FEDERAL MEDIATION AND CONCILIATION SERVICE

In the Matter of the Arbitration between FMCS No. 10-50354

Class Action Grievance
WORKERS UNITED, SEIU, LOCAL NO. 737,
Union,

and

CENTERPLATE HOSPITALITY VENTURE,

Employer.
________________________________________/

OPINION OF THE ARBITRATOR

December 27, 2010

After a Hearing Held November 11, 2010

At the Orange County Convention Center in Orlando, Florida

For the Union: For the Employer:

Liz Vladeck Jeffrey E. Mandel

Associate General Counsel Fisher & Phillips LLP
Workers United 1250 Lincoln Plaza
49 W 27th Street, 3rd Floor 300 S Orange Avenue
New York City, NY 10001 Orlando, FL 32801-3392
 I. A Strange Dispute

This case is about as convoluted as arbitrations get. It features Centerplate

Hospitality Venture (“Employer” or “Centerplate”) insisting that it must pay

banquet employees overtime in accordance with the Fair Labor Standards Act

(“FLSA”), and its banquet employees, represented by Local 737 of the Southern

Region Joint Board of Workers United, an affiliate of the Service Employees

International Union (“Union”), insisting that they do not want to be paid

overtime, inasmuch as Section 7.1 of the labor agreement provides that they are

exempt under FLSA § 7(i).

The parties stipulated that the issue presented is:

Whether the FLSA § 7(i) exemption in Section 7.1 of the parties’

collective bargaining agreement is legally enforceable?

“Generally, the application of an exemption under the Fair Labor Standards Act

is a matter of affirmative defense on which the employer has the burden of

proof.” Corning Glass Works v Brennan, 417 US 188, 196-197 (1974). In this

case of reversed roles, the Union has standing to assert a right granted by the

parties’ labor agreement and hence can urge application of the § 7(i) exemption.

In so doing the Union bears the burden of proof (UB @ 12-13), and the standard

of proof is a preponderance of the evidence. Yi v Sterling Collision Centers, Inc,

480 F3d 505, 506-508 (7th Cir 2007).

2
 II. Factual Background

An understanding of this curious case requires more than the usual

background information. The Orange County Convention Center (“OCCC” or

“Center”) is a world class convention center located in Orlando, Florida. The

Center is owned and operated by Orange County. Centerplate is a high profile

event caterer, headquartered in Spartanburg, South Carolina. Its website states

the following:

Centerplate is one of the largest hospitality companies in the world,

with 250 North American sports, entertainment and convention venues.
We are the largest food service provider for the NFL, a major provider to
professional baseball, and we partner with five of the top ten most active
convention centers. No stranger to marquee events, we’ve hosted
countless landmark occasions, including 12 Super Bowls, 19 World
Series, 15 official U.S. Presidential Inaugural Balls, more than 100 major
College Bowl Games and the largest plated dinner in history at the Alpha
Kappa Alpha Centennial Celebration. http://centerplate.com/meet-
centerplate.

In February of 2008, Orange County and Centerplate entered into the

Food and Beverage Services Contract for the Orange County Convention

Center between Orange County, Florida and Centerplate Hospitality Venture

d/b/a Centerplate (JX 4 or “Food & Beverage Contract”). Centerplate was

awarded the contract through competitive bidding (CX 2). Under the terms

of the contract, Centerplate is an independent contractor and not an

employee or agent of Orange County (JX 4, § 2.3). For all practical

purposes, Centerplate is granted the exclusive right to provide food and

3
beverage services at the OCCC by § 2.1 of the Food & Beverage Contract.1

The recitals in the Food & Beverage Contract help put the case into

perspective:

[T]he County owns and operates the Orange County Convention

Center (the “Center”) so as to provide economic prosperity and
development to the citizens and businesses of Orange County; and

[T]he Center is one of the world’s premier convention centers, with

more than two million square feet of exhibit space,2 and competes
nationwide and worldwide for first-class corporate conventions and
trade show events; and

[O]ne million or more attendees may visit the Center in a given year,
to whom the Center, through a food and beverage service contractor,
serves food and beverages, including catered meals and various
concessions and vending products, serving ten thousand people or
more in a single meal; and

[T]he service of four-star or better restaurant quality meals and the

highest quality concessions and vending products, meeting and
exceeding the expectations of the Center’s attendees, enhancing the
Center’s reputation as a premier convention facility, and assuring a
high incidence of repeat business at the Center, is imperative to the
Center’s ability to compete in the convention center business and to
provide economic prosperity and development to the citizens and
businesses of Orange County; and

[T]he County and Contractor [Centerplate] wish to enter into this

Food and Beverage Services Contract through which Contractor shall
provide food and beverage services of such quality to the attendees of
the Center. JX 4 @ 1.

The previous food and beverage contractor at the OCCC was Levy

Restaurants, Inc. When Centerplate took over, it hired almost all of the Levy
1
Minor exceptions, not relevant here, are found in § 3.4.4 and § 4.1.7.
2
Seven million square feet of banquet space. TR @ 46; footnote by arbitrator.

4
employees who worked at the OCCC. In July of 2008, Centerplate and the

Union3 entered into a collective bargaining agreement (JX 2A (orange

booklet, TR @ 73), JX 2B, or “CBA”).4 Appendix A of the contract calls for

banquet servers, bartenders and captains (“banquet employees”) to be paid a

stated “hourly component”5 plus a “service charge component”. This latter

component is computed as follows:

A 16% service charge based on catering food and beverage revenue

plus 16% service when applied to waiver fees and 50% of any banquet
labor fees charged (including – when collected – Extension fees,
Booth Attendant fees, Ticket Taker fees and Overstaffing fees) will
comprise the pay period “weekly pool.” This pay period weekly pool
will be divided by the total number of hours worked in the pay period
by servers, bartenders and captains and said amount shall constitute
one share for that pay period. Said share for the pay period will then
be multiplied by the employee’s hours for the pay period and added to
his/her pay period hours times his/her hourly rate to arrive at his/her
total compensation for that pay period. If the service charge is
increased by the Employer during the term of this Agreement 80% of
the increase shall be added to the service charge pool.

When the CBA was signed in July of 2008, the Union anticipated that

banquet employees would be exempt from the overtime requirements of the

3
At the time the CBA was signed, the union was known as Unite Here, Local 737. For the sake of simplicity, the
arbitrator uses the name as changed.
4
On the signature page of the CBA, Centerplate is identified as “a general partnership formed under Connecticut
law”, and the document was signed by “Service America Corp. d/b/a Centerplate” as agent for Centerplate
Hospitality Venture.
5
Initially, the hourly component was $3.77 for servers and bartenders and $8.77 for captains. CBA, Appendix A.
In that Appendix is a note which states: “If the applicable minimum wage increases, Servers and Bartenders shall
receive such increase(s) and Captains shall receive the same increase(s) in order to maintain a $5.00 hourly wage
differential.” These amounts have increased to $4.40 (UX 6) and $9.65 (UX 3), respectively. The increase from
$3.77 to $4.40 represents a 16-2/3% raise; that from $8.77 to $9.65, a 10.0% raise. The latter approximates the
increase in the minimum wage from $6.55 (effective Jul 24, 2008) to $7.25 (effective Jul 24, 2009), a change of
about 10.7%. No explanation was provided for the fact that the original $5.00 differential is now $5.25.

5
FLSA, 29 USC §§ 201 et seq., because Section 7.1 of the CBA contained an

exemption:

The Employer will pay time and one-half an employee’s basic straight
time hourly rate for all hours worked in excess of forty (40) hours in a
workweek, or in excess of eight (8) hours in one day.

The Employer will pay time and one-half an employee’s hourly rate for
all hours worked on the sixth day of work and double time on the seventh
day of work within the workweek.

Overtime calculations in this Agreement do not apply to banquet

captains, servers, and/or bartenders as set forth in Section 7(i) of the
Fair Labor Standards Act. (Emphasis supplied.)

The CBA was signed by Centerplate on July 15, 2008, and sent to

company headquarters. In none of its other operations does Centerplate claim

the FLSA § 7(i) exemption. Notwithstanding the putative exemption in Section

7.1 of the CBA, higher management felt that Centerplate’s operations at the

OCCC could not meet the requirements for exemption of banquet employees

under FLSA § 7(i). As a result, from the time Centerplate commenced

operations at the OCCC on August 9, 2008, it has paid banquet employees

overtime, based upon the hourly component of their compensation.

