By: Brett Adair
Although employers may feel they understand the standards by which they are (or could be) exempt from compensating their employees for overtime labor under the Motor Carrier Act (MCA), the harsh reality is that determining what constitutes interstate commerce – a requisite element for the exemption to apply – is, at best, confusing and inconsistent.
To illustrate the complexity under the MCA Exemption, only one of the employers below was required to pay its drivers overtime compensation in compliance with the FLSA:
So, how does one know if the business is interstate in nature if the transportation utilized is intrastate? The answer is NOT clear! While courts utilize varying standards to make this determination, most will look to the shipper’s “fixed and persisting intent” that the property would travel in interstate commerce at the time the shipment commenced.
The Motor Carrier Act Exemption
The FLSA requires employers to pay employees at time-and-a-half for any work done in excess of 40 hours per week, subject to certain exceptions such as the MCA exemption. The MCA exempts employers from required overtime pay to any employees who are subject to jurisdiction of the Secretary of Transportation. When an employee moves goods in interstate commerce and affects the safe operation of motor vehicles on public highways, the Secretary of Transportation has power over the employee. This interstate commerce element has challenged employers since the MCA’s conception and courts have since focused their attention on factors and patterns of shipments that—although they may involve intrastate journeys—are interstate in nature.
Interstate Commerce: A Vague Inquiry
The determination of interstate shipping seems simple: property travels internationally or across state borders to a final resting place in another state. However, issues arise when drivers of intrastate “legs” receive the goods from an out-of-state shipper. Courts have determined that intrastate transportation can be “part of interstate commerce if it is part of a ‘continuous stream of interstate travel.’” The Tenth and Second Circuits have interpreted this to mean that the essential character of the shipment was interstate in nature, which is determined by examining the “fixed and persisting intent” of the shipper at the time the shipment commences, likely the time the product left the manufacturer, not at the time it left an intermediate warehouse.
But, the “interstate nature” question blurs when shipments of products do become temporarily warehoused or are carried by multiple carriers – some of whom may have moved the products intrastate, as opposed to interstate. Fortunately, the Supreme Court has ruled that, “[t]he entry of the goods into the warehouse interrupts but does not necessarily terminate their interstate journey.” Additionally, if the shipment is interstate in nature, it is irrelevant whether the employees completed the first leg of the journey or the last. The MCA applies throughout the shipment when the intended final destination at the time the shipment began was another state and the employee in question was only responsible for the intrastate leg.
Some courts have utilized factors of the MC-78 and MC-207 tests to define a “fixed and persisting intent.” However, the Tenth Circuit has utilized the three-factor MC-48 test and is encouraged to look at all relevant facts and circumstances, which include:
- the length of time movement of the product is interrupted by storage;
- whether the carrier is in continuous possession of the product until delivery;
- whether the product is processed or comingled in any way at the storage location;
- whether the final destination is designated by the out-of-state shipper.
The Interstate Commerce Commission (ICC) abandoned the MC-48 test and adopted the MC-207 test in its 1992 Policy Statement which was designed to account for diversity in shipping methods. Like MC-47, the factors are used to determine “whether the shipper has a ‘fixed and persisting transportation intent at the time of the shipment’ to have the shipment continue in interstate commerce to its ultimate destination.” Composed of seven factors, it has been utilized by various jurisdictions, including some in Pennsylvania and Arizona.
Interestingly, these tests and specific factors are not utilized in all jurisdictions. The Southern District of Alabama instead has limited its prima facie inquiry to whether the shipper had a fixed and persisting intent at the time of the shipment. In the earlier example of Driver 2, the defendant employer failed to show there was a fixed and persisting intent for the paper to be sent to Alabama and did not meet their burden of proof that the shipment of paper scraps was done in interstate commerce. Similarly, the Eleventh Circuit has abandoned the use of these set factors in favor of examining all facts and circumstances surrounding the shipment. Therefore, it is important to look at each jurisdiction specifically to determine where and if these tests are utilized.
Additional Factors
Courts have considered myriad other factors, such as whether the goods are indispensable to production, whether the goods were modified between “legs,” and whether the shipments made by drivers were de minimis.
Indispensable Goods
In the context of products being shipped for production or manufacturing, in the Driver 1 example, a Tenth Circuit court looked at whether the goods being shipped were indispensable to production and found that the pallets, empty kegs, and hops were indispensable to the production process. However, the Southern District of Alabama failed to make this same analysis in the Driver 2 example. Like the hops to be made into beer (Driver 1 example), the scrap paper (Driver 2 example) is also a raw product that is necessary for the ultimate production of paper. Once again, each court considered a variety of factors and did not focus on any singular one to make a decision. Therefore, the indispensability of a product does not always lead a court to find that its transport was interstate in nature.
Material Changes
Courts have often considered if goods underwent material changes during transportation from out-of-state shippers. The ICC noted in its MC-207 test that, where “processing or substantial modification of substance occurs at the warehouse or distribution center,” the goods cannot be said to have traveled in interstate commerce because they are not finished products. However, if repackaging or reconfiguring of the goods occurs, the stream of interstate commerce will not be considered interrupted. In the Driver 2 example, the court held that, while the employer argued the transportation of paper rolls to be cut at the sheeter facility constituted interstate travel, a jumbo paper roll was not a finished product as it had yet to be cut for consumer use and any transportation between the manufacturing facility and the sheeter facility was part of the production process for paper, not interstate travel. That decision aside, the Fifth Circuit has found that cutting carpet rolls actually constitutes repackaging and reconfiguration, not product modification. Again, the court has discretion to determine which factors, tests and cases to reference. Even a set of similar facts can result in different outcomes, depending on the factors the court chooses to consider. Had the court in the example of Driver 2 considered the Fifth Circuit’s opinion persuasive, the jumbo rolls could have been considered an unmodified product sufficient to travel in interstate commerce when traveling to the sheeter facility.
Trivial Travel
Finally, courts construe exemption claims narrowly against employers, as employers bear the burden of showing their entitlement to an exemption. With travel, the employer must show that their drivers made substantial interstate trips in the past. For the exemption to apply, this means the activities of the individual employee involved interstate travel of a character that was more than de minimis – accounting for more than one percent of all trips taken – or that the interstate travel was a natural, integral and inseparable part of the position the employee held.
However, not all courts have limited the de minimis travel inquiry to the threshold of one percent of all total trips taken. In the example of Driver 2, the court determined that, although the employee retrieved materials from an in-state facility that received scrap paper from out-of-state facilities, the total number of trips made to the facility to retrieve the materials, compared to all of the trips that had occurred, was trivial. There, only two out of 12 of the plaintiff-drivers made the trips over a four-day period and, out of the 156 trips they took that year, four of the trips could be considered interstate. Because the court reasoned that the driver would likely not be called upon again to make this trip, the transportation was not made in interstate commerce.
Conclusion
If you chose Driver 1’s employer as the one not required to pay its drivers overtime compensation pursuant to the FLSA and the MCA exemption, you are correct. Whether or not you guessed correctly, the difficulty of the analysis is obvious. It is imperative that employers ensure they are compliant with FLSA practices before litigation arises. As demonstrated, one court may focus on a factor that another completely ignores. The question of interstate commerce is tricky, so evaluate your practices by determining:
- Is the transportation interstate or intrastate? and
- If intrastate, would evaluation of the facts surrounding the transportation reveal shipments that are interstate in nature?
It is important to consult with legal counsel who specialize in this area. If you are uncertain whether or not your compensation practices are compliant, please contact Brett Adair at Carr Allison at 205.949.2930 or badair@carrallison.com.
