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Coverage of the Fair Labor Standards Act:What Connection with Commerce Brings an Employee within the Coverage of the Fair Labor Standards Act?, Part 2

Labor and Employment Law

Part one of this article in the May issue of The Florida Bar Journal focused on the applicability of the FLSA to employees engaged in commerce or in the production of goods for commerce. This part discusses the expansion of FLSA by the 1961 amendments to the act which added “enterprise” coverage. Thereafter all employees of an enterprise engaged in commerce were covered notwithstanding that some of those employees might not themselves be engaged in a commerce-connected activity. Also discussed will be the further expansion of enterprise coverage by the 1974 amendment.

The 1961 Amendments
Courts have differed on the requisites of enterprise coverage as it existed in the 1961 amendments to the FLSA. The difference came from the words in the portion of the definition of enterprise which included employers that had employees “handling, selling, or otherwise working on goods that have been moved in or produced for commerce…. ” (Emphasis supplied.) The definition of goods in §203(f) excludes “goods after their delivery into the actual physical possession of the ultimate consumer thereof other than a producer, manufacturer, or processor thereof.” (Emphasis supplied.) A frequent issue was who is the ultimate consumer?

The owner of an apartment house was found to be a covered enterprise in Brennan v. Dillion, 483 F.2d 1334 (10th Cir. 1973).In the view of the court the owner was not the ultimate consumer of goods that came from out of the state for use in the building. The tenants were the ultimate consumers. The court reasoned that the goods were for the tenants to whom they were resold. The tenants paid for the goods in their rent. The court further found that “The admitted handling of the merchandise by the employees in the regular course of defendant’s business made them engaged in the production of goods for commerce.”1

In Brennan v. State of Iowa, 494 F.2d 104 (8th Cir. 1974), state hospitals whose employees handled medicines, equipment, bed linens, cleaning supplies as well as office supplies and equipment that came from outside the state were held not to be the ultimate consumers of these items. The court pointed out as examples that “medical employees administer drugs that have moved interstate, that employees that provide patient care handle cleaning supplies that have moved interstate, that food service employees dispense food that has moved interstate, and that housekeeping and laundry employees handle supplies that have moved interstate.”2 Since the institutions were not the ultimate consumers, the goods were moving in commerce when handled by the employees. Accordingly, their employer was an enterprise covered by the FLSA.

A similar conclusion was reached in Brennan v. State of Indiana, 517 F.2d 1179 (7th Cir. 1975),which also decided that various state institutions including schools and hospitals were not the ultimate consumers of a variety of items received from out of state. The court reasoned that:

The items handled by the employees … are for “the use and benefit” of the students and patients. They are a necessary part of the business of running a school or hospital. The fact that the students and patients might not pay for these items even indirectly is irrelevant. The [a]ct uses the word “consumer” rather than the word “purchaser.”3

In Wirtz v. Melos Construction Corporation, 408 F.2d 626 (2d Cir. 1969), the court found a construction company to be engaged in commerce by virtue of its purchase of ready-mix concrete from suppliers within the state. A significant amount of cement that was used by the suppliers in the preparation of the concrete came from out of the state. The fact that the cement was processed by the suppliers within the state was found to be irrelevant.4

The employer in Brennan v. Greene’s Propane Gas Service, Inc., 479 F.2d 1027 (5th Cir. 1973),sold propane gas obtained from out of state. The company was held to have “employees handling, selling, or otherwise working on goods that have been moved in or produced for commerce. .. the tense is in the past. There is no requirement of continuity in the present.”5 Citing Schultz v. Kip’s Big Boy, Inc., 431 F.2d 530, 533 (5th Cir. 1970), the court held that the legislation was designed to regulate enterprises dealing in articles acquired intrastate after travel in interstate commerce.6 Nor did the court give weight to the fact the defendant processed the gas before delivering it by removing impurities and adding a substance that gave an odor that allowed the consumer to detect a leak in his or her propane system. That merely led to “[t]he result … that the gas is in better condition and it can now be safely used by consumers at the burner tip, but it is still the gas that originated in the depths of Texas or Louisiana.”7

The foregoing decisions in this section were based on the act in its form prior to the 1974 amendment. Other courts construed the pre-1974 amendments more conservatively. Dunlop v. Industrial America Corporation, 516 F.2d 498 (5th Cir. 1975), involved a garbage removal service that picked up and delivered to local landfills. Its business was entirely intrastate. The Fifth Circuit held that the company was the end user of gasoline and trucks that had come to it through interstate commerce. It was significant that the gasoline and trucks never left the employer’s possession. They were not passed on to its customers. The court stated that “[w]e therefore hold that prior to its amendment in 1974 the Fair Labor Standards Act did not reach enterprises which provide only services to its customers and did not pass on any goods obtained from interstate commerce.”8

In Brennan v. Jaffey, 380 F. Supp. 373 (D.Del. 1974), the owner of apartments was found to be the ultimate consumer of cleaning, maintenance, and repair supplies that came from out of state. Therefore, they were no longer in commerce when used for the benefit of the tenants. The fact that light bulbs, shower heads, toilet seats, and fixtures were used in tenants’ premises did not make the tenants owner of these items.

