UNITED STATES v. WEBB, INC.
Argument of Griswold
Chief Justice Warren E. Burger: United States against Webb and others.
Mr. Solicitor General.
Mr. Griswold: Mr. Chief Justice and may it please the Court.
This is a federal tax case involving the application of the Social Security Old Age Tax and the Federal Unemployment Tax to the owners of ships with respect to captains and crew members who fish off the South Atlantic Coast and the Gulf of Mexico for Manhattan.
Manhattan are a frequently encountered fish which is not regarded as edible by humans, but which is caught in large quantities and processed into fish meal and fish oil which are used primarily for fertilizer or for feeding poultry and other livestock.
The case comes here on a writ of certiorari to the United States Court of Appeals for the Fifth Circuit.
The statutory provisions involved are set forth in the appendix to the Government's brief at pages 39 to 41.
Before stating the facts, it will be helpful I think to put the precise terms of the statute before the Court.
The Old Age Tax is imposed by Section 3111 of the Internal Revenue Code and is in terms at equal to the following percentage of the wages paid by him with respect to employment.
And then in Section 3121, the term wages is defined.
Now, wages means all remuneration for employment and then in 3121 (d), there is a definition of the term employee to include any individual who under the usual common law rules applicable in determining the employer-employee relationship has the status of an employee.
In this setting out in our brief of the statutory provisions, we omitted one at this point which may have some conceivable application.
It is in Section 3121 (b) (4) and it provides that employment shall not include services performed by an individual on or in connection with a vessel, not an American vessel or in connect or in connection with an aircraft, not an American aircraft, if (a) the individual is employed on and in connection with such vessel or aircraft went outside the United States and (b) such individual is not a citizen of the United States or the employer is not an American employer.
Now, that's entirely an exclusionary provision.
It leaves only the inference that it was intended to apply to American citizens employed on American vessels by -- owned by American owners --
Justice William J. Brennan: Mr. Solicitor General, you said that was (b) (4) or (d) (4)?
Mr. Griswold: That is (b) (4).
Justice William J. Brennan: Thank you.
Mr. Griswold: 3121 (b) (4) contains a negative pregnant that Americans employed on American owned vessels are covered.
I would say as Mr. Lyman will remind you that that is still subject to the definition of employment or employee in Section 3121 (d).
Now, that's the Old Age Tax, there is also an Unemployment Insurance Tax.
The Old Age Tax you will recall is imposed on both the employer and the employee with the employer under obligation to withhold the employee's share and pay over the total to the treasury.
The Unemployment Tax is imposed only on the employer and there again, it is imposed at a percentage of the total wages paid by him during the calendar year with respect to employment.
This appears on page 40 in the appendix to our brief.
The term wages is defined to mean all remuneration for employment.
And again, we have the term employment defined here saying there's somewhat more complicated manner.
Employment is defined as any service performed -- any service of whatever nature performed after 1954 by an employee for the person employing him; (b) on or in connection with an American vessel and then you come to the end of that at the top of page 41, except and this gets very involved because this exception I'm about to state is then subject to an exception itself, except service performed by an individual in or as an officer or a member of the crew of a vessel while it is engaged in the catching, harvesting, cultivating or farming of any kind of fish, shellfish and so on and here's the next exception, except (b) service performed on or in connection with a vessel of more than ten tons.
So they take out all fishing, but then they except from that take out service on vessels of more than ten tons.
And all of the vessels involved in this case were of more than ten tons so that it comes within the exception to the exception and thus is included in the definition of employment.
But again, it's subject to the provision in Section 3306 (i) that for purposes of this chapter, the term employee includes an officer of a corporation, but does not include any individual who under the usual common law rules applicable in determining the employer-employee relationship has the status of an independent contractor or (2) any individual who is not an employee under such common law rules.
Now, that is the statutory setup.
It is part of a large whole but one can focus rather closely on those provisions; one in the Old Age Tax and one in the Unemployment Tax which -- by which Congress has emphasized that the test of employment is the common law -- the usual common law rules applicable in determining the employer-employee relationship.
Justice Potter Stewart: Mr. Solicitor General, as I read this now under your guidance, I gather that we come right down with respect to both taxes to the definition of employee in each case, don't we?
In other words, this definition of unemployment under the second tax, we really end up that the door by which we're heading, it doesn't add or subtract much of anything, is that right?
Mr. Griswold: I think -- I think that's exactly it except that I would say that this definition comes as a piece of a mosaic which also includes some references to fishing and ships and boats of more than ten tons and thus, it is perfectly plain that Congress did not intend to exclude employment on the ship such as are involved in this case.
Justice Potter Stewart: Right.
Mr. Griswold: But I fully agree that a large part of the problem before the Court is the application of this common law test specified in the statute to the facts of this case.
Justice Potter Stewart: And the test of the definition of the word employee?
Mr. Griswold: The determining whether these people are employees.
Justice Potter Stewart: Under 3121 (d) and under --
Mr. Griswold: 3306 --
Justice Potter Stewart: 3301 (i), (b) (i).
