Hale v. Arizona

NORRIS, Circuit Judge,

with whom Circuit Judge FLETCHER joins, dissenting:

[Fjree labor, properly compensated, cannot compete successfully with the enforced and unpaid or underpaid convict labor of the prison.

Whitfield v. Ohio, 297 U.S. 431, 439 , 56 S.Ct. 532, 535 , 80 L.Ed. 778 (1936).

Richard Berry worked at C/A Buckles, a business that employed about a dozen workers and produced belt buckles for groups such as the Marine Corps, U-Haul, and the University of Texas Longhorns booster club. Today, the majority holds that the State of Arizona is not required to pay Berry or his co-workers the federally-mandated minimum wage because they were inmates at the Arizona State Prison, working for a “prison-structured program” pursuant to Arizona’s requirement that prisoners work at hard labor. In so holding, the majority removes by fiat a large, if ill-defined, group of workers from the coverage of the Fair Labor Standards Act (“FLSA”), judicially creating an exemption not found in the statute.

In passing the FLSA, Congress sought to improve the standard of living of workers across the land by outlawing substandard wages in all industries competing in interstate commerce, subject only to narrow and explicit exceptions. The majority adds an exemption for the prisoners in this case because they are forced to work, and in any case do not need to make a living wage. The majority ignores the obvious point that precisely for these reasons prisoners are unable to demand the minimum wage without the power of the law behind them. By focusing too narrowly on the technical legal relationship between the State of Arizona and Richard Berry, the majority slights Congress’ major concern — barring the products of sub-minimum wage labor from the channels of interstate commerce. When this case is understood in light of Congress’ concern with the pernicious competitive effect of cheap labor, it becomes unnecessary to have any “particular sympathy for prison inmates” to conclude that the FLSA applies to prison labor. Gilbreath v. Cutter Biological, Inc., 931 F.2d 1320, 1332 (9th Cir.1991) (D.W. Nelson, J., dissenting).

I

By its own terms, the FLSA covers these Arizona prisoners. The Act says “[ejvery employer shall pay to each of his employees ... not less than $4.25 an hour.” 29 U.S.C. § 206 (a). The Act includes in its definition of “employee” any “individual employed by a State.” 29 U.S.C. § 203 (e)(2)(C). True to its conventional meaning, “employ” as used in the FLSA means “to suffer or permit to work,” 29 U.S.C. § 203 (g), which describes *1401 the obligation (or opportunity) the State of Arizona afforded Richard Berry. The statute lists a number of exemptions to its coverage, but prison labor is not on the list. See 29 U.S.C. § 213 . Thus, under the plain language of the Act, the appellants are employees who must be paid at least $4.25 an hour.

The majority recognizes all this. It acknowledges that prisoners are not included on the statute’s list of exemptions, and that “ ‘[s]peeificity in stating exemptions strengthens the implication that employees not thus exempted ... remain within the Act.’ ” Opinion at 1391 (quoting Powell v. United States Cartridge Co., 339 U.S. 497, 517 , 70 S.Ct. 755, 766 , 94 L.Ed. 1017 (1950)). The majority cites approvingly Ninth Circuit case law making working prisoners employees for purposes of Title VII, and case law from other circuits interpreting the FLSA the same way. Id. at 1392 . The majority also doffs its hat to the Supreme Court, acknowledging that the Court has “instructed [us] to interpret the term ‘employ’ in the FLSA expansively.” Opinion at 1392 (quoting Nationwide Mut. Ins. Co. v. Darden, - U.S. -, 112 S.Ct. 1344, 1350 , 117 L.Ed.2d 581 (1992)). But after saying that the FLSA does not “categorically exclude” inmate labor, the majority nevertheless decides that prisoners working in programs “structured by a prison pursuant to state law requiring hard labor” are in fact excluded. Id. at 1391, 1397 .

The first problem with the majority’s holding is that it lacks any grounding in the statute. The crux of the majority’s argument is that the FLSA does not apply because prisoners do not contract for their labor in a traditional bargained-for exchange, but are forced to work. See opinion at 1393-1394. While the statute expressly excludes from its definition of “employee” “any individual who volunteers to perform services for a public agency,” 29 U.S.C. § 203 (e)(4) (emphasis added), it makes no special provision for those who are forced to work. Indeed, if being forced to work means “being subject to” work, then in forcing the prisoners to work the state “suffers” them to do so. See Random House College Dictionary 1313 (rev. ed.). By the very terms of the FLSA, this means the state “employs” them. See 29 U.S.C. § 203 .

