Hanna v. Marriott Hotel Services, Inc. et al
Filing
242
MEMORANDUM OPINION OF THE COURT. Signed by District Judge Eli J. Richardson on 01/09/23. (DOCKET TEXT SUMMARY ONLY-ATTORNEYS MUST OPEN THE PDF AND READ THE ORDER.)(ad)
IN THE UNITED STATES DISTRICT COURT FOR THE
MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION
SAMEH HANNA,
Plaintiff,
v.
MARRIOTT HOTEL SERVICES INC.,
MARRIOTT INTERNATIONAL INC.
Defendants.
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NO. 3:18-cv-00325
JUDGE RICHARDSON
MEMORANDUM OPINION
This case involves the applicability, to a group of banquet staff members employed by
Marriott Hotel Services Inc. (“MHS”), of the current version of the “retail or service
establishment” exemption to the overtime provisions of the Fair Labor Standards Act. Pending
before the Court are the two side’s cross-motions for summary judgment. (Doc. Nos. 206, 209).
For the reasons stated below, Defendants’ motion for summary judgment (Doc. No. 209) will be
GRANTED and Plaintiff’s motion for summary judgment (Doc. No. 206) will be DENIED.
FACTS
The Court concludes that all facts necessary for the Court to resolve this case as a matter
of law are not in genuine dispute, and that each of the cross-motions can be resolved as a matter
of law based on those undisputed facts. More specifically, each cross-motion turns on a question
of statutory interpretation, i.e., the applicability or inapplicability of the (statutory) “retail or
service establishment” exemption in light of the undisputed facts that are set forth in this section
beginning with the following paragraph.
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Defendant Marriott Hotel Services Inc. (“MHS”) is a wholly owned subsidiary of
Defendant Marriott International Inc. (“MII”). (Doc. No. 221 at 5). The Gaylord Opryland Resort
& Convention Center (“the Gaylord”)1 is a large hotel located in Nashville Tennessee and is owned
by Ryman Hospitality Properties Inc. (“Ryman”), a company legally unrelated to MHS. (Doc. No.
217 at 2).
MHS manages the Gaylord for Ryman. (Doc. No. 221 at 2). In exchange, MHS receives
from Ryman a guaranteed base management fee and, under certain circumstances, an incentive
management fee. (Id. at 3). The base management fee is calculated as a percentage of the gross
revenue generated at the Gaylord. MHS receives the incentive management fee only if MHS
reaches a particular profit threshold through its operations at the Gaylord. (Id.).
MHS manages all operations at the Gaylord, including selling (or renting) goods and
services, such as guest rooms, food and beverages, and banquet events. (Id. at 2, 6–9). Each
banquet customer enters into a contract with MHS for banquet services, and employees of MHS
serve as the staff. (Doc. No. 222 at 4). Each contract includes a mandatory banquet service charge,
which is either 24% or 25% of the total food and beverage costs charged to the banquet customer.
(Doc. No. 221 at 11). The service charge is divided up by MHS, with MHS retaining 45% and
allocating the remaining 55% to the banquet staff members. (Id. at 13–14). The 55% portion of the
In “Plaintiff’s Response to Defendants’ Statement of Undisputed Facts,” (Doc. No. 221), Plaintiff
repeatedly asserts that it is improper for “Defendants [to] attempt to define the ‘Hotel’ as the Gaylord
Opryland Resort & Convention Center, which as defined is not a legal entity.” (E.g., Doc. No. 221, at 1–
3). Although Plaintiff’s point here is not entirely clear, the point appears to be that Defendant is incorrect
to frame various purported facts in terms of a “convention center” or hotel—each of which is a physical
facility rather than a legal entity—when the purported fact at issue actually should be phrased in a terms of
a legal entity associated with the convention center/hotel. The Court certainly understands the distinction
between a legal entity and a physical facility. Plaintiff, however, provides the Court with no explanation as
to the significance of this distinction within the context of the parties’ arguments, and the Court is not aware
of any import this distinction has on its analysis.
1
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service charge is distributed proportionally among banquet staff members based on the respective
number of hours they worked that week.2 (Id.).
MHS receives payment from each banquet customer, which is then placed into a Marriott
Business Services bank account. (Id. at 3). The revenue received from the banquets at the Gaylord
is earmarked in the account for “the Hotel” (meaning, presumably, the Gaylord, although the
parties are unclear about this). (Id.). MHS remits to Ryman the profits from the banquet revenue,
less the base management fee and, if applicable, the incentive management fee. (Doc. No. 222 at
5).
The Gaylord is a popular attraction in Nashville, Tennessee and is open to the general
public. (Doc. No. 221 at 6, 7). It is commonly used as a venue for large-scale events, including
banquets. (Id. at 6). During the relevant time period, direct sales of goods and services to end
customers at the Gaylord constituted over 98% of total annual sales.3 (Id. at 10).
The sole original (and named) Plaintiff, Sameh Hanna, is a former employee and banquetstaff member of MHS. (Id. at 2). From March 2015 to October 23, 2020, Plaintiff served as a
Banquet Captain and Senior Banquet Captain. (Id.). During Plaintiff’s employment with MHS as
part of the banquet staff, Plaintiff’s compensation structure consisted of two inputs: 1) an hourly
wage; and 2) his share of the distribution of the 24% or 25% service charge collected from banquet
customers, i.e., his portion of the 55% of the service charge that is distributed among banquet staff
members. (Id. at 13–14).
The Court notes that although its use of the past tense refers to the facts pertaining to Plaintiff’s
employment by MHS, any use of the present tense should be understood as applying to all times material
to the parties’ cross-motions for summary judgment.
2
3
The parties do not specify the “total annual sales” to which they refer here; one suspects that they are
referring to MHS’s total annual sales made on the premises at the Gaylord, but such an interpretation leaves
one to wonder to whom the other 2% of annual sales was made; perhaps it was made directly to Ryman for
some purpose.
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Other than on one occasion, which is not material here, Plaintiff did not receive overtime
payment while employed by MHS as a banquet staff member. (Id. at 20).
PROCEDURAL BACKGROUND
Plaintiff brought this action against MII and MHS as a collective action under the Fair
Labor Standards Act (“FLSA”),4 seeking overtime pay for the relevant time period on behalf of
himself and others similarly situated to him. (Doc. No. 1). After filing an amended complaint (Doc.
No. 15), Plaintiff thereafter moved for conditional certification of a class (also known as a
“collective” in the context of FLSA collective actions) comprising himself and those similarly
situated, and for court-authorized notice to those similarly situated, pursuant to 29 U.S.C. § 216(b).
(Doc. No. 79). The Court granted that motion in part, certifying a particular defined class and
authorizing notice to members of the class. (Doc. No. 127).
Thereafter, the Court amended and clarified the scope of the class as originally defined,
such that the class is now defined as “all banquet staff employees of Defendants at the Gaylord
Opryland Resort and Convention Center in Nashville, Tennessee, who: (1) worked more than 40
hours per week for Defendants in the three-year period preceding the Court’s entry of this Order;
(2) were classified as “exempt” by Defendants pursuant to 29 U.S.C. § 207(i); and (3) were
compensated through the fixed hourly rate plus service charge distribution (characterized by
Plaintiff as the ‘variable hourly rate’) compensation plan under which Plaintiff was paid.” (Doc.
No. 150 at 1-2). Subsequently, more than 100 class members consented to joining this action with
the original Plaintiff as so-called “opt-in” Plaintiffs, although six thereafter were dismissed upon
motion of Defendants for failing to participate in discovery as required. (Doc. No. 241). (Herein,
The FLSA is codified at 29 U.S.C. § 201 et seq. The provision authorizing collective actions under the
FLSA is 29 U.S.C. § 216(b).
4
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the Court refers primary, though not exclusively, to “Plaintiff” rather than “Plaintiffs” even when
the reference applies equally to the opt-in Plaintiffs).
SUMMARY JUDGMENT STANDARDS
Summary judgment is appropriate where there is no genuine issue as to any material fact
and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). “By its very terms,
this standard provides that the mere existence of some alleged factual dispute between the parties
will not defeat an otherwise properly supported motion for summary judgment; the requirement is
that there be no genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
247–48 (1986). In other words, even if genuine, a factual dispute that is irrelevant or unnecessary
under applicable law is of no value in defeating a motion for summary judgment. See id. at 248.
On the other hand, “summary judgment will not lie if the dispute about a material fact is
‘genuine[.]’” Id.
A fact is “material” within the meaning of Rule 56(c) “if its proof or disproof might affect
the outcome of the suit under the governing substantive law.” Reeves v. Swift Transp. Co., 446
F.3d 637, 640 (6th Cir. 2006) (citing Anderson, 477 U.S. at 248), abrogated on other grounds by
Young v. Utd. Parcel Serv., 575 U.S. 206 (2015). A genuine dispute of material fact exists if the
evidence is such that a reasonable jury could return a verdict for the non-moving party. Harris v.
Klare, 902 F.3d 630, 634–35 (6th Cir. 2018). The party bringing the summary judgment motion
has the initial burden of identifying portions of the record that demonstrate the absence of a genuine
dispute over material facts. Pittman v. Experian Info. Sols., Inc., 901 F.3d 619, 627–28 (6th Cir.
2018) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). Alternatively, the moving
party may meet its initial burden by otherwise “show[ing]”—even without citing materials of
record—that the nonmovant “cannot produce admissible evidence to support a material fact (for
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example, the existence of an element of a nonmovant plaintiff’s claim).” Fed. R. Civ. P.
56(c)(1)(B). If the summary judgment movant meets its initial burden, then in response the nonmoving party must set forth specific facts showing that there is a genuine issue for trial. Pittman,
901 F.3d at 628.5 Importantly, “[s]ummary judgment for a defendant [that has met its initial burden
as the movant] is appropriate when the plaintiff ‘fails to make a showing sufficient to establish the
existence of an element essential to [her] case, and on which [she] will bear the burden of proof at
trial.’” Cleveland v. Pol’y Mgmt. Sys. Corp., 526 U.S. 795, 805–06 (1999) (quoting Celotex, 477
U.S. at 322).
“The standard of review for cross-motions for summary judgment does not differ from the
standard applied when a motion is filed by only one party to the litigation.” New Century Found.
v. Robertson, 400 F. Supp. 3d 684, 689 (M.D. Tenn. 2019) (citing Ferro Corp. v. Cookson Grp.,
PLC, 585 F.3d 946, 949 (6th Cir. 2009). “[S]ummary judgment in favor of either party is not
proper if disputes remain as to material facts. Rather, the court must evaluate each party’s motion
on its own merits, taking care in each instance to draw all reasonable inferences against the party
whose motion is under consideration.” Id. (quoting Taft Broad. Co. v. United States, 929 F.2d 240,
248 (6th Cir. 1991)). In addition, “if the moving party will bear the burden of persuasion at trial,
then that party must support its motion with credible evidence that would entitle it to a directed
verdict if not controverted at trial.” Timmer v. Michigan Dep’t of Com., 104 F.3d 833, 843 (6th
Cir. 1997) (citing Celotex Corp., 477 U.S. at 322–23); see also Ely v. Dearborn Heights Sch. Dist.
No. 7, 150 F. Supp. 3d 842, 849–50 (E.D. Mich. 2015) (explaining that if the moving party bears
the burden of proof at trial that party “must satisfy both the initial burden of production on the
summary judgment motion—by showing that no genuine dispute exists as to any material fact—
Courts (appropriately) at times refer interchangeably to a party being able to raise a genuine issue as to
fact and a reasonable jury being able to find in the party’s favor on that fact, and this Court does likewise.
5
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and the ultimate burden of persuasion on the claim—by showing that it would be entitled to a
directed verdict at trial.” (citing William W. Schwarzer, et al., The Analysis and Decision of
Summary Judgment Motions, 139 F.R.D. 441, 477–78 (1992))).
This case presents the unusual scenario in which no material facts are disputed by the
parties. The only questions yet to be resolved are questions of law for the Court—regarding the
proper construction of the “retail or service establishment” exemption and its applicability or
inapplicability to Plaintiff—to be answered in light of the undisputed facts. See Ramadan v.
Gonzales, 479 F.3d 646, 648 (9th Cir. 2007) (“A ‘question of law’ includes an issue
of statutory construction as well as the application of law to undisputed facts.”); Union Mfg. Co.
v. N.L.R.B., 221 F.2d 532, 533 (D.C. Cir. 1955) (“The facts were stipulated, and the question
before us is a question of law, one of statutory construction.”). Thus, this case is particularly apt
for resolution on summary judgment. See AKF, Inc. v. Western Foot & Ankle Center, 2022 WL
4538869, at *5 (E.D.N.Y. Sept. 28, 2022) (“It is well-established that the Court may decide all
questions of law on summary judgment.”).