Mr. Griswold: Yes Mr. Justice --
Justice Potter Stewart: Thank you.
Mr. Griswold: Now, this case was tried before the District Court without a jury.
There was an extensive stipulation of facts.
There were also depositions and evidence on all of which, the District Court made findings of fact and conclusions of law.
The underlying facts are essentially not in dispute and they maybe summarized as follows.
The fishing involved in this case was partly in the South Atlantic Coast and partly in the Gulf of Mexico.
There are 14 respondents in five cases which were consolidated in the court below.
Each owns one or more boats which Fish for Manhattan, their cost varying between $24,000.00 and $157,000.00.
In other words, the respondents all have substantial capital invested in the enterprise.
The respondents sell the fish to processing plants.
The respondents who not only own the boats, keep them fully equipped, paid for all their repairs and paid for insurance on the boats.
They paid for fuel for the boats, all of the fuel for the boats.
The method of operation was one which has an ancient history in the fishing business.
It seems to go back three or four centuries at least.
It's called the “lay system.”
There are some variations, but the owner of the boat from people whom he knows secures the services of an experienced fishermen as a captain of the vessel.
He is selected because of his honesty and experience and his ability to enlist and organize and supervise a crew.
When the captain has been chosen, he arranges a crew and here I would like to turn to some of the findings of the District Court so that there can be no suggestion that I am not representing the facts adequately.
Finding 13 on page 320 of the record, the arrangement between the plaintiffs and each captain was entirely oral.
The term of the arrangement was not specified, but it was understood to persist for a fishing season.
It could be terminated by either party voluntarily or involuntarily at the conclusion of any trip during the season.
That seems to me to show a great potentiality for a control by the boat owners, but this could occur only when a boat was in port and before another fishing trip was commenced.
While the arrangement could be so terminated, custom and practice was for it to be continued for the season.
Chief Justice Warren E. Burger: I suppose Mr. Solicitor General that it could also be argued that that flexibility also gave the master of the vessel quite a bit of control in --
Mr. Griswold: Inevitably Mr. Chief Justice and that of course I suppose is inherent in the post of being the master of a vessel while it is at sea.
Chief Justice Warren E. Burger: Well, I was thinking in terms of his power to terminate the contract at the end of any voyage --
Mr. Griswold: Yes, I suppose any employee ordinarily can quit at any reasonable time.
That doesn't negate the fact that he is an employee.
Justice Potter Stewart: What is tenure of the trips typically?
Is it just one day trips?
Mr. Griswold: The trips were ordinarily one day in the Gulf.
They occasionally were longer in the South Atlantic, particularly in the winter.
At this time, there were not refrigerated ships although there are now and the controlling factor, the Manhattan being quickly perishable, the controlling factor was the temperature.
In the Gulf, the temperature is always high and the trips were one day.
The evidence shows that in the South Atlantic, they occasionally lasted three or four days.
They were ordinarily short trips.
Now I call attention to finding 22 on page 323.
In negotiating for the service of a captain, it was understood that the captain would select the crew members.
Prior to commencement of a new season, the tax payers who are the boat owners and the respondents here would furnish the captain with the pay scale of crew members and the crew size to be employed for the season.
If a bonus was to be paid for fishing the entire season, this information also was furnished to captains.
So I point out that the owners here fixed the -- I can't quite say the rate of pay because under the lay system, the men are paid so much for a thousand pounds of the catch but they fix the rate per thousand pounds that the men were to be paid.
And then I call attention to finding 24 on page 324, defendant contended and the plaintiff denied that the captain was required to pay a crew member not less than the scale established by the plaintiff.
The testimony of the various captains leave no doubt that the plaintiff not only fixed the pay scale of the crew, but also the number of the crewmen to be hired and finally of the findings, I would refer to finding 46 on page 333.
The plaintiffs did have the right to control the results of a captain's work and interfered in the process to some degree to assure a proper result from the undertaking.
Next, I would like to point out that the evidence is clear that the captains were required to obtain from each crewman, the evidence says a W-2 form, but the W-2 form is the one by which you report to the individual at the end of the year what has been withheld.
It is actually this familiar W-4 form which is the employee's withholding exemption certificate and then it was also a part of the procedure duly established and carried out that the captains at the end of each trip turned in the data with respect to the crewmen showing which crewmen had served and what the amount of the catch had been and what the rate per thousand pounds was for each crewman.
And in our reply brief, we have reproduced exhibits one and two which were introduced into evidence in the court below and about which there is no controversy or dispute.
These show that for each individual, what is headed at the top a payroll and they show the amount of fish caught, the rate for each man, the total payment, the Social Security Tax withheld, the income tax withheld, the amount deducted for each individual for his share of the cost of food because the crewmen paid for the food, the amount deducted for advances which had previously been made, the other deductions which were because as I understand it, the crewmen paid $5.00 each to provide the pay of the cook -- the cook being thought of as providing their meals which were their responsibility.
Finally, the balance and then also at the bottom of the second sheet of exhibit one are shown the other checks which were issued which included payment for the food and these under -- according to the record were all the ship owner's checks, the respondent's checks here.
