Don't Forget to WARN


South Florida residents should be familiar with the Plantation mortgage foreclosure law firm Law Offices of David J. Stern.  Stern himself built a fortune in recent years by operating the go-to firm for banks seeking to foreclose on residential mortgages.  (Full disclosure - my wife, who is an attorney, used to work for the Stern firm, but left several years ago.)  According to a litany of recent news articles, the firm is being investigated by the state Attorney General, and has recently lost many of its clients.   The firm and its related loan-servicing business reportedly laid off some 700 employees this fall.

Now, the firm faces a class-action lawsuit brought by four ex-employees. The lawsuit, filed last week, alleges violations of the federal Worker Adjustment and Retraining Notification Act, which is more familiarly known as the WARN Act. The WARN Act applies to businesses with more than 100 employees. Among other things, WARN requires that employers provide at least 60 calendar days notice to “affected employees” before “mass layoffs” that involve at least 50 people, if those people comprise more than 1/3 of the workforce. 

The four plaintiffs here claim they were all laid off this fall. They allege that the Stern firm failed to provide any advance notice to them, and that they had “barely an opportunity to gather their personal items before security badges and telephone extensions were deactivated”. 

The penalties for a WARN violation can include up to 60 days lost wages and lost benefits to the affected employees, plus the employees’ attorneys fees. Clearly, if the Court here were to certify this as a class-action involving hundreds of ex-employees, the stakes for the Stern firm would be quite large.

There are a few limited statutory exceptions to the WARN notice requirement. The one that the Stern firm here may argue applies is the “unforeseeable business circumstances” exception. Under that exception, the employer can give fewer than 60 days notice, if the mass layoff is as a result of a “sudden, dramatic, and unexpected” business circumstance that was not reasonably foreseeable. Loss of a major client can suffice. Even under this exception, the employer must give as much notice as practicable under the circumstances. 

The lawsuit here anticipates that the Stern firm will attempt to argue that exception, and claims that the firm “had plenty of advance opportunity to provide notice”. If this case progresses, the relevant questions will be when the Stern firm became aware of the “unforeseeable business circumstances”, and whether the firm had the opportunity to provide the  60-days notice, or at least some notice. 

It is obviously much too early to determine what will happen in this case. But, in these economic times, WARN Act lawsuits have become more prevalent than before. Any sizeable employer seeking to lay off numerous employees, or to shut down operations at any of its facilities, would be wise to consult labor and employment counsel before doing so. As stated above, the penalties for violating WARN can be severe.

NLRB Is Considering Expanding Union Rights to Organize on Employer Premises: What Employers Should Do Now

The following article should be of interest to all Florida employers

By Peter M. Panken, Steven M. Swirsky, and Michael W. Casey, III

The new Obama National Labor Relations Board (“NLRB” or the “Board”) has signaled that it will likely be granting union organizers the right to enter employers’ premises to conduct union organizing activity. This would reverse a trend in the last few years of preserving an employer’s property rights, and of confining union organizers to areas outside of an employer’s private premises, including those areas open to the public, in retail, healthcare, hospitality, and other venues where non-employees are allowed access.

It has long been the law that an employer is generally permitted to limit access to its private property, so long as the employer does not discriminate against outside union organizers. However, it has been widely recognized that the exception of allowing charitable organizations to solicit on company premises has not opened the floodgates to union organizers.

But the newly constituted NLRB, composed of a majority of attorneys who had in their law practices represented unions, has now issued an invitation “for all interested parties to file briefs regarding the question of what legal standard the Board should apply in determining whether an employer has discriminated against nonemployee union agents seeking property access.”
Given the current composition of the NLRB, which has supported union positions over those of management in virtually every case decided by it since the new members were seated this past spring, we fully expect a decision that greatly expands the rights of non-employee union organizers to enter an employer’s premises to engage in union activity. The Board would not have issued its “invitation” if it planned to reaffirm existing interpretations of law.


