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Section 794.122 Operation of gasoline service

stations as a "related" activity. Many jobbers operate one or more retail gasoline service stations through which they distribute a portion of their petroleum products. In such a case, the gasoline station activities are related to the wholesale or bulk distribution of petroleum products. They form a part of a vertical structure in the distribution and retailing of the petroleum products and their activities, together with the wholesale or bulk distribution, will be considered parts of a single enterprise. All sales by such service stations must be included in the annual gross volume of sales of the enterprise for purposes of determining its enterprise coverage under section 3(s) of the Act and the application to it of the exemption under section 13(b) (10). Of course, as previously explained in section 794.14 (b), the status under the Act of the employees of a separate gasoline service station establishment is determined independently and with particular reference to sections 3(s)(5) and 13(b) (8) of the Act. This is discussed in sections 779.257 to 779.262 of this chapter, dealing with the application of the Act to retailers.

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From a functional standpoint the independent jobbers of the Nation distribute approximately 85 percent of all home-heating oils; 30 percent of the gasoline sold to service stations; 65 percent of the gasoline sold to country grocery stores and smalltown garages, and well over 50 percent of all petroleum products sold to the farmers. The average jobber sells both gasoline and fuel oil, although there are some jobbers, principally in the metropolitan areas, who sell nothing but household fuel oil. (Hearings on Amendments to the Fair Labor Standards Act, before the Senate Subcommittee on Labor, 87th Cong., 1st sess., p. 412.) A study of the operations of wholesale or bulk distributors of petroleum products discloses that sales are also made to commercial and industrial users. Wholesale or bulk distributors usually have facilities for the storing of the products they sell, including gasoline tanks and warehouse facilities. Their facilities also typically include a loading rack and trucks for the distribution of their products. Some small dealers, however, do not have storage tanks but pump oil directly from road transport trucks or railway tank cars into delivery trucks. The term "petroleum products” includes such products as gasoline, kerosene, diesel fuel, lubricating oils, fuel oils, greases, and liquifiedpetroleum gas. An enterprise consisting of related activities which include distributing these products at wholesale and in bulk as described above will be regarded as an "enterprise *** engaged in the wholesale or bulk distribution of petroleum products” within the meaning of section 13(b) (10) of the Act.

Section 794.123 Leasing retail outlets to oth

ers as a "related” activity. Wholesale or bulk distributors of petroleum products often do not operate gasoline service stations, but merely engage in renting such stations to dealers. These leasing arrangements may or may not be related activities. For example, if the station is leased with the agreement or understanding that it is to be a market for the distributor's products, the lease may be in furtherance of the petroleum enterprise's distributive business efforts. In such a case, the leasing activities would be “related” and may be a part of the enterprise. If they are part of the enterprise, the rental income from such leases must be included in the gross annual volume of sales of the enterprise. Whether a leasing arrangement is so related will depend upon the facts in each case. It should be noted that under the proviso to the definition of “enterprise" in section 3(r) of the Act, if the gasoline service establishment is a retail or service establishment under independent ownership its own activities will not become a part of the wholesale or bulk distributor's enterprise by reason of a mere lease of

the premises from the latter or an agreement to procure its products from that enterprise. Section 794.124 Other activities which may be

a part of the enterprise. Petroleum jobbers may also engage in the business of selling coal, ice, feed, building supplies, paint, cord wood, or hardware, or in the repair and installation of oil burners. Where these activities are conducted as an incident to or in conjunction with their petroleum products distribution and other related activities as integrated parts of a single business, they may well be a part of the enterprise. In some cases a petroleum distributor may operate a tire recapping establishment to serve the same general customers as his petroleum operations, using the same salesmen, delivery em. ployees, and certain facilities and equipment for both operations. In such a case, the recapping activities and the petroleum operations will be "related" and would appear to be performed through unified operation or common control for a common business purpose so that they will form part of a single business enterprise. In such situations, the sales from these related activities must be included in determining whether the enterprise meets the dollar volume requirements of the 13(b) (10) exemption. On the other hand, in some cases, the sales of coal, ice, feed, etc. by petroleum jobbers may be conducted on separate premises, as separate businesses with separate employees, facilities and records, or a company engaged in the wholesale or bulk distribution of petroleum products may also

