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Feburary 19, 2015

AN EMPLOYER WITH ANNUAL GROSS SALES OR BUSINESS DONE UNDER $500,000.00 AND THUS NOT CONSIDERED AN “ENTERPRISE” UNDER THE FAIR LABOR STANDARDS ACT COULD STILL BE LIABLE IN AN OVERTIME COMPENSATION CLAIM IF THE EMPLOYEE IS ENGAGED IN COMMERCE.

The Southern District of Texas recently answered an important question that is relevant to both employers and employees regarding the payment of overtime compensation:

Does the Fair Labor Standards Act apply only to employees of an “enterprise” or does it apply to an employee of a business too small to qualify as an enterprise so long as the employee engages in commerce as part of his/her job duties?

The Court gave a clear answer: the Fair Labor Standards Act and in turn the requirement that an employer pay a non-exempt employee working over forty hours per work week overtime compensation does in fact apply to a business that is too small to qualify as an enterprise if that employee is engaged in commerce or in the production of goods in commerce.  In Holland v. DA Tencil, Inc., et. al., the Court rejected an employer’s argument that it was not covered by the Fair Labor Standards Act because its annual sales were below $500,000.  The court stated that even though the Fair Labor Standards Act states that to qualify as an “enterprise” an employer must “have an annual gross volume of sales made or business done not less than $500,000” the general provision of the Fair Labor Standards Act provides “individual coverage” that covers an employee engaged in commerce even if the employer does not meet the definition of “enterprise” based on its annual sales.  The employer’s attempt to avoid a Fair Labor Standards Act overtime compensation lawsuit here failed and the Court pointed out the employer’s argument as a “mistake” in that the employer only looked at the definition of enterprise and not the FLSA coverage provision itself.  Accordingly, the Court denied the employer’s motion for Summary Judgment based on that flawed argument and this case will proceed to trial.  This is an important answer from the Court for employers who may assume that they are exempt from the FLSA standards on overtime pay.

Holland v. DA Tencil, Inc., et. al., Civ. A. No. 3:14-CV-00086, 2015 WL 631389 (S.D. Tex. Feb. 12, 2015).