Employers are well advised to consider the following actions to preserve, as best possible, intended restriction and to ready their businesses for a likely change in Board law:

1. Review all existing rules and policies prohibiting non-employees from soliciting on company premises, as well as those restricting solicitations by employees to be sure that the rules themselves do not create undue risks.

2. Revise those rules and policies that are most likely to be subject to adverse scrutiny by the NLRB.

3. Review the manner in which such rules and policies are applied and administered to ensure that lawful non-solicitation rules are consistently enforced and appropriate documentation is maintained.

4. Establish protocols to monitor the enforcement of the rules and to maintain written records of communications regarding such rules and policies and their application.

5. Consult with counsel promptly when any non-employees, including union organizers, seek permission or attempt to enter company premises, to assess vulnerability to unfair labor practice charges, discover what actions may be taken lawfully, and assess the precedential value of decisions made and actions taken.

6. Assess the risk associated with allowing charitable solicitations on company premises (although many employers allow United Way solicitations and similar solicitations, these employers may be well advised to have such solicitations conducted by off-duty employees rather than outsiders).


USCIS Introduces New U.S. Passport Photo Matching For E-Verify

On October 4, the U.S. Citizenship and Immigration Services ("USCIS") hosted a webinar for employers to introduce the latest improvement to the E-Verify system, the addition of U.S. Passports and Passport Cards (collectively, "Passports," and individually, a "Passport") to the photo-matching process.


Photo matching is a feature of E-Verify that allows an employer to compare a newly hired employee's Employer Authorization Document ("EAD") or Permanent Resident Card ("Green Card") to the image of the card stored in the database of the U.S. Department of Homeland Security ("DHS"). However, this feature may be used only after: (i) the employee has attested to being a lawful permanent resident and/or authorized to work in the United States; (ii) the employee presents a newer version of a Green Card or EAD at his or her own initiative; (iii) E-Verify has confirmed the employee's employment eligibility; and (iv) any Tentative Nonconfirmations ("TNC") from the Social Security Administration or USCIS have been resolved. The present photo-matching process does not currently have the capability to verify the authenticity of older green cards, older EAD cards, or any of the other identification documents that an employee may present when completing the I-9 process.


Although part of E-Verify's overall photo-matching process, the photo-matching process for Passports has some key differences compared to the photo-matching process used for Forms I-751 (Green Cards) and I-766 (EADs). For example, one difference involves when to display a TNC case result. With the photo-matching process for Passports, if the employee presenting a Passport receives a TNC before the photo-matching step and then resolves the TNC, E-Verify will require the employer to complete the photo-matching step before displaying a case result. In the photo-matching process for Green Cards or EADs, if the employee presenting a Passport receives a TNC before the photo-matching step and then resolves it, the employer must display the case result immediately before moving forward with the photo-matching step. Additionally, it is very possible that E-Verify may not be able to access the employee's photo during the photo-matching process. If this occurs during the Green Card or EAD photo-matching process, the system will simply bypass the photo-matching screen altogether. However, during the Passport photo-matching process, the system will provide a "No Photo on this Document" message and employers must proceed with the process.


Another interesting difference is that, when photo matching Green Cards or EADs, E-Verify will display a thumbnail photo when viewing the case details. This, however, is not the case for Passports because the USCIS is not able to store Passport photos. Yet, E-Verify will display a thumbnail photo that an employer may attach and submit when referring a photo mismatch TNC to DHS. E-Verify will display this thumbnail photo whether the document is a Green Card, an EAD, or a Passport.


As of April 3, 2009, for employment verification (Form I-9) purposes, employees must present an unexpired Passport. E-Verify will now enforce this rule by looking to determine if the "hire date" is on or after April 3, 2009. If the hire date is before April 3, 2009, the system will accept an expired Passport (good news for federal contractors needing to submit older I-9 forms showing valid passports at the time). If the hire date, however, is on or after April 3, 2009, an error message will appear and the case will be automatically discontinued. The employer's only option is to create a new E-Verify case.

