Roland Electrical Co v. Walling D/Opinion of the Court

The questions presented are (1) whether petitioner's employees are engaged 'in the production of goods for commerce' so as to bring them within the coverage of §§ 6 and 7 of the Fair Labor Standards Act of 1938 (52 Stat. 1060, 1062, 1063, 29 U.S.C. §§ 206 and 207, 29 U.S.C.A. §§ 206, 207), and (2), if so, whether they are exempted from the Act because 'engaged in any retail or service establishment the greater part of whose selling or servicing is in intrastate commerce' within the meaning of § 13(a)(2), 29 U.S.C. § 213(a)(2), 29 U.S.C.A § 213(a)(2).

Respondent sought a permanent injunction in the United States District Court restraining petitioner from continued violation of the minimum wage, maximum hour and report-making provisions of the Act. 29 U.S.C. ss 206, 207, 211(c), 29 U.S.C.A. §§ 206, 207, 211(c). As to the coverage by the Act, the District Court said that 'the view of the Administrator should not be accepted,' but it rested its dismissal of the complaint upon the ground that the petitioner was exempted under § 13(a)(2). 54 F.Supp. 733, 736. The Circuit Court of Appeals, on the other hand, held that petitioner's employees 'were engaged in the production of goods for commerce' and that the petitioner was not a 'retail or service establishment' within the exemption prescribed in § 13(a)(2). It accordingly reversed the order of dismissal and remanded the cause for further proceedings in accordance with its opinion. 146 F.2d 745, 746. We granted certiorari especially because of the divergence of opinions among the Circuit Courts of Appeals as to the interpretation of § 13(a)(2).

Most of the relevant facts were stipulated. Petitioner is a Maryland corporation 'having its principal office, place of business and a manufacturing plant' in Baltimore. It is there engaged in 'commercial and industrial wiring, electrical contracting, and dealing in electrical motors and generators, for private, commercial, and industrial uses.'

Petitioner had 'approximately 1,000 active accounts * *  * 99 per cent of which are commercial or industrial firms.' Its 'larger and most active accounts' were 33 in number. Of such 33 customers, one was a telephone company 'engaged in interstate commerce'; four were 'engaged in the repair of ships, tugs, barges, and other boats which were intended for movement in interstate commerce'; and 'the remaining companies on said list, with the exclusion of the American Ice Company (a small account in the period stipulated to be representative), were engaged in the production of goods for commerce as defined in Section 3 of the Fair Labor Standards Act of 1938, 29 U.S.C.A. § 203, shipping at least a substantial portion of their total production to points outside the State of Maryland.' During the period stipulated, 'every mechanic of the defendant (petitioner) worked, in practically every workweek, for some of the said (33) customers, either in the repair of their motors, generators, the reconstruction of used motors sold to them, or in performing electrical work at their respective establishments.' To carry on its entire business, the petitioner had 36 employees, consisting of a foreman, 4 trouble shooters, 14 mechanics, 11 helpers and 6 office employees. No claim of coverage is made on the ground that any of the petitioner's employees were engaged 'in (interstate) commerce,' but only that they were engaged 'in production of goods for (interstate) commerce.'

As to coverage, the Act is unambiguous and the petitioner's employees come squarely within it as employees 'engaged * *  * in the production of goods for commerce.' This turns on §§ 6(a), 7(a), 3(b), 3(i), and 3(j). Section 6(a) provides: 'Every employer shall pay to each of his employees who is engaged in commerce of in the production of goods for commerce wages at the following rates * *  * .' (Italics supplied.) Section 7(a) likewise provides: 'No employer shall, except as otherwise provided in this section, employ any of his employees who is engaged in commerce or in the production of goods for commerce' at wages less than 1 1/2 times the regular rate, where an employee is employed for more than the maximum number of hours prescribed. (Italics supplied.) Section 3 includes the following:

'(b) 'Commerce' means trade, commerce, transportation, transmission, or communication among the several States or from any State to any place outside thereof.

'(i) 'Goods' means goods (including ships and marine equipment), wares, products, commodities, merchandise, 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, manufacture, 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 Act an employee shall be deemed to have been engaged in the production of goods if such employee was employed in producing, manufacturing, mining, handling, transporting, or in any other manner working on such goods, or in any process or occupation necessary to the production thereof, in any State.' (Italics supplied.)