The Union balked at this practice, preferring that banquet employees be

treated as exempt, lest their overtime hours be reduced. Negotiations between

the parties failed to resolve their differences. They even attempted to obtain a

ruling from the federal government, which declined their request. The Union

6
filed a class action grievance on May 26, 2009 (JX 1), which proceeded to

arbitration. A hearing was held on November 11, 2010, in Centerplate’s offices

in the OCCC. Each party was represented by counsel, who were well prepared

and extremely professional. A transcript was made (“TR”). Objections to

arbitration were waived. Briefs were filed on December 23, 2010; references to

the Union’s brief are denoted “UB”, and those to Centerplate’s by “CB”. It is

now up to the arbitrator to grapple with questions that have confounded

employers, unions, lawyers and judges for decades.

III. Pertinent Provisions of the Fair Labor Standards Act

Resolution of the difficult issue presented requires detailed analysis of the

pertinent provisions of the Fair Labor Standards Act, § 7(i) of which provides:

(i) Employment by retail or service establishment

No employer shall be deemed to have violated subsection (a) of this

section by employing any employee of a retail or service
establishment for a workweek in excess of the applicable workweek
specified therein, if (1) the regular rate of pay of such employee is in
excess of one and one-half times the minimum hourly rate applicable
to him under section 206 of this title, and (2) more than half his
compensation for a representative period (not less than one month)
represents commissions on goods or services. In determining the
proportion of compensation representing commissions, all earnings
resulting from the application of a bona fide commission rate shall be
deemed commissions on goods or services without regard to whether
the computed commissions exceed the draw or guarantee. (Emphasis
supplied.)

Several other provisions of the FLSA must be examined to understand

7
the § 7(i) exemption. Section 7(a), to which reference is made in § 7(i), pertains

to the length of the workweek:

(a) Employees engaged in interstate commerce; additional

applicability to employees pursuant to subsequent amendatory
provisions

(1) Except as otherwise provided in this section, no employer shall

employ any of his employees who in any workweek is engaged in
commerce or in the production of goods for commerce, or is
employed in an enterprise engaged in commerce or in the production
of goods for commerce, for a workweek longer than forty hours unless
such employee receives compensation for his employment in excess
of the hours above specified at a rate not less than one and one-half
times the regular rate at which he is employed.

(2) No employer shall employ any of his employees who in any

workweek is engaged in commerce or in the production of goods for
commerce, or is employed in an enterprise engaged in commerce or in
the production of goods for commerce, and who in such workweek is
brought within the purview of this subsection by the amendments
made to this chapter by the Fair Labor Standards Amendments of
1966—

(A) for a workweek longer than forty-four hours during the first
year from the effective date of the Fair Labor Standards
Amendments of 1966,
(B) for a workweek longer than forty-two hours during the
second year from such date, or
(C) for a workweek longer than forty hours after the expiration
of the second year from such date,

unless such employee receives compensation for his employment in

excess of the hours above specified at a rate not less than one and one-
half times the regular rate at which he is employed. (Emphasis
supplied.)

FLSA § 6, to which reference is made in § 7(i), pertains to the

8
minimum wage and states in pertinent part:

(a) Employees engaged in commerce; home workers in Puerto Rico

and Virgin Islands; employees in American Samoa; seamen on
American vessels; agricultural employees

Every employer shall pay to each of his employees who in any

workweek is engaged in commerce or in the production of goods for
commerce, or is employed in an enterprise engaged in commerce or in
the production of goods for commerce, wages at the following rates:

(1) except as otherwise provided in this section, not less than—

(A) $5.85 an hour, beginning on the 60th day after May 25, 2007;
(B) $6.55 an hour, beginning 12 months after that 60th day; and
(C) $7.25 an hour, beginning 24 months after that 60th day;

Another statutory provision needed to interpret the § 7(i) exemption is

§ 7(e), which defines the term “regular rate” as used in § 7(a) and § 7(i):

(e) “Regular rate” defined

As used in this section the “regular rate” at which an employee is

employed shall be deemed to include all remuneration for
employment paid to, or on behalf of, the employee … (Emphasis
supplied.)

Although “Employer” (§ 3(d)), “Employee” (§ 3(e)), and “Employ” (§

3(g)) are defined in the FLSA, for purposes of this case, those terms have

their common meaning. However, crucial to resolution of the issue presented

here is the meaning of the phrase “retail or service establishment” as used in

§ 7(i), a question which will be discussed in detail in Part V.D infra. Other

9
statutory provisions will be addressed as needed.6

IV. The Positions of the Parties7

The Union urges enforcement of the exemption in CBA Section 7.1 and

cites Mechmet v Four Seasons Hotels, Ltd, 825 F2d 1173 (7th Cir 1987), and Yi

v Sterling Collision Centers in support of its position. The Union notes that the

collective bargaining agreement between Centerplate’s predecessor and the

Union is essentially identical to the Centerplate CBA.8 In particular, Sections

7.1 of both contracts are absolutely identical, and the predecessor treated

banquet employees as exempt and paid them accordingly.

A banquet captain testified without contradiction that an earlier survey

(circa 2002) of other area properties revealed that banquet workers are paid

through service charges and not on an hourly basis. TR @ 105-107. A Union

business agent who represents Disney banquet workers testified that they are

paid, in part, on a “commission” basis. TR @ 78-82. He produced Disney’s

“FLSA 7(i) Exemption Consent Form” (UX 1) that banquet employees sign and
6
The test for a § 7(i) exemption sometimes is stated in terms of three requirements: (1) An employee must be
employed by a retail or service establishment; (2) the employee’s regular rate of pay must exceed 1½ times
minimum wage; and (3) more than half of the employee’s compensation must come from commissions on goods
or services. Gruchy v Directech Delaware,Inc, 2010 US Dist LEXIS 103424 (D Mass). The parties use this 3-part
test. In point of fact, they agree that (2) and (3) are satisfied. TR @ 16, 26-27, UB @ 1, CB @ 8. The arbitrator
nevertheless discusses (2) and (3) because evidence on them was introduced (e.g., TR @ 50) and because there
could be judicial or regulatory proceedings regarding this opinion and award.
7
The facts are undisputed, save for Centerplate’s characterization of its sales, a dispute which is addressed in Part
V.D infra. “There is no factual dispute between the parties regarding the issue presented to the Arbitrator for
resolution.” CB @ 7, UB @ 1, TR @ 6.
8
UX 2 is the Collective Bargaining Agreement, Orange County Foodservice Partners, Employer, and Unite Here,
Local 737, Union, July 1, 2005 to June 30, 2009. The Agreement was signed on behalf of Orange County Food
Service Partners, a general partnership, by Levy Premium Foodservice Limited Partnership, an Illinois limited
partnership.

10
which reads in pertinent part as follows:

I agree to be paid on the basis of the 7(i) overtime exemption of the Fair
Labor Standards Act. I understand that this exemption applies to
employees whose regular rate* of pay is more than 1 ½ times the
statutory minimum wage, more than half of their compensation for a
representative period (which for purposes of computation will be two (2)
months) comes from commissions.** …

* Regular rate of pay is computed by dividing total remuneration

for the workweek by the number of hours worked during the workweek.
Total remuneration includes such items as hourly wages, shift
differentials, tip credits taken by employer (difference between statutory
minimum wage and statused hourly tipped rate) and commission**
payments. Total remuneration excludes such items as cash and credit card
tips (which are at the discretion of the customer) and paid leave from
work.

** Commission payments include service charges which are

predetermined, specified percentage of the bill presented to the
customer/client and bear a direct relationship to services rendered. The
primary example at Walt Disney World is predetermined banquet
charges.

Prior to signing this form, check with management to see if your

area is eligible for the 7(i) exemption. Must be classified in Banquets,
Dinner Show Servers, or Beverage Cart Host/Hostesses. Once
signed, Cast Member agrees to the exclusion listed above. …
(Underlining and bolding in original; italics supplied.)

Centerplate responds that the OCCC is not a “retail or service

establishment” within the meaning of the § 7(i) exemption. Most events held

there are not open to the public, in the sense that event sponsors may restrict the

class of attendees. Centerplate relies heavily on FLSA regulations, 29 CFR Part

779, portions of which were introduced as CX 1. In particular, Centerplate

11
references § 779.312, where “retail or service establishment” is defined; §

779.312, the indicium of sales to the general public; § 779.319, openness to the

public; § 779.328(a), distinguishing between retail and wholesale; § 779.328(d),

sales made pursuant to formal bid procedures; § 779.331, the meaning of sales

for “resale”; and § 779.101, narrow construction of exemptions.