Intrastate Passenger Trips Can Trigger FLSA's Motor Carrier Exemption, Rules Eleventh Circuit

By Richard Tuschman

Drivers who transport passengers from airports to locations within the same state can be subject to the FLSA’s motor carrier exemption, according to a recent decision by the Eleventh Circuit Court of Appeals, Abel v. Southern Shuttle Services, Inc., Case No. 10-10659 (11th Cir., September 21, 2010). The Abel decision is significant because it expands upon and clarifies the principles set forth in the Eleventh Circuit’s decision in Walters v. American Coach Lines of Miami, Inc., 575 F.3d 1221, 1226 (11th Cir. 2009), cert. denied, 130 S. Ct. 2343 (2010), which I reported on last year (and which I had the privilege to argue to the Eleventh Circuit on behalf of the employer).

The motor carrier exemption exempts from the FLSA’s overtime pay requirement “any employee with respect to whom the Secretary of Transportation has power to establish qualifications and maximum hours of service pursuant to the provisions of section 31502 of Title 49,” otherwise known as the Motor Carrier Act (“MCA”) exemption. 29 U.S.C. § 213(b)(1). The Eleventh Circuit has held that the MCA confers upon the Secretary of Transportation the authority to regulate the maximum hours of service of employees who are employed (1) by a common carrier by motor vehicle; (2) engaged in interstate commerce; and (3) whose activities directly affect the safety of operations of such motor vehicles.

The purpose of the motor carrier exemption is to avoid overlapping jurisdiction, and potentially conflicting rulemaking, of federal agencies. Where the Secretary of Transportation has the authority to regulate a driver’s hours of service, the Secretary of Labor cannot have jurisdiction over the same issue. Both Walters and Abel presented the question of precisely when the Secretary of Transportation has such authority.

In Walters, the Eleventh Circuit held that “[t]here are two requirements for an employee to be subject to the motor carrier exemption”: (1) “his employer’s business must be subject to the Secretary of Transportation’s jurisdiction under the MCA”; and (2) “the employee’s business-related activities must directly affect the safety of operation of motor vehicles in the transportation on the public highways of passengers or property in interstate or foreign commerce within the meaning of the Motor Carrier Act.”

The bus company in Walters was licensed by the DOT and performed some trips across state lines; for example, between Florida and Georgia. Therefore, the court held that prong 1 of the test was satisfied. However, because not all of the plaintiffs in Walters drove across state lines, the court also considered the employer’s argument that the plaintiffs’ transportation of passengers between local airports (where the passengers typically arrived from out of state) and local seaports (where the passengers embarked and disembarked cruise ships that sailed outside of U.S. waters) constituted driving in interstate commerce. The court held that that “purely intrastate transportation can constitute part of interstate commerce if it is part of a ‘continuous stream of interstate travel.’ For this to be the case, there must be a ‘practical continuity of movement’ between the intrastate segment and the overall interstate flow.” The court concluded that “[f]or cruise ship passengers arriving at the airport or seaport, [the bus company’s] shuttle rides would be part of the continuous stream of interstate travel that is their cruise vacation.” Thus, the motor carrier exemption applied.

But part of the Walters court’s rationale for applying the motor carrier exemption was that the company performed airport-to-seaport trips pursuant to contractual or “common” arrangements with cruise lines, which are arguably interstate carriers. At the time Walters was decided, this appeared to be a significant factor because earlier authority held that the Secretary of Transportation has jurisdiction over intrastate passenger-carrying trips only where there is a “through-ticketing” arrangement between the intrastate carrier and an interstate carrier for the “continuous passage” of the passengers. The Walters court left open the question of whether such contractual arrangements were essential to the application of the motor carrier exemption. But this is a critical question, because many companies that transport passengers on intrastate trips as part of interstate journeys do so in the absence of formal contractual arrangements with airlines or cruise lines.

Southern Shuttle Services, Inc. is one such company. It operates the “SuperShuttle,” which transports passengers to and from three South Florida airports to various locations throughout South Florida (for example, a home, officer or hotel). Many of Southern Shuttle’s reservations are made through travel websites on the internet. Travelers buy “package deals” from these internet travel companies that include hotel accommodations, airfare, and a voucher on the SuperShuttle for transportation to and from the airport. Southern Shuttle apparently does not perform any trips across state lines, and the Secretary of Transportation appears not to have exercised jurisdiction over the company (by licensing or auditing the company, for example). The primary question presented in Abel was whether the Secretary nevertheless has jurisdiction over Southern Shuttle (prong 1 of the two-part test set forth in Walters).