Putting these definitions together in their own terms, § 6(a), as applied to the facts of this case, provides in effect that 'Every employer shall pay (not less than the required minimum wages) to each of his employees who is employed in any process or occupation necessary to the production, in any state, of any part or ingredient of any articles or subjects of trade, commerce or transportation, of any character, for trade, commerce or transportation among the several states.' This does not require the employee to be directly 'engaged in commerce' among the several states. This does not require the employee to be employed even in the production of an article which itself becomes the subject of commerce or transportation among the several states. It is enough that the employee be employed, for example, in an occupation which is necessary to the production of a part of any other 'articles or subjects of commerce of any character' which are produced for trade, commerce or transportation among the several states. This does not require an employee to be employed exclusively in the specified occupation. This does not require that the occupation in which he is employed by indispensable to the production under consideration. It is enough that his occupation be 'necessary to the production.' There may be alternative occupations that could be substituted for it but it is enough that the one at issue is needed in such production and would, if omitted, handicap the production.

The necessity to the petitioner's customers, in their productive work, of the sales made and the services supplied to them by the petitioner's employees is the foundation of petitioner's business. The essential need for motors and wiring in the conduct of electrically operated productive processes of manufacture is beyond question. When commercial or industrial producers, such as the petitioner's customers, use electric motors in the production of goods for interstate commerce, services such as those of petitioner's employees are necessary to the continuity of such production. Such sales and services must be immediately available to petitioner's customers or their production will stop. If not supplied to the customers by employees of the petitioner, such customers would have to employ comparable employees of their own or of other contractors.

The work of petitioner's employees has 'such a close and immediate tie with the process of production for commerce, and was therefore so much an essential part of it, that the employees are to be regarded as engaged in an occupation 'necessary to the production of goods for commerce." Kirschbaum Co. v. Walling, 316 U.S. 517, 525, 526, 62 S.Ct. 1116, 1121, 86 L.Ed. 1638. The relation of petitioner's employees to the production of goods for interstate commerce by petitioner's customers is fully as close and 'necessary' as was that of the loft building watchmen and porters to the petitioner's tenants in Kirschbaum Co. v. Walling, supra; the manufacturing plant watchman of the respondent in Walton v. Southern Package Corporation, 320 U.S. 540, 64 S.Ct. 320, 88 L.Ed. 298; or the fire guards subject to call in Armour & Co. v. Wantock, 323 U.S. 126, 65 S.Ct. 165. In the latter case this Court said (323 U.S. at page 130, 65 S.Ct. at page 167):

' * *  * no hard and fast rule may be transposed from one industry to another to say what is necessary in 'the production of goods.' What is practically necessary to it will depend on its environment and position. * *  * What is required is a practical judgment as to whether the particular employer actually operates the work as part of an integrated effort for the production of goods.'

The foregoing conclusions follow so clearly from the language of the statute as to make unnecessary a discussion of the declared purpose or the legislative history of the Act to support them.

The second question is whether or not petitioner's employees are exempted from the Act on the ground that petitioner is a 'service establishment' within the meaning of § 13(a)(2). The language of that clause is capable of two interpretations. If read in a detached and broad sense, it can be made to exempt from the Act the employees of the petitioner together with hundreds of thousands of other employees like them, to the serious detriment of the effectiveness of the Act. However, if read in c nnection with the declared purpose of the Act and in the light of its legislative history and administrative interpretation the clause does not reach employees 'engaged * *  * in the production of goods for commerce' as were those in this case. When so read, the exemption reaches employees of only such retail or service establishments as are comparable to the local merchant, corner grocer or filling station operator who sells to or serves ultimate consumers who are at the end of, or beyond, that 'flow of goods in commerce' which it is the purpose of the Act to reach. See § 2, 29 U.S.C.A. § 202, infra. Without this clause such local establishments might find themselves technically covered by the Act, not because they were 'producing goods for (interstate) commerce,' but because, for example, they were retailing milk near a state line and, therefore, might be regarded as actually in (interstate) commerce when delivering retail sales of milk to local customers, all of whom were ultimate consumers of it for their personal use, but a small proportion of whom lived across the state line from the milk dealer. Walling v. Jacksonville Paper Co., 317 U.S. 564, 571, 63 S.Ct. 332, 337, 87 L.Ed. 460; A. H. Phillips v. Walling, 324 U.S. 490, 497, 65 S.Ct. 807, 810, 157 A.L.R. 876. Similarly, it was felt that without this exemption clause, the employees of a local merchant who purchased his goods from outside his state but retailed them all within his estate to ultimate consumers across his counter, might, nevertheless, technically be covered by the Act as being actually 'in (interstate) commerce' because of his purchases, although his sales all might be at 'retail' and beyond the end of the 'flow of goods in commerce.' 83 Cong.Rec. 7393, 7394, 7436-7438. The origin of this clause, § 13(a)(2), had nothing to do with establishments 'producing goods for (interstate) commerce'.

