Opinion
Civil No. 98-1563-HA
March 14, 2003
Alan D. Yoder, Bailey, Pinney and Associates, Tualatin, Oregon, for Plaintiff.
Christopher P. Koback, Davis Wright Tremaine, Portland, Oregon, Richard N. Van Cleave, Barran Liebman, L.L.P., Portland, Oregon, Robert V. Schnitz, Fisher Phillips, Newport Beach, California, for Defendants.
OPINION AND ORDER
This action is before this court following a remand from the Ninth Circuit. In its ruling, the Ninth Circuit determined that a "finance writer" employed by an auto dealership could not be construed as a vehicle salesman or serviceman for purposes of falling within the overtime exemption of 29 U.S.C. § 213(b)(10), thereby reversing this court's decision granting summary judgment to defendants on plaintiff's claim for overtime wages. See Gieg v. Howarth, 244 F.3d 775 (2001). The Ninth Circuit affirmed the judgment in all other respects. Id. at 777.
Following the remand, this court permitted defendant to renew an argument for summary judgment based upon the application of another exemption, one arising under 29 U.S.C. § 207(i). The exemption described by 29 U.S.C. § 207(i) was addressed by the parties on appeal before the Ninth Circuit, but in its remand the Court of Appeals provided no guidance regarding the possible applicability of the exemption in this case.
Defendant formally moved for summary judgment under the exemption, and plaintiff filed an opposition to defendant's motion for summary judgment, and also moved for additional time to conduct discovery and to file another, presumably more substantive, response. This motion for an extension was granted, and after further discovery plaintiff subsequently filed a cross motion for summary judgment.
These motions have been fully reviewed and considered. For the following reasons, defendant's motion for summary judgment is denied, and plaintiff's cross motion for summary judgment is granted.
PROCEDURAL BACKGROUND
Plaintiff is an ex-employee of the car dealership known as Courtesy Ford. Plaintiff sued to recover the following:
(1) overtime wages of $11,467.63;
(2) a minimum wage rate requiring additional payment of $303.85; and
(3) commissions in the amount of $1,293.88; plus statutory penalty wages of $5,041.80 under ORS 652.150.
Defendant was granted partial summary judgment against the overtime claim. Plaintiff moved for a bench trial for the remaining claims, which defendant did not oppose. At the conclusion of trial, judgment was entered in favor of defendant on all claims. Plaintiff appealed.
The Ninth Circuit affirmed all claims from the bench trial, but reversed the partial summary judgment granted to defendant on the overtime claim. As reviewed above, defendant subsequently filed a motion for summary judgment on the overtime claim based upon 29 U.S.C. § 207(i).
Plaintiff reopened discovery, asked for an extensive period in which to prepare a response, and ultimately filed a cross motion for summary judgment.
STANDARDS
The Fair Labor Standards Act (FLSA) applies to any employer engaged in commerce or in the production of goods for commerce who earns in excess of $500,000 in annual gross sales. 29 U.S.C. § 203(s)(1). There is no dispute that defendant qualifies as an employer governed by the FLSA. Congress enacted the FLSA to correct and eliminate "conditions detrimental to the maintenance of the minimum standard of living necessary for [the] health, efficiency, and general well-being of workers that would interfere and cause problems with commerce." 29 U.S.C. § 202. One such corrective measure is mandatory payment of overtime wages. If any employee works in excess of 40 hours during any workweek, the employer must compensate that employee at a rate one and one-half the times the regular rate the employee receives. 29 U.S.C. § 207.5.
An exemption to the overtime compensation requirements is provided under 29 U.S.C. § 207(i) and exempts an employer from paying overtime when the following occurs: the employee's regular rate of pay is in excess of 150% of the 1998 federal minimum wage; the employee works for a retail or service establishment; and more than 50% of the employee's compensation represents commissions on sales of goods or services.
