds, which ultimately require a different result.

First, Judge Ryskamp found that “although some patients may have been residents of other states, defendant was not engaged in interstate commerce if his contact with those patients was primarily local.” Dent, 606 F.Supp.2d at 1361. In Dent, “there [was] no evidence to suggest that defendant solicited business from patients while they were out of state or that any contract with out of state patients was regular or recurrent.” Id. Conversely, the Declaration of Carmen Lopez states that “[o]n a weekly basis I … made telephone calls to patients located in Santo Domingo and other states.”

Second, in Dent, “although the plaintiff averred that her job duties included contacting out of state insurance companies she did not allege how much of her time was spent conducting these activities.” 606 F.Supp.2d at 1361 (emphasis in original). Therefore, the court reasoned that “[i]t could be that [other individuals in the office] conducted the majority of those activities and that plaintiff only occasionally contacted out of state insurance companies.” Id. Here, the Declaration of Dawn Serra states that she “used to telephone [ ] insurance companies outside of Florida to verify patient insurance coverage at least three (3) times each work day.” DE 38-2 ¶ 5. Further, Ms. Serra declares that her job duties “each work day” also included (i) “mailing twelve (12) to twenty five (25) billing and other insurance forms to insurance companies outside of Florida;” id. ¶ 6, and (ii) “opening mail containing checks and other documents from insurance companies outside of Florida.” Id. ¶ 7.

In addition, Defendants rely on Thorne to argue that “[w]ith respect to the supplies and equipment used by the [Office], Plaintiffs do not allege that the [Office] engaged in the sale of goods that came from other states.” DE 42 at 5. “Plaintiffs’ ‘activities were not rendered interstate commerce simply because [the Office], an ultimate consumer, purchased goods which had previously moved in interstate commerce.’ “ Id. (quoting Thome, 448 F.3d at 1267). This argument holds true with respect to medical supplies used by the Office such as syringes, latex gloves and surgical sutures. The same cannot be said with respect to products and medications for which the Office’s patients were the ultimate consumer. In this regard, Ms. Lopez states that she “regularly used the telephone to call businesses to order from outside of Florida birth control medications for patients, birth control devices for patients and bladder control devices for patients.” Id. ¶ 5. Ms. Lopez also attests that she used “the telephone weekly to call patient insurance companies outside of Florida to obtain authorization for medications that the insurance companies did not cover.” Id. ¶ 6.

Finally, Defendants argue that Plaintiffs’ Declarations are vague and rely on words such as “regularly.” Defendants claim that such statements are conclusory and fail to “state the frequency with any particularity.” DE 42 at 4. Defendants claim is not entirely accurate as each Declaration does contain certain specific statements regarding the frequency of employment activities. Moreover, Defendant has not provided the Court with any telephone records, invoices or patient information that would enable this Court to conclude that Plaintiffs did not engage in commerce on a “regular and recurrent” basis. Cf. Curry v. High Springs Family Practice and Diagnosis Center, Inc., 2009 WL 3163221 (N.D.Fla. Sept.30, 2009).

In Curry, the plaintiff relied on an affidavit describing the number of times she communicated with out-of-state insurers. Id. at *1. “In response, Defendants provided detailed billing records for all phone and facsimile lines at the walk-in-clinic from the relevant time period.” Id. Based on this evidence, the Court granted summary judgment in favor of defendants finding that plaintiff’s contact with out-of-state insurers was sporadic at best. Id. at *4. In this case, the parties have relied solely on conflicting declarations and, therefore, the Court can only decide this issue by making credibility determinations. “Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions ….” Anderson, 477 U.S. at 255. Therefore, whether each Plaintiff qualifies for individual coverage is factually in dispute and must be decided by the trier of fact. Accordingly, Defendant’s Motion for Summary Judgment will be denied on the issue of individual coverage.”

N.D.Ill.: FLSA And SCA Supplement One Another; FLSA Allows For A Private Right Of Action Despite The SCA’s Applicability

McDonald v. Eagle Exp. Lines, Inc.

The issue before the Court was whether an employee working under a federal contract, governed by the Service Contract Act (“SCA”), may bring a private cause of action under the FLSA.  Defendant contended that the court lacked jurisdiction because the contract between Defendant and the USPS is a federal contract explicitly governed by the administrative procedures available in the SCA.  Denying Defendant’s Motion to Dismiss for lack of jurisdiction, the Court explained that the SCA supplements the FLSA and does not bar private lawsuits by employees working under contracts governed by the SCA.

