Secretary of Labor v. Timberline South: Appeals court finds Motor Carrier Act exemption inapplicable

The employer in this case is a timber-harvesting company that operates solely in Michigan. The employer removes raw timber from forests, cuts the timber, and transports it to mills for processing into paper and other products. The employer employs between six and eight truck drivers. These drivers load the timber and transport it to mills where it is processed into paper and other products. As noted by the court in this case:

All of [the employer’s] business activities occur in Michigan: it harvests timber in Michigan; it transports timber to mills located only in Michigan; it entered into contracts for cutting timber in Michigan; and it purchased its trucks and heavy equipment from Michigan sellers. Although purchased and used only in Michigan, [the employer’s] trucks and heavy equipment were manufactured outside of Michigan.

A Wage and Hour Investigator from the Department of Labor (DOL) investigated the employer for recordkeeping violations under the FLSA. This investigation led to a complaint filed by the Secretary of Labor alleging that the employer had violated not only the recordkeeping provisions of the FLSA, but also its overtime provisions.

The complaint was first considered by the trial court. Both parties requested a judgment from that court prior to any trial in the matter. The trial court ruled in the Secretary of Labor’s favor and awarded $439,437.42 in backpay damages as well as an additional $439,437.42 in liquidated damages. The matter was then appealed to the Sixth Circuit Court of Appeals.

Applicable Law

The Motor Carrier Act Exemption

The MCA Exemption provides an overtime exemption for employees who are within the authority of the Secretary of Transportation to establish qualifications and maximum hours of service, except those employees covered by the small vehicle exception. This exemption from overtime applies to employees who are employed by a “motor carrier” or “motor private carrier.” The term “motor private carriers” refers to persons other than motor carriers transporting property by motor vehicle if the person is the owner, lessee, or bailee of the property being transported, and the property is being transported for sale, lease, rent, or bailment, or to further a commercial enterprise.

Ordinary Commute Time and Bona Fide Meal Periods

The Portal-to-Portal Act (PPA) provides that “no employer shall be subject to any liability or punishment under the [FLSA] on account of the failure of such employer to pay an employee minimum wages, or to pay an employee overtime compensation” for activities including “walking, riding, or traveling to and from the actual place of performance of the principal activity or activities which such employee is employed to perform” and also for “activities which are preliminary to or postliminary to said principal activity or activities.”

The PPA also provides, however, that, notwithstanding the provisions stated above “which relieve an employer from liability and punishment with respect to any activity,” the employer will not be so relieved if such activity is compensable by “a custom or practice in effect, at the time of such activity, at the establishment or other place where such employee is employed.”

Decision of the Appeals Court

The Motor Carrier Act Exemption

The employer did not claim to be a “motor carrier,” but instead asserted it fell under the definition of a “motor private carrier” and thus was covered by the MCA Exemption. The employer argued that some of its employees were exempt from coverage because the employer’s trucks are operated under the U.S. Department of Transportation (DOT) registration numbers and the drivers maintain CDLs. The appeals court rejected this argument and stated that the “dispositive inquiry is whether [the employer’s] drivers transported goods in interstate commerce, thus rendering [the employer] a motor private carrier.” The court continued by stating that courts have consistently interpreted this to mean that drivers must travel or transport the goods across state lines, or transport the goods in a practical continuity of movement across state lines from the point of origin to the point of departure.”

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While it was undisputed that the employer’s truck drivers never crossed state lines and left the state of Michigan, the employer argued its drivers did transport goods in a “practical continuity of movement” in interstate commerce because its timber is an ingredient in the goods manufactured by the mills to which it is delivered. The court rejected this argument, too, because the court determined that no evidence was presented to show that the timber was eventually shipped in interstate commerce by the mills. One of the employer’s officials actually testified that the employer had no control over the timber once delivered to the mills and did not know the eventual use or destination of the timber. The court also noted that “the fact that the timber was altered before crossing state lines weighs against finding the MCA exemption applicable.” Accordingly, the appeals court agreed with the trial court’s decision and found that the MCA Exemption did not apply to the employer, and thus the drivers were covered by the FLSA.

Ordinary Commute Time and Bona Fide Meal Periods

The lower court in this case determined that the employer had a custom or practice of paying for travel and meal time and thus determined that this time must be included in determining hours worked and overtime owed pursuant to the PPA. While the appeals court acknowledged that the “plain language of the [PPA] suggests that home-to-work commutes are deemed compensable if the employer has a custom or practice of compensating for such work,” the applicable federal regulation provides that “ordinary travel from home to work … need not be counted as hours worked even if the employer agrees to pay for it.” The court reasoned that because the FLSA only requires overtime compensation for “actual work or employment,” even where an employer pays for time spent in “preliminary” or “postliminary” activity, the PPA does not make “such time hours worked under the [FLSA], if it would not be so counted under the [FLSA] alone.” Thus, the appeals court concluded that the commute time and meal periods should not have been included when determining the damages owed in this case. Accordingly, the appeals court returned the case to the trial court to correct this aspect of that court’s ruling.

Takeaway

This case is noteworthy because it takes a close look at the inner-workings of the MCA Exemption and how that law is applied. Additionally the case also reviews some important compensability rules related to commute time and meal periods. But the case is also noteworthy for another reason: employers should pay attention to the fact that the Wage and Hour Investigator started his investigation looking at recordkeeping violations. When the complaint was eventually filed, however, other overtime violations were alleged in addition to the recordkeeping violations. This is just one example of the problems that can arise for employers once the DOL gains access to an employer’s records. Quite simply, there is no “routine” DOL wage and hour investigation or audit. Employers who are notified that a DOL wage and hour investigator is scheduling a visit should take steps to prepare and respond accordingly, including contacting experienced and knowledgeable counsel if appropriate.

R. Eddie Wayland is a partner with the law firm of King & Ballow.  You may reach Mr. Wayland at (615) 726-5430 or at rew@kingballow.com.  The foregoing materials, discussion and comments have been abridged from laws, court decisions, and administrative rulings and should not be construed as legal advice on specific situations or subjects.