Reich v. Delcorp, Inc.

• Citation: 3 F.3d 1181
• Decision Date: 31 August 1993
• Docket Number: No. 92-3716,92-3716
• Parties: , 126 Lab.Cas. P 33,008, 1 Wage & Hour Cas. 2d 940 Robert B. REICH, * Secretary of Labor; United States Department of Labor, Appellants, v. DELCORP, INC., a corporation; Arizona Carpet Cleaning, Inc., a corporation, Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

Page 1181

3 F.3d 1181

62 USLW 2183, 126 Lab.Cas. P 33,008,

1 Wage & Hour Cas. 2d 940

Robert B. REICH, ^* Secretary of Labor; United States Department of Labor, Appellants, v. DELCORP, INC., a corporation; Arizona Carpet Cleaning Inc., a corporation, Appellees.

No. 92-3716.

United States Court of Appeals Eighth Circuit.

Submitted May 14, 1993.

Decided Aug. 31, 1993.

Paul Frieden, Washington, DC, argued for appellants.

Eugene DeShazo, Kansas City, MO, argued for appellees.

Before BOWMAN and MAGILL, Circuit Judges, and HENDREN, ^** District Judge.

MAGILL, Circuit Judge.

The overtime provisions of the Fair Labor Standards Act (FLSA) entitle an hourly worker who works more than forty hours a week to be paid at the rate of one and one-half times his normal wage for each hour over forty hours. See 29 U.S.C. Sec. 207(a)(1) (1988). This provision does not apply, however, to employees of a "retail or service establishment" if the employee's regular rate of pay is more than 1.5 times the minimum wage and if "more than half his compensation for a representative period (not less than one month) represents commissions on goods or services." 29 U.S.C. Sec. 207(i) (1988). The Secretary of Labor brought this action to enjoin Arizona Carpet Cleaning, Inc. (ACC), an in-home carpet cleaning business, from paying its employees pursuant to Sec. 207(i) in violation of the FLSA. The Secretary does not contest that ACC's employees are commissioned and that their pay exceeds 1.5 times the minimum wage, but alleges that an in-home carpet cleaning business is a member of the laundry industry and thus as a matter of law cannot qualify as a "retail or service establishment."

The parties filed cross-motions for summary judgment, the Secretary making the argument noted above, and ACC arguing that it qualified as a "retail or service establishment" under the factors set forth in Idaho Sheet Metal Works v. Wirtz, 383 U.S. 190, 86 S.Ct. 737, 15 L.Ed.2d 694 (1966). The district court ¹ denied the Secretary's motion, and granted ACC's motion. This appeal followed. We affirm.

The essential facts surrounding this controversy are simple and uncontested. Delcorp and its franchisee, ACC, are engaged in the in-home carpet, rug and furniture upholstery cleaning business. ACC services an area including approximately 100,000 homes, and cleans approximately 4000 homes per year.

ACC obtains business initially through telephone solicitors, who make four calls per year to each home within ACC's market. Two-person field crews, consisting of a crew chief and an assistant, then perform the in-home cleaning operations agreed upon through these solicitations. In addition to their cleaning duties, ACC's crews attempt to sell additional cleaning services and products while in the customer's home. Crews also solicit from customers names of others who may be interested in ACC's cleaning services, and give discount coupons for each referral.

ACC's telephone solicitations account for approximately one-half of the total dollar volume of sales per home serviced. The field crew's sales of additional services and products, as well as the customer referrals they receive, account for the balance of ACC's income.

ACC compensates all of its field crew members on a commission basis. Each crew member's wages exceed one and one-half times the minimum wage, and crew members often work more than forty hours per week. ACC sells its products and services exclusively for family or personal use and exclusively to the general public. The parties agree that nearly all householders have their rugs and upholstery cleaned in the home, either by ACC, one of its competitors, or with equipment and supplies procured from local retail stores.

In order to qualify for treatment under Sec. 207(i), ACC must demonstrate that it is a "retail or service establishment." Section 207(i) does not define that term; instead, we must turn to Sec. 213(a)(2). This section wholly exempts certain "retail or service establishment[s]" from FLSA coverage ² and defines "retail or service establishment" as "an establishment 75 per centum of whose annual dollar volume of sales of goods or services (or of both) is not for resale and is recognized as retail sales or services in the particular industry." 29 U.S.C. Sec. 213(a)(2); see also 29 C.F.R. Sec. 779.411 (1992) (definition of "retail or service establishment" the same in both Sec. 213(a)(2) and Sec. 207(i)). In the district court proceeding, ACC presented evidence that it constituted a "retail or service establishment" as that term has been construed by the Supreme Court. The Secretary did not oppose this line of argument; rather, the Secretary claims that as a matter of law, an "establishment ... engaged in laundering, cleaning, or repairing clothing or fabrics" cannot qualify as "retail or service establishment" for purposes of Sec. 207(i).