[T]he tenants [n]either purchased or acquired title to any of these items. It is unrealistic to treat any portion of the rent which they paid as the purchase price for the items. Presumably the tenants had only a right to use the items during the tenancy with the termination of that right upon the termination of the tenancy.9

The Jaffey court agreed that the result would be different after the addition of the word “materials” in the 1974 amendment to §203(s)(1)(A)(i) and dismissed the portion of the complaint covering the time frame prior to the amendment but declined to grant summary judgment to alleged violations occurring thereafter.10

The 1974 Amendment
The 1974 amendment to the act expanded the definition of an enterprise engaged in commerce in 29 U.S.C. §203(s)(1)(A)(i) by adding the words “or materials.” The definition now includes an enterprise which has “employees handling, selling, or otherwise working on goods or materialsthat have been moved in or produced for commerce.” Under the current definition, every company that has the requisite dollar volume of business, currently $500,000, is covered by the FLSA if it has employees working with goods or materials that have moved across state lines.11 Under the liberal authority of cases decided on facts occurring after the effective date of the 1974 amendment, it is difficult to conceive of a business with the requisite dollar volume of business that would not be found to be an enterprise within the meaning of §203(s)(1)(A)(i).

An individual who hired workers to clear land for residential home development was found to be a covered enterprise engaged in commerce in Donovan v. Pointon, 717 F.2d 1320 (10th Cir. 1983). His employees used equipment and repair parts that came from out of state. They also performed fueling and maintenance on the mechanical equipment that had moved interstate.12

Marshal v. Bruner, 668 F.2d 749 (3d Cir. 1982), held that employees of a business that picked up rubbish, garbage, and scrap metal intrastate were subject to the FLSA under the 1974 amendments. The employer’s business required the use of “trucks, truck bodies, tires, batteries and accessories, 60 gallon containers, shovels, brooms, oil and gas that had been manufactured out of the state and had moved in interstate commerce.”13 The argument that the employer was the end user of these items was rejected. The rationale of the court was that the addition of the words “or materials” by the 1974 amendment brought employers under FLSA enterprise coverage if items from out of state were consumed by their employees.14

The Ninth Circuit in Donovan v. Scoles, 652 F.2d 16 (9th Cir. 1981),found the operator of a gasoline service station to be a covered enterprise. The owner purchased gasoline that had originated outside of the state from his suppliers’ inventory within the state. While giving a broad interpretation to the 1961 amendments, the court commented that “Even if it could be assumed that the 1961 amendments did not extend FLSA coverage to enterprises like College Exxon, [the owner’s d/b/a] there can be no question that the 1974 amendment extends an independent coverage basis which applies to Scoles.”15

The employer in Dole v. Odd Fellows Home Endowment Board, 912 F.2d 689 (4th Cir. 1990), operated a home for individuals who are infirm or who are without means of support. The home was held to be an enterprise engaged in commerce by virtue of its employees’ handling food, laundry supplies, and other materials that have moved in interstate commerce. The court did not accept the defendant’s argument that the home was the ultimate consumer.

In Radulescu v. Moldowan, 845 F. Supp. 1260 (N.D.I.L 1994), the courtrelied on the 1974 amendment and held apartment owners to be engaged in commerce. Employees handled nails, pipes, faucets, windows, door locks, light bulbs, grass seed, detergent, waxes, brooms, garbage bags, and salt for sidewalks shipped into Illinois from out of the state. While not discussing who the end user is, the court found that the 1974 amendment “was intended to extend the coverage of the FLSA to companies that use products that have moved in interstate commerce.”16

The separate bases for individual coverage and enterprise coverage must be kept in mind. When an individual is covered by being engaged in commerce or in the production of goods in commerce, it is not necessary that the employer does business in the amount of at least $500,000. However, to be individually covered, an employee must work with items while they are in the stream of commerce. They cannot have come to rest, such as goods in the employer’s standing inventory. An individual may be involved in the production of goods for commerce without touching the goods involved. Such was the case with the building maintenance and support personnel in the building where the goods were produced found to be covered in Kirschbaum v. Walling, 316 U.S. 517 (1942).

When there is enterprise coverage, all of the employer’s employees are covered by the FLSA whether they meet the requirements of being engaged in commerce or in the production of goods for commerce. In addition to the dollar amount requirement for enterprise coverage, the employer must have two or more employees using or handling goods or materials that have moved in commerce. Minimal contact with such goods is required. If the employer is not the end user of the goods or materials, there is enterprise coverage. Enterprise coverage does not require the physical passing on of the subject property to another individual or entity. Such is the case with bed linens and office equipment in a hospital as in Brennan v. State of Iowa. This is also the case with the trucks accessories and petroleum products used in Marshal v. Bruner.

Coverage is broad, but not universal. A small business may not be covered but one would rarely come across a business with $500,000 in business that is not covered.

1 Brennan v. Dillion, 483 F.2dat 1337.
2 Brennan v. State of Iowa, 494 F.2d at 104, n5.
3 Brennan v. State of Indiana 517 F.2d at 1182.
4 Wirtz v. Melos Construction Corporation, 408 F.2d at 629.
5 Brennan v. Greene’s Propane Gas Service, Inc, 479 F.2dat 1030.
6 Id.
7 Id. at 1031.
8 Dunlop v Industrial America Corporation, 516 F.2d at 502 (footnote omitted).
9 Brennan v. Jaffey, 380 F. Supp. at377.
10 Id. at 379.
11 Compare with Joles v. Johnson County Youth Service Bureau, Inc., 885 F. Supp. 1169 (S.D.Ind.,1995), pointing out that this broad definition applies only to enterprises having employees handling goods or material that have moved in commerce and not to individual employees who do so if they are not employed by such an enterprise.
12 Pointon apparently did not argue that he was the ultimate consumer, as this issue is not discussed in the opinion.
13 Marshal v. Bruner, 668 F.2d at 751.
14 Id.
15 Donovan v. Scoles, 652 F.2dat 20.
16 Radulescu v. Moldowan, 845 F. Supp. at 1264.

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. 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.

Labor and Employment Law