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.


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. 

Bus Company Prevails in FLSA Motor Carrier Exemption Case

Port of MiamiI am pleased to report that the United States Court of Appeals for the Eleventh Circuit has affirmed the district court's summary judgment in favor of our client, a bus company, in a case involving the motor carrier exemption.  The case is Walters v. American Coach Lines of Miami, Inc. (11th Cir., July 23, 2009).

 I first reported on this case and discussed the basics of the motor carrier exemption in a September 2008 post.  My EBG colleague, Brian Molinari, recently summarized the Walters decision in a post on the Prima Facie Law Blog.

A quick refresher:  The motor carrier exemption is one of several exemptions from the Fair Labor Standards Act which generally requires employees engaged in commerce to be paid at least time and a half for the time worked above forty hours in one week. The motor carrier exemption provides:

The provisions of section 207 [maximum hours] of this title shall not apply with respect to. . . any employee with respect to whom the Secretary of Transportation has power to establish qualifications and maximum hours of service pursuant to the provisions of section 31502 of Title 49.”  29 U.S.C. § 213(b)(1). 

49 U.S.C. section 31502 grants “the Secretary of Transportation the power to regulate the qualifications and maximum number of hours for employees of motor carriers engaged in interstate transportation.”

The principal question in Walters was whether the ACLM's drivers, by driving trips to and from local airports and seaports, all of which are in Florida, were engaged in interstate transportation so as to trigger the Secretary of Transportation's jurisdiction over them.  If so, the motor carrier exemption would apply, and the drivers would not be entitled to overtime pay.

In answering that question in the affirmative, the court's opinion breaks some new ground in the Eleventh Circuit, which covers Florida, Georgia and Alabama. Among the court's holdings are the following:

  • The Secretary of Transortation's jurisdiction is not limited to transportation that crosses state lines, but extends to transporation that is part of the broader concept of "interstate commerce."
  • Purely intrastate transportation can constitute part of interstate commerce if it ispart of a “continuous stream of interstate travel."
  • The "incidental-to-air" exemption does not limit application of the motor carrier exemption. The court held that this exemption to the Secretary of Transportation's jurisdiction applies to economic regulation, not to safety regulation. Thus, the Secretary of Transportation has jurisdiction to prescribe safety regulation for transportation that is "incidental-to-air," i.e. within 25 miles of an airport.

The motor carrier exemption is complicated and has been the subject of much litigation. For employers in the Eleventh Circuit, the Walters decision clarifies several key issues. Still, the opinion leaves open a couple of issues:

  • Does a company have to engage in more than de minimus interstate transportation, where it has the appropriate federal licensing and indisputably performs some transportation crosses state lines? The court declined to answer this question, finding that even if such a test applied, ACLM engaged in more than de minimus interstate transportation.
  • Do airport-to-seaport trips constitute interstate commerce if they are not performed pursuant to formal contractual arrangements with airlines or cruise lines? The court declined to answer this question, finding that even if such a test applied, ACLM had contractual arrangements with cruise lines to transport passengers on its buses.

Litigation of these open issues is bound to occur as the proliferation of FLSA lawsuits continues. But for now, Walters is the latest word on the status of the motor carrier exemption in the Eleventh Circuit.

Eleventh Circuit Affirms $35 Million Judgment for Store Managers in FLSA Suit

The Eleventh Circuit has affirmed a jury verdict of more than $35 million against Family Dollar Stores, Inc. for misclassifying its store managers as exempt from overtime pay. 

The case, Morgan v. Family Dollar Stores, Inc., involved an opt-in class of 1,424 store managers in a collective action under the Fair Labor Standards Act.  During an eight-day trial, the Plaintiffs established that the store managers routinely worked 60 to 70 hours a week.  Family Dollar argued the store managers were executives within the meaning of the FLSA and exempt from its overtime pay requirements.  However, at the close of the evidence, the district court granted judgment as a matter of law to 163 of the 1,424 Plaintiff store managers, because the evidence showed that they did not satisfy the third requirement in the executive exemption test, i.e., that they customarily and regularly directed the work of two or more other employees.  As to the remaining Plaintiffs, the jury found that they were not exempt executive employees. 