They got all the money and they paid all the bills.
And finally, exhibit two which is at the back shows the individual record which was kept for each member of the crew, again showing these deductions which are aggregated at the bottom of the page for the whole year so that they could be duly reported to the individual on the form W-2 the amount of deductions for Social Security Tax, for income tax and for other matters.
Now, let me point out that this -- the fact that this case is here, it seems to me to be an instance of the difficulty we sometimes get into in this country in administering relatively simple matters.
It is nearly 30 years ago that the treasury issued a ruling with respect to this situation saying that captains and crewmen operating under the lay system are employees and are subject to the Social Security Tax.
This is SST Social Security Tax 387 which was published in the Accumulative Bulletin for 1940 Volume 1 and this is cited in our brief.
In addition, this Court had decided cases like the Silt Case in 331 US which involved another group of relatively simple workmen.
They were coal unloaders there.
They furnished their own picks and shovels.
In this case, the men furnished nothing except their foul weather gear which would be boots and raincoats.
In the Silt Case, this Court reversed both of the lower courts and held that the coal unloaders were employees.
In addition to the Silt Case, there are of course many cases under the Fair Labor Standards Act and under the National Labor Relations Act.
Now, it will be said by Mr. Lyman that neither the Silt Case nor SST 387 are relevant because they were both issued before the Congress amended the statute in 1948.
And it was in 1948 that Congress put in this language about the common law test to which Mr. Justice Stewart referred awhile ago.
But as is pointed in our brief at the time that Congress put this into the statute, the legislative history plainly showed that Congress was endorsing the Silt Case.
It referred to the -- on page 15 of our brief is a quotation from the Senate Report.
In the view of your committee, these decisions affirm that the usual common law rules realistically applied must be used to determine whether a person is an employee for purposes of applying the Social Security Tax.
And in 1950, two years later referring to the situation, the House -- the Conference Report said a restricted view of the employer-employee relationship should not be taken in the administration of the federal old age and survivors' insurance system in making coverage determinations.
So I find nothing to indicate that the language of the statute put in 1948 was intended to repeal or overrule the Silt Case, nothing to indicate that the early administrative interpretation should not be followed.
I would point out that we are here dealing with a maritime employment.
We're necessarily concerned with the customs of the sea and the law of the sea.
Under the law of the sea it's perfectly plain that this captains and crewmen would be entitled to maintenance and cure, would be entitled to a protection under the Jones Act.
The proposition that captains and crews under the lay system are employees for purposes of the Social Security Taxes has been accepted by the Court of Claims in two cases, cited at page 37 of our brief.
One involving fishing for scallops from New Bedford and the other involving fishing for shrimp and oysters in the Gulf of Mexico and also by the Court of Appeals for the First Circuit affirming per curiam in opinion by Judge Genio in the District of Maine involving a fishing trawler operating out of Portland, Maine.
The only problem has been in the Fifth Circuit and there are things got off to a bad start in Enochs against the Williams Packing and Navigation Company, cited on page 37 of our brief.
That was a suit to enjoin the collection of these taxes in circumstances essentially the same as those here and both the District Court and the Court of Appeals in the Enochs case allowed the injunction.
That involved, as far as both courts were concerned, a determination that these people were not employees.
When the case came here, this Court reversed, holding that it was not appropriate to disregard the statute and ignore the restriction on injunctions against the collection of taxes, but there is that left standing the rest of the Fifth Circuit decision.
And in the Crawford Packing case, cited on page 37 and in this case, the Court of Appeals has understandably continued to follow its decision in the Enochs' case, otherwise repudiated by this Court that these people were not employees.
Now, even under the common law test, even if it's given a narrow construction, we contend that these captains and crewmen came within.
Here, all of the capital came from the ship owners.
They owned the ships.
They paid for their repairs and for their fuel.
They paid for the nets which cost some $10,000.00.
All the men provided was their foul weather gear, boots and slickers and the like.
They did not even provide picks and shovels as in the Silt case.
The rate of compensation of the captains and crews was fixed by the owners.
The size of the crews were determined by the owners.
The captains could change this, but only at the expense of themselves or of all the crew.
The owners were the entrepreneurs, they were in charge, they fixed the pay scale.
The owners paid the bills.
They were the only ones that had money in hand for the purpose.
They took out insurance and took the gain of the price when fish went up and took the risk of loss.
They were clearly in-charge and that should be enough when the statute is realistically applied.
Even under a strict view of the common law test and when this question arises in the maritime setting as it does here, that conclusion becomes even more clear.
There are three ways it seems to me that this case can be decided; one is practical and workable.
The others lead only to uncertainty and confusion.
Now first, the Court can hold that the captains and the crews were the employee's of the owners thus reversing the decision below.
That's what the parties actually did here.
That makes the Social Security System realistic and workable as applied to these workers who have no capital investment, no management of the enterprise.
That puts the paperwork of withholding and tax paying work and practically be handled as it was handled in this case.
Or second, the Court can hold that the captains and crews are not employees of the ship owners.