Not just the text of the statute, but also Congress’ goals in enacting the FLSA weigh heavily on the side of applying it to inmates. As the majority acknowledges, Congress’ primary goal was to eliminate substandard labor conditions throughout the nation. See Powell v. United States Cartridge Co., 339 U.S. 497, 509-10 , 70 S.Ct. 755, 761-62 , 94 L.Ed. 1017 (1950). Unlike the majority, however, Congress specifically recognized that substandard wages for any group of workers threaten the standard of living of others. Congress declared that

the existence ... of labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers (1) causes commerce and the channels and instrumentalities of commerce to be used to spread and perpetuate such labor conditions among the workers of the several States; ... [and] (3) constitutes an unfair method of competition in commerce.

29 U.S.C. § 202 (a) (emphasis added). In other words, Congress understood that as part and parcel of its attempt to assure a minimum wage for all workers, it must eliminate from the channels of commerce goods produced at a subminimum wage. 1

The congressional focus on unfair competition from cheap labor comports with common sense economics. Richard Berry and his fellow prison workers produce belt buckles that may be sold at prices that put downward pressure on prices charged by other producers of belt buckles, producers who must pay their workers at least $4.25 an hour. To compete, such producers must cut costs — by lowering wages to the minimum if they are *1402 not already there, by reducing other employee benefits, or by laying off workers. And because the elasticity of the demand for belt buckles is intrinsically limited, an increase in the supply of belt buckles produced by cheap inmate labor inevitably undercuts the bargaining power of the free workers Congress designed the FLSA to protect. In other words, the absence of a level playing field between prison and private sector belt-buckle producers will “spread and perpetuate” unemployment and substandard labor conditions among workers in the private sector. 2 The reality of this competition is illustrated in the experience of an Arizona steel manufacturer with unfair competition from AR-COR. ARCOR submitted a bid in the private steel construction market for $30,000 less than his $78,900 price. The manufacturer complained that ARCOR should not “be competing against private business on private projects.” He asked, “Where can I get guys to work for me at 50 cents an hour?”

The Supreme Court has expressly recognized Congress’ concern with the harmful effects of cheap labor. In Powell v. United States Cartridge Co., 339 U.S. at 509 n. 12, 70 S.Ct. at 763 n. 12, the Court observed that “one major means of spreading substandard labor conditions was recognized to be through the lowering of prices for goods produced under substandard conditions-” Noting the “bold and sweeping terms” of the FLSA, id. at 516 , 70 S.Ct. at 766 , the Supreme Court refused to exempt employees of a federal government contractor from the FLSA. The majority today does not heed the Supreme Court’s constant refrain that the FLSA is designed to prevent the “distribution of goods produced under substandard labor conditions, which competition is injurious to ... commerce.... ” United States v. Darby, 312 U.S. 100, 115 , 61 S.Ct. 451, 457 , 85 L.Ed. 609 (1941). See also Citicorp Industrial Credit, Inc. v. Brock, 483 U.S. 27, 37 , 107 S.Ct. 2694, 2700 , 97 L.Ed.2d 23 (1987); Tony & Susan Alamo Foundation v. Secretary of Labor, 471 U.S. 290, 299 , 105 S.Ct. 1953, 1960 , 85 L.Ed.2d 278 (1985); Maryland v. Wirtz, 392 U.S. 183, 189 , 88 S.Ct. 2017, 2020 , 20 L.Ed.2d 1020 (1968).

The majority briefly acknowledges that “the fact that prison-made goods are sold in interstate commerce implicates congressional concern with unfair competition.” Opinion at 1395. Yet enigmatically, and in the very next breath, the majority shrugs off Congress’ concern, declaring that

nothing in the FLSA indicates that that fact alone should convert the relationship between prison and prisoner to one of employer-employee such that prisoners working on a program structured by the prison are entitled to a minimum wage.

