To prevail on a claim for unpaid overtime wages, a plaintiff must prove that the Fair Labor Standards Act (FLSA) covered their individual job (known as “individual coverage”) or the enterprise within which they worked (known as “enterprise coverage”).
An employer is subject to enterprise coverage under the FLSA if it:
- has employees engaged in commerce or in the production of goods for commerce, or has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person (the “handling requirement”) and
- has at least $500,000 of annual gross volume of sales made or business done (the “dollar-volume requirement”).
The FLSA recognizes that two or more separate entities—although legally distinct—operate as a single “enterprise” under the FLSA if they:
- are engaged in related activities;
- are a unified operation or under common control; and
- share a common business purpose.
“Engaged in Related Activities”
Separate legal entities are “engaged in related activities” under the FLSA where, for example, they:
- use the same website to advertise their services;
- rely on the same labor pool;
- do business under the same name; or
- sell the same or similar goods or services.
When two or more companies combine, unite, or organize themselves for a common business purpose, the companies have a “unified operation.”
“Common Business Purpose”
Activities are performed for a “common business purpose” if they are directed to the same business objective or to similar objectives in which the group has an interest. The fact that a company merely has a mutually beneficial working relationship with another company does not mean that the companies have a common business purpose under the FLSA. Rather, to establish a common business purpose, a plaintiff must show that the two companies have a significant degree of operational interdependence.
If the FLSA does not cover the business for which an employee works, the FLSA may still cover the employee’s individual job. “Individual coverage” exists where an employee is engaged in commerce or the production of goods for commerce.
When is an Employee “Engaged in Commerce”?
An employee is “engaged in commerce” if his or her work is directly and vitally related to interstate commerce, as opposed to work that is purely local in nature. “Interstate commerce” under the FLSA means trade, commerce, transportation, transmission, or communication among the several States or between any State and any place outside thereof.
Courts often look to whether the employee’s work engages him in the actual movement of persons or things within a continuous stream of interstate travel. For example, bus drivers who transport passengers to international transportation points is engaged in commerce under the FLSA. Other examples of employees engaged in commerce include:
- individuals engaged in the sales, manufacture, installation, repair or supply of machinery or tools and dies used in the production of interstate goods;
- maintenance and custodial employees of multi-tenant structures where the occupants engaged in the production of goods for commerce use a substantial portion of the leased space for their operations;
- employees of public utilities that furnish gas, water, or electricity to establishments producing goods for commerce;
- employees engaged in the removal of trash, garbage, and industrial waste from interstate producers and in the supply of water for commerce; and
- employees who work for a wholesaler and move goods interstate to meet the needs of specified customers.
By contrast, the following are examples of employees who are likely not engaged in interstate commerce under the FLSA:
- maintenance and custodial employees who service buildings that are in no way dedicated to interstate commerce or to the production of goods for such commerce;
- employees who handle goods after a merchant acquires the goods for distribution in the community where the employee is located;
- an employee who mows lawns for a small business within a single state;
- an employee who drives out-of-state guests from their motel to run local errands, but never drives them to or from the airport;
- an employee who purchases goods from a local retail store to contribute to the operations of an intrastate business, even though the goods have previously traveled interstate;
When is an Employee “Engaged in the Production of Goods for Commerce”?
Under the FLSA, an employee is “engaged in the production of goods for commerce” if he or she (1) is employed in producing, manufacturing, mining, handling, transporting, or in any other manner working on such goods, or in any closely related process or occupation directly essential to the production thereof and (2) the employer intends to move the goods through interstate or foreign commerce at the time of production.
The following are examples of employees who are “engaged in the production of goods for commerce” according to the United States Department of Labor:
Office and Clerical Employees
Office and clerical employees who not only transmit, prepare letters, bills, contracts, and other papers that are sent out of the state are engaged in the production of goods for interstate commerce.
Healthcare Industry Employees
Medical personnel, such as nurses, first-aid men and the like, who provide medical and first aid services at the place of employment for other employees who are engaged in commerce or in the production of goods for commerce are covered. Coverage is based on the principle that such employees are engaged in activities which facilitate commerce and are so proximately related to commerce as to be properly considered engaged therein or that their activities are closely related and directly essential to the production of goods for commerce.
Oil and Gas Industry Employees
Employees engaged in oil and gas exploration drilling and geophysical surveys; land-clearing and the construction of oil derricks and other structures in connection with drilling operations; extraction of oil or gas from wells for shipment in interstate commerce; the dismantling or moving of oil well drilling equipment; and watching or guarding drilling machinery are engaged in, or are closely related and directly essential to, the production of goods (oil and gas) for commerce.
Employees of even primarily local retail and service establishments can be individually covered. Examples of covered activities include: (1) ordering of supplies and goods by mail, telephone, and fax and receipt of goods ordered from out-of-state suppliers; (2) processing of credit card purchases such as preparation of credit card slip initiating a transaction with an out-of-state credit card company or transmission of a credit card check to an out-of-state clearinghouse; (3) transmission of information regarding a customer’s personal check to an out-of-state clearinghouse for approval; and (4) employees of retail chains with out-of-state main offices are frequently individually covered because of their regular contacts by mail, telephone, fax, and/or email with the main office.
Employees of savings and loan associations, like bank tellers, which make loans to persons residing in other states and take as security property located in other states, are engaged in interstate commerce. The sale of stock by such associations to, or the acceptance of deposits of, the federal government also frequently involve commercial transactions across state lines. The bank may be engaged in interstate commerce because of membership in a Federal Home Loan Bank. The insuring of accounts with the Federal Savings and Loan Insurance Corporation constitutes engagement in interstate commerce.
Employees of a warehouse, the storage facilities of which are used in the course of interstate transportation and distribution of goods, are engaged in interstate commerce. The unloading, inspecting, and checking of goods received at warehouse from outside the state, and the keeping of records with respect thereto, constitute engagement in interstate commerce. Whether employees engaged in and about a warehouse in handling goods after their receipt from outside the state are engaged in interstate commerce, depends upon the disposition and destination of the goods after they leave the warehouse. In those situations where the flow of interstate commerce terminates upon receipt of the goods at the warehouse, only those employees are individually covered whose activities pertain to the receipt of the goods. In situations where the flow of interstate commerce continues through or begins after the warehousing operations, all employees are individually covered who participate in any of the work through which goods are received, stored, or distributed, or in any activities so closely related thereto as to be a part thereof.
Security Guards and Watchmen
Employees engaged in watching or guarding instrumentalities of interstate commerce—including (1) movable facilities of interstate commerce, such as trucks, railroad cars, or ships, whether empty or loaded; fixed facilities of interstate commerce, such as interstate warehouse buildings, freight and passenger terminals, power transmission buildings, telephone exchanges, and radio stations; or (3) covered construction of the channels of interstate commerce, such as interstate highways, waterways, and railroad roadbeds—are engaged in interstate commerce under the FLSA. This is true even though the guard is employed by an independent protective agency.