Coverage of the Fair Labor Standards Act: What Connection with Commerce Brings an Employee Within the Coverage of the Fair Labor Standards Act? Part I
- The Fair Labor Standards Act (FLSA)1 was passed by Congress in 1938. The act requires the payment of a statutory minimum wage to most covered employees and most employees of covered employers.2 Additionally, it requires payment to these employees of one and one-half times their “regular rate” for hours worked in excess of 40 in a work week.3 The coverage provisions of the FLSA are among the most complex in all of labor and employment law.
Engaged in Commerce or the Production of Goods for Commerce and Enterprise Coverage
Section 206(a) requires payment of the statutory minimum wage (currently $5.15 per hour)4 to an “employee who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce or in the production of goods for commerce….” Section 207 requires employees so engaged or employed to “be paid no less than one and one-half times their regular rate for hours worked in excess of 40 in any work week.”
Thus, to be covered by the minimum wage and overtime provisions of the act, employees must be 1) engaged in commerce; 2) engaged in the production of goods for commerce; or 3) employed by an enterprise engaged in commerce. All three of these bases for coverage require a connection with commerce. The third basis for coverage was added with the 1961 amendments to the FLSA. Prior to the amendments, FLSA coverage was based exclusively on the work of the employee no matter how deeply the employer was immersed in commerce. The 1961 amendment expanded the coverage to all employees of an “enterprise engaged in commerce” as that term is defined in the act. The current definition of an enterprise engaged in commerce as found in 29 U.S.C. §203(s)(1)(A) is one that
(i) has [two or more] 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 person5 (emphasis added); and (ii) is an enterprise whose annual gross volume of sales made or business done is not less than $500,000 (exclusive of excise taxes at the retail level that are separately stated).6
It follows that an enterprise is not engaged in commerce as defined in 29 U.S.C. §203(s)(1)(A) unless it has employees performing the work described in 29 U.S.C. §203(s)(1)(A)(i) and has an annual gross volume of sales of at least $500,000.
The manner in which the 1961 amendments expanded FLSA coverage is explained in Dunlop v. Industrial of America Corporation, 516 F.2d 498, 500-01 (5th Cir. 1975).
First, [the amendments] shifted the basis of coverage from employees to employers. Under the new approach an employer was covered if two or more of its employees were engaged in commerce or the production of goods for commerce. Once the employer was covered all of its employees received the benefits of the act, not just those employees who were themselves engaged in commerce or the production of goods for commerce.
Second, Congress reached further than it had before under the Commerce Clause by including as an “enterprise engaged in commerce” one which had employees “handling, selling, or otherwise working on goods that have been moved in or produced for commerce. . . . ” §203(s). This change extended coverage to businesses with employees engaged in handling or utilizing goods after they had ceased the interstate portion of their movement (emphasis in the original).
A look at what the courts have decided in FLSA cases questioning what activities are connected to commerce is a starting point for an understanding of the act’s coverage.
The Extent and Limits of FLSA Coverage
The encompassing scope of the commerce connection is illustrated in Kirschbaum v. Walling, 316 U.S. 517 (1942), in which the building maintenance employees of loft buildings that housed clothing manufacturers were found to be engaged in the production of goods for commerce. Justice Frankfurter’s opinion pointed out that under 29 U.S.C. §203(j) “an employee shall be deemed to have been engaged in the production of goods [for commerce] if such employee was employed in. . . any closely related process or occupation directly essential to the production thereof, in any [s]tate.”7 Clearly the tenants of the building produced goods for commerce. The work of the building support personnel such as firemen, electricians, elevator operators, and porters was essential to the work performed by the tenants.8 Their work was, therefore, “essential to the production” of goods for commerce. To be covered by the FLSA, it is not necessary that the employees actually manufacture a product.9
Kirschbaum cautioned that “the scope of the act is not coextensive with the limits of the power of Congress over commerce. . . . ”10 The FLSA did not adopt language making it applicable to “employees engaged in commerce in any industry affecting commerce.”11 Rather, its scope was limited to “employees engaged in commerce or in the production of goods for commerce.”12 This reasoning gave deference to the view that the act did not apply to activities merely “affecting commerce.”
