Cases by Issue - Fair Labor Standards Act

IBP, Inc. v. Alvarez - Oral Argument

Fri, 09 Jan 2009 14:48:59 +0000

Case:

IBP, Inc. v. Alvarez

Media File:

03-1238_20051003-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of Carter G. Phillips

Chief Justice Roberts: The Court will now hear argument in IBP, Inc. vs. Alvarez and Tum vs. Barber Foods, Inc.--

Mr. Phillips.

Mr. Phillips: Thank you, Mr. Chief Justice, and may it please the Court:

There are two issues in this case.

One concerns walking time, and the other concerns waiting time.

And unless the Court has a different order, I'd propose to start with the walking time.

Section 4(a)(1)'s language, which comes from the Portal to Portal Act, which was enacted in 1947, by its plain terms clearly covers the walking that's involved in these two cases.

The statute, which is reproduced at the appendix of the petition, at 88(a), says that there is no mandatory compensation for, quote,

"walking to and from the actual place of performance of the principal activity or activities which such employee is employed to perform. "

It's difficult for me to imagine language that could more directly cover what we're dealing with in this particular case, because the Plaintiffs here are... for IBP... are employed to slaughter and to process beef.

The employees at Barber Foods are employed to process chicken.

And thus, the actual place where they perform those services are obviously on the lines where the processing takes place.

Justice Scalia: I would have thought that, but we've held otherwise.

Mr. Phillips: Well, I don't know that we've... I don't know of any case where this Court has held otherwise.

Justice Scalia: Well, we've held that they're... that the principal activity consists of doffing... donning and doffing the clothes required, haven't we?

Mr. Phillips: Well, this Court said that donning and doffing was a principal activity in contradistinction to a preliminary or postliminary activity for purposes of Section 4(a)(2), but the Court specifically said, in Steiner, that that holding does not apply to matters that are specifically excluded under Section 4(a)(1), which deals with walking time, Justice Scalia.

Justice Kennedy: So, you think Steiner is irrelevant?

Mr. Phillips: For... no, I don't think it's irrelevant to the workplace.

I think it is irrelevant to the proper disposition of this case, yes.

Justice Breyer: Well, it is if we don't accept the continuous workday rule.

If we do accept the continuous workday rule, why isn't it, in effect, the premise from which the conclusion for the other side falls?

Mr. Phillips: Well, we don't have any quarrel with the continuous workday rule.

The question is, When does the workday begin?

And our assessment of the workday, as defined in Section 4(a)(1), which controls, specifically, the walking time in this particular case, begins when you arrive at the actual place where you're going to perform the services--

Justice Souter: No, but your argument--

Mr. Phillips: --or primary activities.

Justice Souter: --assumes that there is only one actual place.

And their argument, which is consistent with the text of the statute, is that there may be more than one principal activity, and hence, more than one place.

And if the... if the place of donning and doffing is such a place, then wouldn't it be at least administratively odd to apply the continuous workday rule immediately to exclude some walking time that follows that?

Mr. Phillips: No, I don't think so.

I think it is perfectly sensible and a clear bright line rule, Justice Souter, to say that when you arrive at the actual place where you perform, not just any activities, and not just activities that are integral and indispensable to your working activities, but to the principal activities for which you're hired... and, admittedly, there can be more than one of those, but that doesn't... you know, donning and doffing is not a principal activity--

Justice Souter: So, you're saying that--

Mr. Phillips: --of anyone who's cutting beef.

Justice Souter: --so called "integral activities" are not principal activities.

Mr. Phillips: Right.

They don't have to principal activities.

They're better understood as--

Justice Scalia: They felt otherwise.

Justice O'Connor: Mr. Phillips, I... the Steiner opinion explicitly agreed with the lower court in that case, which said that the term "principal activity or activities" embraces all activities that are integral and indispensable.

Mr. Phillips: --Right.

Justice O'Connor: And if... if you think that putting on the clothes fall within that, then that covers walking, too--

Mr. Phillips: It--

Justice O'Connor: --after that.

Mr. Phillips: --The problem with that analysis is that the court was only analyzing Section 4(a)(2) for these purposes.

And what it was saying is,

"We are prepared to accept that there are certain activities that are either preliminary or postliminary, and then there are others that are primary activities. "

"And if you are integral and indispensable to a primary activity, it is a compensable event. "

Recognizing that Steiner is probably the most extraordinarily extreme facts that you could imagine, because we're talking about clothings that had... clothing that had to be changed in order to protect the public--

Justice Ginsburg: But, Mr. Phillips--

Mr. Phillips: --health and safety.

Justice Ginsburg: --you're asking us to interpret the same words, (2) that was at issue in Steiner, and in sub (1), and then the clause that follows both of those.

The same phrase is used.

So if (2), why wouldn't the same follow for sub (1) and the following clauses?

Mr. Phillips: Because you have to read the language (a)(1) within the context of what Congress was trying to achieve by the Portal to Portal Act, which was to absolutely and categorically exclude walking time from being part of mandatorily compensated activities of a particular employee.

Justice Ginsburg: But it is included if it's... once the workday begins, if there's a rotation, you walk from one station to the other.

That walking time, I think it's conceded, would be included.

Mr. Phillips: Right.

But that--

Justice Ginsburg: So, if your date... if the principal activity is donning and doffing, then the walking time thereafter would also be included.

Mr. Phillips: --But, Justice Ginsburg, if you step back and think about this language in the context of the words that are written here, it says,

"walking to and from the actual place of performance of the principal activity. "

No one would think that that--

Justice Souter: "Or activities".

Mr. Phillips: --Or activities.

But, again, Justice Souter, all that suggests is that there are times when somebody who's working in a clothing operation may... you know, may spend time distributing the cloth or may spend time actually sewing the cloth.

Those are two separate activities.

They're different activities.

But it doesn't mean... and it certainly doesn't convert anything that had... can be described as "integral and indispensable" into a primary activity which such employee is employed to perform.

No employee, in these cases, was employed to perform the act of putting on clothes or the act of picking up equipment.

Justice Breyer: But what do you think about the possibility,

"it depends on the clothes and depends on the equipment. "

so that, in Steiner and here, it's a lot of protective gear, it's really quite part of the job and special and unusual.

In Mt.

Clemens, it's a kind of uniform.

It's just washing your hands, putting on an apron.

So, where it's minor putting on clothes, as someone might in his house, doesn't come in substantial, doesn't come in integral and indispensable; but where it's quite a big deal, it does.

And who decides?

The agency.

Mr. Phillips: Well, there are two parts about that that are worth focusing on.

One is, I don't think you can lump the two cases together, because the clothing or the equipment that has to be put on with respect to the Barber Foods company is barely... is quite minimal and, indeed, is deemed to be diminimus.

So, I'm not... I'm not sure you can lump the two cases together in that way.

But also, in terms of where the Secretary comes out on this, let's not forget 79.7(g), footnote 49, which is, candidly, the clearest statement from the Secretary with respect to, What do you do when you have donning and doffing that is followed by walking time?

And what does the... and what does the regulation specifically say?

And that's on, I think, 92 and 93 of the appendix to our petition.

It specifically says that that walking time is not excluded, not necessarily--

Justice Scalia: Not necessarily excluded.

It's really noncommittal on the point.

Mr. Phillips: --Well, except that, under their theory of this case, it is always excluded.

Always.

So that whatever else you can say about the meaning of that particular language, the interpretation the Secretary offers to you today flatly rejects--

Justice Breyer: But "in certain"--

Mr. Phillips: --that language.

Justice Breyer: --that footnote... that's where I actually got the idea... it says,

"We reserve, in certain situations. "

To me, that meant sometimes it can be a major big deal to don clothing... protective gear; sometimes it isn't... an apron.

And whose job is it?

Now I'm repeating myself.

Mr. Phillips: Right.

Justice Breyer: The Secretary's.

Mr. Phillips: No, but... and if we were talking about that in the context of other kinds of activities... if you're back in the (a)(2) world of looking at whether something's preliminary or postliminary, I have less of a problem with dealing with that.

The problem is, here we're talking about (a)(1) activities, the core of what Congress enacted the Portal to Portal Act to protect employers for.

The Portal to Portal Act is not a statute that remotely provides protections for the employees.

This is a statute that was designed to protect employers from billions of dollars of liability.

And so, when you're talking about,

"Under what circumstances can you ignore the flat prohibition on requiring walking time to be regarded as a mandatory subject of compensation? "

then it seems to me the distinction you're proposing doesn't work.

And it's also, Justice Breyer, again, flatly inconsistent.

Their... that's not their theory of the case.

Their theory of the case is,

"If we can describe it as in any way integral and indispensable to some other activity, that makes it a primary activity, that starts the workday, and everything after that then becomes compensable. "

Justice Scalia: Mr. Phillips, can I call your attention to the text of Section 254(a)?

It's in the red brief in the Alvarez case, at App. 1.

What it... what it says is that you don't have to pay overtime compensation or minimum wages or on account of any of the following activities: (1) "walking, riding", blah, blah, blah.

This is (1).

Mr. Phillips: Yes.

Justice Scalia: --for the

"place of performance of the principal activity or activities which such employee is employed to perform. "

Mr. Phillips: No, you skipped over "actual place", there--

Justice Scalia: Right.

Okay.

Mr. Phillips: --Justice Scalia, but... which I think is an important--

Justice Scalia: Okay.

Mr. Phillips: --word.

Justice Scalia: (2)

"activities which are preliminary to or postliminary to said principal activity or activities. "

You're trying to sever (1) and (2), when the text itself joins them.

The activities referred to in (2) are "said principal activity or activities".

The (1).

Mr. Phillips: Right.

But that--

Justice Scalia: How can we possibly sever (1) and (2) and say that for purposes of one, it means one thing; for purposes of two, it means something else?

Mr. Phillips: --Because when the court was interpreting (a)(2) in Steiner, it wasn't interpreting (a)(2) to determine whether something was a preliminary or postliminary activity in connection with "said preliminary... primary activities".

What it was saying is, these are not preliminary and postliminary activities, that they are excluded from that.

And so, the court's really coming up with what is a third category of cases, which deals with integral and indispensable activities to a primary activity.

They didn't have to analyze it as a primary activity.

All they had to say was, it's not... that the preliminary and postliminary activities are not simply temporal, that there is a substantive component to it.

And that is essentially the holding of the court in Steiner.

It says there's a substantive component; and, therefore, we're not going to just simply look in... time wise, whether it comes before or after principal activities.

We're going to decide that there are some... there are some situations that are so important that they need to be compensated under (a)(2), because they don't fall within preliminary or postliminary language.

Justice Ginsburg: But, Mr. Phillips, it says it... either something is before... preliminary; or after... postliminary.

And if it's neither of those, then, it seems to me, it fits... it's not before the principal activity, and it's not after the principal activity, so what else is it, other than the--

Mr. Phillips: It's work--

Justice Ginsburg: --principal activity?

Mr. Phillips: --that's mandatorily compensable under the Fair Labor Standards Act.

Remember, the Fair Labor Standards Act, under this Court's interpretations from Mt.

Clemens Pottery and the cases that preceded it, I mean, it... you know, it had a very sweeping definition of what is work within the meaning... within the meaning of what is compensable as minimum wages and as overtime.

And that's in place.

And now Congress has stepped in and said,

"Well, wait a second. "

"When we did it... when that got interpreted that broadly, we're talking about $6 billion in liability. "

So, it's very important, given that we're talking about fairly minimal activities on the... on the... that are involved here, triggering potentially massive liabilities.

And so, what we've done is, we've excluded from those massive liabilities the walking, riding, and traveling time, because that's the basis on which you end up with big numbers.

