BY Donald J. Spero, Esq.

I. THE IMPORTANCE OF BEING EARNEST IN COMPENSATING REGULAR AND OVERTIME HOURS.

In view of the recent dramatic increase in the of filings of Fair Labor Standards Act ( "FLSA") cases employers are well advised to carefully review their compensation and time reporting policies to make certain that all time worked is recorded and that it is compensated in conformity with the statute. The FLSA requires all covered non-exempt employees to be compensated at no less than the federally mandated minimum wage. Additionally they must receive one and one-half times their "regular [hourly] rate" for each hour worked in excess of 40 in a work week. The FLSA further requires that employers maintain accurate records of the hours worked by all employees.

The latter requirement brings joy to plaintiffs' attorneys and dismay to the defense. Employer peril is due to a long history of case law that drastically lightens the burdens of plaintiffs to prove the number of uncompensated or under-compensated hours they have worked where their employers are unable to present records of these "off the clock" hours. In Anderson v. Mt. Clemens Pottery Co. the Supreme Court held that where an employer has not maintained such records the employee's burden of proof to show the uncompensated hours is very light. It is merely:

The requisite proof to rebut the employee's case is commonly not in existence. This state of things and the present climate makes it most important for employers to be aware of the manifold inclusions and exemptions from the FLSA. Most employers are aware of the so called "white collar exemptions" from the FLSA for executive, administrative and professional employees as well as the exemption for outside salespersons. A less well known but frequently applicable exemption is the "Motor Carrier Act exemption" (the "MCA exemption")

II. WHICH EMPLOYEES ARE COVERED BY THE MOTOR CARRIER EXEMPTION?

The FLSA sets out in section 13(b)(1) that "The provisions of section 207 [the overtime pay requirements] shall not apply with respect to (1) any employee with respect to whom the Secretary of Transportation has power to establish qualifications and maximum hours of service pursuant to the provisions of section 31502 of title 49;..." The latter statute is the Motor Carrier Act (the "MCA"). Obviously the FLSA does not apply where the MCA is applicable. The MCA gives the Secretary of Transportation broad powers to regulate the working conditions of covered employees. In its current form the act states at 49 U.S.C. 31502(b) that:

Included in the jurisdiction of the Secretary of Transportation under 49 U.S.C. §1350 is transportation by motor carrier "...to the extent that passengers, property, or both are transported by motor carrier (1) between a place in - (A) a State and a place in another State; (B) a State and another place in the same State through another State." Thus there are two basic requirements to be met in order for the Secretary of Transportation to have jurisdiction over a motor carrier. The Secretary may act only where there are considerations of safety in transportation and that transportation must be in the flow of commerce. Additionally the MCA exemption from the FLSA applies even where the Secretary has not exercised jurisdiction by promulgating regulations.

In United States v. American Trucking Association, Inc. v. Ispass a trucking industry association petitioned the Interstate Commerce Commission (the "ICC") to regulate qualifications and maximum hours for employees of common and contract carriers whose duties were not related to safety of operations. The Motor Carrier Act at that time gave the ICC the duty to regulate private carriers if necessary to promote safety of operations. The wording delineating the duties of the ICC with respect to common and contract carriers merely allowed the ICC to establish requirements including those relating to safety of operations. The Court upheld the ruling of the ICC that it was without jurisdiction to grant the requested relief. Looking at the legislative history of the act the Court reasoned that highway safety was the underlying purpose of the act with regard to all included carriers. The Court held that the ICC's jurisdiction was "...limited to those employees whose activities affect the safety of operation. The Commission has no jurisdiction to regulate the qualifications or hours of service of any others."

The Court ruled consistently with the reasoning of American Trucking in Levinson v. Spector Motor Service and Pyramid Motor Freight Corp., both of which were decided on March 31, 1947. The plaintiff in Levinson was a "checker" or "terminal foreman" whose duties included directing the work of freight loaders. Although the plaintiff had duties that did not affect safety of operations a "substantial" portion of his time was spent in supervising the loaders whose work did impact safety. The Court ruled that the exemption in section 13(b)(1) is not limited to drivers. Because safety of operations is also affected by the activities of mechanics, loaders and drivers' helpers the ICC had the power to establish their qualifications and maximum hours of service. This power is not limited to those whose work exclusively deals with safety of operations. Partial duty drivers, mechanics and helpers are also subject to regulation under the MCA.

In Pyramid Motor Freight the Court remanded the case to the district court to determine if the whole or a substantial part of the work or the "loaders" whose work was in issue affected safety of operations. The court observed that in some cases the amount of an individual's work that affects safety of operations may be so minimal that they are not covered by the exemption. The Court added that "...the mere handling of freight at a terminal, before or after loading, may form so trivial, casual or occasional part of an employee's activities, or his activities may relate only to such articles, or to such limited handling of them, that his activities will not come within the kind of 'loading' ..." that affects safety of operations.

