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Article: January 2019: Second Circuit Applies Broadened “Fair Reading” Standard, Finds Luxury Car Service Drivers Do Not Fall Under FLSA Taxicab Exemption

Business Litigation Reports

The Second Circuit, in Munoz-Gonzalez v. D.L.C. Limousine Service, Inc., 904 F.3d 208 (2d. Cir. 2018), became the first circuit court to publish an opinion applying a “fair” rather than “narrow” reading to exemptions to the Fair Labor Standard Act’s overtime wage requirements. On that reading, the court held that “chauffeurs” employed by a “luxury car service” fell under the Act’s “taxi-cab exemption,” raising the question of whether other car services will also be held exempt from FLSA overtime requirement. The decision offers a glimpse of how other courts may apply a “fair-reading” analysis in in the wake of Supreme Court’s opinion in Encino Motorcars, LLC v. Navarro, 138 S. Ct. 1134, 1140 (2018).

Background
The FLSA, the federal wage-and-hour statute enacted in 1938, requires that employers pay specified minimum and overtime wages, 29 U.S.C. § 206, 207. Section 13 of the Act, a point of frequent litigation, exempts thirty-eight categories of employees from the Act’s overtime wage requirements. Included in section 13 is the so-called “taxicab exemption,” which applies to “any driver employed by an employer engaged in the business of operating taxicabs.” 29 U.S.C. § 213(b)(17). Prior to Munoz-Gonzalez , the Second Circuit had, like all federal courts, traditionally interpreted FLSA exemptions narrowly in light of the Act’s remedial purpose, placing the burden on employers to prove that an exemption applied. See, e.g., Dejesus v. HF Mgmt. Servs., LLC, 726 F.3d 85, 91 n.7 (2d Cir. 2013).

Munoz-Gonzalez involved claims for unpaid overtime wages by twenty former driver-employees seeking to represent a class of former employees against D.L.C. Limousine Service, Inc., a self-described “luxury car service.” 904 F.3d at 211. D.L.C. sought summary judgment in district court, arguing the

drivers fell under the taxicab exemption and had no statutory right to overtime pay. Munoz-Gonzalez v. D.L.C. Limousine Serv., Inc., No. 15-CV-9368, 2017 WL 2973980, at *3 (S.D.N.Y. July 12, 2017). The district court (Judge Oetken) granted the motion, focusing on criteria listed in the Department of Labor’s Field Operations Handbook to find the drivers exempt because they did not drive along “fixed routes” and primarily served “local needs.” Id. at *4. The drivers appealed, seeking a narrower reading from the Second Circuit.

In April 2018, while the drivers’ appeal was pending, the Supreme Court issued its decision in Encino Motorcars, LLC v. Navaro, addressing a separate exemption for employees who sell or service automobiles. That decision “reject[ed]” the “[t]he narrow-construction principle” previously employed by all lower courts, finding that reading relied “on the flawed premise that the FLSA pursues its remedial purpose at all costs.” Encino Motorcars, LLC v. Navarro, 138 S.Ct. 1134, 1142, (2018) (quotation marks omitted). Reasoning that exemptions under the FLSA are “as much a part of the FLSA’s purpose as the overtime-pay requirement,” the Supreme Court broadly stated that courts “have no license to give the exemption anything but a fair reading.” Id. This holding marked a significant change – one that, according to Justice Sotomayor’s dissent, upset “more than half a century of” Supreme Court precedent. Id. at 1148 n.7. Previously, the Court had held exemptions “are to be narrowly construed against the employers seeking to assert them and their application limited to those establishments plainly and unmistakably within their terms and spirit.” Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392 (1960). This new change in course raises—and generally leaves open—the question of how lower courts will determine and apply “fair readings” to the Act’s numerous exemptions.

The Second Circuit’s Opinion
Five months after Encino Motorcars, the Second Circuit (Judge Livingston, Judge Chin, and Judge Failla (by designation)) issued an opinion in Munoz-Gonzalez, affirming the district court on new grounds and imposing a three-factor test with implications for the car service industry. The panel expressly rejected the drivers’ request to interpret the exemption narrowly, citing Encino Motorcars as requiring a “fair” interpretation of “each FLSA exemption . . . with full attention to its text.” 904 F.3d at 216. The panel’s “fair reading” analysis largely mirrored the Supreme Court’s decision in Encino Motorcars, looking to contemporary dictionaries for the “ordinary meaning” of the operative term, in this case “taxicab.” Id. at 213. The court principally drew that meaning from a 1934 edition of Webster’s Dictionary and held that “a ‘taxicab’ is: (1) a chauffeured passenger vehicle; (2) available for hire by individual members of the general public; (3) that has no fixed schedule, fixed route, or fixed termini.” Id. at 214. Finding no material dispute that drivers’ vehicles met each factor and no argument that the drivers were not employees of the car service, the panel concluded the drivers were exempt under this new definition. Id.

The drivers’ arguments before the panel primarily relied on the DOL handbook. They contended their work did not qualify as a “taxicab service” under the handbook because it involved frequent trips to the airport in unmarked and unmetered cars, “recurrent transportation” under contracts with local businesses, and occasional long distance travel. Id. at 216-18. The drivers also contended they did not work for a “taxicab company” because their employer controlled their work through a central dispatch, prohibited roadside pickups of “hailing” customers, mandated professional attire, and advertised itself as a “luxury car company.” Id. at 219.

The panel roundly rejected these arguments as irrelevant or unpersuasive when weighed within to its three-factor definition of “taxicab.” As an initial matter, the panel treated the handbook as lacking “the force of law” to the extent it conflicted with this definition. Id. at 216-17. Thus, to the extent the handbook contrasted “an airport limousine service” with taxicabs, it was unpersuasive: “DLC is not an airport limousine service for the same reasons that it is a taxicab company.” Id. at 218. As for recurrent contracts, the panel acknowledged that “a company that received virtually all its business from recurrent contracts and corporate clients might not be ‘available for hire by individual members of the general public’ under [its] three-part definition,” but found that was not the case before it, where contracts only comprised less than 5% of D.L.C.’s business. Id. at 217. Similarly, the panel found “occasional” long distance travel insufficient to alter the analysis. Regarding issues of control, the court deemed them “unimportant” to the taxicab exemption. Rather, the panel considered control relevant only to “whether the drivers are independent contractors or employees, not the nature of DLC’s business.” Id. at 219. Finally, the panel gave little weight to whether the vehicles were unmarked and advertised as “limousines.” Those facts “go more to the marketing of the business than the core operation of the business itself.” Id. at 219. “A taxicab is a taxicab is a taxicab; how a company markets its services or products does not change what it is for purposes of the FLSA.” Id. at 219.

Conclusion
Munoz-Gonzalez provides the first published response to Encino Motorcars from a circuit court. Aside from presenting possible precedent for the car-service industry, the case presents a potential template for “fair readings” of other exemptions previously provided a narrow construction. Whether and how that template may affect future rulings remains unclear, but it is an issue sure to arise as parties litigate a variety of issues in FLSA cases across the country.