TONY & SUSAN ALAMO FOUNDATION v. SEC'Y OF LABOR
Legal provision: Fair Labor Standards
ORAL ARGUMENT OF ROY R. GEAN, JR., ESQ., ON BEHALF OF THE PETITIONERS
Chief Justice Warren E. Burger: The Court will hear arguments first this morning in the Tony and Susan Alamo Foundation v. the Secretary of Labor.
Mr. Gean, you may proceed whenever you are ready.
Roy R. Gean Jr: Mr. Chief Justice and may it please the Court, the Alamo Foundation was an outgrowth of the activities of Tony and Susan Alamo in the Los Angeles area of California.
These two persons were street workers.
They went about the streets of Los Angeles and the surrounding suburbs during the '60s for the purpose of reaching those people who had become derelicts or were down-and-outers, with the gospel of Christ.
It was their intention to be evangelists, and in fact they were, and later they became pastors.
As evangelists, they met many young people who were at that stage in our nation's history when the hippies were quite active, and they had some very definite ideas about dress, codes of conduct, and general activities.
They had definite ideas about the attention to the laws of the United States and concern for others, which was contrary to the best interest of society and their neighbors.
Tony and Susan Alamo in their evangelistic activities reached many of these young people.
On one occasion which led to the organization of the Foundation and these people, many testified three of the people testified in regard to these matters.
As representatives of the entire group, these young people were contacted by the foundation and experienced the salvation that came from the gospel of Christ.
On one occasion, a young man who had been a dope peddler had been converted, and he was living with a group of young people, 20 or 30 of them, that were involved in the same activities.
He asked Tony and Susan Alamo if they would come home with him, a place that he had rented, and from which he was selling dope in the Los Angeles area to the young people and the other persons of that community who would buy from this sort of a peddler.
Unidentified Justice: Mr. Gean, how many persons are affected by the holding in this case in the Court of Appeals?
Roy R. Gean Jr: Directly, Your Honor, with the Foundation, there are approximately 300 persons who are called associates.
I would term them, and they have been termed throughout many pages of the transcript and in the briefs, as pastors and evangelists.
Unidentified Justice: How many in the whole pattern, the whole program?
Roy R. Gean Jr: Your Honor, this is a pentacostal group and it is quite common among pentacostal groups to not keep records of membership.
They have many churches.
Unidentified Justice: I'm not speaking of members.
I'm speaking of employees, the people employed who are directly affected.
Roy R. Gean Jr: Those would be, Your Honor, the some 300 that are pastors and evangelists, and that is all that would be affected directly.
Of course, indirectly in other churches, or other religious activities throughout the United States, your decision here will have a far-reaching effect upon the activities of those people who are associated with like or similar foundations or like or similar religious churches.
Unidentified Justice: Well, in round numbers, how many people?
Roy R. Gean Jr: I would say hundreds of thousands of people, Your Honor.
I would say those people that are associated with the church to which I belong, which has some 12 to 15 million in the United States.
Many of them are similar to my situation.
I think my church will be affected by your decision in this particular matter and the type of activities to which I am allowed to participate on a volunteer basis without the necessity of being required to take a wage or to have some benefit given to me because of my activities.
So I hope I am answering your question, Your Honor, by--
Unidentified Justice: I had the impression there were a great many more people directly involved than 300.
Roy R. Gean Jr: --Well, also it swings, Your Honor, around the 300 associates who are pastors and evangelists.
Those people who are in training or those people who are actually involved as pastors and evangelists in churches that are affiliated with a foundation across the United States, from New York to Washington, to Miami, to Omaha, to Dallas, to Nashville, to Los Angeles, for the churches of this particular religious organization.
And they are manned and staffed by these pastors and evangelists who are involved in training and teaching primarily in Alma, Arkansas where there are some 37 different activities that the Secretary of Labor claims are activities of such a nature that it is demanding upon this Court that they decide that they are so commercial in nature, these activities that are performed by the pastors and evangelists, that they are so commercial in nature that they must come under the Fair Labor Standards Act.
I hope I've answered your question, Your Honor.
There are many people that will be affected by this decision indirectly.
Those that are directly affected are some approximate 300 associates, which are termed pastors and evangelists.
Unidentified Justice: Well, are they engaged in the production of goods, or are they engaged in evangelistic missionary type of work?
Roy R. Gean Jr: Your Honor, their activities are religious.
The District Court found that all of their activities were religious, that these activities were religious and they were carried on for religious purposes.
That's what the District Court found.
And the Circuit Court of Appeals of the Eighth Circuit also found the same thing.
Now, I think that there is a difference in their opinion.
There are discrepancies in the opinion of both the courts because of the fact that they allege that the activities of these people, these some 300 associates, pastors and evangelists, are solely all of their activities are solely for religious purposes.
And then they decide that the activities are of such a nature that they are commercial and therefore they should come within the confines of the Fair Labor Standards Act.
Unidentified Justice: Mr. Gean, does the Act apply to other employees of churches who are paid salaries?
Secretaries or clerical employees?
Roy R. Gean Jr: I think that's a well-established law, Your Honor, and I think it does, and I think rightfully so.
