Seventh Circuit Articulates Broad View of FLSA Section 7(i) for Commissioned Workers and Service or Retail Establishments in Rejecting Overtime Claims of Window Washers

On April 1, 2015, the Seventh Circuit, in Alvarado v. Corp. Cleaning Services, Inc., Case No. 13-3818, ruled that high-rise window washers in Chicago were exempt from overtime under Section 7(i) of the Fair Labor Standards Act (FLSA).  Under Section 7(i) of the FLSA, the retail or service establishment exemption, the following three elements must be met in order to qualify:

  1. the employee’s regular rate of pay must exceed one and a half times the federal minimum wage;
  2. the employee must be employed by a retail or service establishment; and
  3. more than half the employee’s total earnings for a representative period must consist of commissions.

The plaintiffs in this case, high-rise window washers, argued that neither the second nor the third element was met and, as such, they were not exempt from overtime under Section 7(i).

The defendant, Corporate Cleaning Services (CCS) is Chicago’s largest provider of window-washing services to high-rise business operators, apartment building owners, and other non-residential buildings.  When CCS receives a window-washing order, it uses a “point system” to calculate the price it will charge for the job. The assessed points are based on the complexity of the job as well as the estimated number of hours to complete it. Each window washer assigned to the job usually gets the same share of points allocated to the job. CCS then pays the window washer the number of points allocated to him multiplied by a rate specified by the company’s collective bargaining agreement. CCS regularly makes price adjustments depending on variable costs, such as permits, equipment rental and competition, which cause the percentage of the price attributable to the window washers’ compensation to vary from job to job. The annual pay for a CCS window washer ranges from $40,000 to $60,000.

On appeal, the plaintiffs argued that their compensation, based on this point system, did not amount to a commission system and that the sale of window-washing services to managers of tall buildings “lacks a retail concept.”  The Seventh Circuit disagreed.  Although CCS called its compensation system a “piece-rate” or “piecework” system from job to job, the Court noted “the nomenclature is not determinative.” Instead, a commission system need only be “proportional and correlated” to the price. More importantly, according to Judge Posner, the irregularity of the work (because of the peculiar conditions of window-washing such as high winds, dive-bombs from peregrine falcons, and the like) makes the window-washers even more like commissioned employees. The fact that a window-washer cannot count on working 40 hours each week for an entire year is precisely “the reason for exempting his employer from the requirement of paying the worker time and a half for overtime.”

As to the last element—being a retail or service establishment—the Court found that CCS is best described as a “retail service establishment” because it sells its window-cleaning services to building owners and managers.  While the plaintiffs’ attempted to characterize this as a wholesale relationship, the Court pointed out that the building owners and managers are the “ultimate customers; they do not resell the window cleaning.” Accordingly, CCS satisfied the third element as well. Interestingly, the Court’s ruling is in direct conflict with the Department of Labor’s (DOL) position on this issue. In July 2014, the DOL filed an amicus brief supporting the plaintiff’s position and arguing that the exemption should not apply to a company like CCS, which failed to present “any evidence that its sales are ‘recognized’ as retail in the window washing industry.”  The Seventh Circuit, however, was not swayed.  Paying extra for overtime “is said to be a boon to low-wage workers,” but, as the Court pointed out, the window washers here are well paid.

Joseph E. Tilson and Jeremy J. Glenn, Meckler Bulger Tilson Marick & Pearson

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