The Eleventh Circuit said yes, holding that “Southern Shuttle’s local transport of these package-deal travelers has a ‘practical continuity of movement’ with the overall interstate journey.” The court also held that “Southern Shuttle’s arrangement with internet travel companies to provide airport shuttle service for their package-deal customers meets the ‘common arrangement’ requirement discussed in Walters.” Answering the question left open in Walters, the court rejected Abel’s argument that the common arrangement must be with an interstate carrier to satisfy the interstate commerce requirement. Finally, as to prong 2 of the test, the court held that “[h]aving already concluded that Southern Shuttle’s airport shuttle service was transportation of passengers in interstate commerce that subjected it to the Secretary’s jurisdiction, we conclude that Abel’s activities in driving the airport shuttle also constitute interstate commerce.” Thus, Southern Shuttle established the applicability of the motor carrier exemption, and Abel was not entitled to overtime pay.

To be clear, Abel does not mean that any company that transports passengers to or from an airport can claim the motor carrier exemption. For example, a taxi ride to or from an airport at the beginning or end of an interstate journey ordinarily will be deemed a local trip that is not within interstate commerce. For the motor carrier exemption to apply, the employer must show that the trips are part of the “practical continuity of movement” with the overall interstate journey. This means that some type of common arrangement, under which the intrastate trip is bundled with one or more elements of the passenger’s trip across state lines, must be shown.


FLSA Complaint Must be in Writing, Rules 3d DCA

Third District Court of AppealsBy Richard Tuschman

Defense lawyers whose clients are sued in Florida state court under the Fair Labor Standards Act typically remove the cases to federal court.  And for good reason:  employers generally have a better chance of obtaining a summary judgment in federal court. 

But defense lawyers may want to rethink this strategy in FLSA retaliation cases in light of a recent decision by the Third District Court of Appeals, Alvarado v. Bayshore Grove Management, LLC, Case No. 3D09-3332 (Fla. 3d DCA, October 6, 2006). 

In Alvarado, the plaintiff alleged that he had made oral complaints to his employer about his compensation and that he was terminated as a result in violation of the FLSA's anti-retaliation provision, 29 USC §215(a)(3).  This provision makes it unlawful "to discharge or in any other manner discriminate against any employee because such employee has filed any complaint or instituted or caused to be instituted any proceeding under or related to this chapter...."  Citing the Seventh Circuit Court of Appeals' decision in Kasten v. Saint-Gobain Performance Plastics Corp., 570 F.3d 834, 838-40 (7th Cir. 2009), the Third DCA affirmed the trial court's dismissal of the retaliation claim, holding that "the very meaning of the word 'filed' requires that the aggrieved employee at least submit something in writing." 

As the Seventh Circuit noted in Kasten, the Eleventh Circuit Court of Appeals reached a different conclusion in EEOC v. White & Son Enters., 881 F.2d 1006, 1011 (11th Cir.1989).  There, the Eleventh Circuit held that given the FLSA's "remedial purpose," an oral complaint is protected activity under the Equal Pay Act (which is part of the FLSA).  White & Son is binding on federal district courts in the Eleventh Circuit. See, e.g., Dees v. Rsight, Inc., Case No. 6:05-cv-1923-Orl-DAB, 2006 U.S. Dist. LEXIS 92860 (M.D. Fla. Dec. 22, 2006) (citing White & Son for the proposition that "the Eleventh Circuit has held that unofficial oral complaints by employees to their employer can constitute protected activity under the FLSA"). 

