Maryland v. Wirtz/Opinion of the Court

As originally enacted, the Fair Labor Standards Act of 1938 required every employer to pay each of his employees 'engaged in commerce or in the production of goods for commerce' a certain minimum hourly wage, and to pay at a higher rate for work in excess of a certain maximum number of hours per week. The Act defined the term 'employer' so as to exclude 'the United States or any State or political subdivision of a State * *  * .' This case involves the constitutionality of two sets of amendments to the original enactment.

In 1961, Congress changed the basis of employee coverage: instead of extending protection to employees individually connected to interstate commerce, the Act now covers all employees of any 'enterprise' engaged in commerce or production for commerce, provided the enterprise also falls within certain listed categories. In 1966, Congress added to the list of categories the following:

'(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 the mentally or      physically handicapped or gifted children, an elementary or      secondary school, or an institution of higher education (regardless of whether or not such      Lospital, institution, or school is public or private or      operated for profit or not for profit).'

At the same time, Congress modified the definition of 'employer' so as to remove the exemption of the States and their political subdivisions with respect to employees of hospitals, institutions, and schools.

The State of Maryland, since joined by 27 other States and one school district, brought this action against the Secretary of Labor to enjoin enforcement of the Act insofar as it now applies to schools and hospitals operated by the States or their subdivisions. The plaintiffs made four contentions. They argued that the expansion of coverage through the 'enterprise concept' was beyond the power of Congress under the Commerce Clause. They contended that coverage of state-operated hospitals and schools was also beyond the commerce power. They asserted that the remedial provisions of the Act, if applied to the States, would conflict with the Eleventh Amendment. Finally, they urged that even if their constitutional arguments were rejected, the court should declare that schools and hospitals, as enterprises, do not have the statutorily required relationship to interstate commerce.

A three-judge district court, convened pursuant to 28 U.S.C. § 2282, declined to issue a declaratory judgment or an injunction. Three opinions were written. Judges Winter and Thomsen, constituting the majority, concluded for different reasons that the adoption of the 'enterprise concept' of coverage and the extension of coverage to state institutions could not be said, on the face of the Act, to exceed Congress' power under the Commerce Clause. Both declined to consider the Eleventh Amendment and statutory contentions. Judge Northrop dissented, concluding that the amendments exceeded the commerce power because they transgressed the sovereignty of the States.

We noted probable jurisdiction of the plaintiffs' appeal, 389 U.S. 1031, 88 S.Ct. 772, 19 L.Ed.2d 819. For reasons to follow, we affirm the judgment of the District Court.

We turn first to the adoption in 1961 of the 'enterprise concept.' Whereas the Act originally extended to every employee 'who is engaged in commerce or in the production of goods for commerce,' it now protects every employee who 'is employed in an enterprise engaged in commerce or in the production of goods for commerce.' Such an enterprise is defined as one which, along with other qualifications, 'has employees engaged in commerce or in the production of goods for commerce * *  * .' Thus the effect of the 1961 change was to extend protection to the fellow employees of any employee who would have been protected by the original Act, but not to enlarge the class of employers subject to the Act.

In United States v. Darby, 312 U.S. 100, 61 S.Ct. 451, 85 L.Ed. 609, this Court found the original Act a legitimate exercise of congressional power to regulate commerce among the States. Appellants accept the Darby decision, but contend that the extension of protection to fellow employees of those originally covered exceeds the commerce power. We conclude, to the contrary, that the constitutionality of the 'enterprise concept' is settled by the reasoning of Darby itself and is independently established by principles stated in other cases.

Darby involved employees who were engaged in producing goods for commerce. Their employer contended that since manufacturing is itself an intrastate activity, Congress had no power to regulate the wages and hours of manufacturing employees. The first step in the Court's answer was clear: '(Congress may) by appropriate legislation regulate intrastate activities where they have a substantial effect on interstate commerce.'

