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First of a Three-part Series
Wage-Hour Standards in the Auto Repair Industry
By Brian Farrington
Is your shop running "according to code?"
This primer on wage-hour issues will help you decide.
Employment in the United States is governed by many rules and regulations, and it's no wonder that employers have a hard time complying with them all. In fact, it's hard even to be aware of them all. One of the oldest federal statutes governing employment is the Fair Labor Standards Act of 1938 commonly known as the federal wage and hour law. The Fair Labor Standards Act (hereinafter "FLSA" or the "Act") establishes standards in four areas: minimum wage, overtime, child labor and recordkeeping (the FLSA also contains the Equal Pay Act, but that law is more of an anti-discrimination law than a wage-hour law). In spite of its age, and its almost universal application, compliance with the FLSA is difficult, and noncompliance is common and expensive.
The Act is enforced by the U.S. Department of Labor's Wage and Hour Division ("USDOL/WH" or "Wage-Hour"). Wage-Hour conducts investigations of auto repair businesses in response to complaints from employees, current and former, as well as from competitors. The agency also targets various industries with histories of non-compliance, and conducts investigations of businesses in those industries even without complaints.
When USDOL/WH investigates a business, it doesn't limit it to the complainant. Generally, it looks at all employees, current and former, for the past two years. When they find violations, they not only require that the employer come into compliance, they also calculate back wages for any unpaid overtime or minimum wages for the two-year investigation period. In some cases, such as where the employer refuses to comply, the government can sue the employer. When such litigation occurs, the government not only asks the court to require compliance and payment of the back wages, but asks for additional damages equal to the back wages, so that the back wage award is doubled. And the government usually tries to persuade the court that the violation was willful, which adds a third year of back wages and damages.
As if all this isn't bad enough, employers can also be sued by their employees, and the employees don't have to go to Wage-Hour first. An employee or group of employees can hire a lawyer and file a lawsuit in U.S. District Court. The first time the employer knows about it is when the lawsuit is served. In such private litigation, the court can award back wages and damages for two years, and can add a third year if the violation is willful, just as when the USDOL/WH files suit. In private litigation, however, the court will give the successful plaintiff(s) an award of attorney's fees. So a business that loses an FLSA suit not only pays the employees, and pays its own lawyers, it pays the employees' lawyers as well.
It's important for any auto repair business to know the law, and to structure its practices so as to be in compliance. In this article, we'll review the basics of FLSA compliance. Naturally, this article is for general informational purposes only, and is not intended to constitute legal advice to anyone. While every effort has been made to ensure its accuracy, employers with questions should seek advice of counsel.
The FLSA doesn't apply to everyone, though it comes close. When originally passed, it applied only to individual employees in work weeks in which they were engaged in interstate commerce or the production of goods for interstate commerce. This is known as "individual coverage." Under the concept of individual coverage, originally the act would not have applied to most employees of auto repair businesses. In 1961, Congress amended the FLSA and added the concept of "enterprise coverage." Under enterprise coverage, employees were subject to the act merely if they were employed by a covered enterprise, even if they were not individually engaged in commerce (Congress did not repeal individual coverage, it just supplemented it). What is an "enterprise?" And what requirements does it have to meet to be a "covered enterprise?" That is, an enterprise whose employees are covered by the FLSA?
The Enterprise Concept
What is the "enterprise," the business unit to which the FLSA applies? An enterprise is defined as:
- related activities
- performed under unified operation or common contol
- For a common business purpose
This definition is very broad, and is intended to extend coverage as widely as possible. Take, for example, John Doe. He is the sole proprietor of a body shop called Doe's, and is the 51 percent stockholder in a corporation that owns another body shop, JD Inc. He is also a partner in a partnership that owns a towing company, Bill and John's Towing Service. The towing company responds to many types of calls, but naturally tries to tow as many wrecked cars as possible to one of the two body shops in which Joe is involved.
Even though the three companies are different legal entities, which file different tax returns, for FLSA purposes they are one employer. They are related activities, in that the two body shops are the same type of activity, and the towing company tows wrecked cars to them for repair. The activities are certainly under common control, since John controls or has the authority to control them, and there is also some unity of operation with the towing company (there might also be common employees, common bookkeeping or payroll, common purchasing of materials, etc.). And clearly, all the activities have a common business purpose, which is an integrated towing and repair operation. So this is one single enterprise under the FLSA.
Because John's operations constitute one enterprise, the dollar volume of sales made and/or business done is combined to determine the dollar volume of sales or business of the enterprise. Also, if some employees work for more than one entity in the work week, their hours of work are combined to determine overtime.
Now that the concept of an enterprise is understood, what tests have to be met for the employees of the enterprise to be "enterprise covered?" First, the enterprise must have at least two employees, and those two employees must handle, sell or otherwise work on something that has moved in interstate commerce. In a modern business, almost everything has crossed state lines at some point. Second, the enterprise must have a gross dollar volume of sales made or business done of $500,000 per year, not counting sales tax. Note that in the example above, if the two body shops and the towing company each grossed $200,000 per year, none would be covered considered alone. But because of the enterprise concept, their dollar volume of sales would be combined, and the total of $600,000 would make them part of a covered enterprise.
Any auto repair facility, collision or mechanical, is covered if it has two employees and grosses $500,000 per year. But what about smaller companies? Are they off the hook? Almost certainly not. Remember that individual coverage still exists. In today's economy, every office employee sends or receives mail and e-mail or telephone calls across state lines. Parts people order parts, many of which come from out of state. Even mechanics often produce goods for interstate commerce. For instance, technicians may pull out old batteries and set them aside for collection and eventual shipment out of state. Similarly, brake pads, heater cores, and many other parts are sent out of state for rebuilding or recycling, or just scrap. Even in a small shop, it would be rare to be able to avoid FLSA coverage.
If employees are covered by the FLSA, then the monetary and other requirements of the Act govern their pay unless a specific exemption applies. These requirements will be explored below.
Part two of this article series will address minimum wage as it relates to the work week, earnings, deductions, overtime and regular rate of pay.
| Brian T. Farrington is ASA's attorney specializing in wage-hour issues. Having extensive background in wage-hour law, Farrington writes, speaks and trains others on wage-hour issues. He is the author of "Wage-Hour Compliance," published in 1995 by Warren, Gorham and Lamont. His new book, "A Wage-Hour Guide for the Self Storage Industry," was published in 2006. In addition to representing employers to the government in wage-hour and EEO cases, Farrington often appears as a consulting or testifying expert witness on Fair Labor Standards Act issues in federal and state courts throughout the country. Under an arrangement with ASA, members can receive brief telephone consultations from Farrington at no cost. Members wishing to benefit from this service can call (800) ASA-SHOP, ext. 295, and ASA will arrange to have Farrington call the member. Employers requiring more extensive assistance can retain Farrington at their expense.
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