The lesson of Alvarado and White & Son is clear:  Employers who are sued in state court on an FLSA retaliation claim based on an oral complaint should keep the case in state court so they can argue that the complaint was not protected activity.  In any trial court within the Third DCA, this argument should be a winner.  In trial courts outside the Third DCA, at least the employer has a fighting chance on this argument; Alvarado is not binding but is persuasive authority.  Once the case is removed to federal court, White & Son controls, so the employer better be prepared to assert a different defense to the plaintiff's retaliation claim.

UPDATE:  Four days after this post, the United States Supreme Court held oral argument on this issue in Kasten.  You can hear the argument here.  Several justices sounded skeptical about the employee's attorney's argument that an oral complaint to an employer can constitute the "filing" of a complaint under the FLSA.  Assuming the Supreme Court resolves this precise issue, all federal and Florida courts will be bound by its decision. In that case, the apparent split between the Third DCA and the Eleventh Circuit will be moot.





Employee Who Opposes Unionization Can Seek Injunction, Says Eleventh Circuit


By Mark Beutler


The Eleventh Circuit recently ruled that a Florida Greyhound Track employee who opposed unionization has standing to seek an injunction barring the enforcement of a neutrality agreement alleged to be in violation of NLRA Section 302. Mulhall v. UNITE HERE Local 355, 11th Cir., No. 09-12683, 9/10/10. 


Section 302 of the NLRA prohibits employers from giving "things of value" to unions or their agents.  The idea is to prevent employers from paying off unions or their agents in exchange for bargaining concessions.  The union is supposed to represent the interests of the employees, and should not sacrifice those interests in exchange for money or other things of value. The allegedly illegal bribe in the case was the neutrality agreement itself. 


In this case, a union (UNITE HERE local 355) promised an employer, Hollywood Greyhound Track which operates Mardi Gras Gaming in Hallandale Beach, to support a ballot initiative that would allow gaming.  The union also agreed to refrain from striking, picketing or boycotting the employer. In exchange, the employer would give the union contact information for all employees and access on company property to the employees for purposes of organizing, and the employer also agreed to refrain from opposing the union. Once the ballot initiative passed, the company refused to keep its part of the bargain, alleging that the deal was illegal under Section 302. 


The union filed a claim with an arbitrator alleging that that the employer breached the neutrality agreement. The arbitrator rejected the employer’s defense that the agreement was illegal, and ordered that the employer comply with its agreement and assist the union in obtaining exclusive representation of the employees. The district court upheld the arbitrator’s decision. 

Martin Mulhall, an employee opposed the union, intervened in the case. He sought an injunction barring enforcement of the neutrality agreement. The union argued that he had no standing to assert the claim because the union had not yet been recognized by the employer as the exclusive bargaining representative. The district court agreed, and dismissed Mulhall’s claim. The Eleventh Circuit reversed.


The Eleventh Circuit held that Mulhall had a legally cognizable associational interest (i.e., association with the union) that was adversely affected by the neutrality agreement. There was a significant risk that enforcement of the neutrality agreement would result in his employer being unionized and his being forced against his will to accept the union as his exclusive representative. Finally, the court rejected the argument that the case was not ripe until the union succeeded in its effort organize the employer. 


The case was filed in the Southern District of Florida by National Right to Work Legal Defense Foundation on behalf of Mulhall. NRTW provides free legal assistance to employees who oppose compulsory unionization. NRTW has been trying to make the argument -- thus far with limited success -- that neutrality agreements violate Section 302 because the employer gives something of value to the union in exchange for bargaining concessions. In other words, the union is trading the legal rights that belong to the employees (whom the union does not yet represent), to gain the status of exclusive representative. The union can then collect union dues from its members, even though the union has been disabled from fully pursuing the employees' interests by the neutrality agreement. In this case, the employer received lobbying assistance from the union. In some cases, the employer can receive a docile union; in other cases, relief from the pain of a corporate campaign is the bargain.


The decision is notable because it departed from the customary bipolar judicial orientation were courts see only two players in the labor-management equation -- the union and the employer.  In Mulhall, the Court recognized a third player – the employees.   


Employers that enter into neutrality agreements in order to buy labor peace should be aware that neutrality agreements may one day be seen as illegal under Section 302, and thus unenforceable. The effect is that labor peace is purchased with a bad check. However, the employer is now exposed to litigation filed by anti-union employees.   

