Luther v. Z. Wilson, Inc.

• Decision Date: 15 July 1981
• Docket Number: No. C-1-77-567.,C-1-77-567.
• Parties: Beverly LUTHER, Plaintiff, v. Z. WILSON, INC., d/b/a Wilson Realtors, Defendant.
• Court: U.S. District Court — Southern District of Ohio

528 F. Supp. 1166

Beverly LUTHER, Plaintiff, v. Z. WILSON, INC., d/b/a Wilson Realtors, Defendant.

No. C-1-77-567.

United States District Court, S. D. Ohio, W. D.

July 15, 1981.

COPYRIGHT MATERIAL OMITTED

Jerry F. Venn, Cincinnati, Ohio, for plaintiff.

Roger A. Weber, Cincinnati, Ohio, for defendant.

OPINION

DAVID S. PORTER, Senior District Judge.

This is an action brought to recover minimum wages and overtime compensation due under the provisions of the Fair Labor Standards Act FLSA, 29 U.S.C. § 201, et seq. Jurisdiction is conferred by 28 U.S.C. § 1337 for the cause of action arising under 29 U.S.C. § 216(b).

Plaintiff is a real estate broker and salesperson who was associated with the defendant, Z. Wilson, Inc. hereinafter Wilson from September 26, 1975 to December 31, 1976. From the beginning of her association with Wilson until October 31, 1976, plaintiff worked as the manager of Wilson's Harrison office; thereafter she was a sales agent only. Because of the limitations period of 29 U.S.C. § 255(a), the plaintiff has limited her claim to the time period commencing October 5, 1975 and ending October 31, 1976.

There is no dispute that defendant was at all relevant times in an enterprise engaged in commerce. Defendant acts as a broker for real estate in both Ohio and Indiana, participating in an interstate referral system. Defendant's annual gross volume of sales made or business done for each of the relevant years was in excess of $250,000. Defendant negotiated sales of property with a gross value of $20,930,677 in 1975, $24,777,970 in 1976, and $51,955,273 in 1977. Defendant is thus clearly an enterprise engaged in commerce within the meaning of § 203(s).

At trial the following issues were presented:

(1) Was plaintiff defendant's employee?

(2) If plaintiff was defendant's employee, was plaintiff exempt as an outside salesperson or as an employee of a retail or service establishment?

(3) If plaintiff was exempt from coverage of the Act, did plaintiff receive the statutory minimum wage and was plaintiff adequately compensated for overtime?

(4) Who has the burden of proof as to hours worked, and does the burden shift to the defendant because no records were kept of plaintiff's hours?

(5) Is plaintiff entitled to an award of attorneys' fees?

Of course, if the relationship between the plaintiff and the defendant was not that of employer and employee, then the plaintiff falls outside the coverage of the Act and her claim for minimum wages and overtime compensation due must fail. In determining whether a particular individual is the employee of another for purposes of the Fair Labor Standards Act, the courts must look to the economic reality of the business relationship of the parties as a whole. Rutherford Food Corporation v. McComb, 331 U.S. 722, 67 S.Ct. 1473, 91 L.Ed. 1772 (1947); Dunlop v. Dr. Pepper-PepsiCola Bottling Company, 529 F.2d 298 (6th Cir. 1976). In making this determination, the courts will ordinarily consider a number of factors including the degree to which the alleged employee was independent or subject to the control of the defendant, the alleged employee's opportunity for profit and risk of loss, the alleged employee's investment in the facilities of the business, the permanency of the relationship, the degree of skill required, and the degree to which the alleged employee's services were an integral part of the defendant's business. United States v. Silk, 331 U.S. 704, 67 S.Ct. 1463, 91 L.Ed. 1757 (1947); Western Union Telegraph Company v. McComb, 165 F.2d 65 (6th Cir. 1947), cert. denied, 333 U.S. 862, 68 S.Ct. 743, 92 L.Ed. 1141 (1948). No individual factor is determinative, but rather the totality of the relationship must be the basis of decision.