Section 779.312 provides in pertinent part:

A “retail or service establishment” shall mean an establishment 75 per

centum of whose annual dollar volume of sales of goods or services (or
of both) is not for resale and is recognized as retail sales or services in the
particular industry.

Using this definition, Centerplate breaks down the food and beverage sales at

the OCCC for the years 2007-2009, classifying Resale Catering sales as being

for resale (CX 4-6). Under this classification, the 75% annual sales mark was

not reached in any of these years (CX 3). As a result, Centerplate does not

qualify for the § 7(i) exemption, which is limited to a “retail or service

establishment”.

Centerplate would have the arbitrator apply the severability clause in the

CBA, to void the § 7(i) exemption clause of the parties’ Agreement:

It is not the intent of either party hereto to violate any laws or any rulings
or regulations of any governmental authority or agency having
jurisdiction of the subject matter of this Agreement and the parties hereto
agree that in the event any provision of this Agreement is held or
constituted to be void as being in contravention of any such laws, rulings
or regulations, nevertheless the remainder of this Agreement shall remain
in full force and effect unless the part so found to be void are wholly and

12
 inseparable from the remaining portion of this Agreement. CBA, § 24.1.

V. Analysis

Although the parties stipulated to a single issue presented, as in virtually

every case, resolution of the ultimate issue requires resolution of numerous

subordinate issues. That is certainly true here. First to be addressed is the

arbitrator’s role in this arbitration, an issue about which the Union’s brief makes

some curious, unfounded assertions, with which the arbitrator profoundly

disagrees:

In this case, the parties have not authorized the arbitrator to go beyond the
contract to explore external law. However, even undertaking such an
endeavor (as the parties will both do anyway) does not require the
arbitrator to rule that external law prevails over the provision of a CBA,
where they conflict. UB @ 8.

The parties have not broadened the arbitrator’s authority in framing the
issue – whether a provision is “legally enforceable” asks for the
application of the private law of collective bargaining arbitration, not
external public law. Id. @ 10.

The brief goes on to cite Alexander v Gardner-Denver Co, 415 US 36 (1974).

Id. @ 11.

The parties were unable to obtain a ruling on the ultimate issue from the

federal government and so have turned to the arbitrator to resolve their dispute.

In so doing, they have placed absolutely no limitation on his authority to

consider external law. Indeed, the language of the CBA’s severability clause is

broad enough to encompass any external law that might impinge upon the

13
contract. Given that the stipulated issue is about a specific provision of a federal

statute, it is inconceivable how any arbitrator could address it without consulting

“external” law.

In Police Officers Ass’n of Michigan v County of Leelanau, 07-2 ARB ¶

3926, 108 LRP 62358 (Cornelius Arb 2007), the arbitrator was confronted with

a collective bargaining agreement which contained the limitation, “The

Arbitrator shall have no power to interpret any state or federal law or state or

federal administrative rule or regulation.” Id. @ 3212. However, the contract

was replete with references to external laws, as were the parties’ briefs. The

arbitrator resolved the apparent conflict as follows:

Given these numerous constitutional, statutory and regulatory references

and citations in the Oath and Code which Grievant is charged with
violating, not to mention those in the CBA itself, and still others
addressed by the parties in their extensive legal arguments, it is unclear
how an arbitrator could refrain from interpreting “any state or federal law
or state or federal administrative rule or regulation,” certainly not in this
arbitration.

A hornbook principle of contract interpretation is that the document

should be read as a whole and its parts should be given a harmonious
meaning. Elkouri & Elkouri, How Arbitration Works (ABA/BNA 6th ed
2003) @ 462-464; Hill & Sinicropi, Evidence in Arbitration (BNA 2nd ed
1987) @ 354-355. In an effort to achieve a complete and harmonious
interpretation, the arbitrator acts pursuant to the express power granted to
him under CBA § 5.10, to interpret and apply the CBA, and concludes
that the limitation on interpretation of “any state or federal law or state or
federal administrative rule or regulation” is restricted to those cases in
which no such legal issue is raised directly or indirectly by either party.
See Ingalls Shipbuilding Corp, 54 LA 484, 485-487 (Boothe Arb 1971)
(waiver of contractual provision).

14
 Any other interpretation could lead to a multiplicity of proceedings in any
case in which a grievant had both a contract claim and a statutory claim
arising out of the same factual situation. The aggrieved could proceed to
arbitration and, if dissatisfied with the outcome, could then repair to court
for a second bite at the apple, on the ground that the arbitrator had no
jurisdiction to hear his statutory claim.3
______________________________________
3
In federal sector arbitration, it is common to combine contractual and statutory claims. See, e.g., United
States Marine Corps, 110 LA 955, 98 FLRR 2-1125, LAIRS 22246 (Arb 1998); exceptions den, 54
FLRA 1494, 98 FLRR 1-1206; cited in Elkouri & Elkouri, supra, @ 516 n 106. Following the
expansion of arbitral jurisdiction in Gilmer v Interstate/Johnson Lane Corp, 500 US 20 (1991) (Age
Discrimination in Employment Act claim encompassed by arbitration clause), the holding in Alexander v
Gardner-Denver Co, 415 US 36 (1974) (arbitral authority limited in conflict between collective
bargaining agreement and statute), may be slowly eroded, if not overruled. See generally Elkouri &
Elkouri, supra, Ch 10.

07-2 ARB ¶ 3926 @ 3214. “[T]he parties’ disagreement is legal in nature – i.e.,

an application of the law regarding the FLSA 7(i) overtime exemption to the

salient facts.” CB @ 7. Of necessity, the arbitrator is going to address external

law in this case, just as the parties have authorized him to do by posing a

question about external law.

V.A. Some Uncontested Matters

As previously mentioned, there is no dispute that Centerplate is an

employer employing employees, within the meaning of § 7(i). Nor is there any

dispute that Centerplate operates an “establishment”, which is defined in 29

CFR § 779.23:

As used in the Act, the term establishment, which is not specially

defined therein, refers to a “distinct physical place of business” rather
than to “an entire business or enterprise” which may include several
separate places of business. This is consistent with the meaning of the
term as it is normally used in business and in government, is judicially
settled, and has been recognized in the Congress in the course of

15
 enactment of amendatory legislation (Phillips v. Walling, 324 U.S.
490; Mitchell v. Bekins Van & Storage Co., 352 U.S. 1027; 95 Cong.
Rec. 12505, 12579, 14877; H. Rept. No. 1453, 81st Cong., 1st Sess.,
p. 25). As appears more fully elsewhere in this part, this is the
meaning of the term as used in sections 3(r), 3(s), 6(d), 7(i), 13(a),
13(b), and 14 of the Act.

The OCCC obviously is a “distinct physical place of business” for

Centerplate’s food and beverage operations.

V.B The “Regular Rate of Pay” for Centerplate’s Banquet Employees

Although it is uncontested that a Centerplate banquet employee’s

“regular rate of pay” far exceeds “one and one-half times the minimum hourly

rate applicable to him under section 206 of this title,” there is a huge

discrepancy in how Centerplate has been paying overtime. The minimum

wage currently is $7.25 per hour, 1½ times which is $10.88. Instead of

paying overtime based upon the statutorily defined “regular rate of pay”,

Centerplate has been paying banquet employees based only upon the “hourly

component” of their compensation. UXs 3 & 6, TR @ 75, UB @ 7.

For banquet servers and bartenders, this amount ($6.60) is less than 1½

times minimum wage.

The Union introduced evidence of the “service charge components” of

banquet employees’ weekly pay for 2009 and 2010 (UXs 4 & 5). These

hourly amounts reached as high as $38.57 in 2009 and $55.12 in August of

2010. In computing an employee’s “regular rate of pay” for purposes of FLSA

16
§ 7(a)(1), the “service charge component” must be added to the “hourly

component” to arrive at the “regular rate of pay”. See FLSA § 7(3) (“all

remuneration from employment”), 29 CFR § 779.419(b), UX 1. If overtime is

owed, the hourly amount is 1½ times the “regular rate of pay”. Notwithstanding

the discrepancy in Centerplate’s computation of overtime, it is undisputed that

banquet employees are regularly paid far in excess of both minimum wage and

1½ times minimum wage.9 Thus numbered requirement (1) of § 7(i) is satisfied.