engage in the operation of a separate tire recapping establishment which is conducted as a separate business, independently and apart from the petroleum operations. In such circumstances, the activities of these segregated businesses may constitute separate enterprises. Whether such activities are a part of the enterprise distributing pet roleum products depends, of course, on all the facts, with particular reference to whether the activities are conducted through unified operation or common control for a common business purpose. Where the facts demonstrate that the petroleum products distribution and the other activities are conducted for a common business purpose, they will be related, and if they are performed through unified operation or common control, they will be a part of a single enterprise. Section 794.125 Status of activities which are

not "related". Activities which are not "related” are not included as part of the "enterprise”, even if performed by the same employer. If, for example, a wholesale or bulk petroleum distributor also owns or controls a separate grocery store, barber shop, or a motel which he operates as a completely independent business, the latter activity ordinarily will not be considered a part of the petroleum enterprise. The receipts from the unrelated activities will not be counted toward the enterprise's annual gross volume of sales for purposes of determining coverage under the Act or the application of the exemption under section 13(b) (10).

“INDEPENDENTLY OWNED AND CONTROLLED LOCAL ENTERPRISE

Section 794.126 Only independent and local

enterprises qualify for exemption. The legislative history of the exemption (section 794.101) shows that the proponents of an amendment to provide the relief which it grants from the overtime pay provisions of the Act were organizations of independent local merchants who did not as a rule engage extensively in interstate operation such as those typical of major oil companies, and who functioned primarily at the local level in distributing petroleum products at wholesale or in bulk. As a result the exemption provided by the Act, like that requested, was limited to enterprises which are "local" (section 794.127) and are “independently owned and controlled” (sections 794.128 to 794.132).

Section 794.127 The enterprise must be “local”.

It is clear from the language of section 13(b) (10) that the exemption which it provides is available to an enterprise only if it is a "local enterprise". The other tests of exemption must also, of course, be met. A “local" enterprise is not defined in the Act, and the word “local”, which appears in a different context elsewhere in the Act (see sections 13(a) (9), 13(b) (7), 13(b) (11)), is likewise given no express definition. There is no fixed legal meaning of the term “local”; it is usually a flexible and comparative term whose meaning may vary in different contexts. As used here, certain guides are available from the context in which it is used, the legislative history surrounding adoption of section 13(b) (10), and the law of which it forms a

Fair Labor Standards Act, 87th Cong., 1st Sess., pp. 415416.) It thus appears that the word “local” was intended to confine the exemption to enterprises of such local merchants. The enterprise need not, of course, conduct all of its business within the State in which it is physically located, since the exemption specifically provides that it may make a portion of its sales outside the State in which it is located.

part. “A “local” enterprise engaged in the wholesale or bulk distribution of petroleum product is clearly intended to embrace the kind of enterprise operated by the merchants who requested the amendment; that is, one which provides farmers, homeowners, country merchants, and others in its locality with petroleum products in bulk quantities or at wholesale. The language of section 13(b) (10) makes it clear also that the enterprise will not be regarded as other than "local” merely because it has more than one bulk storage establishment. On the other hand, the section makes it equally clear that ordinarily an enterprise which is not located within a single State is not a local enterprise of the kind to which the exemption will apply. This follows from the express requirement that more than 75 percent of the enterprise's annual dollar volume of sales must be made within the State in which such enterprise is located." The legislative history provides further evidence of this intent. At the hearings before the Senate Labor Subcommittee a proponent of the amendment which eventually was enacted in somewhat different language as section 13(b) (10), stated as follows with respect to the significance of the word "local":

* * * the language which we have suggested in the proposed amendment "locally owned and controlled establishments”, I admit that can point up some trouble and make some work for lawyers.

We, however, in our endeavor to show our sincerity of only trying to cover local intrastate establishments, went overboard on this language.

You will note that 75 percent of our business has to be performed in one State. I think that “locally owned and controlled establishments" language should better read "independently owned and controlled local enterprise or establishment”. (Sen. Hearings on amendments to the Fair Labor Standards Act, 87th Cong., 1st Sess., p. 416.) The same witness also quoted from the Congressional Record of August 18, 1960, the discussion in the course of the consideration of the amendments to the Act by the Senate during the 86th Congress, 2d Session, as follows:

These wholesale and bulk distributors of petroleum products, commonly referred to as oil jobbers, are primarily local businessmen who acquire these products from their suppliers' bulk terminal in the State in which the jobber does business and sell these products to service stations, farmers, and homeowners in the State in which they maintain their place of business * * * I am advised that 98.3 percent of all the oil jobbers in the United States sell their products only in the State in which their place of business is located thus qualifying by any definition as local merchants. (Sen. Hearings on amendments to the

