On Aug. 31, 2010, the U.S. Court of Appeals for the 11th Circuit, which oversees the federal courts of Florida, issued a decision that is likely to further increase the number of Fair Labor Standards Act (FLSA) suits filed. In Polycarpe v. E&S Landscaping Service, Inc., the Court considered which employees are covered by the FLSA.

Under the FLSA, individual employees are covered if they engage in commerce and the production of goods for commerce. This includes making telephone calls to persons in other states, handling records of interstate transactions, performing janitorial work in buildings where goods are produced for out-of-state shipment or typing letters to be sent out of state.  

If individual employees are not covered based on that description, they still may fall under the requirements of the act if their employer is a covered entity under the act’s enterprise coverage (at least two employees), which applies if the employer:

  1. has employees engaged in commerce or in the production of goods for commerce, or that has employees handling, selling or 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. The portion providing that employers with employees handling, selling or otherwise working on goods or materials was addressed by the 11th Circuit.

Under the FLSA, “goods” are defined as products, commodities, wares, merchandise or articles of commerce of any character, or any part or ingredient thereof. It does not include goods after delivery into the actual physical possession of the consumer other than a producer, manufacturer or processor. The exception for goods delivered to the actual consumer, known as the “ultimate consumer” exception, usually provides a good defense for small- and medium-size businesses, however, the 11th Circuit’s decision severely limits this defense.

Unlike goods, “materials” is not defined by the FLSA. The 11th Circuit determined that “materials” include tools or other articles necessary for doing or making something. To be a material, it must have a significant connection with the employer’s commercial activity. The example used by the 11th Circuit includes plates produced out of the state used by an in-state catering company. The 11th Circuit stated the plates would be materials.

What is problematic from the defense perspective is that the 11th Circuit determined the “ultimate consumer” exception that applies to goods does not apply to materials. In the example of the catering company, the plates are materials moved in interstate commerce, handled by the catering company’s employees and have a significant connection with the catering company’s commercial activities. Assuming the catering company has at least $500,000 of annual gross volume of sales, its employees are covered by the FLSA.

Ultimately, the 11th Circuit determined that a landscaping company’s use of mowers, edgers, trucks, pencils and gasoline produced out-of-state precluded summary judgment as these items may be goods or materials. Practically, the landscaping company can most likely demonstrate it is the ultimate consumer of these items so they would not qualify as goods, but that defense is not available for materials. It certainly seems the 11th Circuit’s definition of materials includes all these items and that at least the mowers, edgers, gasoline and trucks have a significant connection to the landscaping company’s business.

The 11th Circuit also determined that goods and materials do not lose their interstate quality simply because they have come to rest. For example, if the plates used in the catering example were shipped to a retail store in Florida then sold to the catering company, would they lose their interstate quality? In the past, courts have differed as to the answer to this question, but the 11th Circuit has stated the plates would not lose their interstate quality.

As it now stands, if an employer meets the $500,000 threshold, it will be very difficult to argue it is not covered by the FLSA. Essentially, the employer would have to prove its employees do not regularly handle, sell or work on materials in interstate commerce or that the materials do not have a significant connection to the client’s business.