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Murray v. Noblesville Milling Co.

November 25, 1942


Appeal from the District Court of the United States for the Southern District of Indiana, Indianapolis Division; Wm. J. Campbell, Judge.

Author: Kerner

Before EVANS, SPARKS, and KERNER, Circuit Judges.

KERNER, Circuit Judge.

This was an action brought by plaintiff as agent for and on behalf of twenty-four former employees of the defendant to recover unpaid compensation alleged to be due under § 7(a) of the Fair Labor Standards Act of 1938, 29 U.S.C.a. § 201 et seq., and an equal amount as liquidated damages and reasonable attorney's fees. The case was tried without a jury. The District Court found for the plaintiff and rendered judgment for $5,997.56 for wages, together with a like sum for the use of the former employees as liquidated damages, and the sum of $1,000 as attorney's fees. To reverse the judgment, defendant appeals.

The complaint alleged that defendant and the employees were engaged in the production of goods for commerce and that the employees had performed overtime work for which they had received no extra compensation. Defendant admitted coverage of all but two of the employees but denied liability, claiming an agreement with the employees which provided for an hourly rate of pay in excess of the statutory minimum for the first 40 hours of the workweek and time and one-half that rate of pay for each hour thereafter.

The court found that prior to October 18, 1938, the defendant had an agreement with its employees to pay a stated sum per hour as wages for work to be performed, and that it was the practice of the defendant to have its employees work more than 44 hours a week. On October 18, the defendant called a meeting of its employees at which it advised them that it was not willing to pay overtime compensation based upon their present rate, but that it would not reduce their pay in respect to the total amount earned each week. The defendant proposed that for an average week of 60 hours an employee previously engaged at 40› an hour, be paid for the first 40 hours at 34› an hour, and for the remaining 20 hours, as his overtime compensation, at 51› an hour.

Since this method yielded only $23.80 as compared with $24 per week under the old rate of pay, the defendant promised to add a bonus of 20› to equal the old rate. Thereafter the defendant put the plan into effect, revised its bookkeeping system to reflect it, and the employees continued to work for the defendant until it closed its plant on or about March 10, 1941.

The court also found that the new pay arrangement was not a bona fide contract and that the employees never knew exactly how to figure their pay after October 18, 1938, but considered that it (original contract of employment) remained unchanged.

If this were an original proposition, our holding would be that this contract does not comply with the law, and that the "regular rate" must be calculated according to the formula stated in Overnight Motor Transportation Co. v. Missel, 316 U.S. 572, 62 S. Ct. 1216, 86 L. Ed. 1682.

There can no longer be any question that Congress has the constitutional power to regulate hours even though they are not patently burdensome to health, that the method adopted by Congress was constitutional, and that the purpose of the overtime provisions of § 7 was to apply financial pressure upon the employer to reduce hours of work and spread employment. Missel case, supra. Where Congress has chosen a constitutional method to effect a purpose within its constitutional power, it is not our function to re-examine the wisdom of adopting maximum hour legislation. The duty of the court in this situation is one of statutory construction - to interpret the language of the statute so as to effectuate the intent of Congress.

Underlying the Fair Labor Standards Act is the proposition that two separate and distinct factors may influence agreements on wages and hours made between employers and employees - employee bargaining power, and the requirements of the law. Resting on this proposition, the Act has two major purposes: (1) to reinforce employee bargaining power concerning hourly wages by prohibitting wage rates below a certain level, and (2) to reinforce employee bargaining power concerning hours of labor by exerting financial pressure upon the employer to limit hours to a certain level.

In the instant case, the contract of employment contravenes the second of these purposes. So far as the employer is concerned, the contract is in practical effect a contract to pay 40 cents an hour for the first 60 hours of work in a week, and 51 cents an hour therefter. Instead of financial prossure being exerted upon the employer after the statutory maximum number of hours of work, the pressure of increased wages is exerted only after a certain number of hours chosen by the employer himself - 60 hours. Because there is no increase of labor cost between the statutory maximum and the hours guaranteed, the employer has a financial inducement to require hours beyond the statutory maximum. Is this the result intended by Congress? Such a contract complies with the provision of § 7 only in form, and even then only if "regular rate" is given the definition contended for by defendant. It is the substance of the contract, rather than its mere form, which should determine whether it complies with the Act.

To hold that this contract is sufficient under the Act is to render wholly ineffective (except in the unusual case in which the stated hourly rate is the statutory minimum) the method adopted by Congress to regulate hours of work. It is to construe the Act as though Congress had not enacted a separate section dealing with maximum hours, but had enacted § 7 as a part of § 6, intending the time and one-half provisions to influence only minimum wages, not maximum hours. The control of hours of work is once again dependent solely upon employee bargaining power, as it was before the Act was passed. It can be said that all the employees needed to do, if they did not want to work as much as 60 hours to receive $24, was to bargain for a higher stated hourly rate. But this is exactly what the situation was before Congress enacted § 7.

It is clear in the instant case that our holding makes the number of hours of work dependent solely on the strength of employee bargaining power. What of the case in which employees are not paid as they are here but are paid by the hour? It is true there as well, for it is only employee bargaining power which would bar such an employer from ...

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