Chief Justice Roberts: So, your approach introduces, really, a third concept.

You have the principal activities in your... either preliminary or postliminary... and now you've got a third concept: integral.

But the statute... that's nowhere in the statute.

Mr. Phillips: Right.

Well, I mean, that... but that's... this Court's decision in Steiner was the one that reached out to decide that "integral and indispensable" was a category of activities that were going to be compensable, even though, on the face of them, they may have appeared to be--

Chief Justice Roberts: Well, unless they were saying those activities were, in fact, principal activities.

If it's integral, if it's embraced by the principal activity, it is a principal activity, and that at least is more consistent with the statute in keeping it in two categories rather than inventing a third.

Mr. Phillips: --Well, I don't think that creates any particular problem, but what you end up doing, Mr.--

Chief Justice, under those circumstances, is, you completely eliminate the protection that Congress meant to provide here for walking, riding, and traveling time, which is... which is a vital consideration--

Chief Justice Roberts: Well, how does... how does your analysis apply?

Let's say these employees had to change their equipment several times during the course of the day.

Mr. Phillips: --You mean after they've--

Chief Justice Roberts: Yeah, I mean, the--

Mr. Phillips: --arrived at the actual place--

Chief Justice Roberts: --the equipment is only good for, you know, an hour, two hours, then they have to get new ones.

They have to walk back to the place--

Mr. Phillips: --Right.

Chief Justice Roberts: --they have to doff the other equipment, don new equipment, and walk back.

Wouldn't your analysis say that that walking time is excluded?

Mr. Phillips: No.

No.

Once you--

Chief Justice Roberts: Why not?

Mr. Phillips: --We don't have any quarrel with the argument that once you, for the first time, arrive at your actual place of performing the principal activity for which you were hired, which is cutting beef or whatever it happens to be in your hypothetical... once you arrive there, that does begin the workday.

That's the definition of what starts the workday, which is why I... to our mind, this is a much clearer and brighter line rule.

We can tell you precisely when you start the workday.

It's when you get to the place where you got hired to work, and start to do that work.

Justice Kennedy: But do you have compensated activities that do not begin the workday?

Mr. Phillips: Yes, you do have compensated... and that's true for lots of different situations, Justice Kennedy.

You could have a situation where you go home, and you get called back in on an emergency, and nobody disputes that that's clearly compensable time, and nobody has ever seriously argued that you ought to extend the workday--

Justice Kennedy: What happens with the microchip or a laboratory with highly contagious viruses where there's got to be two hours of scrubbing and then there's a walk?

What do you do with that?

Mr. Phillips: --If the--

Justice Kennedy: Two hours of scrubbing--

Mr. Phillips: --You know, it's... it's very possible that the scrubbing will be regarded as an integral and indispensable part of the... of the... of the employment, and--

Justice Kennedy: --But then there's... but then there's--

Mr. Phillips: --therefore, it's compensable.

Justice Kennedy: --but then there's a walk.

What about the walk?

Mr. Phillips: The walk is not compensable, because Congress didn't want you to have walking until you got to the actual place where you would perform the services.

And nobody's principal activity as an employee is to go take a shower or to go and pick up certain types of clothing.

That's not--

Justice O'Connor: But the problem--

Mr. Phillips: --the understanding of "principal activity".

Justice O'Connor: --Mr. Phillips, the problem I continue to have is that I thought Steiner embraced, explicitly, the notion that principal activity embraces all activities that are integral and indispensable.

You take issue with that, but do you want us to overrule Steiner--

Mr. Phillips: No.

Justice O'Connor: --or make some changes in it?

I just don't understand.

Mr. Phillips: I want you to limit Steiner to the very unusual facts that arose in that particular context.

I... we don't have any quarrel with the "indispensable and integral" test as a reason for beginning... as a reason for compensating certain activities.

Chief Justice Roberts: What was--

Mr. Phillips: What we do--

Chief Justice Roberts: --so unusual about the facts--

Mr. Phillips: --I'm sorry?

Chief Justice Roberts: --What was so unusual about the facts in Steiner?

They're pretty common.

Mr. Phillips: Well, no, I... the notion that if you didn't shower and change, you would expose not only yourself, but your family and everybody else to the risks of lead poisoning is a pretty extraordinary--

Chief Justice Roberts: No, but the--

Mr. Phillips: --circumstance.

Chief Justice Roberts: --the routine where you have to don, you know, safety equipment, and you have to shower when you're done, whether it's being... the meatpacking or the stuff at Steiner... that's a pretty common occurrence.

Mr. Phillips: Right, well, I would... I would argue that you could make a... you could make a claim that none of that donning and doffing ought to be compensable.

And, candidly, we've made that argument.

But, unfortunately, the court didn't grant the petition on that particular... on that particular question.

So, we have to take it as a given.

But I don't... I don't... I... for exactly the reason you identify, Mr. Chief Justice, that does create a problem.

I mean, part of this problem is a bit contrived.

I don't think that the ordinary donning and doffing ought to trigger the beginning of the workday.

But, assuming that it does--

Justice Souter: But you're--

Mr. Phillips: --I still don't think... I'm sorry, Justice Souter.

Justice Souter: --No, no, I didn't mean... finish.

Mr. Phillips: But I still don't think that, even if you accept that that is compensable conduct within the meaning of Steiner, which I... that's what it's talking about... but Steiner, Justice O'Connor, doesn't say anything about the fact that there was going to have to be walking or traveling, or the workday.

The court, in Steiner, clearly had in mind the workplace, where you're producing batteries.

There's a lot of language in that opinion that says,

"This is where you really do the work. "

That's your battery, and here's where you're going to get... engage in activities that we think you need to be compensated.

"But the court never remotely suggested that you were entitled to the walking time between those two. "

And, if you go back to 790.7(g), that language specifically told every employer that simply because you have to pay for certain kinds of activities at the outset, because they're integral and indispensable, as decided by a court, that doesn't necessarily mean you have to pay for all the walking time.

And so, you've got to come up with--

Justice Scalia: You would say that's--

Mr. Phillips: --a theory that supports that.

Justice Scalia: --so for all activities that are... that are integral and indispensable?

What about sharpening tools?

Mr. Phillips: Well, sharpening tools is the easiest one, because you do that right on your workplace.

I mean, that's exactly what Congress had in mind in its legislative history--

Justice Kennedy: No, no, no.

Justice Scalia: But your--

Justice Kennedy: But that's... but suppose--

Justice Scalia: --but your time shouldn't start from then.

Justice Kennedy: --that's not the hypothetical.

Suppose you sharpen the tools outside, by your locker, and then you... then you go for a ten minute walk to get to the... and you carry the sharpened tool?

Mr. Phillips: --Well, again, if the Court decided that sharpening the tools, even though it's done not at the same time, which is what Congress had in mind when it... when it identified that hypothetical... but, even if you assume that, that that's integral and indispensable, it still isn't what triggers the time for starting the actual employment.

Justice Souter: No, but isn't your... in the answer that you just gave, and an answer which you have, in fact, consistently repeated, inconsistent with Steiner... Steiner didn't say there is a separate category of integral activities.

Steiner said that activities which are integral are part of the principal activity.

And isn't your argument premised on denying that identity?

Mr. Phillips: No, I can accept that identity for purposes of distinguishing between what's preliminary and postliminary activity.

What I cannot do is to... is embrace that for purposes of deciding when walking time/traveling time ought to be included.

Congress was as plain as it could humanly be in saying that,

"We're not going to allow walking and traveling time to be included in an unexpected fashion. "

And that is precisely... as the Chamber of Commerce brief says, that is precisely what we're talking about here.

And, candidly, as Judge Boudin said in his concurring opinion, the circumstances arising in this context bear a very eery resemblance to the situation that gave rise to the Portal to Portal Act in the first place.

And so... and I think it's important to put this into context.

You know, the language of the statute, as I read it, clearly is in our favor.

The purpose of the statute is clearly in our favor.

And then the question is, Did this Court, in a decision that dealt solely with 4(a)(2), mean to vastly change the scope of 4(a)(1) in a way that would dramatically expose employers to liability--

Justice Ginsburg: Why is it--

Mr. Phillips: --and--

Justice Ginsburg: --why is it so dramatic, if we recognize that nothing begins until the donning and doffing... that is, the travel to wherever you don and doff?

Mr. Phillips: --Well--

Justice Ginsburg: None of that is included, even from the plant gate to the place where you don and doff.

Mr. Phillips: --But the... well, in part, because plants are not... have never been designed... remember, we've got 79.6... the Secretary of Labor told employers for 50 years,

"You can set up your plant without fearing that you're going to suddenly be hit with walking time after somebody engages in donning and doffing, even if it turns out to be integral and indispensable. "

For 50 years, they followed that advice.

They set up all of their plants with that expectation.

And now this Court,--

if it follows the ninth circuit's lead, will suddenly say,

"Okay, what you need to go out and find is all of the integral and indispensable activities. "

--not just donning and doffing... any integral and indispensable activity that you can get a court to buy into, that will start this ever expanding workday, such that any walking that goes on after that and before you get done with all of these ever expanding post doffing activities.

Then you have the... that's... you know, so you have this broad... and that's why you're going to have these... substantially greater and totally unexpected liabilities on--

Justice Scalia: Where is that advice contained, that you say was given to--

Mr. Phillips: --790.7(g), footnote 49, and it says, as--

Justice Scalia: --Not--

Mr. Phillips: --plain as day--

Justice Scalia: --not necessarily.

Mr. Phillips: --Right, but... there... there, it means always.

Always.

Justice Scalia: And you say that they operated on the assumption that it meant never.

Mr. Phillips: No, I'm prepared to--

Justice Scalia: It seems to me they were on notice that, although it did not, necessarily, it might.

I think you're--

Mr. Phillips: --It might, and... but--

Justice Scalia: --you're exaggerating the effect of that statement.

Mr. Phillips: --But, Justice--

Chief Justice Roberts: Right, they don't say... I mean, they exclude, for example, the canine cases, where you have to walk and feed the dog in the morning before you show up at work.

So--

Mr. Phillips: --Well, the--

Chief Justice Roberts: --they're not saying only--

Mr. Phillips: --the Secretary does.

I don't know whether the plaintiffs necessarily do.

And certainly the plaintiffs in those cases didn't.

They took the position that the workday started as soon as you engaged in protecting the canines, just as in... insurance industry, they... the insurance adjusters are all taking the position that as soon as they have to get on the computer, that's an integral and indispensable part of their day, and everything after that, including traveling and movement, are all part and parcel of what gets added in there.

What I'm suggesting to you is that once you go down this path and you say,

"Okay, we're going to define the workday by reference to whatever somebody determines is integral and indispensable. "

you are going to have an expandable workday, and that if you are really looking for a fairly clear rule, you sit... you stick with what the language of the statute says, which is, the actual place of the performance of the activity for which you were hired.

Once you've got that in place... that's not to say that's the full length of when you get compensated.

You can be compensated for activities outside of that workday.

Happens every day, when you have to come in for an emergency or if you have to come in--

Justice Kennedy: My problem with your argument is Steiner.

Mr. Phillips: --I understand the problem with Steiner, Justice Kennedy, but I think it is inappropriate to read Steiner, which says, point blank,

"Our holding does not deal with conduct that is specifically excluded by 4(a)(1). "

and then... and ignore that.

That whole... that statement of the holding of the court seems to me to say,

"All we're telling you the answer to-- "

Justice Scalia: No, it doesn't.

Mr. Phillips: --4(a)(2)> ["].

Justice Scalia: The only thing specifically included in (a)(1) is walking, riding, or traveling to and from the actual place of performance of the principal activity or activities.