Plaintiff had the ability to operate independently, but defendant exercised considerable control over her activities. Although plaintiff had a broker's license that enabled her to go into business on her own, she did not operate under that license while managing defendant's Harrison office, but operated under defendant's license. Except for organizing her own time, plaintiff's independent authority extended only to hiring and firing commission sales agents and to supervising salaried employees. The policies and procedures by which sales agents were to operate, and indeed the particular sales methods to be used, were all dictated by defendant's employee manual (px 1). Plaintiff chose a new site for the Harrison office, but her choice was subject to defendant's approval. Defendant held regular meetings for managers, and although attendance was not mandatory, defendant's president strongly advised plaintiff against missing these meetings. In short, defendant retained substantial control over the day-to-day operations of the office plaintiff managed.

Defendant's control also curtailed plaintiff's ability to increase her profit from the office. Plaintiff's contract was for 50% of the net profits of the Harrison office remaining after deduction of office expenses and a $500 administrative fee. All checks for agents' fees or earnest money were to be made payable to the defendant. Defendant determined whether and how much to spend for items such as advertising, equipment, new cars, and country club dues for the company president. Defendant determined what general expenses would be charged to the various offices. Plaintiff could, theoretically, have increased her profit by increasing the sales volume of the office, but defendant's control of spending determined whether there would be any profit for plaintiff to share in.

Moreover, plaintiff had no substantial share in the risk of loss for the Harrison office or the company in general. Plaintiff made no investment in the office furnishings. She owned only one share of stock in the company. She personally paid cash prizes to agents in her office, but these were voluntary payments she made to encourage them in productivity. Both plaintiff's risk of loss and investment in the facilities of the business were negligible.

There is some question as to the degree of permanency intended for the parties' business relationship. Plaintiff has stated that her contract was "from year to year," and there is evidence that plaintiff frequently changed companies. Nevertheless, there was no evidence that the relationship was to end at any fixed time. On balance, it appears that the parties intended an indefinite relationship as opposed to one aimed at accomplishing one limited object.

Plaintiff's work clearly required significant skill, both in her own sales and in hiring and training other sales agents. Defendant, however, set the policy and procedures to be followed by the sales staff, and it appeared that the managers had little input into such policy decisions. This latter factor tends to minimize the degree of skill required of the plaintiff as a manager.

Although plaintiff's activities clearly advanced her own interests, they were an integral part of defendant's business. Defendant's president admitted that a good manager was essential to the successful operation of an office. The Harrison office was not an independent unit. True, plaintiff hired and could fire the sales agents working there. Nevertheless, the agents all operated under defendant's license, and all contracts, stationery and advertising identified the Harrison office and the agents there as a part of defendant's business. It is clear that plaintiff was not operating her own real estate agency, but defendant's.

After plaintiff terminated her association with defendant, defendant put managers on salary. Defendant's president testified that he expected salaried managers to come when he called and required regular reports from some of them. Apart from this, the only indication that salaried managers were further integrated into the defendant's business than plaintiff was that the company withheld taxes and Social Security when managers were salaried. Yet, defendant considered the salaried managers employees, but not plaintiff.

Defendant argues that 29 U.S.C. § 251(a), the preface to the Portal-to-Portal Act, requires that substantial weight be given to industry practices in determining issues under the Fair Labor Standards Act. The relevant language of § 251(a) is as follows:

The Congress finds that the Fair Labor Standards Act of 1938, as amended, has been interpreted judicially in disregard of long-established customs, practices, and contracts between employers and employees, thereby creating wholly unexpected liabilities, immense in amount and retroactive in operation, upon employers

....

Defendant's argument ignores the fact that this declaration is a preface to specific legislative enactments intended to alleviate specific problems Congress believed to be caused by judicial interpretation. This section should not be viewed as a general statement of congressional policy with regard to portions of the Fair Labor Standards Act not specifically affected by the Portal-to-Portal Act. Moreover, the evidence of industry custom before the Court is inconclusive. The testimony at trial indicated that some real estate agencies treat their managers as salaried employees, but that others treat them more or less as independent contractors. We must base our determination in this case upon the elements of the relationship between plaintiff and defendant during the time of their association.

Considering the economic realities of the parties' relationship as a whole, it appears to us that plaintiff was an employee and not an independent businessperson or an equal partner in the business. Having determined that plaintiff was an employee, we must now determine whether or not she was within either the outside salesperson exemption or the retail or service establishment employee exemption.

Exemptions under the Fair Labor Standards Act are to be narrowly construed against the employer asserting them. Arnold v. Ben Kanowsky, Incorporated, 361 U.S....