“The SCA provides that any work conducted pursuant to federal service contracts must pay wages and fringe benefits consistent with those established by the Secretary of Labor. 41 U.S.C. §§ 351, 358. Those established wage and benefit rates are found in the Secretary’s Register of Wage Determinations. The Secretary of Labor has sole jurisdiction to enforce the SCA. 41 U.S.C. §§ 352(b), 353. The SCA does not provide for an explicit or implicit private right of action.   Dist. Lodge No. 166, Int’l Ass’n of Machinists & Aerospace Workers, AFL-CIO v. TWA Servs., Inc., 731 F.2d 711, 714-16 (11th Cir.1984); Miscellaneous Serv. Workers, Drivers & Helpers, Teamsters Local # 427 v. Philco-Ford Corp., 661 F.2d 776, 779-81 (9th Cir.1981); Oji v. PSC Envtl. Mgmt. Inc., 771 F.Supp. 232, 233-34 (N.D.Ill.1991). Eagle contends that McDonald is a service employee within the meaning of the SCA and is therefore not entitled to bring a private claim under the FLSA for overtime wages. Instead, Eagle argues that McDonald must file a complaint with the Secretary of Labor and proceed along the administrative channels prescribed by the SCA. Furthermore, Eagle asserts that McDonald’s state claims must be dismissed, as no basis for original jurisdiction would exist if the FLSA claim is not proper.

Both parties agree that subject matter jurisdiction in this case, including supplemental jurisdiction for McDonald’s quantum meruit and unjust enrichment state claims, is contingent on the propriety of the FLSA claim. Therefore, the issue is whether McDonald may bring a claim under the FLSA for overtime compensation despite the fact that the SCA governs the work he performed. For the reasons stated below, the court concludes that the court has jurisdiction over McDonald’s FLSA claim.

Eagle relies on Nichols v. Mower’s News Service, Inc., 492 F.Supp. 258 (D.Vt.1980), and Oji v. PSC Envtl. Mgmt. Inc., 771 F.Supp. 232, 233-34 (N.D.Ill.1991), in support of its motion to dismiss. Nichols involved the same fact pattern as here. In a briefly articulated decision, the court concluded that claims for overtime pay are regulated by the SCA and dismissed plaintiff’s claim for lack of subject matter jurisdiction. Id. Oji involved a suit by an employee for unpaid retirement benefits clothed as an action by a third-party beneficiary for breach of a contract to pay the benefits. The court inferred that the plaintiff was seeking to recover under a federal government contract subject to the SCA. Oji, 771 F. Supp at 233-34. As such, the plaintiff’s claim was under the SCA. Because there is no private right of action under the SCA, the court dismissed the lawsuit. As in Nichols, Eagle argues that consideration of legislative intent underlying the SCA and FLSA is unnecessary because the SCA plainly governs. The argument is unpersuasive in light of substantial authority to the contrary on which plaintiff relies. Indeed, Nichols is an outlier.

In the background, Powell v. U.S. Cartridge Company presents an important parallel. There, munitions workers operating under government contracts controlled by the Walsh-Healey Act sued their employers for overtime compensation under the FLSA. 339 U.S. 497 (1950). The United States Supreme Court characterized the broad sweeping nature of the FLSA as indicating “congressional awareness that the coverage of the Fair Labor Standards Act overlaps that of other federal legislation affecting labor standards.” Powell, 339 U.S. at 518. The Court noted that the FLSA specifically exempts certain employees from coverage but does not exempt employees of private contractors under public contracts. Id. at 517. Thus, the Court held that the Walsh-Healey Act did not preclude application of the FLSA. Id. at 519-20.

The SCA, like the Walsh-Healey Act, also deals with the wage rates of and benefits due to employees of government contractors. Courts have looked to Powell in determining whether the FLSA can supplement the SCA, have concluded that the FLSA and SCA can indeed supplement one another, and have held that the FLSA allows for a private right of action despite the SCA’s applicability.

For example, in Lee v. Flightsafety Services Corp., the court affirmed a judgment under the FLSA in favor of firefighters and engineers working under an SCA contract, reasoning from the parallel to Powell and asserting that Congress intended the FLSA to “overlap” with other federal legislation, including the SCA. 20 F.3d 428, 431 (11th Cir.1994). Similarly, in Masters v. Maryland Management Co., the Fourth Circuit concluded that the SCA can be supplemented by the FLSA where they are not in direct conflict. 493 F.2d 1329, 1332-33 (4th Cir.1974). The court affirmed the judgment in favor of the employees, reasoning that because the overtime computation rate was the same under both the FLSA and the SCA, the two acts did not conflict, permitting the employees to file a suit under the FLSA. Id.; see also Mersnick v. USProtect Corp., No. C-06-03993 RMW, 2006 WL 3734396, at *3-5 (N.D.Cal. Dec. 18, 2006) (FLSA overtime claim was not precluded by the SCA or a settlement entered into between the Department of Labor and the plaintiff’s employer under the SCA regarding unpaid compensation); Koren v. Martin Marietta Services, Inc., 997 F.Supp. 196, 211, 214-17 (D.P .R.1998) (summary judgment denied on FLSA claims because the SCA did not impliedly repeal the FLSA’s private enforcement provisions for unpaid overtime compensation); Brown v. Luk, Inc., No. 95-CV-1780, 1996 WL 280831 (N.D.N.Y. May 10, 1996) (wage rate and holiday pay claims dismissed because the SCA does not provide a private right of action to enforce these claims, but claims for certain overtime compensation could proceed under the FLSA); Dowd v. Blackstone Cleaners, Inc., 306 F.Supp. 1276, 1278-79 (N.D.Tex.1969) (a claim for overtime can be filed under the FLSA despite the SCA).