Id. (footnote omitted). The majority’s argument has several flaws, not the least of which is that it reads like ipse dixit rather than analysis. Although the FLSA says nothing about the relationship between prisons and prisoners, the Act’s over-arching concern with unfair competition from cheap labor weighs in favor of interpreting the FLSA as covering prison workers who compete with workers in the private sector. To divine a contrary congressional intent from the FLSA’s failure to mention prison labor explicitly is to turn the construction of the FLSA on its head. Courts have consistently presumed that workers are covered by the Act unless explicitly excluded; the majority presumes that prison workers are not covered unless explicitly included. See, e.g., Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 391 , 80 S.Ct. 453, 455 , 4 L.Ed.2d 393 (1960). 3

*1403 The majority’s view that Congress apparently had little concern with the injurious effect of cheap prison labor on competition is inexplicable. The fact that prisoners are forced to work is irrelevant because the unfair competitive effect is the same regardless whether the worker is forced to work or free to work. Indeed, the less bargaining power workers have, the greater the need to apply the FLSA to protect them and those who compete against them. As the Supreme Court has explained, the FLSA was passed in

recognition of the fact that due to the unequal bargaining poiver as between employer and employee, certain segments of the population required federal compulsory legislation to prevent private contracts on their part which endangered national health and efficiency and as a result the free movement of goods in interstate commerce.

Brooklyn Savings Bank v. O’Neil, 324 U.S. 697, 706-07 , 65 S.Ct. 895, 902 , 89 L.Ed. 1296 (1945) (emphasis added). The majority seizes upon the prisoner’s lack of bargaining power as evidence that he is not an employee of the state. But it is exactly the worker who lacks bargaining power that the FLSA seeks to reach, for this is the worker who is most likely to be working for substandard wages and thereby “endangering] national health and efficiency.” Id. Congress understood that allowing any group of workers to make “private contracts” to work below the minimum wage tends to depress the wages or threaten the standard of living of other workers in competing industries. The fact that a prisoner may lack the choice not to work does not reduce the unfair competitive effect of his work product when it enters the channels of commerce.

The majority’s premise — that the relationship between prison and prisoner is somehow inconsistent with FLSA coverage — is equally peculiar. On the ground that a hard-time inmate’s labor belongs to the institution, the majority holds that prisoners are not employees under the FLSA. Opinion at 1395. The majority provides no analysis explaining why the sterile concept of “belonging to the institution” should be the test of “economic reality.” See Goldberg v. Whitaker House Cooperative, Inc., 366 U.S. 28, 33 , 81 S.Ct. 933, 936 , 6 L.Ed.2d 100 (1961) (“ ‘economic reality’ rather than ‘technical concepts’ ” determines whether there is an employment relationship under the FLSA). The economic reality is that Richard Berry and his fellow plaintiffs work. Their labor produces goods and services that are sold in the channels of commerce. And ARCOR pays them for their efforts. Common sense tells us this relationship is both penological and pecuniary. Cf. opinion at 1393-94. The majority fixates on whether the prisoners have a contractual right to bargain for their labor. This technical legal concept, unrelated to Congress’ design in the FLSA, diverts the analysis from the economic reality of this ease.

While the majority purports to reject Judge Trott’s view that prisoners are categorically excluded from the FLSA, see opinion at 1391, it offers no principled basis for distinguishing prisoners who are covered by the FLSA from those who are not. The majority’s holding thus “encourages unnecessary litigation and invites confusion in an area of the law that should be quite clear.” Harker v. State Use Industries, 990 F.2d 131 (4th Cir.1993). The majority says, “While we do not believe that prisoners are categorically excluded from the FLSA, we hold that the inmates in this case, who worked for programs structured by the prison pursuant to the state’s requirement that prisoners work at hard labor, are not ‘employees’ of the state within the meaning of the FLSA.” Opinion at 1388. First, the majority restricts its FLSA exemption to prisoners who are forced to work. But, at least in Arizona, this restriction means little because the Department of Corrections may require all able-bodied prisoners to work at hard labor. Ariz.Rev.Stat. § 31-251(A). Second, the exemption is restricted to prisoners who work under “prison-structured” programs. However, “prison-structured” is so lacking in definition that it has no meaning as a limiting factor. Since, as the majority recognizes, prison authorities exercise virtually total control over prisoners’ activities, including their work, opinion at 1393, any work program using inmate labor is presumably “prison-structured.” Furthermore, the majority points to nothing in the FLSA or its legislative history which would justify an exception that distinguishes between prisoners working *1404 in “prison-structured” programs from prisoners working in “non-prison-structured” arrangements. Thus, the standards limiting the exception the majority writes into the FLSA are both amorphous and ad hoe.

