Before MAJOR, Chief Judge, SPARKS, Circuit Judge, and SWYGERT, District Judge.
This is an appeal from a judgment adverse to the plaintiff (the taxpayer), entered January 21, 1948, in a suit to recover from the defendant taxes alleged to have been illegally assessed and collected under the provisions of Title VIII and IX of the Social Security Act, hereinafter referred to as the Act, 42 U.S.C.A. §§ 1001 et seq., 1101 et seq.
Plaintiff is an Illinois corporation organized "to operate taxicabs and automobiles for hire as a public and private carrier of freight and passengers; to buy and sell and deal in automobiles." The question for decision is whether the persons designated as the drivers of plaintiff's taxicabs are, under the terms of the Act, its employees whose earnings are wages so as to make the plaintiff liable for the tax sought to be recovered. The court below made findings of fact and conclusions of law upon which its judgment was predicated. The court also rendered a written opinion, reported in D.C., 75 F. Supp. 307.
That we are presented with a perplexing problem is evident from the opposing results which have been reached and the contrariety of views expressed in a number of cases. Referring only to the Federal cases, taxi drivers have been held to be employees in Jones v. Goodson, 10 Cir., 121 F.2d 176; Checker Taxi v. harrison,*fn1 D.C. Ill., Nor. Dist., East Div., decided July 1, 1942; Kaus v. Huston, D.C., 35 F. Supp. 327 (affirmed without deciding the merits, 8 Cir., 120 F.2d 183), and Michigan Cab Co. v. Kavanagh, D.C. Mich., East Dist., Sou. Div., 82 F. Supp. 486. Such drivers have been held not to be employees in Woods v. Nicholas, 10 Cir., 163 F.2d 615; Magruder v. Yellow Cab Co., 4 Cir., 141 F.2d 324, 152 A.L.R. 516; United States v. Davis, 81 U.S. App. D.C. 35, 154 F.2d 314, and Co-Op Cab Co. v. Allen, D.C. Ga., 82 F. Supp. 695 (pending on appeal in the Fifth Circuit).
The court below, as the extensive quotations in its opinion disclose, relied strongly upon the rationale of the Supreme Court in United States v. Silk, 331 U.S. 704, 67 S. Ct. 1463, 91 L. Ed. 1757. While the workmen involved in that case were not taxi drivers, the rule which the court announced in determining whether they were employees within the meaning of the Act is pertinent, subject to any change resulting from subsequent legislative action.
A study of the cases where the question has been considered discloses that varying facts account in no small measure for the contrary results which have been reached. Another factor which has played a large part is the policy pursued by the Social Security Board (hereinafter referred to as the Board) and the courts in the broadening of the concept of the term "employee" and the consequent inclusion within the coverage of the Act of a number of persons who are not in ordinary usage looked upon as employees. Prior to a consideration of the facts in the instant matter, we regard it as important to note this policy of the Board and the courts which was resented by Congress and which in 1948 culminated in certain amendments to the Act expressly designed to restrict its coverage.
While the original Act enacted in 1935 defined a number of terms, it set forth no definition of the term "employee" other than that it "includes an officer of a corporation." Subsec. (a) (6), 42 U.S.C.A. § 1301. The term was implemented by Treasury Regulation 90, promulgated under Title IX of the Act, particularly Article 205 thereof. This regulation is set forth in a footnote in United States v. Silk, supra, 331 U.S. at page 714, 67 S. Ct. 1463, 91 L. Ed. 1757, and reference is made thereto. The regulation in the main followed the accepted common law test for determining the existence of the employer-employee relation. In 1939, the Board made certain recommendations to Congress for changes in the Act, with the view of broadening the definition of the term "employee." No changes were made, and the congressional intent appears to have been that the common law test be retained as embodied in the regulations theretofore promulgated by the Treasury.
Depite the refusal of Congress to broaden the scope of the word "employee" as defined in the Act, the Board apparently attempted to do so by administrative interpretation. It was argued before the courts that the term was not to be used as a word of art but rather that it should be defined in the light of the purpose of the statute and of the evils which were intended to be remedied. Similar arguments were advanced in connection with the interpretation of the term "employee" under the National Labor Relations Act, 29 U.S.C.A. § 151 et seq. In N.L.R.B. v. Hearst Publications, Inc., 322 U.S. 111, 64 S. Ct. 851, 88 L. Ed. 1170, the Supreme Court embraced the interpretation thus sought and expanded the definition of the word "employee" beyond anything which had ever been included before, and stated that the term must be understood with reference to the purpose of the Act and the facts involved in the economic relationship between the employer and the alleged employee. It held that where all the conditions of the relationship require protection, giving due consideration to the purposes of the Act, protection ought to be given. This expanded definition of the term "employee" as used in the Labor Act was in the main followed in United States v. Silk, supra, in determining its scope under the Social Security Act. The court stated, 331 U.S. at page 712, 67 S. Ct at page 1467, 91 L. Ed. 1757:
"As the federal social security legislation is an attack on recognized evils in our national economy, a constricted interpretation of the phrasing by the courts would not comport with its purpose. Such an interpretation would only make for a continuance, to a considerable degree, of the difficulties for which the remedy was devised and would invite adroit schemes by some employers and employees to avoid the immediate burdens at the expense of the benefits sought by the legislation."
A reading of this opinion leaves us in some doubt as to whether the court in defining the term "employee" intended to go beyond the scope of its common law meaning as outlined in the Treasury Regulation. Some of the language used indicates either that the court did so or in any event that a court would be justified in so doing. Mr. Justice Rutledge evidently thought that the court was going beyond the common law concept of the term, as is shown by the following statement in his concurring opinion, 331 U.S. at page 721, 67 S. Ct at page 1472, 91 L. Ed. 1757:
"Here the District Courts and the Circuit Courts of Appeals determined the cases largely if not indeed exclusively by applying the so-called 'common law control' test as the criterion.This was clearly wrong, in view of the Court's present ruling."
The Treasury Department also evidently thought that the Supreme Court in the Silk case had enlarged the scope of the term "employee" because shortly after the rendition of the opinion in that case it proposed a new regulation outlining the factors to be considered in making such determination. Federal Register, Vol. 12, No. 232, page 7966. Without quoting its proposed regulation, it is sufficient to note that it went far beyond any common law concept of the term "employee."
The decision of the Supreme Court in the Silk case and the proposed regulation by the Treasury Department gave rise to a controversy in Congress as to the interpretation which should be given the term "employee" under the social security legislation. As a result, in the 80th Congress, Second Session, there was introduced in the House, H.J.R. 296, reported out of the Ways and Means Committee on February 3, 1948, bearing the title, "Maintaining the Status Quo in Respect of Certain Employment Taxes and Social Security Benefits Pending Action by Congress on Extended Social Security ...