Sec'y Labor v. Timberline S., LLC

• Decision Date: 29 May 2019
• Docket Number: No. 18-1763,18-1763
• Citation: 925 F.3d 838
• Parties: SECRETARY OF LABOR, Plaintiff-Appellee, v. TIMBERLINE SOUTH, LLC; Jim Payne, Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

925 F.3d 838

SECRETARY OF LABOR, Plaintiff-Appellee,

v.TIMBERLINE SOUTH, LLC; Jim Payne, Defendants-Appellants.

No. 18-1763

United States Court of Appeals, Sixth Circuit.

Argued: March 14, 2019

Decided and Filed: May 29, 2019

ARGUED: Jeffrey S. Theuer, LOOMIS, EWERT, PARSLEY, DAVIS & GOTTING, P.C., Lansing, Michigan, for Appellants. Sarah J. Starrett, UNITED STATES DEPARTMENT OF LABOR, Washington, D.C., for Appellee. ON BRIEF: Jeffrey S. Theuer, LOOMIS, EWERT, PARSLEY, DAVIS & GOTTING, P.C., Lansing, Michigan, for Appellants. Sarah J. Starrett, UNITED STATES DEPARTMENT OF LABOR, Washington, D.C., for Appellee.

Before: SUTTON, WHITE, and DONALD, Circuit Judges.

AMENDED OPINION

HELENE N. WHITE, Circuit Judge.

Defendant Timberline South, LLC (Timberline) is a timber-harvesting company that operates solely in Michigan, but uses logging and harvesting equipment and trucks that were manufactured outside of Michigan. The Secretary of Labor (the Secretary) brought this action against Timberline and its director, Jim Payne, alleging violations of the overtime and recordkeeping provisions of the Fair Labor Standards Act (FLSA).

The district court granted summary judgment in favor of the Secretary, and awarded $ 439,437.42 in unpaid overtime and an equal amount in liquidated damages. The district court reasoned that Timberline was a covered enterprise under the FLSA because it "has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person," 29 U.S.C. § 203(s)(1)(A)(i), i.e., the logging and harvesting equipment manufactured outside of Michigan. Part of the damages award included time employees spent commuting from home to work or for meal periods, which the district court included in the overtime calculation after finding that Timberline had an established custom or practice of compensating its employees for such time.

Defendants appeal, arguing that the district court erred in finding liability and awarding unpaid overtime and liquidated damages. We affirm the district court’s liability determination. However, because the district court erred in finding that ordinary commute time and bona fide meal periods qualify as compensable hours subject to the FLSA’s overtime requirements, we vacate the award of damages and remand for further proceedings.

I.

Timberline was formed in 2010 as a Michigan limited liability company. Payne is an officer of Timberline and directs all of its operations. Timberline removes raw timber from forests, cuts the timber, and transports the timber to mills for processing into paper and other products. Timberline maintains two to four worksites, each with approximately four equipment operators who cut down trees, cut the timber into lengths, and transport the timber to a landing site. Timberline also employs six to eight truck drivers, who load the timber at the landing site and transport it to the mills, as well as mechanics and an office manager. Timberline’s equipment operators use heavy, specialized machinery, including harvesters and hydro-axes to cut down trees and cut the trees into lengths, and forwarders and skidders to transport the timber to the landing site or to load trucks. All of Timberline’s business activities occur in Michigan: it harvests timber in Michigan; it transports timber to mills located only in Michigan; it entered into contracts for cutting timber in Michigan; and it purchased its trucks and heavy equipment from Michigan sellers. Although purchased and used only in Michigan, Timberline’s trucks and heavy equipment were manufactured outside of Michigan.

Payne established Timberline’s compensation and recordkeeping practices. Timberline paid its employees using a daily rate, an hourly rate, or a cord¹ rate. Timberline recorded hours worked for hourly employees but did not do so for most non-hourly employees, and did not pay its employees an overtime rate for hours worked over 40 in a week.

Timberline was founded after a previous company, Timberline Logging, Inc. (Timberline Logging), went out of business. In February 2011, Payne instructed his office manager to email Matthew Rooyakker, Timberline Logging’s accountant, regarding whether Timberline Logging was exempt from paying overtime "under FLSA in Tennessee." (R. 18-12, PID 1674.)² Payne also testified that he discussed FLSA coverage with his accountant on "a couple different occasions" "awhile back," "before the investigation" that led to this lawsuit. (R. 19-12, PID 2273.) According to Payne, Rooyakker told him that "we were exempt under agriculture" (id. at PID 2274), although Rooyakker had not held himself out as knowledgeable about the FLSA, and Payne did not believe that his truck drivers or office workers were agricultural employees. Payne did not consult with an attorney.