V.C. More than Half a Banquet Employee’s Income

The second numbered requirement for an employee to qualify under §

7(i) is that “more than half his compensation for a representative period (not

less than one month) represents commissions on goods or services.” That

“service charges” of the type at issue here constitute “commissions on goods

or services” was settled in Mechmet v Four Seasons Hotels, in an oft cited

opinion by the esteemed jurist, Richard A. Posner. Mechmet was followed in

Nascembeni v Quayside Place Partners, LLP, 2010 US Dist LEXIS 58707

(SD Fla), a banquet server case involving the Renaissance Hotel. The

compensation of Centerplate’s banquet employees is overwhelmingly from

commissions; e.g., 88.5%, 85.4%, 86.2% (UX 6); 71.2%, 75.5 %, 67.3% (UX

9
Servers and bartenders may earn $50,000-$75,000 a year, and captains upwards of $100,000. TR @ 101, 124-
125. High compensation can be factor in an exemption case. See, for example, Yi v Sterling Collision, 480 F2d @
510 (more than $60,000 per year).

17
3).10

V.D. The Test for a “Retail or Service Establishment”

V.D.1. The Criteria

As previously noted, there is no dispute that Centerplate’s food and

beverage operations at the OCCC satisfy the “establishment” criterion. The test

for “retail or service establishment” originally was set forth in FLSA § 13(a)(2)

but was removed by amendment in 1989. However, the test remains in use for

purposes of the § 7(i) exemption. Reich v Delcorp, Inc, 3 F3d 1181, 1183 (8th

Cir 1993), citing 29 CFR § 779.411. The test is two-pronged: (1) 75% of the

establishment’s dollar volume of annual sales of goods and/or services must not

be for resale, and (2) the sales must be recognized as retail sales in the industry.

The 75% requirement must be satisfied under both prongs. Alvarado v

Corporate Cleaning Service, Inc, 2010 US Dist LEXIS 62378 (ND Ill), @ *15,

citing 29 CFR § 779.322. This is where the going gets tough.

V.D.2. Resale

The regulations state in pertinent part:

The common meaning of “resale” is the act of “selling again”. A sale is

made for resale where the seller knows or has reasonable cause to believe
that the goods or services will be resold, whether in their original form, or
in an altered form, or as a part, component or ingredient of another
article. 29 CFR § 779.331.
10
Technically these are weekly figures, but since the weekly “service charge component” is so much greater than
the “hourly component”, the former will always constitute more than half of a banquet employee’s compensation
over any monthly period. That fact is undisputed.

18
Thus the issue here is whether Centerplate sells food and beverages at the

OCCC, with the expectation that they will be resold.

An example of “resale” is presented in 29 CFR § 779.15(a):

[T]he sale by a restaurant to an airline of prepared meals to be served in

flight to passengers whose tickets entitle them to a “complimentary” meal
is a sale of goods “for resale”. (Mitchell v. Sherry Corine Corp., 264 F.2d
831 (C.A. 4 [1959]), cert. denied 360 U.S. 934.).

As noted in the regulation, “sale” and “sell” are broadly defined in FLSA § 3(k),

to include “any sale, exchange, contract to sell, consignment for sale, shipment

for sale, or other disposition.” The Mitchell case cited in the regulation sheds

light on the instant resale issue.

In Mitchell, the court first noted that, on an airline, the food is served to

passengers by airline employees and not by employees of the caterer that

prepared the food:

The activities of the employees of the defendant who deliver the

constituents of the meals to the side of the ship for consumption by the
passengers is likened to the service of waiters in the restaurant who set
meals on tables before the guests. The evidence shows, however, that the
meals are not furnished to the passengers by the defendant but by the
airlines. 264 F2d @ 833-834; footnote omitted.

The Mitchell court then distinguished banquet sales from resales of

catered airline food:

In addition, our attention is called to the operations of the catering

business where food is served in large quantities at receptions, banquets
and conventions, and the transactions are regarded as retail sales of
goods to be consumed and not resold; and again the sales under

19
 consideration in the instant case are likened to the sales of such articles as
soap, towels, paper cups and so forth, to hotels to be furnished to guests
free of charge, in which situation it has been held that there is no resale of
the articles to the guests although the cost of the goods undoubtedly
enters into the charges for which the guests are billed. See Hotel Statler
Co. v. District of Columbia, 91 U.S. App. D.C. 122, 199 F.2d 172.

We do not think that these considerations give sufficient weight to the

rule that this exemption in the Act is to be narrowly construed and is
not to be applied to situations except those plainly within its terms and
spirit. See A. H. Phillips, Inc. v. Walling, 324 U.S. 490-493, 65 S.Ct.
807, 89 L.Ed. 1095. Obviously there is no resale of meals to the
guests at a reception or to the members of an association when the
food is bought by it with their funds for their consumption; and there
is no practicable allocation of the cost of miscellaneous services of the
kind described above rendered by a hotel to its guests as there can be
in the case of meals bought for and consumed by a definite number of
passengers embarked for a flight. Their meals are purchased by the
airline not for self-consumption but for consumption by the
passengers and although no separate specific charge is made, the cost
is an operating expense taken into account in computing the rates of
transportation. In some instances, moreover, meal service is an
important factor which distinguishes first class flights from cheaper
flights on which food is furnished only for an additional charge. The
decisive factor, in our view, is that the meals are purchased by the
airlines to be distributed by them to individual passengers for
consumption and that the airlines are compensated for the cost by
making it a constituent element for the charge for transportation. In a
broad sense, it may fairly be said that there is such a resale as to
exclude the transactions from the retail exemption of the statute. 264
F2d @ 834-835; emphasis supplied.

The Mitchell court clearly viewed banquet sales as retail sales to the

ultimate consumer and not as sales for resale. Centerplate purchases and cooks

or otherwise prepares food and beverages for banquets, and its banquet

employees serve them to the ultimate consumers. There is no intermediate

20
transfer of the food and beverages to another party that serves them, as there is

in the case of airline food and beverages.

There are contrary suggestions in the regulations. 29 CFR § 779.386(a),

issued prior to the repeal of FLSA § 13(a)(2), states:

A restaurant may qualify as an exempt retail or service establishment

under section 13(a)(2) of the Act. However, the establishment must meet
all of the requirements of section 13(a)(2) (see §779.337). It should be
noted that a separate exemption from the overtime pay provisions of the
Act only is provided in section 13(b)(18) for certain food service
employees employed by establishments other than restaurants if the
establishment meets the definition of a retail or service establishment as
defined in the last sentence of section 13(a)(2). Privately owned and
operated restaurants conducted as separate and independent business
establishments in industrial plants, office buildings, government
installations, hospitals, or colleges, such as were involved in McComb v.
Factory Stores, 81 F. Supp. 403 (N.D. Ohio) continue to be exempt under
section 13(a)(2) where the tests of the exemption are met (S. Rept. 145,
87th Cong., first session, p. 28; H. Rept. 75, 87th Cong., first session, p.
10). However, they would not be met if the food service is carried on as
an activity of the larger, nonretail establishment in which the facility is
located and there is no independent, separate and distinct place of
business offering the restaurant service to individual customers from the
general public, who purchase the meals selected by them directly from
the establishment which serves them. An establishment serving meals to
individuals, pursuant to a contract with an organization or person paying
for such meals because the latter has assumed a contractual obligation to
furnish them to the individuals concerned, is selling to such organization
or firm, and the sales are for resale within the meaning of section
13(a)(2). See also §779.387. (Emphasis supplied.)

Hotels, restaurants, and cafeterias are among establishments whose sales

or services may be recognized as retail. See, for example, the list in 29 CFR §

779.320. In Mechmet, which involved the Ritz-Carlton Hotel, Judge Posner did

21
not explicitly mention the 75%-not-for-resale prong of the § 7(i) exemption,

merely noting that “the other conditions of the section [must be] fulfilled.” 825

F2d @ 1177. If Judge Posner had subscribed to the portion of 29 CFR §

779.386(a) quoted and italicized above, under which the Ritz-Carlton’s banquet

sales would have been classified as being for resale, then he surely would have

addressed the 75% requirement.