That would eliminate withholding of income tax under of worker's share Old Age Tax and it would eliminate payment of Old Age Tax and Unemployment Tax by the owners.
This can be set forth.
People would know where they stood, but it would mean that the captains and the crews would have to pay their income tax without withholding and would have to pay self employment tax at an increased rate.
Justice Potter Stewart: Is there any chance that the crew would be -- the members of the crew would be employees of the captain?
Mr. Griswold: I suppose so, I don't know.
There is some suggestion that Mr. Lyman suggests in his brief --
Justice Potter Stewart: That they'd be probable.
Mr. Griswold: -- that they would be self employed and pay their own tax which seems to me to be quite unrealistic.
Justice Potter Stewart: I think if they're not employees of these respondents, they would be employees of the captain, is that right?
Mr. Griswold: That could be but that isn't the way the captain thinks of it.
He doesn't --
Justice Potter Stewart: He wouldn't like it, I suppose?
Mr. Griswold: -- maintain employment records and carry on relations with the union and things of that kind.
And finally, the question could be left for the decision of the trier of the facts in each case.
That is what has happened so far in the Fifth Circuit.
It happened for example in the Enochs' case when it went back to the District Court after this Court's decision that the collection of the tax could not be enjoined, but that way it's chaos.
A jury verdict establishes no rule.
It would not bind others now would it bind the same parties on slightly different facts.
There have been numerous jury verdicts on this question in the fifth Circuit and they give no guidance to anyone.
That approach makes it impossible for the treasury to administer the statute in a fair and consistent manner and makes it equally impossible for boat owners or captains or crew members to know what their responsibilities are.
There's no dispute as to the facts in this case.
Most of the facts were stipulated.
There was evidence but there's no contradiction in the evidence.
Though we would have put some of the matters somewhat differently, the Government accepts the findings of fact made by the District Court.
Our position is that those findings lead as a matter of law to the conclusion that the captains and crews here were employees of the owners of the ships who provided the means and made the rules and took the money and paid the bills.
Accordingly, we urge that the judgment below should be reversed.
Chief Justice Warren E. Burger: Thank you, Mr. Solicitor General.
Argument of Joseph J. Lyman
Mr. Joseph J. Lyman: Mr. Chief Justice and may it please the Court.
The respondents say that the only question of substance here is whether the concurrent findings of fact of the District Court and the Court of Appeals below are amply supported by the record.
And whether those courts applied the proper legal standards in reaching the conclusion of law or whether the findings and conclusions are clearly erroneous.
Now, these cases are suits for refund of Federal Employment Taxes erroneously paid on the earnings of certain fishermen who used and operated the respondent's Manhattan vessels.
Now, the sole--
Justice Byron R. White: Do you --
Mr. Joseph J. Lyman: Yes sir.
Justice Byron R. White: Excuse me.
Do you contend the conclusion of the finding of no employment relationship is a finding of fact subject to the clearly erroneous rule or is it a legal question?
Mr. Joseph J. Lyman: A mixed question of law in fact I believe Your Honor --
Justice Byron R. White: Well, what if it is?
What about on review?
Mr. Joseph J. Lyman: Well, Your Honor, I would say that on review that where a statute would preclude the decision of the District Court, I would say that would be a question of law and reviewable on appeal where the statute would preclude the decision.
However, where fact elements are concerned in this mixed question, the reviewing courts are bound by the clearly erroneous rule and a reviewing court will set aside a trial court's decision only when the facts found fall short at meeting the statutory requirements.
I believe that was this Court's ruling in Trust of Bingham --
Justice Byron R. White: What that means is that the court accepts the historical facts found unless they're clearly erroneous, but then it's a question of law as to whether they meet the standard?
Mr. Joseph J. Lyman: That's correct.
Justice Byron R. White: So there is no clearly erroneous rule in reviewing that conclusion of the fact.
Mr. Joseph J. Lyman: I don't see how it could be there, no Your Honor, that's correct.
Well, the sole issue before the District Court was whether the boat owners, also the respondents here reliable for the excise tax portion of the employment taxes imposed on their earnings of the fishermen and that's the captains and the crewmen.
Now, the respondent's liability or non-liability for these taxes depended upon the definition of the term employee and that term is defined in two sections of the Internal Revenue Code, both of which adopt the common law control test.
Now, the trial court held that the tax per owners had proved their claims for refund and as a consequence, the fishermen were not their employees under those statutes, for other purposes it may have been, but under those statutes, they weren't.
Now, the trial court resolved all issues under these statutes.
All issues of facts in favor to the boat owners and particularly, those issues as to the absence of control over the manner and method in which the work was done.
Now, the Circuit Court refused to set aside the trial court's findings and conclusions since they were the result of a choice between two permissible views of the weight of the evidence and held they were not clearly erroneous.
Now, the District Court made 51 separately numbered detailed findings and covering about 19 pages of this record.
Briefly, I would say the needle points as far as our presentation is concerned would be this.
The respondents were owners of Manhattan boats.
They equipped and maintained them, repaired them for commercial fishing purposes.
