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English v. Ecolab

March 28, 2008

JIMMY ENGLISH AND WILLIAM ZIMMERLEE, INDIVIDUALLY AND ON BEHALF OF OTHERS SIMILARLY SITUATED, PLAINTIFFS,
v.
ECOLAB, INC., DEFENDANT.



The opinion of the court was delivered by: Honorable Paul A. Crotty, United States District Judge

OPINION AND ORDER

Plaintiff Jimmy English, individually and on behalf of others similarly situated, brings the instant action against Defendants Ecolab, Inc., pursuant to the Fair Labor Standards Act ("FLSA"), 29 U.S.C. §§ 201 et seq. Plaintiff alleges that, during the course of his employment, he was denied premium pay for overtime work. The FLSA requires that all hours worked in excess of forty hours per week be compensated at one and one-half times the minimum wage, 29 U.S.C. § 207(a)(1); but this requirement does not apply to workers in retail stores or other service establishments who (1) are paid a wage that exceeds one and a half times the minimum wage and (2) receive more than half their compensation in the form of "commissions on goods or services" (the "§ 7(i) exemption"). 29 U.S.C. § 207(i). The issue in this action, which arises on the parties' cross-motions for summary judgment, is whether commission-compensated local service technicians in a nationwide network of exterminators work for a "retail or service establishment" within the meaning of the statute. For the reasons that follow, Defendant's motion for summary judgment is GRANTED, and Plaintiffs' motion is DENIED.

BACKGROUND

The facts are largely undisputed. Plaintiffs*fn1 were among approximately 1,900 employees in the Pest Elimination Division of Defendant Ecolab, the largest provider of premium commercial pest elimination services in the United States. Ecolab does business by developing extended service agreements with commercial entities, most importantly multi-unit businesses such as fast-food franchises or hotel chains. It contracts to provide service at regular intervals (usually monthly) for a specified period of time (usually a year or longer). The sales department then instructs the service specialist assigned to the customer's region to fulfill Ecolab's duties under the contract by providing on-site service.

Both potential and existing customers contact Ecolab via a toll free number that rings at the Ecolab customer service center in North Dakota. These calls are then routed to the local service specialists responsible for the customers' pest elimination needs. Once the assignments are allocated, individual specialists have flexibility to schedule their service calls. They may schedule all of their customer obligations in a single week or space them out over the course of a given month. The service specialists earn a base salary plus commissions based on a sliding scale percentage of revenues generated in excess of certain benchmarks*fn2 and/or through the specialists' participation in certain special programs initiated by Ecolab corporate. These variables result in a relatively wide disparity of earnings among specialists.*fn3 Service specialists do not receive overtime wages for hours worked in excess of forty hours per week.

Plaintiffs, as local service specialists, traveled from location to location providing pest elimination services to their customers. They did not leave from or return to a local Ecolab service center or any other office or workspace owned or leased by Ecolab. Instead, Ecolab requires its employees to maintain a personal workspace to attend to administrative matters, such as reporting activities to the corporate office or planning itineraries of upcoming service visits. The individual Plaintiffs, like many service specialists, reserved space in their homes (the "home office").

PROCEDURAL HISTORY

Plaintiff Jimmy English seeks the Court's approval to circulate notice of this lawsuit to similarly situated pest elimination service specialists employed by Ecolab. His proposed notice alerts potential members of their ability to opt in to the present suit, which would proceed as a collective action pursuant to 29 U.S.C. § 216(b). While the Court has not yet ruled on English's motion for notice, eleven service specialists have filed opt-in notices.*fn4

Three motions are currently pending: (1) Defendant's motion for summary judgment regarding the § 7(i) exemption; (2) Plaintiffs' partial motion for summary judgment regarding the § 7(i) exemption and the Motor Carrier Act exemption*fn5 ; and (3) Plaintiffs' motion for conditional certification of a collective action and circulation of notice. The Court turns first to the § 7(i) exemption because its resolution obviates discussion of the remaining motions.

