Credit Cards as Basis for Individual FSLA Coverage

Not all employees and business are covered by the federal minimum wage and overtime law, the Fair Labor Standards Act. If a business is covered, all of its employees are covered. However, even if a business is not covered, some of its employees may be covered. For Massachusetts employees, this matters because there are some exemptions under Massachusetts overtime law, such as for workers in hospitals and restaurants, that don’t exist under federal law. So, in these circumstances, it’s key to determine if the employee or business is covered by federal law to know whether that employee is entitled to overtime.

“Enterprise” coverage means coverage for the business, and generally exists when there has annual gross revenues of more than $500,000.

“Individual” coverage determines whether or not an employee is covered, irrespective of whether the business is covered. Individual coverage exists when an employee is engaged in interstate commerce or in the production of goods for interstate commerce.

This Department of Labor fact sheet explains the distinction.

Many things are obviously interstate commerce, like the manufacture of goods to be sold throughout the United States, and many things are clearly not interstate commerce, such as painting a house. The question in this post is whether an employee who handles customer credit card transactions is engaged in interstate commerce, thereby invoking “individual” coverage.

First, the idea of “interstate commerce” has vast implications in constitutional and federal law generally. The federal courts have interpreted the phrase expansively to permit Congress to regulate local activities. However, in the context of employees’ entitlement to overtime and the minimum wage, federal courts have interpreted the phrase quite narrowly and in favor of business defendants. Generally, the test is:

  • whether an employee engages in interstate commerce by performing work involving or related to the movement of persons or things (whether tangibles or intangibles, and including information and intelligence) between one state and another.
  • The employee must engage in these interstate activities as a “substantial part” of their work.
  • It is not enough that the employee’s activities affect or indirectly relate to interstate commerce, but they must be in or so closely related to the movement of the commerce as to be a part of it.

An employee who regularly uses the instrumentalities of interstate commerce in his work, e.g., regular and recurrent use of interstate telephone, telegraph, mails, or travel, is engaged in interstate commerce. See Thorne v. All Restoration Servs., Inc., 448 F.3d 1264, 1266 (11th Cir. 2006).

So, what about credit cards? A waiter or retail employee who is processing credit cards throughout the day, every day, seems to be using an instrumentality of interstate commerce. The electronic signal transmitting the credit card transaction information travels through the phone lines or the internet, and the actual transaction is approved and processed in a different state (a plaintiff’s lawyer must gather admissible evidence showing all of this). Isn’t this enough like using the phone lines or mails to render an employee’s activities to be in interstate commerce?  Well, opinions differ.

First, the Dept. of Labor believes that an employee who regularly handles credit card transactions is engaged in interstate commerce:  “[e]mployees … are individually covered under the FLSA if, in the performance of their duties, they are engaged in interstate commerce …. Such employees include those who regularly handle interstate mail and telephone calls, engage in banking or credit card transactions, or receive or handle goods or materials from or destined for out-of-state sources.” Dept. of Labor Opinion Letter, FLSA, 1999 WL 1002373 (March 5, 1999).

However, federal courts routinely ignore the DOL’s guidance and provide it very little deference. In the 2006 case cited above, Thorne v. All Restoration Servs, the court didn’t give the DOL’s position any weight and largely sidestepped the legal issue by stating, “Even assuming, without deciding, that credit card transactions alone could constitute an instrumentality of interstate commerce, Thorne did not produce sufficient evidence of interstate activity […] Thorne did not produce evidence that he corresponded with merchants outside the state of Florida using the mail, phone, or fax, and nor did he produce evidence that he made purchases of goods from out-of-state vendors.” Id at 1267.

In short, the plaintiff in Thorne didn’t produce enough evidence about the regularity of the employee’s credit card processing and the interstate nature of those transactions. Yet, throughout Florida in the coming years, at least four district courts after Thorne have held that, as a matter of law, credit card transactions for the purchase of local goods could not form the basis for individual FLSA coverage. Marckenson v. LAL Peker, LLC, 2011 WL 5023422, *4 (S.D.Fla. Oct. 19, 2011);Kitchings v. Fla. United Methodist Children’s Home, Inc., 393 F.Supp.2d 1282, 1293 n. 26 (M.D.Fla.2005); Dent v. Giaimo, 606 F.Supp.2d 1357, 1361 (S.D.Fla.2009); Joseph v. Nichell’s Caribbean Cuisine, Inc., 862 F. Supp. 2d 1309, 1313 (S.D. Fla. 2012), as amended (July 17, 2012).

This conversation has been dominated by federal courts in the 11th Circuit (headquartered in Atlanta but governing Florida). However, a few voices have emerged from elsewhere, such as in Owusu v. Corona Tire Shop, Inc., No. 09-CV-3744 NGG JO, 2013 WL 1680861, at *4 (E.D.N.Y. Apr. 17, 2013), where the court credited the DOL’s opinion that credit card transactions could form the basis of individual FLSA coverage.  The federal courts in Massachusetts have not addressed this issue, and I cannot predict much about the outcome. However, I believe that, for a plaintiff wanting to put himself in the best possible position, a key is laying a strong foundation regarding the interstate nature of the credit card transaction itself, and arguing that the nature of these transactions makes the employee engaged in interstate commerce, despite any local nature of the goods sold.