They contracted with the captains to gather the fish.
Now, an owner would relinquish complete control of that boat to a captain.
The captain would then staff it with his own crew, his own organization which consisted of mast to bow mates engineers, pilots, experienced net man, and a cook or maybe two.
The captain will then provision the boat at his own expense and anyway that he saw fit and all of these was without any interference by the owners.
Justice Byron R. White: You mean the provision, you mean groceries and foods?
Mr. Joseph J. Lyman: Groceries, yes, Your Honor.
Justice Byron R. White: And those were deducted from his share of the take?
Mr. Joseph J. Lyman: No, he paid those out of his own pocket.
Justice Byron R. White: Well, that's what I mean.
Mr. Joseph J. Lyman: Oh, yes.
Justice Byron R. White: But the old -- if no fish were caught, the captain was out at the groceries?
Mr. Joseph J. Lyman: That's right.
Many times that's happened.
Justice Byron R. White: So he took the risk of loss and --
Mr. Joseph J. Lyman: That's correct.
Justice Byron R. White: --in this enterprise?
Mr. Joseph J. Lyman: Yes Your Honor
Justice Byron R. White: Only for the groceries?
Mr. Joseph J. Lyman: Groceries or that would be all.
Justice Byron R. White: Because fuel and other things --
Mr. Joseph J. Lyman: No, those were all paid by the owners.
Justice Byron R. White: But the captain -- and also, I suppose that the -- that the -- well, the crew members were paid also when the fish were caught weren't they?
Mr. Joseph J. Lyman: That's correct.
Justice Byron R. White: Okay.
Mr. Joseph J. Lyman: Your Honor, just to bring that up, the crew members are paid out of the pocket of the captain.
Justice Byron R. White: Oh yes but only if fish -- he didn't owe them anything unless they caught some fish?
Mr. Joseph J. Lyman: That's correct.
I want to correct one -- correct -- just want to give my view of Mr. Griswold's statement that this was a lay system.
This wasn't a lay system at all.
This was a pure sale.
In other words, when a fish boat came in and the captain came in with a large catch, he sold that --
Justice Byron R. White: To the owner?
Mr. Joseph J. Lyman: To the owner.
Justice Byron R. White: And then the owner sold to the plant.
Mr. Joseph J. Lyman: The owner and the plant had another arrangement or some kind.
The plant was not a party to this suit and it's important that the plant was not a party to this suit because in one of these findings which Mr. Griswold mentioned, he said that the respondents made a payroll record, that wasn't so.
The plant made up his payroll records.
The plant was in the middle acting as agent you might say for the captain and also for the owners because it was to the plant's interest to get as many of these people to bring fish in as possible.
Well anyway, the captain agreed without a guarantee of any kind to make fishing trips for a season and return the catches to the plants that were owned by the parties who were not parties to this suit.
Now, the price that the owner paid to the captain was agreed upon between the owner and the captain and this was if the Court please, a bilateral decision after negotiations.
This wasn't something I said I'm going to give you this much and that's all you get, this was a give and take proposition.
The prices differed with the seasons and even differed among owners and captains.
But once a price was fixed for a season, it remained that price during that season.
Now, there was nothing in the arrangements which indicated that a captain would be offered a boat beyond a single season or that he would promise a fisher boat for anybody else beyond the single season.
There is no connotative relationship here in any meaningful sense.
Chief Justice Warren E. Burger: Well, did he promise to fish it beyond a single voyage?
Mr. Joseph J. Lyman: Yes, I would say that it was contemplated here that they would take it for the season which was about four to five months or six months depending where they were.
Chief Justice Warren E. Burger: But terminable at will by either parties?
Mr. Joseph J. Lyman: Yes, but as a practical matter if the Court please, if the boat is equipped and ready to go and there are plenty of fish out there and the captain has his organization, I cannot imagine that an owner would just willy nilly fire a captain and leave a profitable venture sitting at the dock.
If any one is going to quit, it would be the captain.
Of course if the fish disappeared or captain fell ill, of course that might end the voyage.
But the owner, he hoped and prayed the captain would stay and he had a good crew and that he wouldn't lose the crew.
Now, these captains were free to perform these services for any boat owner anywhere at anytime.
There was no suggestion if the owners had a preferred call and the time or efforts of these captains.
Now, the crew was hired and paid by the captains.
Now, the compensation paid to the crew came solely out of the pocket of the captain and if there was a catch, Mr. Justice White, the proceeds of that sale became the captain's money.
There's no lay system here.
It was then divided among the crew in accordance with the prior arrangements with the captain and the crew.
If there was no catch as you say then no one is paid.
Now there was no evidence in this record of a union contract involved at all or bargaining agents between any of the parties.
Each captain dealt with each owner on an individual basis and each crewman dealt with each captain on an individual basis.
Justice Thurgood Marshall: Who fixed the terms of this amount of money for the crew?
Mr. Joseph J. Lyman: Your Honor, the amount of money was issued in a pay scale by the owners.