In 10 East 40th Street Building, Inc. v. Callus, 325 U.S. 578, 579 (1945), Justice Frankfurter again stressed that when Congress passed the FLSA it “did not see fit as it did in other regulatory measures, e.g., the Interstate Commerce Act and the National Labor Relations Act, to exhaust its power over commerce.” In that case, employees of an office building housing a variety of commercial enterprises were found not to be engaged in commerce. The distinction from Kirschbaum was that the tenants did not manufacture goods to be entered into the stream of commerce. “[A]n office building exclusively devoted to the purpose of housing all the useful miscellany of offices has many differences in the practical affairs of life from a manufacturing building, or the office building of a manufacturer.”13
Employees who made intrastate deliveries of merchandise ordered from out of state for designated customers were found to be covered by the act in Walling v. Jacksonville Paper Co., 317 U.S. 564 (1943). The goods continued to remain in commerce although they remained temporarily in the employer’s warehouse before being loaded onto the delivery trucks.14 Justice Douglas commented that “[n]o ritual of placing goods in a warehouse can be allowed to defeat [the] purpose” of the act. way of contrast, in Higgins v. Carr Brothers Co., 317 U.S. 572 (1943), Justice Douglas wrote that when the flow of goods in commerce is interrupted by being unloaded at a warehouse, its interstate movement is terminated. Thus, the work of an employee who loaded goods on trucks for intrastate delivery was not in commerce. In his decision, Justice Douglas once more pointed out that the FLSA did not have the same breadth of coverage as those statutes whose scope extended to businesses “affecting commerce.”15
The Supreme Court ruled that employees working on a new lock in the Gulf Intracoastal Waterway were engaged in commerce in Mitchell v. Vollmer, 349 U.S. 427 (1955). The existing lock had been inadequate to accommodate nautical traffic on the waterway where it crossed the Mississippi River near the busy New Orleans harbor. In the majority opinion, Justice Douglas wrote that the act applies when “the work is so directly and vitally related to the functioning of an instrumentality or facility of interstate commerce as to be, in practical effect, a part of it, rather than isolated local activity.”16
Coverage of Employee Engaged in Commerce
Walling v. Goldblatt Bros., Inc., 128 F.2d 778 (7th Cir. 1942), deals with various functions performed by employees in the defendant retailer’s warehouses. Those who ordered goods from out of state were held to be working in commerce.17 Those who unloaded goods shipped to the warehouses from out of state were found to be engaged in commerce, as the goods were in commerce until they reached their destination on the warehouse platform. The employees who moved the goods from the platform into storage in the warehouse were not engaged in commerce. The goods had come to rest and were no longer moving in commerce. On the other hand, employees working in the warehouse manufacturing or processing goods to be shipped out of state and those involved in maintaining the warehouse facility were engaged in commerce and, thus, covered by the act.18
Warehouse workers who loaded and unloaded trucks of fish were found to be engaged in commerce in Figueroa v. America’s Custom Brokers, Inc., 48 F. Supp. 2d 1272 (S.D. Fla. 1999). Even minimal contact with commerce, if it is regular, was found to bring an individual within FLSA coverage.19 Here, the employees loaded and unloaded trucks that were in interstate commerce and cleared goods for customs.20
Elevator operators who transported interstate mail and freight within a building were ruled to be engaged in commerce in Brennan v. The Wilson Building, 478 F.2d 1090, 1093 (5th Cir. 1973). Similarly, the Fifth Circuit decided in Hodgson v. Travis Edwards, Inc., 465 F.2d 1050, 1053-54 (5th Cir. 1972), that employees who prepared and mailed monthly reports to out-of-state corporate directors were engaged in commerce or the production of goods for commerce.