The difference in this particular case is that these people have found that it is--
Unidentified Justice: Has the Act been applied to the salaries of ministers, do you know?
Roy R. Gean Jr: --Well, it certainly has been applied to many people who are involved in church-related activities, such as schools, nurseries, where they are paid a wage.
Unidentified Justice: How about a minister who's paid a wage to serve his particular--
Roy R. Gean Jr: Your Honor, I cannot tell you offhand that there is such an application of the Act to ministers.
Unidentified Justice: --If there were, is it invalid in your view?
Roy R. Gean Jr: Yes, I think it is.
Unidentified Justice: How about the income tax?
Would it be invalid to apply a federal income tax to salaries paid ministers in your view?
Roy R. Gean Jr: Your Honor, if it was a salary, I wouldn't think so, if it is in truth and in fact a salary.
Unidentified Justice: Well, does this case come down then to a question of whether the board and room and other benefits is the equivalent of a salary?
Is that what we really have to decide here?
Roy R. Gean Jr: Your Honor, I believe that that would be one of the aspects.
And certainly it should be of great importance to the Court, and I see it is because of your questions, and I think it's an excellent question.
In my opinion, in the facts in this particular case, the 37 agencies or activities or, as the Secretary of Labor says, commercial activities, commercial business activities, that these are not received solely for the purpose of their entire support.
I think one of the things that the Secretary of labor misses in this particular case--
Unidentified Justice: I don't think I understand your point.
Do you believe that if board and lodging is received by someone with the expectation and understanding that it's compensation, that the Federal Fair Labor Standards Act may properly apply to them?
Roy R. Gean Jr: --If it's received with the expectation that that is compensation, I think it probably would apply.
Unidentified Justice: Even though they were working for a church?
Roy R. Gean Jr: Yes, unless it is clear that this is part of their religious practices.
And I think this Court should go a long ways in protecting religious practices, unless there is some reason... now, the beliefs... this Court religious beliefs protects... practices... there are some limitations in regard to the application of the constitutional restriction, and there's a constitutional restriction in regard to practices, practices that are involving health or safety certainly have been regulated, and the regulation has been approved by this Court.
Unidentified Justice: Is that because of the free exercise clause that you make this argument?
Roy R. Gean Jr: Yes, Your Honor, that's one of the reasons.
Unidentified Justice: And then how do you distinguish United States v. Lee, where this Court held that the Amish employers were not entitled to the exemption for the Social Security Act payments, even though it was a direct conflict with their religious practices and beliefs to pay it?
Roy R. Gean Jr: Your Honor, I am not for certain about that particular case, and I don't recall all of the facts that's in that particular case.
I can say that in reference to, I believe, what you're pointing out there, in this particular case the Alamo Foundation does not have to pay Social Security taxes.
That's part of the Internal Revenue exemption.
And their determination in their exemption, which is a part of the Appendix, sets forth that they do not have to pay Social Security taxes, and it's so set forth in their determination that they are a religious organization, organized under 501(c)(3) of the Internal Revenue Code.
They are exempted from the collection and the payment of Social Security taxes by virtue of that determination.
It so sets forth in their determination.
Unidentified Justice: Mr. Gean, before you go on, the associates operated several businesses.
That's agreed, isn't it?
Roy R. Gean Jr: --Well, Your Honor, we call them activities.
And I think--
Unidentified Justice: Well, they were gasoline stations, clothing stores, grocery stores.
They were activities but--
Roy R. Gean Jr: --Cafes or restaurants.
Unidentified Justice: --Restaurant.
Roy R. Gean Jr: Yes, sir.
Unidentified Justice: Did they compete with other businesses engaged in the same activity?
Roy R. Gean Jr: Yes, there was some competition, but primarily those organizations, those entities which I call activities and which you might refer to, commonly known as business or commercial activities, they are conducted primarily to provide for the clothing, the housing, the food, the transportation and communication of the members.
That's the basic purpose of it.
Unidentified Justice: If a member of the public generally walked into the restaurant, would he or she be served?
Roy R. Gean Jr: Yes.
Unidentified Justice: Or in any of the other stores or business I suppose?
Roy R. Gean Jr: Not any of the others; no, sir.
Unidentified Justice: Which would not serve the public?
Roy R. Gean Jr: Uh the--
Unidentified Justice: Well, you said some are never in the business of serving the public.
I don't want to detain you.
Roy R. Gean Jr: --Yes, sir.
The record keeping business.
Unidentified Justice: The record keeping business?
Roy R. Gean Jr: Yes, sir.
It's primarily and I think that Tony Alamo did testify that there was some assistance in record keeping of other people.
Unidentified Justice: Yes.
Roy R. Gean Jr: So I would say I'll have to change that statement, Your Honor; that there was some activity on the part of that particular Southwest Business Management which was for record keeping, but ordinarily it was for the church members or for these associates.
Now, bear in mind there are other church members, other than the 300 associates, Your Honor.
Unidentified Justice: Yes.
So were these businesses operated entirely by associates or were there other people who were not characterized--
Roy R. Gean Jr: At first, Your Honor, there was some eight employees that are called outside employees by the District Court.
Unidentified Justice: --Are they covered by the Act?
Roy R. Gean Jr: Yes, sir.
They were covered by the Act.