The relevant portion of the statute provides:
No employer shall be deemed to have violated subsection (a) of this section by employing any employee of a retail or service establishment for a workweek in excess of the applicable workweek specified therein, if (1) the regular rate of pay of such employee is in excess of one and one-half times the minimum hourly rate applicable to him under section 206 of this title, and (2) more than half his compensation for a representative period (not less than one month) represents commissions on goods or services. In determining the proportion of compensation representing commissions, all earnings resulting from the application of a bona fide commission rate shall be deemed commissions on goods or services without regard to whether the computed commissions exceed the draw or guarantee. 29 U.S.C. § 207(i).
It is well settled that exemptions from the Fair Labor Standards Act must be narrowly construed. Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392 (1960); Mitchell v. Kentucky Fin. Co., 359 U.S. 290, 295 (1959) (financial entities not exempt). An employer who claims an exemption from the FLSA has the burden of showing that the exemption applies. Gieg, 244 F.3d at 776. Moreover, the employer seeking to establish an overtime exemption must present evidence that "plainly and unmistakably" brings the employer within the terms of the exemption.
Acme Car Truck Rentals, Inc. v. Hooper, 331 F.2d 442, 447 (5th Cir. 1964). Courts must also give due regard to the plain meaning of the statutory exemptions of the FLSA. Donovan v. Nekton, Inc., 703 F.2d 1148, 1151 (9th Cir. 1983).
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Summary judgment is not proper if material factual issues exist for trial. Warren v. City of Carlsbad, 58 F.3d 439, 441 (9th Cir. 1995).
The moving party has the burden of establishing the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the moving party shows the absence of a genuine issue of material fact, the nonmoving party must go beyond the pleadings and identify facts which show a genuine issue for trial. Id. at 324. Assuming that there has been sufficient time for discovery, summary judgment should be entered against a "party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Id. at 322.
Special rules of construction apply to evaluating summary judgment motions: 1) all reasonable doubts as to the existence of genuine issues of material fact should be resolved against the moving party; 2) all inferences to be drawn from the underlying facts must be viewed in the light most favorable to the nonmoving party; and 3) the court must assume the truth of direct evidence set forth by the nonmoving party if it conflicts with direct evidence produced by the moving party. T.W. Electrical Service v. Pacific Electrical Contractors, 809 F.2d 626, 630 (9th Cir. 1987). When different ultimate inferences can be reached, summary judgment is not appropriate. Sankovich v. Life Ins. Co. of North America, 638 F.2d 136, 140 (9th Cir. 1981).
ANALYSIS
The factual background of this litigation has been provided previously, and need only be reviewed briefly here. Plaintiff worked as a "Finance Writer" for defendants from June, 1998, until his termination on or around September 21, 1998. His duties included verifying pertinent information regarding sale deals being made by defendant's sales staff, inputting information into a computer, printing up the necessary bank and Department of Motor Vehicles (DMV) forms, and obtaining the buyer's signature on the paperwork. Plaintiff also offered extended warranties, credit insurance, alarm systems, and paint and fabric protection packages to the dealership's customers.
Plaintiff submitted applications from potential buyers seeking bank approval, negotiated with financial institutions, obtained new signatures if necessary, and organized the paperwork. Plaintiff's commissions were based upon plaintiff's sale of financial packages and insurance. For example, plaintiff received 15 percent of the "Finance Reserve," which was the difference between the interest rate defendants charged a buyer, and the interest rate defendants obtained from a bank, and also 15 percent of the profit from the sale of any "Mechanical Breakdown Insurance" plaintiff sold.
The question now presented in this case is whether plaintiff should receive judgment on his overtime claim pursuant to the Ninth Circuit's reversal and remand, or should defendant prevail on its argument that it is exempt from having to pay plaintiff overtime under 29 U.S.C. § 207(i)? As noted above, defendant bears the burden of establishing "plainly and unmistakably" that it is entitled to an exemption to FSLA requirements. The exemption defendant seeks to apply under 29 U.S.C. § 207(i) requires defendant to clearly show that plaintiff's regular rate of pay was in excess of 150% of the 1998 federal minimum wage; plaintiff worked for a retail or service establishment; and more than 50% of plaintiff's compensation represented commissions on sales of goods or services.
