Petition — Pilgrim Equipment Co. v. Usery

IN THE

Supreme Court of the United States

Octoser Terao, 1975

vo. 7571713

PILGRIM EQUIPMENT COMPANY, INC., ET AL,

Petitioners,

v.

W. J, USERY, SECRETARY OF LABOR,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

POR THE FIFTH CIRCUIT

WILLIAM Key WILDE

2900 South Tower Pennzoil Place

Houston, Texas 77002

Counsel for Petitioners

Date: May 24, 1976,

*, el

GCRENION BELOW cccccccccccccsccccccccccccccccces i

JURISDICTION cccccccccccccccccseccccccccccececes 2

QUESTIONS PRESENTED .... ccc ccc ence cece en nnnes 2

STATUTORY PROVISIONS INVOLVED ..........44. 2

STATEMENT OF THE CASE... 5c ccc cccccenenes 2

REASONS FOR GRANTING THE WRIT ............ 7

. This Court's 1947 ¢ has been erroneously inter-

preted by the Courts Appeal so as to make every

one an “employee” under the FLSA, .........005 7

2. Judicial jon of the FLSA is inconsistent

with SAGE. cccccccccccccccceccces 10

COMSMMOM ccccnccccccccccccccessccccecseccccccecees 2

Certificate of Service oo... ccccccceeeeeeeeeeeeeeennees 3

Appendix cnvcccccceceeevceueeesseeeuneess eeeeescees 1A

CITATIONS

CASES Page

Bartels v, Birmingham, 332 US. 126, 67 S.Ct. 1847, 91

RBG. 1047 (CIOST) cccccccceccccceccccccncccccscces 2,7

Brennan, Secretary of Labor », Partida, 492 F.2d 707 (Sth

Chr. 1994) cccccncccvccneccccecesscsecccscececcece 8,9

Brooklyn Savings Bank v, O'Neal, $24 US, 697, 6S S.Ct.

89S, BO L.Bd, 1296 (1948) co. ccccccccccccenceenees i

Paks v, Tree-Gold Co-Op Growers of Florida, Inc, 166 F.2d

40 (Sth Cir, 1948) ngpasnonnnasapasss Tony assess 8

Gold of Labor ». Whitaker House Coopera-

ine," 6 US 28, 81 S.Ct. 933, 6 L.Ed2d 100 ,

(1 1 sree eeeeeP eee eee ee eee RE eR Ree eee ee

Mideich v. Albert Enterprises, Inc. $08 F.2d 297 (Sth

Cor, 19FE) wcccccccccccencccccsecseccecceccceccees 8,9

Mitchell, Secretary of Labor v. John R. Cowley & Bro.,

Ine, 292 Pad OS (Sth Cit, LOOT) occ 8

Mitchell, of Labor ». Strickland Transportation

Company, Ad 124 (Sth Clr, TOSS) co.cc cc cnnns

Ruther ‘rood C . & MeCombd, 331 U.S, 722, 67 S.Ct.

1475, 91 L.Bd. 17 ? CRDOF) wccnvnccecccccccccsceces 2,701

Schults, Secretary of Labor v, Hinojosa, 432 F.2d 259 (Sth

Cir, 19FO) wnncccvvcccccvvevcccnveveevsssseceveces 8

1.

CASES Page

Lnited States v, Sdk, $31 US, 704, 67 S.Ct. 1463, 91 L.Ed.

I i a a 2,7,9,11

United States v. Von's Grocery Company, 384 US, 270, 86

S.Ct. 1478, 16 L.Bd.2d SSS (1966) 2... cc cece cnn S

Walling v. Portland Terminal Co., 330 US, 148, 67 S.Ct.

G39, 91 L.Ed, BOD (1947) wn. cc ccccccccceceeeeeeeens i!

STATUTES

» WBE. 8 MBBOE) cccccccccccccccccccccccccccccecs 2

29 US.C, § 201, et seq, (Fair Labor Standards Act) . 2,7

IN THE

Supreme Court of the United States

Ocroser Term, 1975

NO,

PILGRIM EQUIPMENT COMPANY, INC., ET AL,

Petitioners,

v.

W. J, USERY, SECRETARY OF LABOR,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

The Petitioners, Pilgrim Equipment Company, Inc., et

al, respectfully pray that a writ of certiorari issue to re-

view the judgment and opinion of the United States Court

of Appeals for the Fifth Circuit entered in this proceeding

on March 3, 1976,

OPINION BELOW

The opinion of the Court of Appeals, not yet reported,

appears in the Appendix, infra, 1A to 14A. The decision

of the District Court for the Southern District of Texas

appears in the Appendix, infra, ISA to 32A,

2

JURISDICTION

The judgment of the Court of Appeals for the Fifth

Circuit was entered on March 3, 1976. This petition for

certiorari was filed within 90 days of that date. This

Court's jurisdiction is invoked under 28 U.S.C. §1254

(1).

QUESTIONS PRESENTED

1. Whether the definition of “employee” under the Fair

Labor Standards Act (FLSA)' as applied by the courts

of appeal differs from that established by this Court's

1947 Trilogy.”

2. Whether the Congressional intent in enacting the

FLSA—protection of workers from oppressive practices

of employers’——has been so misconstrued that no Ameri-

can worker can be an ind&undent contractor.

STATUTORY PROVISIONS INVOLVED

United States Code, Title 29; § 201, et seq.

STATEMENT OF THE CASE

The jurisdiction of the district court was invoked be-

cause a question arises under a law relating to interstate

commerce, the FLSA.

1, 20 U.S.C. § 201 et seq

2. Bartels v. Birmingham, 332 US. 126, 67 S.Ct. 1547, 91

L.Ed, 1947 (1947); Rutherford Food Corp. vo. McComb, S31 US,

722, 67 S.Ct. 1475, O1 L.Ed. 1772 (1947); United States vo, Silk,

531 US, 704, 67 S.Ct, 1465, O1 L.Ed. 1757 (1947). These three

cases have been so often cited as authority in interpretation of the

FLSA that they are collectively referred to as “the trilogy.”

5. 29 USC, 202,

3

The Secretary of Labor (Plaintiff) brought this suit to

enjoin defendants from violating minimum wage and

overtime provisions of the FLSA. Plaintiff contends that

certain individuals are defendants’ employees. Defendants

assert that the individuals are independent contractors,

not “employees,” under the FLSA and, therefore, not

subject to its requirements. The individuals involved con-

tend they are independent contractors and not employees

of the defendants. Following the presentation of testimony

and documentary evidence, the district court made 28

separate findings of fact, from which it concluded that

when applied to the criteria established by this Court in

the trilogy,* the individuals were independent contractors

and not employees for purposes of the FLSA. Judgment

was entered for the defendants. The court of appeals

held that the legal conclusion reached by the trial court

from its factual findings was in error and reversed the

case.

Since the trial court’s fact findings were accepted by

the court of appeals, the following facts are summarized

from the findings of fact of the trial court (Appendix,

infra, 16A to 30A).

Each of the Pilgrim companies operates at least one

laundry and drycleaning plant and a number of pickup

stations. In addition, certain individuals, referred to by

the trial court as contract operators, operate stores where

they receive clothes, mark them for identification, prepare

them for processing and send them to a laundry and

drycleaning plant operated by one of the Pilgrim com-

panies. After processing, the clothing is returned to the

store for delivery to the customer.

4. Note, 2, Supra.

4

Each contract operator signed a “Lease Agreement and

Contract” with a Pilgrim company which governs the

relationship between the operator and the particular

Pilgrim company. Each lease agreement is effective for

a one year term and is automatically extended unless

either party chooses to terminate. The relationship of the

parties under each lease agreement is denominated as that

of owner and independent contractor. Each lease agree-

ment provides for the owner to furnish a store and equip-

ment and requires the owner to carry liability insurance

on the premises, machinery, equipment and fixtures.

Under the lease agreement each contract operator

agrees to deliver all clothing and other garments exclu-

sively to the contracting company for laundering and

cleaning. The contract operator agrees to pay a stated

amount to the contracting company each day for launder-

ing and cleaning. At the end of each week the contracting

company agrees to bill the contract operator for the total

amount of work done for that store, and the contract

operator agrees to remit that amount less a stated per-

centage which the operator retains from the gross receipts

of the business. Each operator agrees to hire his or her

own employees and assumes all responsibility for obtain-

ing and administering workmen’s compensation insurance,

social security and Texas unemployment compensation

taxes for himself and his employees. The contract operator

may set his own hours of operation for his store. He sets

his own working hours and those of his employees. The

contract operator is free from the control of the contract-

ing company as to the performance of the contract. Any

credit extended to the public by the contract operator

is at his sole risk. The contract operator agrees to main-

tain all property and fixtures and keep the premises in

good repair and to comply with all municipal ordinances.

5

Most contract operators have had prior experience as

employees of one of the Pilgrim companies. Becoming a

contract operator is regarded as a coveted opportunity by

such employees, and there are numerous employees “wait-

ing in line’ for contract operator vacancies. When an

opening occurs, the contract operator is required to make

an investment in the inventory of the business, which

consists of the value of laundry and drycleaning services

performed on the clothing currently in inventory. This

investment ranges from $500 to $1,500 and is paid either

to the contracting Pilgrim company or to the previous

operator.

In most cases the Pilgrim company furnishes the site

of the store, as well as all advertising, utilities, liability

insurance, security devices, cash registers, equipment and

other fixtures within the store. The commission or dis-

count rate under the agreement is usually a “net deal”

which takes into account the fact that the contracting

Pilgrim company pays all utilities, rent and similar costs.

The contract operator receives a percentage of the value

of laundry and drycleaning processed for his customers.

There are no standard hours of operation. The hours are

set by the operator to meet the convenience of the par-

ticular market, but generally are similar due to competitive

factors. The contract operator bears the losses from bad

checks, extensions of credit and losses from theft by em-

ployees of the contract operator.

While the Pilgrim companies provide suggested price

lists, they vary in different areas depending upon competi-

tion, and the operators are free to charge higher prices

on such items as tuxedos and dresses with frills and lace.