Section 794.128 The enterprise must be “in

dependently owned and controlled”. Another requirement for exemption under section 13(b) (10) is that the enterprise must be “independently owned and controlled”. Since this requirement is in the conjunctive, it must be established that the enterprise which is engaged in the wholesale or bulk distribution of petroleum products is both independently owned and independently controlled. At the hearing before the Senate Labor Subcommittee, when the amendment was proposed which eventually was incorporated in section 13(b) (10), a spokesman for proponents of the amendment made the following statement, which bears on this requirement for exemption:

The designation "independent" as applied to an oil jobber means that he owns his own office, bulk storage, and delivery facilities ; pays his own personnel, and in all respects conducts his business as any other independent businessman.

It also means that the jobber is not a subsidiary of nor controlled by any so-called major oil company, although the jobber may sell the branded products of such a company.

Some jobbers own service stations which they lease to independent dealers and a small percentage of jobbers may operate one or more service stations with their own salaried personnel. (Sen. Hearings on the Amendments to the Fair Labor Standards Act, 87th Cong., 1st sess., p. 411.) It appears, therefore, that the purpose of the requirement limiting the exemption to enterprises which are "independently owned and controlled", was to confine the exemption to those petroleum jobbers who own their own facilities and equipment and who are not subsidiaries nor controlled by any producer, refinery, terminal supplier or so-called major oil company. The fact that the petroleum jobber sells a branded product of a major oil company will not, of itself, affect the status of his enterprise as one which is “independently owned and controlled”. So also the fact that the jobber owns gasoline service stations, which he leases or which he operates himself, will not

affect the status of his enterprise as being "inde charge, or otherwise controlling the activities of pendently owned and controlled”.

the enterprise in those respects which are the com

mon attributes of an independent businessman, Section 794.129 "Independently owned”.

these facts may establish that the enterprise is not Ownership of the enterprise may be vested in “independently controlled” as required by the an individual petroleum jobber, or a partnership, exemption under section 13(b) (10). or a corporation, so long as such ownership is not

Section 794.131 Effect of franchises and other shared by a major oil company, or other producer, refiner, distributor or supplier of petroleum prod

arrangements. ucts, so as to affect the independent ownership of Whether a franchise or other contractual arthe enterprise. As noted in section 794.128, an en rangement affects the status of the enterprise as terprise will not be considered independently "an independently owned and controlled * * * owned where it does not own its own office, bulk enterprise”, depends upon all the facts including storage, and delivery facilities. The enterprise the terms of the agreements and arrangements bemay also not be considered “independently owned" tween the parties as well as the other relationships where it does not own its stock-in-trade. It is that have been established. The term "franchise" recognized that, in the ordinary course of business is not susceptible of precise definition. While it dealings, an independently owned enterprise may is clear that in every franchise a business surrenpurchase its goods on credit and this, of course, will ders some rights, it is equally clear that every not affect its characterization as being “inde franchise does not necessarily deprive an enterpendently owned” within the meaning of the prise of its character as an independently owned exemption. However, there may well be a question and operated business. This matter was the subas to whether the enterprise is "independently ject of legislative consideration in connection with owned” where the enterprise receives its petroleum other provisions of the 1961 amendments to the products on consignment and the supplier lays Act. The Senate Report on the amendments, in claim to the ownership of the accounts receivable. discussing the effects of franchises and similar arOf possible relevance also is the intent evident in rangements on the scope of the "enterprise" under the statutory language to provide exemption only section 3(r) of the Act, stated as follows: for an enterprise which can meet the specified tests

There may be a number of different types of arrangewhich depend on “the the sales of such enterprise.” ments established in such cases. The key in each case The determination in such cases, as in other cases may be found in the answer to the question, "Who receives involving questions of independent ownership,

the profits, suffers the losses, sets the wages and working

conditions of employees, or otherwise manages the busiwill necessarily depend on all the facts.

ness in those respects which are the common attributes Section 794.130 "Independently *

of an independent businessman operating a business for

profit?" trolled”. As explained in section 794.128, the enterprise in In all of these cases if it is found on the basis of all the addition to being independently owned must also

facts and circumstances that the arrangements are so

restrictive as to products, prices, profits, or management be “independently controlled”. The test here is

as to deny the "franchised" establishment the essential whether the individual, partnership, or corpora

prerogatives of the ordinary independent businessman, the tion which owns the enterprise also controls the

establishment, the dealer, or concessionaire will be considenterprise as an independent businessman, free of ered an integral part of the related activities of the entercontrol by any so-called major oil company or

prise which grants the franchise, right, or concession.

