Falk v. Brennan
38 L. Ed. 2d 406, 1973 U.S. LEXIS 182, 94 S.Ct. 427 (1973)
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Rule of Law:
For a real estate management company that acts as an agent for property owners, the 'annual gross volume of sales made or business done' under the Fair Labor Standards Act is measured by the agent's gross commissions received, not the total gross rentals collected on behalf of the owners.
Facts:
- Drucker & Falk (D&F), a partnership, provided management services for the owners of several apartment complexes in Virginia.
- Under its contracts, D&F performed nearly all management functions, including leasing, collecting rent, paying expenses, and hiring and supervising maintenance personnel.
- D&F did not have any ownership interest in the buildings it managed.
- D&F's compensation was a fixed percentage of the gross rentals collected from each property.
- D&F deposited the collected rentals into local bank accounts, paid operating expenses from those accounts, deducted its commission, and sent the remaining funds to the property owners.
- The total gross rentals collected by D&F annually exceeded $7.7 million, which was above the statutory threshold for coverage under the Act.
- D&F's own annual gross commissions were less than $500,000, which was below the statutory threshold.
Procedural Posture:
- The Secretary of Labor filed a complaint against Drucker & Falk (D&F) in the United States District Court.
- The District Court agreed with D&F's contentions that it was not a covered enterprise and dismissed the complaint.
- The Secretary of Labor appealed to the United States Court of Appeals.
- The Court of Appeals reversed, holding that D&F was a covered enterprise and that the dollar-volume test should be measured by the gross rentals collected.
- D&F, the petitioners, sought a writ of certiorari from the Supreme Court of the United States, which was granted on the questions of whether D&F was an 'employer' and how to measure its 'annual gross volume of sales made or business done'.
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Issue:
Under the Fair Labor Standards Act, is the 'annual gross volume of sales made or business done' for an apartment management company that does not own the properties measured by the total gross rents it collects for the owners, or by its own gross commissions?
Opinions:
Majority - Mr. Justice Stewart
No. The Court held that the 'annual gross volume of sales made or business done' is measured by the agent's gross commissions. The relevant 'enterprise' under the Act consists of D&F's management activities, not the separate property interests of each building owner. D&F's business is the sale of professional management services, and the gross rentals it collects belong to the property owners and do not represent sales attributable to D&F's enterprise. Therefore, the correct measure of D&F’s business volume is the gross commissions it receives for the services it renders. Since these commissions did not meet the statutory dollar-volume threshold, D&F was not an enterprise covered by the Act.
Concurring-in-part-and-dissenting-in-part - Mr. Justice Brennan
Yes. The dissent argued that the gross rentals should be included in measuring the company's business volume. D&F's enterprise activities included both the sale of professional management services and the sale of rental space (brokerage). The legislative history and plain language of the Act's 'sales made or business done' provision intend to measure all business transactions resulting from an enterprise's activities to gauge its full impact on commerce. Ignoring the millions of dollars in rental sales generated by D&F's efforts contradicts congressional intent and undermines the purpose of the dollar-volume test. Even if only management services are measured, the calculation should include not just commissions but also reimbursements for operational costs, which would likely exceed the threshold.
Analysis:
This decision significantly clarifies the scope of the Fair Labor Standards Act's 'enterprise' coverage for businesses operating in an agency capacity. By focusing on the agent's own income (commissions) rather than the total funds handled, the Court narrowed the Act's application for real estate managers and similar agency-based businesses. This precedent establishes that to determine the 'gross volume of sales,' a court must first identify the specific enterprise and then measure only the sales or business done by that enterprise, not the business done by the principals it represents. This distinction between selling a service and selling the underlying product has important implications for franchise, consignment, and other agency-model businesses.