And once you assume that (a)(1) doesn't cover it.

Mr. Phillips: No, you can get to the logic of that.

The question is, Is it appropriate to apply the 4(a)(1) and the fundamentally important values that it was designed to serve?

And what I'm suggesting to you is, that's a mistake.

And we know that, because the regs protected us against this precise event.

It is exactly what the Portal to Portal Act was designed to accomplish, and it's the better interpretation of this particular statute.

Justice Ginsburg: Mr. Phillips, may I just ask you a preliminary question about the IBM case... IP... IBP--

Mr. Phillips: IBP.

Justice Ginsburg: --IBP case?

As I understand it, whatever we do here is irrelevant to what the bottom line is going to be in that case, because the determination is going to be made only under State law.

The court below said that's what it was going to do.

And the employees are not objecting.

So, it seems that that case, as distinguished from Tum, is really not anything that this Court should decide, because it would be academic.

Mr. Phillips: Well, they don't argue that it's moot.

And it's not purely academic.

There are collateral consequences to deciding what the Federal law issue is in this particular context.

We briefed this issue a the cert stage at some length, and the court granted cert, so I'm assuming that, in some respects, you, sort of, pass by that particular problem.

There are collateral consequences.

And the other side, again, doesn't say it's... that it has mooted this case; it simply says that there's this serious issue on remand as to precisely how it'll all play out.

Justice Souter: Could you give us a collateral consequence--

Mr. Phillips: Yeah, because it... reas judicata collateral estoppel effects from the ruling that we've... that we have violated federal law, both that might be available to the Secretary of Labor and otherwise.

If there are no further questions, I'll reserve the--

Chief Justice Roberts: --Thank you, Mr. Phillips.

Mr. Phillips: --balance of my minutes.

Argument of Thomas C. Goldstein

Chief Justice Roberts: Mr. Goldstein.

Mr. Goldstein: Mr. Chief Justice, and may it please the Court:

As the previous questioning suggests, the outcome of this case follows directly from Steiner.

The Portal Act, by its terms, applies only to activities that occur before the commencement of... before the commencement of, or after the conclusion of, the employees' principal activities.

Steiner holds that donning and doffing, such as in this case, is "part of"... that's a quote... the employees' principal activities, and it, therefore, follows that the Portal Act applies only to activities either prior to, or after, that donning and doffing.

Justice Scalia: But why isn't walking from the gate of the... of the factory to the... to the place where you're on the assembly line, why isn't that integral and essential to the performing of the activities?

Mr. Goldstein: Because... and this is the language that Mr. Phillips is referring to in Steiner... 4(a)(1) itself makes clear that a walk will not be the first principal activity, including on the theory that it's integral and indispensable.

The first principal activity has to be something other than a walk, and that's what happens in this case.

As in Steiner, there is donning at the beginning of the day.

That's part of the principal activities--

Justice Scalia: No, no, but if... once you accept the theory that the principal activity includes those things that are integral, you can say walking from the gate of the plant to the assembly line is part of the principal activity.

Now, walking to the gate may not be part of the... may not be part of the principal activity, but... I--

Mr. Goldstein: --Two reasons, Justice Scalia.

The first is the one that I gave, and that is, the Steiner court concluded that... and that was the end of the sentence, where it said, 4(a)(1)> ["], that Congress made clear in 4(a)(1)... that the initial walk wouldn't be the first principal activity.

Second, the walk won't be integral and indispensable.

The test for whether or not something is integral and indispensable is whether it's work that's required and closely related to the productive activities.

And simply walking to the donning station is not.

That's in contradistinction to putting on the clothes that are required here, required as a matter of law in order to do your job.

That's the line that the statute draws.

Justice Kennedy: Well, what about the dog grooming case?

Mr. Goldstein: The dog cases, Justice Kennedy... and I... let me make sure we're... I have your hypothetical, and that is, the police officer at home grooms the dog.

Justice Kennedy: Yes.

Mr. Goldstein: Then it comes into the office.

That is part of their principal activities.

The subsequent commute is not compensable, on the ground that it is a break and a commute.

That's covered by the Fair Labor Standards Act.

The Portal Act is concerned with something else... that is, before the beginning and after the end of your day.

The dog cases are, of course, also entirely different from this one.

You have... you have arrived at the place of the performance of your principal activity.

Steiner said that occurred, quote/unquote,

"on or off the production floor. "

And so, you're at the plant, and your workday has started.

Justice Scalia, you made the point, and I simply want to reinforce it, that the reference in... to 4(a)(2) is the same as the reference to 4(a)(1), but it's also the reference to principal activities in the concluding clause of Section 4.

If I could just take the Court to that.

The statute is obviously reproduced in a variety of places, but it's also at page 3 of our brief.

And so, after 4(a)(1) and 4(a)(2), there's this concluding clause, and the text frames the workday.

And it says that the Portal Act, 4(a)(1) and (2), will apply to activities which occur... I'm quoting now...

"which occur either prior to the time on any particular workday at which such employee commences, or subsequent to the time on any particular workday at which he ceases, such principal activity or activities. "

And it simply follows, as a matter of the plain text, that when Steiner held that those activities, "such principal activities", include the donning and the doffing, that everything that happens between those two events is not encompassed by the Portal Act.

Chief Justice Roberts: Your--

Justice Scalia: --What if... what if--

Chief Justice Roberts: --answer to Justice Kennedy said that the dog cases were distinguishable because there was a break in the principal activity.

So, if we were to rule in your favor, all the employer has to do is make sure that the donning and doffing station's far enough away from the production line so that there will be a sufficient break between the two activities.

Mr. Goldstein: Well, the... both the donning and the doffing and the walking in between and the wait for the equipment, which is the bulk of the time in all these cases, would be compensable.

The Department of Labor has regulations--

Chief Justice Roberts: What do you mean "it would be"... that's my question.

Mr. Goldstein: --Yes.

I'm sorry, Mr. Chief Justice.

There... the donning and doffing in the Alvarez case, by and large, happens in one place: in a locker room.

In the Tum case, by contrast, the employees show up at a cage, they wait for things, they walk, they pick up something else, they wait, they pick up something else.

And so, there's a body of time that I refer to as the donning and doffing process.

All of that would clearly be compensable, even in your hypothetical.

Your hypothetical would address the final piece of time, and that is, you get your last piece of clothing on, and you have to go to the floor, and the employer could say, 15 minute break> ["], in there.

I suppose that's hypothetically possible.

I think the reason it doesn't happen in these cases and in the other cases I've studied is that the employer has an incentive, when they're forced to compensate, to do things efficiently.

What happens is, the employer will say,

"All right, your shift is going to start at 6:30 in the morning; therefore, you can clock in and start donning at 6:23. "

That's a seven minute window, and that forces the employees to do everything efficiently.

They don't insert artificial breaks.

Justice Scalia: --Yeah, but why... if you're talking about efficiency, it may well be that the employees, instead of imposing upon the employer the costs of moving the donning and doffing location closer to the... to the place where the real work is being done, they might prefer, instead, to get a slight salary increase per hour.

But... and that is... that is possible, under the petitioner's scheme, because it is left to private negotiation; whereas, what you say is that they must pay for that.

They must pay for that walk from the donning and doffing.

They cannot negotiate out of it, because if it's in the Fair Labor Standards Act, it is mandatory.

So I... don't talk to us about efficiency.

It seems to me that the efficiency arguments are on the other side.

Leave it to the private sector.

The employers... the employees can decide what they care more about.

Mr. Goldstein: Well, Justice Scalia, I... all I have in... before me that I can rely on is the statute that Congress enacted.

Your point would cover, of course, equally, the donning and doffing in Steiner itself.

Congress made some choices about things that were going to be compensable.

It's worth noting that Congress drew a line about whether... in terms of whether there was a collective bargaining agreement involved, because under Section 203(o) of the statute, in workplaces covered by a collective bargaining agreement, you can negotiate out of at least clothes changing.

But I think within the framework of the statute that we do have, I am actually quite correct, and that is, right now, today, the employers have no incentive to adopt an efficient scheme for arranging donning and doffing.

They can put things in different buildings if they like.

The employees here are required to spend 10 or 20 minutes waiting for different clothing at different times, depending on how long the lines are.

It is a workable scheme that Congress designed that said,

"We're going to have a workday. "

And the employer is in charge of deciding when the workday begins or ends, but, during that workday, they're going to have to pay.

I did want to--

Justice Ginsburg: Mr. Goldstein, I just wanted to have a clear answer to the question Justice Scalia asked you.

Is it so that collective bargaining could not trade off the compensation for the walking and the donning and doffing for some other benefit that the employees might prefer?

Mr. Goldstein: --Justice Ginsburg, it is an unsettled question, is the answer.

I will give you the best answer I can.

203(o) allows for the negotiation away of clothes changing time.

The question whether clothes changing time includes safety equipment is a matter in dispute.

The ninth circuit held that it didn't.

This Court denied certiorari on that question.

The further question, if you did negotiate away the clothes changing time, whether that would negotiate away the walking and waiting time has not been confronted by a court, so far as I am aware.

It might be said to logically follow, but it hasn't been decided.

It's not presented by this case, because cert was denied.

And so, I haven't--

Justice Ginsburg: So, you say it's an open question.

Mr. Goldstein: --It is.

I'm confident it's an open question.

Justice Ginsburg: What--

Mr. Goldstein: Could--

Justice Ginsburg: --about what gear qualifies?

That is, here we have no dispute that this is protective gear.

But it's not any changing that counts.

So, how do we know whether this is the kind of donning and doffing that's compensated in... or the kind that isn't?

Mr. Goldstein: --The line that has been drawn by the Department of Labor, is where I will start, and the Department of Labor... and let me give you some citations... says that the line is between whether the employer requires you to do the donning and doffing on the plant or not.

The citations for that are Section 785.24(c) of the regulations, 790, note 65.

And then it contrasts clothes changing that's by your own choice, in 790.7(g).

I think that's a sensible line, but it's not presented by this case.

Justice Breyer, it goes to your characterization of the final sentence of footnote 49, and that is: sometimes.

The reason I think it's sensible to draw the line that the Department is in required clothes changing is that the employer will only require you to do it onsite if it is truly integral and indispensable to your job; otherwise, it'll be optional, or they'll let you do it at--

Justice Breyer: Can I ask you about a... the other part of the case?

I mean, I think, as I've suggested, most of these things are up to the agency.

They're minor things in the law, so... but it seems well established in the agency reg, as well as in Skidmore, the famous line about waiting being,

"Are you waiting to be engaged, or are you engaged to wait? "

So, assuming that this is just putting on and off clothes that are essential... so, assume you win on that part... when they wait to put on the clothes, you would think... if it's like an airport, sometimes you wait; if you're lucky, you don't.

Well, under those circumstances, you wouldn't be engaged to wait.

You're waiting to put on the clothes, not... you know, it's a... so, why would you win on that part?

Mr. Goldstein: --Can I, again, make sure I have the hypothetical in terms... we are, in a sense, talking about the first wait.

You show up at the first--

Justice Breyer: The... what happens... you win on the--

Mr. Goldstein: --Yeah.

Justice Breyer: --clothes.

They're protected gear.

That's the assumption.

That's part of the job.

The workday begins.

But you have to get there, and you wait to get the clothes.

On that--

Mr. Goldstein: But--

Justice Breyer: --one, why not Skidmore?

Why not the reg?

And, if so, why don't you lose on that one?

Mr. Goldstein: --You are... in that situation, you're waiting for the very first piece of equipment.

In the Tum case, you fill up at the cage at the beginning of the day.

