Hodgson v. The Klages Coal and Ice Company, 20241.

• Decision Date: 10 December 1970
• Docket Number: No. 20241.,20241.
• Citation: 435 F.2d 377
• Parties: James D. HODGSON, Secretary of Labor, United States Department of Labor, Plaintiff-Appellant, v. THE KLAGES COAL AND ICE COMPANY, d/b/a Royal Crown Bottling Company, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

435 F.2d 377 (1970)

James D. HODGSON, Secretary of Labor, United States Department of Labor, Plaintiff-Appellant, v. THE KLAGES COAL AND ICE COMPANY, d/b/a Royal Crown Bottling Company, Defendant-Appellee.

No. 20241.

United States Court of Appeals, Sixth Circuit.

December 10, 1970.

Donald S. Shire, Department of Labor, Washington, D. C., Laurence H. Silberman, Solicitor of Labor, Bessie Margolin, Associate Solicitor, Carin Ann Clauss, Helen W. Judd, Attys., U. S. Department of Labor, Washington, D. C., Aaron A. Caghan, Regional Atty., on the brief, for appellant.

James C. Herndon, Akron, Ohio, for appellee.

Hill, Farrer & Burrill, Carl M. Gould, Stanley E. Tobin, Kyle D. Brown, Los Angeles, Cal., on brief for American Research et al., amici curiae.

Before WEICK, McCREE, and MILLER, Circuit Judges.

WILLIAM E. MILLER, Circuit Judge.

Appellant, the Secretary of Labor, brought this action pursuant to Section 17 of the Fair Labor Standards Act, 29 U.S.C. §§ 201, 217 to enjoin appellee from violating the overtime requirements of the Act and to restrain continued withholding of unpaid overtime compensation to twenty-eight of its present and former employees. Appellee contended at trial that the employees in question came within the exception to the overtime requirement contained in Section 13(a) (1) of the Act, 29 U.S.C. § 213(a) (1) for "outside salesmen." After a full hearing, the District Court held that the employees were "outside salesmen" within the meaning of 29 U. S.C. § 213(a) (1) and the regulations issued pursuant thereto, 29 C.F.R. § 541.500 et seq. and dismissed the appellant's action. The question on appeal is whether there is sufficient evidence to support the finding of the District Court.

Appellee is a franchised bottler and distributor of products of the Royal Crown Bottling Company serving a four-county area in Ohio with its principal place of business in Akron, Ohio. The products marketed by appellee include Royal Crown Cola, Diet-Rite, Lemon-Lime, and Nehi flavors, all in both bottles and cans. During the years pertinent hereto,¹ appellee's customers in creased from about 1300 customers to a present total of 1375. About five per cent of appellee's total dollar volume consists of sales made directly to another bottler and to several wholesale vendors. Approximately ninety-five per cent of appellee's annual dollar volume consists of sales made to chain store retail outlets, independent retail outlets, and vending machine locations. Of these sales, approximately 60 per cent of total dollar volume is attributable to chain store retail outlets. The servicing of the chain and retail outlets, as well as the vending machine locations, is the function of appellee's routemen or drivers.²

Appellant has maintained throughout that the routemen are ordinary drivers or deliverymen entitled to be paid time and one-half their regular rate for hours worked per week in excess of forty. Appellee successfully maintained below that these routemen were engaged in sales as "outside salesmen" and thus exempt from the overtime requirement of the Act.

The exemption sought by appellee is found in 29 U.S.C. § 213(a) (1), which provides:

Sec. 13. (a) The provisions of sections 6 and 7 shall not apply with respect to — (1) any employee employed in a bona fide executive, administrative, or professional capacity * * * or in the capacity of outside salesman (as such terms are defined and delimited from time to time by regulations of the Secretary, subject to the provisions of the Administrative Procedure Act * * *).

The most current regulations issued by the Secretary to define and delimit those employees who are entitled to be exempt under this section of the Act are found in 29 C.F.R. § 541.500 et seq. Section 541.500 of the regulations provides:

Sec. 541.500 Definition of "Outside Salesman". — Section 541.5 defines the term "outside salesman" as follows:

The term "employee employed * * * in the capacity of outside salesman" in Section 13(a) (1) of the act shall mean any employee:

(a) Who is employed for the purpose of and who is customarily and regularly engaged away from his employer\'s place or places of business in:

(1) making sales within the meaning of section 3(k) of the act, or

(2) obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and

(b) whose hours of work of a nature other than that described in paragraph (a) (1) or (a) (2) of this section do not exceed 20 percent of the hours worked in the workweek by nonexempt employees of the employer: Provided, That work performed incidental to and in conjunction with the employee\'s own outside sales or solicitations, including incidental deliveries and collections, shall not be regarded as non-exempt work.

