Sec Labor v. 3RE.COM, Inc.Sec Labor v. 3RE.COM, Inc.
BOYCE F. MARTIN, JR., Chief Circuit Judge. General Electric Capital Corporation appeals the decision of the district court enjoining the shipment of certain goods and ordering payment to the court for violations of the Fair Labor Standards Act,
While in business, 3Re.com engaged in repair and remarketing of computer equipment. General Electric provided periodic loans to 3Re.com to be used as working capital. Pursuant to the Loan and Security Agreement between the companies, clients paid 3Re.com for work done, and then General Electric swept the money from 3Re.com‘s accounts in order to provide future loans.
Beginning on April 11, 2001, the Secretary of Labor‘s office began an investigation into possible violations of the Fair Labor Standards Act at 3Re.com. The investigation covered the period from March 1, 2001, through May 3, 2001, and revealed several compensation violations. These violations included 3Re.com‘s failure to pay employees for work done, failure to pay employees for overtime work, and deducting sums from employee paychecks for insurance and 401(k) plans that were not forwarded to the insurers and the plan. Specifically, 3Re.com‘s salaried employees were last paid on March 30, 2001; its hourly employees were last paid on April 13, 2001; and 3Re.com withheld insurance and 401(k) deductions from its hourly and salaried employees in March and April that were never paid to the insurance companies or the 401(k) plan.
Defendant 3Re.com paid its hourly employees every two weeks with one week in arrears and paid its salaried employees every two weeks with nothing in arrears. Therefore, the district court reasoned, the salaried employees are still owed wages for work done during the April 1 through May 3, 2001, pay periods, and the hourly employees are owed one week‘s wages for the week of April 8-14, 2001. According to the district court, all employees are also still
Officials of 3Re.com realized that it was not going to make the April 13, 2001, payroll on April 11, 2001, and began contacting its customers to set up exit strategies for all of the inventory present in the facility. 3Re.com‘s employees worked to distribute that inventory in spite of not being paid for all or a portion of their work. 3Re.com‘s salaried employees gathered information in accounts receivable pending from approximately March 10, 2001, totaling approximately $610,000.00. Several of 3Re.com‘s employees created aged accounts receivable reports to be provided to General Electric under the terms of the Security Agreement.
Based upon these facts, the Secretary of Labor instituted an injunction action pursuant to
General Electric submitted a letter in support of its position. Because the court soon made the preliminary injunction permanent, post-hearing briefs were never requested or
General Electric now challenges the classification of accounts receivable as “hot goods” under the Fair Labor Standards Act, the district court‘s decision not to hear arguments about the exemption of certain employees from the requirements of the sections at issue, and the inclusion in the offense of figures for withholding for 401(k) and health insurance benefit plans, which extended the violation time period.
When reviewing the decision of a district court to grant or to deny a request for issuance of a permanent injunction, we employ several different standards of review. “Factual findings are reviewed under the clearly erroneous standard, legal conclusions are reviewed de novo, and the scope of injunctive relief is reviewed for an abuse of discretion.” S. Cent. Power Co. v. Int‘l Bhd. of Elec. Workers, Local 2359, 186 F.3d 733, 737 (6th Cir. 1999) (citing Walters v. Reno, 145 F.3d 1032, 1047 (9th Cir. 1998)). Likewise, in addressing appeals in Fair Labor Standards Act cases specifically, “we will review the district court‘s underlying findings of fact for clear error but review de novo the district court‘s application to those facts of the legal standards contained in statutes, regulations, and caselaw.” Brock v. City of Cincinnati, 236 F.3d 793, 800 (6th Cir. 2001).
Pursuant to the provisions of
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produced, manufactured, mined, handled, or in any other manner worked on in any State; and for the purposes of this chapter an employee shall be deemed to have been engaged in the production of goods if such employee was employed in producing, manufacturing, mining, handling, transporting, or in any other manner working on such goods, or in any closely related process or occupation directly essential to the production thereof, in any State.
While this language is expansive, it is in keeping with the protective and remedial goals of the Fair Labor Standards Act.
In order to encompass as many workers at 3Re.com as possible within the class of protected employees, the
In advancing its position on this issue, General Electric submits that 3Re.com was in the business of repairing and marketing computers, not the business of “manufacturing” accounts receivable reports. As a result, General Electric contends that the reports could not have been “produced for commerce.” In fact, General Electric cites the court to the bankruptcy court decision in USM Technology Corp. v. Decker, 158 B.R. 821, 825 n.5 (Bankr. N.D. Cal. 1993), in which that court noted that because “[a]ccounts receivable are intangible assets not ‘produced for commerce,’ but result from the production of tangible items or services, they clearly do not fall within the definition of ‘goods’ set forth in the statute.”
