Alvarado v. Corporate Cleaning Servs., Inc.

• Decision Date: 01 April 2015
• Docket Number: No. 13–3818.,13–3818.
• Citation: 782 F.3d 365
• Parties: Ramon ALVARADO, et al., Plaintiffs–Appellants, v. CORPORATE CLEANING SERVICES, INC., et al., Defendants–Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

782 F.3d 365

Ramon ALVARADO, et al., Plaintiffs–Appellants

v.CORPORATE CLEANING SERVICES, INC., et al., Defendants–Appellees.

No. 13–3818.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 10, 2015.

Decided April 1, 2015.

Douglas M. Werman, Chicago, IL, for Plaintiff–Appellant.

Ira M. Levin, Burke, Warren, Mackay & Serritella, P.C., Chicago, IL, for Defendant–Appellee.

Dean A. Romhilt, Department of Labor, Washington, DC, for Amicus Curiae.

Before POSNER, MANION, and TINDER, Circuit Judges.

Opinion

POSNER, Circuit Judge.

The plaintiffs in this suit under the Fair Labor Standards Act, 29 U.S.C. §§ 201, et seq., are 24 window washers employed currently or formerly by Corporate Cleaning Services, the defendant (along with a couple of executives of the company, who need not be discussed separately). There is a procedural hurdle to our resolving the appeal, which is by the plaintiffs from an adverse judgment in the district court. But we defer consideration of it to the end of our opinion because understanding the hurdle requires acquaintance with some of the facts germane to the substantive issue presented by the appeal.

CCS, as the defendant is commonly referred to, is Chicago's largest provider of window-washing service to high-rise commercial and apartment buildings (average height 30 to 40 stories), along with some governmental and other noncommercial, nonresidential buildings, such as hospitals and museums; fewer than 1 percent of its customers are private homeowners. See generally Corporate Cleaning Services, www.corporatecleaning.com (visited March 30, 2015, as were the other websites cited in this opinion). The company employs about 100 window washers.

A provision of the Fair Labor Standards Act requires an employer engaged in interstate commerce (as CCS is conceded to be) to pay its hourly workers at least one and a half times their normal hourly wage for any hours they work in excess of 40 hours a week, 29 U.S.C. § 207(a)(1), which CCS has conceded it has not done for the plaintiffs in this case. But there is an exception, pertinent to this case, that requires satisfaction of three conditions: the worker's regular pay exceeds one and a half times the federal minimum wage (a condition conceded to be satisfied by the plaintiffs, so we'll discuss it no further); “more than half his compensation for a representative period (not less than one month) represents commissions on goods or services”; and he must be employed by “a retail or service establishment.” 29 U.S.C. § 207(i). So the issues presented by the appeal are whether CCS's window washers are paid mostly by commission and whether CCS is a retail or service establishment. The district court granted summary judgment in favor of CCS with regard to its status as a retail or service establishment and, after a three-day bench trial, ruled in favor of CCS on the commission requirement. And so the suit was dismissed, precipitating this appeal.

When CCS receives a window-washing order, it calculates the number of “points” to assign to the job based on the job's complexity and the estimated number of hours that the window washers will take to complete it; usually each worker assigned to the job gets the same share of the points allocated to it. CCS pays each window washer the number of points allocated to him multiplied by a rate, specific to each worker, that is specified in the company's collective bargaining agreement with the union that represents the employees, the Service Employees International Union (SEIU). CCS also uses the number of points assigned to a job to determine the price it charges to customers; naturally it uses a higher ratio of dollars per point for setting its price for customers than for compensating its employees, so that it can make a profit. And CCS regularly makes price adjustments, such as adding the costs of permits and equipment rentals, rounding the price to the nearest $25 increment, and reducing the price because of competition or a desire to maintain good relations with customers. These adjustments cause the percentage of the price attributable to window washers' compensation to vary from job to job.

The annual pay of those plaintiffs employed throughout 2007 (the year the suit was filed) ranged from approximately $40,000 to $60,000. Although the collective bargaining agreement contains a provision entitling the window washers to be paid by the hour and thus (as hourly workers) to receive overtime pay, apparently the union has never tried to enforce this provision, and—apparently content with the company's compensation system—has kept its hands off this litigation. Apart from the plaintiffs, the window washers employed by CCS appear to be content with the challenged compensation system as well. CCS distributed written notice to them that they were entitled to hourly and overtime payment, yet except for a six-month period (December 2007 to June 2008) they chose the points-based system of compensation instead.