It is rare, if not impossible, for an employee who is engaged in an occupation necessary to the production of goods for interstate commerce to be said to be at the same time an employee engaged in a retail or service establishment whose selling and servicing is confined to ultimate consumers. These employments are largely mutually exclusive. To the extent that sales or services are necessary for the production of goods for interstate commerce they generally are by that hypothesis not sales or services to an ultimate consumer for his personal use and, accordingly, are neither 'retail' sales nor services of a comparable character, within the meaning of § 13(a)(2).

The logic of this result is as clear as the declared purpose, legislative history and administrative practice which combine to produce it.

The purposes of the Act are declared as follows in § 2:

'(a) The Congress hereby finds that the existence, in industries engaged in commerce or in the production of goods for commerce, of labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers (1) causes commerce and the channels and instrumentalities of commerce to be used to spread and perpetuate such labor conditions among the workers of the several States; (2) burdens commerce and the free flow of goods in commerce; (3) constitutes an unfair method of competition 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.

'(b) It is hereby declared to be the policy of this Act, through the exercise by Congress of its power to regulate commerce among the several States, to correct and as rap dly as practicable to eliminate the conditions above referred to in such industries without substantially curtailing employment or earning power.' 52 Stat. 1060, 29 U.S.C. § 202, 29 U.S.C.A. § 202. (Italics supplied.)

To fail to cover in this Act the multitude of employees who are engaged in establishments like that of the petitioner and which supply the materials and services currently needed for the maintenance of productive machinery used by those who produce goods for interstate commerce would take the heart out of this Act. Savings resulting from substandard labor conditions would be reflected directly into competitive costs. This would weaken the governmental mechanism for sustaining 'the minimum standard of living necessary for the health, efficiency, and general wellbeing of workers' referred to as the purpose of the Act.

The primary purpose of the Act is not so much to regulate interstate commerce as such, as it is, through the exercise of legislative power, to prohibit the shipment of goods in interstate commerce if they are produced under substandard labor conditions. Such a prohibi ion is an appropriate exercise of the power of Congress over interstate commerce. United States v. Darby, 312 U.S. 100, 115, 657, 61 S.Ct. 451, 457, 85 L.Ed. 609, 132 A.L.R. 1430; United States v. Carolene Products Co., 304 U.S. 144, 147, 58 S.Ct. 778, 781, 82 L.Ed. 1234. This Act seeks to eliminate substandard labor conditions, including child labor, on a wide scale throughout the nation. The purpose is to raise living standards. This purpose will fail of realization unless the Act has sufficiently broad coverage to eliminate in large measure from interstate commerce the competitive advantage accruing from savings in costs based upon substandard labor conditions. Otherwise the Act will be ineffective, and will penalize those who practice fair labor standards as against those who do not.

The original Bill provided for a labor standards board which was given broad authority to issue regulations and orders to carry out the provisions of the Act including authority to determine some questions of coverage. It listed no specific exemptions such as are now contained in § 13. In the joint hearings on this Bill (Joint Hearings, 75th Cong., 1st Sess., on S. 2475 and H.R. 7200, pp. 1-89, see especially pp. 24-25, 24-29, 35 et seq.), the Chairman of the Senate Committee on Education and Labor, asked the Assistant Attorney General (p. 35)-

'Would you explain under just what circumstances and under what circumstances only, it would be possible for the regulation of retail establishments and small business enterprises to come under this bill?' to which he replied-

'It was not intended by this bill to apply generally to retailers or apply to the service trades, such as the filling-station attendant, and the pants presser and small business generally.