The next step was to discover whether such a 'substantial effect' existed. Congress had found that substandard wages and excessive hours, when imposed on employees of a company shipping goods into other States, gave the exporting company an advantage over companies in the importing States. Having so found, Congress decided as a matter of policy that such an advantage in interstate competition was an 'unfair' one, and one that had the additional undesirable effect of driving down labor conditions in the importing States. This Court was of course concerned only with the finding of a substantial effect on interstate competition, and not with the consequent policy decisions. In accepting the congressional finding, the Court followed principles of judicial review only recently rearticulated in Katzenbach v. McClung, 379 U.S. 294, 303 304, 85 S.Ct. 377, 383, 13 L.Ed.2d 290:

'Of course, the mere fact that Congress has said when     particular activity shall be deemed to affect commerce does      not preclude further examination by this Court. But where we     find that the legislators *  *  * have a rational basis for      finding a chosen regulatory scheme necessary to the      protection of commerce, our investigation is at an end.'

There was obviously a 'rational basis' for the logical inference that the pay and hours of production employees affect a company's competitive position.

The logical inference does not stop with production employees. When a company does an interstate business, its competition with companies elsewhere is affected by all its significant labor costs, not merely by the wages and hours of those employees who have physical contact with the goods in question. Consequently, it is not surprising that this Court has already explicitly recognized that Congress' original choice to extend the Act only to certain employees of interstate enterprises was not constitutionally compelled; rather, Congress decided, at that time, 'not to enter areas which it might have occupied (under the commerce power).' Kirschbaum Co. v. Walling, 316 U.S. 517, 522, 62 S.Ct. 1116, 1120, 86 L.Ed. 1638.

The 'enterprise concept' is also supported by a wholly different line of analysis. In the original Act, Congress stated its finding that substandard labor conditions tended to lead to labor disputes and strikes, and that when such strife disrupted businesses involved in interstate commerce, the flow of goods in commerce was itself affected. Congress therefore chose to promote labor peace by regulation of subject matter, wages, and hours, out of which disputes frequently arise. This objective is particularly relevant where, as here, the enterprises in question are significant importers of goods from other States.

Although the Court did not examine this second objective in Darby, other cases have found a 'rational basis' for statutes regulating labor conditions in order to protect interstate commerce from labor strife. The National Labor Relations Act had been passed because

'(t)he denial by employers of the right of employees to     organize and the refusal by employers to accept the procedure      of collective bargaining lead to strikes and other forms of      industrial strife or unrest, which have the intent or the      necessary effect of burdening or obstructing commerce *  *      * .'

In National Labor Relations Board v. Jones & Laughlin Steel Corp., 301 U.S. 1, 57 S.Ct. 615, 81 L.Ed. 893, this Court held that the National Labor Relations Act (NLRA) was within the commerce power. The essence of the decision was contained in two propositions: 'the stoppage of those (respondent's) operations by industrial strife would have a most serious effect upon interstate commerce,' id., at 41, 57 S.Ct., at 626; and '(e)xperience has abundantly demonstrated that the recognition of the right of employees to self-organizztion and to have representatives of their own choosing for the purpose of collective bargaining is often an essential condition of industrial peace.' Id., at 42, 57 S.Ct., at 626.

The Fair Labor Standards Act, including the present 'enterprise' definition of coverage, may also be supported by two propositions. One is identical with the first proposition supporting the NLRA: strife disrupting an enterprise involved in commerce may disrupt commerce. The other is parallel to the second proposition supporting the NLRA: there is a basis in logic and experience for the conclusion that substandard labor conditions among any group of employees, whether or not they are personally engaged in commerce or production, may lead to strife disrupting an entire enterprise.