In an unpublished decision, Alonso v. Garcia, 2005 U.S. App. Lexis 16997 (11th Cir. 2005), the 11th Circuit held a driver working for an exterminator to be engaged in commerce. He delivered fumigation materials and chemicals that had been moved in interstate commerce to his employer’s customers within the state. The court reasoned that the materials remained in the stream of commerce until they reached the employer’s customers.
In another unpublished decision, Casey v. Jerry Looney d/b/a C & B Garage and Auto Parts, 2006 U.S. App. Lexis 13947 (11th Cir. 2006),the 11th Circuit held that junkyard employees who worked on cars that had been brought to the employer’s premises were engaged in commerce. The employees salvaged parts from the cars which were then sold to customers.21
The concept of being “engaged in commerce” was limited in Mcleod v. Threlkeld,319 U.S. 491 (1943),where an individual whose job consisted of preparing meals and serving them to railroad maintenance-of-way employees was not entitled to coverage under the act. The plaintiff in Thorne v. All Restoration Services, Inc., 448 F.3d 1264 (11th Cir. 2006),whopurchased gasoline for his company vehicle with his employer’s credit card and purchased goods and materials for his employer, failed to recover in his FLSA action. The court reasoned that he did not provide sufficient evidence that the items purchased were moved by him in interstate transactions. Further, he failed to prove that he dealt with suppliers who were out of the state.22 Neither did his use of tools that may have come from out of state bring him within the stream of commerce. “When goods reach the customer for whom they are intended, the interstate journey ends and employees engaged in any further intrastate movement of the goods are not covered under the Act.”23
A houseparent in a home for troubled youth was found not to be engaged in commerce in Joles v. Johnson County Youth Service Bureau, Inc., 885 F. Supp. 1169 (S.D. Ind. 1995).Purchasing food and supplies that had been transported in commerce from off the shelves of local retailers did not constitute being engaged in commerce.24 The court considered the language in §203(1)(A)(1), which includes in the definition of “enterprise engaged in commerce” one “that has employees handling, selling or otherwise working on goods or materials that have moved in or produced for commerce” That definition only applies to an “enterprise engaged in commerce.” and not to individual employees.25 The plaintiff was not covered under the enterprise provision as her employer, as an eleemosynary (charitable) institution, was not an enterprise engaged in commerce. It did not engage in business. Eleemosynary institutions do not fall within the definition of an enterprise found in 129 U.S.C. §203(s). “‘Enterprise’ means the related activities performed. . . for a common business purpose.” The employer was found not to be engaged in business.26
Coverage of Employee Engaged in the Production of Goods for Commerce
Drivers who returned empty beverage bottles to an employer’s bottling plant for reprocessing and refilling were found to be not engaged in the production of goods for commerce in Clougherty v. James Vernor Co., 187 F.2d 288 (6th Cir. 1951). The refilling of the bottles, some of which were shipped out of state, was part of the production process, but the court reasoned that “the controlling test as to these drivers is not how the bottles are used in the plant, but how the drivers handle it. Their handling of the bottles not only precedes the process of producing the ginger ale but is not part of the production.”27
Johnston v. Spacefone Corporation, 706 F.2d 1178 (11th Cir. 2003),held that an employee who assisted in the design of a cordless telephone that was intended to be produced for national distribution was engaged in the production of goods for commerce although the telephone had not been put into production. The court found that production is not limited to actual physical work, citing Borden v. Borella, 325 U.S. 679 (1945). Production includes “the planning stages as well as final physical production of the product.”28
The Fifth Circuit decided in Hodgson that employees who prepared and mailed monthly reports to out-of-state corporate directors were engaged in commerce or the production of goods for commerce.29
The Ninth Circuit in Chao v. Casting, 2003 U.S. App. Lexis 21927 (9th Cir. 2003),held guards who work for a firm that provided security to film production companies were engaged in the production of goods for commerce. The rationale was that the film companies produce for national and international distribution.