'Practically, the situation in which a local merchant might be affected would be if he were moving his goods in the course of delivery across the State line to a substantial extent so that he were engaging in interstate commerce; but generally speaking, the policy of the bill is not to include the service trades and small businesses and the retailing enterprises.' Section 6(a) of the original bill proposed to exempt the employees of any employer employing less than a fixed minimum number of employees except in those circumstances where the Labor Standards Board found that the maintenance of appropriate fair labor standards by even such a class of employers was necessary or appropriate in order to carry out the purposes, or prevent the circumvention, of any provision of the Act. The requirement of a minimum size for an included establishment, and the provisions for the Board and its discretionary power were later eliminated but the purpose of all of these provisions is served to a substantial degree by the insertion of § 13 in their place.

While its language and coverage were changed in details, the Bill did not depart substantially from its original purpose. This purpose remains the key to the meaning of the words defining its coverage and also to those defining exemption from its coverage. There never was an intent expressed to exempt retailers other than the local merchants of the type dealing with the ultimate consumer. Section 13(a)(2) clarified the exemption of such of these as were near state lines and of local merchants whose purchases might be interstate although the greater part of their sales were intrastate.

In the Bill as reported to the House of Representatives, April 21, 1938, the declaration of purposes referred to 'substandard labor conditions in occupations in commerce, in the production of goods for commerce or otherwise affecting commerce.' (Italics supplied.) The breadth of the phrase 'affecting commerce' was so uncertain and difficult of definition that it was at first proposed in the Bill to grant to a labor standards board, and later to the Secretary of Labor, authority to determine what should be considered as actually 'affecting commerce' within the meaning of the Act. This proposal proved unsatisfactory and Congress finally chose to forego the exercise of its full constitutional power and eliminated from the Act the clause 'affecting commerce.' The remaining coverage relates only to employees (1) 'in (interstate) commerce,'-from whom § 13(a)(2) exempts employees of retail and service establishments the greater part of whose selling or servicing is in intrastate commerce-and to those (2) 'in production of goods for (interstate) commerce.' The debates in Congress show an intent to restrict the word 'retail' to such transactions with ultimate consumers as are commonly carried on at local dry goods, butchering, or grocery stores. The words 'service establishments' and 'servicing', however, were introduced in the final Conference Report and were not discussed on the floor. 83 Cong.Rec. 9161, 9249.

Returning to the text of the Act and to its authoritative administrative interpretation, further confirmation is apparent. In general usage the noun 'retail' means 'The sale of commodities in small quantities or parcels;-opposed to wholesale.' The verb 'retail' means 'To sell in small quantities, as by the single yard, pound, gallon, etc.; to sell directly to the consumer; as, to retail cloth or groceries.' Webster's New International Dictionary, Unabridged (2d ed., 1938).

In the suggested use of the word 'retail' as opposed to the word 'wholesale,' a distinction appears not merely between the size and volume of the sales but between types of purchasers. For example- 'Wholesaling includes all marketing transactions in which the purchaser is actuated solely by a profit or business motive in making the purchase.

'Retailing includes all marketing transactions in which the purchaser is actuated solely by a desire to satisfy his own personal wants or those of his family or friends through the personal use of the commodity or service purchased.' (Beckman and Engle in Wholesaling Principles and Practice (1937) p. 25.)

Similarly the Encyclopedia of Social Sciences states that 'The distinguishing feature of the retail trade * *  * consists in selling merchandise to ultimate consumers,' (Vol. 13, p. 346) whereas wholesaling is said to cover sales 'to a retailer, a wholesaler, or an industrial consumer so long as the purpose of the customer in buying such goods is to resell them in one form or another or to use them for business needs as supplies or equipment.' Vol. 15, p. 411.