Both the FLSA and the SCA were enacted to guarantee employee rights, and the United States Supreme Court has made clear that rights under the FLSA may overlap with other labor laws without being conflicting. The reasoning of the Fourth and Eleventh Circuits and a variety of district courts is more persuasive than Nichols, the single district court decision Eagle cites.  The SCA is designed to ensure that employees working on federal contracts receive, at minimum, the same prevailing wages and benefits as other employees, government and non-government alike, in their respective localities. To this end, § 351(a) of the SCA provides that each federal contract shall contain a provision specifying the minimum monetary wage to be received as well as fringe benefits.FN5 41 U.S.C. § 351(a). Although § 351(a) does not require overtime compensation for federal contracts, § 355 provides that overtime pay may be determined under any applicable federal law, including the FLSA. Id. § 355. Moreover, Department of Labor regulations make clear that the SCA “does not provide for compensation of covered employees at premium rates for overtime hours of work …. however, … other Federal laws may require such compensation.” 29 C.F.R. § 4.180 (2009).

Given the supplemental nature of the FLSA, combined with the SCA’s failure to explicitly guarantee overtime compensation in all federal contracts but referencing the availability of other governing law as well as Department of Labor regulations stating that other laws may be applicable to claims for overtime compensation, the court concludes that McDonald and similarly situated employees may proceed under the FLSA for unpaid overtime despite being covered by the SCA. As such, the court has subject matter jurisdiction over McDonald’s claim.”

N.D.Ind.: Employee Of Used Car Business, Who Purchased Cars From Other States At Auto Auctions, Subject To Individual Coverage Of FLSA

Kelley v. Stevens Auto Sales

Plaintiff sued Defendants alleging violations of the Fair Labor Standards Act, (FLSA) 29 U.S.C. § 201, et seq., and several Indiana statutes. This matter is before the Court on cross motions for summary judgment. Of interest, as discussed here, the Defendants argued that neither they, nor Plaintiff, individually was subject to FLSA coverage. The Court denied Defendants’ Motion, finding that Plaintiff could be entitled to individual coverage based on his duties while working for Defendants.

The following facts were relevant to the Court’s inquiry on the coverage issue:

“Defendant Dave Stevens is the president of Defendant Dave Stevens Auto Sales, Inc. (SAS). In 2007, SAS was in the business of selling used cars in Peru, Indiana. Plaintiff worked for SAS for part of that year as its only employee. His duties included traveling to Fort Wayne, Indiana, to buy used cars at auction establishments and reselling them to customers at the SAS sales lot in Peru. According to Defendant Stevens, some of the vehicles SAS purchased at the auctions were titled to owners from states other than Indiana. Stevens was Plaintiff’s boss; he determined how Plaintiff was compensated.”

Denying Defendants’ Motion as to the individual coverage issue the Court stated:

“The FLSA requires employers to pay a minimum wage if the employer is a covered enterprise or the employee is a covered individual within the meaning of the Act. 29 U.S.C. § 206(a). A covered enterprise is one that (1) “has employees engaged in commerce or the production of goods for commerce or that 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) “is an enterprise whose annual gross volume of sales made or business done is not less than $500,000.” 29 U.S.C. § 203(s)(1)(A) (i-ii). If enterprise coverage applies, all of the enterprise’s employees are protected under the FLSA, even if they are not personally involved in interstate commerce. See Boekemeier v. Fourth Universalist Soc’y in the City of New York, 86 F.Supp.2d 280, 284 (S.D.N.Y.2000). The FLSA also protects individual employees who are “engaged in commerce or in the production of goods for commerce,” 29 U.S.C. § 207(a)(1), regardless of whether their employers qualify as covered enterprises. See, e.g., Marshall v. Whitehead, 463 F.Supp. 1329, 1341 (M.D.Fla.1978).

Plaintiff concedes that SAS is not a covered enterprise, but maintains that he qualifies for individual coverage because he was engaged in interstate commerce when he worked for SAS. To determine whether an employee is engaged in interstate commerce in this context, the focus is on what the employee actually does. It is not enough that the employee’s activities affect or indirectly relate to interstate commerce: they must be “actually in or so clearly related to the movement of the commerce as to be a part of it.”   McLeod v. Threlkeld, 319 U.S. 491, 497 (1943). For example, handlers of goods for a wholesaler who moves them interstate are engaged in interstate commerce, while those employees who handle goods after acquisition by a merchant for local distribution are not. Id. At 494, (citin g Walling v. Jacksonville Paper Co., 317 U.S. 564 (1943); Higgins v. Carr Bros. Co., 317 U.S. 572 (1942)). An interruption in the movement of goods that have traveled interstate does not remove them from interstate commerce simply because they do not again cross state lines; they remain in interstate commerce until they reach the customers for whom they are intended. Jacksonville Paper Co., 317 U.S. at 335.

