Court Opinion

ID: 4021867
Source: CourtListenerOpinion
Date Created: 2016-08-04 15:19:54.420022+00
Date Added: 2024-06-11T14:35:15.096719
License: Public Domain

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                                                                      Supreme Court Clerk
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     CHIEF .ius·ncli'T'"
        IN THE SUPREME COURT OF THE STATE OF WASHINGTON

     DAVID COOPER and JERRY SCOTT,                )
     individually and on behalf of all those      )     No. 91801-5
     similarly situated,                          )
                                                  )
                           Respondents,           )
                                                  )
           v.                                     )     EnBanc
                                                  )
     ALSCO, INC., a foreign corporation,          )
                                                  )
               Appellant.                         )
     _______________________)                           Filed        AUG 0   11   2016

           JOHNSON, J.-This case requires us to determine if Alsco Inc. is a "retail

     or service establishment" (RSE) under chapter 49.46 RCW for purposes of an

     exemption to the overtime pay requirement. See RCW 49.46.010(6). The trial court

     granted the employees' motion for summary judgment regarding entitlement to

     overtime pay, finding that Alsco is not an RSE for purposes of the overtime pay

     exception. In granting the employees' subsequent motion for summary judgment

     on the issue of calculating the amount of overtime due, the court calculated the

     "regular rate of pay" by dividing the total weekly compensation actually paid by 40

     hours, not by hours actually worked. We accepted direct review. We reverse the
Cooper v. Alsea, Inc., No. 91801-5

trial court and hold that Alsco is an RSE for purposes of the overtime pay

requirement.

                          FACTS AND PROCEDURAL HISTORY

      Alsco is a textile rental and sales company that supplies uniforms, linens,

and other products to other businesses in industrial, hospitality, health care, and

other fields. Alsco does not provide products or services for resale. Alsco and its

employees are covered by a collective bargaining agreement (CBA). 1

      Alsco provides three services to its customers: (1) the rental and servicing of

linens and uniforms, (2) the rental and servicing, including repair, replacement, and

refilling, of washroom and hygiene products, and (3) the direct sale of janitorial

products, garments, and linens. Its employees deliver clean goods, such as

uniforms and towels, to other businesses and pick up soiled goods, which Alsco

takes back to its facilities for washing. Alsco sells some goods to businesses, such

as mops and paper towels. Both parties agree that Alsco does not provide any

goods for resale by their customers.

       Alsco employees who deliver and pick up the goods can choose to be paid

either by the hour or by commission with a base salary. For those who choose to be

       1 No dispute exists that the employees received what the CBA provided. A CBA cannot
evade Minimum Wage Act, chapter 49.46 RCW, requirements if it applies. See Hisle v. Todd
Pac. Shipyards Corp., 151 Wash. 2d 853, 93 P.3d 108 (2004).

                                             2
Cooperv. Alsea, Inc., No. 91801-5

paid on commission, the commission portion comprises over half of their total pay.

Alsco does not pay commissioned employees any greater compensation for hours

they work over 40 in a week.

      A class of commissioned delivery employees filed suit against Alsco,

claiming entitlement to overtime pay under the Minimum Wage Act (MWA),

chapter 49.46 RCW, and alleging Alsco willfully withheld wages in violation of

the MWA. Alsco and the employees filed cross motions for summary judgment.

Alsco argued that it is exempt from paying commissioned workers overtime

because it is an RSE for purposes of the overtime exemption in RCW

49.46.130(3). Alsco also claimed it had not willfully withheld wages because the

commission-based wage system was negotiated as part of the CBA.

       The trial court granted the employees' motion regarding entitlement to

overtime, finding that Alsco is not an RSE for purposes of the overtime exemption.

In the same order, the trial court granted Alsco's motion that the alleged wrongful

withholding of overtime was not willfuF and also denied, without prejudice, the

employees' motion as to the method for calculating unpaid overtime, leaving that

issue for later.

       2
           The issue of willful withholding of wages has not been pursued here.

                                                 3
Cooper v. Alsea, Inc., No. 91801-5

      Next, the trial court certified the questions regarding the applicability ofthe

retail or service exemption and willful withholding of wages to the Court of

Appeals, which declined to grant discretionary review. The Court of Appeals

explained that the trial court could resolve the remaining issues relatively quickly

and that immediate review would not materially advance the ultimate resolution of

the litigation. The parties, back in trial court, filed cross motions on the remaining

issue of how to calculate the amount of overtime owed to the employees by Alsco.