None of the contract operators made any complaint

nor sought the protection of the FLSA. Each one who

6

testified was subpoenaed by the.plaintiff and each made

it clear that she was not controlled in the operation of

her business by Pilgrim; that there was opportunity for

gain or loss depending upon the skills of the operator;

that opportunities for additional income were available

through the sale of ties, wigs and other items, and that

she regarded herself as an independent businessperson

and desired to continue in that way. Typical was the

testimony of Ms. Mabel Gaul:

“Q. When you say, ‘it is your business’, whose busi-

ness is it?

“A. It is my business.

“Q. Well do you work for Pilgrim or does Pilgrim

work for you?

“A. Pilgrim works for me.

“Q. How does Pilgrim work for you?

“A. I pay money rent for the building, and each day

I pay them for cleaning clothes for me, and at

the end of each week, I make a settlement with

them. All the clothes that are in that store, I

consider mine until the customer comes in and

retrieves them.

“Q. Does the Pilgrim Company tell you how to run

your business?

“A. No. No they don’t.

“Q. Do they run your business?

“A. No, they sure don’t.” (Tr. 217).

In short, as the trial court found, “Each operator who

testified clearly relished the idea that she was in charge

of her own business enterprise, free from control of the

contracting Pilgrim company, and that the success of the

business was dependent on her individual efforts and ac-

complishments.” (Appendix, infra, 28A)

7

REASONS FOR GRANTING THE WRIT

1. This Court’s 1947 trilogy has been erroneously

interpreted by the Courts of Appeal so as to

make everyone an “employee” under the FLSA.

Implicit in the omission of independent contractors from

coverage of the FLSA is the recognition that not all

workers are “employees.” Because “employee” is only

generally defined in the Act,’ this Court acted to estab-

lish guidelines for determining who is an employee and

who is an independent contractor.

In the trilogy this Court, construing the FLSA to ac-

complish its remedial objectives, substituted broad alterna-

tive criteria for the common law concepts of employee

and independent contractor. It was recognized that while

no simple “rule of thumb” would suffice, the line between

employees and independent contractors must be drawn

somewhere. In fact, in two of the three trilogy cases the

line was drawn so that the individuals in question were

independent contractors rather than employees.* In speci-

fically recognizing the viability of the independent con-

tractor concept, this Court stated:

“Of course, this does not mean that all who render

service to an industry are employees.”

“There may be independent contractors who take part

in production or distribution who would alone be

responsible for wages and hours of their own em-

ployees.”*

29 U.S.C. 203.

See Bartels and Silk cited in Note 2 supra.

United States v. Silk, supra, 331 U.S. 704 at 712.

Rutherford Food Corp. v. McComb, supra, 331 U.S. 722 at

Ce ND wm

8

Thus, this Court, in both reasoning and result held that

not everyone is an “employee” for FLSA purposes. Yet

the subsequent construction given the trilogy by appellate

courts has yielded the opposite result.

Every case decided by the appellate courts since the

trilogy has applied the tests so as to conclude that the

individuals involved were employees and not independent

contractors.

Time and again trial courts have held on the basis of

the facts presented to them that the individuals in question

were independent contractors, only to be reversed by the

court of appeals.’ In one case the court of appeals did

affirm the independent contractor holding of the district

court, only to be reversed by this Court.'® The cumulative

effect is best described by the often quoted comment by

Mr. Justice Stewart in his dissent in one of this Court’s

Clayton Act cases: “The sole consistency that I can find

is that in litigation under Section 7, the government always

wins.””"*

This remarkable unanimity of result is attributable to

the distillation of the several trilogy criteria into one—

economic realities. Although Rutherford warns against

9. See, for example, Fahs v. Tree-Gold Co-Op Growers of

Florida, Inc., 166 F.2d 40 (Sth Cir. 1948), Mitchell, Secretary of

Labor v. Strickland Transportation Company, 288 F.2d 124 (Sth

Cir. 1955), Mitchell, Secretary of Labor, v. John R. Cowley & Bro.,

Inc., 292 F.2d 105 (Sth Cir. 1961), Schultz, Secretary of Labor

v. Hinojosa, 432 F.2d 259 (Sth Cir. 1970), Brennan, Secretary of

Labor v. Partida, 492 F.2d 707 (Sth Cir. 1974), Mednick v. Albert

Enterprises, Inc., 508 F.2d 297 (Sth Cir. 1975). .

10. Goldberg, Secretary of Labor v. Whitaker House Coopera-

tive, Inc., 366 U.S. 28, 81 S.Ct. 933, 6 L.Ed.2d 100 (1961).

11. United States v. Von’s Grocery Company, 384 U.S. 270,

301, 86 S.Ct. 1478, 16 L.Ed.2d 555 (1966)

9

exalting form over substance in its recognition that the

“underlying economic realities” control,’* subsequent cases

culminating in Partida and Mednick™ have converted this

admonition into a definition of “employee” by saying

that “underlying economic realities” equals “economic

dependency,” and “economic dependency” always equals

employee rather than independent contractor. However,

all businesspersons are necessarily dependent on those

with whom they do business. Thus, even the band leaders

in Bartels and the truck owners in Silk would be em-

ployees under the test now being applied by the Courts

of Appeal.

This unjustifiably broad application of the FLSA is

not only legally indefensible, it is denigrating to those

who consider themselves to be independent businessmen.

While certainly not controlling, the wants and desires of

the workers whose fate is determined by the interpreta-

tions of the FLSA should be considered. In the instant

case, there are no aggrieved or unprotected persons seek-

ing the protection of the FLSA. There is no “mischief

to be corrected.”'* The testimony of the contract operators

subpoenaed by the plaintiff established that each con-

siders herself an independent businessperson who desires

to remain so. Indeed, after hearing the evidence and

weighing the facts, the trial court observed:

“If it is possible under the Act, to have one who is

not an employee, in the general category of the kind

12. Rutherford Food Corp. v. McComb supra, 331 U.S. 722,

727.

13. Brennan, Secretary of Labor v. Partida, 492 F.2d 707 (Sth

Cir. 1974), Mednick v. Albert Enterprises, Inc., 508 F.2d 297 (5th

Cir. 1975), Note 5, supra.

14. United States v. Silk, supra, 331 U.S. 704 at 713.

10

of activity these do, they are certainly not

employees on the balance and the application of the

six Suggested criteria, and I, first with t to

the economic reality, it seems to me that it is clear

from the testimony that from the standpoint of these

ladies, they welcome the opportunity to become inde-

pendent operators and station operators . . . . Of

course, control is an extremely important concept,

and I was impressed from the standpoint of the testi-

mony with the attitude of the ladies, each of whom

seemed to relish the fact that there was very limited,

if any, control over the conduct of her operation,

and I think that is something that people are inclined

to overlook these days, since the tendency is to try

to fit everybody into a category, put everybody in

the same mold, and these were ladies who like to feel

like they were independent, that they were doing some-

thing on their own, running or operating their own

business, and it destroys something in people when

you deprive them of the rtunity to have that

personal satisfaction in individual accomplishment,

and I think it would be a very sad day when the

courts would just force everybody into a mold in a

situation like this and not let people have some

choice, give them an option.” (Tr, p, 334-339)

Petitioners do not contend that the tests set forth in the

trilogy are wrong, but, rather, that the appellate courts

are applying the tests in an unjustified and inequitable

manner, Because of the importance of a correct under-

standing and application of these tests to the proper

enforcement of the FLSA, certiorari should be granted

in this case,

2. Judicial interpretation of the FLSA is incon-

sistent with Congressional intent.

Two cases decided by this Court prior to the 1947

trilogy explored the legislative history to determine the

Congressional intent in enacting the FLSA," Brooklyn

Savings Bank found an intent on the part of Congress

to protect certain groups of the population from sub

Standard wages and excessive hours, It held that the

Statute was a recognition of the fact that due to the

unequal bargaining power between employer and em-

ployee, certain segments of the population required federal

compulsory legislation to prevent private contracts on their

part which endangered the national health and efficiency,

Walling found that the FLSA was intended to correct

a specific and identifiable problem, i.e., low wages and

long hours which were imposed upon employees who

were at the mercy of their employers,

In the trilogy the intent of Congress was explained in

the following language:

“The Fair Labor Standards Act was passed by Con-

gress to lessen, so far as seemed then practicable,

the distribution in commerce of goods produced

under subnormal labor conditions, An effort to elimi-

nate low wages and long hours was the method

chosen to free commerce from the interference arising

from production of goods under conditions that were

detrimental to the health and wellbeing of work-

ers,”

Finally, this Court recognized that there was no in-

dication that Congress intended to change normal busi-

ness relationships through which one business organiza-

tion obtained the services of another to perform a portion

of production or distribution."

1S. Brooklyn Savings Bank v. O'Neal, 324 US. 697, 68 S.Ct.

895, 89 L.Ed. 1296 (1945), and Welling v. Portland Terminal Co.,

$30 U.S, 148, 67 S.Ct, 639, 91 L.Ed, 809 (1947),

16. Rutherford Food Corp. »v. McComb, 331 U.S. 722 at 727.

17. United States v. Silk, 331 U.S. 704 at 713,

12

Despite these repeated statements of the Congressional

intent, the appellate courts have blindly applied the FLSA

so as to bring everyone within the “employee” definition

regardless of whether its protection is needed or wanted,

This expansive judicial interpretation is illustrated by

the application given to the facts in the case at bar, Not-

withstanding the uncontradicted evidence that the inde-

pendent contractors made more money than the admitted

employees, that the independent contractor status was

greatly desired and sought after so that there were

more people seeking the post of independent contract

operator than there were positions available, and that

the employees who became independent contract operators

did so of their own free will, the Court of Appeals held

that the FLSA was applicable,

It is clear that the FLSA’s reach has exceeded its

intended grasp. The conflict between the intent of Con-

gress in enacting the FLSA and the judicial interpretations

extending it justify a grant of certiorari to review the

judgment below.

CONCLUSION

For these reasons, a writ of certiorari should issue to

review the judgment and Opinion of the Fifth Circuit,

Respectfully submitted,

Alithan {tus Ahem

WILLIAM Key WILD

BRACEWELL & PATTERSON

2900 South Tower Pennzoil Place

Houston, Texas 77002

Attorney for Petitioners

Date: May 24th, 1976.