Neither party has directed the Court to cases in any jurisdiction with facts similar to those presented here, nor has the Court’s independent research uncovered any. However, applying the general principals discussed above, the Court must deny Defendants’ motion for summary judgment. The Court concludes that buying vehicles titled to out-of-state owners at auction, for resale to the ultimate consumer, constitutes engaging in interstate commerce, even if the vehicles did not cross a state line again after the purchase. Plaintiff has designated enough evidence that he engaged in interstate commerce as an employee of SAS to create a question of fact for trial. Moreover, the Court must also deny Plaintiff’s motion for summary judgment on the issue of whether he is a covered employee, because the evidence does not establish as a matter of law that at all times relevant to his claim he was engaged in interstate commerce.”

2nd Cir.: Private Non-Profit Foster Home Not “Enterprise” Subject To FLSA Coverage, Notwithstanding Contractual And Regulatory Relationship With A Public Agency

Jacobs v. New York Foundling Hosp.

Appellants appealed from a judgment of the United States District Court for the Eastern District of New York (Azrack, M.J.) granting, inter alia, appellee’s (employer’s) motion for summary judgment and dismissing appellants’ claim that they were unlawfully denied overtime pay in violation of the Fair Labor Standards Act of 1938, 29 U.S.C. § 207(a)(1). Appellants contended appellee is an “enterprise” obligated to pay overtime because certain contractual and regulatory relations render its activities “in connection with the activities of a public agency” pursuant to § 203(r)(2)(C) and thus “performed for a business purpose.” The Second Circuit disagreed and affirmed the judgment below.

On appeal, the Employees contended that Foundling, a private, non-profit, independent contractor, is an “enterprise” under 29 U.S.C. § 203(r)(1) because its contractual and regulatory relations with the New York City Administration for Children’s Services (“ACS”) render its activities “in connection with the activities of a public agency” pursuant to 29 U.S.C. § 203(r)(2)(C) and thus “performed for a business purpose.” Accordingly, the Employees claimed, Foundling owes them overtime pay under the Act. Because it concluded that the FLSA’s definition of “enterprise” does not extend to a private, non-profit, independent contractor associated by regulation and contract with a public agency, the Second Circuit held Foundling was not obligated to pay overtime under the Act.

The Court cited the following facts as relevant to its analysis: “New York Foundling Hospital is a private, charitable provider of social services to children and families in the New York City area. Founded in 1869 by a Catholic religious order as a home for abandoned children, today its services include foster care, adoption, and physical and mental health initiatives.

All of the children served through Foundling’s Foster Home and Boarding Home Programs are referred by ACS, which is responsible for administering New York City’s child welfare services and is authorized to contract with private providers like Foundling under New York Social Services Law § 423(2). The Foster Home Program deals with approximately 150 abused or neglected children without special needs who have been removed from their biological families and placed with foster parents. The Boarding Home Program serves the same category of children who could not have or have not yet been placed with foster parents. Foundling’s funding is derived exclusively from charitable grants and other federal, state, and local government sources. Almost half of its total revenue originates as payments from ACS.

The relationship between ACS and Foundling is set forth in a number of agreements premised upon Foundling’s status as an independent contractor and, in turn, the entities’ operational independence. The contracts provide that Foundling’s “executive staff shall manage its affairs and programs and shall have the responsibility for the day-to-day provision of Services to and for each child placed with it.”Foundling “alone is responsible for … [the] work, direction, compensation and personal conduct” of its employees, as well as for their recruiting, screening, and training. Foundling can unilaterally terminate the agreements, in whole or in part, with thirty days notice.

ACS exercises no control over Foundling’s Board of Directors, structure, finances and governance, except to the extent that it retains some degree of oversight over Foundling’s programs and client relations. The Foster Care Agreement, for instance, requires Foundling to “recruit a sufficient number and variety of prospective foster parents” to meet the level ACS calculates is appropriate for a targeted area. Foundling must generally accept all ACS-referred children, establish grievance procedures for its service recipients with decisions appealable to ACS, and allow ACS to monitor and review all of its “program activities, procedures[ ][and] records … as ACS deems necessary … including, at reasonable times, unannounced and unscheduled visits” to Foundling’s offices and to its clients.”