The court granted the employees' motion and denied Alsco's. The court calculated

the "regular rate of pay" for overtime purposes by dividing the total weekly

compensation actually paid by 40 hours rather than all hours actually worked.

      Alsco appealed directly to this court, arguing that there are conflicting

decisions among the Court of Appeals and a conflict with this court's decisions,

and that this case involved a fundamental issue of broad public importance

requiring prompt and ultimate determination. RAP 4.2(a)(4). We accepted direct

revrew.

                                      ANALYSIS

      The issue is one of statutory interpretation. We review statutory

interpretation questions de novo. State v. Azpitarte, 140 Wash. 2d 138, 140-41, 995
P.2d 31 (2000). Unambiguous statutes are not subject to judicial interpretation; we

must determining the meaning of the statute based on the statutory language.

                                           4
Cooper v. Alsea, Inc., No. 91801-5

Harmon v. Dep't of Soc. & Health Servs., 134 Wash. 2d 523, 530, 951 P.2d 770

(1998).

       Alsco contends that its commission-based-pay employees are exempt

employees under the "retail or service" exemption under the MWA. RCW

49.46.010(6). Washington's MWA generally requires employers to pay employees

one and one-half times their regular rate of pay for any hours worked over 40 hours

in a week. RCW 49.46.130(1). 3 However, at issue here, the MWA expressly

exempts employees who work for an RSE if their regular rate of pay exceeds one

and one-halftimes the minimum wage and more than half of the employee's

compensation represents commissions on goods or services. 4

       The RSE exemption to the MWA states:

       No employer shall be deemed to have violated subsection (1) ofthis
       section by employing any employee of a retail or service
       establishment for a workweek in excess of the applicable workweek
       specified in subsection (1) of this section if:
              (a) The regular rate of pay of the employee is in excess of one
       and one-halftimes the minimum hourly rate required under RCW
       49.46.020; and

       3
        "Except as otherwise provided in this section, no employer shall employ any of his or
her employees for a workweek longer than forty hours unless such employee receives
compensation for his or her employment in excess of the hours above specified at a rate not less
than one and one-halftimes the regular rate at which he or she is employed."
       4
          The statute does not differentiate between sales of services or goods. We similarly make
no effort to distinguish Alsco' s transactions that are sales of goods from those which are sales of
servwes.

                                                 5
Cooper v. Alsea, Inc., No. 91801-5

            (b) More than half ofthe employee's compensation for a
      representative period, of not less than one month, represents
      commissions on goods or services.

RCW 49.46.130(3) (emphasis added). It is uncontested that the commission-

based-pay employees here are paid over one and a halftimes the minimum wage

and that commissions make up over half of their pay. The issue then is whether

Alsco is an RSE under the statute.

      RCW 49.46.010(6) defines an RSE as "an establishment seventy-five

percent of whose annual dollar volume of sales or goods or services, is not for

resale and is recognized as retail sales or services in the particular industry." It is

undisputed that the products sold by Alsco to other businesses are used by the

businesses and are not resold to individuals. The dispositive question is whether it

is "recognized as retail sales or services in the particular industry."

       The trial court reasoned that Alsea's sales are not recognized as retail sales

or services in the particular industry because they are to other businesses pursuant

to long term contracts and because Alsco lacks a retail concept. The trial court

explained that Alsea's customers may be "the end of the line" in the sense that the

customer's employees wear the uniforms, but they do so only as a means to assist

their own employers in their efforts to make a profit by selling their own goods or

services to the general public. In essence, the trial court seemingly determined

                                            6
Cooperv. Alsea, Inc., No. 91801-5

Alsco is not an RSE because it contracts with other businesses on a long term

basis. That reasoning misreads the statute.

      While there is little guiding Washington precedent on whether a business

meets the definition of an RSE, we considered whether a vending machine

business was an RSE in Stahl v. Delicor ofPuget Sound, Inc., 148 Wash. 2d 876, 64
P.3d 10 (2003). Alsco primarily asserts the trial court's determination that Alsco is

not an RSE conflicts with our decision in Stahl. In that case, we addressed whether

sales of goods and services are recognized as retail in the particular industry. In

Stahl, 95 percent of the employer's revenue came from direct sales to consumers,

but the question remained whether sales from vending machines were "recognized

in the industry" as retail sales. Stahl, 148 Wash. 2d at 882. We held that vending

machine sales are recognized as retail sales by the industry, observing that vending

machine sales are subject to the retail sales tax and are "end of the line"

transactions between the vending company and the ultimate consumer. Stahl, 148
Wash. 2d at 882.