The Iowa Supreme Court ruled in Ristau v. Tours, Inc., 593 N.W.2d 115 (Ia. 2003), that the plaintiff who performed management and maintenance services for a residential apartment building was not engaged in commerce or in the production of goods for commerce. The fact that she purchased and used materials in her work that had traveled in commerce did not bring her within the coverage of the act. “A producer’s consumption or use of goods does not amount to ‘production of goods.’”30
More to Come
The second part of this article will appear in the June issue of The Florida Bar Journal andwill explore the exponential expansion of FLSA coverage to all nonexempt employees of an enterprise engaged in commerce. This took place with the 1961 amendments which were further augmented by the 1974 amendment.
1 29 U.S.C. §201 et seq.
2 29 U.S.C. §206.
3 29 U.S.C. §207.
4 At the time of this article, legislation to increase the minimum wage had been passed in each house of Congress.
5 Section 203(s)(1)(A)(i) was amended to its present form in 1974 by the addition of the word “or” before otherwise and the words “or materials” after goods. The differing judicial interpretations of the amendment will be discussed in part two of this article.
6 Sections 203(s)(1)(B), (C) contain inclusions for specific types of institutions and public agencies respectively. These sections will not be considered in this article.
7 Kirschbaum v. Walling, 316 U.S. 517, 518 (1942).
8 Id. at 519.
9 Id. at 524.
10 Id. at 523.
13 10 East 40th Street Building, Inc. v. Callus, 325 U.S. 578, 583-584 (1945).
14 Walling v. Jacksonville Paper Co., 317 U.S. 564, 567 (1943).
15 Higgins v. Carr Brothers Co., 317 U.S. 572, 574 (1943).
16 Mitchell v. Vollmer, 349 U.S. 427, 429 (1955) (citation omitted).
17 Walling v. Goldblatt Bros., Inc., 128 F.2d 778, 781 (4th Cir. 1942).
18 Id. at 784.
19 Figueroa v. America’s Custom Brokers, Inc., 48 F. Supp. 2d 1272, 1375 (S.D. Fla. 1999).
21 The opinions in Alonso and Casey do not indicate the complete route of the goods. It would seem that if the extermination materials involved in Alonso were shipped from the employer’s inventory, they would have to come to rest before delivery. That would have terminated their flow in commerce before they were delivered. Since the scrapped automobiles in Casey were processed on the employer’s premises, it would seem that they came to rest there: Their interstate journey would appear to have stopped before they were worked on. However, if the parts were later shipped out of state, the employees would have been engaged in the production of goods for commerce.
22 Thorne v. All Restoration Services, Inc., 448 F.3d 1264, 1267 (11th Cir. 2006).
23 Id., citing McLeod, 319 U.S. at 493.
24 Joles v. Johnson County Youth Service Bureau, Inc., 885 F. Supp. 1169, 1188 (S.D. Ind. 1995).
25 Id. at 1178.
26 Id. at 1174, citing Tony and Susan Alamo Foundation v. Secretary of Labor, 471 U.S. 290 (1985).
27 Clougherty v. James Vernor Co., 187 F.2d 288, 292 (6th Cir. 1951).
28 Johnston v. Spacefone Corporation, 706 F.2d 1178, 1181 (11th Cir. 2003).
29 Hodgson v. Travis Edwards, Inc., 465 F.2d 1050, 1053-54 (5th Cir. 1972).
30 Ristau v. Tours, Inc., 593 N.W.2d 115, 117 (Ia. 2003) (citation omitted).
Donald J. Spero is a graduate of the University of Michigan Law School who has practiced labor and employment law for over 35 years, both in private practice and as in-house counsel for Sears, Roebuck and Co., from which he retired as senior employment counsel. He is board certified in labor and employment law and a fellow of The College of Labor and Employment Lawyers. He now devotes his time to serving as a mediator and an arbitrator as well as frequently speaking and writing articles on employment law subjects.
This column is submitted on behalf of the Labor and Employment Law Section, Cynthia Sass, chair, and Frank E. Brown, editor.