You are engaged to wait.

The regulatory citations are two: 790.6(b) and 790.7(h).

There's also a case that's confronted this, which is the Metzler case, 127 F. 3d 959.

All those authorities make clear that if the employer tells you,

"Show up to do something, show up here to put on your clothes. "

and, because of the way the employer has designed the system, you have to wait, through no fault of your own--

Justice Breyer: But suppose sometimes you have to wait?

Sometimes it's a minute, sometimes it's nothing.

Is it like an airport?

Or does the employer here say,

"You must show up seven minutes early, because there'll be a wait? "

Mr. Goldstein: --It's the... it would be the same result whether the employer puts a time on it or not.

The employer says... I'll give you an example we could agree on, when it's a time--

Justice Breyer: Is that what the reg says?

Mr. Goldstein: --The reg doesn't--

Justice Breyer: It's surprising I didn't see that in the reg, if it says that.

Mr. Goldstein: --The regulation gives this example, which I think is on point, and that is, if you are told to show up for when the production begins... the meat's going to come across... and the machine breaks down or they simply don't start sending the meat until five minutes later, the fact is that you get compensated, because you're supposed to be there.

The fact that they tell you, "Be there for the"--

Justice Breyer: Where it's first in the day.

Mr. Goldstein: --Yes.

Justice Breyer: First thing--

Mr. Goldstein: Yes.

Justice Breyer: --in the day.

Mr. Goldstein: Yes.

Unquestionably.

Justice Scalia: I thought you would say that the whole principle of, you know,

"Are you engaged to wait, or waiting to be engaged? "

just contradicts the principle that was adopted in Steiner.

I mean, are you putting... are you employed to put on your... to put on your clothes, or are you putting on your clothes to do your work?

And Steiner essentially repudiates that.

So, you know, let's forget about Skidmore.

Mr. Goldstein: Well, Justice Scalia, I think Justice Breyer is testing a very particular piece of time.

Justice Scalia: No, I understand.

Mr. Goldstein: He's trying to say, What is... let me take you to the text of the statute--

Justice Scalia: No, I--

Mr. Goldstein: --The... he's trying to figure out when the... the final clause of 4(a) talks about commencement... he want to know when it commences.

Does it commence when you get in line or when you--

Justice Scalia: --Right.

Mr. Goldstein: --first get the piece of clothes?

It's a fair question.

The other side hasn't made any argument that it doesn't include the first wait, I think, because you're told that you have to don, it's part of your principal activity.

Let me also say, this, I think, is a somewhat academic question when it comes to... and nothing against academics, but the... it's a somewhat academic question when it comes to actual workplaces, because what happens is what I described before, the employers, under employers that are following our rule, do set up a time clock, and they say,

"Show up at 6:23, and that's when you can clock in. "

They have computerized swipe cards, and the computer won't recognize them until 6:23.

And it's the time after that that will be compensable.

So, if the Court were to say the donning and doffing process starts and ends the workday for purposes of the Portal Act, everyone will understand what the--

Justice Ginsburg: That wasn't decided below, was it?

It was just a question of walking and waiting, and they weren't specific about whether that included waiting or walking, pre donning.

Mr. Goldstein: --That's right.

The reason for that is, there isn't a pre donning wait in the Alvarez case, where the plaintiffs won, and the Tum plaintiffs lost on an unrelated theory that the actual donning and doffing couldn't start the workday.

Justice Ginsburg: So, perhaps we shouldn't reach a question that hasn't been aired and decided below.

Mr. Goldstein: And my formulation, which is simply the donning and doffing process, would, in fact, leave the... to the lower courts the question of precisely when donning begins and doffing ends.

That's a fair--

Justice Scalia: Mr. Goldstein, since you display such respect for the agency here--

[Laughter]

--what do you do about the agency's footnote that flatly contradicts your theory of the case, and which says that the mere fact that donning and doffing may require compensation does not necessarily mean that travel between the clothes changing place and the actual place of performance would be excluded?

Mr. Goldstein: --Justice Scalia, my answer, I--

think, is that... you had it right in the first half hour, and that is, that phrase--

[Laughter]

i.e., we're denying that it follows a fortiori, or we're simply not deciding the question.

The agency itself, which... the Secretary wrote this guidance... the agency explains that it meant that we're simply not deciding it.

That's actually perfectly intelligible and a correct understanding of the history.

Remember, the Portal Act gets enacted, and, right afterwards, the Secretary issues this guidance that then gets put in the CFR.

This was their first reaction to the Act.

Subsequently, after several years, these are... what you're referring to is something in the... what are known as the Part 790 guidance.

Later on, the Secretary issued what's called the Part 785 guidance.

And, in 785.3, it said, anything that, in 785, contradicts 790, controls.

And 785.38 is the relevant citation.

And there they say,

"If you show up at the beginning of the day and you're given instructions, or you show up at the beginning of the day and you get a set of tools, what follows after that, in terms of travel time, is compensable. "

Can I answer two... make two other very quick points?

Justice Ginsburg, you asked about mootness.

I would refer you to the Deposit Guarantee case, 445 U.S. 326, which talks about collateral estoppel effects.

There is ongoing litigation against this defendant on this question, a case called Chavez, in the district court.

The citation for the proposition that it will collaterally estop them is the restatement section of judgments, section--

Justice Ginsburg: I wasn't questioning that, so much as it is... it is extraordinary for this Court to take a case when the bottom line is going to be the same.

And, since we have the identical issues, with no such preliminary question in Tum, if we decide in your favor in the Tum case, then the other case is taken care of.

Mr. Goldstein: --It's true, you could dig the case.

My only point is that it is not moot.

And perhaps the variety of workplaces shown in the two cases would illustrate things for the lower courts.

I suspect that may have been why the court granted cert.--

I also wanted to respond to the suggestion that this is a surprise to industry, with just a couple of citations.

Walking and waiting time has been held compensable since at least 1961.

The Mitchell case, 286 F. 2d 721, the Barrentine case, 750 F. 2d 47.

There was a meatpacking plant at least seven years ago, 127 F. 3d 959.

And this has been the agency's enforcement position at least since the late 1980s.

It's sufficiently settled that the court of appeals here held that IBP's failure to pay for this time was a willful violation of the statute.

If there are no further questions.

Argument of Irving L. Gornstein

Chief Justice Roberts: Thank you, Mr. Goldstein.

Mr. Gornstein.

Mr. Gornstein: Mr. Chief Justice, and may it please the Court:

The Portal Act excludes walking time from compensation only when it occurs outside the workday, before an employee commences, or after he ceases, his principal activities.

And Steiner held that the term "principal activities" includes activities that are an integral and indispensable part of the principal activities.

It follows that when donning and doffing are integral and indispensable parts of the principal activities of the employees, then walking that occurs after donning, and before doffing, occurs within the workday, and it is not excluded from compensation by the Portal Act.

Now, the employers in these cases have argued that the term "principal activities" does not encompass activities that are integral and indispensable parts thereof, and that Steiner did not so hold.

But, at the very outset of its opinion, the court, in Steiner, posed the question presented as whether changing clothes and showering are compensable as part of the employee's principal activities, and had answered that question several pages later by stating that it agreed with the conclusion of the court of appeals in that case that the term "principal activities" includes activities that are an integral and indispensable part of the principal activities, and that the activities in question in that case fit within that description.

Now, that was the only textual basis on which the court could have reached the conclusion that it did, because, if the only principal activities in that case had occurred on the production floor, then the changing of clothes at the beginning of the day, and the showering at the end of the day, necessarily would have been preliminary to and postliminary to said principal activities, and thereby expressly excluded from compensation.

Justice Scalia: What if I think that opinion was just flatly wrong, that Congress, when it referred to the "principal activity or activities", was talking about the cutting of the meat or whatever the employer hired the person to do?

He didn't hire him to put on clothes.

What if I think that?

Why do I have to extend what I think to be an erroneous decision beyond its narrow holding?

Mr. Gornstein: Justice Scalia, we are not asking for an extension of what you would regard as an erroneous holding.

All we're saying is that you read the term "principal activities" as the court interpreted it in Steiner.

Once you do that, and you plug it into the statute, the plain language of the statute takes over, because it says that walking is only excluded when it comes before the employee commences, or after he ceases, the principal activities.

Once you plug "integral and indispensable" into that sentence, as Steiner requires, then you are... the plain language of the statute tells you that that time is not... is compensable when it occurs after donning and before doffing.

Justice Scalia: Why can't I say that Steiner requires that interpretation of what constitutes a "principal activity" only for purposes of determining what is compensable, and that when we... when we come to examine the separate question, of when the workday begins, we can... we can apply, as far as precedent is concerned, a different interpretation of what is a "principal activity"?

Mr. Gornstein: Because the term (a)(1).

That's the first place it appears.

Everywhere else it appears, including in (a)(2) and in the concluding sentence, it says "said principal activities".

So, the statute itself tells you that the term "principal activities" has to mean the same thing everywhere it appears.

And since you have already interpreted that term, in Steiner, to include "integral and indispensable activities", that terminology has to appear everywhere in the statute.

Chief Justice Roberts: Mr. Gornstein, do you agree that just because it's a compensable activity doesn't necessarily mean that there isn't going to be a break in the workday?

People have talked about the dog example, and there are others.

I mean, and... so, all you're talking about is the determination that this is a principal activity.

It seems that there's a separate... second question, such as, How do we tell if the space in time between two different principal activities, because they're two very different types of activities, is a break or part of the continuous workday?

Mr. Gornstein: Well, first of all, that question arises not under the Portal Act, which only applies before the principal activities begin and after they end, but under the Fair Labor Standards Act, itself.

And that question would be governed by the Court's prior decisions on what constitutes hours worked, together with the Department of Labor's regulations that address what constitute hours worked.

And... within the workday... and what the Department of Labor has said is, generally, everything within the workday is compensable, except for a meal period and except for a time period where there is a break that is so substantial that the employees can effectively use that time for their own purposes.

And so, it says things like 5 to 20-minute breaks are not periods where the employee is not working, but they are resting for the further work.

That is common in the industry.

And so, that would be an issue that would arise when you had a break that was much longer than that, probably at least a half hour, where you can actually effectively use that time for your own purposes and are not required, essentially, to stay around on the employer's premises and to wait or rest to begin your work anew.

So--

Justice Souter: I take it you then agree that the answer for which you argue here follows not merely from the text of 4(a), but the text of 4(a) plus a continuous... some variety of a continuous workday rule.

Mr. Gornstein: --That's correct.

Justice Souter: You've got to have both.

Mr. Gornstein: That you... that you have to have a... work under the Fair Labor Standards Act, and then you have to have the exclusion from that not apply.

Justice Souter: Yeah.

Mr. Gornstein: The issue here, the exclusion doesn't apply, and nobody has raised the question about whether this is hours worked under the Fair Labor Standards Act.

But clearly it is, under the court's decisions.

Justice Souter: But you don't... but you don't get the answer from simply the text itself.

Mr. Gornstein: That's correct.

Justice Scalia: Did you say--

Justice O'Connor: Mr. Gornstein, what about in the Tum case, the walking and waiting before the donning of the clothes?

Mr. Gornstein: Yes.

On the... on the waiting before the clothes, there's... there are two series of waits: the first wait and then later waits.

As to the later waits, once you decide that the donning begins the process of principal activities--

Justice O'Connor: I'm talking about the--

Mr. Gornstein: --The initial wait.

Justice O'Connor: --these.

The initial.

Mr. Gornstein: The initial wait--

Justice O'Connor: You don't think that's covered.

Mr. Gornstein: --We do think that's covered.