DISCUSSION
The Foreign Labor Standards Act (29 U.S.C. §§ 201 et. seq., “FLSA”) was originally
passed in 1938 with the purpose of “eliminat[ing] ‘labor conditions detrimental to the maintenance
of the minimum wage standard of living necessary for health, efficiency, and general well-being
of workers’ engaged in interstate commerce.” See Kelly v. A1 Technology, 2010 WL 1541585, at
*6 (S.D.N.Y. Apr. 12, 2010) (quoting 29 U.S.C. § 202(a)); 29 U.S.C. § 201. Generally, the FLSA
requires (via what the Court will call herein the “overtime-payment requirements”) employers to
provide overtime payment to an employee who works more than forty hours in a week. 29 U.S.C.
§ 207(a)(1). However, there are several exceptions to the overtime-payment requirements. As
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relevant here, 29 U.S.C. § 207(i) exempts “employees of a retail or service establishment”
(hereinafter, “§ 7(i) retail-or-service exemption”)6 who are compensated under a particular pay
structure. Specifically, the § 7(i) retail-or-service exemption states in full:
No employer shall be deemed to have violated subsection (a) by employing
any employee of a retail or service establishment for a workweek in excess of the
applicable workweek specified therein, if (1) the regular rate of pay of
such employee is in excess of one and one-half times the minimum hourly rate
applicable to him under section 206 of this title, and (2) more than half his
compensation for a representative period (not less than one month) represents
commissions on goods or services. In determining the proportion of compensation
representing commissions, all earnings resulting from the application of a bona fide
commission rate shall be deemed commissions on goods or services without regard
to whether the computed commissions exceed the draw or guarantee.
29 U.S.C. § 207(i) (emphasis added)7.
The parties have filed a joint stipulation wherein they
agree that, pursuant to Section 7(i), employees are exempt from [the
overtime-payment requirements] when the following three requirements are met:
1. the employee is employed by a “retail or service establishment”;
2. the employee is paid a regular rate of more than one and one-half times
the federal minimum wage; and
3. the employee receives more than half of his or her compensation during a
representative period (of not less than a month) in the form of commissions earned
from the sale of goods or services.
29 C.F.R. § 779.412.
Outside the context of the term that the Court here has just coined, the Court uses “§ 207(i)”
interchangeably with “§ 7(i),” as each term refers to the same provision. The latter refers to the (sub)section
of the Fair Labor Standards Act itself wherein this provision is found, and the former refers to the section
in Title 29 of the U.S. Code where it has been codified.
6
7
It is notable that the phrase “retail or service establishment” is somewhat of a misnomer. As the DOL
regulations make clear, § 207(i) exempts employees of an establishment that provides goods or services
that are retail in nature. See 29 C.F.R. § 779.322. The phrasing of § 207(i), however, could lead the
reasonable reader to believe that employees of an “establishment” that provides services may be eligible
for the exemption even if those services are not considered “retail” services. Therefore, the more accurate
phrasing would be “retail-goods or retail-services establishment,” and this is how the Court understands the
phrase “retail or services establishment.”
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(Doc. No. 224 at 1-2).8 The Court accepts this stipulation, concluding that it accurately reflects
prevailing law, with one qualification: the Court will construe the first requirement to be that the
employee is an employee of a “retail or service establishment.” The Court thus accounts for any
conceivable substantive distinction between being “employed by” something and being an
“employee of” something, the latter of which is the terminology used in the § 7(i) retail-or-service
exemption.
With this qualification, the upshot of the parties’ stipulation in the present case is that
Plaintiff is exempt from the overtime-payment requirements if the following three requirements
are met: (1) Plaintiff is an employee of a “retail or service establishment”; (2) Plaintiff is paid a
regular rate of more than one and one-half times the federal minimum wage; and (3) Plaintiff
receives more than half of his compensation during a representative period (of not less than a
month) in the form of commissions earned from the sale of goods or services. Plaintiff does not
dispute that the second requirement is satisfied in this case; the dispute here is over the first and
third requirements.
To properly resolve the parties’ pending cross-motions, the Court must first answer a pair
of questions that drive the determination of whether the § 7(i) retail-or-service exemption applies
in this case. First, the Court must answer a question of first impression in this circuit. Namely, the
8
The parties are careful to note that:
Nothing in this stipulation constitutes a stipulation or an admission by Plaintiffs that the
payments at issue in this case, i.e., those distributed from the service charge pool, constitute
“commissions” within the meaning of 29 C.F.R. § 779.412(3). However, Plaintiffs
stipulate that Defendants have satisfied subsections 2 and 3 above if the Court concludes
that such payments are “commissions.”
(Doc. No. 224 at 2).
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Court must determine what it is that constitutes the “establishment” under § 207(i) when the
employer seeking the § 7(i) retail-or-service exemption for particular employees provides goods
and services on the physical premises owned or leased by another party that contracts with the
employer for the provision of those goods and services. . This determination—which entails
consideration of whether the “establishment” is the employer, or the premises, or the employer’s
particular business (unit) providing services at those premises—is necessary to deciding whether
Plaintiff is an employee of a “retail or service establishment,” so as to satisfy the first of the three
requirements for the § 7(i) retail-or-service exemption to apply. Additionally, the Court must
determine whether Plaintiff’s compensation in the form of a portion of the service charge
constitutes a “commission” within the meaning of § 207(i).9 This determination is necessary to
deciding whether Plaintiff received more than half of his compensation (during a relevant period)
in the form of commissions earned from the sale of goods or services, so as to satisfy the third of
these requirements.
As to the first question, the Court finds that MHS’ business at the Gaylord is the relevant
“establishment” of which Plaintiff is an employee for purposes of the § 7(i) retail-or-service
exemption. The Court also finds that Plaintiff is compensated in part by a commission. The section
7(i) retail-or-service exemption therefore applies, and thus MHS is exempt from the overtimepayment requirements with respect to Plaintiff.
1. TENETS OF STATUTORY CONSTRUCTION
When interpreting Section 207(i), the Court keeps in mind that “[t]here is no serious debate
about the foundational interpretive principle that courts adhere to ordinary meaning, not literal
As indicated above, “Plaintiffs stipulate that Defendants have satisfied [requirements] 2 and 3 above if
the Court concludes that such payments [i.e., payments distributed to Plaintiffs from the service charge]
are ‘commissions.’” (Doc. No. 224 at 2).
9
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meaning, when interpreting statutes.” Bostock v. Clayton County, Georgia, 140 S. Ct. 1731, 1825
(2020) (Kavanagh J., dissenting). “To discern that ordinary meaning, th[e] words [of the statute]
must be read and interpreted in their context.” Southwest Airlines Co. v. Saxon, 142 S. Ct. 1783,
1787 (2022) (internal quotation marks omitted). An essential (and primary) aspect of statutory
interpretation is determining whether the statute is ambiguous, meaning whether the statutory
language “is susceptible of more than one reasonable interpretation.” In re Darvocet, Darvon and
Propoxyphene Products Liability Litigation, 939 F. Supp. 2d 1376, 1379 (Judicial Panel on M.D.L.
2013) (citing Chao v. Occupational Safety & Health Review Comm’n, 540 F.3d 519, 524 (6th Cir.
2008)). In determining whether ambiguity exists, the Court is not limited to viewing the words in
isolation. Indeed, “[t]he plainness or ambiguity of statutory language is determined by reference
to the language itself, the specific context in which the language is used, and the broader context
of the statute as a whole.” See Robinson v. Shell Oil Co., 519 U.S. 337, 341 (1997). “[W]hen the
meaning of the statute’s terms is plain, our job is at an end. The people are entitled to rely on the
law as written, without fearing that courts might disregard its plain terms based on some
extratextual consideration.” See Bostock , 140 S. Ct. at 1750. And “[l]egislative history, for those
who take it into account, is meant to clear up ambiguity, not create it.” See id.
The undersigned recently noted:
The Court realizes that the concept of ambiguity can be subjective, in that there is
a continuum between what can be called “ambiguous” and what can be called
“unambiguous,” and in many cases there can be reasonable disagreement about
where on the continuum the possibly ambiguous item (such as, in this case, a
contract term) falls. That is why, for example, in Planters Gin Co., the learned
jurists on the Tennessee Supreme Court came to the opposite conclusion regarding
ambiguity than had the learned jurists of the Tennessee Court of Appeals. All of
which is to say that sometimes ambiguity is in the eye of the beholder. Be that as it
may, it is the Court’s job to call it like it sees it, giving a yes/no answer to the
question of whether the contract is ambiguous.
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Thornton v. Dutch Nats. Processing, LLC, No. 3:20-CV-00159, 2022 WL 4359066, at *6 (M.D.
Tenn. Sept. 20, 2022) (Richardson, J.). What the Court said in Thornton in the context of contract
interpretation applies here in the context of statutory interpretation, and the Court will proceed
accordingly.
2. DETERMINING WHAT CONSTITUTES THE “ESTABLISHMENT” HERE AT ISSUE
As further discussed in a footnote below, the parties embrace the definition of “retail or
service establishment” set forth in 29 C.F.R. § 779.24 and thus agree that a “retail or service
establishment” is an establishment 75 percent “of whose annual dollar volume of sales or goods
or services (or both) is not for resale and which is recognized as retail sales or services in the
particular industry.”
10
But that definition leaves open the question of what is meant by
“establishment,” and the parties disagree on what (and, more, specifically, what entity, business,
or place) it is that is the “establishment” that should be subjected to these 75-percent requirements
in this case to determine whether Plaintiff is an employee of a “retail or service establishment” as
required for the § 7(i) retail-or-service exemption to apply.
Defendants steadfastly maintain that the “establishment” is the Gaylord—the physical
premises on which Plaintiff carried out his duties as a banquet staff member. (Doc. No. 222 at 7).
“Retail or service establishment” is not defined in the current version of the FLSA. However, the DOL
regulations include, at 29 C.F.R. § 779.24, the definition as it once was contained in the now-repealed
Section 13(a)(2) and expressly make that definition applicable to Section 7(i). See 29 C.F.R. § 779.411;
Diggs v. Ovation Credit Services, Inc., 449 F. Supp. 3d 1280 (M.D. Fla. 2020) (“[C]ourts continue to apply
§ 213(a)(2)’s definition of retail or service establishment to the commission work exemption [, § 7(i) retail
or service exemption.”). As noted above, the parties mutually embrace that definition, and it certainly is not
inconsistent with case law from the Sixth Circuit, which has not spoken on the definition of “retail or service
establishment” in the FLSA since the definition was removed from the statute. Moreover, several other
courts have adopted the definition included in the DOL regulations. Gatto v. Mortgage Specialists of
Illinois, Inc., 442 F. Supp. 2d 529, 537 (N.D. Ill. 2006) (collecting cases). Moreover, the Court finds this
definition to be a reasonable construction of the statute. For all of these reasons, the Court will apply it in
the current context. In other words, the Court will apply this definition of “retail or service establishment”
to what the Court has found to be the relevant establishment, i.e., MHS’s business at the Gaylord, in light
of the undisputed facts regarding that establishment.
10
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In some points in his briefing, Plaintiff appears to agree with Defendants that the Gaylord is the
“establishment.” (Doc. No. 217 at 6–7 (“Having established the Gaylord as the applicable
establishment . . . .”)). At other points in his briefing, however, Plaintiff plainly asserts that MHS
is the relevant “establishment.” (Doc. No. 220 at 2 (“To qualify for the 7(i) [retail-or-service]
exemption, [MHS] must establish that it qualifies as a ‘retail or service establishment.’” (emphasis
added))). At one point, Plaintiff attempts to reconcile this discrepancy, opining that “[t]he Gaylord
. . . would logically serve as the distinct physical place of business from which [MHS] must
establish that it operates as a retail or service establishment.” (Doc. No. 217 at 6). Ultimately, the
Court construes Plaintiff’s argument to be that MHS’s business at the Gaylord, rather than MHS
as a whole, is the relevant “retail or service establishment.”
A. MHS’s Business At The Gaylord
The Court agrees with Plaintiff that MHS’s business at the Gaylord is the proper
“establishment” for purposes of the § 7(i) retail-or-service exemption (and further analysis
thereto). The text of the statute and existing case law both support this outcome and militate against
Defendants’ contrary argument that the establishment is the Gaylord.