Whether the 'enterprise concept' is defended on the 'competition' theory or on the 'labor dispute' theory, it is true that labor conditions in businesses having only a few employees engaged in commerce or production may not affect commerce very much or very often. Appellants therefore contend that defining covered enterprises in terms of their employees is sometimes to permit 'the tail to wag the dog.' However, while Congress has in some instances left to the courts or to administrative agencies the task of determining whether commerce is affected in a particular instance, Darby itself recognized the power of Congress instead to declare that an entire class of activities affects commerce. The only question for the courts is then whether the class is 'within the reach of the federal power.' The contention that in Commerce Clause cases the courts have power to excise, as trivial, individual instances falling within a rationally defined class of activities has been put entirely to rest. Wickard v. Filburn, 317 U.S. 111, 127-128, 63 S.Ct. 82, 90-91, 87 L.Ed. 122; Polish Nat. Alliance of United States of North America v. National Labor Relations Board, 322 U.S. 643, 648, 64 S.Ct. 1196, 1199, 88 L.Ed. 1509; Katzenbach v. McClung, supra, 379 U.S., at 301, 85 S.Ct., at 382. The class of employers subject to the Act was not enlarged by the addition of the enterprise concept. The definition of that class is as rational now as it was when Darby was decided.

Appellants' second contention is that the commerce power does not afford a constitutional basis for extension of the Act to schools and hospitals operated by the States or their subdivisions. Since the argument is made in terms of interference with 'sovereign state functions,' it is important to note exactly what the Act does. Although it applies to 'employees,' the Act specifically exempts any 'employee employed in a bona fide executive, administrative, or professional capacity (including any employee employed in the capacity of academic administrative personnel or teacher in elementary or secondary schools) * *  * .' We assume, as did the District Court, that medical personnel are likewise excluded from coverage under the general language. The Act establishes only a minimum wage and a maximum limit of hours unless overtime wages are paid, and does not otherwise affect the way in which school and hospital duties are performed. Thus appellants' characterization of the question in this case as whether Congress may, under the guise of the commerce power, tell the States how to perform medical and educational functions is not factually accurate. Congress has 'interfered with' these state functions only to the extent of providing that when a State employs people in performing such functions it is subject to the same restrictions as a wide range of other employers whose activities affect commerce, including privately operated schools and hospitals.

It is clear that labor conditions in schools and hospitals can affect commerce. The facts stipulated in this case indicate that such institutions are major users of goods imported from other States. For example:

'In the current fiscal year an estimated $38.3 billion will     be spent by State and local public educational institutions      in the United States. In the fiscal year 1965, these same     authorities spent $3.9 billion operating public hospitals. *     *  *

'For Maryland, which was stipulated to be typical of the     plaintiff States, 87% of the $8 million spent for supplies      and equipment by its public school system during the fiscal      year 1965 represented direct interstate purchases. Over 55%     of the $576,000 spent for drugs, x-ray supplies and equipment      and hospital beds by the University of Maryland Hospital and      seven other state hospitals were out-of-state purchases.'

Similar figures were supplied for other States. Strikes and work stoppages involving employees of schools and hospitals, events which unfortunately are not infrequent, obviously interrupt and burden this flow of goods across state lines. It is therefore clear that a 'rational basis' exists for congressional action prescribing minimum labor standards for schools and hospitals, as for other importing enterprises.

Indeed, appellants do not contend that labor conditions in all schools and hospitals are without the reach of the commerce power, but only that the Act may not be constitutionally applied to state-operated institutions because that power must yield to state sovereignty in the performance of governmental functions. This argument simply is not tenable. There is no general

'doctrine implied in the Federal Constitution that the two     governments, national and state, are each to exercise its      powers so as not to interfere with the free and full exercise      of the powers of the other.' Case v. Bowles, 327 U.S. 92,      101, 66 S.Ct. 438, 443, 90 L.Ed. 552.