The district court entered a final judgment of $35,576,059.48 against Family Dollar consisting of $17,788,029.74 in overtime wages and an equal amount in liquidated damages.

The appeal centered on the applicability of the executive exemption. To establish an employee is a bona fide executive, an employer must show: (1) the employee is “[c]ompensated on a salary basis at a rate of not less than $455 per week”; (2) the employee’s “primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof”; (3) the employee “customarily and regularly directs the work of two or more other employees”; and (4) the employee “has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion or any other
change of status of other employees are given particular weight.” 29 C.F.R. § 541.100(a)

With regard to the primary duty requirement, the Eleventh Circuit's opinion notes that FLSA regulations specify that “[t]ime alone..., is not the sole test” and thus “[e]mployees who do not spend more than 50 percent of their time performing exempt duties may nonetheless meet the primary duty requirement if the other factors support such a conclusion.”

The opinion also notes that the FLSA regulations clarify that “[c]oncurrent performance of exempt and nonexempt work does not disqualify an employee from the executive exemption if the requirements of § 541.100 are otherwise met.” See 29 C.F.R. § 541.106(a). In other words, the Eleventh Circuit noted, "an employee’s performance of nonexempt work does not preclude the exemption if the employee’s primary duty remains management.  Similarly, an employee whose primary duty is to perform nonexempt work does not become exempt merely because she has some responsibility for occasionally directing the work of nonexempt employees."

Applying these principles, the Eleventh Circuit upheld the jury's verdict.  The evidence at trial showed store managers spent 80 to 90% of their time performing nonexempt, manual labor, such as stocking shelves, running the cash registers, unloading trucks, and cleaning the parking lots, floors, and bathrooms.

As to the relative importance of store managers’ managerial duties compared with their nonexempt duties, the Eleventh Circuit held that this factor also weighed in favor of the jury’s finding that store managers are not exempt executives. While the store managers’ job description includes managerial duties, the description of the store managers’ “Essential Job Functions” provides that store managers must do the same work as stock clerks and cashiers. "Rather than treat these manual tasks as an incidental part of a managerial job," the opinion notes, "Family Dollar describes them as essential. A large amount of manual labor by store managers was a key to Family Dollar’s business model given each store’s limited payroll budget and the large amount of manual labor that had to be performed."

The evidence also showed that store managers spent only 10 to 20% of their time on exempt (i.e., managerial) work, because most of their work was dictated by company manuals and directives and did not involve the exercise of managerial discretion:

Plaintiffs presented evidence that store managers rarely exercised discretion because either the operations manuals or the district managers’ directives controlled virtually every aspect of a store’s day-today operations. The manuals and other corporate directives micro-managed the days and hours of store operations, the number of key sets for each store, who may possess the key sets, entire store layouts, the selection, presentation, and pricing of merchandise, promotions, payroll budgets, and staffing levels. The manuals even instruct store managers on the smallest details, such as how to arrange clip boards, what items go in each of the four drawers of the single file cabinet, and how to remove spots and chewing gum from store mats. The few decisions not mandated by the manuals and corporate headquarters are vested in the district manager. These decisions include the power to change store hours, close for bad weather, approve changes to store layouts, establish all employees’ initial rates of pay, approve all pay raises, set payroll budgets, control the total labor hours allocated to each store, approve the hiring and firing of assistant managers, and even approve the use of appliances such as coffee pots. Even when a store manager exercised discretion in scheduling employees for the week, she did so within the strict constraints of mandatory store hours, a limited payroll budget, a prohibition on overtime work by hourly employees, and a staff scheduler. This evidence supports a reasonable jury finding that Family Dollar’s store managers had few, and infrequently exercised, discretionary powers.

