Reyes et al v. Rite-Way Janitorial Service, Inc.

Filing 39

MEMORANDUM AND ORDER denying 29 Defendant's Motion to Dismiss; denying 30 Defendant's Motion for Summary Judgment; granting 35 Plaintiffs' Motion for Partial Summary Judgment as to Enterprise Coverage.(Signed by Judge Nancy F. Atlas) Parties notified.(TDR, 4)

United States District Court
Southern District of Texas

ENTERED
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
CARLOS REYES, et al.,
Plaintiff,
v.
RITE-WAY JANITORIAL
SERVICE, INC.,
Defendant.

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February 16, 2016
David J. Bradley, Clerk

CIVIL ACTION NO. H-15-0847

MEMORANDUM AND ORDER
This Fair Labor Standards Act (“FLSA”) case is before the Court on the Motion
to Dismiss for Lack of Subject Matter Jurisdiction (“Motion to Dismiss”) [Doc. # 29]
and the Motion for Summary Judgment [Doc. # 30] filed by Defendant Rite-Way
Janitorial Service, Inc. (“Rite-Way”).1 Also pending is the Motion for Partial
Summary Judgment [Doc. # 35] filed by Plaintiffs Carlos Reyes and Angel Reyes, to
which Defendant filed a Response [Doc. # 38]. The single issue in the three pending
motions is whether Defendant is subject to FLSA enterprise coverage. Having
reviewed the record and applicable legal authorities, the Court denies Defendant’s

1

Plaintiffs filed a Response [Doc. # 33] in opposition to Defendant’s Motion to
Dismiss, and Defendant filed a Reply [Doc. # 36]. Plaintiffs filed a Response [Doc.
# 34] in opposition to Defendant’s Motion for Summary Judgment, and Defendant
filed a Reply [Doc. # 37].

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motions and grants Plaintiff’s Motion for Partial Summary Judgment as to Enterprise
Coverage.
I.

BACKGROUND
Plaintiffs were employed as janitors for Rite-Way, a janitorial service that does

business in Houston, Texas, and surrounding areas. Plaintiffs allege that Defendant
violated the FLSA by failing to pay them proper wages for all the hours they worked.
Specifically, Plaintiffs allege that Rite-Way failed to pay them for travel time between
jobsites, docked their pay for a full hour if they were only a few minutes late, and paid
only for hours they were scheduled to work rather for all hours actually worked.
Plaintiffs allege that they regularly worked in excess of forty hours per week.
Plaintiffs allege also that Rite-Way failed to maintain accurate time and pay records.
Plaintiffs allege that Rite-Way was an enterprise covered by the FLSA because
(1) its employees handled materials such as “mops, brooms, towels, soap, chemicals,
vacuum cleaners, and other cleaning materials, supplies, and equipment” that had
moved in interstate commerce, and (2) its annual gross volume of sales exceeded
$500,000.
Defendant filed a Motion to Dismiss for Lack of Subject Matter Jurisdiction and
a Motion for Summary Judgment, arguing that it is not subject to enterprise coverage
under the FLSA. Plaintiffs filed a Motion for Partial Summary Judgment, seeking

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summary judgment that Defendant is subject to enterprise coverage. The Motion to
Dismiss has been fully briefed and is now ripe for decision.
II.

APPLICABLE LEGAL STANDARDS
Defendant’s challenge to coverage under the FLSA is more accurately

construed as a challenge to the merits of Plaintiffs’ FLSA claim rather than to the
Court’s subject matter jurisdiction. See Tran v. Thai, 2010 WL 5232944, *1 (S.D.
Tex. Dec. 16, 2010) (citing Clark v. Tarrant Cnty, Tex., 798 F.2d 736 (5th Cir. 1986));
see also Lindgren v. Spears, 2010 WL 5437270, *2 (S.D. Tex. Dec. 27, 2010). As a
result, the Court will evaluate the pending motions as cross-motions for summary
judgment on the enterprise coverage issue.
Summary judgment is appropriate against a party who fails to make a sufficient
showing of the existence of an element essential to the party’s case, and on which that
party will bear the burden at trial. See Fed. R. Civ. P. 56; Celotex Corp. v. Catrett,
477 U.S. 317, 322 (1986); Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.
1994) (en banc); see also Curtis v. Anthony, 710 F.3d 587, 594 (5th Cir. 2013).
Summary judgment should be granted if “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(a); see Celotex, 477 U.S. at 322-23; Curtis, 710 F.3d at 594. In this case, the

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parties’ have filed cross-motions for summary judgment, and the material facts are
stipulated for purposes of the enterprise coverage issue.
III.

