FEDERAL MEDIATION AND CONCILIATION SERVICE In the Matter of the Arbitration between WORKERS UNITED, SEIU, LOCAL NO. 737, Union, and CENTERPLATE HOSPITALITY VENTURE, Employer. ________________________________________/ FMCS No. 10-50354 Class Action Grievance

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: Liz Vladeck Associate General Counsel Workers United 49 W 27th Street, 3rd Floor New York City, NY 10001

For the Employer: Jeffrey E. Mandel Fisher & Phillips LLP 1250 Lincoln Plaza 300 S Orange Avenue 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).

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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, weve 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/meetcenterplate. 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 and3

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 worlds 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 Centers attendees, enhancing the Centers reputation as a premier convention facility, and assuring a high incidence of repeat business at the Center, is imperative to the Centers 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 Levy1 2

Minor exceptions, not relevant here, are found in 3.4.4 and 4.1.7. Seven million square feet of banquet space. TR @ 46; footnote by arbitrator.

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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 component5 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 employees 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

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.

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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 employees 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 employees 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 Centerplates 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

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filed a class action grievance on May 26, 2009 (JX 1), which proceeded to arbitration. A hearing was held on November 11, 2010, in Centerplates 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 Unions brief are denoted UB, and those to Centerplates 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

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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 onehalf times the regular rate at which he is employed. (Emphasis supplied.) FLSA 6, to which reference is made in 7(i), pertains to the

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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

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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 Centerplates 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 Disneys FLSA 7(i) Exemption Consent Form (UX 1) that banquet employees sign andThe 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 employees regular rate of pay must exceed 1 times minimum wage; and (3) more than half of the employees 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 Centerplates 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.6

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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 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

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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 and12

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 arbitrators role in this arbitration, an issue about which the Unions 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 arbitrators 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 CBAs severability clause is broad enough to encompass any external law that might impinge upon the13

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 Assn 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 ______________________________________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 10.3

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

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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 Centerplates food and beverage operations. V.B The Regular Rate of Pay for Centerplates Banquet Employees Although it is uncontested that a Centerplate banquet employees 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, 1 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 1 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 employees regular rate of pay for purposes of FLSA16

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 1 times the regular rate of pay. Notwithstanding the discrepancy in Centerplates computation of overtime, it is undisputed that banquet employees are regularly paid far in excess of both minimum wage and 1 times minimum wage.9 Thus numbered requirement (1) of 7(i) is satisfied. V.C. More than Half a Banquet Employees 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 Centerplates banquet employees is overwhelmingly from commissions; e.g., 88.5%, 85.4%, 86.2% (UX 6); 71.2%, 75.5 %, 67.3% (UX

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Servers and bartenders may earn $50,000-$75,000 a year, and captains upwards of $100,000. TR @ 101, 124125. 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).

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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 Centerplates 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 establishments 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.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 employees compensation over any monthly period. That fact is undisputed.10

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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 under19

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

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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

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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-Carltons 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 Centerplates 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 cases23

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

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sales of services are not for resale. 2010 US Dist LEXIS 62378 @ *17-*20; footnote omitted.11 The arbitrator is persuaded by the Alvarado courts 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 Centerplates 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 worlds 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

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.

11

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industry.12 V.D.4. Retail or Wholesale Evidence gleaned from the Food & Beverage Contract supports a finding that Centerplates 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 vendors 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.

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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); affd 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, includingmost notablyformer 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 within27

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 Unions 2002 survey of other area properties, which included Disney.14 Moreover, Levys 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-Carltons banquet sales were not recognized as retail in the industry, then Judge Posner would have been obliged to address the 75%-not-

14

Concededly, Disneys overall business differs markedly from Centerplates. 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.

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for-resale requirement.15 Ditto for the court in Nascembeni.16 The arbitrator finds that Centerplates 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 areIn theory at least, even if Ritz-Carltons banquet sales were not recognized as retail in the industry, RitzCarltons banquet employees still could have qualified under 7(i) if it could be shown that 75% of the Hotels 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 secondarybrand, in recent years Renaissance has established itself as a boutique-like hotel chain. http://en.wikipedia.org/wiki/Renaissance_Hotels.15

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compensated through commissions generated by a mandatory service charge added to customers bills, which pay them more than 1 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 Centerplates 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

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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-tobusiness 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 the31

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 with32

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 courts analysis persuasive and adopts it. The first criterion that the court analyzed was sales to the public. A convincing explanation as to why Centerplates 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 where33

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:

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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, Centerplates 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 18 19

TR @ 43-44. TR @ 44-45. TR @ 45.

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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:YEAR 2007 2008 2009 DIRECT SALES $17,194,232 $13,544,186 $11,299,943 SALES FOR RESALE $14,848,524 $22,254,230 $9,717,373 TOTAL SALES $32,042,757 $35,789,415 $21,017,316 % DIRECT 54% 38% 54% % RESALE 46% 62% 46%

Centerplates 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); revd 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.

20

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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 Centerplates: 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 Centerplates 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

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arbitrator concludes that Centerplates sales which it categorized as Resale Catering were actually retail sales.21 VII. Centerplates 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 Centerplates 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 providers 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.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 governments Central Contractor Registration website, Centerplate classifies itself as 722211 - LimitedService Restaurants. https://www.bpn.gov/CCRSearch/detail.aspx. 22 http://www.occc.net/pdf/Info_CenterplateMenuSM.pdf.21

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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 meal23 or prix fixe24 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 Dist23 24

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

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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 Circuits 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; affd 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:

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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 hotels 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 Posners 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 establishments 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

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carry the day, as booth sales accounted for only 6% of Centerplates sales in 2007, 8% in 2008, and 6% in 2009. CX 3. VIII. Whats 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 Centerplates 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.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.25

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Dated December 27, 2010

________________________________ E. Frank Cornelius, PhD, JD, Arbitrator

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