Opinion ID: 660190
Heading Depth: 3
Heading Rank: 2

Heading: The Enterprise Concept.

Text: 46 The minimum wage and overtime requirements apply not only to employees who engage in commerce or in the production of goods for commerce, but also to employees of an enterprise engaged in commerce. 29 U.S.C. Secs. 206, 207. To be considered an enterprise, a business must satisfy three elements. It must 1) be engaged in related activities, 2) under unified operation or common control, and 3) have a common business purpose. 29 U.S.C. Sec. 203(r)(1); Cruz v. Chesapeake Shipping, Inc., 932 F.2d 218, 229 (3d Cir.1991). If a group of businesses has these three characteristics, the businesses will be treated as a single entity for purposes of applying the FLSA. 47 Congress introduced the concept of enterprise coverage in order to cope with the dramatic change in the nature of retail businesses between 1938 and 1960. Originally, the FLSA was designed to protect the employees of major industrial companies while leaving employees of small local businesses alone. In 1938, retailers were still mostly small local businesses, and they were largely excluded from the scope of the FLSA. By 1961, however, Congress recognized that much retailing was controlled by national chain-type stores, and enacted a bill modifying the FLSA to bring such stores within the scope of the FLSA. By amending the FLSA Congress hoped to update it to take account of the changes in the marketplace: 48 Just as the general store has long since disappeared as a symbol of retailing, the corner grocery store is quickly giving way to the supermarket.... The large mercantile establishments and national systems of chain stores which this bill would make subject to the Federal Wage-hour law bear little resemblance to the small retail businesses the original sponsors of the act sought to exclude. Their claim to be regarded as local retail merchants rests solely on the fact that they distribute and sell goods at retail, although they commonly buy at wholesale and operate in many States throughout the Nation. 49 S.Rep. No. 145, 87th Cong., 1st Sess. (1961) reprinted in 1961 U.S.C.C.A.N. 1620, 1645-46. By introducing the enterprise concept, which aggregated different entities into a single unit for purposes of the FLSA, the 1961 amendments to the FLSA brought the national retail chain stores and their employees within the scope of the FLSA. 50 Of course, Congress still wanted to keep truly local businesses outside the scope of the FLSA. So Congress made [a]mple provision ... to insure the original intent of the sponsors of the act to exclude the small local retail merchants such as the corner grocer, neighborhood drugstore, barbershop or beauty parlor [would be] carried out. 1961 U.S.C.C.A.N. at 1645-46. Congress did this by creating a mom and pop exclusion, see Martin v. Bedell, 955 F.2d 1029, 1032 (5th Cir.1992), requiring that an enterprise have gross sales of a certain amount for FLSA coverage to exist. At present, that amount is $500,000. 29 U.S.C. Sec. 203(s)(1)(A)(ii). 51 Under current law, the question often arises as to whether a business is above or below this dollar threshold. For example, if an entrepreneur owns three businesses, e.g. a gas station, a factory, and a bank, with each having gross sales of $200,000, it is necessary for the court to determine whether the sales of one, two or all three of the businesses should be combined to determine the applicability of the FLSA. 29 C.F.R. Sec. 779.211. The enterprise test is the way to determine whether to combine the dollar figures. See 29 C.F.R. Sec. 779.201. By using the three part test for enterprise, courts have a way to gauge the economic reality of a group of affiliated businesses for the purposes of applying the FLSA. See, e.g., Brock v. Hamad, Inc., 867 F.2d 804, 806-07 (4th Cir.1989) (three affiliated businesses--a lounge that featured topless dancers, an adult bookstore, and an x-rated video arcade--were an enterprise because they were all engaged in providing erotic entertainment to adults); Brock v. Executive Towers, Inc., 796 F.2d 698 (4th Cir.1986) (two affiliated businesses--one that managed an apartment complex and one that managed single family homes--were an enterprise). Cf. Griffin v. Daniel, 768 F.Supp. 532, 536-37 (W.D.Va.1991) (affiliated restaurant, grocery store and trailer park were not an enterprise). 12 52 The enterprise coverage concept aims at a distinction among businesses that is quite similar to the inquiry invited by the small newspapers exemption. If circulation figures are substituted for dollars, the problem of determining the application of the small newspaper exemption is the same as determining enterprise coverage. This is particularly true in this case in which we are called upon to apply the FLSA to a chain of newspapers. As we have noted, the enterprise concept was specifically introduced into the FLSA to deal with the problem of chains. 53 Use of the enterprise analysis as a rough framework for applying the exemption, not only has pragmatic appeal, but it also has support in the legislative history of Sec. 13(a)(8). In 1938, Congress was careful to restrict the scope of the FLSA so that small, local businesses--the butcher, the baker, the grocer--would not be required to pay minimum wages and overtime. The vast majority of employers in the retail trades were either not covered by the act because their employees were not deemed to be engaged in commerce or in the production of goods for commerce or were specifically exempted by the retail trade exemption. 