In reaching this conclusion, however, the Court must confront the parties’ mutual view that
in order to be a “retail or service establishment” under § 207(i), something must be a “distinct
physical place of business.”11 The meaning of “establishment,” however, is not evidenced by the
text of the statute; no language within § 207 (or anywhere else in the FLSA, for that matter)
For clarification, the Court notes that as far it can tell from Plaintiff’s filings, Plaintiff contends both that
the Gaylord is the physical establishment for the purposes of the § 7(i) exemption (Doc. No. 220 at 3) and
that Marriott’s business at the Gaylord is the relevant “retail or service establishment” (Doc. No. 217 at 6).
Therefore, although Plaintiff’s theory is not entirely internally consistent, it appears clear that Plaintiff
agrees with Defendant that a “retail or service establishment” under § 7(i) must have some connection to a
distinct physical place of business. (Doc. No. 217 at 6) (“Both the Sixth Circuit and the applicable
regulations treat the ‘establishment’ as a distinct physical place of business.”). The Court is confident that
it has accounted for Plaintiff’s views as best as the Court is able to understand them from the briefing.
11
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provides a clear answer as to what “establishment” means within the facts of this case. Further, as
demonstrated by the cases discussed below, reasonable minds can differ on what constitutes an
“establishment” within different contexts arising under the FLSA.
More fundamentally, the statutory language at a certain level makes no sense. For instance,
it refers to an employer employing an employee, then oddly holds out the possibility that the
employee could actually be the employee of something other than that employer (which would be
the case, as is certainly conceivably under the statutory language, if the “establishment” is not the
employer); it also oddly holds out the possibility that an “employee” can be employed by a place
(as would be the case if, as is conceivable under the statutory language and as the parties suggests
at least to a degree, an “establishment” can be a place of business). The meaning of the § 7(i) retailor-service exemption is therefore ambiguous, and the Court must look beyond the plain text of the
statute to decipher its meaning.
Relying on a series of DOL regulations, the parties contend that “establishment” means
“distinct physical place of business.” (Doc. No. 209-1 at 11, Doc. No. 217 at 6); 29 C.F.R. § 779.23
(citing A.H. Phillips, Inc. v. Walling, 324 U.S. 490 (1945)), 29 C.F.R. § 779.203, 29 C.F.R.
§ 779.303.12 The DOL regulations themselves, however, do not contemplate the factual scenario
before the Court. Further, the case on which the regulations are based, A.H. Phillips, presented
materially different facts and involved a (prior) version of the retail-or-service exemption, one with
Although the parties do not address the extent to which this Court should defer to the DOL regulations,
the Court concludes DOL regulations are not entitled to Chevron deference. Several courts have found that
“regulations bearing on the term ‘retail or service establishment’ are not entitled to Chevron deference and
do not carry the force of law. The interpretations do not bind, but they may persuade, if on analysis they
are in fact persuasive.” See English v. Ecolab, Inc., 2008 WL 878456, at *7 (S.D.N.Y. Mar. 31, 2008); Doe
v. Butler Amusements, Inc., 71 F. Supp. 3d 1125, 1133 (N.D. Cal. 2014); Chen v. Major League Baseball,
6. F. Supp. 3d 449, 456 n.4 (S.D.N.Y. 2014). Therefore, to the extent the Court finds pertinent regulations
persuasive, it relies on them.
12
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language different from § 207(i). Moreover, the Court is not convinced that A.H. Phillips, despite
its below-discussed focus on an “establishment” having physical distinctness, created a one-sizefits-all definition of “establishment” for the FLSA. And case law that has followed A.H. Phillips
appears to support the Court’s reluctance to accept such a narrow definition.. Overall, the parties
take an approach to the term “establishment” under § 207(i) that is overly narrow and inconsistent
with the context and history of the DOL regulations. For these reasons, as discussed more fully
directly below, the Court declines to find under the facts of this case that “establishment” for
purposes of § 207(i) means “distinct physical place of business,” i.e., in this case, the Gaylord.
Instead, the Court finds MHS’s business at the Gaylord to be the applicable “establishment.”
i.
Origin Of The Parties’ Definition Of “Establishment”
The definition contained in the regulations and asserted by the parties originates from the
Supreme Court decision in A.H. Phillips. There, the Court addressed the meaning of the term
“establishment” in a since-repealed13 exemption (“Section 13(a)(2) exemption”)—then prescribed
in Section 13(a)(2) of the FLSA (29 U.S.C. § 213(a)(2))—which rendered the wage-and-hour
provisions of the FLSA inapplicable with respect to “‘any employee engaged in any retail or
service establishment the greater part of whose selling or servicing is in intrastate commerce.’”
See A.H. Phillips, 324 U.S. at 491 (quoting Section 13(a)(2)).
In A.H. Phillips, the petitioner owned and operated an office building, warehouse, and
several grocery stores. See id. The Administrator of the Wage and Hour Division of the U.S.
Department of Labor argued that the petitioner was obligated to pay its employees in the
warehouse and office building overtime and could not claim the Section 13(a)(2) exemption for
“employees engaged in a[ ] retail or service establishment[ ].” See id. at 492–493. By contrast, the
Section 13(a)(2) was repealed by Pub. L. 101-157, § 3(c)(1), Nov. 17, 1989, 103 Stat. 939. No provision
has ever been inserted into the now-empty Section 13(a)(2) to fill the void there created by that repealment.
13
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petitioner argued that the wholesale operation, office, and retail stores collectively constituted the
“establishment,” thereby exempting the warehouse and office employees from the requirement of
overtime pay rates. See id. at 496. The Court sided with the Division, finding that Congress
intended “establishment” to mean a “distinct physical place of business” rather than an “entire
business or enterprise.” See id. Considering the structure of the petitioner’s business, the Court
found that the petitioner’s corporation was composed of “49 retail establishments and a single
wholesale establishment.” See id. Because the “employees in question work[ed] in the wholesale
establishment,” the Section 13(a)(2) exemption did not apply. See id.
So it is true that the Court held that “establishment,” as used in Section 13(a)(2), meant
“distinct physical place of business.” Id.. But as indicated above, the definition adopted by the
Court in A.H. Phillips was adopted within the specific context of the wording of Section 13(a)(2)
and the facts of A.H. Phillips. Unlike § 207(i), which requires that the employee be an “employee
of a retail or service establishment” for its exemption to apply, Section 13(a)(2) required instead
that the employee be “engaged in any retail or service establishment” for its exemption to apply.
See 29 U.S.C. § 207(i); A.H. Phillips, 324 U.S. at 490 (quoting 29 U.S.C. § 213(a)(2)) (emphasis
added). So in A.H. Phillips, given its definition of “establishment,” the exemption was described
in terms of employees “engaged in” a “distinct physical place of business.” This description is
somewhat problematic because it is awkward to speak in terms of a person being “engaged in” a
physical place. But it is even more awkward to speak in terms of a person being an “employee of”
a physical place—which would be the upshot of applying A.H. Phillips’s definition to § 207(i) —
because physical places (as opposed to sole proprietorships or legal entities such as corporations)
do not have employees. As a result, the definition of “establishment” adopted in A.H. Phillips does
not necessarily (or easily) apply to § 207(i), given the particular wording of § 207(i).
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Further, using physical location or separation for the demarcation of an “establishment” is
reasonable when differentiating between operations of a multiunit entity, like the (corporate)
petitioner in A.H. Phillips. See Wright v. Adventures Rolling Cross Country, Inc., 2013 WL
1758815 (N.D. Cal. April 24, 2013) (“Arguably, the only reason for defining ‘establishment’ as a
distinct physical place of business was so that it could be distinguished from an integrated business
enterprise . . . . Notably, much of the case law concerning the term ‘establishment’ focuses on this
issue of establishment versus business enterprise.”). The definition, however, is of little use when
a company contracts to perform services for a different company on the physical premises owned
(or perhaps leased) by that other company. It is likely that the Court in A.H. Phillips did not
consider all hypothetical contexts—and in particular the context currently before the Court— in
which the definition might be applied, because a court generally seeks to answer only the questions
before it. See, e.g., Yazoo & M.VR. Co. v. Jackson Vinegar Co., 226 U.S. 217, 219–220 (1912)
(“But this court must deal with the case at hand, and not with imaginary ones.”).14
The DOL regulations seem to contemplate using physical location to define “establishment” primarily in
a scenario where a company runs several entities. For example, § 779.303 of the DOL regulations provide
a hypothetical to elucidate the differences between establishments that may qualify for the § 7(i) retail-orservice exemption and those that may not within the context of a single multiunit entity:
14
For example, a manufacturer may operate a plant for production of its goods, a separate
warehouse for storage and distribution, and several stores from which its products are sold.
Each such physically separate place of business is a separate establishment. In the case of
chain store systems, branch stores, groups of independent stores organized to carry on
business in a manner similar to chain store systems, and retail outlets operated by
manufacturing or distributing concerns, each separate place of business ordinarily is a
separate establishment.
29 C.F.R. § 779.303. As in A.H. Phillips, the DOL regulations (which, unlike A.H. Phillips, are intended to
define “establishment” as it appears in the current statutory language) appear to contemplate a scenario
where a multiunit entity has both retail and non-retail operations. Indeed, the hypothetical manufacturer in
the DOL regulation is almost factually identical to the petitioner grocery store owner in A.H. Phillips; each
of them owned a company with retail and nonretail operations, some of which would be eligible for
exemptions under the FLSA, and some of which would not be. Unlike the petitioner in A.H. Phillips,
however, which owned and operated the retail stores there at issue, MHS does not own (or lease) the
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Moreover, while A.H. Phillips relied heavily on the physical separateness of the warehouse
and the retail stores in its finding that the operations were all different establishments, the Court
gave serious consideration to “economic facts” and functionality. See A.H. Phillips, 324 U.S. at
498. Indeed, in reaching its decision, the Court did not rely solely on the physical separateness of
the warehouse from the retail stores; instead, it discussed in detail the roles of the warehouse
employees and explained why their duties did not entitle the petitioner to the exemption provided
in Section 13(a)(2). See id. (“These duties, rather, are economically, functionally and physically
like those of the independent wholesaler’s employees who, when engaged in interstate commerce,
are admittedly entitled to the benefits of the Act.”).
In the years that followed A.H. Phillips, at least one court has treated the physical
separateness of a business as merely one possible factor for consideration in determining what
constitutes the applicable establishment under Section 13(a)(2). See Lewis v. Brandt Furniture,
Inc., 277 F. Supp. 907, 912 (W.D. La. 1967), aff'd, 402 F.2d 265 (5th Cir. 1968). As the court in
Lewis explained:
To better understand the weight to be given the ‘distinct physical place of business’
test used in Phillips, it just [sic] be remembered that prior to that decision some
courts had decided that an ‘establishment’ might be as complex as an employer’s
business activity, and that there might be several retail outlets and wholesale
warehouses within a single ‘establishment.’ In short, ‘establishment’ was equated
with ‘business,’ and so long as the entire business of an employer met the
percentage requirements of Section 13(a)(2), that business in its entirety was
viewed as a single exempt retail establishment.
See Lewis, 277 F. Supp. at 912. According to the court in Lewis, the definition set forth in A.H.
Phillips sought to make “clear that an establishment was a distinct place of business and not a
Gaylord; the Gaylord is merely the physical premises on which MHS runs its hotel management business,
thereby providing the goods and services that MHS says place Plaintiff within the scope of the § 7(i) retailor-service exemption. The DOL regulations therefore do not appear to consider a factual scenario like the
one in the instant case; they contemplate facts like those in A.H. Phillips but go no further.
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grouping of businesses,” but did not go so far as to state a “conclusive” test to define
“establishment.” See id.; see also Wirtz v. Keystone Readers Service Inc., 418 F.2d 249, 255 (5th
Cir. 1969) (explaining that in addition to having a distinct physical character, “[a]n establishment
must have some locus; it cannot exist as merely a chimera or a concept.”). Ultimately, the court
found that the “determination of what constitutes the ‘establishment’ is a problem to be decided
from all the facts of any given case.” See Lewis, 277 F. Supp. at 912. On appeal, the Fifth Circuit
agreed. See 402 F.2d at 265–266
The parties would have the Court believe that A.H. Phillips stands for the proposition that
“establishment” as used in § 207(i) means, in our case, a “distinct physical place of business.” As
demonstrated, however, A.H. Phillips dealt with a materially different set of facts and statutory
provision. And the regulatory provisions embracing the definition set forth in A.H. Phillips do not
appear to contemplate the set of facts before the Court in this case. Moreover, as highlighted by
the court in Lewis and the Court’s analysis in A.H. Phillips, there is good reason to believe that
A.H Phillips’s finding as to the definition of ‘establishment’ is not as narrow as the parties suggest
it is. The Court is therefore satisfied that “establishment,” for purposes of § 207(i), does not always
refer to a “distinct physical place of business.”
ii.