      The factors discussed in Stahl are helpful in the situation present here. First,

Alsco's sales are taxed under Washington's retail sales tax under RCW

82.08.0202, which provides:

       [P]roviding customers with a supply of clean linen, towels, uniforms,
       gowns, protective apparel, clean room apparel, mats, rugs, and similar
       items, whether ownership of the item is in the person operating the

                                           7
Cooper v. Alsea, Inc., No. 91801-5

      linen and uniform supply service or in the customer [is a retail sale
      and subject to retail sales tax].

This tax treatment factors heavily in deciding the applicability ofthe RSE

exemption. It makes sense that if the business transactions are taxed as being retail,

then the business is, in fact, engaged in retail sales under the exemption. Second,

Alsco's sales are "end of the line" sales. None of Alsco's goods or services are

resold. This also weighs heavily in the RSE determination. These factors are those

on which Stahl focused.

      The distinction between the present case and Stahl is that here, Alsco's

customers are other businesses, which the trial court focused on in its conclusion

that Alsco was not an RSE because its business customers used Alsco's products

and services "as a means to assist their own ... efforts to make a profit by selling

their own goods or services to the general public." Clerk's Papers at 803. But such .

a distinction is not found in RCW 82.08.0202. Many businesses sell products to

other businesses at retail. That Alsco's sales are predominately high volume does

not control whether those sales are retail. A business can sell services at large

volume and still be considered retail. High volume sales do not negate the

definition of"retail."

      While Alsco's "products" do not fit into the category of what one intuitively

considers retail, the statutory language controls. Alsco provides its customers three

                                           8
Cooper v. Alsea, Inc., No. 91801-5

services: (1) the rental and servicing oflinens and uniforms, (2) the rental and

servicing of washroom and hygiene products, and (3) the direct sale of janitorial

products, garments, and linens. These "products" are providing goods and services.

The statute applies to both goods and services. The statutory definition of"retail"

undercuts the intuitive sense of what is retail. But we are analyzing those statutory

definitions. Retail businesses are not limited to establishments where consumers

enter, take goods off shelves, and purchase at a register. Retail businesses are also

entities that sell "goods and services." The service here that Alsco provides

includes supplying uniforms, towels, and linens that the customer purchases or

rents from Alsco. The core of Alsea's business is selling a "service" in the

statutory sense, specifically the rental oflinens and garments. The laundering of

the product by Alsco could be performed by another company or the customer

themselves. Here, the essence of the transaction subject to the sales tax is the

providing of the clean linens and unifonus. RCW 82.08.0202 includes "providing

customers with a supply of clean linens, towels, uniforms, ... and similar items,

whether ownership of the item is in the person operating the linen and uniform

supply service or in the customer" as a retail sale and subject to retail sales tax.

      Simplifying the transaction in analyzing RCW 82.08.0202 is somewhat

helpful. Where a business rents uniforms to a customer for an event, RCW

82.08.0202 provides that this is a retail transaction. Where the customer is another

                                            9
Cooper v. Alsea, Inc., No. 91801-5

business, the transaction retains its retail treatment. The statute draws no

distinction between individual versus business customers. The laundering and

return of uniforms to the customer, under RCW 82.08.0202, is similarly designated

a retail transaction. The statutory characterization is not affected or limited based

on the duration of the relationship, the volume of business, or the fact that

businesses are involved. Under RCW 82.08.0202, no language exists supporting

the trial court's conclusion.

      Alsco identifies a similar federal case that interprets the Fair Labor

Standards Act of 1938 (FLSA), 29 U.S.C. §§ 201-219, as exempting business-to-

business sales of goods or services as retail sales as long as the receiving business

is the ultimate user. 5 In Alvarado v. Corporate Cleaning Services, Inc., 782 F.3d
365 (7th Cir. 2015), where employees of a window washing business sued their

employer, seeking overtime pay allegedly due to them under the FLSA, the court

held that the business met the RSE requirement because it sold its window cleaning

services to the ultimate customers, even though most of their customers were other

businesses, namely building owners and managers. Particularly instructive here,

the court in Alvarado rejected the argument that the window washing companies'

       5 Because  the MWA is patterned on the FLSA, we will often turn to federal authority
interpreting the FLSA for guidance. See Hisle, 151 Wash. 2d at 862 n.6 (recognizing that the FLSA
is persuasive authority because the MWA is based on the FLSA).