Determining that Defendant was/is not an “enterprise” subject to FLSA coverage, the Court reviewed the applicable law:

“FLSA defines an “enterprise,” inter alia, as “the related activities performed … by any person or persons for a common business purpose … [excluding] the related activities performed for such an enterprise by an independent contractor.”§ 203(r)(1).  Generally, non-profit organizations that do not “engage in ordinary commercial activities,” Tony & Susan Alamo Found., 471 U.S. at 297 (quoting 29 C.F.R. § 779.214 (1984)), or “serve the general public in competition with ordinary commercial enterprises,” id. at 299, operate without a “business purpose” and therefore are not enterprises. See§ 203(r)(1).See also U.S. Department of Labor, Wage and Hour Division, Opinion Letter FLSA2005-8NA, 2005 WL 5419044 (Sept. 2, 2005) (private nonprofit children’s care facility not a FLSA enterprise); U.S. Department of Labor, Wage and Hour Division, Opinion Letter FLSA2004-30NA, 2004 WL 5303058 (Dec. 13, 2004) (private nonprofit foster home not a FLSA enterprise). The FLSA, however, ensures that certain types of entities that might otherwise be held to operate with a business purpose under the Act are nevertheless brought within its ambit. For example, under § 203(r)(2)(A) and (B), Congress expressly included within the definition of enterprise “the activities performed … in connection with” hospitals, institutions providing residential care to the sick, aged, or mentally ill, certain types of schools, and certain types of railway or other transportation providers. Congress deemed all of these entities operated “for a business purpose” whether they were public or private, or operated for profit or not for profit. See29 U.S.C. § 203(r)(2).”

The Court disagreed with Plaintiffs’ argument that regarding 203(r)’s ambiguity and adopted Defendant’s reading of the statute stating, ‘[T]he phrase ‘in connection with the activities of a public agency’ means activities performed by a public agency, not activities performed by a private nonprofit organization providing services to a public agency.’ Dep’t of Labor Br. 3.

Analysis of the Act offers significant support to the Department’s position, and we therefore find it persuasive. First, as previously noted, absent special circumstances inapplicable to Foundling, non-profit organizations do not operate for a business purpose and are not enterprises. See Tony & Susan Alamo Found., 471 U.S. at 297, 299. In § 203(r)(2)(A), (B), and (C), however, Congress singled out specific non-profits (i.e., medical, certain educational and transportation facilities, and public agencies) that are to be deemed enterprises nonetheless. The Employees concede that entities like Foundling-charitable independent contractors that support neglected children-are not included in this list, and they offer nothing other than their problematic plain language approach to § 203(r)(2)(C) to suggest that Congress intended such organizations to be engrafted onto the existing exceptions when they contract with a public agency. See Greene v. United States, 79 F.3d 1348, 1355 (2d Cir.1996) (“The ancient maxim expressio unius est exclusio alterius (mention of one impliedly excludes others) cautions us against engrafting an additional exception to what is an already complex [statute].”).

Second, § 203(r)(2)(A) and (B) end in parentheticals stating that the entities enumerated therein-hospitals, certain schools, certain common carriers, etc.-are covered “regardless of whether or not such [entities are] operated for profit or not for profit.”Section 203(r)(2)(C) lacks this parenthetical. If the “in connection with” phrase in § 203(r)(2)(C) were intended to cover private, third-party entities that contract with the government, the parenthetical would have been critical to include in the section because public agencies themselves-unlike schools and hospitals-are by definition solely public and non-profit. Its absence adds weight to the Department’s conclusion that § 203(r)(2)(C) encompasses only the public “activities performed by a public agency,” not the private acts of independent contractor organizations associated with an agency through contract and regulation, like Foundling.

Third, by limiting § 203(r)(2)(C) to “activities performed by a public agency,” the Department’s reading avoids the absurd result that follows from the Employees’ contrary interpretation. See United States v. Dauray, 215 F.3d 257, 264 (2d Cir.2000) (“A statute should be interpreted in a way that avoids absurd results.”). Ultimately, the Act applies to Foundling only if it qualifies both as an “enterprise” under § 203® and as an “enterprise engaged in commerce” under § 203(s).Section 203(s) defines an “enterprise engaged in commerce” as an “enterprise that … is an activity of a public agency.”§ 203(s)(1)(C) (emphasis added). Because “of” is a word used to indicate belonging or a possessive relationship, the Department points out that “Foundling’s activities are not the activities of ACS, even assuming it operates in connection with ACS.”See Powell v. Tucson Air Museum Found., 771 F.2d 1309, 1312 (9th Cir.1985) (“Because the Museum is a private corporation which is an independent contractor of Pima County, it is not an ‘activity of a public agency’ … and thus is not subject to the requirements of the FLSA.”).

Thus, § 203(r)(2)(C) and § 203(s)(1)(C) operate in tandem, and if the former is interpreted to encompass a third-party, private, independent contractor somehow associated with an agency, the Act still would not apply to that third-party because the “in connection with” phrase is missing from the latter. The Employees’ notion that § 203(r)(2)(C) includes Foundling while § 203(s)(1)(C) excludes Foundling is a result we are compelled to avoid. The Department’s interpretation of § 203(r)(2)(C), in contrast, allows the two sections to be read seamlessly: the “activities performed by a public agency” comports with both the activities “in connection with” a public agency and the activities “of” a public agency.