Courts Have Embraced A Broader Definition Of “Establishment” Than The
One The Parties Mutually Embrace.
Courts confronted with facts similar to those in this case have remained consistent in
focusing on the factors of business practicalities and functionality weighed in A.H. Phillips, despite
not necessarily following A.H. Phillips’s notion of an “establishment” as a distinct physical place.
In Wirtz v. Campus Chefs, 303 F. Supp. 1112 (N.D. Ga. 1968), the defendant contracted with
Shorter College to operate the college’s two dining facilities, one located on the main campus and
the other located inside a hotel used for boarding students. Id. at 1114. The college supplied the
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defendant with various items (space, utensils, equipment, utilities, maintenance, and janitorial
services) needed for providing the food service, but the defendant otherwise had near complete
control over the food service. See id. at 1115. The defendant argued that it was exempt from the
FLSA’s minimum-wage and overtime-pay provisions under the original version of Section
13(a)(20), which exempted “any employee of a retail or service establishment who [was] employed
primarily in connection with the preparation or offering of food or beverages . . . .” See id. at 1114.
The court agreed. It first explained that under A.H. Phillips, “‘[t]he word “establishment” (must
be used) as it is normally used in business and in government.’” Id. at 1116. (quoting A. H. Phillips,
324 U.S. at 496).15 Just as the court in A.H. Phillips focused in part on the functional distinction(s)
between the petitioner’s retail and non-retail operations, the court in Wirtz considered whether the
defendant’s business was “functionally distinct” from the premises at Shorter College. Id. at 1116
(quoting Mitchell v. Gammill, 245 F.2d 207 (5th Cir. 1957)). Accord, A.H. Phillips, 324 U.S. at
497–498. The court reasoned that although the food service operations took place within the
confines of Shorter College, “for an establishment to be functionally distinct, it is not necessary
that it be physically separate.” See id. at 1116.
The court further opined that it would be improper to conflate the operations of the
defendant with the premises on which the operations occur, because “[t]here is nothing to indicate
any such intention on the part of Congress.” See id. The court therefore concluded—contrary to
Although Wirtz did not so note, in A.H. Phillips, the Court made clear that the word ‘establishment’
needed to be interpreted “as it is normally used in business and in government,” albeit only because the
Court “believe[d]” that “Congress used the word ‘establishment’” in this manner. 324 U.S. at 496 (emphasis
added). As explained by the Court in A.H. Phillips, “establishment” as used in this particular manner meant
“physical place of business,” and, “as applied to “chain store systems, ‘establishment’ thus described each
unit in the chain.” See A.H. Phillips, 324 U.S. 490 at 496 n. 6. Because A.H. Phillips did not appear to
consider the intended meaning of Congress beyond the chain-store context—a context pointedly different
from that before the Court here—the Court concludes that A.H. Phillips does not support the notion that
Congress intended the construction of “establishment” set forth in A.H. Phillips to apply to facts like those
involved in the present case.
15
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the position of the plaintiff, the Secretary of Labor—that “defendant’s food service is an
‘establishment’” for purposes of the exemption under Section 13(a)(20). See id.
Wirtz, which the Court finds persuasive with respect to its observations noted above, is
helpful in guiding the Court’s analysis. Though different from § 207(i) in some respects,
§ 213(a)(20), included the same wording as does § 207(i) limiting the exemption to situations
involving an “employee of a retail or service establishment.” Just as the defendant’s food service
operation in Wirtz was “functionally distinct” from the physical premises of the cafeteria that
defendant leased from Shorter College, Wirtz, 303 F. Supp. at 1116, MHS’s business at the
Gaylord is “functionally distinct” from the physical premises of the Gaylord on which MHS
provides its hotel management services for Ryman. Although MHS likely is a company more
complex than the defendant in Wirtz, the crux of the court’s reasoning is nevertheless applicable.
The court reasonably found that defendant’s food service operations (as opposed to the locations
where the operations were conducted) was the “establishment” under the FLSA and specifically
rejected the contention that the physical premises on which that operations were run affected the
analysis.16 And notably, in reaching that conclusion, Wirtz relied on A.H. Phillips—namely, the
part directing a focus on functional distinctiveness, rather than the part directing also a focus on
physical distinctiveness. It follows from Wirtz, which the Court finds with A.H. Phillips, that the
appropriate establishment here is MHS’s business at the Gaylord, rather than the physical location
(premises) on which such business is conducted, i.e., the Gaylord.
Defendants cite Wirtz in support of their argument that the Plaintiff was an employee of the Gaylord for
purposes of the § 7(i) retail-or-service exemption (as well as, of course, being an employee of MHS for
other purposes). (Doc. No. 222 at 12). As discussed, however, the Wirtz court found that the relevant
establishment was the defendant’s food service operation, not the physical premises on which it was carried
out. Therefore, when the court found that the plaintiff was an employee of a “retail or service
establishment,” it meant that the plaintiff was an employee of the defendant and nothing more.
16
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Importantly, Wirtz is not an outlier. Several courts analyzing other provisions of the FLSA
have rejected the idea that for something to be an “establishment,” it must be a single physical
location. See Brennan v. Goose Creek Consol. Ind. School Dist., 519 F.2d 53 (5th Cir. 1975)
(holding that janitors working for a single school district but assigned to various elementary
schools were employed by a single “establishment,” namely the school district); Schultz v. Hasam
Realty Corp., 316 F. Supp. 1136, 1143 (S.D. Fla. 1970) (holding that hotel owning and operating
five distinct facilities was a single “establishment” under the FLSA because each facility was “part
and parcel of the whole”); Mitchell v. Gammill, 245 F.2d 207, 211 (5th Cir. 1957) (“One of the
indicia of an ‘establishment’ is a distinct physical place of business…. Another is a functional
unity.”); Acme Car & Truck Rentals, Inc v. Hooper, 331 F.2d 442, 444–445 (5th Cir. 1964) (“[O]ne
major criteria is a distinct physical place of business . . . . Another is whether there is functional
unity.”). Therefore, in finding that MHS’s business at the Gaylord—rather than the Gaylord
itself—is the relevant “establishment,” the Court does not tread an entirely new path.
The authority cited by Defendants is ultimately unpersuasive in its reliance on the
definition of “establishment” contained in DOL regulations. For example, in Valladares v.
Insomniac, Inc., the plaintiff volunteered at the defendant’s music festival, NW2013, which was
held at San Manuel Amphitheater in California. 2015 WL 12656267, at *4 (C.D. Cal. Jan. 29,
2015). The defendant, Insomniac Inc., argued that NW2013 was the “establishment” for the
purposes of the amusement-and-recreation exemption to the overtime-payment requirements,
whereas plaintiff contended that Insomniac Inc. was the relevant establishment. See id. at *7 (citing
29 U.S.C. § 213(a)(3)). The court found that “establishment” as used in the amusement-andrecreation exemption meant “distinct physical place of business” as compared to an “enterprise,”
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meaning one integrated unit. See id. at *7–*8. Because NW2013 took place at a discrete location,
the court found the festival to be the “establishment.” See id. at *8.
The court in Chen v. Major League Baseball Properties Inc., 798 F.3d 72 (2d Cir. 2015),
provided almost identical reasoning. Similar to the plaintiff in Valladares, the plaintiff in Chen
volunteered at FanFest, an event hosted by Defendant (“MLB”) at the Javits Center in New York.
See id. The plaintiff claimed that MLB was the “establishment” in question, whereas MLB argued
that FanFest was its own “establishment” for the purposes of the amusement-and-recreation
exemption. See id. at 75–76. The Second Circuit found that “establishment” as used in § 213(a)(3)
meant “distinct physical place of business,” and that because FanFest took place at the Javits
Center, rather than the MLB headquarters, FanFest was the establishment in question. See id. at
82.
Although the courts in Valladares and Chen each found that “establishment” meant
“distinct physical place of business,” this conclusion does not square with the courts’ findings that
the “establishment” was NW2013 or FanFest, respectively; these were events, not physical places.
The only physical places in these fact patterns that could have constituted an “establishment”
would have been the Amphitheater where NW2013 was held and the Javits Center where FanFest
was held. These venues, however, would not be appropriate subjects of the § 213(a) analysis—
they are nothing more than the physical premises upon which the events were held. Given the
confounding approach the courts in Valladares and Chen, and that they were dealing with an
entirely different statutory provision,17 their respective conclusions that “establishment” always
The amusement-and-recreation exemption to the overtime-payment requirements states in pertinent part
that: “any employee employed by an establishment which is an amusement or recreational establishment,
organized camp, or religious or non-profit educational conference center . . . .” 29 U.S.C. § 213(a)(3)
(emphasis added).
17
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means “distinct physical place of business” is not persuasive to the Court in determining the
meaning of “establishment” for purposes of the § 7(i) retail-or-service exemption.
B. What it Means to be an “Employee Of”
The entire discussion above assumes, consistent with the parties’ mutual approach, that the
identification of the applicable “establishment” involves a holistic inquiry into what, under all
relevant circumstances, is most sensibly treated as the establishment for purposes of the three-part
test to determine whether Plaintiff is subject to the § 7(i) retail-or-service exemption. But the Court
acknowledges that conceivably the determination of whether Plaintiff is subject to that exemption
could proceed an entirely different manner, beginning with an entirely different approach to
identifying the applicable “establishment.” Indeed, in addition to contending that the Gaylord is
the proper establishment because it is a distinct physical place of business, Defendants argue that
the Gaylord is the proper establishment because Plaintiff is an “employee of” the Gaylord. (Doc.
No. 222 at 8 (“Defendants need to show that Plaintiffs are employees of a retail or service
establishment.”)).
As illustrated by Defendants’ position, the question of what is the proper “establishment”
under § 7(i) could in theory instead be approached by (first) answering the question, what is
Plaintiff an “employee of”? In other words, if § 7(i) requires the exempt employee be an
“employee of” the “retail or service establishment,” whatever entity the exempt employee is an
“employee of” must necessarily be the relevant “establishment” for the purposes of the Court’s
analysis under § 7(i)—thus leaving only the question of whether the identified “establishment”
meets the criteria for the § 7(i) retail-or-service exemption. Indeed, the wording of § 7(i) leads to
an inevitable chicken-or-egg situation, leaving the Court with more than one avenue by which to
determine the proper “establishment” for analysis under § 7(i). For completeness and given that
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this is a question of first impression in this circuit, the Court will undertake this alternative
analytical approach, even though it is content that it has properly identified the proper
establishment through its analytical approach above. Thus, accepting Defendants’ invitation, the
Court will identify the applicable “establishment” via the alternative approach of identifying what
it is that Plaintiff is an “employee of,” and deeming whatever that is to be the applicable
“establishment.”18
Having just used “egg” in one metaphor, the Court will use it in another, by noting that that
the Court must call an egg an egg: Section 7(i) is a disaster in terms of its terminology, an
unfortunate circumstance that very predictably has fostered extraordinary confusion. The labyrinth
of statutory interpretation—and the chicken-and-egg problem—reflected herein is unquestionably
the unavoidable result of disastrous word choice(s) in Section 7(i). The clearly more sensible
phrasing of the provision would have been “an employee at a retail or service establishment.” This
phrasing caters much more to the reader’s natural understanding of how the provision should be
phrased. Indeed, as if to confirm the appropriateness of such phrasing, Lexis Nexis actually used
it (both in its bound volume and its online version of the U.S. Code), incorrectly using the words
“by employing any employee at a retail or service establishment,” rather than the actual words,
i.e., “by employing any employee of a retail or service establishment.” 29 U.S.C. § 207(i)
(emphasis added). This rather striking error by such a well-established publisher of the U.S. Code
is not explainable, as far as the Court can tell, by any confusion engendered by a change in the
statutory language at some point or by legislative history. The likely explanation is that the
publisher’s responsible employees (surely subconsciously) correctly gathered that the statute
18
The Court notes that, for reasons that do not warrant discussion, it maintains that the approach
taken above is the superior of the two discussed possible analytical avenues. In any event, in this
case the outcome is the same under each approach.
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would have made a lot more sense had it used phrase “at a” rather than “of a,” and simply
substituted the more sensible phrase for the actual phrase (surely without realizing the error).