When Employees Die, Who Gets Their Last Paycheck?

This is not the most pleasant topic, I know, but a client recently asked this question after one of their Florida employees was tragically shot and killed.  After doing a bit of research, I was surprised to learn that a Florida statute addresses this question.  It's pretty straightforward, so I'll simply reprint it here:


222.15 Wages or unemployment compensation payments due deceased employee may be paid spouse or certain relatives.
(1) It is lawful for any employer, in case of the death of an employee, to pay to the wife or husband, and in case there is no wife or husband, then to the child or children, provided the child or children are over the age of 18 years, and in case there is no child or children, then to the father or mother, any wages or travel expenses that may be due such employee at the time of his or her death.

(2)  It is also lawful for the Agency for Workforce Innovation, in case of death of any unemployed individual, to pay to those persons referred to in subsection (1) any unemployment compensation payments that may be due to the individual at the time of his or her death.

Two-Part Series Seminar: Employment Verification Issues for Employers:


Two-Part Series SeminarForm I-9 and E-Verify Training
Employment Verification Issues for Employers:

Presented by
Hector A. Chichoni, Esq., EpsteinBeckerGreen

Since its inception more than two decades ago, employers have failed to fully comply with the Immigration Reform and Control Act (IRCA) of 1986. As a result, Form I-9 compliance levels among employers are of great concern. With the government cracking down on compliance, employers need to take immediate steps to get their I-9 “houses” in order.

Moreover, on September 14, 2009, Alejandro Mayorkas, head of U.S. Department of Homeland Security, Citizenship and Immigration Services, told reporters that the agency is “taking steps to prepare for the possibility that E-Verify may become mandatory for all employers” adding that “it is our responsibility to be ready should E-Verify ever be required of all employers.”


We are conducting a two-part interactive Form I-9 and E-Verify training program to offer hands-on training to ensure the attendees are confident, knowledgeable and capable of managing I-9 and E-Verify compliance.
The Miami City Club
200 South Biscayne Boulevard
55th Floor
Miami, Florida 33131
Part  I
Form I-9 Training
Form I-9 training is the first part of the two-part series which includes copyrighted training materials with practical examples along with useful documentation and resource materials. The components of part one, Form I-9 Training, includes:
  • In-depth look at I-9 Completion, Documentation and Receipt Rules.
  • Forensic training for questionable documents.
  • Review internal process for re-verification and notification tracking.
  • Establish an I-9 correction process.
  • Provide self-evaluation and team-based testing.
  • Help you learn how to process the I-9 form correctly;
  • Raise your comfort level in working with the documents and policies involved;
  • Enable your company to ensure the employees are authorized to work and are compliant with I-9 standards;
  • Serve as a quick and easy job aid and reference whenever needed.
E-Verify training, the second part of the two-part series, will help you get the information you need to properly weigh the pros and cons of the E-Verify system, you will learn what every employer should know about the electronic employment verification system:
  • How federal contractors are troubleshooting E-Verify issues
  • What chances have been made, what problems have been solved, and what problems remain.
  • How the government is increasing its worksite enforcement activity
  • Best practices for avoiding worksite enforcement actions
  • How to find out if your organization is being targeted from an audit, and what agents look for in an audit
  • Your legal recourse if ICE agents arrive on site
  • The potential civil and criminal consequences for employers from an audit
  • Recent government actions to fine employers for immigration violations
  • Your legal recourse if fines are levied against your organization
  • What happens to workers who can't prove they're authorized to work in the U.S.
  • How the government's new audit strategy impacts the current debate on making E-Verify mandatory for all employers              
Part II
 E-Verify Training
Date and Time: Thursday, October 21, 2010, 8:30 am - 10:30 am
Date and Time: Thursday, September 30, 2010, 8:30 am - 10:30 am

The fee for this event is $25 for each session, or you can purchase both sessions in advance for $35.  This fee includes breakfast, parking and training materials. 