Now, the District Court said nothing more than that, but I attribute that Your Honor to the owner's control over the result of this enterprise because if somebody didn't do something to stabilize what these men would get in a plant area, there'd be chaos.
They would be raiding each others' crews' right in the -- right down at the dock.
So -- and that has happened many times.
So to avoid that, the captains actually and the owners would get together and it may violate anti trust laws but they would fix that price that these crews would get.
And then once the crews were fixed, I think there's a finding which states that the captain had discretion to vary that once he was out, but that was the purpose of that Mr. Justice Marshall.
Justice Thurgood Marshall: Who hires and who fires?
Mr. Joseph J. Lyman: The owners--
Justice Thurgood Marshall: The captain hires?
Mr. Joseph J. Lyman: Pardon?
Justice Thurgood Marshall: The captain hires.
Mr. Joseph J. Lyman: The captain hires the crew entirely.
Justice Thurgood Marshall: Can the owner fire?
Mr. Joseph J. Lyman: No Your Honor, absolutely not.
That was specifically found.
Justice Thurgood Marshall: He can't fire any member of the crew?
Mr. Joseph J. Lyman: Well, the Court so found and it has never happened.
I mean, the owner now cannot fire any member of the crew.
Justice Thurgood Marshall: But he could fire the captain?
Mr. Joseph J. Lyman: Well, Your Honor, let's put it this way.
If you say fire, he could take his boat and say that to tie it up or he could refuse to give him a boat the following season.
Well I would construe that to mean rather than firing him that he just didn't want to renew the contract at the beginning of another year.
Justice Thurgood Marshall: Well let's suppose he caught him stealing money during the --
Mr. Joseph J. Lyman: Well --
Justice Thurgood Marshall: Can he get rid of him?.
Mr. Joseph J. Lyman: Your Honor, I would hope he would and I couldn't -- I don't see how that would turn him into an employee.
Justice Thurgood Marshall: Well I mean why would he be interested in whether they steal and not if he is an independent contractor?
Mr. Joseph J. Lyman: Well I'm afraid I don't follow that.
Justice Thurgood Marshall: Well, you say it's completely independent that the owner pays and he hires and he fires --
Mr. Joseph J. Lyman: That's correct.
Justice Thurgood Marshall: --and pays him out of his own pocket?
Mr. Joseph J. Lyman: Yes sir.
Justice Thurgood Marshall: Well, how could he steal from himself?
Mr. Joseph J. Lyman: I don't think he could, but if he was just a thief at heart and stole something else, I'd imagine he'd get rid of him.
Justice Thurgood Marshall: Oh, I see.
Mr. Joseph J. Lyman: It was open for the District Court here to hold that for the purposes of this two Acts, that fisherman could very well have been employees of the owners.
But it's obvious from the findings that the District Court had the common law test clearly in mind.
For example, the Court found specifically that the tax payer had no right to nor attempted to instruct the captain or crew as to their fishing activity or how to accomplish it.
Another specific finding; there was no expressed agreements specifying the extent of the tax payer's control over the captain's activities.
Another; it was clear that no actual control was exercised over the details or the manner and method employed by the captains and crews.
One more, the tax payers had a right to control the results and interfered to a degree only to assure a proper result from the undertaking.
And then the tax payers had no control over the crewmen nor did they attempt to exercise it through the captains.
Now, the petitioner has ignored these findings both in his brief and in his oral argument.
Justice John M. Harlan: Mr. Lyman--
Mr. Joseph J. Lyman: Yes Your Honor.
Justice John M. Harlan: It turns out that the standard should be the maritime standard and not the technical common law standard.
Do you disagree with the conclusion of the Court of Appeals on that premise, the case would go against you?
Mr. Joseph J. Lyman: Well, the Court of Appeals did say that if the Maritime entered --
Justice John M. Harlan: Said that flatly, didn't it?
Mr. Joseph J. Lyman: Yes and if the maritime standard were to be applied, then it said we would have to reverse this decision.
Justice John M. Harlan: So that really what this case all boils down to in the last analysis is in what sense common law was used in the statute, whether in a technical common law sense as distinguished common law from equity or admiralty law, or whether common law in the sense that general principles as opposed to some free willing operation by the administrative agency?
Isn't that what the case boils --
Mr. Joseph J. Lyman: Yes, I guess -- I would say that would be a fair statement Your Honor.
So in summary, the captains participated in bilateral decisions and negotiations in fixing the price and they exercised a high degree of independence in conducting their operations and exercised initiative and decision making authority.
Well, Mr. Justice Harlan, I -- you're absolutely correct in that respect because one of the points I believe that petitioner raises and petitioner raised numerous points and we did our best to brief each one thoroughly, but we think two points raised in the main brief and one in the reply brief suggest a discussion.
The first is in evaluation of the relationship here between the boat owner and the fishermen for these tax purposes, what legal standard should be applied?
The principles of general Maritime Law as they contend, or the principles of the common law in the statute as we contend?
The second point was assuming the petitioner's contention that this case involves a mixed question of law and fact, would that circumstance call for a different result and not reached by the concurrent decisions below?