                                              10
Cooper v. Alsea, Inc., No. 91801-5

services were not retail because other business used the services to make a profit,

explaining:

      It would be absurd to suggest that a dealer in motor vehicles, when it
      sells a truck to a moving company, is "wholesaling" the truck because
      the buyer will doubtless try to recover the cost of the purchase in the
      price he charges for his moving services, which utilize the truck.

Alvarado, 782 F.3d at 369. This case and the factors analyzed in Stahl support the

determination that Alsco is an RSE.

      The employees argue that Alsco is not an RSE because most of its business

involves long term contracts and high-volume sales. They cite federal regulations

implementing the FLSA that provide an RSE is one that typically "sells goods or

services to the general public ... in small quantities" and that generally "will not

be considered a retail or service establishment ... if it is not ordinarily available to

the general consuming public." 29 C.P.R. §§ 779.318(a), § 779.319. However,

those same regulations also provide that the retail exemption is intended to "extend

in some measure beyond consumer goods and services to embrace certain products

almost never purchased for family or noncommercial use." 29 C.P.R. § 779.318(b).

Further, federal courts have recognized that "'[d]espite this reference to supplying

goods and services to the general public, ... the provision of goods and services to

commercial customers does not necessarily prevent an establishment from

qualifying as a retail or service establishment."' Charlot v. Ecolab, Inc., 136 F.
11
Cooper v. Alsea, Inc., No. 91801-5

Supp. 3d 433 (E.D.N.Y. 2015) (first alteration in original) (quoting Kelly v. AI

Tech., No. 09 Civ. 962(LAK)(MHD), 2010 WL 1541585, at* 12 (S.D.N.Y. Apr.

12, 2010) (court order) (holding that the supplier of cleaning and related equipment

to restaurants, hotels, and other businesses may be an RSE for purposes of

commission-based-pay employee exemption under FLSA)).

      Importantly, the federal regulations cited by the employees do not directly

control interpretation of our state's MWA, and we find no language in the

definition of an RSE under our act restricting the definition to businesses that sell

to individuals. Like the MWA, the FLSA requires overtime pay of one and one-

halftimes the regular rate for every hour worked beyond 40. 29 U.S.C. § 207(a)(l).

Alsco correctly points out that the FLSA does not require that a business sell to

individuals to qualify as an RSE. And, Congress amended the FLSA in 1949 to

specifically allow business-to-business sales to qualify as retail sales.

      After the 1949 amendments, the definition of "retail sales" was broadened to

include sales to customers who are businesses in addition to individuals. Ch. 736, §

3, 63 Stat. 911; see Schultz v. Crotty Bros. Texas, 310 F. Supp. 761,766 (B.D. Tex.

1970) ("There can be no question that [the 1949] amendments have broadened the

scope of the§ 13(a) (2) exemption."). Congress replaced the previous "consumer

use" test when it amended the FLSA in 1949 to allow employers who sell goods

                                           12
Cooper v. Alsea, Inc., No. 91801-5

and services to other businesses to qualify for the retail sales exemption. Ch. 736, §

3, 63 Stat. 911.

      Since then, federal courts have held that the retail sales or service

establishment exemption under the FLSA applies to employers engaged in

business-to-business sales even where the business engages in those types of sales

exclusively. In Idaho Sheet Metal Works, Inc. v. Wirtz, 383 U.S. 190, 86 S. Ct. 737

15 L. Ed. 2d 694 (1966), the Court held that a tire merchant was not an RSE on the

basis that it sold tires at discount prices to businesses for use on their vehicle fleets.

The employees draw a comparison between Alsea's large volume contracts and the

equipment sold in Idaho Sheet Metal. However, the decision in Idaho Sheet Metal

was guided not by the volume of sales in question, but by the secretary of labor's

rule specifying that sales to fleets of five or more vehicles at wholesale prices are

not retail sales. Idaho Sheet Metal, 383 U.S. at 208. The Idaho Sheet Metal opinion

noted that the secretary's rule was intended to further specific legislative intent to

exclude certain types of sales made at deep discounts and in quantity. See Idaho

Sheet Metal, 383 U.S. at 192-93. In this state, no similar rule excluding businesses

that sell in quantity from the RSE definition under the MWA exists. Idaho Sheet

Metal is not that helpful because that case involved a former version of the FLSA,

under which all retail employees were exempt from overtime pay requirements, not

just those paid on commission.