13

CERTIFICATE OF SERVICE

| hereby certify that on this &2. day of May, 1976,

three copies of the Petition for Writ of Certiorari were

mailed postage prepaid to the Solicitor General, Depart-

ment of Justice, 20530, and three copies of the Petition

for Writ of Certiorari were mailed, postage prepaid, to

W. J. Usery, Secretary of Labor, Attention Mr. Donald

S. Shire, Office of the Solicitor, U. S, Department of Labor,

Room 4141, Main Labor, 14th and Constitution Avenue

N.W., Washington, D, C, ‘ote,

Lhitbam Kry WILDE hs, Ah Aha

2900 South Tower Pennzoil Place

Houston, Texas 77002

Attorney for Petitioners

lA

APPENDIX

W. J. USERY, Secretary of Labor,

United States Department of Labor,

Plaintiff-Appellant,

v.

PILGRIM EQUIPMENT COMPANY, INC.,, et al.,

Defendants-Appellees.

No, 74-2909,

United States Court of Appeals,

Fifth Circuit,

March 3, 1976,

Proceeding was brought by Secretary of Labor chal-

lenging independent contractor status assigned by related

corporations to approximately 60 female operators of

laundry pickup stations. The United States District Court

for the Southern District of Texas, James L. Noel, Jr., J.,

concluded that operators had been correctly classified as

nonemployees for wage and hour purposes under Fair

Labor Standards Act and denied relief, and Secretary ap-

pealed, The Court of Appeals, Clark, Circuit Judge, held

that where operators were not allowed to control any

meaningful portion of businesses they allegedly ran, re-

lated corporations managed major variables which deter-

mined each operator's profit, substantially all risk capital

was supplied, there was no operator who as economic

entity was capable of doing business elsewhere, and no

unique skill or initiative was required of operators, de-

cree of dependence by operators on related corporations

2A

mandated conclusion that operators were employees for

purposes of Fair Labor Standards Act,

Reversed and remanded.

. ° .

Appeal from the United States District Court for the

Southern District of Texas.

Before WISDOM, CLARK and RONEY, Circuit

Judges:

CLARK, Circuit Judge:

The Secretary of Labor challenges the independent

contractor status assigned to approximately 60 women

operators of laundry pick-up stations by 10 related cor-

porations, which we group here under the common ap-

pellation Pilgrim.’ In capsule, each operator works at a

separate location to which customers bring items to be

cleaned, Pilgrim picks up, cleans and returns the items.

The operator then makes delivery to the customer and

collects the cleaning price.

Concluding from undisputed facts that Pilgrim had cor-

rectly classified these operators as nonemployees for wage

and hour purposes under the Fair Labor Standards Act

(FLSA),” the district court denied the relief sought by

1. The named defendants in this action include: Pilgrim Equip-

ment Company, Inc., a corp.; Pilgrim Convenience, Inc., a corp.;

R.F.S., Inc., No. 10, a corp.,, d/b/a Pilgrim Laundry Co. No. 18;

Pilgrim Laundry Co. No. 5, Inc., a corp.; R.F.S., Inc. No, 2, a corp.,

d/b/a Pilgrim Laundry Co. No, 8; Tower Development Corp., a

corp., d/b/a Pilgrim Laundry Co. No. 16; R.F.S., Inc. No. 5, a corp.,

d/b/a Pilgrim Laundry Co. No, 11; R.FS,, Inc. No. 8, a corp.

d/b/a Pilgrim Laundry Co, No. ‘5; Pilgrim ayy By No. 5,

Inc., a corp.; and R.F.S., Inc. No. 7, a corp., d/b/a Pilgrim Laundry

Co, No, 14,

2. 20 USC. § 201 et seq.

3A

the Secretary’s complaint. Although it framed its findings

in the proper indicia for testing statutory employee status,

the district court’s conclusion of what the frame enclosed

failed to give sufficient emphasis to the all-pervasive deter-

minant economic dependence. The legal conclusion

reached by the trial court from its factual findings was,

therefore, in error. We reverse and remand for a deter-

mination of the appropriate relief for these employees.

[1] The purpose of the FLSA is to “eliminate low

wages and long hours” and “free commerce from the

interferences arising from production of goods under con-

ditions that were detrimental to the health and well-being

of workers.”* The statutory scheme makes the wage and

hour provisions applicable to “employees.” Employee is

defined as one “employed,” and “employ” is defined as

“to suffer or permit to work.”* Given the remedial pur-

poses of the legislation, an expansive definition of “em-

ployee” has been adopted by the courts.

As the federal social security legislation is an attack

on recognized evils in our national economy, a con-

stricted interpretation of the phrasing by the courts

would not comport with its purpose. Such an inter-

pretation 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 im-

mediate burdens at the expense of the benefits sought

by the legislation.°

3. Rutherford Food Corp. v. McComb, 331 US. 722, 727, 67

S.Ct. 1473, 1475, 91 L.Ed. 1772 (1947).

4. 29 US.C. § 203(e) & (g).

5. ‘United States v. Silk, 331 U.S. 704, 712, 67 S.Ct. 1463, 1467,

91 L.Ed. 1757 (1947).

4A

The common law concepts of “employee” and “in-

dependent contractor” have been specifically rejected as

determinants of who is protected by the Act.° The test is

not one which allows for a simple resolution of close cases.

However, the lesson taught by the Supreme Court’s 1947

trilogy’ is that any formalistic or simplistic approach to

who receives the protection of this type legislation must

be rejected. In Bartels v. Birmingham, 332 U.S. 126, 67

S.Ct. 1547, 91 L.Ed. 1947 (1947), the Court held that

“in the application of social legislation employees are

those who as a matter of economic reality are dependent

upon the business to which they render service.”

[2] Five considerations have been set out as aids to

making the determination of dependence, vel non. They

are: degree of control, opportunities for profit or loss,

investment in facilities, permanency of relation, and skill

6. The terms “independent contractor,” “employee,” and “em-

ployer” are not to be construed in their common law senses when

used in federal social welfare legislation. N.L.R.B. v. Hearst, 322

U.S. 111, 64 S.Ct. 851, 88 L.Ed. 1170 (1944) (for purposes of the

National Labor Relations Act); United States v. Silk, 331 U.S. 704,

67 S.Ct. 1463, 91 L.Ed. 1757 (1947), and Bartels v. Birmingham,

332 US. 126, 67 S.Ct. 1547, 91 L.Ed. 1947 (1947) (for purposes

of employment taxes on employers under the Social Security Act,

as amended); and Rutherford Food Corp. v. McComb, 531 US.

722, 67 S.Ct. 1473, 91 L.Ed. 1772 (1947) (for purposes of the Fair

Labor Standards Act). Rather, their meaning is to be determined

in light of the purposes of the legislation in which they were used.

Mednick »v. Albert Enterprises, Inc., 508 F.2d 297, 299 (Sth Cir.

1975).

7. Bartels v. Birmingham, 332 U.S. 126, 67 S.Ct. 1547, 91 L.Ed.

1947 (1947); Rutherford Food Corp. v. McComb, 331 US. 722,

67 S.Ct. 1473, 91 L.Ed. 1772 (1947); United States v. Silk, 331

U.S. 704, 67 S.Ct. 1463, 91 L.Ed. 1757 (1947).

8. 332 US. at 130, 67 S.Ct. at 1550 (emphasis added).

SA

required.” No one of these considerations can become

the final determinant, nor can the collective answers to

all of the inquiries produce a resolution which submerges

consideration of the dominant factor—economic depend-

ence. See Mednick v. Albert Enterprises, Inc., 508 F.2d

297 (Sth Cir. 1975). The five tests are aids—tools to be

used to gauge the degree of dependence of alleged em-

ployees on the business with which they are connected.

It is dependence that indicates employee status. Each test

must be applied with that ultimate notion in mind. More

importantly, the final and determinative question must be

whether the total of the testing -stablishes the personnel

are so dependent upon the business with which they are

connected that they come within the protection of FLSA

or are sufficiently independent to lie outside its ambit.

Reviewing each of the five indicia used by the lower court,

with the emphasis placed as required, compels the ultimate

conclusion that the pick-up station operators in this case

were dependent on Pilgrim and, therefore, come within

the Act. It also discloses that the district court’s factor-by-

factor resolutions were wrong.

I. Control

[3] The district court determined that operators are

largely independent of their manager’s control. On the

9. United States v. Silk, 331 U.S. 704, 716, 67 S.Ct. 1463, 1469,

91 L.Ed. 1757 (1947). See, Bartels v. Birmingham, 332 U.S. 126,

67 S.Ct. 1547, 91 L.Ed. 1947 (1947); Rutherford Food Corp. v.

McComb, 331 U.S. 722, 67 S.Ct. 1473, 91 L.Ed. 1772 (1947);

N.L.R.B. v. Hearst, 322 US. 111, 64 S.Ct. 851, 88 L.Ed. 1170

(1944). Although several of these cases deal with similar but different

statutes, Rutherford adopts decisions under the “Labor and Social

Security Acts” as “persuasive in the consideration of a similar cover-

age under the Fair Labor Standards Act.” 331 U.S. at 723, 67 S.Ct.

at 1474.

6A

other hand, a look at the rules and restrictions on the

operators contained in the written lease agreement and

the undisputed facts shows the operators are totally de-

pendent upon Pilgrim to provide direction or control in

every major aspect of their work. Pilgrim handles sub-

stantially all advertising for the stations. It sets the prices

charged for ail but a few nonstandard items. It requires

that operators deal exclusively with Pilgrim Laundries.’°

It prevents the assignment of the lease arrangements which

govern the parties’ respective obligations. It requires that

each operator remit a certain amount of money every day

for the cleaning work done by Pilgrim. It requires that

accounts be settled between Pilgrim and each operator

once a week. It prevents operators from posting any

signs on the premises unless prior periiission is given.

It prevents any improvement to the premises without

permission. The lease is drawn by Pilgrim and the only

negotiated item is the percentage of income’ the operator

would retain, an item which is usually unilaterally im-

posed at the outset by Pilgrim and then negotiated on

the anniversary of each contract. Pilgrim maintains the

right to specifically enforce or declare the contract void

if any covenant is not performed by the operator. The

contract has a duration of 1 year. Each operator is given

the right to set her own hours, hire helpers and is not

subject to inspection of supervision in the minor details

of her daily operation. A sign posted on the front door

of each pick-up station, however, states the standard Pil-

grim Laundry hours. With minor exceptions, all operators

testified that they followed these hours. Some of the

operators hired helpers or substitutes from time to time

and some did aot.