Now in the reply brief if the Court please, there was a new point raised and it poses this question.
Is proof of filing an employment tax return and the payment of the tax a defense against a suit for its refund?
Now, we didn't get a chance to brief that for the Court because the reply brief was served on us I think only Thursday or Friday.
I want to discuss that briefly here if I may.
At pages four through six which is point three of the reply brief, the petitioner says that because the respondents filed employment tax returns and paid the taxes and kept good records, the respondents thought or believed that the captains and crewmen were their employees and for that reason, our suit for refund should be dismissed.
Now, if belief is to be a criteria of employment status, it's material only when one party believes that he has the right to control and direct the activities of another and the other believes that he must submit to that control, but I find it puzzling how filing a tax return can come to that same arrangement.
Now, people pay taxes and file returns for many reasons and I don't think that they ponder legal concepts when they're about to do it.
Now suppose the respondents here had made their own determinations and decided that the fishermen were independent contractors and decided not to pay the taxes, what would've happened?
Well of course a number of things would happen, but experience in the fishing industry showed this.
That the tax collector would file liens on the boats, attach whatever property at hand, including bank accounts and literally tie up your business.
Now this happened in Enochs versus Williams Packing Company which came to this Court.
It will be remembered that William's was a shrimp boat fleet operator.
He had made a decision that these men were independent contractors and had for a long time.
He didn't pay any tax and he didn't file a return.
An assessment of about $50,000.00 was made.
A -- his boats were tied up.
The -- William's went to the District Court and obtained an injunction against the collection.
The Circuit Court affirmed with one dissent.
It came here on jurisdictional issue of enjoining the collection of taxes.
The injunction was dissolved.
It was remanded with directions to dismiss the complaint.
Thereafter, Williams paid a small amount of that tax and not because he believed that these people were employees and he filed another suit in the District Court and the Government counterclaimed for $50,000.00 for whatever the assessment was.
William has prevailed and the Government's counterclaim was dismissed and that's in William's Packing versus U.S, the number is 2631 in the Southern District of Mississippi, the judgment was filed February 18, 1964.
Now, the Government made the same contention without success in another employment tax case.
This involved the employment status of certain mechanics and their helpers, they call them applicators.
The Court's treatment I think is worthy of consideration here since we didn't get an opportunity to brief it.
Please permit me to read just a short paragraph from the case of Rayhill versus United States, 364 F.2nd 356 and this will complete my analysis at this point.
In that case it said, “Nor in the circumstances of this case can an intent to create an employer-employee relationship be inferred from the fact without more that plaintiff withheld from, and paid the appropriate federal taxes on the earnings of the applicators.
Failure to have made such withholdings and payments might have subjected it to assessments and penalties and possible criminal sanctions.
Then, too, the plaintiff could not have challenged a deficiency in the tax court or had a reasonable prospect of obtaining an injunction to restrain enforcement of the tax,” citing Enochs versus Williams Packing.
“One need not resort to martyrdom to obtain judicial determination of the issue here.
To suggest that plaintiff should not have paid the tax if it believed that the applicators were not common-law employees would be to approve snares and traps for the unwary.
In addition, the payment of the tax was a jurisdictional prerequisite to the filing of this suit.
It would be an unusual law which first required the payment of a tax as a jurisdictional prerequisite to the filing of a suit for its refund and then permit its payment to be a ground for a defense against the claim.
Before going into that maritime oriented employee point, I'd like to mention this that the petition for the writ here indicated that the decision below will disrupt even handed administration of the Social Security Act and would cause certain fishermen to lose Social Security benefits and we take exception to that in full.
The petitioner did not pursue this point when he had its brief on the merits.
We think the contention raised important issues respecting the social and remedial aspects of the Social Security Act and should be -- and should not be ignored simply because it was raised.
Now, the decision below does not deprive the fishermen of their Social Security benefits.
In holding that these fishermen were not employees, it follows as a consequence that they were self employed or independent contractors which Congress put into one group.
Justice Potter Stewart: Or why not employees of the captain?
Mr. Joseph J. Lyman: Your Honor, that issue is not before the Court.
Justice Potter Stewart: I know, I understand that but why does it follow inevitably if they're self employed if they're not employees of these respondents?
Mr. Joseph J. Lyman: Well, in the posture of this case Your Honor, we only have the tax refund of the employer -- of the respondents.
Justice Potter Stewart: Yes.
Mr. Joseph J. Lyman: We don't have the situation of a captain having paid the tax on their earnings.
However, going into that point, in the case of U.S. v. Joe Graso and Sons which is in our brief, this question came up sometime ago when the Government tried to file a third party complaint to make the captains liable for the taxes if the owners were not liable.
It was held that it was being an independent action the third party complaint was dismissed.
It didn't get to that point.
Also the court in Graso did say that it is quite possible that the relationship between the captains and the fishermen would not be that of employer-employee.
You'd have to test it against the statute first.
As a matter of fact, the Department of Justice in an anti-trust case was quite successful in prosecuting members of the fish industry.