Plaintiff does not dispute that the rate-of-pay requirement is met in this case. He instead challenges whether defendant can plainly and unmistakably show that defendant qualifies as a retail or service establishment, and that more than 50% of plaintiff's compensation represented commissions on sales of goods or services.
Plaintiff first contends that defendant cannot be construed as a retail or service establishment subject to Section 207(i). The definition of "retail or service establishment" for purposes of the FLSA is found at 29 U.S.C. § 213(a)(2), which was repealed in 1989.
Subsequently, however, courts have recognized that Congress intended the term "retail or service establishment" to have the meaning given to it by Section 13(a)(2) when Section 207(i) was enacted in 1961. See, e.g., Reich v. Delcorp, Inc., 3 F.3d 1181, 1183 (8th Cir. 1993).
Section 13(a)(2) provided in relevant part:
(a) The provisions of . . . [section 207] shall not apply with respect to —
* * *
(2) any employee employed by any retail or service establishment . . . [if] such establishment has an annual dollar volume of sales which is less than $250,000 (exclusive of excise taxes at the retail level which are separately stated). A "retail or service establishment" shall mean an establishment 75 per centum of whose annual dollar volume of sales of goods and services (or of both) is not for resale and is recognized as retail sales or services in the particular industry.
Plaintiff contends that defendant is not a retail or service establishment subject to Section 207(i) because defendant's annual sales exceed $250,000. Defendant argues in opposition that nothing in 29 U.S.C. § 207(i) refers specifically to any requirement that employers wishing to invoke the exemption must have annual sales below $250,000, and that such a cap is immaterial to the applicability of the statute's overtime exemption.
A similar argument could be asserted that defendants are not a retail or service establishment subject to Section 7(i) because less than 75 percent of defendants' annual sales are retail.
This court has examined the authorities and arguments from the parties regarding this dispute, and rejects plaintiff's assertion that to qualify for the exemption under 29 U.S.C. § 701(i) an employer must have less than $250,000 in annual sales. That cap was intended to narrow the application of the Section 213(a)(2) retail exemption to small businesses.
Accordingly, plaintiff's attempt to preclude applicability of the exemption on grounds that defendants exceed an annual sales "cap" fails. However, a possible challenge to defendant's claimed status as a retail or service establishment remains under the current interpretation of the exemption, since it could be asserted that less than 75 percent of defendant's annual sales are retail. Because the inapplicability of the exemption is established on other grounds, as discussed below, this court does not further address or resolve this issue, beyond reiterating that the burden to show plainly and unmistakably that all of the requirements for an exemption under the FSLA rests with the employer.
The final requirement for invoking this exemption is that defendant must plainly and unmistakably show that the majority of plaintiff's commission earnings was derived from the sale of "goods and services" within the meaning of 29 U.S.C. § 207(i). The parties dispute how to define the scope of the phrase "goods and services." After scrutinizing the parties' arguments and authorities, this court concludes that invoking the Section 207(i) exemption requires a clear showing that more than half of an employee's compensation represents commissions on retail goods and services, and not all goods and services as long as they are sold by a retail or services establishment, as argued by defendant. This conclusion rests upon the consideration that the exemption itself applies only to employees earning commissions in a "retail or service establishment," and that courts must construe the applicability of the FSLA broadly — and the exemptions to the FSLA narrowly — in recognition of the remedial nature and spirit of the statute.
See, e.g., Biggs v. Wilson, 1 F.3d 1537, 1539 (9th Cir. 1993) (courts are "mindful of the directive that the [FLSA] is to be liberally construed to apply to the furthest reaches consistent with Congressional direction").