And under... the Department of Labor's approach is to treat a required wait for an activity as an integral part of that activity.

So, if that activity is, itself, compensable as a principal activity, then the required wait for that would also be--

Justice Breyer: But the word--

Mr. Gornstein: --compensable as part of that.

Justice Breyer: --"# required" is what I didn't understand in that.

My airline example, what's required?

Mr. Gornstein: What the... the Department distinguishes--

Justice Breyer: "Required" is... sometimes there's a wait, sometimes there's not a wait.

Is that required?

Mr. Gornstein: --Well, if the employee is simply voluntarily arriving earlier than--

Justice Breyer: But he has to--

Mr. Gornstein: --he has to and wait--

Justice Breyer: --put on his uniform.

And sometimes there's a wait, sometimes there's--

Mr. Gornstein: --When--

Justice Breyer: --not a wait.

Mr. Gornstein: --If--

Justice Breyer: Is that a required... or not?

And, if it is, where does it say that in the regs?

Mr. Gornstein: --It's a required wait anytime, in order to get to the production floor on time, the employee has to be at the donning station in a sufficient period of time to get there, and if there's a wait at that time, then he's being required to wait.

Justice Ginsburg: Mr. Goldstein acknowledged that that issue, the pre donning wait, was not decided below.

Mr. Gornstein: I'm not sure I view that the... the question as not having been decided below.

And the court also did grant certiorari on waiting time.

Justice Ginsburg: But it wasn't, obviously, decided in the first circuit, because they ruled against the employee's position.

Mr. Gornstein: But they said

"unreasonable period of time for waiting. "

is non compensable.

And that, at least as a general rule, is not--

Justice Ginsburg: But the... but the question of when... what waiting are we talking about?

Before the principal activity or only after?

That specific issue, as I understand it, was not aired below.

Mr. Gornstein: --Well, I'm... my memory, at least, of the court of appeals opinion, is that it was saying that the wait before the donning was not compensable, because it was a preliminary activity.

But I... if you've read it differently, then that may be--

Justice Breyer: Do we have to decide the second question?

I think it's actually quite difficult.

I can find a lot of authority that seems to me just a random--

Mr. Gornstein: --The Court always has discretion not to decide--

Justice Breyer: --No, no, no.

Mr. Gornstein: --the question.

Justice Breyer: I don't mean that.

Mr. Gornstein: It's--

Justice Breyer: I mean, is there... is there a basis in this record... will it make a difference?

It's not really well briefed, I don't think.

Mr. Gornstein: --I... the--

Justice Breyer: It's a thorough brief.

Mr. Gornstein: --Justice Breyer, if you do not want to decide that question, you don't have to decide it.

Justice Breyer: I don't do things on the ground--

Mr. Gornstein: The Court granted--

Justice Breyer: --I'd like it or not.

Mr. Gornstein: --certiorari as an issue that can be, and should be, resolved, in our view.

But if the Court doesn't want to resolve that issue, that's fine.

Justice Ginsburg: Mr. Gornstein, one thing I'm curious about.

With all the trouble of various interpretations and famous footnote 49--

Mr. Gornstein: Forty nine.

Justice Ginsburg: --why, in all these years, hasn't the Department of Labor gotten rid of it?

[Laughter]

Mr. Gornstein: It should have.

Because even at the time it was written, that reservation was in tension or not in conflict with the plain language of the regulations.

And certainly by the time of Steiner, it was clear that this kind of time was compensable.

Rebuttal of Carter G. Phillips

Chief Justice Roberts: Thank you, Mr.--

Gornstein.

Mr. Phillips, you have four minutes remaining.

Mr. Phillips: Thank you, Mr. Chief Justice.

I just have a couple of points I'd like to make.

First, Justice Breyer, I want to start with the waiting times.

I didn't actually have an opportunity to spend much time talking about them.

But I think the answer that the Solicitor General's Office has offered with respect to the waiting time simply illustrates the expandable nature of the workday.

Their position--

Justice Ginsburg... or Justice O'Connor specifically asked that question,

"You're not saying that waiting time prior to engaging in a primary activity, in fact, starts the workday. "

And the answer is, absolutely, it does, because they find that everything that is integral and indispensable triggers the start of the workday.

So, put it into fairly graphic terms.

If you have to show up in order to put on a coat in order to go onto the floor in order to do your services, then the waiting time for that coat counts.

If, however, you also have to put in earplugs in order to get to the place where you have to get the coat, not only do putting in the earplugs count, under that theory, but, if you have to wait, you have that, and that extends the workday, and all of the walking in between that.

So, if you're asking,

"Is this going to become a significant liability? "

the answer is clearly yes.

For very significant compensable acts... and, indeed, in this context, some of those compensable acts were found by the jury to be utterly diminimus... you're going to end up with significant waiting time, and you're going to end up with significant walking time.

Justice O'Connor: Was the pre donning waiting issue decided below?

Mr. Phillips: Yes, Justice O'Connor, they specifically held that all of the waiting time is not--

it is to excluded.

And they did that on the basis of 790.7(g), before you get to the footnote... because that's the tag to the footnote... as to what is... what is the ordinary meaning of wait... of preliminary and postliminary for waiting time?

And the expectation is that if you're waiting to get your check, and if you're waiting to check in, the recognition is that those... those are completely fortuitous, just as it is here.

There's nobody who structured this arrangement so that you will end up spending time waiting.

Indeed, the scheme is designed to get people in as efficiently--

Justice Ginsburg: They decided--

Mr. Phillips: --as possible.

Justice Ginsburg: --no waiting time.

They didn't decide "if" waiting time... "which" waiting time.

But they said no... it's irrelevant whether it's before or after, because waiting time isn't covered.

So, I don't see how they specifically decided, yes, waiting time is covered, but not pre donning.

Mr. Phillips: Well, I think, Justice Ginsburg, if they specifically decide that there is no waiting time that's covered here, and the plaintiffs have sought compensation for both pre and post waiting time, then the issue is squarely posed, and they've certainly posed it in their petition, and the court granted it.

So, again, obviously, you're free to decline to decide issues, but it seems to me that one is posed.

I want to--

Justice Ginsburg: Well, it seems the court below said waiting time isn't covered, so we're not going to engage in any debate about what... if waiting time is... were covered, which waiting time?

Mr. Phillips: --Right, but that just goes to the question... I think it disposes of the issue of, if you have waiting time that otherwise looks to be fairly ordinary preliminary/postliminary activity, it, nevertheless, can be converted into primary activity under their interpretation of the statute.

And they clearly suggest that the answer is yes.

Our suggestion is, that's inconsistent with the way waiting time is handled under the regulations; and, therefore, the answer clearly should be no.

And, at a minimum, the Court ought to affirm that part of the Tum decision.

With respect to the holding of Steiner... I mean, it's important to put in mind, Steiner... one of the things... two things that Steiner focused on... it focused on Section 3.0, and it recognized that there are going to be situations where you're going to be able to bargain away clothes changing.

And so, then you're in a situation where, for some... for... in some circumstances, because you've bargained away compensation for clothes changing, walking that takes place before or after that will never be compensable; in other situations, it will be compensable.

That's an absurd outcome in a situation where Congress clearly had one thing in mind that it absolutely wanted to accomplish, and that was to ensure that walking, riding, traveling to the place where you actually perform the services for which you've been hired, has been... has... is excluded from being mandatorily compensated... Steiner doesn't deal with 4(a)(1); the language is as plain as it can be... are not... you know, unless specifically excluded by Section 4(a)(1).

Thank you, Your Honors.

Chief Justice Roberts: Thank you, Mr. Phillips.

The case is submitted.

Attribution:

The Oyez Project

Featured:

Christensen v. Harris County - Oral Argument

Fri, 09 Jan 2009 14:50:16 +0000

Case:

Christensen v. Harris County

Media File:

98-1167_20000223-argument.mp3

Related Transcript:

1999_98_1167_argument.xml

Transcript:

Argument of Michael T. Leibig

Chief Justice Rehnquist: We'll hear argument next in Number 98-1167, Edward Christensen v. Harris County.

Spectators are admonished do not talk until you get out of the courtroom.

The Court remains in session.

Mr. Leibig.

Mr. Leibig: Mr. Chief Justice, and may it please the Court:

In July 1992 the county council, attorney for Harris County, Texas wrote to the Department of Labor and asked, while it is clear that the... I'm quoting from their letter to the county manager, to the Department of Labor, and they asked whether... while it was clear that the sheriff may authorize an employee to use comp time when he requests to use it, that the regulations and the statute did not make clear whether an employer could compel an employee to use compensatory time under the Fair Labor Standards Act when the employee did not want to use it, and they asked for an opinion from the Department of Labor as to whether, under the regulations and the statute, that would be allowed, and the Department of Labor answered that on September 14, 1992 that absent an agreement that was willingly accepted by the employees, an employer could not compel the use of comp time under the Fair Labor...

Justice Scalia: Agreement or understanding, is that it?

Mr. Leibig: I'm sorry... agree... yes.

Agreement...

Justice Scalia: Or understanding, in terms of our understanding come in there?

Mr. Leibig: It says agreement or understanding, and also...

Justice Scalia: And do we know whether this is the case?

How many of these people were hired after this policy was already in effect?

Mr. Leibig: Well, there's... in the record in this case it's not clear when the parties came in effect.

It came into effect sometime between 1992 and 1993.

Most of the plaintiffs were working then.

Justice Scalia: But certainly, as to any plaintiffs who were hired after 1992 or '93, if the Department said this is going to be our program, and they took the job, would that qualify as an agreement or understanding?

Mr. Leibig: It might, and I'll explain how, but it depends on whether or not that was a... clearly communicated to the employees and the employees accepted it when it was communicated.

Chief Justice Rehnquist: Well, if they...

Mr. Leibig: In this case...

Justice Souter: All it has to be is...

Mr. Leibig: In this case the facts are...

Justice Scalia: clearly communicated when they accepted the job.

Mr. Leibig: Excuse me.

In this case the facts are that there was a county regulation saying that comp time would be used, but it did not include an agreement with regard to compelled use.

Chief Justice Rehnquist: Well, so far as an employee accepting... if you come to me looking for work and I say, you know, you work 40 hours a week, and you'll be paid at $10 an hour, and you go to work, you've accepted my deal, have you not?

Mr. Leibig: Yes.

Chief Justice Rehnquist: I mean, you don't have to say... it's not a question of voluntary confession or something like that.

Mr. Leibig: Right, but under the regulations and the statute, and this is in section 207(o) itself, it says the... and in the regulation, it says that compensatory time off in lieu of cash may be used, and may be a condition of employment.

There's a specific reference to the regulations that could make it a condition of employment, which I think is the question, but it says so long as the comp time agreement is pursuant... is with the individual employees and pursuant to their knowing and under... knowing and voluntary acceptance of it.

So, for example, in your accept... in your example, I could come... you could say, I want you to come to work with me for $10, which you unilaterally decided, and I could accept that, and I would be knowingly, voluntarily accepting it.

On the other hand, you could offer me the job and I could say, no, I want $15, and you could say, well then, you're not hired, but you could also say, then you are hired, and then we'd have a bilaterally determined condition of employment, and I think if you look at the regulations, while the regulations are clear that it could be a condition of employment, they're also clear that it can only be a condition of employment so long as it is accepted by the employees knowing in advance what the rules on preservation...

Chief Justice Rehnquist: You're not suggesting there has to be some sort of a written acceptance.

Mr. Leibig: No, but at least there has to be... which there's not in this case... a clear enunciation first how the comp time will be preserved and used, and that the employer would have the authority to compel it, which didn't exist in this case.