13 But because it was common for local newspapers to be sent across state lines--to former residents or relatives--many local publishers were engaged in commerce and fell within the general scope of the FLSA. Without an exemption from the FLSA, the local publisher, who was really just as small and community-based as other small businesses, would have had to meet the requirements of the FLSA. 54 As the sponsor of Sec. 13(a)(8), Representative Creal of Kentucky, put it: 55 ... under this bill, because 1 to 2 percent of a paper's circulation goes outside to people who want to get the hometown paper to see whether or not Lucy got married, or whether Sally's baby has been born yet, because that infinitesimal bit of their business is with people outside the county, these publishers fall under the provisions of this bill, when on each side of this little printshop are the butcher and the baker, who are exempt and who are financially better fixed than he is. 56 83 Cong.Rec., 7445 (May 24, 1938). 14 See also Mabee v. White Plains Publishing Co., 327 U.S. 178, 183, 66 S.Ct. 511, 513, 90 L.Ed. 607 (1946). (The exemption of small weeklies or semi-weeklies seems to have been adopted on the assumption that without it a newspaper with a regular out of state circulation, no matter how small, would be under the act.). According to this legislative history, the small newspaper exemption is, at base, a provision to ensure that publishers will be treated the same as other businesses. 57 Using the enterprise concept when applying the small newspaper exemption seems to ensure an interpretation that is most consistent with this legislative history. If the original purpose of the small newspaper exemption is to be accomplished, publishers today ought to be treated no differently from other businesses. As has been mentioned, the enterprise approach distinguishes the large regional and national companies from those that are truly local, and it brings within its scope the chain-type businesses. To the extent that newspaper chains are like other types of chain businesses, then, the analysis under the FLSA should be the same. Otherwise, publishers would be treated more favorably under the FLSA than other businesses, and that would not be consistent with the purposes of the exemption. As this legislative history shows, the exemption was to make publishers equal to other businesses--not to make them better off. 58 Of course, application of the small newspaper exemption invites a somewhat different inquiry than the enterprise liability concept, and not just because its application is based on circulation levels, not dollar figures. We recognize that the enterprise concept is, at best, an analogy. Although the enterprise concept with the mom and pop exclusion and the small newspaper exemption may both be aimed at excluding small local businesses from the scope of the FLSA, the precise criteria for determining whether a business is local should be different depending on whether the business at issue is a small retailer or a small publisher. 59 We therefore emphasize at least one important difference between the enterprise inquiry in the FLSA generally and the small newspaper inquiry: fidelity to the statutory language of Sec. 13(a)(8) requires that the common business purpose consideration be applied at a fairly specific level. More precisely, the court should make sure that the publications have a common publishing purpose--a purpose that includes both business operations and editorial operations of the publications. This approach will ensure application of the small newspaper exemption in a way that is consistent with the Wage and Hour Division opinion letters which have said that a single publisher may have more than a single newspaper and still come within the scope of the small newspaper exemption. Under this approach, newspapers run by a single publisher which are in effect just different regional editions would have their circulations aggregated to determine the application of Sec. 13(a)(8), while those that are much more widely disparate would not. 60 Thus, in applying the small newspaper exemption to publishers of more than a single publication, the court should aggregate the circulation of those publications that are (1) related, (2) have a unified operation or control, and (3) have a common publishing purpose. In evaluating the first two factors, the focus should be on the different business operations of the publications. The court should look to see to what extent the publisher is taking advantage of significant economies of scale in running the publications. Particularly important would be the use of the same editorial staff and reporters for the different publications. Also important would be the degree to which the publications are after the same market niche in the different communities, the centralization of the publication decisions, the centralization of advertising sales, and other administrative functions of the publisher. The focus of the third consideration should be on the content of the papers--the extent to which the articles, advertisements, and editorials differ among the publications. Minor variations among the publications--different stories on only one page, for example--will not be enough require a court to measure their circulations separately. 61