The company doesn't call its compensation system a “commission” system, but instead a “piece-rate” (or, equivalently, “piecework”) system, which is not subject to the section 207(i) exemption. See 29 U.S.C. § 207(g). But the nomenclature is not determinative; the “word [‘commission’] need not be used for the exemption to be applicable.” Yi v. Sterling Collision Centers, Inc., 480 F.3d 505, 508 (7th Cir.2007). There are real differences between the two compensation systems (commission and piecework), and the reality, which overcomes the nomenclature, is that CCS's system is a commission system. In a piece-rate system a worker is paid by the item produced by him: so much per scarf, for example, if his job is to make scarves. In a commission system he is paid by the sale—so if he works for a shoe store he's paid a specified amount per pair of shoes that he sells. Thus the scarf worker is paid for making scarves even if they haven't been sold—that is, even if he's producing for inventory—while the shoe salesman is paid only when he makes a sale. In the present case, as in the shoe-store example, the window washers are paid only if there's been a sale, namely a sale of window-washing service to a building owner or manager.

The parties' briefs spill much ink over whether a commission system requires that the compensation bear an “identifiable and consistent correlation” to the price charged to customers or that the compensation just be “proportional and correlated” to the price. The plaintiffs urge the former, the defendant the latter, as the latter is a more accurate description of CCS's compensation system. Our decision in Yi , cited earlier, which involved auto repair, supports CCS's position. As in this case, the employer in Yi made adjustments to the price of its service for such things as differences in costs of materials used. The adjustments made the percentage of the price attributable to its auto mechanics' compensation vary from repair to repair. We held that this didn't invalidate the compensation system as a commission system. Yi v. Sterling Collision Centers, Inc., supra, 480 F.3d at 509–10. The Third Circuit agreed. Parker v. NutriSystem, Inc., 620 F.3d 274, 283 (3d Cir.2010) (“we decline to adopt a test that requires a commission, under § [20]7(i), to be strictly based on a percentage of the end cost to the consumer”). We are unaware of any contrary authority.

A more important consideration is that commission-compensated work involves irregular hours of work. See Yi v. Sterling Collision Centers, Inc., supra, 480 F.3d at 510 ; Mechmet v. Four Seasons Hotels, Ltd., 825 F.2d 1173, 1176–77 (7th Cir.1987) ; Gieg v. DDR, Inc., 407 F.3d 1038, 1045–46 (9th Cir.2005). An employee who is paid by the sale is not a commission worker if his sales are made at a uniform rate (e.g., one sale per hour), so that the ratio of his hours worked to his pay is constant. For in that case his pay is effectively hourly. That's why piece-rate workers are not within the commission exception: because they keep producing even when no sale is imminent, the relation between the hours they work and their output tends to be constant. But CCS's employees can work only when CCS is hired to wash a building's windows. Employment necessarily is irregular (rather than the standard eight-hour workday) because of the peculiar conditions of the window-washing business. Washing the outside of windows of tall buildings while standing on scaffolds or dangling from harnesses is dangerous work and CCS is justly proud of its excellent safety record. That record necessitates irregular work time by its employees. The largest source of danger to high-rise window washers is weather; window washers do not wash the outside of windows (and it is the outside that requires the most frequent washing) in high winds, rain, snow, sleet, or freezing temperatures. Another reason that work slackens off in the winter months is that managers of residential buildings often will not allow window washing before 9 a.m., in order to avoid disturbing the residents; a late start, coupled with the early darkness on winter days, shrinks the amount of time window washers can work. And obviously there is no production of window washing for inventory, which would allow CCS to smooth out these fluctuations in working hours. There is so little work during much of the winter than many of the workers take long vacations in Mexico. (Oddly, most of CCS's window washers come from a single small town in Mexico—Villa Garcia de la Cadena. See Vicki Cox, “Window Washer Scrubs Chicago Skyline,” American Profile, July 25, 2012, http://americanprofile.com/articles/chicago-window-washer—a colorful account of a Chicago window washer from that Mexican town.)

The window washers make up for this slack by often working more than eight hours a day during spring, summer, and fall, though even in those months there are times when they can't work eight hours a day, whether because of other work being done on the...