There would be comp time, but there was no... nothing in the record, and there wasn't anything that said, we can compel use.

They adopted a... they... it says a practice in the stipulation, but it means a policy of compelling use, but that wasn't in the regulation that estopped...

Justice Breyer: What are we supposed to do about that, because I thought that everybody agrees if the employee knowingly and voluntarily agreed to the understanding...

Mr. Leibig: I think...

Justice Breyer: at issue, then everybody agrees that then the county would win, and I think everybody... then the issue is here, though, on the assumption that they didn't knowingly and voluntarily agree, and is there now a question in the case about that so that we should send it back, or...

Mr. Leibig: Well, the suggestion of Judge Dennis in the dissent...

Justice Breyer: Yes.

Mr. Leibig: in the Fifth Circuit was exactly that.

Justice Breyer: All right, so what are we supposed to do about that?

Mr. Leibig: What we ask the Court to do is send the case back for reconsideration in...

Justice Breyer: Of that point.

Mr. Leibig: consistent with the Department of Labor rules.

That's what we've asked for in the complaint.

Obviously, we could have asked for, to overturn the court of appeals and uphold the trial court, but the trial court did not make findings with regard to whether or not an agreement existed and what the agreement was, therefore that's not in the record, and if you want to make it a condition of employment, first of all you have to have exactly what the agreement was and, secondly, that the employees knowingly and willingly accepted it.

Justice Ginsburg: Was there any allegation by the employer that there was anything other than an agreement that there would be comp time?

There wasn't any allegation that any of this was fleshed out.

Mr. Leibig: No.

In fact, the employer, both in the answer to the amended complaint and the stipulation, it's clear, and in their brief, they don't claim that there was a specific provision on compelled use, and there wasn't.

I mean, in fact there wasn't, but... and neither the district court nor the court of appeals, nor the stipulation, includes that important factor...

Justice Breyer: Then why would it...

Mr. Leibig: which is why Judge Dennis suggested that the trial court would have to make such a determination in order to allow any court to apply the applicable regulations.

Justice Ginsburg: Well, why would a trial court have to make such a determination if the employer is not alleging anything more than we had an understanding, they knew when they took the job that it was going to be comp time instead of overtime pay, and we didn't... we're not alleging that we spelled out the details of it.

We're not alleging that they specifically consented to this...

Mr. Leibig: Compelled use.

Justice Ginsburg: Compelled use.

Mr. Leibig: Well, I think the problem is in the record the way the district... the trial court did that, they didn't get to the second point where they actually said we're not alleging, the county is not... that's why I would...

Chief Justice Rehnquist: In any event, you...

Justice Scalia: Even if they didn't, do you think it is a reasonable interpretation... when the employer says, you're not going to get overtime, you're going to get comp time, do you think a reasonable interpretation of that is that I can sit on my comp time, refuse to use it until I finally retire, and then cash it in...

Mr. Leibig: Yes.

Justice Scalia: at time and a half?

You think that's a reasonable interpretation...

Mr. Leibig: Well...

Justice Scalia: when the employer says, what you're going to get is comp time, and my follow-up question is, do you think it's a reasonable interpretation of a statute...

Mr. Leibig: Yes.

Justice Scalia: which says you can give an employee comp time instead of overtime, that it means the employee can sit on the comp time until he retires and then cash it in for overtime pay?

Mr. Leibig: Yes, I do, because the statue also says... first of all, yes, I think it's reasonable.

Second of all, the statute itself also says that there's a... expressly in the statute there's a 480-hour cap on comp time banks, and that after the employees reach that cap, they then can use the comp time, and it has... it deals with how to use it, by making requests and so forth, and therefore it... the statute doesn't give an employer a permanent right to use compensatory time.

Justice Scalia: Well, as I understood the statute, it was enacted in response to the complaint of the States that now that you're applying the Fair Labor Standards Act to us we're going to go bankrupt.

We cannot pay time and a half to firemen, policemen and so forth.

So Congress said, well, okay, if you want you can give them comp time instead of time and a half.

But what you're urging here, to wit, that the policemen and firemen can simply refuse to use the comp time.

Mr. Leibig: Right.

That's because...

Justice Scalia: And then get it in cash.

It just makes... it just makes nothing of the concession that Congress made to the States.

Mr. Leibig: Justice Scalia, I would argue that the Congress didn't quite make as broad a concession as you indicated, because...

Justice Breyer: No, I...

Mr. Leibig: first of all the statute itself says that an employer may use comp time only pursuant to an agreement with the employees, and only pursuant to a number of other conditions.

The statute also says, delegates to the Department of Labor to make regulations about what that means, and the Department of Labor has made regulations that make precisely clear what those are.

In addition, while the legislative history indicates that Congress was trying to respond to Garcia and allow employers to operate more efficiently, the legislative history is also clear that the comp time provisions were meant to accommodate preexisting arrangements between employers and employees, and that they weren't the major part of the cost saving.

They gave greater flexibility to the employer, but the statute and the legislative history repeatedly is also clear they gave a right to the employees to use it to control the comp time in the legislation.

Chief Justice Rehnquist: Mr. Leibig...

Within reason.

Mr. Leibig, let me get the procedural history of this case straight.

The district court granted summary judgment for your client.

It went to the Fifth Circuit, the Fifth Circuit granted summary judgment for the county and Judge Dennis said, really neither side should get summary judgment, and your position here is that Judge Dennis was correct?

Mr. Leibig: Our position, and what we asked for in both of our briefs, is that the case should be remanded for further hearing in terms of the Department of Labor regulations, which required the investigation of the extent and meaning of the agreement and how the agreement fit into the rules.

That's basically correct, Your Honor, and the... I would...

Justice O'Connor: Could I ask you what Department regulation covers this exactly, and where we might find it in the material with this case?

Mr. Leibig: Yes, Your Honor.

Basically, that the... covers compels use exactly?

Justice O'Connor: Yes.

Mr. Leibig: Yes, Your Honor.

The regulation that deals with it is 553.23, and the...

Justice O'Connor: Where do I find that...

Mr. Leibig: Yes...

Justice Breyer: in these materials?

Mr. Leibig: In the appendix, the original appendix to the petition, which contained most of the appendix, at page 46...

Justice O'Connor: Just a minute.

Justice Breyer: I would look at the petition for...

Mr. Leibig: It's the white... the white large...

Justice Ginsburg: This?

Mr. Leibig: Yes, Your Honor.

Justice Breyer: And where would I...

Mr. Leibig: It's 46a.

There's a couple of things, but the first is 46a, and that is... 553.23(a)(1) describes how you get an agreement, and then (2) says the... it deals with the agreements, and this is a discussion of the kind of things that would be in an agreement, and...

Justice O'Connor: Where does... where do I find language here, on page 46a, that tells me the employee does not have to use it?

Mr. Leibig: No, you don't.

I mean, I was... as I say, I have to go to a couple of places.

What it says there is that the agreements for comp time may include provisions governing preservation, use, and cashing out of comp time.

Justice O'Connor: Yes.

Mr. Leibig: And then in addition to that it says in... back on page 45, it says agreements of understanding may provide comp time off.

In addition to the agreement an understanding may be a combination... it goes through the various things that would be in a comp time agreement.

Justice O'Connor: Well, I think everyone agrees that there can be an agreement covering it.

Where do I find in the regulation a directive about what happens absent an agreement?

Mr. Leibig: As the letter that I cited from the county, in the regulations themselves there's no express treatment of the compelled use question.

Justice O'Connor: That's what I thought.

Mr. Leibig: Yes.

Justice O'Connor: So to what do we defer, then, in terms of the Labor Department?

Mr. Leibig: The Department of Labor's interpretation of their own regulations, which is expressed... well, first of all, there's three of them.

First of all, it's expressed specifically in the letter... the specific letter, which in this case was actually a letter to Harris County saying compelled use, they interpret this regulation to prevent compelled use, and that relies on their interpretation of this regulation, plus I think it's important...

Justice Scalia: Who is that letter from?

Justice Breyer: Who did that letter come from?

Mr. Leibig: It came from Harris County's... specifically asking about the facts of this case.

Justice Scalia: To the Labor Department?

Mr. Leibig: Went to the Labor Department.

It was by the Administrator of the Wage & Hour Division.

Justice Scalia: The administrator...

Mr. Leibig: Right, and that was September, I think 14, 1992.

Justice O'Connor: And where is that?

Mr. Leibig: Of the letters... the letter itself is not reprinted in the record, but it's cited in all the briefs in this...

Justice O'Connor: So that's all we have, really.

Mr. Leibig: No.

Well, I wanted to... no.

And then in support of that, the question is, how did the Department of Labor get from the regulations to the thing, and there's two things in support of it.

First of all, the legislative history itself, of the... the congressional legislative, both the House and the Senate report, refer to the right of employees to use comp time 10 times and they refer to, 14 times, that it's a benefit of the employees, and that the employees can cash out comp time.

Justice O'Connor: Well, these are all statutory provisions.

Let me ask you this.

There's no collective bargaining agreement here...

Mr. Leibig: No.

Justice Souter: covering this...

Mr. Leibig: There's an earlier case before the State.

In Texas and Harris County, collective bargaining is illegal.

Justice O'Connor: There is no collective bargaining agreement that we worry about here?

Mr. Leibig: No, that's correct.

Justice O'Connor: Can the employer say, well, maybe it wasn't clear in the past, but I want to make it clear from this date forward, if you want to continue to work here, you're going to have to use your comp time, so if you want to stay a county employee, that's the rule?

Can they do that?

Mr. Leibig: Under the statute and regulations they can do that, and then the employees have the option of then either accepting it and continuing to work...

Justice O'Connor: Or leaving.

Mr. Leibig: Or... and by the way, under the regulations they not only could... the regulations both provide a condition of employment with those conditions.

They also provide, in 553.23(c)(1) at the bottom that you could just give notice, which... there may be... I'm not sure there's a debate, but there may be a condition between making a condition of employment and giving notice, but it also says if they give notice that we will have compelled rules, and if the employee then works a day after that, it can be presumed that he accepted it, but then if...

Justice O'Connor: Well, has the county give notice here...

Mr. Leibig: No.

Justice Breyer: do you think?

Mr. Leibig: No, because it also says that if the employee...

Justice O'Connor: No.

Justice Breyer: These employees don't know that the county thinks they have to use...

Mr. Leibig: Well, the regulation also says if the employees fail to express an unwillingness to accept it, it will be presumed, but in this case the employees did express an unwillingness to accept it, and therefore the opposite presumption I think would occur, and again you have to read the last two sentences of the section I cited, so that in this case, first of all...

Justice Kennedy: You mean, if the employee says nothing, then the county has to either fire them or assume that the deal's off?

Mr. Leibig: No.

I think the rule is if an adequate notice is given and the employee says nothing and works, the presumption is that he accepted it, but if he expresses an unwillingness to accept it, then the presumption is that he did not accept it.

Justice Souter: But then...

Mr. Leibig: Then if the employer lets him continue to work, he doesn't... can't compel him to use comp time, but he would have the option to terminate.

I mean, if they think it's that serious a thing to do, why, that would happen.

In this specific case all those cases, facts haven't been developed, but I think that's the way it would go.

Justice Souter: I presume they would also have the option to say, we're not going to fire you, but if you won't use the comp time, we're simply going to reduce your weekly hours to 35 a week.

Mr. Leibig: Well, I think they could, 1) say we're not going to let you work any more overtime.

Whether they could reduce their hours to a low, or below the statute...

Chief Justice Rehnquist: Why not?

Justice Breyer: Why not?

Mr. Leibig: Well...