The same is true of the district court in Nascembeni v Quayside Place

Partners, in which the court, also without mentioning the 75% test, instead

simply recited, “There is no dispute that Ms. Nascembeni is an employee of

a service establishment.” 2010 US Dist LEXIS 58707 @ *8. The arbitrator

therefore concludes that 29 CFR § 779.386(a) should not be held to apply to

banquet sales and adopts the viewpoint of the 4th Circuit in Mitchell. As Judge

Posner reasoned in Mechmet:

[W]e shall not make the artificial assumption that when Congress brought
hotel and restaurant employees under the Act in 1975 it considered the
bearing of section 207(i) on banquet waiters, for there is no evidence of
such consideration and we know better than to assume legislative
omniscience. 825 F2d @ 1175.

To the arbitrator, the persons and organizations that contract with

Centerplate are more like conduits or agents for the end consumers who are

served food and beverages by Centerplate’s banquet employees. This is the

perspective taken by the court in Alvarado v Corporate Cleaning Service, a case

22
involving employees of a window washing company that contracted with

management companies to wash windows primarily in commercial high rise

buildings. The court rejected the argument that the window washing services

were sold to the management companies and then resold by them to tenants

through rent, property management fees, or assessments.

In deciding that window washing sales were not for resale, the Alvarado

court reasoned:

According to the DOL's regulations, a sale of services is for resale

"where the seller knows or has reasonable cause to believe will be
resold." 29 C.F.R. § 779.334. Plaintiffs argue that the majority of
CCS's window washing services are resold from the building
managers, management companies, or condominium associations who
contract with CCS to the individual building tenants who actually pay
for the service in the form of rent, property management fees, or
assessments.

Defendants respond that the sale of services to building managers and

condominium boards cannot be considered for resale because those
entities are not middlemen who resell CCS's services, but rather are
agents for building tenants and owners. Defendants rely on a line of
cases holding that sales in which a third party acts as "a 'conduit'
through which funds to the employer-seller flow" are not for resale
within the meaning of the statute. Hodgson v. Ara Services, Inc., 392
F. Supp. 1167, 1173 (W.D. Va. 1975); see also Hodgson v. Prophet
Co., 472 F.2d 196, 204 (10th Cir. 1972) (where food service company
contracted with college to provide food in cafeteria, court concluded
that food service company's sales at cafeteria were not for resale,
reasoning that "all the college did was to act in the role of a collection
agent, rather than a purchaser"); Wirtz v. Campus Chefs, Inc., 303 F.
Supp. 1112, 1119 (N.D. Ga. 1968) (sale by food service company that
operated dining halls for college were not for resale even though
students made payment to the college at registration rather than
directly to the defendant food service company). In each of the cases

23
on which Defendants rely, a food service provider contracted with an
educational institution to provide meals to students. The students paid
the schools for a meal plan, as opposed to paying the food service
provider directly for each meal. In each case, the court concluded that,
despite the fact that money changed hands between the school and the
food service provider and between the school and the students, the
meals sold by the food service providers were not for resale, reasoning
that the schools simply facilitated the exchange between the buyer
(the students) and the seller (the caterer). The Wirtz court explained its
analysis as follows:

A considerable number of retail sales are made daily where the

payment goes to a third party such as American Express,
Diner's Club, bank credit plans, private and civic clubs, lease
arrangements, salary checkoffs, and the like wherein the seller
looks solely to the third party for payment. The retail
characteristics of the transaction are not destroyed by such
payments nor are such purchases considered for resale merely
because the consideration passes through an indirect conduit
either before or after the actual transfer. For example, can it be
seriously argued that the pre-payment of quarterly civic club
dues, including meals, converts the serving of the meal by the
hotel or restaurant to the member-consumer into a non-retail
transaction? The court thinks not.

303 F. Supp. at 1119.

Defendants contend that the arranging of window washing services by

building owners, property management companies, and condominium
associations is analogous to the procurement of catering services by
schools. The Court agrees. Like the schools in the cases discussed
above, the building owners, property management companies, and
condominium associations with whom CCS deals arrange for the
provision of a service. The building tenants and residents -- much like
the students in the cases above -- pay for that service. The building
owners, property management companies, and condominium
associations are merely conduits, facilitating the purchase of window
washing services by the tenants. Therefore, the Court finds that CCS's

24
 sales of services are not for resale. 2010 US Dist LEXIS 62378 @
*17-*20; footnote omitted.11

The arbitrator is persuaded by the Alvarado court’s reasoning. Sponsors and

exhibitors that contract with Centerplate for food and beverage services for

events held at the OCCC are conduits for payment of those services by the

ultimate consumers.

V.D.3. The Industry

Having concluded that Centerplate’s banquet sales are not for resale, the

arbitrator turns to the question of whether such sales are “recognized as retail

sales or services in the particular industry.” To answer this requires a

determination of the industry. The Food & Beverage Contract demands that

“[p]rices shall be competitive with prices charged nationally for similar products

and services at comparable first-class convention centers and hotels.” JX 4, §

3.3.1; emphasis supplied. When this description is combined with those used in

the recitals (“one of the world’s premier convention centers”, “first-class

corporate conventions and trade shows”, “four-star or better restaurant quality

meals and the highest quality concessions and vending products”, “premier

convention facility”), the industry must be identified as the high-end catering

11
Observe that the food service cases cited in Alvarado reach a conclusion different from the college food
example contained in 29 CFR § 779.328(c); see also Mitchell v Sherry Corine Corp.
Although Centerplate points to the fact that it secured the Food & Beverage Contract through competitive
bidding, the bidding referred to in § 779.328(d) pertains to bidding for sales. Since Centerplate is the only food and
beverage caterer at the OCCC, it does not bid for sales of its catering services.

25
industry.12

V.D.4. Retail or Wholesale

Evidence gleaned from the Food & Beverage Contract supports a finding

that Centerplate’s sales are retail. A sentence in § 3.1.4 begins with the clause,

“In the case where a standard approved retail price has not been established …”

(Emphasis supplied.) The implication is that standard approved retail prices

customarily are established under the contract. Indeed, prices are required to be

posted, as is customary in a retail establishment:

The Contractor shall keep posted at each location where services are
provided, in a place conspicuous to Clients and patrons of the Center, a
full menu of all items and prices offered on a given day. Prices must be
posted in displays on all stands and vendor’s equipment. … The [Center]
Director shall be the sole and final judge for prices … JX 4, § 3.3.2.

Section 3.6 of the Food & Beverage Contract calls for Centerplate to

keep its website current and for the Center to provide a home page and links to

Centerplate. Examination of the Catering Menu on the website established

pursuant to the Contract reveals that prices tend to be stated on a per person

basis, without any volume discount; e.g., Traditional American Breakfast

$22.50 per person, Premium Box Lunch $25.00 per person, Lamb Chop &

Crab-Stuffed Jumbo Shrimp $72 per person.13 This is much the way prices are

displayed on a restaurant menu.

12
Catering is properly considered an industry. “The US catering industry includes about 8,000 companies with
combined annual revenue of about $7 billion.” http://www.hoovers.com/industry/catering-services/1832-1.html.
13
http://www.occc.net/pdf/Info_CenterplateMenuSM.pdf.

26
 Ordering a banquet from Centerplate is very much like ordering one from

the Ritz-Carlton, as described by the district court in Mechmet v Four Season

Hotels, Ltd, 639 F Supp 330, 331 (ND Ill 1986); aff’d 825 F2d 1173 (7th Cir

1987):

A patron wishing to hold a banquet at the Ritz-Carlton begins by

contacting the Director of Catering and entering into a written catering
contract that designates the type of banquet, the date of the banquet, the
number of persons expected to attend the banquet, the type of food and
beverages to be served at the banquet, the unit price of each meal, the
applicable sales tax and the mandatory service charge.

Compare TR @ 42, http://www.occc.net/pdf/Info_CenterplateMenuSM.pdf.

Quantities and volume discounts may be used to distinguish between

wholesale and retail sales. See 29 CFR § 779.328. But not every catered event at

the OCCC means meals for the masses. On the morning of the arbitration

hearing, one of the Union witnesses served an intimate breakfast meeting of

only ten persons, including—most notably—former British Prime Minister

Tony Blair. TR @ 132. A “Client” of the OCCC includes any “person” (JX 4, §

1.9), and there is no reason to believe that the Center would not welcome the

business of any individual member of the public having the means to pay the

freight. That individual then could contract with Centerplate for food and

beverage services.