In taking the second of the above-referenced two alternative approaches to determining
what the applicable “establishment” is under § 7(i), Defendants seek to convince the Court that the
Gaylord is the proper establishment on the grounds that Plaintiff is an “employee of” the Gaylord.
But like their argument under the first approach, Defendants’ argument under the second approach
falls flat.
As noted, Defendants argue that the Gaylord is the applicable “establishment” because
Plaintiff is an “employee of” the Gaylord. This argument, however, requires the Court to accept
that (for purposes of § 7(i)) an individual is an “employee of” a place merely because the individual
does the work that is done at that place. This conclusion, however, poses a serious textual problem.
Even accepting that “employee” means an individual who does the work of that place, application
of that definition to a scenario where the “employer” and “establishment” are not part of the same
multiunit entity is unsupported by the regulations and leads to an absurd result. Further, to the
extent legislative history should be considered, it demonstrates that Congress did not intend
“employee of” to mean merely that the individual does the work of that establishment, i.e., that
any individual who does the work of that establishment necessarily qualifies as an “employee of”
that establishment. Thus, as discussed below, the textual problems raised by Defendants’ position
therefore prevent the Court from finding that Plaintiff was an “employee of” the Gaylord.
i.
Plain Text
The plain text of § 207(i) precludes the “establishment” from being the Gaylord because
Plaintiff unambiguously is not an “employee of” the Gaylord within the meaning of § 207(i). For
its exemption to apply to an individual (such as Plaintiff), Section 207(i) requires both that the
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“employer” employ the individual19 and that the individual be an “employee of” the “retail or
service establishment.” 29 U.S.C. § 207(i). Defendants do not dispute that MHS was Plaintiff’s
“employer,” stating that “MHS hired, disciplined, supervised, and fired Plaintiffs; it controlled
when they worked and how much they were paid; it maintained employment records and otherwise
controlled all aspects of their employment.” (Doc. No. 221 at 4). Defendants, however, ask the
Court to accept that Plaintiff was an “employee of” the Gaylord because he “perform[ed] the work
of the establishment.”
In § 7(i), and in particular in its relevant portion, there are three different permutations of
the word having the root “employ.” Namely, the very first part of § 7(i) contains the words
“employer,” “employing,” and “employee [of],” one time apiece. At least in the abstract, it is
possible that for purposes of § 7(i), the person the “employer” is “employing” could be an
“employee” of someone (or something) other than the “employer” (whom the person is also an
“employee of”); in other words, it is conceivable that the person be an “employee” not only of the
referenced “employer,” but also of someone or something else. For this reason, Defendants’ claim
that it is the “employer” of Plaintiff conceivably could be reconciled with the notion that the
Plaintiff is the “employee of” something else (the Gaylord in particular, according to Defendant)
for purposes of § 7(i). But Defendants’ requested application of the § 7(i) retail-or-service
exemption—that MHS is the “employer” of Plaintiff, but that Plaintiff is the “employee of” the
Gaylord—strikes the Court as counterintuitive and thus implausible from the outset. And the
premise underlying Defendant’s argument—that for purposes of the exemption, the plaintiff can
be the “employee of” someone or something other than the employer—could lead to absurd results.
When an employer employs an individual, it is typically said that the individual is an employee of the
employer. But the precise language of Section 207(i)—to which the Court does need to pay heed—nowhere
expressly refers to the individual as being an employee of the employer; instead, it refers only to the
individual being an employee of the retail or service establishment.
19
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Specifically, it would permit a scenario where an “employer” could claim the exemption on behalf
of an “employee” employed to do obviously non-retail work, on the sole basis that the employee
does retail work for an entirely unrelated second employer.20
For example, assume that Smith works on the factory line of a widget wholesaler Monday
through Friday and works (for an entirely unrelated retail clothing store or, to be more precise, for
the owner of the clothing store) as a salesperson on the weekends. Assume also that the widget
wholesaler compensates Smith in a manner that satisfies the third (and final) requirement for the
§ 7(i) retail-or-service exemption. Under § 207(i), the widget wholesaler would be Smith’s
“employer,” and it would be “employing” an “employee of a retail or service establishment”
because Smith is also an employee of the clothing store. Under this construction, a wholesaler,
despite obviously not meeting the definition of a “retail or service establishment,” would be able
to claim the § 7(i) retail-or-service exemption with respect to Smith. Of course, this interpretation
would offend the well-established cannon that “absurd results are to be avoided,” particularly those
that “we are confident Congress did not intend.” United States v. Fitzgerald, 906 F.3d 437, 447
(6th Cir. 2018).
Some courts have gone so far as to assume that that “employer” is necessarily the same as the “retail or
service establishment” under § 207(i). See Arnold v. DirectTV, LLC, 2017 WL 1196428 (E.D. Mo. March
31, 2017) (emphasis added); Diggs v. Ovation Credit Services, Inc., 449 F. Supp. 3d 1280 (M.D. Fla. 2020)
(“[T]o establish entitlement to the commissioned work exemption, the employer must show that: (1) it is a
retail or service establishment”) (emphasis added); Johnson v. Wave Comm GR LLC, 4 F. Supp. 3d 423,
434 (N.D.N.Y. 2014) (explaining that under § 207(i), courts must determine “whether an employer is a
retail or service establishment.”) (emphasis added). Notably, these courts were not called to decide whether
the “employer” and the “retail or service establishment” are the same under § 207(i) for the purposes of
identifying the relevant entities under the statute. Presumably, therefore, the courts merely assumed the two
were the same because it is the natural reading of the statute. While this Court does not necessarily agree
that the “employer” and the “retail or service establishment” must be entirely identical (i.e., overlap
completely), these examples illustrate that the seemingly natural reading of the statute—that the “employer”
is the “retail or service establishment”—stands in stark contrast to Defendants’ proposed application.
20
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Notwithstanding the challenges posed by the plain text of the statute, Defendants
nonetheless insist that the DOL regulations support their position. As pointed out by Defendants,
§ 779.308 of the DOL regulations states that an employee “meet[s] the requirement of actual
employment ‘by’ the establishment,” “whether performing his duties inside or outside the
establishment,” when he is “employed by his employer in the work of the exempt establishment
itself in activities within the scope of its exempt business.”21 29 C.F.R. § 779.308 (internal
quotation marks omitted). According to Defendants, this provision of the DOL regulations
supports Defendants’ contention that Plaintiff was an “employee of” the Gaylord because he was
“employed by his employer in the work” of the Gaylord. But Defendants stretch this provision too
far; § 779.308 does not even address the crucial language of § 7(i) requiring Plaintiff be an
“employee of” of the establishment. 29 U.S.C. 207(i) (emphasis added). Even if the Court were to
look past this discrepancy and find § 779.308 pertinent to the interpretation of § 7(i), the pertinence
would be minimal because § 779.308 appears to do nothing more than clarify which employees
are subject to the § 7(i) retail-or-service exemption when a single employer maintains both nonretail and retail businesses. Indeed, the regulation itself cites to several cases, all of which involve
multiunit corporate entities consisting of both non-retail and retail units.22 In short, 29 C.F.R.
This regulation uses the term “exempt establishment.” This terminology is inexact, because the § 7(i)
retail-or-service exemption is employee-specific, not establishment-specific. That is, an employee (or, more
precisely, an employee’s compensation) either is or is not subject, entirely, to the § 7(i) retail-or-service
exemption. The same is not true of establishments; even establishments having some employees that are
subject to the § 7(i) retail-or-service exemption could have employees who fall outside that exemption
because of their compensation structure. So “exempt establishment” here really means “establishment
having one or more exempt employees.” To the extent that § 779.308 refers to the former Section 13(a)(2),
the same reasoning applies. See A.H. Phillips, Inc., 324 U.S. at 491 (explaining that the issue in the case is
whether the employees are exempt from the FLSA’s wage-and-hour provisions).
21
22
In fairness to the DOL, in that scenario, the definition promulgated by the regulations makes sense. When
a company owns and operates both non-retail and retail businesses, an exemption for employees connected
to retail or service activities ought to apply only to those employees working within the scope of the retail
(or service) business. See A.H. Phillips, 324 U.S. 490 (1945) (holding that employees working in the
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§ 779.308 itself suggests that its definition of an “employment by” a retail or service
establishment—namely, someone “employed by his employer in the work of the exempt
establishment itself in activities within the scope of its exempt business”—was not intended to
apply beyond multiunit entities having both non-retail and retail businesses, and, in the Court’s
view, stretching it to apply to this case opens the doors to a construction plainly at odds with the
text of § 207(i). And it is axiomatic that definitions contained in agency regulations cannot change
the plain meaning of the statutory text.
ii.
Legislative History
Although the Court could end its interpretation of “employee of” with the plain text of the
statute, in the event ambiguity does in fact exist as to whether Plaintiff could be an “employee of”
the Gaylord, the legislative history suggests that such question should be answered in the negative.
The legislative history illustrates that Congress knew how to write a provision of the FLSA to
apply to an individual merely performing the work of an establishment but chose not to do so when
drafting § 207(i). When passed, the FLSA contained Section 13(a)(2), which exempted employees
from the overtime-payment requirements who worked in a “local retailing capacity.” See Kelly,
2010 WL 1541585 at *6 (citing H.R. Rep. No 75–2738, at 9). In doing so, Congress sought to
exclude business that was “of a purely local nature” and that did not “substantially influence the
stream of interstate commerce.” S. Rep. No. 75–884, 5 (1937); Walling v. Jacksonville Paper Co.,
317 U.S. 564 (1943).
In its initial state, Section 13(a)(2) applied to “any employee engaged in any retail or
service establishment the greater part of whose selling or servicing is in intrastate commerce.”
H.R. Rep. No. 75–2738, at 9 (emphasis added). In 1949, Congress amended Section 13(a)(2),
grocery stores were subject to the Section 13(a)(2) exemption, but those working in the warehouse of the
same company were not).
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changing the language to “any employee employed by any retail or service establishment…” H.R.
Rep. No. 81–1453, 8 (1949) (Conf. Rep.). In 1961, Congress again amended the FLSA to include
§ 207(i). The additional provision was motivated in part by retail employers’ concern that
providing overtime payments to employees working on commission could put an undue strain on
the employers. See Kelly, 2010 WL 1541585 at *8. In 1989, Congress repealed Section 13(a)(2)
in its entirety but left § 207(i) intact. H.R. Rep. No. 101–260, 18, 39 (1989) as reprinted in 1989
U.S.C.C.A.N. 696, 706, 727.
Although Section 13(a)(2) and § 207(i) were always distinct provisions of the FLSA, they
were closely related. On their faces, both excluded a particular segment of employees (those
working in retail or services), from the overtime-payment requirements of the FLSA. In practice,
to aid in their interpretations of § 207(i), courts regularly draw on DOL regulations citing to
Section 13(a)(2). See Kelly, at *11 (“The courts have also uniformly concluded that, despite the
1989 repeal of the exemption in Section 13(a)(2) for certain retail or service establishments, the
definition of a retail or service establishment that was contained in that section still applies to the
phrase as used in section 7(i).”).23
The evolution of Section 13(a)(2) is not without significance. “The reenactment canon
provides that whenever Congress amends a statutory provision, a significant change in language
is presumed to entail a change in meaning.” In re Davis, 960 F.3d 346, 354 (6th Cir. 2020) (internal
quotation marks omitted). Therefore, the Court must assume that Congress intended to effectuate
a change in the law when, in 1949, it changed Section 13(a)(2) from applying to employees
“engaged in any retail or service establishment” to applying to employees “employed by” such an
establishment. The natural conclusion drawn from the amendment is that Congress sought either
Although not entirely correct, Defendants even refer to Section 13(a)(2) as the “former retail or service
exemption.” (Doc. 209-1 at 10).
23
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to narrow or to clarify the relationship between the employee and the retail or service establishment
necessary to bring an employee under an exemption for employees having some relationship with
a retail or service establishment. And when (in 1961) Congress enacted § 207(i)—a provision
sharing similar language and a similar purpose with § 13(a)(2)—it is noteworthy that Congress did
not choose to cover simply “employees engaged” in a retail or service establishment. Consistent
with its changes to Section 13(a)(2), Congress sought to limit the § 7(i) retail-or-service exemption
to “employees of a retail or service establishment.” The legislative history therefore suggests that
Congress knew how to write exemptions (to otherwise applicable FLSA requirements) to apply to
employees performing the work of a particular place irrespective of whether they are employed
by the owner (or lessor) of that place, and yet it chose not to do so in drafting § 207(i). The
legislative history regarding exemptions for employees connected with retail and service
establishments, therefore, does not support Defendants’ interpretation that Plaintiff is an
“employee” of both the Gaylord and MHS.