This conclusion is also in accord with the Supreme Court's ruling that financial companies were not within the scope of the Section 13(a)(2) "retail or service establishment" exemption from overtime requirements, see Mitchell v. Kentucky Fin. Co., 359 U.S. 290 (1959), as well as the Ninth Circuit's reasoning in deciding plaintiff's appeal in this matter. See Gieg, 244 F.3d at 776-77 (finance writer employed by an auto dealership did not qualify as a retail salesperson within the meaning of a different overtime exemption). The conclusion is also consistent with a well-reasoned Findings and Recommendation issued recently by Magistrate Judge Hubel. See Bennett v. SLT/TAG Inc., et al., CV 02-65-HU, Findings and Recommendation filed February 10, 2003, at pp. 11-15 (commissions earned by a Finance and Insurance Manager employed by an automobile dealership to sell financing, service contracts, maintenance contracts, life insurance, disability insurance, and some fabric and undercoating protections were earnings that fell outside of the scope of the retail or service establishment exemption).
The Magistrate Judge recognized, as this court does, that the Secretary of Labor determined that the Section 207(i) exemption applies only if the employee "is employed by his employer in the work of the exempt establishment itself in activities within the scope of its exempt business." 29 C.F.R. § 779.308. As noted above, the Supreme Court has held that finance companies, insurance brokerages and claims adjusters all lack a retail "concept." See Mitchell v. Kentucky Fin. Co., 359 U.S. 290 (1959). Accordingly, this court concludes that finance writers for automobile dealerships do not earn commissions on the sales of goods or services, as that phrase is fairly interpreted when evaluating the applicability of the exemption found under 29 U.S.C. § 207(i). Since the duties of such employees fall outside the scope of the employers' retail or service business, those employees therefore also fall outside of any FSLA exemption that is based upon the employers being a retail or service establishment.
Most of plaintiff's earnings were derived from commissions that were based upon a percentage of the value of the finance, insurance and service products he sold as part of the dealership's overall sale of vehicles. His commission earnings therefore fell outside the scope of the defendant's retail or service establishment exemption. While defendant might invoke the Section 207(i) exemption for other employees who earn commissions from retail sales, that possibility fails to affect the inapplicability of the exemption to this plaintiff. See Davis v. Goodman Lumber Co., 133 F.2d 52, 54 (4th Cir. 1943) (an exemption to the FLSA may apply to one department of an employer's predominantly retail business while remaining inapplicable to another department of that same employer).
Because of this, and because construing the Section 207(i) exemption in a manner making it applicable to plaintiff would improperly broaden the exemption's scope beyond that plainly contemplated by the remedial nature of the FLSA, defendant fails to meet the burden of proving that the application of the exemption in this case is plainly and unmistakably within the terms and spirit of the FLSA. Accordingly, plaintiff is entitled to summary judgment, and defendant's motion for summary judgment is denied.
CONCLUSION
Regardless of the possible ambiguity surrounding whether defendant qualifies as a retail or service establishment, there is no doubt defendant fails to plainly and unmistakably show entitlement to the exemption it seeks to invoke because the majority of plaintiff's commission earnings was not derived from the sale of "goods and services" within the meaning of 29 U.S.C. § 207(i). Plaintiff's motion for summary judgment (doc. #167) regarding his claim for overtime wages is granted. Defendant's motion for summary judgment (doc. #131) is denied. Defendant's motion to strike plaintiff's reply brief or for leave to submit additional argument (doc. #174) is denied as moot, as this court did not refer to the reply brief in rendering this ruling.
Counsel for plaintiff shall file a memorandum, with supporting affidavits and declarations as necessary, establishing the amount of overtime wages he is owed. This brief must be filed no later than on or before March 7, 2003. Defendant shall file a responsive brief on or before March 14, 2003. Oral argument on the matter is set in open court for Friday, March 21, 2003, at 10 a.m. The parties are instructed to advise the court if they wish to resolve these matters through mediation or other alternative dispute means.
IT IS SO ORDERED.