Executive Summary: With Fair Labor Standards Act (“FLSA”) lawsuits becoming ubiquitous in recent years, it can be easy to forget that the act does not apply to all businesses or all employees. On July 17, 2018, the U.S. Court of Appeals for the Eleventh Circuit provided a useful reminder that the first step in analyzing any FLSA claim is not determining if there are minimum wage or overtime violations, but rather if the FLSA applies at all. Specifically, in Collar v. Abalux, Inc., No. 18-10676, __ F.3d __, 2018 U.S. App. LEXIS 19592 (11th Cir. July 17, 2018) the Eleventh Circuit affirmed the grant of summary judgment to an employer because the FLSA was not triggered given that the company had less than $500,000 in annual gross receipts, which is the minimum for enterprise coverage under the statute.
Case Background: On July 17, 2018, the U.S. Court of Appeals for the Eleventh Circuit decided Collar v. Abalux, Inc., which upheld summary judgment for a smaller employer because the employee who brought suit was not covered under the FLSA.
Jesus Collar sued his former employer, defendant Abalux, and its owner for unpaid overtime compensation for 2015. Abalux is a small printing company in Hialeah Florida which creates and installs signs, banners, and vehicle wraps for other businesses. Abalux argued successfully in the district court that Collar was not covered under the FLSA because it had gross receipts under $500,000. The FLSA applies to enterprises “whose annual gross volume of sales 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). Abalux had gross receipts of $505,973.33 in 2015, but when reduced by the retail sales tax, it resulted in annual gross sales of $499,717.45. Thus, the district court granted summary judgment to Abalux.
The Eleventh Circuit affirmed. On appeal, Collar raised a number of arguments. First, he contended that Abalux impermissibly excluded reimbursements for expenses, but the Eleventh Circuit agreed with the district court that even if those reimbursements were included, Abalux was still under the $500,000 threshold. Next, Collar argued that Abalux should have included income of $407.21 attributable to workers’ compensation, but the court held that because Collar failed to raise that in opposition to summary judgment, it was waived. Third, Collar argued that the gross sales should be increased by payments Abalux received in 2016 for sales it made in 2015. But the court rejected the argument for the same reason as the district court: Abalux used the cash basis of accounting, which records payments on the date money is received rather than the date a sale is made. Abalux operated on a calendar year and its records reflected that it recorded payments received in 2016 even though some sales occurred in 2015.
Finally, Collar argued that the court must employ the accrual based method of accounting for Abalux, but the court disagreed, relying on 29 C.F.R. § 779.266(b). That regulation states that “[t]he sales records maintained as a result of the accounting procedures used for tax or other business purposes may be utilized in computing the annual dollar volume provided the same accounting procedure is used consistently and that such procedure accurately reflects the annual volume of sales or business.” The court agreed with the district court that the undisputed facts showed Abalux has consistently used the cash basis accounting method to calculate its annual gross sales since 2012.
Bottom Line: Courts in the Eleventh Circuit strictly construe the $500,000 minimum requirement for enterprise liability under the FLSA. Small (and all) employers should keep accurate records of their sales so that if a wage and hour issue arises and the employer has less than $500,000 in gross receipts, it can successfully defend against a FLSA claim.