In summary, even if the plain text were ambiguous as to whether Plaintiff was an employee
of the Gaylord, the legislative history suggests that “employee of” means something more than
simply doing the work that is done at that place.24
The Court confesses that this conclusion with respect to the statute is not completely satisfying. As noted
above, the statutory construction would have been much simpler (and satisfying) had the statute instead
said that “no employer shall” have violated the overtime-payment requirements by “employing any
employee” “at a retail or service establishment” (or perhaps that “no employer shall” have violated the
overtime-payment requirements by “employing any employee of” its “retail or service establishment”).
Congress could have so provided, and indeed it did something along those lines in another provision of the
FLSA. See 29 U.S.C. § 213(a)(3) (“any employee employed by an establishment which is an amusement
or recreational establishment”) (emphasis added)). But even if Congress could have been clearer in its
drafting of § 207(i), the Court must work with the text of the statute as written.
24
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3. RETAIL OR SERVICE ESTABLISHMENT CRITERIA
It is one thing to identify, as the Court has done above, the relevant “establishment,” i.e.,
the “establishment” that Plaintiff is an “employee of.” It is another thing to say that the
establishment is a “retail or service establishment,” as required for the § 7(i) retail-or-service
exemption. The question here is whether the relevant “establishment”—MHS’s business at the
Gaylord—is a “retail or service establishment” in particular.
DOL regulations state that a “retail or service establishment,” as also previously defined in
Section 13(a)(2), means an “establishment 75 per centum of whose annual dollar volume sales of
goods or services (or both) is not for resale and is recognized as retail sales or services in the
particular industry. 29 C.F.R. § 779.24.25 The regulations further note that the requirement that
“75 percent of the establishment’s annual dollar volume must be derived from sales of goods or
services (or both) which are recognized as retail sales or services in the particular industry” is
distinct from the requirement stating that 75 per cent of the establishment’s sales of goods or
services be not for resale. See 29 C.F.R. § 779.322.26 (Below, the Court will refer to these two
requirements as the “two 75-percent requirements”). In other words, the establishment must show
both that 75 percent of its annual dollar volume sales of goods or services is not for resale and 75
While not made clear in 29 C.F.R. § 779.24, both “goods” sold and “services” sold must be retail in
nature to count towards the 75-percent requirement. See 29 C.F.R. § 779.322 (“75 percent of the
establishment's annual dollar volume must be derived from sales of goods or services (or of both) which
are recognized as retail sales or services in the particular industry…”) (emphasis added). Thus, the more
accurate, albeit more cumbersome, term for “retail or service establishment” is “retail-goods or retailservices establishment.”
25
26
These regulations are interpretive rules and “were not subject to notice-and-comment rulemaking,” and
therefore are only subject to deference insofar as they “have the power to persuade.” See Diggs, 449 F.
Supp. at 1287 n.8 (internal quotation marks omitted). Unlike several other DOL regulations discussed
herein, the Court finds nothing about these regulations inconsistent with the text of the FLSA. The Court
therefore finds it appropriate to rely on the regulations for guidance in determining what constitutes as
“retail or service establishment” within § 207(i).
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percent of its annual dollar volume sales of goods or services are recognized as retail sales or
services in the particular industry. While the regulations provide guidance on what businesses are
retail in nature, they provide no exacting definition or exhaustive list of such businesses, and
therefore the Court must make a case-specific determination.
A. Identifying The Goods or Services Subject to the 75-percent Requirements
To determine whether the relevant establishment (MHS’s business at the Gaylord) is a
“retail or service establishment,”27 the Court first identifies the goods and/or services, the sales of
which are to be subjected to the two 75-percent requirements. While Plaintiff agrees with
Defendants that the focal point for this question are services provided by MHS, Plaintiff asserts
that the relevant services at issue are those given by MHS to Ryman. (Doc. No. 217 at 8).
Defendants, by contrast, assert that the goods and services rendered by MHS to customers at the
Gaylord fulfill the 75-percent requirements. (Doc. No. 209-1 at 11–12).
In support of his position, Plaintiff notes that “Marriott generates income at the Gaylord
through management fees and not retail fees . . . .” (Doc. No. 217 at 10). Therefore, Plaintiff urges
that Court to focus not on MHS’s transactions with customers at the Gaylord for rooms, events,
and food and beverage, but rather on the “hotel management services that Marriott provides
Ryman.” (Doc. No. 217 at 8).
Where a company provides services to the general public made possible through an
agreement with a third-party for the use of the premises on which to provide the services, courts
have treated the company’s provision of the services with the general public—rather than the
agreement between the company and the third party to provide the services—as the services at
The Court’s two-step approach (i.e., first determining what the relevant “establishment” is, and then
determining whether such establishment is a retail or service establishment) is reflected in the subjectmatter and adjacent placement of 29 C.F.R. § 779.23 (entitled, “Establishment”) and 29 C.F.R. § 779.23
(entitled, “Retail or service establishment”).
27
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issue for analysis under the two 75-percent requirements. See Wirtz, 303 F. Supp. at 1117; Hodgson
v. Prophet Co., 472 F. 2d 196 (10th Cir. 1973) (company supplying food services at a college was
a “retail or service establishment” under Section 213(a)(2) of the FLSA despite receiving payment
from the college rather than directly from the students). In other words, for purposes of the two
75-percent requirements, courts focus on what the company supplies directly to the consumer
rather than what the company supplies to the third-party providing the premises.
In Wirtz, Campus Chefs Inc. contracted with Shorter College to supply cafeteria services
to the college’s students. See Wirtz, 303 F. Supp. at 1115. Shorter College received payment
directly from students and used these funds to pay Campus Chefs Inc. under the contract. See id.
The court, apparently prompted by an argument made by the government at trial, squarely
addressed whether Campus Chefs’ services provided to Shorter College students rather than to the
college itself were the appropriate services to be subject to Section 13(a)(2)’s requirement that
75% of the establishment’s sales be retail in nature. See id. at 1118. The court explained the
agreement between Campus Chefs and Shorter College, whereby Shorter paid Campus Chefs by
remitting part of the payments received from students, had “no legal significance” to whether the
services supplied by Campus Chefs were retail in nature. See id. at 1118–1119. In addressing
whether the nature of the payment changed the character of the services, the court explained:
The court likewise concludes that there is no legal significance in the mode of
payment. At trial, the government conceded that its position would be considerably
weakened if the food payment was made directly to the defendant rather than to the
college at registration. Such a narrow technical view is untenable in the practical
application of the act to everyday business operations. A considerable number of
retail sales are made daily where the payment goes to a third party such as American
Express, Diner's Club, bank credit plans, private and civic clubs, lease
arrangements, salary checkoffs, and the like wherein the seller looks solely to the
third party for payment. The retail characteristics of the transaction are not
destroyed by such payments nor are such purchases considered for resale merely
because the consideration passes through an indirect conduit either before or after
the actual transfer. For example, can it be seriously argued that the pre-payment of
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quarterly civic club dues, including meals, converts the serving of the meal by the
hotel or restaurant to the member-consumer into a non-retail transaction? The court
thinks not.
Id. (emphasis added).
Plaintiff’s argument is emblematic of the “narrow technical view” rejected by the court in
Wirtz. Contrary to Plaintiff’s argument, MHS’s operation of the Gaylord on behalf of Ryman, or
as Plaintiff puts it, MHS’s hotel management services, cannot be separated from the services that
MHS provides customers at the Gaylord; they are one in the same. The offering of hotel rooms,
contracting for events, and providing of food and beverages are the exact type of services that
Ryman has entrusted MHS to facilitate at the Gaylord. Further, MHS’s base management fee is
nothing more than a method by which to measure MHS’s share of the revenue generated from the
direct sales made by MHS at the Gaylord to the customers. Indeed, it is undisputed that MHS
directly collects the payments from customers at the Gaylord, places this revenue in a Marriott
Business Services bank account, retains the base management fee (and incentive management fee
if applicable), and remits the remainder of the profit to Ryman. (Doc. No. 221 at 3; Doc. No. 222
at 5; Doc. No. 217 at 7 (“Marriott retains any base and incentive management fees owed, and
forward Ryman any profits above that amount.”)). Regarding banquet events in particular, MHS
enters into contracts with the customers, not the Gaylord or Ryman. (Doc. No. 222 at 5).
Therefore, unlike in Wirtz, in which the Shorter College was the intermediary between Campus
Chefs and the students for payment, MHS receives payment directly from the customers at the
Gaylord and passes the money to Ryman through the Marriott Business Services bank account.
MHS therefore has even more direct contact with the retail consumer than Campus Chefs did in
Wirtz, a circumstance indicating even more strongly that MHS’s services at the Gaylord are retail
in nature despite MHS’s contractual arrangement with Ryman.
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Ultimately, Plaintiff’s argument that MHS’s hotel management services provided to
Ryman (rather than the customers to whom MHS directly provides services) are the proper focus
of the Court’s § 207(i) analysis improperly elevates form above substance. As explained, the
services MHS provides to Ryman cannot be separated from those it provides to customers at the
Gaylord, and the type of compensation MHS receives for those services does nothing to change
this. The Court therefore will treat MHS’s services rendered and goods sold to customers at the
Gaylord as the relevant goods and services for determining whether MHS’s business at the Gaylord
(the relevant establishment, as noted above) is a “retail or service establishment” for purposes of
§ 207(i).
B. The First 75-percent Requirement: Goods Or Services Not For Resale
Plaintiff does not dispute that the goods and services MHS provides at the Gaylord are not
for resale. (Doc. No. 221 at 8–9). A good or service is sold for resale “where 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, as a part, component or ingredient or another article.” 29 C.F.R.
§ 779.331 (providing DOL’s “[m]eaning of sales ‘for resale’”); Charlot v. Ecolab, Inc., 136 F.
Supp. 3d 433 (E.D.N.Y. 2015) (explaining that the “FLSA does not define the term ‘resale,’ but
the DOL regulations and others courts apply the ‘common meaning’ which is the ‘act of selling
again’” (citing 29. C.F.R. § 779.331)). Defendants assert that since 2015, “sales of Hotel goods
and services that were not for resale comprised well more than 95% of total room sales and more
than 98% of total annual sales.” (Doc. No. 209-1 at 12, Doc. No. 221 at 8). Because the parties do
not dispute Defendants’ satisfaction of this requirement, the Court finds it unnecessary to provide
an exhaustive analysis. The Court is satisfied that over 75% of the services MHS provides at the
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Gaylord, such as room rental, event hosting, and food and beverage services and sales are not for
resale within the meaning of the FLSA.
C. The Second 75-percent Requirement: Recognized As Retail Sales In The
Industry
“The Supreme Court has held that the question of whether a defendant’s business is
recognized as retail is determined by the court, not by the defendant or the defendant’s industry.”28
See Johnson v. Wave Comm. GR LLC, 4 F. Supp. 3d 423, 436–437 (N.D.N.Y. 2014). Courts have
formed a two-pronged test for answering this question, consistent with the DOL regulations;
specifically, for the defendant’s business to be recognized as retail, 1) “the establishment must be
part of an industry in which there is a retail concept”, and 2) the “establishment’s services must be
recognized as retail in that particular industry.” See id. 437.
i.
Retail Concept
“A business must have a retail concept before the industry characterization of its sales can
be considered.” See id. 436–437. A “retail concept” cannot be “artificially created in an industry
in which there is no traditional concept of retail selling or servicing.” See id. (citing 29 C.F.R. §
779.316). The DOL regulations provide that:
Typically a retail or service establishment is one which sells goods or services to
the general public. It serves the everyday needs of the community in which it is
located. The retail or service establishment performs a function in the business
organization of the Nation which is at the very end of the stream of distribution,
disposing in small quantities of the products and skills of such organization and
does not take part in the manufacturing process… It 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. Illustrative of such establishments are: Grocery
stores, hardware stores, clothing stores, coal dealers, furniture stores, restaurants,
hotels, watch repair establishments, barber shops, and other such local
establishments.
As set forth immediately below this text, the industry view of the defendant’s business is highly relevant
to the Court’s determination, but nevertheless, the ultimate determination is made by the Court, not by the
defendant’s industry.