And they were involved at the beginning of their activities of this nature, but after a short period of time they were no longer involved.
Unidentified Justice: Not a single outside non-associate person?
Roy R. Gean Jr: Other than at the very beginning of their utilizing these activities, primarily for the purpose of providing shelter, food, transportation, clothing, for the associates.
Unidentified Justice: Are we to understand that these 300 people you described earlier are the people who run all these business enterprises?
Roy R. Gean Jr: Yes, sir.
There is not anyone at the present time, and has not been, and was not when the District Court sat and had its first hearing in April of 1982.
There was not any at that particular time, persons who are referred to as outside employees.
Unidentified Justice: I notice a motel is included.
Is the public admitted to the motel?
Roy R. Gean Jr: The motel, Your Honor, is one in Tippi, Arizona.
And that is the only motel operation that was under the auspices of the Alamo Foundation.
It was open to the public.
But, Your Honor, the primary emphasis and the thrust of their activities, all of these activities, was evangelistic.
Unidentified Justice: What about the company that lays concrete foundations?
Roy R. Gean Jr: Your Honor, that particular organization, the Alamo Quarries, the Alamo Ready-Mix which I believe you have reference to, and those other similar type building activities, or as might be referred to as business practices, were conducted for the purpose of providing the housing, the schools, the training places, the churches of the Foundation.
Unidentified Justice: And took no outside business?
Roy R. Gean Jr: I cannot tell you that, Your Honor, that they did not take some.
Unidentified Justice: Well, was it in competition with other construction companies?
Roy R. Gean Jr: --Your Honor, if a church member wanted some activity on the part of the Alamo Concrete, I believe that they did some.
And the same thing with the roofing company.
But other than that, it was very, very limited.
Unidentified Justice: I think you answered the Chief Justice that all these businesses there seem to be almost a dozen of them were carried on by these 300 associates?
Roy R. Gean Jr: Yes, sir.
By the time the District Court met and had its first hearing in April of 1982, there were not any what is termed as "outside personnel" involved in the activities.
Unidentified Justice: But now, these ventures were over four states, weren't they?
Roy R. Gean Jr: Your Honor, they are in I believe there is four states.
There is California, Arizona, Arkansas, and Tennessee.
Unidentified Justice: And all of this by 300?
Roy R. Gean Jr: Sir?
Unidentified Justice: All of this work done by just 300 associates?
Roy R. Gean Jr: Yes.
Do not get the idea, Your Honor, that these were huge undertakings.
Perhaps Mr. Alamo was mistaken in proceeding to itemize his activities.
But for bookkeeping and record activities, he did this.
Unidentified Justice: Incidentally, what was the advertising that Hartford Advertising provided for those ventures?
Advertising for whom?
To attract business from other places besides--
Roy R. Gean Jr: That was one that was done for other persons.
I can say that the Alamo Foundation and I believe it came out in the testimony of Mr. Alamo that they were contacted by a commercial group to do some sort of sewing for them, and that was done.
Unidentified Justice: --Mr. Gean, to what extent were these people paid cash compensation?
Did they get some cash compensation?
Roy R. Gean Jr: No, sir.
Unidentified Justice: Well, what about I'm just looking at the District Court's finding Gerald Rich, the payroll ledger indicates that Mr. Rich was paid $8 an hour for all hours worked and so forth.
I just noticed a few of these.
Roy R. Gean Jr: Your Honor, those were the eight employees that were involved at the beginning of the Foundation's activities that were ceased prior to the time that the District Court heard this matter, and it was agreed that those parties were employees.
And for example, the record in bookkeeping activity, Mr. Alamo provided that there was some overtime wage that had to be paid to those people, and it amounts to approximately $14,000.
For example, one of the gentlemen was earning $600 a week and he worked sometimes more than 40 hours.
And the Secretary of Labor came and said look, you're receiving $600 a week, and at 40 hours you're getting $15 an hour, but when you work for 42 hours for that particular week, why you're entitled to the overtime pay.
Unidentified Justice: Those people aren't involved in this case?
Is that it?
Roy R. Gean Jr: Not at this time, Your Honor.
The District Court did find that those particular employees, those outside personnel that were involved in these activities, were entitled to some overtime pay, and I've rounded off it comes to approximately $14,000.
Unidentified Justice: Just so I understand, the District Court described 16, I think, different people at 31 to 34 of the Appendix for these services.
Were they other than the cash payments or 18, rather not 16 would they have been associates had they not gotten some cash?
Roy R. Gean Jr: No.
No, they were not associates of the Foundation in the term that I have been using.
Unidentified Justice: I see.
How do you define an associate?
Roy R. Gean Jr: The associate, Your Honor, is a synonym for those persons associated with the Foundation as pastors and evangelists.
Unidentified Justice: --But what portion of their work was devoted to economic ventures and what portion to religious activities?
Roy R. Gean Jr: It is their statement.
And the District Court so found that their activities were solely of a religious nature.
Unidentified Justice: Even running the restaurant is solely of a religious nature?
Roy R. Gean Jr: Yes, sir.
Now, to explain that.
They have 300 people that are associates.
There are some wives or husbands, as the case may be.
These people are basically pentecostal.
