Wirtz v. Campus Chefs, Inc.

• Decision Date: 01 November 1968
• Docket Number: No. 1842.,1842.
• Parties: W. Willard WIRTZ, Secretary of Labor, United States Department of Labor, Plaintiff, v. CAMPUS CHEFS, INC., a corporation, Defendant.
• Court: U.S. District Court — Northern District of Georgia

303 F. Supp. 1112

W. Willard WIRTZ, Secretary of Labor, United States Department of Labor, Plaintiff, v. CAMPUS CHEFS, INC., a corporation, Defendant.

No. 1842.

United States District Court N. D. Georgia, Rome Division.

November 1, 1968.

Beverley R. Worrell, Regional Atty., United States Dept. of Labor, Atlanta, Ga., for plaintiff.

Alexander E. Wilson, Jr., Atlanta, Ga., for defendant.

SIDNEY O. SMITH, Jr., District Judge.

This is an action brought by the Secretary of Labor to enjoin the defendant from violating the minimum wage, overtime, and recordkeeping provisions of the Fair Labor Standards Act. While stipulating that it has employees engaged in commerce or in the production of goods for commerce and that the annual gross volume of sales of defendant enterprise is not less than $1,000,000, the defendant denies that it is subject to the provisions of the Act.

(1) In this connection, it contends it is exempt from both minimum wage and overtime provisions by virtue of 29 U.S. C.A. § 213(a) (2), which provides an exemption with respect to:

"Any employee employed by any retail or service establishment, more than 50 per centum of which establishment's annual dollar volume of sales of goods or services is made within the State in which the establishment is located, if such establishment * * (ii) is in such an enterprise and is a hotel, motel, restaurant, or motion picture theater; * * *.

"A `retail or service establishment' shall mean 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, in the particular industry;" (Emphasis supplied)¹ and

by virtue of 29 U.S.C.A. § 213(a) (20), which provides such an exemption with respect to:

"Any employee of a retail or service establishment who is employed primarily in connection with the preparation or offering of food or beverages for human consumption, either on the premises, or by such services as catering, banquet, box lunch, or curb or counter service, to the public, to employees, or to members or guests of members of clubs."¹

(2) Defendant further contends that it is exempt from the current overtime provisions by virtue of 29 U.S.C.A. § 213(b) (8) which provides an exemption therefrom with respect to:

"any employee employed by an establishment which is a hotel, motel, or restaurant,"² and

by virtue of 29 U.S.C.A. § 213(b) (18) which provides an exemption therefrom with respect to:

"Any employee of a retail or service establishment who is employed primarily in connection with the preparation or offering of food or beverages for human consumption, either on the premises, or by such services as catering, banquet, box lunch, or curb or counter service, to the public, to employees, or to members or guests of members of clubs."²

The case was extensively tried nonjury on which the court makes the following

FINDINGS OF FACT

The defendant Campus Chefs, Inc. is a closely held corporation involved in various aspects of food service. As early as 1953, it embarked on the contract operation of dining halls and cafeterias for educational and other public institutions. It now has some 25 such operations up and down the eastern seaboard including the one at Shorter College, Rome, Georgia.

Shorter is an independent church oriented college, composed of day students and some 350 boarding students. Prior to 1963, it operated its own dining facilities, including the purchasing, preparation, and serving of all meals to its faculty and students. In keeping with a growing trend, on December 21, 1962, it entered into a contract with Campus Chefs, Inc. to take over the operation of its two eating facilities — one in the main campus dining hall and one in the Hotel Graystone, used as a boarding facility for male students, in downtown Rome.