28
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29 C.F.R. § 779.318(a). MHS’s business at the Gaylord closely matches the general characteristics
of businesses with a retail concept: MHS makes sales of goods and services to the public through
transacting with the patrons of the hotel, whether it be for rooms, events, or food and beverages;
the services provided by MHS at the Gaylord are provided directly to the customers of the Gaylord
and therefore are “at the very end of the stream of distribution”; MHS’s services are also for the
“comfort and convenience” of the public by providing rooms and eateries.29 (Doc. No. 209-1 at
13–14). Courts have also repeatedly recognized hotels as a quintessential example of a “retail or
service establishment” insofar as the industry possesses a retail concept. See e.g., Diggs v. Ovation
Credit Services, Inc., 449 F. Supp. 3d 1280, 1288 (M.D. Fla. 2020) (discussing hotels as an
example of a “local retail or service establishment”); Umbrino v. L.A.R.E. Partners Network, Inc.,
2022 WL 452702 (W.D.N.Y. Feb. 15, 2022) (same). Therefore, the Court accepts that MHS’s
business at the Gaylord, which primarily consists of sales (or nightly rentals) of hotel rooms, event
space, and food and beverage services and sales directly to customers, possesses a “retail concept.”
ii.
Recognized As Retail
Under the two-prong test adopted by the Court for determining whether the defendant’s
business is recognized as retail, MHS’s services at the Gaylord must also be recognized as retail
in the industry. See Johnson, 4. Supp. 3d at 437. The DOL regulations explain that “it was
emphasized in the debates in Congress that while the views of an industry are significant and
material in determining what is recognized as a retail sale in a particular industry, the determination
is not dependent on those views alone.” 29 C.F.R. § 779.324. “Such a determination must take into
consideration the well-settled habits of business, traditional understanding and common
knowledge.” See id. At least one circuit has noted that the requirement that the sales be recognized
Plaintiff himself agrees that “the sale of hotels rooms, food and drink, and banquet services” are
“traditional retail sources.” (Doc. No. 217 at 8).
29
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as retail in the particular industry “is not synonymous with ‘recognized by the industry.’ Obviously
what is recognized in a particular industry to be retail can be proved objectively; proof is not
restricted to the subjective test of what the members of the industry think of it.” See Mitchell v.
City Ice Co., 273 F. 2d 560 (5th Cir. 1960).
There is a surprising lack of authority on the type and quantity of evidence sufficient to
establish that goods or services (or both) are recognized as retail in the given industry. While courts
have considered declarations submitted by industry peers of the party, the DOL regulations caution
against reliance solely this type of evidence. See Charlot, 136 F. Supp. 3d at 469–470 (discussing
affidavits of industry peers in considering whether the defendant’s sales were recognized as retail
in the industry).
Nonetheless, the undisputed facts establish that Defendants’ services are recognized as
retail in the industry. It is undisputed that MHS’s business at the Gaylord provides a “popular
destination for businesses, associates and other groups that want to host large-scale events.” (Doc.
No. 221 at 6). The parties further agree that the services are “advertised” and “open” to the “general
public” and that the Gaylord is “a member of many retail and tourism-focused industry
organizations, including the Greater Nashville Hospitality Association, Nashville Convention and
Visitors Corporation, Tennessee Hospitality & Tourism Association, and Hospitality TN.” (Id. at
7–8).
The Court can rely not only on these undisputed facts, but also on “traditional
understanding” and “common knowledge.” See 29 C.F.R. § 779.324. MHS’s services at the
Gaylord are those traditionally associated with the operation of a hotel—renting rooms, selling
food, providing event spaces—and those familiar with Nashville would surely regard MHS’s
services at the Gaylord as retail in nature. Therefore, although Defendants do not provide affidavits
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or declarations of industry players to attest to the nature of MHS’s services at the Gaylord, the
Court finds that the facts provided by Defendants, and conceded by Plaintiff, establish that the
services and goods are recognized as retail in the industry.
Thus, for the purposes of the § 7(i) retail-or-service exemption, Plaintiff is an employee of
a retail or service establishment, i.e. MHS’s business at the Gaylord.
4. MHS’S COMPENSATION METHOD
For the § 7(i) retail-or-service exemption to apply to Plaintiff, it is not sufficient merely
that Plaintiff be an employee of a retail or service establishment. Plaintiff’s compensation structure
must also be of a particular type; thus, the Court must next determine whether the structure of
Plaintiff’s compensation from MHS as a banquet staff member is of the type that renders applicable
the § 7(i) retail-or-service exemption
The exemption is applicable to an employee of a retail or service establishment (like
Plaintiff) if “the regular rate of pay of such employee is in excess of one and one-half times the
minimum hourly rate applicable to him under section 206 of this title” and “more than half his
compensation for a representative period (not less than one month) represents commissions
on goods or services.” 29 U.S.C. § 207(i). Plaintiff does not dispute that he was paid 1.5 times the
minimum hourly rate applicable under Section 206 of the FLSA (commonly known as the
“minimum wage”). (Doc. No. 221 at 20). The Court’s remaining task, therefore, is to determine
whether the distribution of the service charge constitutes a commission under § 207(i). McAninch
v. Monro Muffler Brake, Inc., 799 F. Supp. 2d 807, 812–813 (S.D. Ohio 2011) (explaining that the
issue of whether more than one-half of a plaintiff’s compensation consisted of commission is an
issue of law for the court to decide).
Case 3:18-cv-00325 Document 242 Filed 01/09/23 Page 41 of 52 PageID #: 3247
The parties agree that MHS’s compensation structure consists of two inputs. The first is an
hourly wage and the second is a service-charge distribution. (Doc. No. 221 at 13). Importantly,
Plaintiff asserts that these two inputs amount to nothing more than an “hourly wage” or a “variable
hourly wage,” whereas Defendants assert that the latter input represents a “commission.” (Id. at
13, 16). It is undisputed that the service-charge distributions for banquet staff are calculated
weekly. (Id.at 13–14). MHS retains 45 per cent of the service charge in the Marriott Business
Services bank account, which is earmarked for Ryman, and the remaining 55 per cent is distributed
weekly among the banquet staff members. (Id. at 13–14). The respective share of the 55 percent
that is received by each banquet staff member is based on the number of hours he or she worked
that week relative to the total hours worked by all banquet staff that week. (Id. at 14).
Because the service charge to a customer is calculated as a percentage of the total cost of
the customer’s particular event at the Gaylord, and because this cost varies by event, the weekly
total amount of service charges varies greatly week-to-week. It follows that the amount of weekly
distributions received by banquet staff members also varies week-to-week. For instance, the parties
agree that during the workweek ending December 25, 2015, Plaintiff worked 41.2 hours and
received a service charge distribution of $500.84. (Id. at 17). In the work week ending August 14,
2015, however, Plaintiff worked less than ten percent longer (a total of 44 hours) and yet received
almost double the amount in service charge distributions (a total of $1,050.54). (Id.). This example
undercuts Plaintiff’s characterization of the service charge as part of a variable hourly rate; it is
clear that the difference in compensation between the two weeks in not a “varia[tion] in hourly
rate,” which connotes some sort of conscious decision on the part of the employer (and, one would
hope, mutually the employee) to change the rate that the employee is paid for each hour for the
week in question. Instead, what changed is the total amount of service charges that happened to be
Case 3:18-cv-00325 Document 242 Filed 01/09/23 Page 42 of 52 PageID #: 3248
available for distribution given the nature of the events for the week and what service charges they
collectively generated. Consistent with several other courts that have considered this issue (albeit
under somewhat different facts), the Court agrees with Defendant that the distribution of the
service charge represents a commission for purposes of § 207(i), and not a variable (upward)
change from a base hourly rate.
Plaintiff asserts that the service-charge distributions are not commissions, because
(according to Plaintiff) 1) they lack proportionality to the revenue collected from customers at the
Gaylord, 2) they are not “decoupled” from the number of hours worked, and 3) they do not
incentivize the banquet staff members to work more efficiently. (Doc. No. 217 at 11). Defendants
respond that there is proportionality between revenue collected from the banquets and the servicecharge distributions, and that time worked is a permissible input in determining how the service
charge distribution is divided between the banquet staff. (Doc. No. 222 at 17–19, Doc. No. 209-1
at 17–19). Defendants also assert the Sixth Circuit has rejected the argument that a commission
must function to potentially incentivize increased efficiency. (Doc. No. 209-1 at 20).
“Neither the FLSA nor the United States Department of Labor’s (“DOL”) implementing
regulations provide a definition for the term ‘commission’ as it is used in the [§ 7(i) retail-orservice] exemption.” See McAninch, 799 F. Supp. 2d at 812–813. “Indeed, the meaning of
‘commission’ under the FLSA is an issue that finds little illumination from the sparse case law and
the vague references in statutes and regulations.” See id. (internal quotation marks omitted).30
While the DOL regulations provide little guidance on what a commission is, the regulations do provide
examples of what commission is not. “A commission rate is not bona fide if the formula for computing the
commissions is such that the employee, in fact, always or almost always earns the same fixed amount of
compensation for each workweek (as would be the case where the computed commissions seldom or never
equal or exceed the amount of the draw or guarantee).” 29 C.F.R. § 779.416(c). Further, a commission is
not bona fide if the payment received by the employee “constitute[es] nearly his entire earnings which is
expressed in terms of a percentage of the sales which the establishment or department can always be
30
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Nevertheless, in determining whether Plaintiff’s share of the (55 percent) service charge
constitutes a commission, the Court does not write on a blank slate.
In the only Sixth Circuit case to address the meaning of “commission” under § 207(i), the
Sixth Circuit agreed with the lower court that to constitute a “commission” under § 207(i), the
employer “must establish some proportionality between the compensation to the employees and
the amount charged to the customer.” See Wilks v. Pep Boys, 2006 WL 2821700 (M.D. Tenn. Sept.
26, 2006), aff’d Wilks v. Pep Boys, 278 Fed. App’x 488 (6th Cir. 2008). Importantly, Wilks does
not stand for the proposition that such proportionality alone establishes a payment as a
commission. Instead, Wilks mandates that any payment seeking to be a commission must be
somewhat proportionate to the amount charged to the customer. Because proportionality is sine
qua non in finding a payment is a commission, the Court addresses it first.
i.
Proportional
Although the court in Wilks did not expound on the meaning of “proportionality,” its
discussion and application are consistent with the ordinary meaning of the word, which is
“increasing or decreasing in size, amount or degree according to changes in something else.” See
Oxford
Dictionary,
(https://www.oxfordlearnersdictionaries.com/us/definition/english/proportionate)
“Proportionate”
(last
visited
January 6, 2023).
Wilks involved an automotive parts and repairs store’s payment of its employees. See Wilks,
2006 WL 2821700 at *1. The defendant argued that its “flat-rate” employees were exempted from
expected to make with only a slight addition to his wages based upon a greatly reduced percentage applied
to the sales above the expected quota.” Id. Plaintiff does not (and could not credibly) argue that either of
these examples reflects his compensation structure. Those interested can review McAninch., 799 F. Supp.
2d 807, for further discussion of the examples provided in the regulations.
Case 3:18-cv-00325 Document 242 Filed 01/09/23 Page 44 of 52 PageID #: 3250
overtime payments under § 207(i) in part because their compensation included a commission. See
id. at *16. The “flat-rate” employees were credited with a certain number of labor hours, which
were then multiplied by a “flat-rate” ranging from $14 to $23.70. See id. The court found that the
defendant had presented “no evidence that customers are charged more for labor when the work”
is completed by a worker with a higher-flat rate. See id. at *17. Therefore, the compensation
scheme did not include a commission because there was no proportionality between “the plaintiffs’
flat-rate wages and the charges passed onto customers, either for labor alone or for the overall
task.” See id. at *18.
Defendants argue that the service-charge distributions are proportional to the price paid by
customers for events at the Gaylord because service-charge distributions, which represent a
percentage of the overall service charge, fluctuate based on the price and number of events held at
the Gaylord that week. (Doc. 209-1 at 19). Defendants’ logic is sound; each event customer must
pay a 24% or 25% service charge, which is based on the overall price of the event. Fifty-five per
cent of the service charge is then distributed to the banquet staff based on the number of hours
each staff member worked. Therefore, the service-charge distributions to an employee increase or
decrease depending in substantial part on the price and number of events held at the Gaylord in
the given week.
Plaintiff takes a starkly contrasting view. According to Plaintiff, his share of the servicecharge distribution is “not in any way proportional to the value of the services that he provided in
any given week.” (Doc. No. 217 at 15). But this observation, even if true, is irrelevant. Wilks does
not require proportionality between the number of hours worked by an employee and the
employee’s compensation (meaning, in the instant case, Plaintiff’s share of the service-charge
Case 3:18-cv-00325 Document 242 Filed 01/09/23 Page 45 of 52 PageID #: 3251
distribution). Instead, it requires “some proportionality” between the amount charged to the
customer and the compensation to the employee.
