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Cable installer contractor was retail or service establishment, exemption from overtime applied

By Lisa Milam-Perez, J.D.

A contractor that repaired, installed, changed, and disconnected cable services for a cable company’s customers was a “retail or service establishment” as defined by Sec. 207(i) of the FLSA, and its installation technicians were commissioned employees, a federal district court in Georgia ruled. Consequently, the court did not need to resolve whether the technicians fell within the outside sales exemption, or whether the company owner was individually liable as a statutory employer, before finding the company was exempt from the statute’s overtime provisions and granting summary judgment in its favor on the technicians’ class action wage claims (Jones v Tucker Communications, Inc, November 18, 2013, Treadwell, M).

Tucker Communications serviced the customers of Charter Communications, a cable company, under a master contractor agreement. After Charter customers contacted Charter to have their cable service repaired or installed, Charter would call upon Tucker, which would send one of its installation technicians to do the job. A group of technicians filed a collective action to recover unpaid overtime, and the class had been conditionally certified based on a joint stipulation. At issue here were competing motions for summary judgment as to the applicability of the exemption for commissioned employees of retail or service established, as set forth in Sec. 207(i). The parties disputed whether the employer was a retail or service establishment and whether more than half of the technicians’ pay came from commissions—two necessary criteria for the exemption to apply.

Services not “resold.” The FLSA defines a “retail or service establishment” as one in which at least 75 percent of its annual volume of sales of goods and/or services is “not for resale.” DOL regulations define “sales for resale” as those in which “the seller knows or has reasonable cause to believe that the goods or services will be resold, whether in their original form, or in an altered form, or as part, component, or ingredient of another article.” The technicians argued that Tucker’s services were resold — their installation services were sold to Charter, which in turn used them to service its own customers. Tucker countered that its services are not resold but instead are provided directly to the general public; the fees paid by those end users were simply channeled to Tucker through the cable company as a convenience.

Tucker had no reason to believe its installation services would be sold again, the court noted as an initial matter; there was no subsequent sale once its services were provided. Moreover, looking at the regulations erroneously relied on by the technicians to support their claims, the court observed that Tucker’s services were not “consumed” in the process of Charter providing cable services to customers. Further, the installation services were not a mere “enhancement” to customers’ cable or internet service; in fact, installation was a “discrete and necessary component,” wrote the court. “Without Tucker’s technicians installing the necessary equipment or repairing deficient equipment, Charter customers would not have access to their monthly services.”

Retail “concept.” A retail or service establishment “provides the general public its repair services and other services for the comfort and convenience of such public in the course of its daily living,” the DOL regulations state, distinguishing this “retail concept” from a primarily manufacturing function. The technicians insisted that Tucker’s status as subcontractor to Charter prevented it from meeting these characteristics because it serviced Charter and not the general public. However, courts have found a party’s status as a subcontractor does not alter the retail nature of its business. “The focus here is on the nature of the services, not the arrangement between the providers of the services,” wrote the court.

Moreover, although Charter could be considered Tucker’s customer, it didn’t necessarily follow that Tucker lacked the characteristics of a retail or service establishment. As the regulations have recognized, “the provision of goods and services to commercial

customers does not necessarily prevent an establishment from qualifying as a retail or

service establishment.” Here, it was already determined that Tucker’s sales were not for resale and, even though it contracted with Charter, it directly provides repair and installation services to end users — cable and internet customers. As such, “Tucker operates at the end of the stream of distribution and serves the everyday needs of the community.”

The technicians also contended to no avail that Tucker doesn’t “meet the everyday needs of the community.” The general public’s everyday needs are cable, internet and telephone services, while Tucker merely provides repair and installation for the companies that provide those everyday needs, they asserted. But the regulations encompass within the retail or service umbrella the provision of repair services and other services for the “comfort and convenience of such public in the course of its daily living,” the court found — which is precisely what Tucker does. The regulations include automobile repair shops, fur repair and storage shops, and piano tuning establishments. “If fur repair and piano tuning meet the everyday needs of the community, surely cable installation and repair does as well,” the court reasoned.