The majority’s announcement of a previously undiscovered exemption to the FLSA conforms with neither the text nor the purpose of the statute. In exempting the prisoners, the majority does what the Supreme Court has previously refused to do: namely, “restrict the Act not only arbitrarily but also inconsistently with its broad purposes.” Powell, 339 U.S. at 515 , 70 S.Ct. at 765 .

II

The majority attempts to buttress its cramped reading of the FLSA by arguing that Congress could not have intended the FLSA to cover prison labor because Congress’ “concern with unfair competition on account of prison-made goods had been dealt with in the Ashurst-Sumners Act.” Opinion at 4328. Ashurst-Sumners permits goods produced in pilot prison programs to be sold in interstate commerce provided prisoners are paid prevailing wages, less appropriate deductions. See 18 U.S.C. § 1761 (c).

In accepting Arizona’s argument that Congress intended Ashurst-Sumners to regulate the wages of prisoners to the exclusion of the FLSA, the majority ignores Powell v. United States Cartridge Co., 339 U.S. 497 , 70 S.Ct. 755 , 94 L.Ed. 1017 (1950). In Powell, the Court considered, and rejected, a similar argument that Congress intended the Walsh-Healey Act to regulate the wages of the employees of government contractors, to the exclusion of the FLSA. Like Ashurst-Sum-ners, Walsh-Healey contains a prevailing wage requirement, but the Supreme Court rejected an argument that Congress intended the FLSA and Walsh-Healey to be mutually exclusive.

Like the Ashurst-Sumners Act, the Walsh-Healey Act, which was also passed shortly before the FLSA, regulates the wages of a narrowly defined class of workers. In comparing Walsh-Healey and the FLSA, the Court said:

[Ljanguage [in the FLSA] discloses a congressional awareness that the coverage of the Fair Labor Standards Act overlaps that of other federal legislation affecting labor standards_

Despite evidence that the two statutes define overlapping areas, respondents contend that they should be construed as being mutually exclusive. There has been no presentation of instances, however, where compliance with one Act makes it impossible to comply with the other. There has been no demonstration of the impossibility of determining, in each instance, the respective wage requirements under each Act and then applying the higher requirement as satisfying both....

In some, and probably most, instances, the “prevailing minimum wages” required by the Walsh-Healey Act were more advantageous to employees than the minimum wages prescribed by the Fair Labor Standards Act.... On the other hand, the remedial procedure under the later Act was generally more advantageous to employees than the procedure under the earlier Act.

We conclude that the Acts are not mutually exclusive.... We find the Acts to be mutually supplementary.

Powell, 339 U.S. at 518-20 , 70 S.Ct. at 766-67 (footnote omitted).

This analysis in Powell applies with equal force here. The end result should be the same: Ashursi^Sumners and the FLSA are not mutually exclusive; they are mutually supplementary. 4

*1405 The majority’s reliance on Ashurst-Sum-ners creates an internal inconsistency in the opinion. If Congress intended Ashurst-Sumners and the FLSA to be mutually exclusive in regulating prison labor, as the majority holds, then all prison labor would be exempt from the FLSA. Yet the majority rejects this view. See opinion at 1389, 1392. Since the majority rejects the idea that the FLSA categorically excludes all prisoners, I fail to see how it can at the same time hold that the FLSA and Ashurst-Sumners are mutually exclusive.