To register, please .click here

If you have any questions about this briefing, please contact 

Anneliese Garcia, (305) 579-3200, or
About EBG: Founded in 1973, EpsteinBeckerGreen is a law firm with approximately 350 lawyers practicing in offices in Atlanta, Boston, Chicago, Houston, Los Angeles, Miami, New York, Newark, San Francisco, Stamford and Washington D.C. The Firm’s size, diversity, and as a founding member of the International Lawyers Network (ILN), allow its attorneys to address the needs of both small entrepreneurial ventures and large multinational corporations on a worldwide basis. EpsteinBeckerGreen continues to build and expand its capabilities as a law firm focused on five core practices: Business Law, Health Care and Life Sciences, Labor and Employment, Litigation and Real Estate. For more information on EpsteinBeckerGreen, please visit For more than three decades, the EpsteinBeckerGreen seminar series has introduced senior executives, general counsel and human resources professionals to cutting-edge issues in nearly every area of business touched by law.


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Understanding the Eleventh Circuit's Polycarpe Decision

Eleventh Circuit Court of AppealsRecently I reported that the Eleventh Circuit’s decision in Polycarpe v. E&S Landscaping Services, Inc. will lead to an increase in the number of FLSA cases filed against small businesses in Florida.  This week I will summarize Polycarpe and attempt to explain its significance. 

First, some background.  Employees may be covered by the FLSA’s provisions as individuals, which is known as individual coverage, or as employees of a covered business, which is known as “enterprise coverage.”  Enterprise coverage is triggered if a business (1)“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”; and (2) has at least $500,000 of “annual gross volume of sales made or business done.” 29 U.S.C. § 203(s)(1)(A) (emphasis supplied).


The highlighted language is known as the handling clause.  Congress added it to the FLSA in 1961, thereby expanding the FLSA’s reach to include retail and service businesses that were local in nature, so long as the employees of a business handled goods that had moved in interstate commerce.  Congress added the words “or materials” after the word “goods” in 1974.  But the precise reach of enterprise coverage under the FLSA was not often addressed by the courts, and never attempted before by the Eleventh Circuit.

The Polycarpe decision addressed this issue by tackling two questions.  First, do interstate goods or materials lose their interstate quality if the items have already come to rest within a state before they are purchased within the state by the business?  As an example, if a lawn service business purchases a lawnmower that is built out-of-state, does the lawnmower lose its interstate quality if the lawn service purchases it at the local Home Depot?  The Eleventh Circuit ruled no, rejecting the “coming to rest” doctrine as inconsistent with the text of the FLSA, a 1973 Fifth Circuit decision, Brennan v. Greene’s Propane Gas Serv., Inc., 479 F.2d 1027, 1030 (5th Cir. 1973) (which is binding in the Eleventh Circuit), and a Department of Labor regulation, 29 C.F.R. § 779.242 (stating that it is “immaterial . . . that the goods may have ‘come to rest’”).. 

The second question the court addressed involved the interplay of “goods” and “materials” under the handling clause, and the application of the “ultimate consumer” defense.  The court began by reciting the definition of “goods” under the FLSA:

“Goods” means goods (including ships and marine equipment), wares, products, commodities, merchandise, or articles or subjects of commerce of any character, or any part or ingredient thereof, but does not include goods after their delivery into the actual physical possession of the ultimate consumer thereof other than a producer, manufacturer, or processor thereof.

29 U.S.C. § 203(i) (emphasis supplied). 

The highlighted language is known as the “ultimate consumer” exception.  Employees’ handling of goods that fall under this exception will not trigger enterprise coverage.  But the handling of materials will not fall under this exception, and will trigger enterprise coverage. Thus, it becomes critical to distinguish between “goods,” which is defined in the statute, and “materials,” which is not.

To make this distinction, the court reasoned that the meanings of “goods” and “materials” must be different, and not overlap.  Applying these criteria to several different dictionary definitions, the court concluded that

the most accurate view of Congress’s intent for the interplay between “goods” and “materials” in the FLSA--one that does not impliedly repeal some of the statutory definition of “goods”--is to read “materials” in the FLSA this way: “materials” in the FLSA means tools or other articles necessary for doing or making something. See Webster’s Third New Int’l Dictionary: Unabridged 1392 (1993). We believe that this interpretation is true to the ordinary meaning of “materials” and avoids conflict with the statutory “goods” definition.

