Rhea Lana, Inc. v. United States

• Decision Date: 07 June 2019
• Docket Number: No. 17-5259,17-5259
• Citation: 925 F.3d 521
• Parties: RHEA LANA, INC. and Rhea Lana’s Franchise Systems, Inc., Appellants v. UNITED STATES Department of Labor, Appellee
• Court: U.S. Court of Appeals — District of Columbia Circuit

925 F.3d 521

RHEA LANA, INC. and Rhea Lana’s Franchise Systems, Inc., Appellants

v.UNITED STATES Department of Labor, Appellee

No. 17-5259

United States Court of Appeals, District of Columbia Circuit.

Argued September 21, 2018

Decided June 7, 2019

Julie A. Smith argued the cause for appellants. With her on the briefs were Joshua N. Schopf and John E. McGlothlin.

Sydney Foster, Attorney, U.S. Department of Justice, argued the cause for appellee. With her on the brief were Jessie K. Liu, U.S. Attorney, Mark B. Stern, Attorney, and Dean A. Romhilt, Senior Attorney, U.S. Department of Labor.

Before: Srinivasan and Katsas, Circuit Judges, and Ginsburg,^* Senior Circuit Judge.

Concurring opinion filed by Circuit Judge Katsas.

Srinivasan, Circuit Judge:

Rhea Lana is a for-profit business that organizes consignment sales of children’s merchandise. The consignors who supply the merchandise for sale can also work at the sales. They are not paid for that work but instead are given the opportunity to shop at the sales earlier than the general public.

The Department of Labor determined that Rhea Lana’s workers qualified as "employees" under the Fair Labor Standards Act. The company brought a challenge to that decision, contending that the workers should be considered volunteers rather than employees. The district court rejected the challenge and sustained the Department’s determination. Rhea Lana now appeals, and we affirm the district court.

I.

The Fair Labor Standards Act guarantees all "employees" a federal minimum wage. 29 U.S.C. § 206(a) ; see id.§ 203(e)(1). The Act does not extend its protections to workers who are volunteers rather than employees. See Tony & Susan Alamo Found. v. Sec’y of Labor , 471 U.S. 290, 299–303, 105 S.Ct. 1953, 85 L.Ed.2d 278 (1985). Nor does it protect independent contractors. See Morrison v. Int’l Programs Consortium, Inc. , 253 F.3d 5, 10–11 (D.C. Cir. 2001).

Plaintiffs Rhea Lana, Inc. and Rhea Lana’s Franchise Systems, Inc. (collectively, Rhea Lana) run semiannual consignment sales for children’s clothing, toys, and other merchandise. A consignment sale is an arrangement whereby a seller (or consignor) entrusts goods to a reseller (or consignee) for resale. A consignor receives compensation for the goods only if the consignee successfully resells them. Otherwise, the goods go back to the consignor.

Rhea Lana’s events are staffed by the company’s managers, who work for compensation. But Rhea Lana’s sales also require additional workers to perform everyday tasks like organizing merchandise, removing tags from clothing, and processing customers’ purchases at the point of sale. For those tasks, Rhea Lana solicits consignors to work five-hour shifts.

As an incentive to work at the sales, Rhea Lana offers consignors the opportunity to shop before the general public. A consignor’s priority in the shopping order depends on how many five-hour shifts she works. The consignors fall into four groups—called Primo Moms, Super Moms, Early Workers, and Workers—with the first of those groups working four shifts and getting to shop first, the second group working three shifts and getting to shop second, and so on.

In 2013, the Department of Labor’s Wage and Hour Division began investigating Rhea Lana’s labor practices. In August 2013, Robert A. Darling, a District Director in the Division, sent a letter to Rhea Lana stating that "[the Department’s] investigation [has] disclosed that your employees are subject to the requirements of the FLSA." Letter from Robert A. Darling to Rhea Lana Rhiner, J.A. 311. That determination included the "group known as consignors/volunteers." Id.

Rhea Lana challenged the Department’s determination as arbitrary and capricious. The district court initially dismissed the company’s challenge on the ground that the Department’s determination was not final agency action. See Rhea Lana, Inc. v. U.S. Dep’t of Labor , 74 F. Supp. 3d 240, 244–46 (D.D.C. 2014). We reversed, concluding that the determination was final because it had "legal consequences." Rhea Lana, Inc. v. U.S. Dep’t of Labor , 824 F.3d 1023, 1031–32 (D.C. Cir. 2016).

On remand, the Department filed an administrative record with the district court containing all contemporaneous agency material supporting its determination. In addition, the aforementioned Robert Darling prepared a declaration that "summarize[d] the contents of the administrative record and further describe[d] how the record contemporaneously supported the challenged agency determination." Darling Decl. 1, J.A. 99. The Department submitted the Darling Declaration as part of the record, and Rhea Lana moved to strike the declaration on the ground that it was an after-the-fact document.