Shortly after deciding the Pyramid Motor Freight case the Supreme Court made it clear in Morris v. McComb that the ICC had the power to regulate full time drivers and mechanics who shared duties in interstate commerce that amounted to only 3% to 4% of a carriers total services where the balance of their services were not in interstate commerce. Finding that these individuals were exempt from the FLSA the Court stated that "...it is 'the character of the activities rather than the proportion of either the employee's time or of his activities that determines the actual need for the Commission's power to establish reasonable requirements with respect to qualifications, maximum hours of service, safety of operation and equipment.'"

The de minimis rule articulated in Pyramid Motor Freight was applied in Major v. Chons Bros, Inc. where the Colorado Appellate Court found that a mechanic and eight tow truck drivers were not covered by the Motor Carrier Act exemption and that they were therefore entitled to overtime compensation. The mechanic's work was entirely in Colorado. The drivers seldom crossed state lines. In the three year period preceding the filing of the suit there were only nine out of state tows among the drivers who worked twelve to eighteen hour shifts six days per week. This interstate work was held to be de minimis While not disputing the employer's contention that it was engaged in interstate activity the court noted that it is the nature of the employees' work that determines whether they are exempt, not the employer's business.

Vaughn v. Watkins Motor Lines, Inc. was an overtime compensation action brought by two individuals who unloaded freight from inbound trailers and loaded it onto outbound trailers. The plaintiffs contended that they were not covered by the MCA exemption as they did not exercise sufficient "judgement and discretion" to be classified as "loaders" as that term is defined in 29 U.S.C. § 782.5(a). The court rejected this argument noting that they did much of their work independently of their supervisors, whom they consulted infrequently. They independently blocked and loaded freight so that it was secure. They also prepared diagrams to show the location of hazardous materials within the loads so it could be found by safety workers in case of an accident. The court found that their work affected safety of operations thus bringing them within the exemption notwithstanding that their supervisors checked their work and occasionally gave them instructions.

In Southland Gasoline Co. v. Bailey the Court considered the fact that the ICC did not exercise its regulatory power in a given instance. In that case the ICC had not found need to establish qualifications and maximum hours of service for employees of private carriers. The Court found that the subject employees were nevertheless exempt from the FLSA under section 13(b)(1). The Court reasoned that it is not the exercise of the power to regulate under the MCA that gives rise to the exemption but the mere existence of that power in the Commission.

In Marshall v. Aksland the Sixth Circuit found the MCA exemption applicable to employees of a common carrier which had lost all of its interstate business. The court emphasized that the carrier continued to solicit interstate business and continued to maintain its vehicles as required by I.C.C. regulations. The carrier further maintained all other I.C.C. requirements necessary to handle interstate business. As long as the carrier held itself out in good faith as in interstate carrier its employees are subject to regulation by the I.C.C. and exempt from the FSLA.

The MCA exemption was found to be applicable to drivers helpers in Opelika Royal Crown Bottling Company v. Goldberg. The duties of the helpers, who traveled on the trucks with the drivers, included unloading cases of beverages and loading cases of empty bottles on the trucks. In contrast to the helpers the court found that the duties of a warehouse employee which did not include loading or unloading trucks did not affect safety of operations. Any assistance he gave the drivers was too trivial to bring him within the exemption.

A great deal of the case law interpreting the MCA exemption deals with the question of whether the subject employees are handling goods in the flow of interstate commerce. In Walling v. Jacksonville Paper Co. the Supreme Court held that employees may be covered by the exemption even if they do not cross state lines. The paper products involved in this case were shipped from out of state to a company warehouse before being reloaded on to local trucks for delivery within the state. The Administrator of the Wage and Hour Division of the Department of Labor, who brought the action, contended that the temporary stop in the warehouse interrupted the flow of the goods in commerce thus depriving the transportation of its interstate nature. The Court rejected this contention finding that such an interruption in the flow of commerce did not terminate that flow.

The Court found that the entry of the goods into the warehouse merely interrupted their movement in interstate commerce. It did not however terminate that movement. The Court stated that "...if the halt in the movement of goods is a convenient intermediate step in the process of getting them to their final destination they remain 'in commerce' until they reach those points."

The Jacksonville Paper Court also addressed the situation where goods are ordered into the warehouse to fill the known needs of specified existing customers when the goods are purchased pursuant to an existing contractual relationship. The Court did not distinguish these "generic" goods from those specially ordered with the customer's name printed on them. The Court reasoned that:

If there is a practical continuity of movement from the manufacturer or suppliers without the state, through respondent's warehouse and on to customers whose prior orders or contracts are being filled, the interstate journey is not ended by reason of a temporary holding of the goods at the warehouse. The fact that the respondent may treat the goods as stock in trade or the circumstances that the title of the goods passes to the respondent on the intermediate delivery does not mean that the interstate journey ends at the warehouse. The contract or understanding pursuant to which goods ordered, like a special order, indicates where it is intended that the interstate movement should terminate.

