Eleventh Circuit: “Necessary” Means “Used” – Not “Necessary” – When Determining “Handling Clause” Coverage Under FLSA

Prendergast, Mike - 300dpi
Mike Prendergast

In Asalde v. First Class Parking Sys., LLC, No. 16-16814, ___ F.3d ___, 2018 U.S. App. LEXIS 17935 (11th Cir. June 29, 2018), a collective action for unpaid minimum wage and overtime, the United States Court of Appeals for the Eleventh Circuit found, in a split decision, that foreign-made uniforms worn by parking lot valets create a genuine issue of fact concerning an employer’s “enterprise” coverage under the Fair Labor Standards Act’s “handling clause.” 

In general, there are two ways in which an employer can be covered by the Fair Labor Standards Act: “enterprise coverage” and “individual coverage.”  If an employer qualifies for “enterprise coverage,” the Fair Labor Standards Act generally applies to the employer and its employees.  If an employer does not qualify for “enterprise coverage,” individual employees may still qualify for coverage under the law if they satisfy the requirements for “individual coverage.”  An employer is subject to “enterprise coverage” under the “handling clause” if its gross annual revenues exceed $500,000 and it “has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for [interstate or international] commerce by any person.”  29 U.S.C. § 203(s)(1)(A)(i) (emphasis added); see also, definition of “commerce” in 29 U.S.C. § 203(b).  In Asalde, the valets sought coverage under the “materials” prong of the “handling clause,” asserting that the following items qualified as “materials” under the statute: (1) the cars they parked for the employer’s customers; and (2) the walkie-talkies, pens, uniforms, valet tickets and other items used to park cars.

The case turned on whether the items in these two categories were “goods” or “materials”, since “goods” – unlike “materials” – are subject to the “ultimate consumer exception.”  Under this exception, “handling” of “goods” does not create enterprise coverage, if the handling occurs “after their delivery into the actual physical possession of the ultimate consumer. . . .”  29 U.S.C. § 203(i).

While the FLSA defines “goods,” it does not define “materials.”  In Asalde, the Eleventh Circuit noted that “goods” and “materials” are distinct categories and the same item can be “goods” in some situations and “materials” in others.  To determine if the cars the valets parked or items they used to perform their parking duties were “materials,” the court applied the two-part Polycarpe test, named for Polycarpe v. E & S Landscaping Servs., Inc., 616 F.3d 1217 (11th Cir. 2010).  Under this test, to qualify as “materials,” an item must (1) be a tool or some other article “necessary for doing or making something”; and (2) “have a significant connection with the employer’s commercial activity.”

valet imageApplying this test, the Eleventh Circuit agreed with the trial court that “vehicles parked by valets are ‘goods’ subject to the ‘ultimate consumer’ exception, and not ‘materials’ . . . .”  Citing its 2017 opinion in another case involving valet services, the court explained that cars are “item[s] on which a service is performed rather than the means of performing the service.”  2018 U.S. App. LEXIS 17935, at * 6 (citing Rodriguez v. Gold Star, Inc., 858 F.3d 1368, 1370 [11th Cir. 2017]).

Regarding items valets used to park the cars, however, the court held that the valets established triable issues of fact sufficient to avoid summary judgment.  The court restricted its analysis to the valets’ foreign-made uniforms.

As to the “necessity” prong of the two-part test, while acknowledging that valets can park cars without uniforms, the court found “physical necessity is not the baseline for determining whether an item used for work is, in the words of Polycarpe, ‘necessary for doing . . . something,’ and hence a ‘material’ under the FLSA.”  Instead, the court reasoned, the “necessary” prong can be met “as long as a business provides a service using [the] item as part of its commercial operations.”  (Internal quotations and citations omitted.)  The court added that this “encompasses a wide range of items that employees use in their work even if some possibility exists that the employees could perform their jobs without the items.”  The court held the valets demonstrated necessity, because uniforms allow customers to identify valets and see them as “professional and trustworthy.”  According to the court, “it makes no difference that [the employer] could possibly operate its valet business without requiring its valets to wear uniforms.”

Based on the same facts, the court found a triable issue on the second prong – i.e., a significant connection between the uniforms and the employer’s business of parking cars.  The court held that a jury could find uniforms help customers identify “the person to whom they should entrust their vehicle” and that “if the customers cannot identify the valet, they may be unable or unwilling to use the company’s services.”

The dissent criticized what it viewed as an erosion of the test for “material” status from items “fundamental to the operation of a business” to any item – even an unnecessary item – if the item is “useful to the provision of a service.”  The dissent expressed concern that the majority’s “relaxed Polycarpe test” makes “virtually every business that uses items not locally made subject to the FLSA, or at least a question for a jury to decide.”

Employer’s bottom line:  At least in the Eleventh Circuit, the Asalde decision demonstrates the broad approach courts take on FLSA enterprise coverage under the handling clause.  Employers whose volume of business exceed the $500,000 statutory threshold should exercise caution and obtain legal advice before concluding that none of their employees “handle” any “materials” produced in another state or abroad.

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