To the extent that § 203(r)(2)(C)‘s meaning remains unresolved after we have considered the section in its surrounding statutory context, we may turn to legislative history for clarification. Lee v. Bankers Trust Co., 166 F.3d 540, 544 (2d Cir.1999). To this end, the Department points out that:

[w]hile nothing in the legislative history specifically addresses the phrase “in connection with the activities of a public agency” in Section 203(r)(2)(C), the legislative history is replete with statements that the amendments were meant to extend FLSA coverage to federal, state, and local government employees. There is, by contrast, no indication that Congress intended to extend enterprise coverage to employees of nonprofit entities that provide services to a public agency. Dep’t of Labor Br. 7.

Because the Employees concede that legislative history offers no support for their position, and the district court’s own thorough analysis “reveal[ed] no mention of an intent to extend enterprise coverage to non-profits that act in conjunction with … agencies,” Jacobs v. N.Y. Foundling Hosp., 483 F.Supp. 251, 261 (E.D.N.Y.2007), legislative history further buttresses the Department’s view that “in connection with the activities of a public agency” means activities performed by a public agency and not those performed by private independent contractors providing services to that agency.

Finally, we note that through regulation, opinion letter, and other statements, the Department has consistently interpreted § 203(r)(2)(C) to apply the FLSA’s overtime provisions only to public agencies, not to private independent contractors dealing with such agencies.FN9This interpretation has stood for almost 35 years, and deeming the various independent contractors retained by public agencies enterprises might have unanticipated and uncertain consequences. We agree with the Department that, under these circumstances, carving a hole in the Act’s unequivocal exemption of independent contractors is a policy judgment best left to the legislative branch. See, e.g., United States v. All Funds Dist. to, ex rel., Weiss, 345 F.3d 49, 57 (2d Cir.2003) (stating that where a section of the Employee Retirement Income Security Act of 1974 ” ‘reflects a considered congressional policy choice … [i]f exceptions to this policy are to be made, it is for Congress to undertake that task’ “) (quoting Guidry v. Sheet Metal Workers Nat’l Pension Fund, 493 U.S. 365, 376 (1990)).”

Curiously, the Court noted, “[i]n this case, the parties do not dispute that Foundling is not a hospital, school, or any other type of institution listed under § 203(r)(2)(A), nor an actual municipal public agency under § 203(r)(2)(C). At issue, rather, is the meaning of the phrase “in connection with” as applied to “the activities of a public agency” in § 203(r)(2)(C).” It is not clear, but Foundling may have qualified as an enterprise under 203(r)(2)(A), an argument apparently waived by the Plaintiffs.

S.D.Fla.: Enterprise Coverage Properly Asserted Where Employer Grossed $500K And 2 Or More Employees Handled Goods Which Had Traveled In Interstate Commerce; “Ultimate Consumer” Not Applicable To This Prong Of Enterprise Coverage

Diaz v. Jaguar Restaurant Group, LLC

This case was before the Court on Defendants’ Motion for Summary Judgment, based on an asserted lack of enterprise coverage under the FLSA. The Court denied Defendants’ Motion, based on the fact that Plaintiff demonstrated that 2 or more employees handled goods which had traveled in interstate commerce. While, this appears to be an unquestionable correct reading of the statute, it is significant, because several courts within the Southern District of Florida, have inexplicably failed to read the statute on its face to allow for coverage under similar circumstances.

After considering the historical perspective (and changes) to the FLSA, the Court stated, “in a case where materials are at issue under the second prong of the definition of an enterprise, the “ultimate consumer” limitation has no application. See also Exime, 591 F.Supp.2d at 1371 (Court should “give effect, if possible, to every word and clause” contained in a statute, citing Lowery v. Ala. Power Co., 483 F.3d 1184, 1204-05 (11th Cir.2007)).

Finally, if we step back to ask what the Congress meant in the original 1938 statute with its “goods” limitation found in section 203(i), as opposed to what a very different Congress meant in 1974 by adding “materials” to the enterprise coverage provision in question, the answer is evident from the quite disparate contexts in which these provisions were adopted. The original definition of goods was adopted in a FLSA statute that was purposefully limited to only those individual employees who were themselves participating in interstate commerce. The context of the 1974 amendments was precisely the opposite. A far more liberal Congress was certainly seeking to expand enterprise coverage even further than it did in 1961 and 1966, for employees who were not directly engaged in interstate commerce.”

Addressing recent 11th Circuit case law related to coverage (and distinguishing same), the Court stated, “Fast forward then to 2006 and beyond. We recognize that the cases relied upon by Defendant (including several recent Southern District cases interpreting language found in two Eleventh Circuit cases) ostensibly support a far different construction of enterprise coverage that takes us back to where we were prior to 1974. See, e.g., Thorne v. All Restoration Servs., Inc., 448 F.3d 1264, 1267 (11th Cir.2006) (citing Dunlop in part for the proposition that “[w]hen goods reach the customer for whom they were intended, the interstate journey ends and employees engaged in any further intra state movement of the goods are not covered under the Act.”) (emphasis in original) (citations omitted); Lamonica, 578 F.Supp.2d at 1367 (“[A] customer who purchases an item from Home Depot is not engaged in commerce even if Home Depot previously purchased it from out-of-state wholesalers.”); Navarro, 533 F.Supp.2d at 1226 (“[T]he out-of-state shippers send the parts to the local dealer, where they are kept until they are purchased in the local market. Therefore, the interstate journey stops when the parts reached [sic] the local dealer.”).