The fact that Disney World, the world's largest and most visited

recreational resort, located only miles from the OCCC and largely within

27
Orange County, uses the § 7(i) exemption for its qualifying banquet employees

is very convincing evidence that banquet sales are recognized as retail in the

industry. The same is true from the Union’s 2002 survey of other area

properties, which included Disney.14 Moreover, Levy’s predecessor, Finehost, at

one time paid banquet employees largely through commissions, as did Levy

itself.

Although an industry cannot bring itself within the § 7(i) exemption

merely by labeling its sales as retail, Idaho Sheet Metal Works, Inc v Wirtz, 383

US 190 (1966); reh den 383 US 963, there is case law opining that the high-end

banquet business is recognized as retail. The 4th Circuit in Mitchell considered

banquet sales in general to be retail. The Ritz-Carlton is the epitome of high-end

hotels, and in Mechmet, Judge Posner wrote in 1987:

[The commission] system has been in operation at the Ritz-Carlton since

the hotel opened in 1975 and, we are told at argument without
contradiction, is the standard system used by the American hotel and
restaurant industry in the provision of banquets. 825 F2d @ 1175;
emphasis supplied.

Again, if the Ritz-Carlton’s banquet sales were not recognized as retail in the

industry, then Judge Posner would have been obliged to address the 75%-not-

14
Concededly, Disney’s overall business differs markedly from Centerplate’s. TR @ 87-88. However, the Disney
FSLA 7(i) Exemption Consent Form (UX 1) is drafted quite narrowly to encompass only bona fide banquet
employees, and § 7(i) applies on an establishment-by-establishment basis, not to the whole Disney enterprise.

28
for-resale requirement.15 Ditto for the court in Nascembeni.16 The arbitrator

finds that Centerplate’s banquet sales are recognized as retail in the industry.

V.D.5. Public Sales, Vel Non

A requirement frequently found in the regulations and cases is that sales

of retail or service establishments be made to the public. The arbitrator has a

number of reservations about mechanically applying a public sale test to

Centerplate. First, the FLSA does not expressly require that sales be made to the

general public. To the extent that there is such a requirement, it is founded upon

legislative history and not statutory language. 29 CFR § 779.326. In the

regulations, public sales are qualified by flexible words like “typically” (29 CFR

§§ 779.318 & .328(a)), “generally” (29 CFR § 779.319), “ordinarily” (id.), etc.

Thus a public component of a sale does not seem absolutely necessary.

Another reason to avoid a mechanical public sales test is that it would

lead to anomalous results. Suppose, for example, that a restaurateur owns two

restaurants, identical except for location, open the same hours, offering the same

menu, charging the same prices, and employing the same types and numbers of

employees. Suppose further that the employees in both restaurants are

15
In theory at least, even if Ritz-Carlton’s banquet sales were not recognized as retail in the industry, Ritz-
Carlton’s banquet employees still could have qualified under § 7(i) if it could be shown that 75% of the Hotel’s
other sales passed muster under § 7(i). See 29 CFR § 779.313.
16
The Renaissance Hotel in Nascembeni may rank as high-end. “Renaissance Hotels, Resorts and Suites
cater to an upmarket segment of the traveling public. While initially acquired by Marriott as a secondary-
brand, in recent years Renaissance has established itself as a boutique-like hotel chain.”
http://en.wikipedia.org/wiki/Renaissance_Hotels.

29
compensated through commissions generated by a mandatory service charge

added to customers’ bills, which pay them more than 1½ times minimum wage.

Finally, suppose that the only difference between the restaurant establishments

is that one is located on a public street and is open to the general public and the

other is located on a heavily guarded military base; anyone who gains lawful

entry to the base may eat in the restaurant located there. If broad public sales

were an absolute requirement, then the employees of the public restaurant would

qualify under § 7(i) but those working in the base restaurant would not. To the

arbitrator, under the circumstances postulated, location should be a distinction

without a substantive difference.

Yet another consideration that militates against mechanical application of

an inflexible public sales rule is the fact that OCCC is publicly owned and

operated and is visited by over 1,000,000 people every year. At some point, it

would seem that the sheer number of visitors, who include all of those

individuals whom Centerplate serves, would make those served by Centerplate

representative of the general public and Centerplate’s sales to them virtually

public. In Juarez v Kennecott Copper Corp, 225 F2d 100 (10th Cir 1955), the

court found that a hospital owned and operated by Kennecott was semi-public

and so its employees were not covered by the FLSA.

The court in Alvarado v Corporate Cleaning Service answered the

30
recognized-as-retail question, including the public sales aspect, in these words:

CCS also must establish that 75% of its annual sales are of the type
that are recognized as retail services in the window washing industry.
The DOL regulations describe the characteristics typically associated
with a retail or service establishment, including "sell[ing] goods or
services to the general public," "serv[ing] the everyday needs of the
community in which it is located," being located "at the very end of
the stream of distribution," "disposing in small quantities of [its]
products and skills" and "not tak[ing] part in the manufacturing
process." 29 C.F.R. § 779.318(a). See also, Gatto, 442 F. Supp. 2d at
540. CCS appears to satisfy these characteristics.

First, CCS sells its services to the general public. Plaintiffs disagree,
contending that CCS does not sell to the general public because less
than 1% of its gross sales are made to individual homeowners. That
argument is unavailing. As Plaintiffs themselves recognize, Congress
amended the FLSA in 1949 to do away with the rule that business-to-
business sales could not qualify as retail sales in deciding whether a
particular business enterprise was a "retail or service establishment."
Mitchell v. Kentucky Finance Co., 359 U.S. 290, 294, 79 S. Ct. 756, 3
L. Ed. 2d 815 (1959). Therefore, as a number of other district courts
have recognized, "[t]he simple fact that the services provided by [an
employer] were sold to business customers and not to households does
not place [that employer] outside the scope of the § 7(i) exemption."
English v. Ecolab, Inc., 2008 U.S. Dist. LEXIS 25862, 2008 WL
878456, at *13 (S.D.N.Y. March 31, 2008). See also, Collins v.
Horizon Training Centers, L.P., 2003 U.S. Dist. LEXIS 17271, 2003
WL 22388448, at *7 (N.D. Tex. Sept. 30, 2003) (employer "can
qualify as a 'retail or service establishment' even if most of its
consumers are businesses"); Schwind v. EW & Associates, Inc., 371 F.
Supp. 2d 560 (S.D.N.Y. 2005) (finding that firm that provides
computer training to commercial businesses is a "retail or service"
establishment within the meaning of the exemption).

Moreover, as noted above, the ultimate consumers of CCS's services

are the buildings' tenants and residents whose windows CCS washes.
Those businesses and individuals certainly are members of the general
public. See Wirtz, 303 F. Supp. at 1118 (reasoning that people served
in school cafeteria are "the ultimate consumer" and "are part of the

31
general consuming public"). The mere fact that they choose to reside
or conduct their business in a high rise does not relegate them to some
separate category.

Second, CCS serves the everyday needs of the community. There can
be little doubt that members of the public require and demand clean
windows in their homes, workplaces, hotel rooms, hospitals, schools,
and shopping centers. "The provision of [window washing] services
[in high rise buildings] where members of the public work, eat, or
sleep is no less a community service than the provision of such
services to individual households." English, 2008 U.S. Dist. LEXIS
25862, 2008 WL 878456 at *13 (finding that the provision of pest
control services to commercial entities serves the everyday needs of
the community).

Third, CCS provides services at the end of the stream of distribution.

It cleans windows; that service cannot be passed along to some
unidentified end user other than the tenants of the buildings it serves.
"In the case of a service establishment, the 'end of the distribution
stream' has been described as 'providing a service with a distinct
beginning and end.'" Gatto, 442 F. Supp. 2d at 541 (citation omitted).
CCS satisfies this test -- the window washing it provides plainly has a
distinct beginning and end.

The fourth inquiry is whether CCS disposes of its window washing

services in small quantities. Plaintiffs contend that CCS does not
satisfy this characteristic of retail establishments, noting that CCS
generally sells its services to high rises, which house numerous
individual tenants, and that it sells over half of its window washing
services to entities requiring window washing services on more than
one building. Plaintiffs suggest that Defendants' sales are more akin to
wholesale than retail. See 29 C.F.R. § 779.328(a) ("Quantities which
are materially in excess of * * * the standard * * * quantity of goods
which is recognized in an industry as the subject of a retail sale * * *
are generally regarded as wholesale and not retail quantities"); 29
C.F.R. § 779.327 ("A wholesale sale, of course, is not recognized as a
retail sale").