ANALYSIS
Under the FLSA, an employee who is engaged in commerce or in the

production of goods for commerce (“individual coverage”), or is employed in an
enterprise engaged in commerce or in the production of goods for commerce
(“enterprise coverage”) must receive overtime compensation for hours worked in
excess of forty hours per week. See 29 U.S.C. § 207(a)(2)(C). An employer is subject
to enterprise coverage under the FLSA if it (1) “has employees engaged in commerce
or in the production of goods for commerce, or . . . has employees handling, selling,
or otherwise working on goods or materials that have been moved in or produced for
commerce by any person” and (2) has at least $500,000 of “annual gross volume of
sales made or business done.” See 29 U.S.C. § 203(s)(1)(A); Polycarpe v. E&S
Landscaping Serv., Inc., 616 F.3d 1217, 1220 (11th Cir. 2010); Landeros v. Fu King,
Inc., 12 F. Supp. 2d 1020, 1023 (S.D. Tex. 2014).
The term “goods” is defined in the FLSA to exclude “goods after their delivery
into the actual physical possession of the ultimate consumer thereof other than a
producer, manufacturer, or processor thereof.” See 29 U.S.C. § 203(i). This is
referred to as the “ultimate-consumer exception.” See, e.g., Polycarpe, 616 F.3d at

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1222; Landeros, 12 F. Supp. 3d at 1024. Prior to 1974, only employees who handled
“goods” were potentially covered by the FLSA and, therefore, the ultimate-consumer
exception could exempt an employer from coverage. See Polycarpe, 616 F.3d at
1222. In 1974, Congress amended the FLSA to extend enterprise coverage to
employers whose employees handled “goods or materials.” See id. (emphasis in
original). The Eleventh Circuit has held that “materials” in the FLSA “means tools
or other articles necessary for doing or making something.” Id. at 1224.
In this case, Rite-Way has stipulated “that it has gross sales at, or in excess of,
$500,000 annually.” See Motion to Dismiss, p. 11. Rite-Way has stipulated also that
its “employees have handled . . . goods or materials that have moved in commerce
prior to Rite-Way employees using those goods or materials as the ultimate consumer
while performing janitorial activities.” Id. As examples, the Eleventh Circuit listed
soap and other cleaning supplies. Id. “Whether an item counts as ‘materials’ will
depend on two things: 1) whether, in the context of its use, the item fits within the
ordinary definition of ‘materials’ under the FLSA and 2) whether the item is being
used commercially in the employer’s business.” Id. at 1225-26. As a result, the Court
would hold that the soap, cleaning supplies, and equipment such as mops and vacuum
cleaners would be “materials” under the FLSA, even if Rite-Way had not stipulated
that its employees handled “materials.”

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Rite-Way argues that, as the ultimate consumer of the goods or materials
handled by its employees, it is not engaged in commerce and is not within the
enterprise coverage of the FLSA. The Eleventh Circuit in Polycarpe decided this
issue fully and persuasively, rejecting the argument asserted in this case by Rite-Way.2
In Polycarpe, the Eleventh Circuit considered the statutory language of
§ 203(s)(1), common definitions, the legislative history of the statute, and Department
of Labor opinion letters. The Eleventh Circuit noted that the 1974 addition of
“materials” to § 203(s)(1) demonstrated Congress’s intent to add “a different means
to qualify for FLSA coverage.” Id. The Eleventh Circuit held that “materials” could
not be covered by the ultimate-consumer exception because that exception is
contained only in the FLSA’s definition of “goods.” Id. Therefore, as held
persuasively by the Eleventh Circuit, if an employer has employees “handling, selling,
or otherwise working on . . . materials,” the employer would be subject to the FLSA
if it satisfied the $500,000 sales volume requirement also. Id.; see also Landeros, 12
F. Supp. 3d at 1024 (and cases cited therein); White v. NRC Transp., Inc., 2013 WL
5430512, *4 (N.D. Miss. Sept. 27, 2013); Tran v. Thai, 2010 WL 5232944, *4 n.1
(S.D. Tex. Dec. 16, 2010).

2

Neither the United States Court of Appeals for the Fifth Circuit nor any other federal
appellate court has decided this issue directly.

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Rite-Way has stipulated that it meets the $500,000 sales volume requirement
and that it has employees who have handled “goods or materials that have been moved
in commerce prior to Rite-Way employees using those goods or materials as the
ultimate consumer while performing janitorial activities.” See Motion to Dismiss, p.
11. As a result, based on the statutory language of the FLSA and the persuasive
opinion by the Eleventh Circuit in Polycarpe, the Court concludes that Rite-Way falls
within the enterprise coverage provision of the FLSA.
IV.

CONCLUSION AND ORDER
Rite-Way has stipulated that it has gross sales at, or in excess of, $500,000

annually. Rite-Way has stipulated also that its employees handled materials that
moved in commerce. Based on these stipulations, the statutory language of the FLSA,
and the application of persuasive legal authority, the Court concludes that Defendant
is subject to enterprise coverage under the FLSA. Accordingly, it is hereby
ORDERED that Defendant’s Motion to Dismiss for Lack of Subject Matter
Jurisdiction [Doc. # 29] and Motion for Summary Judgment [Doc. # 30] are DENIED.
It is further
ORDERED that Plaintiffs’ Motion for Partial Summary Judgment as to
Enterprise Coverage [Doc. # 35] is GRANTED.

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SIGNED at Houston, Texas, this 16th day of February, 2016.

NAN Y F. ATLAS
SENIOR UNI
STATES DISTRICT JUDGE

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