10. See note 1, supra.

7A

In the total context of the relationship neither the right

to hire employees nor the right to set hours indicates such

lack of control by Pilgrim as would show these operators

are independent from it. In reality, even the hours are

“controlled” by Pilgrim. It is not significant how one

“could have” acted under the contract terms. The con-

trolling economic realities are reflected by the way one

actually acts." Moreover, women who work at home,

completely free of specific hour requirements, have been

found to be employees for purposes of this Act.’* Oc-

casional exercise of the right to hire helpers also has not

been found sufficiently indicative of independence to allow

a finding of nonemployee status.**

The most significant conclusion from all these facts is

that the operators cannot exert control over any aspect

of their business lives independent of Pilgrim. They have

no viable economic status that can be traded to other

laundry companies and the lack of supervision over minor

regular tasks cannot be boot-strapped into an appearance

of real independence.’* Control is only significant when it

shows an individual exerts such a control over a mean-

ingful part of the business that she stands as a separate

economic entity. All meaningful aspects of this business—

11. See Mednick v. Albert Enterprises, 508 F.2d 297, 302-03

(Sth Cir. 1975); Mitchell v. John R. Cowley & Bro., Inc., 292 F.2d

105, 109 (Sth Cir. 1961).

12. Goldberg v. Whitaker House Cooperative, 366 US. 28, 81

S.Ct. 933, 6 L.Ed.2d 100 (1961).

13. Rutherford Food Corp. v. McComb, 331 U.S. 722, 67 S.Ct.

1473, 91 L.Ed. 1772 (1947); Mednick v. Albert Enterprises, Inc.,

508 F.2d 297, 301 (Sth Cir. 1975); Mitchell v. Strickland Trans-

portation Co., 228 F.2d 124, 128 (Sth Cir. 1955).

14. Mitchell v. John R. Cowley & Bro., Inc., 292 F.2d 105, 108

(5th Cir. 1961).

8A

advertising, right to deal with other cleaning plants, price

fixing, payment arrangements—are controlled by Pilgrim.

II. Opportunity for Profit or Loss

The lower court concluded that the opportunities for

profit or loss, were the same as in any independent busi-

ness. The major determinants of the amount of profit

which an operator could make, however, were directly

controlled by Pilgrim. Since the operators were paid on

a percentage basis, the amount of business done by an

operator governs total profit. The lower court found that

convenience of hours, extra service provided, and rap-

port with customers were factors which affected profits and

were within the control of each operator. However, price,

location, and advertising—determinants of customer /ol-

ume at least as vital as those governed by the operators—

are regulated by Pilgrim.

[4] The record shows some operators sold ties, wigs,

or took in special work in their pick-up stations. These

sales minimally supplemented their income. Such minor

additional income made from work which is not connected

with the actual business under examination is not relevant

to a court’s determination of employee status."®

[5] Finally, except for being responsible for bad-check

and theft losses, there is no way any of the operators

can suffer a loss in their alleged independent contractor

operations. Each week they receive a percentage of the

total money taken in by their pick-up station. The lease

requirement—which the record does not show was ever

subject to negotiation—that the operators accept re-

sponsibility for bad-check and theft losses does not show

15. Brennan v. Partida, 492 F.2d 707, 709 (Sth Cir. 1974).

9A

independence. Rather it shows that Pilgrim chose to place

this added burden on its operators. Persons with similar

pecuniary obligations have been found to be employees.’®

No opportunity for loss of the capital investment in the

station’s operation and control by Pilgrim of major deter-

mining factors of profit indicate that the operators are

dependent upon Pilgrim, and therefore, that they are

employees.

III. Investment

[6] The lower court found that the operators’ “invest-

ment” was modest, but concluded that it was substantial

from the point of view of each operator. The investment

referred to by the lower court was the requirement that

each operator “purchase” the cleaning charge values in

the clothing already on hand at the pick-up station when

she took over the operation. The “investment” transaction

bears no direct relationship to the overall cost of operating

the station. It is actually an assumption of accounts re-

ceivable. No risk capital whatsoever is involved."’

At the outset of the business relationship between

Pilgrim and each operator, the new operator is required

to pay the outgoing operator (or Pilgrim if Pilgrim had

already reimbursed the outgoing operator) the total

amount which the outgoing operator had paid Pilgrim

to clean clothes not yet picked up by customers. This

16. Mednick v. Albert Enterprises, Inc., 508 F.2d 297, 301 (Sth

Cir. 1975), citing, Hodgson v. Pulley, 20 W.H. Cases 1046 (S.D.

Ohio, 1972).

17. See Mednick v. Albert Enterprises, Inc., 508 F.2d 297, 301

(Sth Cir. 1975); Hodgson v. Pulley, 20 W.H. Cases 1046 (S.D.

Ohio, 1972); Hodgson v. Sureway Cleaners, 20 W.H. Cases 358

(E.D. Cal. 1971).

10A

“investment” varies from 500 to 1500 dollars. Often it is

financed by Pilgrim, and its return is guaranteed. As

customers pick up their clothes and pay for them, the

operator recoups her “investment.” Any clothes which

remain in the station for 6 months are purchased by Pil-

grim. Therefore, within 6 months the total “investment”

is recovered, In addition, when the operator terminates

her arrangement with Pilgrim, she will be reimbursed for

all monies paid by the operator to Pilgrim for clothing

not yet retrieved and paid for by customers. This entire

“investment” plan is nothing more than a method of

settling accounts between outgoing and incoming opera-

tors.

All investment or risk capital is provided by Pilgrim.

It furnishes the station, cash register, fixtures, security

devices, counters, racks, hangers, bags, tags, receipts,

utilities, telephone, and liability insurance. The 10 dollar

per-year rental set up for these capital items is so nominal

as to be deminimis,

But for Pilgrim's provision of all costly necessities,

these operators could not operate. Their total dependency

upon Pilgrim is confirmed rather than denied by these

facts.

IV. Permanency

[7] The lower court found that although many opera-

tors had enjoyed a longtime relationship with Pilgrim,

the permanency of the relationship evidenced satisfaction

with and not dependence on Pilgrim. Most, if not almost

all, long time employees are satisfied with their employ-

ment. Regardless of subjective satisfaction, the permanent

nature of the relations between Pilgrim and these opera-

LLA

tors indicate dependence. The contract involved here is for

a | year duration and is routinely renewed. Many of the

operators have previously served as Pilgrim's employees

and are performing essentially the same functions as

operators.’" Not a single operator is shown to be capable

of terminating relations with Pilgrim and taking her or-

ganization to another leundry.’* The operators have

nothing to transfer but thei: own labor. The plain fact of

the matter is that every one of them is dependent upon

Pilgrim's continued employment.

V. Skill

[8] The lower court correctly concluded from the

record that these operators did not need long training or

highly developed skills. However, it went on incorrectly

to accentuate considerations such as business sense, sales-

manship, personality and efficiency concluding that these

needed skills were probative of employee status. The key

missing ingredient in the lower court's determination is

initiative, Routine work which requires industry and ef-

ficiency is not indicative of independence and nonemployee

status.” These operators are unable to exert initiative in

the operation of their pick-up stations. All major com-

ponents open to initiative—advertising, pricing, and most

importantly the choice of cleaning plants with which to

18. See Wirtz v. Welfare Finance Corp., 263 F.Supp. 229 (N.D.

W.Va. 1967).

19. See Rutherford Food Corp. v. McComb, 331 U.S. 722, 730,

67 S.Ct. 1473, 1477, 91 L.Ed. 1772 (1947); Bartels v. Birmingham,

332 U.S. 126, 132, 67 S.Ct. 1547, 1551, 91 L.Ed. 1947 (1947).

20. Rutherford Food Corp. v. McComb, 331 U.S. 722, 67 S.Ct.

1473, 91 L.Ed. 1772 (1947); Mitchell v. John R. Cowley & Bro.,

Inc., 292 F.2d 105, 108 (Sth Cir. 1961); Mitchell v. Strickland

Trans portation Co., 228 F.2d 124, 126-27 (Sth Cir. 1955).

12A

deal—are controlled by Pilgrim. Much emphasis was

placed on the need to keep business records and the need

for rapport with customers. Minor record-keeping such

as personal tax records is not determinative of independent

status, Customer rapport is not an “initiative” characteris-

tic and much more closely parallels “efficiency.” But to

the extent it does require “initiative,” it is signicantly

controlled, or at least continuously encouraged, by Pil-

grim through the commission-rate payment arrangement.

The operators receive a percentage of the money paid

for each item cleaned. Obviously, encouraging 1 epeat cus-

tomers enhances financial reward under this payment

scheme.

Operating these laundries requires courtesy to cus-

tomers, tagging clothes, taking money from customers,

paying Pilgrim a set amount each day for cleaning, set-

tling accounts (getting paid) once a week, occasionally

hiring helpers, and correctly reporting tax and Social

Security information. The skills and incentives required

in the operation of the pick-up stations are valuable. They

bring business profits to the operators and to Pilgrim.

But many successful employees need these same abilities

and perform similar tasks. The bottom line in this enter-

prise is the business acumen and investment contributed

by Pilgrim. The operators were dependent on it for their

livelihood.

VI. Other Indicia

[9] We reject both the declaration in the lease agree-

ment that the operators are “independent contractors” and

the uncontradicted testimony that the operators believed

they were, in fact, in business for themselves as controlling

1I3A

FLSA employee status. Neither contractual recitations”

nor subjective intent™ can mandate the outcome in these

cases. Broader economic realities are determinative.

[10] In deciding whether these operators are employees

for the purposes of the Fair Labor Standards Act,

[t}he ultimate criteria are to be found in the purposes

of the Act. ...

[T}he Act is intended to protect those whose liveli-

hood is dependent upon finding employment in the

business of others. It is directed toward those who

themselves are least able in good times to make pro-

visions for their needs when old age and unemploy-

ment may cut off their earnings . . . to those who,

as a matter of economic reality, are dependent upon

the business to which they render service.