The court in English rejected a similar argument in the context of a

pest control company that sold most of its services to customers with

32
 multiple unit corporate accounts. The English court noted that 29
C.F.R. § 779.328 "dealt with the distinction [between retail and
wholesale] as it related to the § 13(a)(2) exemption," an exemption
that was "contingent on the size of the establishment and the types of
transactions in which it engaged." 2008 U.S. Dist. LEXIS 25862,
2008 WL 878456 at *14, *3. According to the English court, "[t]he
retail/wholesale distinction does not serve the same purpose for the
application of the § 7(i) exemption, which focuses on the employee's
compensation rather than the employer's size or business plan," as it
did for the § 13(a)(2) exemption. 2008 U.S. Dist. LEXIS 25862, [WL]
at *14. The court concluded that "[s]o long as the employee meets the
other elements of the § 7(i) exemption -- he receives commissions and
his total wages meet the statutory threshold -- it makes little difference
whether he performs his services as part of a bulk, discount
arrangement with a thousand unit fast food chain or a single one-off
sale to a homeowner." Id. The Court finds the English court's analysis
persuasive. Therefore, the fact that CCS sells its services in quantities
larger than would be demanded by an individual homeowner is not
sufficient to establish that CCS is not a retail establishment.

Finally, it is undisputed that CCS does not engage in manufacturing. In

sum, CCS meets the criteria set forth in § 779. 2010 US Dist LEXIS
62378 @ *20-*25.

The arbitrator finds the Alvarado court’s analysis persuasive and

adopts it. The first criterion that the court analyzed was sales to the public. A

convincing explanation as to why Centerplate’s sales actually do satisfy the

public sales requirement is found in Wirtz v Campus Chefs, Inc, 303 F Supp

1112, 1118 (ND Ga 1968), cited in Avarado:

Generally speaking, "where a sale is recognized as retail, its character as

such will not be affected by the character of the customer." 29 CFR §
779.328. Thus, the fact that the vast majority of defendant's customers are
in a particular category as "food contract" purchasers is not the
controlling inquiry. A like situation existed in Factory Stores. Only
recently, the court was faced with a cafeteria operation for NASA where

33
 obviously the customers were limited to NASA employees and approved
visitors at the White Sands Proving Ground. Here, as there, the defendant
imposed no restrictions upon whom it would serve and, in fact, serves
many "casuals". Anyone who obtains admittance can eat at the cafeteria.
The same kind of food is served to all and the sales are retail sales to the
ultimate consumer. See Wirtz v. Pickett Food Service, Inc., 304 F. Supp.
784 (D.N. Mex. July 8, 1968). As a matter of fact, even the food contract
customers are part of the general consuming public. While an
establishment will not normally be considered as retail, if it is not
ordinarily available to the general consuming public, it does not have to
be actually frequented by the general public in the sense that the public
must actually visit it. 29 CFR § 779.319. Otherwise, the countless
restaurant operations located in "industrial plants, office buildings,
Government installations, hospitals and colleges" would lose their status
simply because of a factually restricted clientele. (Emphasis supplied.)

The second Alvarado criterion is serving the everyday needs of the

community. People need to eat everyday, including when they are attending

events catered by Centerplate at the OCCC. The third criterion is providing

services at the end of the stream of distribution. Centerplate serves the

ultimate consumers of its food and beverages. The fourth criterion is

whether Centerplate disposes of its catering services in small quantities.

Centerplate serves a banquet attendee one plate at a time and one beverage at

a time. Finally, it is undisputed that Centerplate does not engage in

manufacturing. In sum, Centerplate meets the criteria set forth in 29 CFR Part

779.

The court in Juarez v Kennecott Copper explained the difficulty of

making hard and fast rules for applying the FLSA:

34
 As pointed out by Mr. Justice Frankfurter in the early case of 10 East
40th Street Building, Inc., v. Callus, 325 U.S. 578, 65 S.Ct. 1227,
1228, 89 L.Ed. 1806, no hard or fast rule can be laid down to
determine what constitutes engaging in commerce or the production
of goods for commerce, and that in the application of the Act it would
be necessary to draw lines from case to case and "inevitably nice
lines." Because each case must stand upon its own facts, decided cases
are seldom determinative and are of value only by analogy when the
facts are somewhat similar. No definite lines can be drawn. We finally
come to a place where, considering the objectiveness of the Act, we
must say, "This case falls within the Act but this case is beyond the
scope thereof."

The official interpretations of the Administrator of the Wage and Hour

Act clearly show that exact standards and definitions are not possible.
… 225 F2d @ 102.

For the arbitrator, Centerplate’s banquet sales at the OCCC are quite public

enough.

VI. Review of Data on Food & Beverage Sales at the OCCC

In CX 3-6, Centerplate has separated food and beverage sales at the

OCCC into four categories, Booth,17 Direct Catering, Resale Catering, and

Concessions18 – Vending19. The data for 2007 were obtained from the OCCC.

Centerplate categorized a catering sale as “Direct” if no admission was charged

for the catered event. If there was an admission charge, the sale was classified as

one for “Resale”, the theory being that Centerplate sold to the event sponsor

who in turn sold to the attendees and was paid through the admission charge.

17
TR @ 43-44.
18
TR @ 44-45.
19
TR @ 45.

35
However, there is no difference in the service that Centerplate provides either

way. TR @ 65. Centerplate categorized Booth, Direct Catering, and

Concessions – Vending sales as being “Direct”, which has the meaning of being

direct to the consumer, so as to constitute retail sales.20 In the exhibits, Direct

sales are indicated by yellow coloring and sales for Resale by blue.

With this understanding, breakdowns of the annual sales data can be

presented as follows; all Sales for Resale are from Resale Catering:

DIRECT SALES FOR TOTAL

YEAR % DIRECT % RESALE
SALES RESALE SALES
2007 $17,194,232 $14,848,524 $32,042,757 54% 46%

2008 $13,544,186 $22,254,230 $35,789,415 38% 62%

2009 $11,299,943 $9,717,373 $21,017,316 54% 46%

20
Centerplate’s spunk in characterizing its vending sales as retail contrasts markedly with its reluctance to so
characterize its catering, because “[a]utomatic vending machinery; establishments engaged in the business of
dealing in” are listed as “establishments that have no retail concept” in 29 CFR § 779.317. See also 29 CFR §
779.316. Under § 3.4.7 of the Food & Beverage Contract, Centerplate must furnish and install a variety of vending
machines at the OCCC. Fortunately, there is case law classifying vending sales as retail. See, for example, Stahl v
Delicor of Puget Sound, Inc, 109 Wash App 98, 34 P3d 259 (2001); rev’d on other grounds 148 Wash 2d 876,
64 P3d 10 (2003). The court of appeals wrote:

We are satisfied that vending machine sales are recognized in the industry as retail sales The
Washington Legislature subjects vending machine sales to the state retail sales tax. Under the FLSA,
vending machine sales are retail sales to the ultimate consumer.11 In short, vending machine sales are
recognized as retail sales in that they are end-of-the-line transactions to customers, not wholesale
transactions to another business that will resell the goods. …
_____________________
11
See Walling v. Sanders, 136 F.2d 78, 81 (6th Cir.1943) (“The machine is the mechanical arm of the
operator who sells directly to the customer. Such sales may not otherwise be considered than as retail
sales.”). See also Wirtz v. Pickett Food Service, Inc., 304 F. Supp. 784, 788 (D.N.M.1968) (cafeteria
and food vending machine services are retail in nature).

109 Wash App @ 103 & n 11, 34 P3d @ 262 & n 11; footnote 10 omitted; emphasis supplied.

36
 The sales data in Alvarado, which the district court found did not

disqualify Corporate Cleaning Service from qualifying for the 7(i) exemption,

are comparable to Centerplate’s:

Nearly 100% of CCS's revenues are payments for the window

washing services that it provides.
The majority -- perhaps even more than 75% -- of CCS's gross sales
are attributable to window washing performed on high rise buildings.
Between 2004 and 2008, approximately 40% of CCS's gross sales
were made to commercial customers, consisting almost exclusively of
commercial office buildings.
In 2006, at least 31.8% of CCS's total gross sales were made to high
rise commercial buildings.
In many cases, professional management companies were invoiced for
those jobs. In no case were the individual building tenants invoiced.
Between 2004 and 2008, about 39% of CCS's gross sales were made
to condominium and apartment buildings.
In 2006, at least 32.6% of CCS's total gross sales were made to such
residential buildings.
In most cases, condominium associations or professional management
companies were invoiced for those jobs; no individual unit owners or
tenants were billed.
Less that 1% of CCS's gross sales for the years 2004-2008 were made
to individual homeowners. 2010 US Dist LEXIS @ *5-*6; references
to statements of facts omitted.