The district court denied the motion to strike the Darling Declaration and then granted summary judgment in favor of the Department. In sustaining the Department’s determination that the consignors qualified as employees for purposes of the Fair Labor Standards Act, the court relied on the Department’s rationale as set out in the Darling Declaration. Rhea Lana now appeals.

II.

Rhea Lana challenges the Department’s determination that the consignors are employees rather than volunteers as arbitrary and capricious. We review the agency’s decision directly, "according no particular deference to the judgment of the District Court." Holland v. Nat’l Mining Ass’n , 309 F.3d 808, 814 (D.C. Cir. 2002).

A.

Before taking up the merits of Rhea Lana’s challenge, we first determine the scope of the administrative record—and, in particular, whether the Darling Declaration can be considered as part of the record explaining the basis for the Department’s decision. Ordinarily, we review an agency action based solely on the record compiled by the agency when issuing its decision, not on "some new record made initially in the reviewing court." Camp v. Pitts , 411 U.S. 138, 142, 93 S.Ct. 1241, 36 L.Ed.2d 106 (1973) (per curiam); see also SEC v. Chenery Corp. , 318 U.S. 80, 87, 63 S.Ct. 454, 87 L.Ed. 626 (1943). That rule generally prohibits "ex post supplementation of the record by either side." Walter O. Boswell Mem’l Hospital v. Heckler , 749 F.2d 788, 793 (D.C. Cir. 1984).

The Darling Declaration was not part of the record before the Department when it determined that the consignors who work at Rhea Lana’s consignment sales qualify as statutory employees rather than volunteers. And a post hoc account like the Darling Declaration would normally be excluded from our review. But the particular circumstances of this case provide adequate assurances that the Declaration accurately reflects the contemporaneous reasoning of the Department. We conclude that the Declaration may be considered in the specific context of this case even though it is a post hoc submission.

First, the Declaration comes from the same official who issued the Department’s final determination about the employment status of Rhea Lana’s workers. "When final decisionmaking authority is vested in an [agency], the determinations of that body, and not the mere recommendations of [others], are the principal concern of a reviewing court." Williams v. Bell , 587 F.2d 1240, 1246 (D.C. Cir. 1978). We thus have allowed reviewing courts to rely on post hoc declarations in certain situations when the declarations have come from the relevant agency decisionmaker. See, e.g. , Olivares v. Transp. Sec. Admin. , 819 F.3d 454, 464 (D.C. Cir. 2016) ; Alpharma, Inc. v. Leavitt , 460 F.3d 1, 7 (D.C. Cir. 2006). Darling was the agency decisionmaker, and his reasoning is the proper subject of our review.

Additionally, the Declaration largely echoes the rationale contained in the contemporaneous record. We have barred consideration of post hoc materials when they present an "entirely new theory," Consumer Fed’n of Am. v. U.S. Dep’t of Health & Human Servs. , 83 F.3d 1497, 1507 (D.C. Cir. 1996), or when the contemporaneous record discloses "[n]o basis for [the agency] determination" whatsoever, AT&T Info. Sys., Inc. v. GSA , 810 F.2d 1233, 1235 (D.C. Cir. 1987) (per curiam). But we can permit consideration of post hoc materials when they "illuminate[ ] the reasons that are [already] implicit in the internal materials." Olivares , 819 F.3d at 464 (internal quotation marks omitted).

That is the case here. Although the contemporaneous record contains no materials from Darling himself, it does contain documents from Tamara Haynes, the Department’s investigator in this case. The Haynes documents, like the Declaration, conclude that "[t]he class of worker known as consignors/volunteers ... [a]re employees."

Tamara Haynes, FLSA Narrative at 8, J.A. 306. Haynes supports that conclusion with analysis under many of the same factors contained in the Darling Declaration, including the incentive to work (i.e., the expectation of in-kind benefits) and the scope of duties assigned to the workers (i.e., the degree of control exercised by the employer and the benefit that accrued to the employer).

Rhea Lana observes that much of the analysis in the Haynes documents focuses on whether Rhea Lana’s workers are independent contractors rather than whether they are volunteers. But for our purposes, the question is whether the Darling Declaration is "consistent with the administrative record." Olivares , 819 F.3d at 464 (emphasis added) (quoting Manhattan Tankers, Inc. v. Dole , 787 F.2d 667, 673 n.6 (D.C. Cir. 1986) ). And nothing in the Haynes documents that addresses the independent-contractor question is at odds with the reasoning of the Darling Declaration.

First, the factors that govern the independent-contractor question share substantial overlap with the factors that govern the volunteer question. Cf. Morrison , 253 F.3d at 11 (recognizing the applicability of either of two "different, although similar, set[s] of factors" to determine employee status, so long as either test permits the agency to "look at the totality of the circumstances and consider any relevant evidence"). Second, it...