DISCUSSION

I. The § 7(i) Exemption

The § 7(i) exemption has three requirements; the employee: (1) must earn at least one and one-half times the federal minimum wage; (2) must earn more than half of his salary in commissions for a representative period not less than one month; and (3) must work for a retail or service establishment. See 29 U.S.C. § 207(i); 29 C.F.R. §§ 779.410 et seq.; Schwind v. EW & Assocs., Inc., 371 F. Supp. 2d 560, 563 (S.D.N.Y. 2005). There is no dispute that the first two requirements are satisfied. (See Plaintiffs' Memorandum of Law in Opposition to Defendant's Motion for Summary Judgment ("Pls.' Opp'n") at 10 & n.7.) The Court turns to the remaining question: is the work at issue performed for or at a "retail or service establishment" as required for exemption?

A. The Relation of § 7(i) to the § 13(a)(2) Exemption in the Context of a "Retail or Service Establishment

The statutory provision that contains the § 7(i) exemption does not define the term "retail or service establishment." See 29 U.S.C. § 207(i). Instead, the Court must apply the definition contained in a now-repealed FLSA provision, § 13(a)(2), the former "retail or service establishment" exemption (the "§ 13(a)(2) exemption"). 29 U.S.C. § 213(a)(2) (repealed by Pub. L. No. 101-157 (1989)); see 29 C.F.R. § 779.411 (explaining that, for purposes of the § 7(i) exemption, a "retail or service establishment" is as defined in § 13(a)(2) of the FLSA); Schwind, 371 F. Supp. 2d at 564 n.4; Reich v. Delcorp, Inc., 3 F.3d 1181, 1183 (8th Cir. 1993). Section 13(a)(2) specifically defined a "retail or service establishment" as "an establishment 75 per centum of whose annual dollar volume of sales of goods or services (or of both) is not for resale and is recognized as retail sales or services in the particular industry." 29 U.S.C. § 213(a)(2) (repealed).*fn6 Although courts interpreting the current § 7(i) exemption rely on language in the former § 13(a)(2) exemption, the two provisions were designed to address fundamentally different wage and hour concerns.

The § 13(a)(2) exemption was a part of the original FLSA, enacted in 1938, see Fair Labor Standards Act of 1938, ch. 676, § 1, 52 Stat. 1060 (1938) (current version at 29 U.S.C. §§ 201 et seq.), and was intended to exclude "'business . . . of a purely local nature.'" A.H. Phillips, Inc. v. Walling, 324 U.S. 490, 497 (1945) (citing S. Rep. No. 75-884, at 5 (1938)). It exempted "those regularly engaged in local retailing activities and those employed by small local retail establishments, epitomized by the corner grocery, the drug store and the department store." Id. Congress "felt that retail concerns of this nature do not sufficiently influence the stream of interstate commerce to warrant imposing the wage and hour requirements on them." Id. Based on this concern, Congress made an employer's entitlement to the § 13(a)(2) exemption contingent on the size of the establishment and the types of transactions in which it engaged.

The § 7(i) exemption was added in 1961. See Pub. L. No. 87-30 § 6(g), 75 Stat. 65 (1961).*fn7 That year, Congress made a significant change to the FLSA. Prior to 1961, FLSA coverage was, at its base, contingent on the nature of the employment of an individual employee, not necessarily the overall nature of the business for which she worked. See 29 U.S.C. §§ 206(a), 207(a)(1). In certain situations, one employee might be covered while another employee working for the same employer might not. See 29 C.F.R. § 776.2(a). In 1961, Congress changed this by enacting "enterprise coverage," whereby any employee working for an "enterprise" meeting certain requirements was covered by the FLSA, even if that individual would not have been otherwise covered. See 29 U.S.C. §§ 203(r), (s)(1), 206(b); see also Maryland v. Wirtz, 392 U.S. 183, 186 (1968) (explaining the change in coverage effected by the 1961 amendment). An enterprise was defined as "the related activities performed (either through unified operation or common control) by any person or persons for a common business purpose, and includes all such activities whether performed in one or more establishments."*fn8 29 U.S.C. § 203(s)(1).