Justice Souter: They're saying, look, we're doing it because we've got this great overhanging liability out there, and the only way we're going to be able to fund it is to save money in some other way.

Mr. Leibig: Well, first of all...

Justice Souter: And the wage and hour law doesn't tell us how many hours we have to let you work.

Mr. Leibig: The regulations say that the employee's decision to accept comp time has to be made free of coercion or pressure, and that's clear in the regulations and the legislative history.

Justice Scalia: But firing is not coercion?

Mr. Leibig: No, because...

Justice Scalia: You say you can fire him, but I can't reduce your hours to 35?

Mr. Leibig: Well, the regulations say you can make it a condition of employment, so if you make it a condition of employment, the person is free whether to accept the job or not, but if they do accept the job, then it is the system covered by the regulations, and part of this is to make sense out of all the regulations and the legislative history.

If the legislative history, which is trying to...

Justice Scalia: If possible.

If it says that, I don't call that making sense out of it.

You can fire him, but you can't reduce his hours...

Mr. Leibig: No, no.

I think you can reduce his hours unless you've expressed to him the intent of your reducing his hours is in order to pressure him into accepting comp time.

Justice Scalia: No, I'm not...

Mr. Leibig: But other than that...

Justice Souter: No, I'm not pressuring him.

He can keep his saved up time in the bank.

I'm not telling him he's got to draw that down.

Mr. Leibig: Yes, Your Honor.

Justice Souter: And he'll get... if he keeps it till the end he'll get paid time and a half.

I'm simply saying, I've got to provide for my liability, and therefore I've got to employ people less hours in order to put the money aside for a rainy day.

Is that coercion?

Mr. Leibig: No, I don't think it is...

Chief Justice Rehnquist: Okay.

Mr. Leibig: in that context.

If the employee could demonstrate actual coercion they may have an argument in the case, but absent that...

Justice Souter: But the example that I just gave you would not, as a matter of law, be coercion, you concede?

Mr. Leibig: I don't think so.

Justice Breyer: Yes.

Mr. Leibig: Also I think that, along the same lines because I want to make it clear, the odd thing about this case is the burden between the employer imposing this without an agreement with the employees, and what he would have to do to get an agreement, is not a long road.

The facts in this case are, they imposed compelled use without either the notice, the condition of employment, or...

Justice Souter: In fact, the road isn't any longer than my hypothetical, is it?

Mr. Leibig: No.

Justice Souter: We know it's going to happen.

Mr. Leibig: Right.

In addition to that, though, one thing in your hypothetical, that you assumed that the county would save money by paying people in comp time rather than cash, and I don't think Congress assumed that.

There's a slight additional flexibility.

In fact...

Justice Souter: I was assuming some fat there.

Mr. Leibig: Yes.

Justice Breyer: I must be...

Mr. Leibig: Comp time in fact would cost more than...

Justice Breyer: You have to... I may have to...

Mr. Leibig: so they may want to avoid it by paying it out later, but they...

Justice Stevens: Enlighten me about what you mean by saying paying in comp time instead of cash.

If they take comp time, don't they get paid in cash for the time they don't work?

Mr. Leibig: Yes, Your Honor.

That's what I was trying to explain, but they do, but hypothetically there's a slight way they can... it can cost the employer more, because if the employee is making $10 an hour in 1992, works for comp time and then banks it as Justice Scalia suggested, and then cashes it in 5 years later, probably he'll be making $12, so that could cost... over the long haul that could cost the employer a little bit more money.

Now, the...

Justice Breyer: Yes, but that's...

Mr. Leibig: In fact, you have a defense against that, because the employer is free at any time to cash out the contract, so they could avoid that, not only by cashing out the comp time, but I suggested in my brief three or four other ways that an employer can protect themselves from that happening, but in theory that's the additional cost of comp time if it's stored, and so...

Justice Stevens: But if he... of course, as the employer used his comp time a year later and the wage rate's gone up, the time he uses the comp time he will stay home and get paid at the rate... then current rate, will he not?

Mr. Leibig: Yes, Your Honor.

Justice Breyer: Yes.

Mr. Leibig: If he waits till he retires, there's another rule.

He either gets the regular rate or the higher...

Justice Stevens: Of course, in the meantime the employer's had the use of the money, too.

Mr. Leibig: Yes, and inflation's... but I'm just saying, other than that, and Congress is clear about this both in the regulations and the legislative history, Congress' view was that you're not supposed to use comp time... they meant comp time to be an equivalent of being paid in cash, because eventually you have to pay the money, and in fact in the real world it works out there would be areas I've described, and as we've described in our brief, there are methods by which the employer can save it.

Chief Justice Rehnquist: Thank you, Mr. Leibig.

Mr. Leibig: Thank you.

Argument of Matthew D. Roberts

Chief Justice Rehnquist: Mr. Roberts, we'll hear from you.

Mr. Roberts: Mr. Chief Justice, and may it please the Court:

An employer may not require an employee to use his comp time against his wishes unless the employee has agreed to that arrangement in advance.

That conclusion follows from two features of the act.

First, the act gives the employee the absolute right to overtime pay in cash.

An employer cannot substitute comp time for overtime pay in cash unless he first secures the employees' agreement.

Second, the act makes clear that comp time is a substitute for cash pay.

An employee has the absolute right to use that cash pay as he pleases.

The employer can't tell the employee when or how it may be spent.

Just as the control over cash is a central aspect of its value, control over the use of comp time is central to its value, and therefore the Secretary has reasonably construed the act to permit the employee to use the comp time he has earned as he wishes, except to the extent he's otherwise agreed...

Justice O'Connor: Now, where do we find some departmental regulation that spells out what happens...

Mr. Roberts: Well, the Secretary has construed its... her regulations to provide that in reliance on three provisions in the regulations.

First, section 553.23(a)(1), which is on page 45a of the joint appendix, which provides, just as I explained that the statute did, that comp time is a substitute for overtime payment in cash, and that there must be an agreement with the employee.

Justice Breyer: Well, that doesn't get you there.

Justice Scalia: That just says there has to be an agreement before you can use comp time.

It doesn't say what the consequence of using comp time is.

I mean, it just says there has to be an agreement before you can use comp time.

Mr. Roberts: Yes, Your Honor, and the Secretary is also relying on the provision in (a)(2) that says that the agreement may include provisions governing the use of comp time.

That's on page 46a...

Justice Breyer: Right.

Mr. Roberts: the first sentence, and also relying on (c)(1), which is on page 47.

Justice Scalia: Well, let's do (a)(2) first.

An agreement may contain other things.

It doesn't say it must contain other things.

Mr. Roberts: That's correct.

Justice Scalia: I mean, the regulation could have said that.

Any other things... you know, any other conditions on comp time must be included in an agreement.

It doesn't say that.

Mr. Roberts: The regulation doesn't require that it address that, but the Secretary has construed the regulation as a whole to mean that if it doesn't address that, then the employee retains the right to use comp time...

Chief Justice Rehnquist: Well, why on earth doesn't the Secretary say that in a regulation, rather than having to construe something that's ambiguous.

Mr. Roberts: Well, the Secretary didn't address it in the regulation, but did address it in the opinion letter, which provides clarification of the regulation...

Justice Breyer: Well, it still...

Mr. Roberts: and the Secretary's interpretations.

Justice Breyer: I just want to... I may be misremembering this, but I can't... let's just ask you that even if it's not a formal interpretation of the regulation, which I could see how it would be, what it means to say you can put extra conditions there, in terms of the... a background rule where nobody says anything.

I could understand that, but even if not, isn't there a famous administrative law case, Skidmore, which talks about this Court paying deference to a wage and hour administrator on the ground that even if he lacks... he possesses the power to persuade even though he lacks the power to control?

Mr. Roberts: Yes, Your Honor.

We contend that the interpretation of the regulation is entitled to stronger deference that Skidmore.

Skidmore was decided...

Justice Breyer: I never knew there was a difference of deference.

I never was able to measure it.

Mr. Roberts: Well, the courts of appeals, and I think this Court as well, recognized a difference between Chevron-type deference or the kind of deference in our, and what might be called Skidmore-type deference, which is that the... reasoned judgment is entitled to respect for its power to persuade and...

Justice Breyer: I mean, all we're talking about is, what is the background rule if, in fact, nobody puts a condition in the agreement?

Now, they're free to put it in or not, but what's the background rule, which is a pretty sort of interstitial minor point, isn't it?

Mr. Roberts: Yes, Your Honor.

It imposes very little burden on the employer.

The employer is well-situated to obtain the employee's agreement to that condition, and...

Justice Stevens: May I ask, Mr. Roberts, what's the opposite rule?

If the employer can't decide when it's used, does the employee have the right to say, well, I've decided to take it whenever I choose?

Mr. Roberts: The employee has the right to use comp time within a reasonable period when the employee requests it, unless it would unduly disrupt the employer's operation.

Justice Scalia: No, excuse me.

I thought he doesn't have to use it within a reasonable time.

I thought the position here is that he can sit on it and choose not to use it as he wishes, and cash it in at the end of his career?

Mr. Roberts: The employee can accrue the comp time so that the employee can use it on request, as provided by 207(o)(5).

The employee also could accrue it up to the maximum provided by the statute.

Justice Scalia: He has no obligation to be reasonable in his use of it at all, isn't that right?

I thought that's what we're arguing about here.

Mr. Roberts: He has an obligation to not... he's unable to use it on request if it would unduly disrupt the employer's operation, but...

Justice Stevens: Doesn't that cut against... I'm just trying to think it through.

Doesn't that in a way cut against you, in the sense that there is a restraint on the ability of the employee to use it whenever he wants to.

He can't just say on Friday I'm going to take off next Monday and Tuesday.

He must consider the employer's wishes, but there's no restraint on the employer's imposing, under the regulation, his desires on how it should be used, no express restraint.

Mr. Roberts: Because Congress did not expressly address the situation when the... if the employer could require the employee to use comp time.

I submit that that's because Congress didn't conceive that the employer would assert that authority, because Congress understood that the comp time belongs to the employee, and that the employee would ask when to use it and not be told when to use it, and that follows, as I said, from the features of the act that I described earlier, so Congress didn't have a need...

Justice Stevens: But the Congress did impose a ceiling on how much comp time that could be accumulated.

Mr. Roberts: Yes, but once that ceiling is reached, Congress specified that the employee would have to be paid in cash, which returns the employee to getting his basic rate under the act.

Justice Scalia: But what I don't understand, Mr. Roberts, is what good it does for Congress to say, you don't have to pay these people cash.

You can let them have comp time instead.

I don't see what good that does if Congress also says, oh, and by the way, the employees don't have to use this comp time.

They can just sit on it and bank it, and cash it in at the end of their careers.

What has Congress accomplished?

Mr. Roberts: Congress doesn't say you can pay these employees comp time.

It says, the employees have the right to overtime pay in cash, and the employees may agree with you when it's mutually beneficial to get comp time, and those mutually beneficial arrangements may save the employer money, but Congress was very clear, the statute is absolutely clear, the employee has the right to overtime pay in cash.

Justice Breyer: If they decide to bank it and never spend it, and the employer would like them to, and eventually get cash for it, when do they get the cash, when they retire?

Mr. Roberts: If they bank it, they get... they can accumulate under the 240 or 480 hours, and on termination of employment they have to...

Justice Breyer: On termination of employment, so it's quite possible that... it would be an unusual case where they'd want to bank it.

I mean, if you refuse it you get paid time and a half next month, and if you decide to take the comp time and save it, you're going to be paid when you retire.

Do you get paid more when you retire?

Mr. Roberts: You get paid... you might get paid more, but I don't think it would be worth more 20 years down the road.