That is their doctrine pentecostal.
Have the charismatic approach to the gospel, they believe in the teachings of Jesus, and the commands and directions that were given to the apostles are for this particular day.
The healing and sign gifts, they claim, is part of their religious activity.
And they believe that that's the instruction.
And there are thousands, millions of people across the United States in the pentecostal movements that have exactly the same doctrinal teachings and understandings of the gospel.
Unidentified Justice: Mr. Gean, those 18 people who are employees, did any of them subsequently become associates?
Roy R. Gean Jr: Your Honor, not that I know of.
Unidentified Justice: But if they did, then they wouldn't be covered, according to you.
Roy R. Gean Jr: They wouldn't what?
Unidentified Justice: They wouldn't be covered, according to you, if they were associates.
Roy R. Gean Jr: Your Honor, they were paid a wage.
These people were paid a wage, and there is a difference.
Unidentified Justice: But if they became associates, they wouldn't be paid wage--
Roy R. Gean Jr: Well, that would have to be seen.
I do not know of any instance, Your Honor, where these people that were receiving a wage ever became an associate.
Certainly it's not in the record and I want to be fair with you, Your Honor; I don't recall any and don't know of any, and we've been representing the Foundation now for approximately five years.
I don't know of any former paid employee that is now an associate.
Unidentified Justice: --Who decides whether A, B, and C are employees or associates?
Roy R. Gean Jr: Well, I think the attitude, the desire, and the belief of the individual has a great deal of control over it.
I think that that's the main thrust.
And if these people are not paid a wage or derive some compensation in the form of a salary, then I do not believe that they're covered by the Act.
If what they say and, Your Honor, there were three people that testified as representative of all of these this was agreed upon, to be done in this fashion for the purpose of having a concise record and a brief record for the Court or any appellate court to which this case might be taken.
These three people testified as representatives.
At the pretrial conference before the hearing that was held in April of 1982, it was agreed by the attorney, the general counsel from or the trial counsel from Dallas, Texas that this would be agreeable with him that these three people who testified and there were Bill Levy, Ann Elmore, and Edward Mick that these three people would be representatives of all of those that would testify.
There were 155 affidavits given by more than half of those people that were associates of the Foundation to the Secretary of Labor's attorney.
And the court said now, if you find in these affidavits or in your own investigation that these people are not representative, and you want others to testify, you certainly have that right to do so.
There was not any of the others called.
These three people that testified, Your Honor, in regard to this very thing about which you're questioning me said that it would be repugnant to them to claim that what they were doing was for a wage.
Yes, some of them worked at various times within these various activities, or as the Secretary of Labor calls common business activities.
But also these three people, every one of them, testified that they worked outside the Foundation.
Every one of them testified to that, or that they had income upon which they could live.
Every one of them.
Ann Elmore testified that she had outside income coming to her.
She testified, when she was asked by the Secretary of Labor, well, suppose that you needed some assistance; what would you do for the benefits that you need to live?
And she said, well, we'd go out and get them.
Now, the Secretary of Labor interpreted that as meaning that they would go out into the Foundation and in the Foundation's activities and work and get these benefits.
She didn't mean that at all.
If you would read all of her testimony, what she was saying was, if they did not have the benefit, they would go outside the Foundation and work, which many of them did.
Some completely all of their time was devoted outside the Foundation, even though they were associates.
They worked in none of these related as the Internal Revenue declared, these are related activities under the Internal Revenue Agency of the United States.
Unidentified Justice: Mr. Gean, does the record show with respect to these 300 people a typical number of hours per week--
Roy R. Gean Jr: No, sir; it does not.
Unidentified Justice: --that any of them put in on the Foundation activities?
Roy R. Gean Jr: No, sir; it does not.
Unidentified Justice: Mr. Gean, everyone has to have some cash.
Where did the associates get the cash that everyone must have for just incidentals riding the subway or--
Roy R. Gean Jr: Well, in Alma, Arkansas, Your Honor we have buses.
Unidentified Justice: --You're not suggesting that the associates never had any cash?
Roy R. Gean Jr: No, sir.
No, they did have cash.
Unidentified Justice: Where did it come from?
Roy R. Gean Jr: It comes from the Foundation and from the other members of the Foundation who work, or the church members who contribute to the pastors and evangelists who go out for the purpose of spreading the gospel.
Unidentified Justice: So the church did pay some cash to associates.
Roy R. Gean Jr: Your Honor, it was not pay.
Unidentified Justice: Well, it was given.
Roy R. Gean Jr: It was for the purpose of paying for their expenses and conducting the religious activities of the Foundation.
Your Honor, these people are extremely dedicated to the purpose with which they have aligned themselves and congregated themselves together.
It's unbelievable, the dedication that these people have.
Unidentified Justice: Does the record show the amount of cash paid to associates?
Roy R. Gean Jr: No, sir; it does not.
But it's very small.
Unidentified Justice: May I ask you one question about the remedy?
What will happen if you lose?
Do these people have to take the money?
Roy R. Gean Jr: Your Honor, if this Court decides that these people, these associates, must be paid the sum of $19 million which the Secretary of Labor says is due--
Unidentified Justice: I didn't read the decree to require that.
Does it require payment?