Not a wholesale establishment. In addition, Tucker is not engaged in the manufacturing process, and it disposes of its services in small quantities. As such, contrary to the technicians’ contention, the company could not be characterized as a wholesale establishment as defined by Sec. 779.328 of the relevant regulations (i.e., one that typically excludes the general public as a matter of business policy).

Several district courts have found this retail/wholesale distinction inapplicable to the Sec. 207(i) exemption because this regulatory provision referred to the Sec. 13(a)(2) exemption, which was contingent on the size of the employer and the types of transactions in which it engaged. The distinction between retail and wholesale did not serve the same purpose as applied to the Sec. 207(i) exemption, “which focuses on the employee’s compensation rather than the employer’s size or business plan.” At any rate, even if the distinction applied to Sec. 207, Tucker did not meet the characteristics of a wholesale establishment anyhow, the court concluded. Because it provides its services at the end of the stream of distribution, its role was consistent with a “retail” transaction and at odds with the regulatory description of a “wholesale” transaction.

Recognized as retail. To be a “retail or service establishment” under the FLSA, a company also must be recognized in a given industry as engaged in retail sales or services. In its defense, Tucker submitted an affidavit from the president and CEO of the local chamber of commerce — himself the former VP and general manager of another cable company. Based on his own experience in the industry, the affiant stated that Tucker’s services were considered to be retail functions. He distinguished the company’s function from those that would be deemed non-retail within the industry, such as laying cable to access a new housing development not previously served by cable, or other services that would be for the direct benefit of the cable company, rather than for the comfort and convenience of the end user.

The technicians cried foul, arguing that the witness lacked knowledge of the FLSA and failed to consult others within the industry before offering his opinion. But nothing in the regulations or in the case law so requires, the court said. “Because the regulations refer to the ‘well-settled habits of the business’ and ‘common knowledge’ as touchstones for whether services are considered ‘retail’ in the industry, it would seem incongruous to require those giving their opinions to consult outside sources beforehand.”

Commission-based pay. Finally, the technicians were paid a commission, satisfying this element of the retail or service exemption. The court rejected the technicians’ contention that they were paid “piece rates,” noting the company’s compensation system was incentive-based. Because the technicians were paid a set amount per task, they were not paid based on the length of time they took to complete jobs. Moreover, the technicians had the opportunity to pick up additional jobs during the day, and technicians who completed many jobs during a given week could earn thousands of dollars, whereas those who completed relatively few tasks in a week earned considerably less. The technicians protested that they could not simply earn more by working faster because the cable company dictated the work — and there was a fixed amount of work. Even so, the court surmised, technicians who quickly completed their assigned jobs would necessarily get a greater share of that available work.

Although the parties disputed whether the amount of compensation the technicians received was based on a percentage of what Tucker was paid by the cable company, the dispute was immaterial to the legal issue. Citing another case within the district, the court noted that “proportionality between an employees’ wages and an employers’ gains is an important part of a commission-based compensation system, but to say that any compensation system which does not pay an employee a direct percentage of their employers’ gain is not commission based is too narrow of a construction.” And it was not a necessary element of a commission-based payment plan within the Eleventh Circuit.

Nor was the court convinced that the company president’s repeated reference to the technicians’ “piece rate” compensation system throughout his deposition was controlling. The characterization of a particular payment method is an issue of law, so the word used by the president to describe the pay scheme was irrelevant. Certainly the technicians would have taken issue had the president called their pay “commissions,” the court reasoned. “Further,” it wrote, “allowing an employer to self-characterize its method of compensation in order to avoid paying overtime compensation would fly in the face of the purpose behind the FLSA.”

Because Tucker met its burden of proving that Sec. 207(i)’s “retail or service establishment” exemption applied, the court granted summary judgment in the employer’s favor on the technicians’ overtime claims.