In a final attempt to impute its own intent to the Congress, the majority says that Congress must have intended to exempt these prisoners from the FLSA because Congress would not have wanted to jeopardize prison labor programs. See opinion at 1398. Yet the majority fails to give any clue why possible congressional concerns about jeopardizing prison labor programs should trump Congress’ clearly expressed intent that the FLSA be used as a shield to protect workers from the evils attending the sale of goods produced by cheap labor. The majority’s willingness to sacrifice the wages of free labor in order to deny wages to inmates working in prison labor programs is not grounded in the text or legislative history of either Ashurst-Sumners or the FLSA. 5

CONCLUSION

The majority’s analysis seems to boil down to the proposition that as long as Arizona law forces prisoners to work, the prisoners do not have to be paid. I simply fail to see the logical connection between the fact that the prisoners are forced to work and the question whether the FLSA applies. I see no reason to allow prison industries to compete unfairly in the marketplace by selling goods made by cheap inmate labor because some judges feel that prisoners should not be paid the minimum wage for work they are required to do. Neither a plain reading of the Fair Labor Standards Act, nor a faithful adherence to its goal of maintaining a minimum standard of living for workers generally, justifies such a result.

. I do not, as the majority claims, say that Congress’ concern with unfair competition "controls” whether a person is an FLSA employee. Opinion at 1396, n. 14. What I do say is that Congress’ concern with unfair competition is an important factor that should be considered in interpreting the statute. The question is not whether unfair competition is "an element of an action under the FLSA” (id.); of course it’s not. The question is whether Congress’ concern with the harmful effect that cheap labor has on the living standards of all workers should inform our interpretation of the statute.

. The United States has even protested the use of prison labor in goods produced outside our borders for export to our country on the ground that those cheaply-produced goods deny competing United States industries a "level playing field.” Acting Commissioner Outlines Strategy for Implementing Administration's Goals, BNA Int’l Trade Daily, Mar. 4, 1993; see also Customs to Block Tea, Socks Allegedly Made by Chinese Forced Labor, BNA Int'l Trade Daily, July 13, 1992. In 1992, the United States and China signed a memorandum of understanding that bans Chinese prison-made goods from being imported into the United States. U.S., China Sign Understanding Prohibiting Prison Labor Exports, BNA Int’l Trade Daily, Aug. 10, 1992.

. The traditional approach is compelled by the structure of the Act, which first states in broad terms at section 206 that employees must be paid the minimum wage, and then offers at section 213 certain exceptions to that rule — exceptions we must construe narrowly. See Arnold, 361 U.S. at 392 , 80 S.Ct. at 456 . Section 213 makes no exception for prison workers. The majority recognizes this fact, see opinion at 1391, but concludes nonetheless that the FLSA does not apply to Berry and his fellow prison workers.

. The majority gives three reasons for disagreeing with my argument that the FLSA and Ash-urát-Sumners are mutually supplementary, just as the Supreme Court in Powell found Walsh-Healey and the FLSA to be. See opinion at 1397-98, n. 18. None of the majority's reasons is responsive to my argument.

(1)The majority's first reason — that Walsh-Hea-ley applies to "all persons employed” on government contracts, whereas the FLSA does not apply to these prisoners because they are not " 'employees' under the FLSA” (id.) — is circular. It assumes the answer to the very question of statutory interpretation we must decide.

(2) The majority's second reason — that Walsh-Healey and Ashurst-Sumners are mutually exclusive — is a red herring. The issue is not whether Ashurst-Sumners and Walsh-Healey are mutually exclusive, but whether Ashurst-Sumners and the FLSA are.

(3) Finally, applying the FLSA to prisoners would not, as the majority claims, render Ash-urst-Sumners superfluous any more than ap *1405 plying the FLSA to employees of government contractors makes Walsh-Healey superfluous.

. Nor, I would add, is it grounded in reality. The majority's concern that the FLSA does not expressly allow states to garnish a portion of prisoners’ wages to pay the state for room, board, and victim compensation is misplaced. See opinion at 1398. Just because the FLSA does not provide for such payments does not mean that Congress intended to prohibit a state from taking deductions from a prisoners’ earnings to cover these items. Indeed, the State of Arizona already provides for such payments whenever a prisoner receives at least the minimum wage. See Ariz.Rev.Stat. 31-254(E). It is inconceivable that Congress would make a state pay prisoners the minimum wage plus room and board, or prohibit a state from requiring prisoners to make payments to their victims out of their earnings. In fact, the statute recognizes that in certain circumstances a portion of a worker’s wages may come in the form of employer-provided board and lodging. See 29 U.S.C. § 203 (m).