Roy R. Gean Jr: --No, sir; the decree does not require that.
Unidentified Justice: It requires they give notice to them of the amount that they would have a right to claim.
Roy R. Gean Jr: Yes, sir.
But the Secretary of Labor--
Unidentified Justice: If your description of them is correct, I would assume none of them would really claim the money.
Roy R. Gean Jr: --I believe that's true.
Now, why require it?
Why have an exercise in futility?
Why make these people take the money and then give it back to the Foundation, when at the very beginning and we have three cases that we have been arguing to the District Court and to the Circuit Court of Appeals that addresses this very question, and the District Court and the Circuit Court of Appeals never commented on those three cases.
That's the Turner v. Unification, Rogers v. Schenkel, and this Court's decision in Rawlings v. Portland Terminal, where these people worked in business activities, agreed-upon were common business activities and were common businesses, and these people did not want a wage, they did not expect a wage, they so stated, and this Court in Rawlings v. Portland Terminal, said that they didn't have to receive it and they were not covered by the Act.
The same thing is true in the First Circuit in regard to the Turner v. Unification Church, which is almost identical to this particular case.
Very little difference.
Now, the Secretary of Labor is trying to point out that difference, but I would like to reserve that on rebuttal, if I may.
Chief Justice Warren E. Burger: Very well.
ORAL ARGUMENT OF CHARLES FRIED, ESQ. ON BEHALF OF THE RESPONDENT
Charles Fried: Mr. Chief Justice and may it please the Court, first if I may, just to clear up a number of questions that were raised, the Congress quite specifically stated and I referred in note 10 of our brief that wages includes the cost of board, food, lodging, and similar benefits.
Moreover, a number of the associates testified that they received allowances, cash allowances of $5 and $10 a week, and one of the former associates testified that there would be penalties assessed against those payments for failure to report to work and other alleged violations of the regulations of the organization.
In respect to Justice O'Connor's question, ministers are professionals and therefore not within the scope of the Fair Labor Standards Act.
And as to the testimony, there was--
Unidentified Justice: Well, if the associates are, as alleged, professionals, why are they not within the scope of the exemption?
That's the allegation.
Charles Fried: --They may be professional ministers.
The question would be in their activities in the gas stations, in the restaurants and so on, are they working as professional ministers?
And it is our contention, of course, that they are not.
As to the testimony, I must point out that in addition to the three representative present associates, there was testimony from a number of former associates, which is also in the record and which we have summarized, which of course is in many respects contradictory to the testimony of the present associates.
In 1961, the Congress amended the Fair Labor Standards Act for the stated purpose of extending wages and hours protection to persons working in the ordinary commercial enterprises of churches and other charities.
Now, this was accomplished by applying the Act to an enterprise engaged in commerce, and then defining an enterprise as
"related activities performed for a common business purpose. "
The court below found as a fact that the petitioner operated a number of ordinary businesses serving the public in competition with other businesses.
And it should be quite clear and I refer now to pages 9 and 10 and 38 and 39 of the Appendix to the Petitioner for Certiorari that the District Court limited the application of the Fair Labor Standards Act only to those associates who were working in these commercial businesses and only insofar as they were working in those commercial businesses.
Now, it's important that we distinguish--
Unidentified Justice: Mr. Fried, do you know what the situation is with respect to the commercial businesses operated by the Mormon Church in Salt Lake City?
Charles Fried: --I do not.
I do not.
I'm unable to enlighten Your Honor on that.
Unidentified Justice: How about, Mr. Fried, the monks who run the Christian Brothers winery, an order of monks--
Charles Fried: Well, that's a complicated matter which I would be glad to--
Unidentified Justice: --And how about the Trappists?
Charles Fried: --Who make jams and jellies.
Unidentified Justice: --Make jams and jellies.
Charles Fried: The Internal Revenue Service has taken the position that those activities constitute unrelated business activities.
They are in fact in the Tax Court at this very moment in--
Unidentified Justice: Which one?
The monks or the--
Charles Fried: --The monks, monks who are engaged in extensive farming enterprises.
And in the Tax Court, the Internal Revenue Service is taking the position that those services are not contributed services because the monks receive room and board.
I think that's an important point to know, since the--
Unidentified Justice: --May I ask you also I should know the answer to this, but I don't Roman Catholic sisters who are nursing nuns, are they exempt because they are professionals or are they taxable?
Charles Fried: --In 1968, the Act was extended further to cover specifically schools and hospitals.
And Congress did in the debate indicate an assumption that nuns would not be covered when they worked in the ministry of healing the sick, but that must be on the assumption that they were in fact operating as nurses, and nurses are, of course, professionals.
Unidentified Justice: Well, here, what about income tax in this case?
Charles Fried: Do you mean income tax of the business, Your Honor, or income tax of the associates?
Unidentified Justice: Either.
Or both, I would like to know.
Charles Fried: The Petitioners state, and for the first time in their reply brief cite Section 512, stating that this was determined to be unrelated business income.
