Employment Law Daily Michigan-only logging operation was still FLSA-covered enterprise; no MCA exemption either
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Tuesday, April 9, 2019

Michigan-only logging operation was still FLSA-covered enterprise; no MCA exemption either

By Ronald Miller, J.D.

Logging and harvesting equipment used exclusively within Michigan constituted “materials” under the FLSA’s “handling” clause because such equipment was necessary to cut down trees and transport timber, which had a significant connection to an employer’s commercial activity, so the employer was not an ultimate consumer.

Although a logging company operated solely within the bounds of Michigan, it was nevertheless an enterprise engaged in commerce subject to the overtime and recordkeeping provisions of the FLSA, ruled the Sixth Circuit. Here, the district court correctly found that the employer was a covered enterprise under the FLSA’s handling clause because the coverage was premised on its employees’ regular and recurrent use of logging and harvesting equipment that was used to carry out the employer’s commercial activity of harvesting timber. Moreover, because there was no evidence that the employer’s truck drivers crossed state lines or transported goods as a practical continuity of movement in interstate commerce, the district court correctly found they were not exempt under the Motor Carrier Act (MCA) exemption (Secretary of Labor v. Timberline South, LLC, April 5, 2019, White, H.).

Logging operations. The employer is a timber harvesting company that operates solely in Michigan. Specifically, the employer removes raw timber from forests, cuts the timber and transports it to mills for processing into paper and other products. Further, the employer entered into contracts for cutting timber in Michigan. It employs six to eight truck drivers who load the timber at the landing site and transport it to the mills, as well as mechanics and an office manager. Although purchased and used only in Michigan, the employer’s trucks and heavy equipment were manufactured outside of Michigan.

The employer’s managing director established compensation and recordkeeping practices. The employer paid its employees using a daily rate, an hourly rate, or a cord rate. It recorded hours worked for hourly employees but did not do so for most non-hourly employees, and did not pay its employees an overtime rate for hours worked over 40 in a week.

Exemptions. The employer was founded after a previous company went out of business. According to the director, he had been advised by his accountant that the company was exempt from FLSA coverage under the agricultural exemption. But he did not consult with an attorney.

The Secretary of Labor prevailed in an action against the employer and its director, alleging violations of the overtime and recordkeeping provisions of the FLSA and seeking an injunction, back wages, and liquidated damages. The employer appealed, arguing that the district court erred in finding liability and awarding unpaid overtime and liquidated damages. The defendants took the position that the MCA exemption precluded some of its employees from FLSA coverage.

Enterprise coverage. At issue in this appeal was whether the employer was “an enterprise engaged in commerce or in the production of goods for commerce,” as defined by the FLSA. Here, the parties disagreed about whether the employer “has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person.” The district court reasoned that the employer was a covered enterprise under the FLSA because its employees’ use of logging and harvesting equipment manufactured outside of Michigan constituted “handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person,” within the meaning of §203(s)(1)(A)(i).

For its part, the employer argued that it was not a covered enterprise because the only thing that its employees “handle” was timber which never crossed state lines; and even if they “handled” the logging and harvesting equipment, that equipment did not qualify as “materials,” but rather qualified as “goods,” and the employer was the ultimate consumer of those goods such that the FLSA did not apply.

Handling clause. The Sixth Circuit concluded that the plain language of the statute contradicted the employer’s arguments. The only good or material that it handles, sells, or otherwise works with is the timber itself, because its employees did not place the logging and harvesting equipment in commerce themselves. The statute makes clear that it applies when any person has moved or produced the handled goods or materials in commerce. Because the logging and harvesting equipment had previously been moved in and produced for commerce by others prior to being handled by the employer’s employees, this part of the statute was satisfied.

Goods or materials. Less clear was whether the logging and harvesting equipment constituted “goods” or “materials” and whether the employer was the ultimate consumer of the equipment (such that if they did qualify as goods and not materials, the ultimate consumer exception would exclude the employer from coverage). The Sixth Circuit found the Eleventh Circuit’s reasoning in Polycarpe v E & S Landscaping Serv, Inc. persuasive because it gives effect to “materials” without totally overlapping with the statutory definition of “goods” and thus displacing the ultimate consumer exception.

Applying the definition of “materials” from Polycarpe, the appeals court found the logging and harvesting equipment used by the employees in this case plainly constituted “materials” because it was necessary to cut down trees and transport the timber, which had a significant connection to the employer’s commercial activities. Here, the coverage was not premised on employees’ incidental use of office items, but was premised on employees’ regular and recurrent use of logging and harvesting equipment that was used to carry out the employer’s commercial activity of harvesting timber. Accordingly, the district court correctly found that the employer was a covered enterprise under the FLSA’s handling clause.

MCA exemption. Next, the appeals court considered the employer’s challenge to the district court’s determination that the MCA exemption did not apply to its truck drivers and their helpers. The dispositive inquiry was not whether the employees held commercial driver’s licenses or whether the employer’s trucks had DOT registration numbers; rather, the dispositive inquiry was whether the drivers transported goods in interstate commerce, thus rendering the employer a private motor carrier. Because there was no evidence the drivers crossed state lines or transported goods as a practical continuity of movement in interstate commerce, the district court correctly found that they were not exempt from the FLSA’s overtime requirements under the MCA exemption.

Damages. The appeals court held that the district court correctly granted summary judgment as to liability, including on the issue of liquidated damages. Moreover, the district court correctly held that it had no discretion to award liquidated damages in an amount less than the amount of unpaid overtime compensation. However, because the amount of unpaid overtime owed may change after further proceedings, the amount awarded for liquidated damages was vacated.

Part of the damages award included time employees spent commuting from home to work or for meal periods, which the district court included in the overtime calculation after finding that the employer had an established custom or practice of compensating its employees for such time. However, the district court erred in finding that ordinary commute time and bona fide meal periods qualified as compensable hours subject to the FLSA’s overtime requirements. Accordingly, the appeals court vacated the award of damages and remanded for further proceedings.

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