Defendants took the position in this lawsuit that the Motor Carrier Act exemption, 29 U.S.C. § 213(b)(1), exempts some of Timberline’s employees from FLSA coverage. In response to the Secretary’s interrogatories about this exemption, Defendants stated that they relied upon the "FLSA and publications prepared by Plaintiff" in determining that that the Motor Carrier Act exemption applied, but Payne did not recall which publications he relied on and was not able to explain why his drivers and their helpers were exempt if the drivers only drove intrastate routes. (R. 18-4, PID 271-81.)

Rooyakker testified that the only time he provided advice regarding the FLSA was at a meeting with Payne on February 17, 2011. At that meeting, in response to Timberline Logging’s inquiry, Rooyakker told Payne that it appeared that "you’re exempt" under the agricultural exemption. (R. 18-13, PID 1702.) Rooyakker testified that he did not advise which of Timberline Logging’s or Timberline’s employees were subject to the FLSA’s agricultural exemption and never opined whether either entity’s employees in Michigan may also be exempt.

Wage and Hour Investigator Jeffrey Wrona of the Department of Labor (DOL) investigated Timberline for wage and recordkeeping violations for the time period of August 25, 2013 through August 20, 2015, later extended through March 20, 2017. After assessing unpaid overtime wages, the Secretary of Labor filed a complaint alleging that Defendants had violated the overtime and recordkeeping provisions of the FLSA, and sought an injunction, back wages, and liquidated damages.

The district court granted the Secretary’s motion for summary judgment in part and denied Defendants’ cross-motion for summary judgment, granted the Secretary’s motion to amend the complaint to include additional employees and FLSA violations that had occurred during 2016 and 2017, awarded liquidated damages, and ordered further briefing by the parties on the amount of backpay.

After two rounds of supplemental briefing, the district court issued a final summary judgment decision awarding $ 439,437.42 in backpay damages and an equal amount in liquidated damages. This appeal followed.

II.

This court reviews de novo a grant of summary judgment, viewing all evidence and drawing all reasonable inferences in the light most favorable to the non-moving party. Pearce v. Chrysler Grp. LLC Pension Plan , 893 F.3d 339, 345 (6th Cir. 2018).³ Summary judgment is appropriate only where "there is no genuine dispute as to any material fact and the movant is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(a).

A. Enterprise Coverage and the Handling Clause

The FLSA requires, among other things, that a qualifying enterprise pay certain employees overtime pay at one and one-half times their regular rate for each hour above 40 worked in a workweek. 29 U.S.C. § 207(a). At issue in this appeal is whether Timberline is "an enterprise engaged in commerce or in the production of goods for commerce," defined as

an enterprise that--

(A)(i) has employees engaged in commerce⁴ or in the production of goods⁵ for commerce, or that has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person; and

(ii) is an enterprise whose annual gross volume of sales made or business done is not less than $ 500,000 (exclusive of excise taxes at the retail level that are separately stated);

29 U.S.C. § 203(s)(1)(A).

There is no dispute that Timberline is an "enterprise" under § 203(r)(1),⁶ qualifies as an "employer" under § 203(d),⁷ and had an annual gross volume of sales in excess of $ 500,000 for each relevant year, § 203(s)(1)(A)(ii). Nor did the Secretary argue that Timberline was a covered enterprise because it had "employees engaged in commerce or in the production of goods for commerce." § 203(s)(1)(A)(i). Rather, the parties disagree about whether Timberline "has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person," id. , often referred to as the "handling clause."

As originally enacted, the FLSA covered certain employees but did not encompass enterprise-wide coverage. That concept was added in 1961. See Pub. L. No. 87-30, § 2, 75 Stat. 65, 65-66 (1961). "After the [1961] amendment, if an employer had two or more workers engaged in commerce or the production of goods for commerce, FLSA coverage extended to all of the enterprise’s employees." Polycarpe v. E&S Landscaping Serv., Inc. , 616 F.3d 1217, 1220 (11th Cir. 2010) (citing Dunlop v. Indus. Am. Corp. , 516 F.2d 498, 500-01 (5th Cir. 1975) ). Included in the 1961 amendment was the addition of the handling clause. In 1974, Congress clarified that the handling clause was an independent basis for enterprise coverage⁸ and added "or materials" to that clause. See id. at 1220-21. "Materials" is not defined in the statute. "Goods" is, however, and contains what is often called the "ultimate-consumer exception," excluding from the definition "goods after their delivery into the actual physical possession of the ultimate consumer thereof other...