Governmental usage makes the same distinction on the basis of the use for which the goods are purchased. The Bureau of the Census states in its definition of 'wholesale' that 'in general, the distinguishing characteristic is that goods sold at wholesale are to be used for business purposes (such as materials for further processing and fabrication, merchandise for resale unchanged, etc.), rather than for personal or household consumption.' U.S.C.ensus of Business, 1939, Instructions to Enumerators For Business and Manufactures, p. 18; also Vol. 1, Retail Trade, p. 1; Vol. II, Wholesale Trade, p. 1. It classifies as 'wholesale sales,' sales of goods or merchandise 'to trading establishments of all kinds, to institutions, industrial, commercial, and professional users, and sales to governmental bodies.' (Ibid.) The Bureau of the Budget in its Standard Industrial Classification Manual, likewise classifies 'wholesale trade' to include 'all establishments or places of business engaged primarily in selling merchandise to retailers, to industrial or commercial users, or to other wholesalers * *  * .' Vol. II-Nonmanufacturing Industries, 1942, p. 35. It defines 'retail trade' to include 'establishments engaged in selling merchandise for personal or household consumption and rendering services incidental to the sales of goods.' (Ibid.) Similarly the Social Security Board, in its Industrial Classification Code, Vol. I, Description of Industries, 1942, pp. 99, 100, prepared for use of the Board and State agencies administering employment security legislation, distinguishes between wholesale and retail establishments on the basis of whether the goods they sell are to be used for business purposes or for personal or household purposes.

The word 'retail' because of its ready contrast with 'wholesale' is generally more restrictive than the word 'service.' The two, however, are used so closely together in this statute as to require them to be interpreted similarly. This makes it appropriate to restrict the broader meaning of 'service' to a meaning comparable to that given the narrower term 'retail.' The words are put on a like level especially by their use in the alternative with the single word 'establishment' in the phrase 'any retail or service establishment the greater part of whose selling or servicing is in intrastate commerce.' (Italics § pplied.) Accordingly, in proportion as the meaning of the word 'retail' is restricted to sales made in small quantities to ultimate consumers to meet personal rather than commercial and industrial uses of those articles, so it is correspondingly appropriate to restrict the word 'service' to services to ultimate users of them for personal rather than commercial purposes. This is supported by judicial interpretation of the clause.

The administrative interpretation by the Administrator of the Wage and Hour Division of the terms 'retail and service establishments,' 'retail sales' and 'services' as used in this connection reinforces the interpretations above stated, and this Court, in speaking of interpretations of this Act by the Wage and Hour Division, has said: 'In any case such interpretations are entitled to great weight.' United States v. American Trucking Ass'n, 310 U.S. 534, 549, 60 S.Ct. 1059, 1067, 84 L.Ed. 1345. See also, Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S.Ct. 161, 164. The Administrator classifies as 'non-retail' many types of sales closely comparable to those made by the petitioner in this case, of motors, generators and similar equipment to commercial and industrial customers for their use in producing goods for interstate commerce.

Although in this case the motors sold by the petitioner were not purchased by its customers for resale or to be processed for resale, and although they were to be used and probably ultimately to be 'consumed' in the hands of the petitioner's customers, these motors remained actively in use in the production of the 'flow of goods in commerce.' It is to this great field of the production of goods for interstate commerce that the Act is directed.

The record establishes the 'commercial and industrial' character of the petitioner's customers. The petitioner's circular advertises its business as that of 'electrical engineering, motor dealers, commercial and industrial wiring.' (Italics supplied.) The circular offers 'service for all types of machinery and industrial wiring.' (Italics supplied.) The stipulation filed by the petitioner shows that 99% of its 'active accounts as reflected in its Accounts Receivable Ledger * *  * are commercial or industrial firms.' (Italics supplied.) These are not 'retail' customers in the same sense as is the customer of the local merchant, local grocer or filling station operator who buys for his own personal consumption. The Fair Labor Standards Act is concerned with goods in the stream of commerce but not with those in 'the actual physical possession of the ultimate consumer thereof other than a producer, manufacturer, or processor thereof.' See § 3(i), supra.

For these reasons the employees of the petitioner were properly held to be engaged in the production of goods for interstate commerce under the coverage of the Fair Labor Standards Act and were not taken out of that coverage by the exemption stated in § 13(a)(2). The judgment of the Circuit Court of Appeals accordingly is affirmed.

Affirmed.

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