In the first place, it is clear that the Federal Government, when acting within a delegated power, may override countervailing state interests whether these be described as 'governmental' or 'proprietary' in character. As long ago as Sanitary District of Chicago v. United States, 266 U.S. 405, 45 S.Ct. 176, 69 L.Ed. 352, the Court put to rest the contention that state concerns might constitutionally 'outweigh' the importance of an otherwise valid federal statute regulating commerce. Congress had imposed statutory limits on the diversion of water from Lake Michigan. A unanimous Court, speaking through Mr. Justice Holmes, declared that the sanitary district's alleged need for more water than federal law allowed was 'irrelevant' because federal power over commerce is 'superior to that of the States to provide for the welfare or necessities of their inhabitants.' Id., at 426, 45 S.Ct. at 178. See State of Oklahoma ex rel. Phillips v. Guy F. Atkinson Co., 313 U.S. 508, 61 S.Ct. 1050, 85 L.Ed. 1487.

There remains, of course, the question whether any particular statute is an 'otherwise valid regulation of commerce.' This Court has always recognized that the power to regulate commerce, though broad indeed, has limits. Mr. Chief Justice Marshall paused to recognize those limits in the course of the opinion that first staked out the vast expanse of federal authority over the economic life of the new Nation. Gibbons v. Ogden, 9 Wheat. 1, 194-195, 6 L.Ed. 23. Mr. Chief Justice Hughes, speaking only one Term after he delivered the opinion for the Court in Jones & Laughlin, supra, put the matter thus:

'The subject of federal power is still 'commerce,' and not     all commerce but commerce with foreign nations and among the      several states. The expansion of enterprise has vastly     increased the interests of interstate commerce, but the      constitutional differentiation still obtains.' Santa Cruz      Fruit Packing Co. v. National Labor Relations Board, 303 U.S.      453, 466, 58 S.Ct. 656, 660, 82 L.Ed. 954.

The Court has ample power to prevent what the appellants purport to fear, 'the utter destruction of the State as a sovereign political entity.'

But while the commerce power has limits, valid general regulations of commerce do not cease to be regulations of commerce because a State is involved. If a State is engaging in economic activities that are validly regulated by the Federal Government when engaged in by private persons, the State too may be forced to conform its activities to federal regulation. This was settled by the unanimous decision in United States v. State of California, 297 U.S. 175, 56 S.Ct. 421, 80 L.Ed. 567. The question was whether a railroad, operated by the State, and entirely within the State, as a nonprofit venture for the purpose of facilitating transportation at a port, was nevertheless subject, like other railroads, to the Safety Appliance Act. The Court first held that although the railroad operated only between points in California, it was within the reach of federal regulation of interstate rail transportation. 297 U.S., at 181 183, 56 S.Ct., at 422-424. The Court then proceeded to consider the claim that the State 'is not subject to the federal Safety Appliance Act,' and reasoned as follows:

'(W)e think it unimportant to say whether the state conducts     its railroad in its 'sovereign' or in its 'private' capacity. That in operating its railroad it is     acting within a power reserved to the states cannot be      doubed. The only question we need consider is whether the     exercise of that power, in whatever capacity, must be in      subordination to the power to regulate interstate commerce,      which has been granted specifically to the national      government. The sovereign power of the states is necessarily     diminished to the extent of the grants of power to the      federal government in the Constitution.

'(W)e look to the activities in which the states have     traditionally engaged as marking the boundary of the      restriction upon the federal taxing power. But there is no     such limitation upon the plenary power to regulate commerce. The state can no more deny the power if its exercise has been     authorized by Congress than can an individual.' 297 U.S., at      183-185, 56 S.Ct., at 424 (citations omitted).

See also Board of Trustees of University of Illinois v. United States, 289 U.S. 48, 53 S.Ct. 509, 77 L.Ed. 1025, where the Court rejected a claim of 'state sovereignty' and held that a state university that imported scientific apparatus from abroad could be made to pay import duties imposed pursuant to the power over foreign commerce.