The reasoning of Jacksonville Paper was applied by the Tenth Circuit in Foxworthy v. Hiland Dairy Company in which the MCA exemption was found to be applicable to a milk route driver whose products were predesignated for his route before being shipped from out of state. The driver took possession of the products at an in state warehouse where they came to rest temporarily before being delivered to in state customers' pursuant to their pre-existing orders under contractual commitments to maintain a specified level of inventory. The products for one of the customers were pre-printed with the customer's name before being shipped to the warehouse. The court observed that the products were not held in inventory at the warehouse to be allocated for further transport. Rather they were allocated before being shipped from out of state. Also important to the court's decision were the facts that the products were not commingled and they remained in the warehouse only briefly for a period not exceeding three days. An additional independent reason for the finding that Mr. Foxworthy was exempt was the fact that he picked up empty containers from the customer which were taken to the warehouse to be shipped out of state.

In contrast to Jacksonville Paper and Foxworthey, the Fifth Circuit in Kline v. Wirtz found that the MCA exemption did not apply to a meat truck driver who did not cross state lines. The driver picked up meat at the employer's plant to which it had been shipped from out of state. At the plant the meat was boned, trimmed and cut to order before it was delivered to customers. The court held that the meat came to rest at the employers plant where the processing was an interruption in the flow of the goods in commerce from out of state to the employer's customers.

In Galbreath v. Gulf Oil Corporation the Fifth Circuit found the MCA exemption applicable to oil tank truck drivers who hauled petroleum products that were shipped into the state by pipeline. The drivers delivered the products to customers of the oil company in the state where the receiving pipeline terminal was located. Among the considerations that led to the court's decision was the fact that the products were not commingled but were rather the same as those shipped through the pipeline from the employer's oil refinery. Additionally the products were not processed or altered at the receiving location. They were shipped to fill contractual commitments of the oil customers in the receiving state to maintain certain fixed levels of inventory. No more than five days supply was maintained at the terminal. The court found that the fact that the goods were fungible did not detract fact that their flow in commerce was not interrupted at the receiving terminal. The court reasoned that "At least one of the major purposes of maintaining the Chattahoochee Terminal was to change the method of transporting the products.

The minimal amount of interstate activity required to bring the Motor Carrier Act exemption into play is demonstrated by the decision in Chao v. First Class Coach Company, Inc. which involved drivers on the company's "I-Ride," scheduled trolley-bus system which serviced only International Drive in a resort area near Disney World. One of the bases on which the court found the drivers covered by the Motor Carrier Act exemption was that some passengers paid for the I-Ride transportation with tokens purchased out of state as part of tour packages. Additionally, all drivers were subject to being called upon to drive vehicles in the interstate portion of the employer's business. While some drivers were seldom, if ever, required to do so they were all subject to being assigned to take an interstate route at the employer's option. Further the company maintained files to show that all drivers are qualified for interstate as required by 29 C.F.R. § 391.51(a).

The Fifth Circuit applied the well established principle that a delivery driver does not have to cross state lines to be engaged in interstate commerce in Martin v. Airborne Express. In that case the plaintiff picked up items at the employer's facility usually on the day they arrived and delivered them within the state. The items were shipped from out of state pursuant to specific orders of customers. The court emphasized that the freight was merely sorted by the employer to be delivered to predetermined destinations. This did not constitute processing or altering the merchandise. Accordingly the merchandise did not come to rest before being delivered in state. The delivery was therefore a continuation of the flow of the goods in interstate commerce. An additional basis for finding that the MCA exemption applied was the fact that the drivers also picked up merchandise to take to the employer's facility from which it was shipped out of state.

Computer technicians were found not to be entitled to overtime pay under the FLSA in Friedrich v. U.S. Computer Services where they crossed state lines primarily to install and service customer's computer hardware. They carried parts and tools to have on hand where needed to repair customers' equipment. The court found that the technicians were required to carry these items in order to perform their work. Therefore they were property being transported in interstate commerce even though servicing rather than transportation was the primary function of the technicians. Additionally the court rejected the argument that the passenger cars in which the technicians traveled took them outside of the MCA exemption under a supposed "passenger automobile exception" because the Department of Transportation has not issued regulation for this type of vehicle. The court looked to the well established precedent that it is not the exercise of the power to regulate that brings the exemption into play. It is the existence of the power whether or not it is exercised.

III. CONCLUSION

From the foregoing it is obvious that whenever there is a crossing of state lines by employees in the course of their duties or the transportation of freight from out of state or to be shipped out of state, employers should determine if the MCA exemption applies. As is the case with any exemption it is necessary to carefully review all pertinent facts before applying the MCA exemption to determine whether it is in fact available. Where overtime that is due is not paid there are many who are anxious to sue for the recovery of unpaid wages and the liquidated damages in an equal amount along with attorney's fees allowed by the FLSA.

11/10/2002

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