We must deal with one preliminary issue. In 1989, Congress repealed the Sec. 213(a)(2) "retail or service establishment" exemption, including its definition of "retail or service establishment." In its place, Congress substituted a provision that exempts all small enterprises with a total annual sales volume of less than $500,000 from the FLSA's requirements. Pub.L. No. 101-157, Sec. 3(a) and (c), 103 Stat. 938-39 (1989); H.R.Rep. No. 260, 101st Cong., 1st Sess. 18 (1989), reprinted in 1989 U.S.C.C.A.N. 696, 706. Congress did not, however, repeal Sec. 207(i) nor change its dependence on the definition of "retail or service establishment."

ACC initially claims that Congress's 1990 repeal of the Sec. 213(a)(2) exemption also repealed the judicial and administrative construction of that term as it appears in Sec. 207(i). Since this action concerns only ACC's future compliance with the FLSA, ACC contends that this court must evaluate whether it constitutes a "retail or service establishment" pursuant to the "ultimate consumer" test used by the courts prior to the 1949 amendments rather than under the repealed definition from Sec. 213(a)(2). We disagree.

When Congress passed Sec. 207(i) in 1961, it specifically stated that the term "retail or service establishment" was to have the same meaning in that section as it did in Sec. 213(a)(2). See 29 C.F.R. Sec. 779.411 (1992). Thus, any construction of the term as defined in Sec. 213(a)(2) became a part of the definition of the term as found in Sec. 207(i). Nothing in the 1990 amendments changed Sec. 207(i). The term "retail or service establishment" still remains, and there is no expression of congressional intent that it should be construed any differently. Absent specific congressional intent, we will not conclude that Congress retained the term "retail or service establishment" in Sec. 207(i) yet at the same time discarded thirty years of established meaning. We thus must determine whether ACC could constitute a "retail or service establishment" under the definition of that term that existed in Sec. 213(a)(2) and Sec. 207(i) prior to 1990.

We begin our analysis with the text of the statute. Section 213(a)(2)'s definition of "retail or service establishment" does not on its face exclude "laundries" ³ from its scope. The Secretary claims, however, that when Congress enacted the definition in 1949, it specifically excluded laundries from the class of businesses that could qualify as a "retail or service establishment." In addition to amending Sec. 213(a)(2) to add the definition of "retail or service establishment," Congress in 1949 added a new Sec. 213(a)(3) which provided a specific exemption for "any employee employed by any establishment engaged in laundering, cleaning, or repairing clothing or fabrics...." Pub.L. No. 81-393, ch. 736, Sec. 11(a)(3), 63 Stat. 910, 917 (1949). According to the legislative history, this special exemption was deemed necessary because "there is no clear concept in the laundry and cleaning industry of retail services." 95 Cong.Rec. S12,503 (1949) (Statement of Sen. Holland).

Based on this legislative history, the Secretary claims that a laundry can never qualify as a "retail or service establishment." The Secretary's argument is not without some support. In two cases, the Supreme Court has recognized that in the legislative history to the 1949 amendments, Congress excluded certain businesses from the scope of the "retail or service establishment" exemption. See Mitchell v. Kentucky Fin. Co., 359 U.S. 290, 79 S.Ct. 756, 3 L.Ed.2d 815 (1959) (holding that a corporation engaged in the business of making personal loans and purchasing accounts receivable could not qualify as a "retail or service establishment" as a matter of law); Idaho Sheet Metal Works v. Wirtz, 383 U.S. 190, 203, 86 S.Ct. 737, 745, 15 L.Ed.2d 694 (1966) (noting that "[t]he legislative recital of telephone, gas and electric, and credit companies along with a number of others as businesses outside the [Sec. 13(a)(2) ] exemption ... demonstrates that not everything the consumer purchases can be a retail sale of goods or services"). If nothing had happened since the 1949 amendments, we would be constrained to hold that laundries cannot qualify as a "retail or service establishment." We conclude, however, that post-1949 amendments to the FLSA fatally undermine the Secretary's argument that laundries can never qualify as a "retail or service establishment."

In 1961, Congress enacted Sec. 207(i), which allows "retail or service establishment[s]" not qualifying for the Sec. 213(a)(2) exemption to comply with the FLSA's overtime requirements by paying its commissioned employees at a rate exceeding one and one-half times the minimum wage for all hours worked. Congress specified that the Sec. 213(a)(2) definition of "retail or service establishment" apply to Sec. 207(i). See 29 C.F.R. Secs. 779.312, 779.411 (1992).

In 1966, Congress decided to extend FLSA coverage to the laundry industry generally. Thus, Congress repealed the Sec. 213(a)(3) exemption for laundries and...