In Local 36, International Fishermen and Allied Workers versus U.S. 177 F.2nd 320 which is cited Graso and there it was found that the captains and the crewmen were joint venturers.
In that case, the Government needed proof of joint venture rather an employer-employee for the success of their prosecution and even though Social Security taxes were paid in that case and the defendants tried everything to prove an employment relationship, the Court held it as a joint venture between the captain and the fishermen.
I'd like to say that these fishermen are not loosing Social Insurance benefits because by virtue of the 1950 amendments of the Social Security Act, benefits were extended to the self employed for the first time.
Prior to these amendments, it's true they may have been deprived of such benefits.
So the distinction today between the common law employee and the self employed person or the entrepreneur with respect to Social Insurance at least is no longer meaningful.
It's now only a tax matter.
The question is who pays the tax and what is the difference?
As far as the even --
Justice Potter Stewart: Are there the same maximums with respect to employees as exist with respect to self employed people?
It's only up to a certain amount of income in both cases, isn't it?
Mr. Joseph J. Lyman: In both cases, the same in both cases.
Justice Potter Stewart: The same.
Mr. Joseph J. Lyman: Except the rate is a little different.
I think that the self employed would pay something less than three-fourths of the total that would be paid between an employer and employee.
Justice Potter Stewart: But basically the same benefit -- ultimate benefits?
Mr. Joseph J. Lyman: The ultimate benefits.
As a matter of fact Your Honor, there is one benefit I think the self employed man gets that the common law employee does not and he can participate in the I think it's the 1964 Self Employment Pension Act where lawyers are doing it and I'm sure that there are some fish captains that do it.
Now, this equality between the two categories is demonstrated because the earnings credits of these people which determine their benefits, they're entitled to the same weight and dignity.
The Social Security Administration is the same administration that dispenses benefits to both.
The same tax collector collects taxes for both.
Now, the petitioner's main thrust here is that the common law test should not be applied, but the rule governing employment relationships under maritime law should be decisive in fixing the respondent's tax liabilities.
Now, if liability for these taxes is to be so determined, it is a matter for Congress' consideration rather than this Court because it involves federal fiscal policy and prerogatives of legislative definition.
I might say that during the pendency of this case, the treasury department attempted to seek an amendment of this Act to call these fishermen statutory employees but Congress took no action on it.
The Congress' failure to act if the Court please doesn't tell us anything, but it does -- but the incident does tell us this that the Treasury Department felt that it was vulnerable to adverse decisions by the finder of fact who would apply the common law rule, otherwise, the Treasury Department wouldn't be concerned about it.
Now, the petitioner raised and said if a seaman is entitled the maintenance and the cure from the owner, he must be the owner's employee under maritime standards, now I'll accept that.
But petitioner concludes without more that the seaman mechanically becomes an employee for federal employment tax purposes and hence a common law employee.
Now the same individual can be an employee and an independent contractor at the same time.
This Court said in the Labor Board versus Harris, a brief quote, “An individual maybe an independent contractor under the common law control test for purposes of imposing vicarious liability in tort, and maybe an employee for the purpose of other litigations such as unemployment insurance.
” I see my time is about to expire if the Court please but I want to say this that the fishermen in this case whom the Court found did not meet the common law test of master and servant are nevertheless entitled to maintenance and cure by virtue of their marine employment.
The Court said in Aguilar versus Standard Oil Company when this particular question came up.
It says “Whether by a traditional standards that boat owner is or is not responsible for the injury, yet under maritime law is nevertheless liable as an incident of the marine employer-employee relationship.
” We suggest that the main thrust of petitioner's point there is without a merit.
I'd like you say in concluding that this decision is not contrary to public policy as Mr. Griswold has suggested.
It will not frustrate the remedial aims of maintenance and cure or other maritime rights.
There are many independent contractor relationships which are workable under the Social Security Act and the rulings of the Commission of Internal Revenue will demonstrate that.
One outstanding that comes to mind is that he considers a self employed person, one who is able to carry on his own business.
A poll taker for one who is advertising agencies simply because this poll taker works on a job-to-job basis and yet he is paid by the company, directed by the company nevertheless is a ruling.
The Internal Revenue Service contained an internal revenue bulletin number 1965-30 of July 26, 1965.
It says that those who conduct surveys on certain types of advertising are self employed persons.
They're in a business of their own simply because they knock on a door and fill out a form for some company.
Certainly, fishermen who are more skilled and who have a way of life are certainly more in keeping with a trade or business and some poll taker or a real estate salesman for instance, they consider him a self employed person.
A taxicab driver, the Internal Revenues put out many bulletins to taxicab drivers are considered independent contractors.
Although they drive the cab of the company, the company has great expenditures and the real man, this company has great expenditures in promoting and keeping an office open, yet the Government finds for tax purposes, he too is a self employed person.
So in conclusion, we ask that the Court consider that the common law test be applied and then if there's any other test to be applied that the Department of Justice address itself to the Congress.
Chief Justice Warren E. Burger: Thank you Mr. Lyman.
The case is submitted.
Thank you for your submissions.