Mednick v. Albert Enterprises, Inc., 508 F.2d 297, 300

(Sth Cir, 1975), quoting Fahs v. Tree-Gold Co-op Grow-

ers, Inc., 166 F.2d 40, 44 (Sth Cir, 1948),

[11] The overview discloses that these operators are

not allowed to control any meaningful portion of the

business they allegedly run; Pilgrim manages the major

variables which determine each operators profit. The com-

pensation scheme is such that there is never any real risk

that an operator will suffer loss. Substantially all risk

capital is supplied by Pilgrim. The relationship is fairly

permanent and there is no operator who, as an economic

21. United States v. Silk, 331 U.S. 704, 715, 67 S.Ct. 1463, 1469,

91 L.Ed. 1757 (1947); Mednick v. Albert Enterprises, Inc., 508

F.2d 297, 302 (Sth Cir. 1975); Mitchell v. John R. Cowley & Bro.,

Inc., 292 F.2d 105, 107 (Sth Cir. 1961).

22. Brennan v. Partida, 492 F.2d 707, 709 (Sth Cir. 1974);

Gulf King Shrimp Co. v. Wirtz, 407 F.2d 508 (Sth Cir. 1969).

14A

entity, is capable of doing business elsewhere. No unique

skill or initiative is required of the operators. Proper

application of the five indicia, singularly and collectively,

indicate substantial dependence on Pilgrim. The Act is

designed to protect individuals whose employment status

is so dependent on the whims of the employer as to make

them submissive to an employer's notion of fair compensa-

tion for their labor. The degree of dependence by the

operators upon Pilgrim in this case mandates a conclusion

that the operators are employees under the FLSA. There-

fore, the decision of the lower court is reversed and the

case is remanded to determine the appropriate relief.

Reversed.

ISA

IN THE

UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

CIVIL ACION

NO. 71-H-968

PETER J. BRENNAN, Secretary of Labor,

United States Department of Labor,

Plaintiff,

v.

PILGRIM EQUIPMENT CO., INC., ET AL,

Defendants.

MEMORANDUM AND OPDER

The Secretary of Labor, United States Department of

Labor, brought this suit under the Fair Labor Standards

Act, as amended, 29 U,S.C. §201 et seq. (hereinafter

the Act), to enjoin defendants from violating the mini-

mum wage and overtime provisions of sections 15(a)(2)

and 15(a)(5), and to restrain the withholding of pay-

ment of minimum wages and overtime. Plaintiff contends

certain individuals are defendants’ employees. Defendants

assert they are independent contractors, not “employees”

under the terms of the Act, and therefore are not subject

to the Act’s requirements. The parties presented testi-

mony and documentary evidence at trial before the

Court, April 15, 1974. On the basis of the record, the

Court enters the following findings of fact and conclu-

sions of law:

16A

FINDINGS OF FACT

1. Mr. Guy Robertson is President, Chief Executive

Officer, and a principal shareholder in defendant Pil-

grim Equipment Co., Inc, (hereinafter PECO), PECO

has stock ownership in the other defendant companies

(hereinafter “Pilgrim companies”) in the following per-

centages:

Percentages of

Outstanding

Corporate Shares

Corporation of Stock Owned

R.F.S., Inc., No, 10

d/b/a Pilgrim Laundry Co. No. 18 100%

Pilgrim Laundry Co. No. 5, Inc. 50%

R.F.S., Inc., No, 2

d/b/a Pilgrim Laundry Co, No, 8 50%

Tower Development Corp.

d/b/a Pilgrim Laundry Co. No. 16 50%

R.F.S., Inc., No. 5

d/b/a Pilgrim Laundry Co. No, 11 50%

Pilgrim Convenience, Inc. 50%

R.F.S., Inc., No. 8

d/b/a Pilgrim Laundry Co. No. 15 50%

The term “Pilgrim Company” as used hereinafter is all

of the defendant Pilgrim companies.

During the period in question, each defendant has had

employees engaged in commerce or in production of

goods for commerce. Each defendant Pilgrim Company is

coordinated and controlled so as to operate and function

as a single, unified enterprise. Each corporation operates

17A

several laundry and dry cleaning plants in the Houston

and San Antonio, Texas areas.

Certain laundry and dry cleaning facilities are oper-

ated under franchise arrangements with PECO and use

the Pilgrim name. None of the franchised operations were

named as defendants in this cause. Their operations are

not involved in this suit.

Each of the Pilgrim Comnanies operates at least one

plant for processing and cleaning clothing, and a num-

ber of pickup substations. Each substation receives cloth-

ing for processing at the plant with which it is associated,

and returns such clothing to customers after cleaning.

Each plant has a “counter operation” for receiving cloth-

ing, which is considered a substation. The remaining sub-

Stations are dispersed throughout the geographic area

surrounding the plant. Most substations are located in

stores measuring 1,000 square feet in area. Each sub-

station has a counter, register, racks and other equipment

used for maintaining and processing clothing for laundry

and dry cleaning. As customers deliver the clothing to

the substation, the operator receives the clothes, marks

them for identification, and prepares them for processing.

The clothing is routinely picked up by a delivery truck

operated by the related plant. After processing in the

plant the clothing is then redelivered to the substation

for return to the customers. The processing of clothing

consists of dry cleaning, or laundering, or both.

2. Each substation is operated either by employees of

one of the Pilgrim Companies (hereinafter referred to as

employee operators), or by an individual who has a con-

tract with the particular Pilgrim Company to operate

the substation (hereinafter referred to as a contract ope-

18A

rator). The Secretary contends that each particular con-

tract operator is the employee of a particular defendant.

Each defendant contends that the contract operators who

operate its substations are independent contractors.

3. Unlike employee operators, contract operators sign

a writing denominated “Lease Agreement and Contract”

(hereinafter “Lease Agreement”) with a Pilgrim Com-

pany, which governs the relationship between the opera-

tor and the particular Pilgrim Company (sometimes re-

ferred to herein as “contracting company”). Each lease

agreement is effective for a one year term and is auto-

matically extended unless either party chooses to termi-

nate. The relationship of the parties under each Lease

Agreement is denominated as that of owner (the particu-

lar Pilgrim Company) and independent contract (the

operator). Each Lease Agreement provides for owner

to furnish the substation and equipment and requires

owner to carry liability insurance on the premises, machin-

ery, equipment and fixtures.

4. Under the Lease Agreement each contract operator

agrees to deliver all clothing and other garments ex-

clusively to the contracting company for laundering and

cleaning. The contract operator agrees to pay a stated

amount to the contracting company each day for launder-

ing and dry cleanirz. At the end of each one week period,

the contracting company agrees to bill the contract opera-

tor for the total amount of laundry and dry cleaning work

performed for the substation, and the contract operator

agrees to remit to the contracting company that amount,

less a stated “percentage” which the operator retains from

the gross receipts of the business.

5. Each contract operator agrees to hire his (or her)

own employees. The contracting company is not responsi-

19A

ble for obtaining or administering workmen’s compensa-

tion insurance, social security, or Texas Unemployment

Compensation taxes for the contract operator or his em-

ployees. The contract operator especially assumes all

responsibility for these items and agrees to keep all ap-

propriate records and books for such purposes.

6. Under the terms of the lease agreement, the con-

tract operator may set his own hours of business, open-

ing and closing times. The contract operator is free from

the control of the contracting company as to the perform-

ance of the contract and for any services rendered by the

contract operator to the contracting company. Any credit

extended to the public by the contract operator is deemed

to be his sole risk. In the event the contract operator

becomes bankrupt or makes a voluntary assignment for

the benefit of creditors, or in the event that a receiver is

appointed for the contract operator, then, at the option

of the contracting company, and upon the expiration of

five days’ notice to the contract operator, the agreement

is terminated.

7. Each contract operator agrees to maintain all prop-

erty and fixtures in the substation, and to keep the prem-

ises in good repair. The contract operator agrees to accept

possession of the premises in their present condition, and

agrees to allow for changes in the equipment occurring

by reason of detzrioration while occupying the premises.

The contract operator agrees that there shali be no iin-

provements or alterations to the premises without the con-

sent of the contracting company.

8. Each contract operator agrees to comply with all

ordinances of the City of Houston, or the City of San

Antonio applicable to the premises, and all orders and

20A

requirements imposed by the Board of Health, Sanitary

and Police Departments, and agrees to correct, prevent,

and abate nuisances in or upon or connected with the

premises during the term of the agreement.

9. The contract operators agree not to assign the agree-

ment or sublet the premises or make any alterations in

the building without the consent of the contracting com-

pany.

10. In the event of default of the covenants in the

contract, the contracting company may enforce the per-

formance under the lease in any manner provided by law.

The lease agreement may be forfeited at the contracting

company’s discretion if the default continues for a period

of ten days after notice. Upon such notice (unless the

contract operator agrees to completely remove or cure

the default), the agreement is terminated and the con-

tracting company’s agent or attorney may re-enter and re-

move all persons and the property of the contract operator.

11. Each contract operator agrees not to place any

signs at, on, or about the premises except as approved

by the company. The contracting company may remove

any sign or signs in order to paint the building or to make

repairs or alterations.

12. Under the lease agreement, the contracting com-

pany is not the owner of the substation premises, but

merely holds a lease of the property. The lease remains

subject to all the terms and conditions of the existing

lease under which the contracting company holds the

premises.

13. Prior to their association with Pilgrim Companies,

some contract operators had prior experience in the clean-

21A

ing business with non-Pilgrim establishments. Most did

not, and many had no prior business experience. Most

contract operators have had prior experience in operating

substations as employees of a Pilgrim Company. Becoming

a contract operator is regarded as a coveted opportunity

by such employees. There are numerous employees

“waiting in line” for contract operator vacancies. None

of the Pilgrim Companes advertise contract operator open-

ings.

14. Usually the contract operator is required to make

an investment in the “inventory” of the business, which

consists of the value of the laundry and dry cleaning

services performed on the clothing in inventory. This

investment ranges from $500.00 to $1,500.00. The

investment is either paid to the contracting Pilgrim Com-

pany, or to the previous contract operator who operated

the substation. Usually a new location is operated as an

employee store until the volume is sufficient to operate

under contract. The contract operator’s investment is

typically financed by the particular contracting Pilgrim

Company or by a bank. The contract operator is repaid

the investment over a period of time out of his earnings.

In most cases, PECO furnishes the site of the store and

arranges for all advertising for the contract operated

stores. PECO also furnishes all utilities, liability insurance,

security devices, cash registers, equipment, and other fix-

tures within the store.