To the extent these district court were applying the second prong of enterprise coverage under section 203(s)(1)(A)(i), which is at issue here, they may be over-relying on distinguishable, but more recent, Eleventh Circuit cases, and overlooking the analysis of the question in Dunlop following the 1974 amendments to the FLSA.

So where did the confusion originate? It seems to have begun with the Eleventh Circuit panel decision’s summary discussion of Dunlop in Thorne v. All Restoration Services, which was a case decided entirely under the individual coverage provisions of the FLSA. A worker, Thorne, who was employed by a small mold restoration company sued for overtime compensation under the FLSA. Thorne claimed that the company was covered by the enterprise coverage as well as the individual coverage provisions of the statute. At trial, however, only Thorne testified in his case in chief. The trial court, Judge Cohn from our district, entered Rule 50 judgment as a matter of law on both the enterprise coverage and individual coverage components of the case. SeeCase No. 04-60095, D.E. 46 (S.D. Fla. Feb 1, 2005).

On appeal to the Eleventh Circuit, Thorne did not challenge Judge Cohn’s finding that enterprise coverage had not been established as a matter of law. Apparently there was no testimony in the record at that point in the trial that even the $500,000 sales threshold had been met. See Brief for Appellant, 2005 WL 4814060, at *3-7 (11th Cir. May 31, 2005). The Court’s opinion expressly acknowledged that enterprise coverage was no longer at issue on appeal. 448 F.3d at 1265 n. 1.

The Court then examined whether Judge Cohn’s determination as to individual coverage should be upheld. The individual coverage issue, as the Court pointed out, turned on whether Thorne was “directly participating in the actual movement of persons or things in interstate commerce by (i) working for an instrumentality of interstate commerce, e.g., transportation or communication industry employees, or (ii) by regularly using the instrumentalities of interstate commerce in his work, e.g., regular and recurrent use of interstate telephone, telegraph, mails, or travel.” Id. at 1266.That is undoubtedly the test for individual coverage under 29 U.S.C. § 207(a)(1) and the regulations thereunder, 29 C.F.R. §§ 776.23(d)(2), 776.24 (2005).

The statutory definition for enterprise coverage, by contrast, does not only apply to employees with “direct participation” in the “actual movement” of things in interstate commerce. That is a far narrower test found in the first prong of the statute, which is precisely why the 1961, 1966 and 1974 amendments created and expanded enterprise coverage under the statute. See29 U.S.C. § 203(s)(1)(A)(i) (“has employees engaged in commerce or in the production of goods for commerce, or that has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person”) (emphasis added).

It is telling, for instance, that many of the primary decisions cited by the Eleventh Circuit’s decision in Thorne were from the 1940’s. 448 F.3d at 1266-68 (citing McLeod v. Threlkeld, 319 U.S. 491, 496-97 (1943) (finding that plaintiff’s activities were purely local, and he was not individually engaged in commerce when he merely cooked and cleaned for railroad workers); Kirschbaum v. Walling, 316 U.S. 517, 518-526 (1942)).

The outcome in Thorne is thus entirely expected and non-controversial. The same cannot be said, as it turns out, of the Court’s citation and reliance on the Fifth Circuit’s decision in Dunlop as follows:

Courts distinguish between merchants who bring commerce across state lines for sale and the ultimate consumer, who merely purchases goods that previously moved in interstate commerce for intrastate use. Therefore, a customer who purchases an item from Home Depot is not engaged in commerce even if Home Depot previously purchased it from out-of-state wholesalers.

In Dunlop v. Industrial America Corporation, 516 F.2d 498, 499 (5th Cir.1975), the court was faced with the question of whether a business which consumes gasoline and oil in the process of providing services to its customers is the “ultimate consumer” of those goods, and therefore not subject to FLSA coverage. The defendant corporation operated a wholly intrastate garbage removal service, and its only tie to interstate commerce was that its employees used gasoline and oil products which had moved in interstate commerce in operating and maintaining the company’s trucks. The court held that the defendant was not covered because it was an “ultimate consumer” of the goods. Id. at 499-502.
448 F.3d at 1267-68.

