As FLSA and other wage lawsuits continue to be prevalent, one threshold issue that often arises with small and/or local businesses, as well as non-profit entities, is whether the employer is an enterprise covered by the FLSA. This issue is relevant because in order for the FLSA to be applicable, either the individual employee must be engaged in interstate commerce (individual coverage) or the defendant employer must be an enterprise engaged in interstate commerce (enterprise coverage). Enterprise coverage is triggered where an employer: 1) "has employees engaged in commerce or in the production of goods 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 2) has at least $500,000 of "annual gross volume of sales made or business done." 29 U.S.C. § 203(s)(1)(A).
Recently, the United States Court of Appeals for the Eleventh Circuit analyzed the applicability of enterprise coverage in six consolidated cases brought against employers who asserted they were local businesses not covered by the FLSA. In its decision, the court clarified what constitutes “goods or materials that have been moved in or produced for commerce” for purposes of establishing enterprise coverage. Polycarpe v. E & S Landscaping Serv., 2010 U.S. App. LEXIS 18171 (11th Cir. Fla. Aug. 31, 2010).
Specifically the court held that whether the employees, who performed different jobs for the several defendants, including “landscapers, security-system technicians, and construction workers, among other [occupations]”, were covered by the FLSA turned on whether they used any materials in conducting their employers’ business which had shipped in interstate commerce. Materials, held the court, should be read for FLSA purposes to mean “tools or other articles necessary for doing or making something.” The court specifically rejected the so-called “coming to rest” doctrine, wherein goods or materials shipped in interstate commerce ceased to be identified as such once they “come to rest within a state before intrastate purchase by a business.” The court reversed the dismissals at the district court level, remanding five of the six the cases for application of its “materials” test. The sixth case was affirmed based on uncontroverted evidence that the employer did not meet the $500,000 annual revenues test.
While a highly technical decision, Polycarpe stands for a very straightforward proposition: FLSA enterprise coverage (at least in the Eleventh Circuit based on the court’s definition of “materials”) is broad. Employers with $500,000 in gross revenues within the Circuit (encompassing Florida, Georgia and Alabama) must carefully analyze potential FLSA liabilities.