There is nothing in the record to support that conclusion, and indeed the letter which Petitioners cite in their Appendix says specifically and I refer to page 14 of that Appendix:
"In this letter we are not determining whether any of your present or proposed activities are unrelated trade or business as defined in Section 513. "
Now, we were quite disturbed to find this reference to the Act in the reply brief for the first time, and were told by the Internal Revenue Service first that they are unable to give us any information regarding the specific tax status of the Petitioners, unless the Petitioners were willing to waive their protections under the Privacy Act; and second, that the Service has regularly taken the position on facts similar to these and I have the citation for Your Honor if you wish them that such facts would constitute the businesses unrelated business income and the services would not be considered contributed services, since they were rendered in return for board and lodging.
Unidentified Justice: Mr. Fried, I didn't understand your response to Justice Blackmun's question about the nuns.
Are they or are they not covered by the Fair Labor Standards Act in rendering services in hospitals?
Charles Fried: As professionals, they surely are not.
Unidentified Justice: You mean no nurse is subject to the Fair Labor Standards Act?
Charles Fried: No, Your Honor.
They are subject, however, to National Labor Relations Act.
Unidentified Justice: You mean any no hospital paying a nurse need to observe the minimum wage laws?
Charles Fried: Because nurses are professionals, Your Honor.
Unidentified Justice: Just as a class, they are exempt?
Charles Fried: Yes, Your Honor.
Unidentified Justice: Does that extend not only to registered nurse, but licensed practical nurses and some of the subcategories?
Charles Fried: I would have to conjecture.
I could not give you a firm assurance on that.
Unidentified Justice: Orderlies?
Charles Fried: Orderlies surely are not professionals.
That's pushing the point further than I would wish to push it.
Unidentified Justice: How about employees of Salvation Army thrift stores that are undergoing rehabilitation and who receive room and board?
Charles Fried: I think the question of rehabilitative services is a difficult one, and the Portland Terminal case is very important in this regard because if the employees are working for their own benefits and the Portland Terminal care spoke, if I may quote from that case, accepting the unchallenged findings here that the railroads which was the putative employer received no
"immediate advantage from any work done by the trainees, we hold that they are not employees within the meaning of the Act. "
Now, in the thrift store example, there is of course the receipt of an immediate advantage, and so the question of coverage would be posed in a way it surely was not posed in the Portland Terminal case and is not posed by candy stripers working in a hospital gift shop or museum gift shop.
Unidentified Justice: Well, in this case, in your view, does it turn on whether the associates had the expectation of compensation in the form of room and board?
Is that the crux of the case for our purposes?
Charles Fried: I believe so, Your Honor.
The District Court found as a fact and there was substantial testimony to the effect that they and I am now quoting from the District Court
"contemplated that they would be fed, clothed, sheltered, as a result. "
and I would like to emphasize those words.
Unidentified Justice: What testimony supports that in your view?
The word "substantial" troubles me because I didn't see much that I thought was supportive of that finding.
Charles Fried: Well, there is considerable testimony from the former associates and of particular importance is Ann Elmore who's a present associate, chosen by Petitioners as a representative associate, who said, and I quote:
"If you want to eat, you've got to work. "
That's on page 76 of the Joint Appendix.
And on page 78 of the Joint Appendix Ann Elmore, who is a chosen representative by the Petitioners, says:
"And, of course, you do expect the benefits? "
"Well, the benefits are just a matter of of course, we went out and we worked for them. "
Now, the former associates are a good bit clearer on this point.
For instance, I believe that it is Judy Shapiro who says on page 218 that when she was ill or when she was prevented from working because of inclement weather, and she sent to the restaurant for food, she was admonished that that food she should have procured out of her own funds because while she was not working, she was not entitled to get these in kind benefits.
So there was ample testimony in the record to substantiate the court's finding that they contemplated that they would be fed, clothed, and sheltered as a result of their work at the Foundation's commercial businesses, quid pro quo.
Unidentified Justice: So in your view, then, the monks making wine or jams and jellies would be equally subject to federal Fair Labor Standards Act.
Charles Fried: To the extent to the extent that they are not professionals, administrators, or managers, they would indeed.
That is correct.
And of course--
Unidentified Justice: What makes one a professional?
Charles Fried: --The exercise of a recognized profession.
Unidentified Justice: Like making jelly?
Charles Fried: I would not, myself, extend it to that extent, but I'm not--
Unidentified Justice: Or like operating a retail store?
Charles Fried: --Operating a retail store would surely not be a case of being a professional, but it might render a person a manager.
Unidentified Justice: Well, somebody who one of these people were that's what they working in, a retail store.
Charles Fried: Well, if they were sales persons, then they would clearly be covered.
If they were managers of the store, the managers, bona fide managers, are excluded by the terms of the statute.
We also have waitresses, persons who work pumping gas, people working on labor crews for construction companies, women sewing clothing in clothing factories who could not be viewed as managers or professionals in any sense.
Now, petitioners do urge that the associates and we do not question work out of a sense of devotion, and that they would have volunteered their efforts even if they hadn't received these benefits.
And again, we don't question that because that's not truly relevant.
I suppose there are many people, many people in this courtroom today, who do work which they consider valuable enough and interesting enough that they would, if they could afford it, carry it on even if not compensated.
But that hardly constitutes any of us not employees for that reason.