From this discussion, one is left with two important impressions. One is that Dunlop stands for that proposition today. And, two, is that this proposition applies equally to individual coverage cases like Thorne, as well as enterprise coverage cases like Dunlop.Both impressions are flatly incorrect. First, Dunlop does not stand for the proposition that, even after the 1974 amendments, enterprise coverage under the second prong of subsection s(1)(A)(i) fails when an entity is the ultimate consumer of “materials” as well as goods that have moved in interstate commerce in the past. The Thorne decision never explained that the holding in Dunlop was out-dated by the Court’s own admission after 1974. That omission was not critical, of course, to the outcome in Thorne.Frankly, the entire citation and reference to Dunlop was indeed dicta because the holding in Thorne was expressly not applicable to enterprise coverage.

Second, Dunlop also does not apply to individual coverage analysis.Dunlop was focused on the second prong of the enterprise definition. Unlike the first prong of that definition, individual coverage analysis is entirely distinct from the “goods or materials” prong of the statute. Dunlop thus has no relevance to a case limited to individual coverage. Similarly, Dunlop has no application to an enterprise coverage case that is based on the first prong of the statute. And, for the same reason, Thorne has no relevance to a case governed by the broader second prong of subsection s(1)(A)(i). Yet, Thorne’s reliance on Dunlop seems to suggest quite the opposite.

That is also evident from a later Eleventh Circuit case, Scott v. K.W. Max Invs., Inc., 256 Fed.Appx. 244 (11th Cir.2007). That case, at first blush, appears to have relied on Thorne’s individual coverage analysis and the “ultimate consumer” limitation to decide an enterprise coverage claim. And it has been cited as such by some district court opinions, infra.Yet that opinion did not once mention Dunlop or distinguish its analysis of the expansion of enterprise coverage via the “materials” prong added in 1974. It did not need to do so, in fact, because it was deciding the enterprise coverage issue primarily on the “first prong” of the statute. The court’s holding as to enterprise coverage claim was focused on whether there was any evidence in the record of any “actual movement” of goods in commerce. None was presented except for a single isolated purchase of lumber in interstate commerce that did not qualify as a regular and recurrent practice. With respect to the second prong of enterprise coverage, “goods or materials” that had been moved in commerce in the past, the Court’s discussion was quite limited. “Scott offers no specific argument or any evidence that any of the goods purchased from Home Depot had been moved in or produced for interstate commerce.” Id. at 248.Therefore, we do not read Scott as holding in any way that the ultimate consumer limitation applies to “materials” under the second prong of the statute.

Unlike Judge Seitz’s opinion in Exime, however, several Southern District cases rely on the conclusion that Scott permits the use of individual coverage case definitions to decide enterprise coverage cases as a general matter. This is simply too broad a proposition. With respect to the “goods or materials” prong of the statute, as discussed earlier, the 1974 amendments significantly broadened that definition of enterprise coverage, extinguishing the “ultimate consumer” issue altogether from that prong of the statute. This significant change to the text of the statute did not apply to individual coverage cases governed by 29 U.S.C. § 207(a)(1), nor did it apply to the first prong of the definition of an enterprise under 29 U.S.C. § 203(s)(1)(A)(i).

Like Judge Seitz, we do not choose to follow those cases that read more into the holding in Scott and the dicta in Thorne, and overlook the significance of the holding and analysis found in Dunlop. See, e.g., Lamonica, 578 F.Supp.2d at 1366; Ben-Aime, 572 F.Supp.2d at 1317; Polycarpe, 572 F.Supp.2d at 1321. We certainly do not question the outcome of these decisions to the extent they were based, as several seem to be, on the first prong of the enterprise coverage provision. The ultimate consumer doctrine certainly continues to apply, as it does for individual coverage, to enterprise coverage cases that are so limited. If, on the other hand, the “goods or materials” prong of the statute applies, then there is no longer any need to address the ultimate consumer or “come to rest” doctrine. The dispositive question simply asks whether two or more employees are handling materials, that have traveled in interstate commerce at some point in the past, for an enterprise with at least $500,000 in sales. And while it is true, as Defendants contend, that fulfillment of the statutory business volume requirement is not itself sufficient to create enterprise coverage, “[m] ost, if not every, Circuit Court that has spoken on this issue [including the 11th Circuit, as well as some lower federal courts] ha[ve] … construed the 1974 amendment as expanding enterprise coverage to virtually all employers, so long as that employer satisfies the $500,000 gross sales requirement.”Exime, 372 F.Supp.2d at 1370. “Thus the enterprise commerce test, quite simply, embraces all businesses whose employees regularly handle materials previously moved across inter-state lines.”Id. at 1372.

Having determined, under the current version of the FLSA, Defendants’ employees handled materials that are still “in commerce,” the Court then found that Plaintiff had produced sufficient evidence that they did so on a “regular and recurrent” basis. Therefore, the Court denied Defendants Motion for Summary Judgment.

Although not mentioned by the Court, many of the cases holding contra are up on a consolidated appeal at the 11th Circuit. Therefore, this case, which appears to correctly annunciate the scope of enterprise coverage under the circumstances, will stand if the 11th Circuit similarly reverses the prior contra holdings of several the Florida district courts distinguished by this Court.