The principle of United States v. State of California is controlling here. Appellants' argument that the statute involved there was somewhat more directly and obviously a regulation of 'commerce,' and that the state activity involved there was less central to state sovereignty, misses the mark. This Court has examined and will continue to examine federal statutes to determine whether there is a rational basis for regarding them as regulations of commerce among the States. But it will not carve up the commerce power to protect enterprises indistinguishable in their effect on commerce from private businesses, simply because those enterprises happen to be run by the States for the benefit of their citizens.

Appellants raise two further issues, both of which the District Court found it inappropriate to explore fully in a declaratory judgment proceeding. We agree. In each case we conclude that no showing has been made that warrants declaratory or injunctive relief. In neither instance, however, do we mean to preclude future consideration on the facts of individual cases.

The first question is whether the Act violates the States' sovereign immunity from suit guaranteed by the Eleventh Amendment. The Act provides as follows:

'Any employer who violates the provisions of section 206     (wages) or section 207 (hours) of this title shall be liable      to the employee or employees affected in the amount of their      unpaid minimum wages, or their unpaid overtime compensation      as the case may be, and in an additional equal amount as      liquidated damages. Action to recover such liability may be     maintained in any court of competent jurisdiction *  *  * .' 29      U.S.C. § 216(b).

The Act also provides for suits by the Secretary of Labor to recover unpaid minimum wages or overtime compensation, 29 U.S.C. § 216(c) and for injunctive relief against violations, 29 U.S.C. § 217.

Percolating through each of these provisions for relief are interests of the United States and problems of immunity, agency, and consent to suit. Cf. Parden v. Terminal R. of Alabama, 377 U.S. 184, 84 S.Ct. 1207, 12 L.Ed.2d 233. The constitutionality of applying the substantive requirements of the Act to the States is not, in our view, affected by the possibility that one or more of the remedies the Act provides might not be available when a State is the employer-defendant. Particularly in light of the Act's 'separability' provision, 29 U.S.C. § 219, we see no reason to strike down otherwise valid portions of the Act simply because other portions might not be constitutional as applied to hypothetical future cases. At the same time, we decline to be drawn into an abstract discussion of the numerous complex issues that might arise in connection with the Act's various remedial provisions. They are almost impossible and most unnecessary to resolve in advance of particular facts, stated claims, and identified plaintiffs and defendants. Questions of state immunity are therefore reserved for appropriate future cases.

Appellants' remaining contention presents similar problems. In order to be covered by the Act, an employer hospital or school must in fact have

'employees engaged in commerce or in the production of goods     for commerce, including employees handling, selling, or      otherwise working on goods that have been moved in or      produced for commerce by any person *  *  * .' 29 U.S.C. §      203(s) (1964 ed., Supp. II).

Appellants ask us to declare that hospitals and schools simply have no such employees. The word 'goods' is elsewhere defined to exclude 'goods after their delivery into the actual physical possession of the ultimate consumer thereof other than a producer, manufacturer, or processor thereof.' 29 U.S.C. § 203(i). Appellants contend that hospitals and schools are the ultimate consumers of the out-of-state products they buy, and hence none of their employees handles 'goods' in the statutory sense.

We think the District Court was correct in declining to decide, in the abstract and in general, whether schools and hospitals have employees engaged in commerce or production. Such institutions, as a whole, obviously purchase a vast range of out-of-state commodities. These are put to a wide variety of uses, presumably ranging from physical incorporation of building materials into hospital and school structures, to over-the-counter sale for cash to patients, visitors, students, and teachers. Whether particular institutions have employees handling goods in commerce, cf. Walling v. Jacksonville Paper Co., 317 U.S. 564, 63 S.Ct. 332, 87 L.Ed. 460, may be considered as occasion requires.

The judgment of the District Court is affirmed.

Affirmed.

Mr. Justice MARSHALL took no part in the consideration or decision of this case.

Mr. Justice DOUGLAS, with whom Mr. Justice STEWART concurs, dissenting.