Unidentified Justice: Well, Mr. Fried, how about youngsters, young people who go to summer camps for the handicapped in the summer, and they expect to get room and board for volunteering their services at the camps to help handicapped children?
I guess they're subject to the Act under your view?
Charles Fried: There are specific exemptions for summer recreational works.
Unidentified Justice: In the Act, or in your--
Charles Fried: In the Act.
In the Act.
And specific exemptions subject to the discretion of the Secretary to make regulations for young people's work as well.
So those particular cases would be taken care of under the Act.
Unidentified Justice: --And what section do we look to for that?
Charles Fried: That I believe is Section 213.
I believe it's Section 213, Your Honor.
Unidentified Justice: And that's in the Appendix someplace, is it, or not?
Don't take time from your argument.
Charles Fried: I believe so, Your Honor.
Unidentified Justice: Mr. Fried, the YMCA runs boys' camps all over the United States.
The key people who are the permanent professional staff, of course, are paid salaries.
And my question doesn't address that.
They have volunteers who are sometimes school teachers, sometimes lawyers or whatever, who will take two weeks or a month and act as group leaders.
It's not without it isn't a religious activity, but it's not without its religious connotations.
How would you classify this group leader who is a volunteer who comes in for two or four weeks in charge of eight, ten, or twelve boys?
Charles Fried: I think that's a very difficult--
Unidentified Justice: He doesn't get paid, by the way.
I should have he doesn't get paid, but he gets his room and his board.
Charles Fried: --It's a difficult question, and what distinguishes it and distinguishes it most importantly from the case we have here is that group leader, first, does not work in a commercial enterprise in competition with other commercial enterprises which are forced to pay the minimum wage, and it is one of the specific purposes of the Fair Labor Standards Act to... and I quote here:
"prevent an unfair method of competition. "
The second distinction is the finding of the District Court here that many of these associates and I quote again from the record
"were wholly dependent on the Foundation for long periods of time. "
Both of these factors would distinguish the case you mentioned, Your Honor, from the case before us today.
Unidentified Justice: Mr. Fried, do you agree with Mr. Gean that the record simply doesn't speak as to what the typical number of hours per week put in in Foundation activities was by these 300 people?
Charles Fried: The record certainly does speak.
There is certain testimony, principally testimony adduced by the Secretary of Labor from former employees, from former associates, which speaks at some length about those hours end speaks in terms of very, very long working days indeed, 12 and 14-hour working days, six and seven days a week.
But the actual calculation of those hours is a matter for the District Court on remand and does not concern us.
Unidentified Justice: You don't think it makes any difference to the legal outcome of this case whether the typical member of the 300 put in four or five hours a week and had a full-time outside job as opposed to being employed only by the Foundation?
Charles Fried: It would in at the extremes, Your Honor, but I think it's very important to recognize in this case that though Petitioners repeat that their businesses did not run at a profit... and they say this again and again, even though that statement is unsubstantiated by anything but Mr. Alamo's testimony... they also say that the extensive non-commercial missionary work of the Foundation had as a principal source of support these commercial businesses.
Now, I think those two statements are simply contradictory.
And businesses which are able to support such extensive missionary activities could hardly be carried on on a merely casual basis.
Furthermore, there is testimony from Ann Wiley, for instance, to the effect that persons were assigned to their work in the businesses.
To be sure, Mr. Levy who testified for the Association, testified to the contrary; that he did work in the restaurant when the spirit moved him.
But the contradictory testimony is that that work was done pursuant to rather careful scheduling under the direct supervision of Mr. Alamo.
What we contend and what this Court has consistently held under the Fair Labor Standards Act and the analogous provisions of the Social Security Act and the National Labor Relations Act, that who is an employee does not depend on self-designation.
In fact, the whole history of these acts is a history of various arrangements sought to be designated cooperative, sought to be designated independent contractors, and this Court has consistently said that what controls is the economic reality.
And here the court found as a fact that the economic reality was one of a quid pro quo; that the persons received shelter and housing... and I quote again...
"as a result of their work. "
That finding was confirmed by the Court of Appeals and, with respect, I don't believe is a matter for review in this Court.
Unidentified Justice: Wait.
Does that $19 million figure reflect the Secretary's computation of the number of hours put in by these 300 that were not compensated as required by the Act?
Charles Fried: That is a computation which is still in dispute and is not final.
Indeed, there is a proceeding--
Unidentified Justice: Is it in the record here?
Charles Fried: --That statement is in the record and is based on a computation by the Secretary which the Court of Appeals has directed the District Court to recompute and not to take as binding in any sense.
So that matter is still very open.
Unidentified Justice: Mr. Fried, can I ask you... do you think the Portland Terminal case would have been decided differently if the trainees were given room and board during the week of training?
Charles Fried: I think that would not lead to a different outcome necessarily, because of the language which I have already quoted, "accepting the unchallenged findings"... I am quoting from the case here...
"that the railroads receive no immediate advantage from any work done by the trainees. "
In this case, it can hardly be said that the Foundation received no immediate benefit from the work done by the associates of these businesses.
Unidentified Justice: But the benefit, if you accept your opponent's view of the case, the benefit was entirely a benefit to this religious mission that they carried out; was it not?