(S. Rep. 14.5, 87th Cong., 1st Sess., p. 42.) other person engaged in the petroleum business. Control by others may be evidenced by owner Thus there may be a number of different types of ship; but control may exist in the absence of any arrangements established in such cases and the deownership. For example, where an enterprise

termination as to whether the arrangements have engaged in the wholesale or bulk distribution of the effect of depriving the enterprise of its indepetroleum products enters into franchise or other pendent ownership or control will necessarily dearrangements which have the effect of restricting pend on all the facts. Ultimately the determinathe products it distributes, the prices it may tion of the precise scope of such arrangements and

con

their effect upon the independent ownership and troleum jobber may engage in other businesses control of the enterprise under section 13(b) (10), which are not related to the enterprise engaged in as well as on the question whether such arrange the wholesale or bulk distribution of petroleum ments result in creating a larger enterprise, rests products, will not affect the question whether the with the courts.

petroleum enterprise is independently owned or

controlled. For example, the fact that the wholeSection 794.132 Effect of unrelated activities.

sale or bulk petroleum distributor also owns or The term "independently owned and controlled” controls a wholly separate tourist lodge enterprise has reference to independence of ownership and or job printing business will not affect the status control by others. Whether ownership or control of his enterprise engaged in the wholesale or bulk by others exists in a particular case will depend distribution of petroleum products as an “indeupon all the facts. However, the fact that the pe pendently controlled” enterprise.

ANNUAL GROSS VOLUME OF SALES Section 794.133 Dependence of exemption on apply even if the enterprise does not qualify for sales volume of enterprise.

the section 13(b) (10) exemption), as well as the It is a requirement of the section 13(b) (10) ex

sales made by any other establishments of the en

terprise. emption that the annual gross volume of sales of the enterprise must be not more than $1,000,000 Section 794.135 Exclusion of excise taxes. exclusive of excise taxes. In general, therefore,

The computation of the annual gross volume of except where excise taxes may change the result

sales of the enterprise is made "exclusive of excise in a borderline case, the exemption will not be

taxes." It will be noted that the excise taxes exavailable for employees of any enterprise which cludable under section 13(b) (10) are not, like is subject to enterprise coverage as an enterprise those referred to in section 3(s) and section 13 engaged in commerce or in the production of goods

(a) (2), limited to those at the retail level which for commerce under the definitions contained in

are separately stated.” Under section 13(b) (10), section 3(s) (1) or 3(s) (3) of the Act (see sections

therefore, all excise taxes which are included in the 794.13 and 794.14).

sales price may be excluded in computing the anSection 794.134 Meaning of "annual gross

nual gross volume of the enterprise. volume of sales”.

Section 794.136 Ascertainment of "annual” The annual gross volume of sales of an enter gross sales volume. prise consists of its gross receipts from all types of

The annual gross volume of sales of an entersales during a 12-month period (section 794.136).

prise engaged in the wholesale or bulk distribution The gross volume derived from all sales transac

of petroleum products consists of its gross dollar tions is included, and will embrace among other

volume of sales during a 12-month period. Where things income from service, credit, or similar

a computation of annual gross volume of sales is

necessary to determine the status of the enterprise charges. However, credits for goods returned or

under section 13(b) (10) of the Act, it must be exchanged and rebates and discounts and the like

based on the most recent prior experience which it are not ordinarily included in the annual gross

is practicable to use. volume of sales. In determining whether the million dollar limit on annual gross sales volume is or

Section 794.137 Methods of computing anis not exceeded, the sales volume from all the re

nual volume of sales. lated activities which constitute the enterprise (a) Where the enterprise, during the portion of must be included; the dollar volume of the entire its current income tax year up to the end of the business in all establishments is added together. current payroll period, has already had a gross Thus, the gross volume of sales will include the volume of sales in excess of the amount specified receipts from sales made by any gasoline service in the statute, it is plain that its annual gross stations of the enterprise (to which the special volume of sales currently is in excess of the statuovertime pay exemption in section 13(b) (8) will tory amount; or

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