Under the newly-enacted "enterprise coverage" in 1961, enterprises with a gross volume of sales over one million dollars (since reduced to $500,000) were subject to the FLSA wage and hour requirements. See Pub. L. No. 87-30, § 2(b); Zorich v. Long Beach Fire Dept. & Ambulance Serv., Inc., 118 F.3d 682, 685 (9th Cir. 1997). This expanded coverage, however, negatively affected smaller "retail or service establishments" that were part of a larger "enterprise." For example, a company with six retail locations, each with revenues of $200,000, would be subject to coverage under the FLSA because the aggregate volume of sales was over one million dollars, even though each retail establishment standing alone would not be covered. To counteract this, § 13(a)(2) was modified to exempt "establishments" that were part of a covered "enterprise," but only those with sales of less $250,000. See Pub. L. No. 87-30, § 9(a)(2)(iv). This stipulation "insure[d] that the original intent of the sponsors of the act to exclude the small local retail merchants such as the corner grocer, neighborhood drugstore, barbershop or beauty parlor [was] carried out." S. Rep. No. 87-145, at 27 (1961).

The expansion of FLSA coverage to all employees of large enterprises posed a problem to newly-qualifying employers of commissioned employees. See Hearings before the Special Subcommittee on Labor of the Committee on Education and Labor on H.R. 3935, 87th Cong. 16 (1961) (statement of Arthur Goldberg, Secretary of Labor) (noting the failure of the original bill drafters to consider the problem faced by employers who have commission-compensated employees). Specifically, commissioned employees are subject to the whims and vagaries of the consuming public, especially for big ticket items.*fn9 One Circuit Court recently explained:

The essence of a commission is that it bases compensation on sales, for example a percentage of the sales price, as when a real estate broker receives as his compensation a percentage of the price at which the property he brokers is sold. Although his income is likely to be influenced by the number of hours a week that he works, the relation is unlikely to be a regular one. In one week business may be slow; he may make no sales and thus have no income for that week. The next week business may pick up and by working overtime that week he may be able to make up the income he lost because of slack business the previous week. Over a year his hours of work may be similar to those of regular hourly employees. So if he had to be paid overtime, his annual income would be higher than theirs even though he hadn't worked more hours over the course of the year than they had. We take this to be the rationale for the commission exemption from the FLSA's overtime provision.

Yi v. Sterling Collision Ctrs., Inc., 480 F.3d 505, 508 (7th Cir. 2007); see also Mechmet v. Four Seasons Hotels, Ltd., 825 F.2d 1173, 1177-78 (7th Cir. 1987) (explaining that well-compensated commissioned employees are "not the marginal, non-unionized workers for whom the overtime provisions were designed"). The § 7(i) exemption addresses these problems by excluding from coverage those employees of larger establishments whose compensation consisted of at least fifty percent commissions and who were paid at least one and one-half times the minimum wage. See Pub. L. No. 87-30, § 6(g); H.R. Rep. No. 87-75, at 11 (1961) ("The bill adds a new section 7(h) [now 7(i)] to the act which would relieve retail or service establishments from paying overtime compensation to commission employees under certain conditions."). Note, however, that although the exemption was crafted to meet the concerns of large businesses, its application does not turn on the size of the employer. Instead, it focuses on the method of payment for those engaged in retail sales.

Although courts addressing the § 7(i) exemption rely on the § 13(a)(2) definition, the exemptions were intended to focus on different types of employees and establishments. Specifically, the § 7(i) exemption depends primarily on how an employee is paid-employees must receive 50% of their compensation in commissions and earn at least 1.5 times the minimum wage. See Gieg v. DDR, Inc., 407 F.3d 1038, 1046 (9th Cir. 2005) ("The policy justification for the exemption thus appears to have more to do with the employee's compensation than with the exact nature of the goods or services sold."). The manner in which employees were paid was simply irrelevant to § 13(a)(2). Additionally, while the § 13(a)(2) exemption applied only to smaller establishments (with gross revenues under $250,000), the § 7(i) exemption contains no such limitation, and was intended to apply both to large establishments and large enterprises comprised of numerous establishments. See, e.g., Yi v. Sterling Collision Ctrs., Inc., No. 04 C 3138, 2006 WL 1444897, at *1 (N.D. Ill. May 17, 2006), aff'd, 480 F.3d 505 (applying the ยง 7(i) exemption to a chain of auto body repair shops that employed over 800 individuals "nationwide," and was a wholly-owned subsidiary of Allstate). These distinctions between the two ...


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