I mean in the long run, because he testified... and I understand you did not contradict his testimony... that the net result of all this was not any profit, but whatever they earned they poured into their religious mission.
Charles Fried: We would vigorously contest the conclusion that there was no profit here.
To be sure, to be sure that the revenues, the profits from these businesses went to no place else than the Foundation, but that is not a test for profit.
Indeed, we fail to understand simply as a matter of accounting logic, how the Foundation could have been supported out of the revenues from these businesses if they did not produce a profit.
Unidentified Justice: Well, didn't he testify the whole enterprise was not profitable?
Charles Fried: He so testified, but he also testified--
Unidentified Justice: And you didn't contradict that with any evidence, even though his records are available to you.
Charles Fried: --Your Honor--
Unidentified Justice: As I understand the record.
So it would only have to accept that testimony.
Charles Fried: --The testimony I believe contradicts itself because if what happens is the non-commercial enterprises... and they were extensive... supported in part from the revenues of the businesses, then it must follow that the businesses produce revenues, produce revenues in excess of their expenses, because otherwise I fail to understand how they could have served to support the non-commercial enterprises which were, as we said, extensive.
Unidentified Justice: Do you dispute the position that these associates were engaged in their own rehabilitation?
Charles Fried: We don't dispute that.
We consider it irrelevant.
There are many reasons why people work.
And I hope that the getting of a wage is not the only reason.
But that they were working only for rehabilitation is what we would dispute in the face of the District Court's finding.
Moreover, rehabilitation does suggest rehabilitation for something else, and these associates worked many years within the Foundation.
It's not as if they were rehabilitated and then went on for work elsewhere in the economy, as was the case--
Unidentified Justice: You think that supports your position?
Charles Fried: --I beg your pardon?
Unidentified Justice: You think that fact supports your position, rather than the other side, I take it.
Charles Fried: I think it's a factor that helps, Your Honor.
Unidentified Justice: And your position also doesn't really depend on whether these businesses made a profit.
Even if they didn't, you would be taking the same--
Charles Fried: If they didn't make a profit, which we think is inconsistent with the Petitioner's own claims, it would be irrelevant, because we don't know why they didn't make a profit.
Unidentified Justice: --Yes.
Well, anyway, your position would be the same.
Charles Fried: It would indeed.
They may not have made a profit because of poor management or because some or all of the persons were receiving excessive compensation.
No way of knowing that, Your Honor.
Unidentified Justice: And do you think your position as you've expressed it here and in your brief defends the rationale of the Court of Appeals in all respect?
Charles Fried: We have no substantial quarrel with the rationale in the Court of Appeals, Your Honor.
I can think of no point where we would differ with the Court of Appeals.
I would like to pass, if I may, to the Petitioner's claim that the application to the associates of the Fair Labor Standards Act violates the religion clauses.
It's rather difficult in respect to the associates to understand precisely what the burden upon them is.
They claim at one point that it would prevent them from being free to contribute their labor, but of course that's not so.
They are free to contribute to their labor; what they are not free to do is to exchange their labor for material benefits at less than the minimum wage; nor, it should be said, is there anything akin to a vow of poverty.
Indeed, a number of the associates testified that they were rather proud of the prosperity of the Foundation and of the prosperity in which they shared.
I refer to the testimony of Mr. Mick who spoke at some length about the three bedroom house and washer and dryer that he enjoyed.
This was not a monastic arrangement.
So perhaps what we have here is some kind of an entanglement argument, but in either event, this is a case where this Court's rationale in United States v. Lee applies and applies with considerable force.
Here we have a compelling state interest to protect against substandard wages and to protect against "an unfair method of competition" and a purpose which could scarcely be pursued without the comprehensiveness of the statute, more so than in Lee, because it is not merely an administrative or actuarial comprehensiveness that's necessary.
What is necessary is to protect third parties, competing businesses, from the effect of substandard wages paid by a competitor.
So it's hard to see how in the holdings of this Court, from the Jacobson case through United States v. Lee, we would not see a compelling state purpose in this case which could not readily be served other than by applying the Fair Labor Standards Act to the Foundation and the associates.
I thank the Court for its attention.
Chief Justice Warren E. Burger: Do you have anything further, Mr. Gean?
You have only one minute remaining.
Roy R. Gean Jr: Yes, Your Honor.
Your Honor, in my concluding remarks in this last minute, I would like to point out to the Court that this is a far-reaching matter that has been presented to this particular Court.
The question is whether or not the state does have a compelling interest to govern these activities and to say these activities on the part of these pastors and evangelists are such that they should be covered by the Fair Labor Standards Act.
It is our position that if these activities are covered by the Fair Labor Standards Act and the position that everybody knows, that these people are going to take the money that they receive from the Foundation and give it back to the Foundation, what is the state's compelling interest to govern and to rule under the Fair Labor Standards Act as to the activities, the benefits, the wages, the salaries that they may receive?
ORAL ARGUMENT OF ROY R. GEAN, JR., ESQ. ON BEHALF OF THE PETITIONERS -- REBUTTAL
Chief Justice Warren E. Burger: Your time has expired, Mr. Gean.
Roy R. Gean Jr: --Thank you, Your Honor.
Chief Justice Warren E. Burger: Thank you, counsel.
The case is submitted.