Similarly, General Electric cites the court to Selby v. J.A. Jones Construction Co., 175 F.2d 143 (6th Cir. 1949), in which the court ruled that atomic bombs are not goods for commerce within the meaning of the Fair Labor Standards Act; Reich v. Tri-State Energy Products, Inc., 836 F. Supp. 358 (S.D. W. Va. 1993), in which the district court determined that workers maintaining and repairing the machinery used to produce the goods sold by the company in question were not protected by the Fair Labor Standards Act; and Mitchell v. Welcome Wagon, Inc., 139 F. Supp. 674 (W.D. Tenn. 1954), aff‘d, 232 F.2d 892 (6th Cir. 1956), in which the court concluded that internal daily reports were prepared only to monitor employee activity and, therefore, were not goods within the meaning of the Fair Labor Standards Act. In each
In contrast, the Secretary argues that products less tangible than computers or steel beams can nevertheless be considered “goods” under the Fair Labor Standards Act. Specifically, she explains that courts have recognized that telegram messages can be “subjects of commerce,” see W. Union Tel. Co. v. Lenroot, 323 U.S. 490, 502-03 (1945), and that stocks, bonds, bills of lading and exchange, and other commercial paper are “goods.” See Bozant v. Bank of New York, 156 F.2d 787, 789-90 (2d Cir. 1946). In those cases, however, the less tangible items were themselves “articles of trade” or the object of the commercial transaction between the cited employer and its customer.
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By statute, an employee is engaged in the production of goods if he or she is employed “in any closely related process or occupation directly essential to the production thereof . . . .”
Even having found that the tainted accounts receivable in this case are not “hot goods” under the statute, this court must still resolve another issue. General Electric complains that the district court improperly converted the preliminary injunction to a permanent injunction without affording General Electric an opportunity to brief its arguments. Specifically, General Electric alleges it wished to argue that some employees that the Secretary included in her figures and injunction are actually exempt from the Fair Labor Standards Act, that the Secretary had not proven which employees handled the tainted goods, and that the Secretary had improperly included the money withheld for employee benefits in the injunction amount.
As to the first question, whether or not some employees are exempt from the Fair Labor Standards Act, the minimum wage and overtime provisions of the Act (and, consequently, the “hot goods” sanctions) do not apply to “any employee employed in a bona fide executive, administrative, or professional capacity.”
In this case, notes the Secretary, the defendant did nothing to establish the exempt status of the 3Re.com employees. Because it is “the employer [who] bears the burden of showing that the . . . exemption applies to the employees,” Fazekas v. Cleveland Clinic Found. Health Care Ventures, Inc., 204 F.3d 673, 676 (6th Cir. 2000), the absence of such proof would cloak even the salaried employees with the broad protection afforded by the Fair Labor Standards Act. General Electric, however, was not afforded an opportunity to make these arguments and to carry its burden. As a result, the failure to prove exemption does not fall upon General Electric alone. General Electric must have the opportunity make its case against the inclusion of these employees.
The second issue is whether or not the Secretary proved which employees actually dealt with tainted goods. Those goods produced after the bankruptcy filing are unquestionably covered by the Fair Labor Standards Act. The employees who were employed by 3Re.com were not necessarily all involved in their production and therefore, are not necessarily all covered by the legislation. General Electric asserts that the Secretary adduced insufficient evidence to tie individual employees who were not paid in accordance with Fair Labor Standards Act requirements to certain “goods” produced by 3Re.com.
General Electric also insists that the district court erred in determining the amount of money the defendant must deposit into the court registry to cure the taint of the Fair Labor Standards Act violation. Although conceding that some equipment was “produced” between April 8, 2001, and April 14, 2001, by 3Re.com hourly employees who were not compensated for their labor, General Electric contends that only that equipment that the Secretary can definitively identify as being produced by specific, unpaid workers can be withheld from commerce pending payment of the back wages
For the foregoing reasons, we REVERSE the permanent injunction at this time and REMAND to the district court for proceedings consistent with this opinion. While reversing the district court, the status quo, via the preliminary injunction, shall remain in effect until the district court has opportunity to rule fully on these issues.