In addition, subsection 541.505 deals in detail with the problem presented by this case, namely that of drivers who, in servicing their routes, perform both delivery and sales functions. Pertinent parts of this section of the regulations will be set forth below. At this point the section pertaining to the 20 per cent limitation on non-exempt work should be noted:

Nonexempt work in the definition of "outside salesman" is limited to "20 per cent of the hours worked in the work-week by nonexempt employees of the employer." The 20 per cent is computed on the basis of hours worked by nonexempt employees of the employer who perform the kind of nonexempt work performed by the outside salesman. If there are no employees of the employer performing such nonexempt work, the base to be taken is 40 hours a week, and the amount of non-exempt work allowed will be 8 hours a week. 29 C.F.R. § 541.507.

It is conceded by both parties that under this section eight hours per week per man is the proper figure for nonexempt work.

Because the controversy is concerned so directly with the nature of the routemen's work, it is appropriate at this point to describe briefly the appellee's distribution operation and the activities of the routemen. The discussion will center on the servicing of the retail chain store outlets because this part of the operation accounts for both the bulk of appellee's sales and the major part of the routemen's work.

So much of the facts as may be stated to be undisputed are as follows. Initially, in a newly opened retail store or in a new account, the store manager must receive permission from the chain's central office in order to carry appellant's products. Permission takes the form of an authorization letter from the central office to the store manager. In the case of a newly opened store, appellee's route manager or sales manager would contact the chain's central office to solicit the authorization letter for the store. This same procedure seems to be followed in the case of placing new products in established outlets. The authorization letter does not obligate the store manager to buy any goods. Once authorized, the store manager must decide whether he desires to carry the authorized products, and if so, he must allocate the shelf space to be stocked with the new products. He must also contact the appellee's management, which will then assign the store to a route.

Once the product is established, the routemen's function inside the store ordinarily is to survey the shelves allocated to his products, determine how many cases would be needed to refill them, and then restock the shelves accordingly from the stock carried on his truck. In some cases the routeman loads the shelves himself, in others he leaves the stock in the aisles to be shelved by the store's employees. The routeman would then prepare an invoice for the stock delivered and receive payment. In addition, the routeman must sort and crate the empties returned to the store for deposit. Most routemen of some experience seem to have a good idea of how much stock will be needed for the calls of a particular day and would make up an order for the stock to be placed on his truck by other employees the preceding night. He would also carry an extra supply of beverage for any special promotional displays he hoped to place in a store. The placement of additional stock for promotions connected to appellee's advertising was also handled on the basis of an authorization by the store's central office and often depended on the volume of sales of the product and the availability of additional space.

The main points of alleged error on the part of the trial court urged by appellant have to do with the court's evaluation of the evidence presented on three issues: (1) whether there was a prior contractual arrangement for the purchase of beverages between the appellee and any retail chain outlet; (2) whether the routeman fulfilled any significant sales function; and (3) whether the servicing of vending machines was nonexempt work, and, if so, whether the time so spent came within the 20 per cent tolerance allowed by 29 C.F.R. §§ 541.500(b) and 541.507, supra. These several issues are, of course, made pertinent by the regulations to the one central issue whether the employees were "outside salesmen."

Various parts of 29 C.F.R. § 541.505, a detailed regulation entitled, "Driver salesmen," have been cited by each party as support for its view of the contested factual determinations made by the trial judge. The focus of this regulation is on drivers who also engage in a sales function. Although such men must be brought within the general rules of 29 C.F.R. § 541.500 to be exempt from the overtime requirements, section 541.505 sets forth particular factors which the Secretary has determined to be helpful in analyzing whether an employee with such mixed duties is an "outside salesman."

Section 541.505(a) reiterates in more specific terms the requirement that the routeman must be a salesman by profession, engaged regularly and customarily in making sales.

Sec. 541.505. (a) Where drivers who deliver to an employer\'s

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