The determinative question regarding Centerplate’s sales is whether those

categorized as being for “Resale” are correctly categorized. If they were not in

fact for resale but really were direct sales to the ultimate consumers, then all

sales were Direct, and Centerplate and its banquet employees are exempt under

§ 7(i), as were Levy and its banquet employees. Based upon an analysis of the

FLSA, its regulations, relevant case law, and the evidence presented, the

37
arbitrator concludes that Centerplate’s sales which it categorized as “Resale

Catering” were actually retail sales.21

VII. Centerplate’s Brief

Centerplate seeks to distinguish Hodgson v Prophet Co, 472 F2d 196

(10th Cir 1972), cited in Alvarado, with this argument:

Unlike students ordering food in a cafeteria, the attendees at events

catered by Centerplate are not ordering what they want from a menu and
are not determining when they will eat. Thus, in no sense can
Centerplate’s catering sales be viewed as sales to the event attendees. CB
@ 13.

Also cited is Brennan v Catering Management, Inc, 1975 US Dist LEXIS

11644 (WD Mo 1975), which Centerplate describes as involving “a nearly

identical set of facts to those in Prophet Company, and the court reached the

same result – the arrangement between the food services provider and the

educational institution, whereby the educational institution collected the money

for the sale of meals to students on the food services provider’s behalf, did not

turn the sales into sales for resale.” CB @ 15-16.

Centerplate does in fact cater some events buffet style,22 which is

analogous to a cafeteria, which Centerplate concedes sells at retail. CB @ 12.

21
In Wirtz v Campus Chefs, the court noted that “[t]the Bureau of the Budget's Standard Industrial
Classification also classifies food service contractors such as the defendant as ‘retailers.’” 303 F Supp @
1116. Under the North American Industry Classification System (NAICS), which has replaced the SIC,
Accommodation and Food Services are listed under code 72. “This sector includes lodging from Services
and food services from Retail Trade.” http://www.naics.com/info.htm#Accommodation. On the federal
government’s Central Contractor Registration website, Centerplate classifies itself as 722211 - Limited-
Service Restaurants. https://www.bpn.gov/CCRSearch/detail.aspx.
22
http://www.occc.net/pdf/Info_CenterplateMenuSM.pdf.

38
Moreover, a buffet may be open for a long period of time, allowing diners to

come and go at their leisure. Nothing prevents a Centerplate customer from

offering banquet attendees a choice of food, e.g., beef, chicken, or fish. Finally,

a restaurant that operates on a “set meal”23 or “prix fixe”24 basis still sells at

retail, even though the entire meal may be determined by its chef, and a

restaurant may have scheduled sittings, including a single one. Both the

Alvarado court and the arbitrator read cases such as Prophet Company and

Catering Management differently than Centerplate.

Centerplate seeks to further distinguish cases such as Catering

Management in these words:

The significance of the history of the FLSA amendments relating to

food services providers is that most of the cases addressing the issue
of whether food services entities are “retail or services
establishments” do so in the context of the repealed restaurant and/or
catering exemptions. Thus, for example, in Catering Management, the
court addressed this issue in the context of the now repealed catering
exemption in 29 U.S.C. § 213(b)(18). Therefore, cases such as
Catering Management are of questionable guidance as it is unclear
whether the courts would have found the food services providers in
those cases to be “retail or services establishments” in the absence of
the now-repealed restaurant or catering exemptions. CB @ 17.

However, the court plainly stated that “well over ninety percent (90%) of

C.M.’s income was derived from contract meal service,” so the catering

company easily would qualify for the § 7(i) exemption today. 1975 US Dist

23
http://en.wikipedia.org/wiki/Table_d'h%C3%B4te.
24
http://www.merriam-webster.com/dictionary/prix+fixe.

39
LEXIS 11644 @ *6.

Continuing the assault on Catering Management, an 8th Circuit case,

Centerplate argues that it is not controlling in Florida, which lies in the 11th

Circuit, where Hodgson v Crotty Bros Dallas, Inc, 450 F2d 1268 (5th Cir

1971), controls by virtue of the 11th Circuit’s adoption of 5th Circuit

precedents in Bonner v City of Prichard, 661 F2d 1206, 1207 (11th Cir

1981). CB @ 18 & n 5. However, Crotty Bros is inapposite, as it is not an

FLSA § 7(i) case.

Centerplate attempts to downplay the chief cases upon which the Union

relies, Yi v Sterling Collision and Mechmet v Four Seasons Hotels. With respect

to the former, Centerplate points out that “[t]he Yi court never addressed the

issue of what constitutes a ‘retail or services establishment’ for purposes of the

7(i) overtime exemption.” CB @ 19. Although that may be true at the appellate

level, the district court addressed the issue, as it had to, and the appellate court

affirmed. Yi v Sterling Collision Centers, Inc, 2006 US Dist LEXIS 35900

(ND Ill), @ *5-*6; aff’d 480 F3d 505 (7th Cir 2007).

Centerplate mounts the same attack on Mechmet: “[L]ike the Yi court,

the Mechmet court never addressed the issue of what constitutes a ‘retail or

services establishment.’” CB @ 19. In this case, Centerplate may have a point,

as the brief continues:

40
 Presumably, as a hotel, the Four Seasons made more than 75% of its
revenue on the sale of rooms and other services, and, therefore, whether
or not the hotel’s banquet sales were direct sales or resales would not
have been an issue. Id.

The district court at most addressed the issue obliquely by writing:

The Ritz-Carlton first opened … as a service establishment providing a

full range of hotel and restaurant services to the public, including the
rental, at retail, of rooms and banquet space and the sale, at retail, of food
and services. 639 F Supp @ 331.

In the opening paragraph of Judge Posner’s appellate opinion, he used the

phrase, “a retail or service establishment” and said nothing more about it.

The same point could be made about Nascembeni v Quayside Place.

The arbitrator is of the opinion that if the banquet sales at either of these

establishments were for resale, then the courts would have so stated and then

discussed the establishment’s satisfaction of the 75% requirements of FLSA

§ 7(i). Although Centerplate has skillfully marshaled arguments that its key

banquet sales are for resale, the arbitrator is more persuaded by the conduit

theory of paying for banquets.

Finally, in footnote 3, CB @14, Centerplate writes:

Applying the Mitchell case cited above and 29 CFR §779.331, those
booth catering sales in which the business group uses the food and
beverages to attract potential customers to their booths would be resales.
However, to simplify matters, Centerplate has treated all booth sales as
direct sales for purposes of this analysis.

Even if booth sales were classified as resales, the resulting numbers would not

41
carry the day, as booth sales accounted for only 6% of Centerplate’s sales in

2007, 8% in 2008, and 6% in 2009. CX 3.

VIII. What’s Good for Disney World Is Good for Orange County25

It seems highly improbable that establishments in “the happiest place on

earth”, mere miles from the OCCC, would expose themselves to the type of

liability and damages that Centerplate fears under FLSA § 216, if it were to treat

banquet employees as exempt under § 7(i). Indeed, if the arbitrator were to

decide this case as Centerplate urges, then Centerplate would find itself facing

the very liability it claims to fear, because of its miscalculation of overtime.26 It

is in Centerplate’s best interest for the arbitrator to rule in favor of the Union,

and since the Union wants that result, concluding that Centerplate and its

banquet employees qualify for the § 7(i) exemption would seem to be a win-win

result for everyone involved.

IX. Award

The ultimate issue presented is answered in the affirmative: The FLSA §

7(i) exemption in Section 7.1 of the parties’ collective bargaining agreement is

legally enforceable. In light of that answer, the parties agree that the exemption

will be applied to banquet employees. TR @ 6-7.

25
Borrowed from the apocryphal quote attributed to a former chairman of the former General Motors
Corporation. http://en.wikipedia.org/wiki/Charles_Erwin_Wilson.
26
Although the FLSA does not require payment of overtime after 8 hours of work in a day, the CBA does, in
Section 7.1. Thus Centerplate also would face that issue with respect to its banquet employees, were the arbitrator
to agree with its position.

42
Dated December 27, 2010 ________________________________
E. Frank Cornelius, PhD, JD, Arbitrator

43