15. The commission or “discount” rate under the

terms of the agreement is usually a “net deal”, which takes

into account the fact that the contracting Pilgrim Com-

pany pays all utilities, rent, and similar costs as provided

in the lease agreement. The contract operator receives

a percentage of the value of laundry and dry cleaning

22A

processed for customers. The stores operated under con-

tract do not have standard hours of operation. The hours

are set to meet the convenience of the particular market,

but generally the hours of most are similar, due to com-

petitive factors. The contract operator bears the losses of

bad checks, extension of credit and losses from theft

by employees of the contract operator. The contract

operators hire their own employees, and are responsible

for all withholding of federal income tax, FICA and

other such deductions.

16. The parties consider the lease agreements as bind-

ing contracts. Some of the Pilgrim Companies have ex-

perienced litigation by coniractors to enforce the agree-

ments. The Court finds that the Pilgrim Companies have

given full force and effect to the lease agreements and

that the parties thereto have consistently regarded them

as bona fide, arms-length transactions.

17. PECO provides a suggested price list to the con-

tracting Pilgrim Companies. The prices on the suggested

price list will vary in different areas of the city, depend-

ing on competition. While prices charged for “standard”

items such as shirts, suits, blouses, etc., seldom vary from

the suggested list price, contract operators are free to

charge higher prices on so-called “flexible” items, such

as tuxedos, dresses with frills and laces, and other such

items.

18. A witness subpoenaed and called by the Govern-

ment, Mabel Graul, has been under contract with Pilgrim

Company No. 18 for four or five years. Her testimony

evidenced that the contract is generally followed. Any

deviation is in the direction of more freedom and inde-

pendence for the operator than is provided by the con-

23A

tract. Prior to contracting with the Pilgrim Company,

Mrs. Graul worked for another laundry and dry cleaning

company. Mrs. Graul accepted the initial commission rate

offered because she considered that to be commensurate

with her worth as an inexperienced businesswoman. Sub-

sequently, she has gained more experience and has built

up her business. She has renegotiated her agreemnt with

the manager of Pilgrim Company No. 18 for a higher dis-

count commission rate on several occasions.

Mrs. Graul clearly considers herself an independent

businesswoman, and her substation as her own business.

She has a sign in her establishment which reads, “Mabel

P. Graul, Manager.” She stated the Company does not

run her business or tell her how to do so. She testified

that “[a]ctually Pilgrim works for me. . .” and “. . . that

I do not work for Pilgrim.” She considers herself responsi-

sible for the clothing. She demands the Pilgrim clean

and launder the clothes properly and has made complaints

to Pilgrim about the quality of the work. Mrs. Graul

testified that there are many opportunities to build up

the business by knowing the clothing and doing extra

work for the customers, such as sewing on buttons, re-

moving spots, and other personal attention.

Mrs. Graul sets her own hours. At her own initiative,

she opens her station early in the morning to accommo-

date several customers. She accepts checks but not credit

cards and tries to collect on bad checks. She rarely issues

credit. She sells other items, such as ties, for additional

income of $10.00-$25.00 per month. At her own option,

she frequently remits money to her contracting Pilgrim

Company in excess of that required by the contract. This

enables her to reduce the amount of cash on hand, thereby

24A

reducing exposure to robberies and avoiding frequent

trips to the bank. Her Pilgrim Company provides ad-

vertising for her, but Mrs. Graul also places advertise-

ments in local newspapers and promotes her business

through her church.

Mrs. Graul hires and pays her own employees to

operate the store in her absence, including when she

is on vacation. She does not receive vacation or other

benefits from her Pilgrim Company. The latter provides

a “suggested” price but does not assist in pricing unusual

items, such as frilly dresses. Mrs. Graul sets her own

prices on these items.

19. Mrs. Margaret Stratton has operated under a con-

tract since approximately 1965. She started in the cleaning

business as an employee of her Pilgrim Company, learned

the operation and then requested a contract. She paid

approximately $1,000.00 for her inventory. She considers

the business to be hers. Her Pilgrim Company manager

does not come into the store unless she requests his

_ presence. She stated that her Pilgrim Company does not

operate her business for her or tell her how to do so.

She stated that there is an opportunity to build up and

increase the business by giving good service, being good

to the customers, being responsive and knowing the

clothing. She has developed her good will over the years

by serving her customers in this fashion. She previously

operated a facility in Bellaire. When she transferred to

her present location, about 25% of her customers at the

previous store followed her to the new location.

At her own discretion, Mrs. Stratton takes in reweaving

and leather goods, which she contracts for processing

outside her contract with Pilgrim Company. She receives

25A

income of approximately $200.00 per year from these

sources. Mrs. Stratton also sells additional items such

as ties and wigs. She previously sold panty hose but

discontinued the practice because of customer theft. She

estimated her total income was approximately $600.00

per year from the sale of ties, wigs, and panty hose.

Mrs. Stratton presently employs two people, paying

them out of her own funds. On one occasion when she

was unable to procure substitute help, her manager sup-

plied a Pilgrim Company employee and billed Mrs. Strat-

ton for the work. She sets her own hours of operation

which she has frequently changed. She made plans to

stay open until 9:00 p.m. but because the employee did

not report to work regularly, she discontinued the late

hours. Mrs. Stratton has sustained losses from employee

theft of approximately $400.00. She has suffered losses in

1974 from bad checks in the amount of $200.00.

20. Mrs. Faye Smith, a witness subpoenaed and called

by plaintiff, has operated as contract operator for Pilgrim

Company No. 16 for approximately one year. Prior to

contracting with that company, Mrs. Smith had operated

as contract operator for various Pilgrim Companies since

1958. She was offered a number of different stores, but

she chose the one she currently runs because she believed

it was capable of a high volume. Her commission rate is

negotiable and determined by “arguing with the manager.”

Mrs. Smith considers that she “owns” the premises. The

contracting Pilgrim Company does not try to tell her how

to run her business, nor does it in fact run her business.

She believes that as an independent businesswoman, she

has built up the business and increased the volume by

offering good service to customers.

a

26A

Mrs. Smith also sells ties. She previously took in leather

goods but her experience was unsatisfactory and she dis-

continued the practice. Her experience as to setting hours

and prices of certain items, hiring help, responsibility for

losses on checks and credit paralleled that of other wit-

nesses.

21. Mrs. Torry Desoto Rountree, also under subpoena

and called by plaintiff, had prior business experience in

an auto parts store. She was trained as an employee of

a substation prior to assuming a contract. Although she

occasionally received suggestions from officials of her

Pilgrim Company on running the business, she felt free

to run her own business free from interference by the

company. She stated that it is necessary te give good

service to customers and to see that the contracting

Pilgrim Company does a quality job of laundering and

dry cleaning in order to operate a successful store. Mrs.

Rountree was responsible for running the cash register;

her manager never used the register. In other respects

Mrs. Rountree’s operation paralleled that of other wit-

nesses.

22. Mrs. Maries McMahan, a witness for plaintiff,

was an employee at a Pilgrim substation until 1970. She

became aware of an opening “in a good location” for a

contract operator. She expressed interest in obtaining the

contract. She had previously operated a contract sub-

station for one of the Pilgrim franchise companies, Bolton

Enterprises. She stated that a contract operator must be

able to treat customers in such a fashion that they will

come back for repeat business, or to be a good salesman.

She testified that the contracting Pilgrim Company exerted

no control over her business. Her experience was similar

to that of other witnesses.

27A

23. Defendants treat employees who operate substa-

tions differently from contract operators, as evidenced by

the operation of Pilgrim Laundry Company No. 11. Em-

ployees are paid by the hours. After six months of

work, employees receive paid vacations, life and hospital

insurance. Employees also receive five (5) paid holidays

per year. Employees are docked for time off and receive

no pay.

In company-operated substations, employees “break

down” the cash register daily, sending all cash receipts,

register tapes, and cleaning ticket stubs to the Pilgrim

Company which maintains all records of transactions for

such substation. Contract operators are required to remit

only a specified amount of cash daily, plus the weekly

accounting. They maintain their own records as to trans-

actions, register tapes, and invoice stubs. Inventory is

taken monthly at company operated substations. It is

suggested that contract operators take inventory monthly

but this is left to the operators’ discretion. Pilgrim Com-

pany No. 11 fixes the hours of operation of its employee-

operated stores. Contract operators set their own hours.

The manager of Pilgrim Company No. 11, Davis,

closely supervises his employee-operated stores. If he de-

cides a facility is untidy, he will order the employee to

clean it, failing which he can discharge the employee. His

approach to a contract operator is limited to a recom-

mendation that the store be cleaned. His only sanction is

termination of the contract at the end of the term.

Company-operated stores do not accept credit cards

or extend credit. They do not sell ties or other such items.

They do not accept leather goods, hats, gloves, or re-

weaving. Contract operators are free to do these things

EE a—V—

28A

and frequently do so. Company representatives freely en-

ter company-operated stores after hours for various rea-

sons; they do not enter contract operator stores after

working hours.

24. The relationship of the individuals in question re-

sulted from a choice by each to enter into the contract

arrangement. Each operator who testified had previously

operated a substation as an employee. When the op-

portunity arose to operate a store as a contract operator,

each lady voluntarily chose that arrangement. In terms of

“economic reality,” they gave up the certainty of income

as an employee, relinquished employee benefits such as

paid hospitalization and life insurance, holidays, and

other such accoutrements of employee status, and ac-

cepted the business risks of contract status. Each testified

she made more money as a contract operator. Each was

willing to take risks under the terms of the contract agree-

ment and work toward building her business to achieve

greater income. The fact that most contract operators

have enjoyed a permanency of relationship under the

lease arrangement does not mitigate against the “eco-

nomic reality” of independent contractor status; rather, it

confirms the fact that it has been a satisfactory arrange-

ment to these ladies.

25. The respective Pilgrim Companies neither assume

nor exercise control over the operations of the contract

facilities. Each operator who testified clearly relished the

idea that she was in charge of her own business enter-

prise, free from control by the contracting Pilgrim Com-

pany, and that the success of the business was dependent

on her individual efforts and accomplishments.

26. Each individual operator has substantial oppor-

tunities for profit or loss, primarily dependent upon her

29A

efforts and abilities to build up and develop a clientele.