                                            13
Cooper v. Alsea, Inc., No. 91801-5

      Additional federal cases support Alsco's position. English v. Ecolab, Inc.,

No. 06 Civ. 5672,2008 WL 878456 (S.D.N.Y. Mar. 31, 2008) (court order), held

that sales to other businesses pursuant to long term contracts-in that case, pest

extermination services-were retail sales. The employees attempt to distinguish

this case by pointing to the facts that the exterminators were free to set their own

schedules, which would allow them to "game" the overtime system, and that they

were skilled workers, so the company could not hire more workers to avoid

overtime. However, whether the employees do or do not control their schedules is

not helpful in deciding whether the exemption applies. As we discussed in Stahl,

an employee's job duties do not affect whether he or she is paid a bona fide

commission for purposes of the retail service exemption. An employee who has no

involvement in sales is exempt from overtime as long as the employee's

commission is tied to the amount charged to the customer and the remaining

requirements of the exemption are met. Stahl, 148 Wash. 2d at 886-87.

      The employees point out that the businesses in English that purchase the pest

extermination services primarily benefit from those services, as opposed to the

individuals who patronage the ostensibly pest-free businesses. But the employees

cite no authority that the RSE determination turns on who receives the benefit. As

Alsco points out, such a definition would mean that a business-to-business sale

                                          14
Cooperv. Alsea, Inc., No. 91801-5

could never be retail, which, as explained above, is contrary to both federal and

Washington law.

      In an attempt to further distinguish the present case from English, the

employees cite to another federal case. Cancilla v. Ecolab, Inc., No. C 12-03001

CRB, 2013 WL 1365939 (N.D. Cal. Apr. 3, 2013) (court order) (denying Ecolab's

summary judgment motion asserting the RSE; Ecolab eventually settled following

certification of an FLSA collective action). The facts in Cancilla are

distinguishable from the present case. Unlike the service technicians involved in

that case, who had no way to increase their compensation, the employees here can

and do sell more products to increase their commission-based pay.

      Lastly, the employees rely on four federal cases in support of their argument

that Alsco's sales should not be recognized as retail because Alsco limits its

operation to long term volume rental to commercial customers. Resp'ts/Pls.' Resp.

to Appellant Alsco Inc.'s Opening Br. at 13; see Idaho Sheet Metal, 383 U.S. at

206; Martino v. Mich. Window Cleaning Co., 327 U.S. 173, 66 S. Ct. 379,90 L.

Ed. 603 (1946); Schultz v. Instant Handling, Inc., 418 F.2d 1019 (5th Cir. 1969);

Acme Car & Truck Rentals, Inc. v. Hooper, 331 F.2d 442, 447-48 (5th Cir. 1964).

All four of these cases rely on a definition of an RSE under a section of the FLSA

that was repealed in 1989. Pub. L. No. 101-157, 103 Stat. 939. Under the previous

section 213(a)(2) of the FLSA, RSE was defined to include those employers who

                                          15
Cooperv. Alsea, Inc., No. 91801-5

operated only on a small scale in the local community, so-called "mom and pop"

businesses. Section 213(a)(2) did not require that employees be paid on a

commission basis because that section was not concerned with the exempt status of

employees paid on a commission, unlike the exemption at issue here. Significantly,

Congress repealed section 213(a)(2) in 1989. Pub. L. No. 101-157, 103 Stat. 939.

Federal courts in those previous cases necessarily found that the businesses were

not RSEs because the definition of an RSE was much narrower. Since this

provision was repealed, these cases are not helpful. High volume sales no longer

control; a business now can sell a larger or smaller quantity of goods and services,

which does not negate the definition of"retail."

       Under the statute, the exemption extends to businesses where its customers

are other businesses, as long as its sales are not for resale and are recognized in the

industry as retail-in other words, as long its sales are subject to the retail sales

tax, its sales are "end of the line" transactions, and the goods and services being

sold are not for resale. 6 Alsco meets these requirements. We reverse and remand

       6
          The statute is limited by its own terms; the RSE exemption applies only if the employer
is an RSE and the employees' regular rate of pay exceeds one and one-half times the minimum
wage, and more than half of the employees' compensation represents commissions on goods or
services. Any concern about an ostensibly broad definition of an RSE is tempered by the other
wage-based statutory requirements to the exemption.

                                               16
Cooperv. Alsea, Inc., No. 91801-5

for entry of judgment for Alsco. 7

WE CONCUR:

       7 Because we hold that Alsea is an RSE and therefore its employees are not entitled to
overtime pay, we need not address whether the trial court erred in detem1ining the formula for
calculating the overtime rate.

                                               17