Plaintiff goes on to hypothesize that he could work a single high-priced banquet event one
week and multiple smaller events the following week, and make less from the service-distribution
charge in the first week than the second week. (Id.). In Plaintiff’s view, this scenario illustrates
that “Marriott does not tie his pay to the revenue generated from the events that he worked . . . .”
(Id.). But Plaintiff’s hypothetical is consistent with Defendants’ explanation of how the (55 percent
of the) service charge is distributed, inasmuch as a week with several expensive banquets but in
which Plaintiff worked few hours could yield a lower service-charge distribution than a week with
several less expensive banquets in which Plaintiff worked many hours. Plaintiff’s hypothetical
therefore illustrates how the number of hours an employee worked that week affects their portion
of the service-charge distribution, but does not prove, as Plaintiff suggests, that the service-charge
distribution is disconnected from the price charged to the customer.
Because the service charge distributions fluctuate based on the number and price of events
held at the Gaylord in a given week, the Court finds that proportionality exists. Whether the
distribution to employees based on hours worked separately affects the payment’s status as a
commission is a different question and is addressed below.
ii.
Decoupled Form Work Hours
Although Wilks does not require that a commission be decoupled from work hours, several
courts have found this to be an important characteristic of a commission. Parker v. NutriSystem,
Inc., 620 F.3d 274, 284 (3rd Cir. 2010); Yi v. Sterling, 480 F.3d 505, 509 (7th Cir. 2007). And this
distinction makes sense; after all, it seems clear that a commission is widely understood as
compensation derived from the revenue earned from a sale or transaction rather than solely based
on the number of hours an employee works. See Oxford Dictionary, “Commission”
Case 3:18-cv-00325 Document 242 Filed 01/09/23 Page 46 of 52 PageID #: 3252
(https://bit.ly/3jItgxL) (last visited January 6, 2023) (“Payment, or a payment, for services or work
done as an agent in a commercial transaction, typically a set percentage of the value involved.”).
Plaintiff contends that the service-charge distribution is not decoupled from his work hours
inasmuch as each employee’s cut of the entire (55 percent of the) service charge is based in part
on the number of hours he or she worked. (Doc. No. 217 at 12). Defendants respond that dividing
the service-charge distribution based on hours is merely a method of deciding how the commission
is divided between employees and does not affect the payment’s characterization as a commission.
(Doc. No. 222 at 17–20).
Defendants rely on the court’s reasoning in Yi to support their position. In Yi, the Seventh
Circuit confronted the same issue, i.e., whether payment distributed partially based on hours
worked are “decoupled from actual time worked.” See id. at 509. Yi involved workers at an autorepair shop who were compensated using a formula that multiplied the number of booked hours
designated for a job (as opposed to the number of hours it took to actually complete the job) by
the ratio of a team member’s actual hours worked to the total hours worked by the team, and then
by the wage, per booked hour, which varied based on skill and experience. See id. In determining
whether this payment scheme constituted a commission, the Court compared it to the dividing of
commissions between real estate brokers based on time expended:
Now suppose two real estate brokers work on the sale of the same house, and the
question arises how they should split their commission. One broker suggests a 50–
50 split, but the other ripostes, “I put in two-thirds of the time on this sale, so I
should get two-thirds of the commission.” Suppose the first broker agrees. Does
this mean, because the number of hours they worked figured in their split of the
commission, that they weren’t paid a commission, but an hourly wage? Surely not.
This simple example turns out to resolve the present, complicated-seeming case.
See id. at 508–509. Extrapolating this example to the payment structure of the auto-repair shop,
the court explained that “the fact that the time they put in is a factor in divvying up the commission
Case 3:18-cv-00325 Document 242 Filed 01/09/23 Page 47 of 52 PageID #: 3253
no more alters the commission character of their compensation than in the broker case. If a team
is paid a commission, the commission has to be divided between them somehow, and the method
chosen for doing this doesn’t alter the character of the compensation as a commission.” See id.
509–510.
The reasoning in Yi, which the Court finds to be sound, is directly applicable to MHS’s
payment structure for Plaintiff. Similar to the plaintiff in Yi, Plaintiff’s alleged commission is based
in part on what is charged to the customer,31 a portion of which is divided among various
employees, and in part based on hours worked, which drives the computation of his share of what
is thus divided. True, as Plaintiff points out, the court in Yi also commented that “the faster the
team works, the more it earns per number of hours,”32 which is not the case for banquet staff
members like Plaintiff. See id. at 509. Under MHS’s compensation structure, and given the nature
of the banquets for which MHS’s customers pay, Plaintiff can earn a larger portion of the servicecharge distribution only by working more hours (and not by, for example, working faster).
Nonetheless, in Yi, two workers with the same rate and doing the same job would experience
disparate pay due only to the differences in hours they worked; the same is true for banquet staff
members in the instant case.33 To the Court, this renders the reasoning of Yi applicable in the
present case, even though the payment structure in Yi differed in permitting workers to earn more
This input (i.e., what is charged to the customers) was booked hours in Yi, and is the service-distribution
charge in the present case.
31
32
This was because compensation was based on the number of booked hours, and a faster team could
complete jobs in less time than was “booked,” meaning that it could earn credit for more booked hours.
33
The Court notes that in Yi, a worker’s portion of the overall commission was based in part on the hourly
rate associated with that particular worker, whereas Plaintiff’s (or other banquet staff member’s) share of
the commission for a particular week is unaffected by that staff member’s particular rank or hourly wage
as compared to his or her colleagues. However, the Court does not view this distinction as legally
significant. To the extent that particular categories of workers in Yi were entitled to more or less of the
commission pool due to their particular hourly rate, the Court views this only as an additional method by
which the employer chose to divide up the commission pool.
Case 3:18-cv-00325 Document 242 Filed 01/09/23 Page 48 of 52 PageID #: 3254
by working more efficiently. Yi thus supports the Court’s finding that MHS’s dividing the (55
percent of the) service charge based on hours worked does not prevent Plaintiff’s service-charge
distribution from constituting a commission.
In summary, sometimes an employer wishes to compensate multiple contributing
employees by dividing up something that would obviously be a commission had only one
employee contributed to its being earned. When this occurs, there must be a method of dividing
the pie. One way of so doing is to make the division based on hours worked. Like the Court in in
Yi, the Court finds that an employer’s choice of the hours-worked method does not destroy the
status of each employee’s share as a commission for purposes of § 7(i). And here, MHS’s practice
of dividing the service-charge distribution based on number of hours worked does not alter its
status as a commission.
iii.
Incentive
Plaintiff maintains that MHS’s payment scheme cannot be a commission, because it lacks
a mechanism by which to incentivize workers to work more efficiently. (Doc. No. 217 at 16). As
Defendants point out, the district court in Wilks addressed the same argument that a payment is a
commission only if it incentivizes workers to “hustle to finish the job.” See Wilks, 2006 WL
2821700 at *11. The Wilks court rejected this argument and pointed out that the plaintiffs failed to
identify any binding authority to support their argument. See id. at *16. Similar to the plaintiffs in
Wilks, Plaintiff cites only cases from other districts involving workers in trades, such as auto-repair
mechanics and cable technicians. In those contexts, it may make sense to consider whether the
payment structure has an incentive factor. For example, it behooves a cable company to have its
technicians work more efficiently because such efficiency increases the number of jobs technicians
can complete each day. But the same is not true of banquet services. The maximum length of a
given banquet presumably will be set by contract between MHS and the customer, and the actual
Case 3:18-cv-00325 Document 242 Filed 01/09/23 Page 49 of 52 PageID #: 3255
length within that maximum will be determined by the customer—the banquet hosts and
potentially the guests of the banquet. Accordingly, no matter how efficiently they work, banquet
staff members lack the ability to somehow shorten banquets and thereby free up space and banquet
staff members to enable MHS to put on more banquets (and thus obtain more gross revenue).
This unique characteristic of events as compared to trade jobs was touched on by the court
in Mechmet v. Four Seasons Hotel, Ltd, in which the Seventh Circuit addressed facts strikingly
similar to those before the Court. 825 F.2d 1173 (7th Cir. 1987). In Mechmet, the Seventh Circuit
determined that the Ritz Carlton Hotel compensated its banquet waiters in part via commission as
required under § 207(i). See id. at 1174–1175. The Ritz added an 18 percent service charge to
every banquet and distributed 16 per cent among the banquet staff according to rank. See id. at
1175. The court noted that the DOL regulations state that the § 7(i) retail-or-service exemption
was enacted to “relieve an employer from the obligation of paying overtime compensation” to
employees “generally employed in so-called ‘big ticket’ departments,” such as “bedding and home
furnishings, floor covering, draperies, major appliances . . . .”. See id. at 1176 (quoting 29 C.F.R.
§ 779.414). The court noted than an important aspect of big-ticket departments is that the
employees may be working irregular hours. See id. at 1177. With respect to banquets, the court
observed:
Moreover, the length of a banquet cannot easily be gauged in advance, since it
depends on how good a time the banqueters are having. It would be impossible in
these circumstances to arrange things so that every banquet waiter worked 40 hours
every week. In a busy week the Ritz’s small staff of regular banquet waiters (there
are only 10) may have to work additional hours in order to take care of all the
banquets. The staff could be paid time and a half for the extra work, but an
alternative—and judging from the figures in the record a more lucrative—
approach, from the standpoint of the waiters themselves, is to let them divide up [a
portion of] the service charge that the hotel affixes to every banquet charge.
Case 3:18-cv-00325 Document 242 Filed 01/09/23 Page 50 of 52 PageID #: 3256
See id. As observed in Mechmet, it is largely unfeasible for banquet staff members to finish a
banquet job more quickly due to efficient work habits, because the length of the banquet “depends
on how good a time the banqueters are having.” See id. Plaintiff’s argument that MHS’s payment
structure fails to constitute a commission because it lacks an incentive aspect is, therefore,
disconnected from the realities of the event industry. The Court finds that Plaintiff’s share of the
service charge is a commission within the meaning of § 207(i) despite not bearing incentive-based
characteristics.
In conclusion, Defendants are entitled to summary judgment because there is no
genuine dispute of material fact that Plaintiff is an exempt employee under § 207(i), i.e.,
that the § 7(i) retail-or-service exemption applies to Plaintiff in that all three of its elements
are satisfied. First, as explained in detail above, for purposes of the analysis under § 207(i)
in this case, MHS’s business at the Gaylord is the relevant “establishment,” Plaintiff is an
“employee of” such establishment, and such establishment meets the criteria required to be
considered a “retail or service establishment.” Second, Plaintiff was paid 1.5 times the
minimum hourly rate applicable under Section 206 of the FLSA. And third, more than half
of Plaintiff’s compensation for the representative period not less than one month represents
a commission on services.34 With all three elements of the § 7(i) retail-or-service
exemption thus being established with respect to Plaintiff as a matter of law based on
undisputed facts, Defendants are entitled to summary judgment. It necessarily follows that
Because the Court finds that the § 7(i) retail-or-service exemption applies to Plaintiff, it need not address
Defendants’ willfulness argument.
34
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Plaintiff’s motion for summary judgment must be denied because it mirrors Defendants’
and takes the directly opposite stance.35
CONCLUSION
For the reasons stated herein, Defendants’ motion for summary judgment (Doc. No. 209)
will be GRANTED and, for the same reasons, Plaintiff’s motion for summary judgment (Doc. No.
206) will be DENIED.
An appropriate order will be entered.
____________________________________
ELI RICHARDSON
UNITED STATES DISTRICT JUDGE
The Court is aware that the outcome of this case is peculiar in that Defendant have prevailed despite the
Court’s favoring Plaintiff’s position over their position on a key issue. Although the Court rejected
Defendants’ argument that the Gaylord is the proper “establishment” for the purposes of § 207(i),
Defendants have nonetheless succeeded under the law. And in fact, in determining that MHS’s business at
the Gaylord is the proper “establishment,” the Court is agreeing with Plaintiff’s position (based on the
Court’s understanding of Plaintiff’s ultimate position—which is presented in a confusing manner, as
discussed above—as to what the proper establishment is). Nonetheless, as discussed, Plaintiff has failed to
persuade the Court on several key issues, ultimately leading the Court to find that summary judgment for
Defendants is warranted. Ultimately, the Court is satisfied that it has fully considered the parties’ arguments
and construed their positions fairly.
35
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