While some such operations serve food to students on a direct cash payment basis, the contractual arrangement entered into (Def. Ex. #1) here is typical of those in existence at some 40% of the nation's colleges and universities, as well as industrial plants, hospitals, and various government installations. At Shorter College the defendant purchases food from sources in the local area, it prepares the food, and it serves the food cafeteria-style directly to students, faculty and staff at contract prices. During the regular school year, defendant bills the school $8.75 (now $9.60) each for the maximum weekly enrollment of boarding students during the regular school year (excluding Christmas and Spring Holiday weeks) for a maximum period of thirty-four weeks. Day students, guests, and others paying cash to defendant at the time meals are purchased are charged set prices for breakfast, lunch and dinner. A "casual sale" is made to any non-contract person who presents himself in the cafeteria seeking service. In certain instances these "casual" meals and special groups such as visiting athletic teams, alumni meetings, etc. are billed by defendant back to Shorter. All of the employees in the establishment are the employees of the defendant, and it maintains its own office on campus at Shorter. As seen, defendant selects the menus, and purchases, prepares and serves the food, but in all but a few isolated instances is paid by a weekly billing to Shorter on the agreed rates. (Pl. Ex. #5). Bulk food is delivered, stored and prepared in each location, and there is no central warehouse or preparation center. The entire risk of profit or loss on said operation rests on defendant, and it pays the sales tax to the state.³

On the other hand, the college has no control over the food or food service, except that it has the right to require the defendant to provide wholesome and nutritious food with a reasonable variety. In addition, it furnishes space, utensils, equipment and utilities necessary for the operation of the food service and maintains the premises in good repair and provides certain janitorial services. Its business manager oversees the performance of the contract and makes periodic checks of the food service, arranges for special events, transmits complaints to defendant's local manager, approves and pays the weekly billing, and, in general, coordinates the responsibilities of the two parties under the contract. Shorter's motivation in entering into the agreement was to insure proper service at a cheaper rate to its students as well as being relieved of the management problems connected with food service.

The funds for payment are received by Shorter in the form of board charges to each student. For several years this was a specified charge of $450.00 per year, with a separate room charge of $250.00 per year. Presently, there is a combined room and board charge of $750.00 per year. All of such funds are retained by the college and there are no rebates to the student for meals not taken. As can be seen, there is a slight excess in cash received by Shorter and cash paid out to defendant on the contract. It is clear, however, that there was no profit motivation on Shorter's part in entering into the contract.

An exhaustive cost analysis of Shorter's operating budget by CPA specialists in the hospital, hotel, motel and restaurant field reveals there is no actual profit to Shorter in the operation. (Def. Ex. #2). In this analysis, four different accounting calculations were used, resulting in an insignificant variance of 16¢ "profit" to 25¢ "loss" per student per week. The best method and the one adopted by the Court as reasonable and fair is the so-called "step-down" procedure of cost allocation. Such procedure is that recommended for accounting purposes by the American Council on Education to its member colleges and universities and is likewise recommended by the Department of Health, Education and Welfare for costs computation in its "Medicare" program. Such an adaptation to Shorter's accounts reveal an actual loss to the college from the contract with defendant.

The defendant is a long-time member of the National Restaurant Association and Georgia Restaurant Association. Its members are basically restricted to the "retail" end of the food service industry as opposed to the "wholesale" function. Its prime qualifications for membership is the sale and service of food to the ultimate consumers, i. e., "the hungry person." Its roll includes in addition to traditional restaurants, drive-in, carry-out, cafeteria, institutional, in-plant, and food contract members. It excludes all food processors, wholesalers and jobbers from its rolls. Within the association and the industry, defendant is considered as a retail restaurant operation.

The Bureau of the Budget's Standard Industrial Classification also classifies food service contractors such as the defendant as "retailers."

Likewise from an academic marketing point of view where the dominant criteria are the motives of the parties, the defendant is considered as the "seller", the student as the "buyer" with Shorter as an agent of the buyer. (Def. Ex. #3 and 4). In marketing theory, the method of payment is considered insignificant to the basic functions of the parties.

At least 50% of the establishment's sales are made within the state of Georgia and, at least, 75% of its sales are made via the "board contract" method described.

The employees of defendant were paid at less than the minimum wage for straight and overtime during the period in question.

CONCLUSIONS OF LAW

The primary burden to show coverage is upon the Secretary and this was established. Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 66 S.Ct. 1187, 90 L.Ed. 1515 (1946). Thereupon, the burden of proving any exemption was cast upon the employer. In this connection, the courts have uniformly held that the retail exemptions are to be narrowly construed against employers seeking to assert them and the exemption must be limited to those establishments plainly and unmistakenly within their "terms and spirit." Arnold v. Ben...