The evidence also showed that store managers had little freedom from direct supervision. "Indeed," the opinion notes, ample evidence showed that the combination of sweeping corporate micro-management, close district manager oversight, and fixed payroll budgets left store managers little choice in how to manage their stores and with the primary duty of performing manual, not managerial, tasks."

For employers, the Morgan case highlights the distinction between job titles and job duties.  Duties are what count in determining whether an exemption applies.  And the burden in proving the exemption always remains on the employer. Before classifying employees as exempt, it is important for employers to make a careful analysis of the employees' actual job duties and measure them against the exemption criteria.  The Department of Labor's fact sheets, such this one on the executive exemption, are useful guides.  

Dollar Stores apparently did not do a careful analyis before classifying its store managers as exempt. In one of the most striking excerpts from the trial transcript, the court cited the following exchange between Plaintiffs' counsel and Dollar Stores' Senior Vice President of Store Operations about how the company reached its decision to classify all its store managers as exempt:

Q. Now, my question is, did you make that decision?
A. No, sir.
Q. Did your boss, Mr. Barkus, make that decision?
A. To my knowledge, it’s been in place -- it was in place when I came
here 29 years ago. So --
Q. Okay. So, do you know anybody that will own up to that decision;
say, “that was my decision”?
A. I do not.
Q. Mr. Levine, has he ever told you that’s his decision?
A. No, sir.
Q. Can you give us any clue? And the reason I’m asking you this, I
asked you this in the deposition and we’ve been asking a lot of people
in depositions: Who made this decision, do you know?
A. I do not.

Needless to say, an employer's explanation that "we have always done it this way" does not establish a legal defense.

For employment law practitioners within the Eleventh Circuit, the Morgan case is essential reading in understanding the executive exemption.  The opinion also contains a useful discussion on the use of representative testimony in an FLSA collective action trial.

Eleventh Circuit Adopts Last-Served Defendant Rule for Removal to Federal Court

Wilkie D. Ferguson Jr. U.S. Federal Courthouse in MiamiDefendants in employment-related cases typically prefer to litigate their disputes in federal court, if at all possible.  And for good reason:  federal judges are far more likely to dismiss cases on summary judgment than their state court brethren.

Generally defendants can remove cases from state to federal court if the complaint contains a federal claim, or if there is complete diversity of citizenship among the parties (i.e., none of the plaintiffs in a case can be from the same state as any of the defendants) and the amount in controversy exceeds $75,000, exclusive of interest and costs. 

Defendants who wish to remove a case to federal court ordinarily must do so within 30 days "after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based . . . ."   28 U.S.C. §1446(b). 

The Supreme Court held in Murphy Bros., Inc. v. Michetti Pipe Stringing, Inc., 526 U.S. 344, 347-48, 119 S. Ct. 1322, 1325 (1999), that the 30-day period in § 1446(b) “is triggered by simultaneous service of the summons and complaint, or receipt of the complaint, ‘through service or otherwise,’ after and apart from service of the summons, but not by mere receipt of the complaint unattended by any formal service.”

But in cases where there are multiple defendants, does each defendant have 30 days to remove the case, or does the 30-day period run from receipt of service by the first-served defendant only? 

That was an open question in the Eleventh Circuit (which covers Florida, Georgia and Alabama) until a recent decision, Bailey v. Janssen Pharmaceutica, Inc., Case No. 06-80702-CV-KLR (11th Cir., July 29, 2008).  In Bailey, the court adopted the "last-served defendant" rule, which means that each defendant has 30 days to remove the case. 

In reaching its decision, the court noted that although courts are divided on this issue, "the trend in recent case law favors the last-served defendant rule."  Moreover, the first-served defendant rule is "inequitable to later-served defendants who, through no fault of their own, might, by virtue of the first-served rule, lose their statutory right to seek removal."

Thanks to my partner Joe Klock for bringing the Bailey decision to my attention.  (I missed it when it was released in July.)  Although Bailey is not an employment-related case, all employment lawyers practicing in the Eleventh Circuit should be aware of its holding.