Rejecting employer Timberline South’s argument, among others, that FLSA coverage did not apply because all of its timber harvesting occurred only within one state, the Sixth Circuit Court of Appeals nevertheless concluded that the commuting and meal break times should not have been included in the trial court’s calculation of overtime damages. Secretary of Labor v. Timberline South, LLC, 920 F.3d 1065 (6th Cir. 2019). The Sixth Circuit includes the federal courts in Michigan, Ohio, Kentucky and Tennessee.

In Timberline, the U.S. Department of Labor (DOL) brought a collective action against the company, alleging violations of the overtime and recordkeeping provisions of the FLSA. Following discovery, the district court granted summary judgment in favor of the DOL, awarding nearly $440,000 in unpaid overtime and an equal amount in liquidated damages. Timberline appealed the district court’s decision on several grounds.

First, the company argued that it was not subject to FLSA coverage because it harvests timber only in Michigan; it transports the timber to mills located only in Michigan; its contracts included cutting timber only in Michigan; and its heavy equipment was purchased from Michigan dealers. Therefore, asserted the company, it was not engaged in interstate commerce, a prerequisite to FLSA coverage. Rejecting that argument, the Sixth Circuit noted that Timberline’s large trucks and other heavy equipment were manufactured outside of Michigan, and therefore the company’s employees “handled” goods or materials produced in commerce. Similarly, in an issue of first impression in the Sixth Circuit, the Court of Appeals concurred with the Eleventh Circuit’s broad definition of the term “materials” under the FLSA, to mean not just raw components such as plastic or metal, but to encompass “the tools or other articles necessary for doing or making something.” Thus, because Timberline was using materials – i.e. its heavy equipment – in a manner significant to its operations (as opposed to the incidental use of materials such as pens, paper and other office consumables), the company was subject to FLSA coverage.

Next, the company contended that even if some of its employees were subject to the FLSA, others – its drivers – were exempt because they fell under the Motor Carrier Act (MCA), given that Timberline’s trucks are operated under U.S. Department of Transportation (DOT) registration numbers, its drivers maintain commercial driver’s licenses, and Timberline was involved in “a practical continuity of movement” in interstate commerce because its timber “is an ingredient in the goods manufactured by the mills to which it is delivered.” Rejecting these arguments, the Sixth Circuit noted that the company had presented no evidence that their timber was eventually shipped in interstate commerce. Moreover, the fact that the timber would have been altered (e.g. converted into paper products) before crossing state lines weighed against an MCA exemption. In addition, the Sixth Circuit previously had ruled that the mere maintenance of a commercial drivers’ license and/or registering vehicles with the DOT was an insufficient basis for applying the exemption.

Interestingly, in so holding the Sixth Circuit erred in stating that the FLSA’s overtime exemptions “are narrowly construed against the employer,” as this standard unequivocally was rejected, in favor of a “fair reading” of the Act’s exemptions, by the U.S. Supreme Court last year in Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117 (2018). More recently, the Sixth Circuit acknowledged the current “fair reading” standard in Holt v. City of Battle Creek, 2019 U.S App. LEXIS 16561 (6th Cir. June 3, 2019), concluding that this standard was to be applied broadly to FLSA exemptions and was not limited to the particular exemption at issue in Encino Motorcars.

Despite affirming the district court’s finding of overtime liability, the Sixth Circuit agreed with the company that the time employees spent commuting from home to work or for meal periods should not have been included in the damages calculation. Citing the regulations and cases interpreting the Portal to Portal Act, 29 U.S.C. § 254, the Court of Appeals held that an employer cannot be found liable to pay overtime based on regular commute time and other “non-work” time such as meal breaks, even if the employer has a custom or practice to pay for such otherwise non-compensable time. Accordingly, the case was sent back to the trial court for a recalculation of damages.

Finally, the company asserted that liquidated damages were inappropriate because the company’s director had reasonably and in good faith relied on advice from the predecessor company’s accountant – that logging companies are exempt from the FLSA’s overtime provisions – and because the company’s pay structure, which resulted in higher-than-average compensation for its employees, made an award of liquidated damages “particularly unjust.” Rejecting these arguments, the Sixth Circuit noted that the director never sought any advice or conducted any research to support his conclusion that the MCA exemption applied, despite knowing that his drivers never crossed state lines, and never discussed the duties of any particular employee with the accountant such that the accountant (who admittedly was not an FLSA expert) could have provided advice as to the applicability of any exemption. Moreover, held the Court of Appeals, the company’s compensation of its employees might be relevant to the amount of liquidated damages, but that comes into play only if the employer has established the “good faith” and “reasonable grounds” elements for determining that its employees were exempt from overtime. As Timberline had failed to satisfy these elements, the level of its employees’ pay was irrelevant.