Their losses from bad checks, extension of credit, and

employee theft were clearly documented. Although they

may not experience negative incomes from the business,

their income is certainly lower if they fail to operate the

substations properly.

27. The investment in the inventory by each contract

operator, while a modest one, is substantial when con-

sidered in view of the limited means of these individuals.

Although there is no guarantee of a return of the invest-

ment, by custom and practice the subsequent operator

pays the value of the inventory to the terminating op-

erator.

28. The operation of a successful Pilgrim Company

laundry and dry cleaning substation requires that the

contract operator acquire a knowledge of the business,

and become a “salesman” in terms of ability to attract

and retain customers. Each witness attested to the neces-

sity that operators develop a rapport with customers in

terms of politeness, courtesy and attentiveness. Contract

operators must give “personal” attention to customers,

and must insure that Pilgrim performs quality cleaning

and lanudering on the clothing. Each operator must pos-

sess some “business sense,” and run an efficient store.

Additionally, each operator must become proficient in

maintaining records, handling money and checks, hiring

and paying employees, and making such wage deductions

as required by law. While these skills are not the equiv-

alent of highly-trained persons in other occupations, these

skills and qualities are equivalent to those required of

other small independent merchants. With due regard to

the type of business involved, it is clear from the evidence

30A

that substantial willingness to take a business risk, skill,

initiative, judgment, and foresight are required for success

of the operation.

CONCLUSIONS OF LAW

1. The Court has jurisdiction over the parties and the

subject matter of this cause. 29 U.S.C. §217.

2. Defendants’ business activities and operations con-

stitute a single enterprise engaged in commerce within

the meaning of Sections 3(r) and 3(s)(2) of the Act,

29 U.S.C. §§203(r), and 203(s) (2).

3. The Act defines “employ” to include “to suffer or

permit to work.” 29 U.S.C. §203(g). This definition and

the Act’s coverage are obviously broad and comprehen-

sive. See United States v. Rosenwasser, 323 U.S. 360,

362 (1945). Existence vel non of an employment relation-

ship is not determined by a single factor but by the eco-

nomic circumstances of the whole activity. Rutherford

Corporation v. McComb, 331 U.S 722 (1947); Brennan

v. Partida, 492 F.2d 707 (Sth Cir. 1974) and cases cited

therein. An incomplete list of relevant factors includes

degree of control, opportunities for profit or loss, invest-

ment in facilities, permanency of relation, and skill re-

quired. United States v. Silk, 331 U.S. 704, 716 (1947).

On balance the realities of the Piligrim organization

do not demonstrate an employment relationship with the

contract operators. These operators are largely indepen-

dent of their manager’s control both in spirit and in fact.

They make the majority of significant decisions as to the

daily operation of their business. They deal on an equal

basis with their respective managers. Each manager can

31A

only suggest; he cannot direct the operator in her daily

work. Rules and restrictions on the operators are con-

tained in the written lease agreement. These instructions

largely relate to uniform processing of clothes, accounting

for moneys, and protection of the substation premises.

Such uniformity is reasonably necessary to the efficient

movement of clothing, modern accounting, and security

of the company’s investment. The provisions relating to

the protection of the substation premises are common to

leasing arrangements where there is no similar business

relationship between lessor and lessee.

The opportunities for profit or loss are similar to those

inherent in any independent merchandising effort. Al-

though much depends on the location, other variables

governing success are within the operator’s control. Such

factors are convenience of hours, extra services provided,

and rapport with customers. Even prices and quality of

cleaning are subject to the operator’s control.

The individual's investment in the facility, although

modest, is substantial from the individual’s viewpoint. It

is questionable if the Pilgrim Companies could attract

sufficient operators if the initial investment were greater.

Many operators have enjoyed a long term relationship

with the Pilgrim group. The record indicates considerable

movement of operators, both within and among the

Pilgrim Companies, and to and from other cleaning

establishments. Thus the permanency of the continuing

relationships with Pilgrim Companies evidences the con-

tract operators’ satisfaction with the Pilgrim Companies,

rather than economic dependence upon them.

Operation of a cleaning substation does not require

long training or highly developed skills. Within the limits

32A

of the business, however, the contract operator position

requires the fullest use of the individual’s tolerance for

risk taking, business sense, salesmanship, personality,

judgment and efficiency.

Based on the evidence presented, and for the foregoing

reasons, the Court concludes that the contract operators

of the Pilgrim substations are not defendants’ employees

within the meaning of the Act and thus are not subject

to the provisions of the Act.

The foregoing constitutes the Court's findings of fact

and conclusions of law. Fep R. Civ. P. 52. Any finding

of fact which constitutes a conclusion of law is hereby

adopted as such. Any conclusion of law which constitutes

a finding of fact is hereby adopted as such.

The Clerk shall file this Memorandum and Order and

furnish a copy to all counsel.

DONE at Houston, Texas, this 21st day of May, 1974.

/s/ JAMES NOEL

JUDGE

34A

IN THE

United States Court of Appeals

FOR THE FIFTH CIRCUIT

October Term, 1975

NO. 74-2909

D. C. Docket No. CA 71-H-968

W. J. USERY, Secretary of Labor

United States Department of Labor,

Plaintiff-A ppellant,

Vv

PILGRIM EQUIPMENT COMPANY, INC., ET AL.,

Defendants-A ppellees.

Appeal from the United States District Court

for the Southern District of Texas

Before WISDOM, CLARK and RONEY, Circuit Judges.

JUDGMENT

This cause came on to be heard on the transcript of the

record from the United States District Court for the

Southern District of Texas, and was argued by counsel;

ON CONSIDERATION WHEREOF, It is now here

ordered and adjudged by this Court that the judgment

of the said District Court in this cause be, and the same

is hereby, reversed, and that this cause be and the same

is hereby remanded to the said District Court in accord-

ance with the opinion of this Court;

It is further ordered that defendants-appellees pay to

plaintiff-appellant the costs on appeal to be taxed by the

Clerk of this Court.

March 3, 1976

Issued as Mandate: March 25, 1976

35A

PERTINENT STATUTES

§$ 201. Short title

This chapter may be cited as the “Fair Labor Standards

Act of 1938”. June 25, 1938, c. 676, § 1, 52 Stat. 1060.

* * *

§ 202. Congressional finding and declaration of policy

(a) The Congress finds that the existence, in industries

engaged in commerce or in the production of goods for

commerce, of labor conditions detrimental to the mainte-

nance 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;

(2) burdens commerce and the free flow of goods in

commerce; (3) constitutes an unfair method of competi-

tion in commerce; (4) leads to labor disputes burdening

and obstructing commerce and the free flow of goods in

commerce; and (5) interferes with the orderly and fair

marketing of goods in commerce. That Congress further

finds that the employment of persons in domestic service

in households affect commerce.

(b) It is declared to be the policy of this chapter,

through the exercise by Congress of its power to regulate

commerce among the several States and with foreign

nations, to correct and as rapidly as practicable to elimi-

nate the conditions above referred to in such industries

without substantially curtailing employment or earning

power.

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36A

§ 203. Definitions

As used in this chapter—

(a) “Person” means an individual, partnership, associ-

ation, corporation, business trust, legal representative, or

any organized group of persons.

(b) “Commerce” means trade, commerce, transporta-

tion, transmission, or communication among the several

States or between any State and any place outside thereof.

(c) “State” means any State of the United States or the

District of Columbia or any Territory or possession of

the United States.

* * *

(f) “Agriculture” including farming in all its branches

and among other things includes the cultivation and tillage

of the soil, dairying, the production, cultivation, growing,

and harvesting of any agricultural or horticultural com-

modities (including commodities defined as agricultural

commodities in section 1141j(g) of Title 12), the raising

of livestock, bees, fur-bearing animals, or poultry, and

any practices (including any forestry or lumbering opera-

tions) performed by a farmer or on a farm as an incident

to or in conjunction with such farming operations, includ-

ing preparation for market, delivery to storage or to

market or to carriers for transportation to market.

(g) “Employ” includes to suffer or permit to work.

* * *

(i) “Goods” means goods (including ships and marine

equipment), wares, products, commodities, merchandise,

37A

or articles or subjects of commerce of any character, or

any part or ingredient thereof, but does not include goods

after their delivery into the actual physical possession of

the ultimate consumer thereof other than a_ producer,

manufacturer, or processor thereof.

(j) “Produced” means produced, manufactured, mined,

handled, or in any other manner worked on in any State;

and for the purposes of this chapter an employee shall be

deemed to have been engaged in the production of goods

if such employee was employed in producing, manufactur-

ing, mining, handling, transporting, or in any other man-

ner working on such goods, or in any closely related pro-

cess or occupation directly essential to the production

thereof, in any State.

(k) “Sale” or “sell” includes any sale, exchange, con-

tract to sell, consignment for sale, shipment for sale, or

other disposition.

(1) “Oppressive child labor” means a condition of

employment under which (1) any employee under the

age of sixteen years is employed by an employer (other

than a parent or a person standing in place of a parent

employing his own child or a child in his custody under

the age of sixteen years in an occupation other than

manufacturing or mining or an occupation found by the

Secretary of Labor to be particularly hazardous for the

employment of children between the ages of sixteen and

eighteen years or detrimental to their health or well-being)

in any occupation, or (2) any employee between the ages

of sixteen and eighteen years is employed by an employer

in any occupation which the Secretary of Labor shall find

and by order declare to be particularly hazardous for

the employment of children between such ages or detri-

38A

mental to their health or well being; but oppressive child

labor shall not be deemed to exist by virtue of the employ-

ment in any occupation of any person with respect to

whom the employer shall have on file an unexpired cer-

tificate issued and held pursuant to regulations of the

Secretary of Labor certifying that such person is above the

oppressive child-labor age. The Secretary of Labor shall

provide by regulation or by order that the employment

of employees between the ages of fourteen and sixteen

years in occupations other than manufacturing and mining

shall not be deemed to constitute oppressive child labor

if and to the extent that the Secretary of Labor determines

that such employment is confined to periods which will

not interfere with their schooling and to conditions which

will not interfere with their health and well-being.

* * *

(n) “Resale”, except as used in subsection (s) (1) of

this section, shall not include the sale of goods to be used

in residential or farm building construction, repair, or

maintenance: Provided, That the sale is recognized as a

bona fide retail sale in the industry.