The court explained that this definition accorded with the legislative history of the 1974 amendments and the Department of Labor’s own view on the meaning of materials, as expressed in its amicus brief in the Polycarpe case.  

The court then addressed the question of how to determine whether the items in a given case are either goods or materials (or neither):

Whether an item counts as “materials” will depend on two things: 1) whether, in the context of its use, the item fits within the ordinary definition of “materials” under the FLSA and 2) whether the item is being used commercially in the employer’s business.

The court used china plates as an example to illustrate both prongs of the test.  As to prong 1:  When a catering business uses china plates, they are materials.  But when a department store sells the plates, they are goods.  As to prong 2:  When an accounting firm uses the china plates as decorative items in its lobby, they are not materials because they do not have a significant connection to the firm’s accounting work.

Unfortunately, the court did not provide an analysis of whether the six businesses whose cases were consolidated in Polycarpe were covered by the FLSA.  Instead, the court remanded the cases to the district courts to determine whether enterprise coverage had been triggered in view of the Eleventh Circuit’s holdings.  In particular, the district courts will now have to decide whether the items evidenced by plaintiffs as having moved in interstate commerce support enterprise coverage under the handling clause as either “goods” (not subject to the ultimate-consumer exception) or as “materials.” 

Not having worked on any of the cases at issue in Polycarpe, I will not venture to predict the outcomes of the cases in the lower courts.  Nevertheless, it seems clear that Polycarpe significantly expands the likelihood that any business in the Eleventh Circuit will be found to be covered by the FLSA.  No longer can a business rely on the fact that the interstate goods or materials its employees handled had “come to rest” within the state before the business purchased them.  Assuming a business meets the $500,000 gross sales threshold, the only way a business can avoid enterprise coverage is by proof that its employees do not regularly handle, sell or work on materials in interstate commerce, and that the business is the ultimate consumer of any interstate goods that its employees handle.  For service businesses that do not sell goods to consumers, it may be relatively easy to establish that it is the ultimate consumer of the goods in question.  But establishing that its employees do not regularly handle interstate materials would seem be more challenging, because the majority of materials that businesses handle are manufactured outside the state.  The saving grace for employers may be the requirement that the materials have a “significant connection” to the employer’s business purposes.  The Eleventh Circuit suggests that there will be cases in which this requirement will defeat a plaintiff’s claim of enterprise coverage:

[W]e believe that the ordinary meaning of “handling, selling, or otherwise working on” is not so expansive as to be limitless; not every employer that meets the $500,000 sales threshold must be subject to the FLSA. It seems to us that an employee who uses an item at work will only sometimes be “handling, selling, or otherwise working on” the item for the purposes of FLSA coverage: an item’s use must have a significant connection to the employer’s business purposes.

It remains to be seen, however, how courts will define “significant connection.”  China plates used to decorate an accounting firm’s lobby may not have a significant connection to the firm’s accounting work, but what about the computers, calculators, paper and pencils the firm uses?  Are these “materials” that have a significant connection to accounting work? If so, do the same materials used by a dry cleaner have a significant connection to the business of dry cleaning?  These are the types of questions that I believe courts in the Eleventh Circuit will grapple with in the post-Polycarpe world of FLSA litigation. I will keep you posted.




Eleventh Circuit Rules for Employees on FLSA Enterprise Coverage

In an important decision that will affect countless numbers of small businesses in Florida, the Eleventh Circuit Court of Appeals today rejected the arguments of several employers that they were not subject to “enterprise coverage” under the Fair Labor Standards Act.  The decision, Polycarpe v. E&S Landscaping Services, Inc., is bound to lead to an increase in the number of FLSA cases filed against small businesses in Florida – which are already the frequent target of such claims.  I will provide some analysis of the Polycarpe decision in the near future.