(o) Hours Worked.—In determining for the purposes

of sections 206 and 207 of this title the hours for which

an employee is employed, there shall be excluded any

time spent in changing clothes or washing at the beginning

or end of each workday which was excluded from meas-

ured working time during the week involved by the ex-

press terms of or by custom or practice under a bona fide

collective-bargaining agreement applicable to the particu-

lar employee.

39A

(p) “American vessel” includes any vessel which is

documented or numbered under the laws of the United

States.

(q) “Secretary” means the Secretary of Labor.

k * *

(s) “Enterprise engaged in commerce or in the pro-

duction of goods for commerce” means any of the follow-

ing in the activities of which employees are so engaged,

including employees handling, selling, or otherwise work-

ing on goods that have been moved in or produced for

commerce by any person:

(1) any such enterprise which has one or more

retail or service establishments if the annual gross

volume of sales of such enterprise is not less than

$1,000,000, exclusive of excise taxes at the retail

level which are separately stated and if such enter-

prise purchases or receives goods for resale that

move or have moved across State lines (not in de-

liveries from the reselling establishment) which

amount in total annual volume to $250,000 or more;

(2) any such enterprise which is engaged in the

business of operating a street, suburban or interurban

electric railway, or local trolley or motorbus carrier

if the annual gross volume of sales of such enterprise

is not less than $1,000,000, exclusive of excise

taxes at the retail level which are separately stated;

(3) any establishment of any such enterprise,

except establishments and enterprises referred to in

other paragraphs of this subsection, which has em-

ployees engaged in commerce or in the production

a

40A

of goods for commerce if the annual gross volume

of sales of such enterprise is not less than $1,000.000.

(4) any such enterprise which is engaged in the

business of construction or reconstruction, or both,

if the annual gross volume frora the business of such

enterprise is not less than $350,000;

(5) any gasoline service establishment if the an-

nual gross volume of sales of such establishment

is not less than $250,000, exclusive of excise taxes

at the retail level which are separately stated:

Provided, that an establishment shall not be considered

to be an enterprise engaged in commerce or in the produc-

tion of goods for commerce, or a part of an enterprise

engaged in commerce or in the production of goods for

commerce, and the sales of such establishment shall not be

included for the purpose of determining the annual gross

volume of sales of any enterprise for the purpose of this sub-

section, if the only employees of such establishment are

the owner thereof or persons standing in the relationship

of parent, spouse, or child of such owner.

(d) “Employer” includes any person acting directly or

indirectly in the interest of an employer in relation to

an employee and includes a public agency, but does not

include any labor organization (other than when acting

as an employer) or anyone acting in the capacity of officer

or agent of such labor organization.

(e)(1) Except as provided in paragraphs (2) and (3),

the term “employee” means any individual employed by

an employer.

(2) In the case of an individual employed by a public

agency, such term means—

41A

(A) any individual employed by the Government

of the United States—

(i) as a civilian in the military departments

(as defined in section 102 of Title 5),

(ii) in any executive agency (as defined in sec-

tion 105 of such title),

(iii) in any unit of the legislative or judicial

branch of the Government which has positions

in the competitive service,

(iv) in a nonappropriated fund instrumentality

under the jurisdiction of the Armed Forces, or

(v) in the Library of Congress;

(B) any individual employed by the United States

Posial Service or the Postal Rate Commission; and

(C) any individual employed by a State, political

subdivision of a State, or an interstate governmental

agency, other than such an individual—

(i) who is not subject to the civil service laws

of the State, political subdivisions, or agency

which employs him; and

(ii) who—

(1) holds a public elective office of that

State, political subdivisions, or agency,

(II) is selected by the holder of such an

office to be a member of his personal staff,

(III) is appointed by such an officeholder

to serve on a policymaking level, or

(IV) who is an immediate adviser to such

an officeholder with respect to the constitutional

or legal powers of his office.

(3) For purposes of subsection (u) of this section,

such term does not include any individual employed by

42A

an employer engaged in agriculture if such individual

is the parent, spouse, child, or other member of the em-

ployer’s immediate family.

(h) “Industry” means a trade, business, industry, or

other activity, or branch or group thereof, in which in-

dividuals are gainfully employed.

(m) “Wage” paid to any employee includes the reason-

able cost, as determined by the Administrator, to the

employer of furnishing such employee with board, lodging,

or other facilities, if such board, lodging, or other facili-

ties are customarily furnished by such employer to his

employees: Provided, That the cost of board, lodging, or

other facilities shall not be included as a part of the wage

paid to any employee to the extent it is excluded there-

from under the terms of a bona fide collective-bargaining

agreement applicable to the particular employee: Provided

further, That the Secretary is authorized to determine the

fair value of such board, lodging, or other facilities for

defined classes of employees and in defined areas, based

on average cost to the employer or to groups of employers

similarly situated, or average value to groups of employ-

ees, or other appropriate measures of fair value. Such

evaluations, where applicable and pertinent, shall be used

in lieu of actual measure of cost in determining the wage

paid to any employee. In determining the wage of a tipped

employee, the amount paid such employee by his em-

ployer shall be deemed to be increased on account of

tips by an amount determined by the employer, but not

by an amount in excess of 50 per centum of the applicable

minimum wage rate except that the amount of the increase

on account of tips determined by the employer may not

exceed the value of tips actually received by the employee.

The previous sentence shall not apply with respect to

:

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43A

any tipped employee unless (1) such employee has been

informed by the employer of the provisions of this sub-

section, and (2) all tips received by such employee have

been retained by the employee, except that this sub-

section shall not be construed to prohibit the pooling of

tips _among employees who customarily and regularly

receive tips.

(r) “Enterprise” means the related activities performed

(either through unified operation or common control )

by any person or persons for a common business purpose

and includes all such activities whether performed in one

or more establishments or by one or more corporate

or other organizational units including departments of an

establishment operated through leasing arrangements, but

shall not include the related activities performed for such

enterprise by an independent contractor: Provided, That

within the meaning of this subsection, a retail or service

establishment which is under independent ownership shall

not be deemed to be so operated or controlled as to be

other than a separate and distinct enterprise by reason

of any arrangement, which includes, but is not necessarily

limited to, an agreement (1) that it will sell, or sell only,

certain goods specified by a particular manufacturer

distributor, or advertiser, or (2) that it will join with

other such establishments in the same industry for the

purpose of collective purchasing, or (3) that it will have

the exclusive right to sell the goods or use the brand

name of a manufacturer, distributor, or advertiser within

a specified area, or by reason of the fact that it occupies

premises leased to it by a person who also leases premises

to other retail or service establishments. For purposes of

this subsection, the activities performed by any person or

persons—

44A

(1) in connection with the operation of a hos-

pital, an institution primarily engaged in the care

of the sick, the aged, the mentally ill or defective

who reside on the premises of such institution, a

school for mentally or physically handicapped or

gifted children, a preschool, elementary or secondary

school, or an institution of higher education (regard-

less of whether or not such hospital, institution, or

school is public or private or operated for profit or

not for profit), or

(2) in connection with the operation of a street,

suburban or interurban electric railway, or local

trolley or motorbus carrier, if the rates and service

of such railway or carrier are subject to regulation

by a State or local agency (regardless of whether

or not such railway or carrier is public or private

or operated for profit or not for profit), or

(3) in connection with the activities of a public

agency, shall be deemed to be activities performed

for a business purpose.

(s) “Enterprise engaged in commerce or in the pro-

duction of goods for commerce” means an . enterprise

which has employees engaged in commerce or in the pro-

duction of goods for commerce, or employees handling.

selling, or otherwise working on goods or materials that

have been moved in or produced for commerce by any

person, and which—

(1) during the period February 1, 1967, through

January 31, 1969, is an enterprise whose annual

gross volume of sales made or business done is not

less than $500,000 (exclusive of excise taxes at the

retail level which are separately stated) or is a gaso-

4S5A

line service establishment whose annual gross volume

of sales is not less than $250,000 (exclusive of excise

taxes at the retail level which are separately stated),

and beginning February 1, 1969, is an enterprise

whose annual gross volume of sales made or business

done is not less than $250,000 (exclusive of excise

taxes at the retail level which are separately stated);

(2) is engaged in laundering, cleaning, or repair-

ing clothing or fabrics;

(3) is engaged in the business of construction or

reconstruction or both;

(4) is engaged in the operation of a hospital, an

institution primarily engaged in the care of the

sick, the aged, the mentally ill or defective who

reside on the premises of such institution, a school

for mentally or physically handicapped or gifted

children, a preschool, elementary or secondary

school, or an institution of higher education (regard-

less of whether or not such hospital, institution, or

school is public or private or operated for profit or

not for profit); or

(5) is an activity of a public agency.

Any establishment which has as its only regular employees

the owner thereof or the parent, spouse, child or other

member of the immediate family of such owner shall not

be considered to be an enterprise engaged in commerce

or in the production of goods for commerce or a part of

such an enterprise, and the sales of such establishment

shall not be included for the purpose of determining the

annual gross volume of sales of any enterprise for the

purpose of this subsection. The employees of an enter-

prise which is a public agency shall for purposes of this

46A

subsection be deemed to be employees engaged in com-

merce, or in the production of goods for commerce, or

employees handling, selling, or otherwise working on

goods or materials that have been moved in or produced

for commerce.

(t) “Tipped employee” means any employee engaged

in an occupation in which he customarily and regularly

receives more than $20 a month in tips.

(u) “Man-day” means any day during which an em-

ployee performs any agricultural labor for not less than

one hour.

(v) “Elementary school” means a day or residential

school which provides elementary education, as determined

under State law.

(w) “Secondary school” means a day or residential

school which provides secondary education, as determined

under State law.

(x) “Public agency” means the Government of the

United States; the government of a State or political sub-

division thereof; any agency of the United States (includ-

ing the United States Postal Service and Postal Rate

Commission), a State, or a political subdivision of a State;

or any interstate governmental agency.

As amended Sept. 23, 1966, Pub. L. 89-601, Title I,

$§ 101-103, Title II, § 215(a), 80 Stat. 830-832, 837;

June 23, 1972, Pub. L. 92-318, Title IX, § 906(b) (2),

(3), 86 Stat. 375; Apr. 8, 1974, Pub. L. 93-259, §§ 6(a),

13(e), 88 Stat. 58, 64.