You would get paid at the rate then.

It's unlikely...

Justice Scalia: Well, at the rate for your rank then, to.

Mr. Roberts: At the rate for your rank then, or the last 3 years.

Justice Scalia: If you're a captain then you'd get a captain's 240 hours, right?

Mr. Roberts: Yes, Your Honor but...

Justice Breyer: They must not make decisions based on these prospective calculation of what it's worth years down the road, or maybe they do, do they?

Mr. Roberts: I don't know whether they do.

There's no indication in this case that these employees wanted to do that.

Another feature of their complaint, which wasn't pursued on appeal, was that they were not being allowed to use comp time when they requested to do so, so it suggests that they did request to use comp time.

Justice Ginsburg: Mr. Roberts, does it come down to whether the default rule is, you get overtime, or the default is, as Judge Hickinbotham said, the employer sets the work rules?

Mr. Roberts: Yes.

You could look at it that way.

The reason that the default isn't that the employer sets the work rules is that Congress has displaced that principle that the employer can set the rules in the act by making... by giving the employee the right to overtime and by providing that the employer can only have a comp time arrangement pursuant to the employee's consent.

Justice Ginsburg: The question is, how detailed the consent must be.

Mr. Roberts: Right.

Justice Ginsburg: Just the comp time, or the working out of it.

Mr. Roberts: Yes.

That's the issue, and it is simply a default rule.

The parties... everyone agrees the parties can contract out of that principle, so it's not imposing an onerous burden on the employer, and what it is doing is furthering the underlying scheme in the act.

Argument of Michael P. Fleming

Chief Justice Rehnquist: Thank you, Mr. Roberts.

Mr. Fleming, we'll hear from you.

Mr. Fleming: Mr. Chief Justice, and may it please the Court:

One reason, or the main reason on why there aren't any regulations that address this issue, and there really aren't, is because of the... what's really taking place in this, what's been termed a forced use of compensatory time.

The Fair Labor Standards Act basically provides for a minimum wage rate and maximum number of hours.

There's no provision in there that guarantees a 40-hour week, work week.

An employer is always free to cut the work week short, to have an employee work 30 hours, 20 hours, 10 hours, 1 hour, and in the Fair Labor Standards Act there's a very specific provision that allows employers to cash out accrued compensatory time at any time.

It's in the statute and more specifically in the regulations.

Now, if they could do each of those two separately, there's nothing that prevents a public employer from doing so simultaneously to achieve the objectives which were set out in the amendments following the Garcia decision, that is, to protect the county's resources and budgets and really, in this situation, to protect against employees that do bank their comp time and hold it to the maximum.

Justice Scalia: You mean, the employee normally has a 40-hour week, say, you just come in 35 hours this week, I'll pay you for 40, right, and the other 5 will be paying down your comp time, right?

Mr. Fleming: Yes, Justice Scalia, and in fact...

Justice Scalia: So what's the big deal, then?

Why do we have this case in front of us?

Why don't they just do that?

Mr. Fleming: That's what we do.

What happens is that they'll... after the supervisor tries to reach an agreeable time for the employee to start taking time off and getting paid in cash from their compensatory time that's been accumulated, if the employee doesn't do it, then he meets with him and orders him to do it, and still tries to get a reasonable period of time when they can do it, and if not, then issues an order for the employee to do it.

And what will happen is, for instance, if it's a week the employee is going to take off, the employee doesn't come in to work that week but he still gets his paycheck, 40 hours of pay, and mind you, that pay has been accumulated at time and a half, so they're still getting the benefit of the time-and-a-half provisions of the Fair Labor Standards Act.

That's what the practice is, and that's what happens.

Justice Breyer: Well, why don't you put it in an agreement?

I mean, you know... that's what I don't understand, is why is this case such a big deal, since everybody agrees you should be able to do that, but you have to get your employees' agreement to it, just as you'd have to to get his agreement to comp time in the first place, and so you have to get that agreement anyway.

What's the big deal?

Mr. Fleming: I think...

Justice Breyer: And if there are good arguments on both sides, which there are, you could have a background rule either way.

The reg, I agree with you, doesn't say much about it.

Mr. Fleming: Sure.

Justice Breyer: And so why not just go with the agency?

I mean, that's a... why... you know, trivial matter, interstitial, background agreement, they have the experience, et cetera, et cetera.

Mr. Fleming: Well...

Justice Breyer: So that's sort of where I... what I'm thinking about it.

Mr. Fleming: Well...

Chief Justice Rehnquist: What is your response?

Mr. Fleming: That's a good question, and in addition to the default rule, which Judge Hickinbotham of the Fifth Circuit said, where he sort of filled in the gaps of what he perceived the agreement would be, in addition to the fact that under the statute we don't have to have an agreement, is our position, really how the case evolved, though, is up until we got to this Court the petitioner was saying that it's completely prohibited by the act, agreement or no agreement, and it was our position that it's... we're allowed to do it by the act, and that's still our position.

Justice Ginsburg: Well, and now in this Court everybody agreed that there can be an understanding.

We're talking about what notice the employees have to be given, so there's no question that from now on Harris County can say, this is the deal, employees.

The only question is when they didn't say that, when all they said was comp time, what should be the consequences?

Mr. Fleming: Well, we agreed that we could do it by agreement, but it's our position we don't have to do it by agreement, and whether we want to go back and issue a new...

Justice Ginsburg: Well, what's the it?

I mean, certainly you can't substitute comp time for overtime pay except by agreement or understanding.

Mr. Fleming: Yes.

Chief Justice Rehnquist: Right?

Mr. Fleming: That's...

Justice Ginsburg: So you must have an agreement to comp time.

Mr. Fleming: Which we have.

Justice Ginsburg: And the question is, what are the terms and conditions of that comp time?

One we know from the statute, that the employee can request it, and the employer has to accommodate unless the time that is being sought would unduly disrupt...

Mr. Fleming: Yes.

Justice Ginsburg: operations.

Mr. Fleming: Yes.

Justice Ginsburg: So we have that one condition on it directly out of the statute.

Mr. Fleming: Yes, Your Honor.

Justice Ginsburg: But why, if Congress is trying to say, employees, it's your option, or at least you have to be given notice, why shouldn't that notice be, here it is, and at a certain point you're going to have to take it?

Why shouldn't that be spelled out, instead of the employee thinking, well, this is fine.

If I need it, I'll use it, and if I don't need it, I'll bank it, and the statute says after X number of hours I get paid in cash.

Mr. Fleming: Justice Ginsburg, I agree that it can be in an agreement, certainly.

But just as the Fifth Circuit said, that there are workplace rules which the employee governs, in this case, this is something that is outside of the act.

They could be... setting the number of hours below 40 is not covered by the Fair Labor Standards Act, and the employer is not required to enter negotiations with the employees on when they're going to set those hours or cut them back.

Justice Scalia: Is that what you did here?

I am in some perplexity.

I thought your opponent had acknowledged that it would be okay for the employer just to say, next week only come in 35 hours, and for the employer to take the money that it saves, the 5 hours, add a little bit more to it for the time and a half, and voluntarily, as it's entitled to do, buy out 5 hours worth of the comp time.

Now, is it common ground that that is okay?

Mr. Fleming: I don't know if... I don't think that's what the petitioners are maintaining.

That's our position.

We're telling them, don't come in next week, or, you know, in a couple of weeks...

Justice Scalia: No, you're doing something a little different.

You're saying, don't come in next week, take your comp time instead.

Mr. Fleming: Yes.

Justice Breyer: Right?

Mr. Fleming: That's what... as we have maintained, we're doing two things, and they...

Justice Scalia: That's a little different from saying... you're directing them to take their comp time.

Mr. Fleming: Yes.

Justice Scalia: Which means, you know, they won't get any... well, they'll get their regular pay, and they'll have time and a half off, I guess, right?

Is that how it comes?

Mr. Fleming: Yes.

I mean, they've accrued the comp time for time and a half, and...

Justice Scalia: Well, that... it seems to me that's a bit different from simply saying, look at... God, you've got 240 hours here.

I can't afford that.

Don't come in for 5 hours next week.

Say nothing else about the comp time, and then the employer just buys off 5 hours worth of comp time.

That's a little different, and I'm not sure that the other side says that that's bad.

That's not what you've done here, though.

You've instructed them to take their comp time.

Isn't that the facts of the case?

Mr. Fleming: Yes, but by doing it, it's in two phases.

I agree that it's a forced use, but as far as finding a statutory authority for doing it, it's the way I explained.

There's nothing that can stop us from shortening the work week, and we can cash out the comp time at any time without any restrictions.

Justice Scalia: Why don't you do it the other way, and save us all this trouble?

Unidentified Justice: [Laughter]

Justice Souter: But I think that was the answer to my hypothetical.

I said, what if they... if they do nothing but say, we've got to make up some money somehow to pay for this overhanging liability, so we're only going to employ you 35 hours a week, and I understood your friend on the other side to say that would not be coercive, and that would be okay.

In practical terms, that would get you exactly where you want to go.

Mr. Fleming: You mean... if I understand your question...

Justice Souter: Because... excepting in one case.

If the employee says, all right, by Godfrey, I'll work 35 hours a week, but nothing is going to induce me to touch my accrued comp time.

That nest egg is going to stay there until the day I retire.

The employee could do that.

In the real world, I presume that would not happen.

Justice Scalia: He can't do that, can he?

Doesn't the employer have a right to buy out the comp time?

Mr. Fleming: The employer has a right to buy out the comp time.

Justice Stevens: That's right.

That's right.

Justice O'Connor: That's right.

Justice Stevens: That's the issue.

That's the issue.

You can make him work 30 hours a week, but the question is, can he refuse to be paid for 40?

Mr. Fleming: No, because we can cash it out.

Justice Stevens: That's your position.

Mr. Fleming: That's...

Justice Stevens: His position is, he can say I don't want to take the 10 hours in cash, I want to keep it in the bank.

Mr. Fleming: I don't think that they're saying that they can refuse to take the payment, because the statute and the regulations are very clear about that, cash them out at any time, and so if we can do either of those separately, we can do them simultaneously.

Justice Ginsburg: And that's what protects the employer against excessive accumulations.

The employer can always say, well, the main rule is time-and-a-half pay.

Here's your pay.

Mr. Fleming: Yes.

We can cash them out.

Chief Justice Rehnquist: That...

Mr. Fleming: The employer can cash out at any time.

Justice Ginsburg: But then, if you look at it as the comp time being an exception to the overtime pay, then it would be logical to say the employer can go back to what is the main rule, what is the rule in workplaces that are not public.

There's no comp time option in the private sector, is there?

Mr. Fleming: No.

Justice Ginsburg: So the underlying premise of the Fair Labor Standards Act is, you pay time and a half.

Then there's an exception that operates only in the public sector, but Congress has provided that the employer can always do what employers all over the country must do.

That is, pay time and a half.

Mr. Fleming: Pay time and a half, or we can cash them out.

Justice Ginsburg: Well, that's what I mean by cashing them out, by... instead of letting them accumulate the time, giving them the money.

Mr. Fleming: Yes, as they... as they're accumulating it, if we... when they reach the 240 hours, if they do, if we don't cash them out they're going to get time and a half.

Justice Stevens: May I confess to total stupidity here, because if you've got your 30-hour-a-week example, you say you have an absolute right, and they don't contest the fact you can pay them for the extra 10 hours if you want to.

Mr. Fleming: That's right.

Justice Stevens: Well, what exactly does...

Then why aren't you doing that?

I don't understand why that isn't... what you're fighting about, if everybody agrees you can do that.

Isn't that just making them take 10 hours of comp time each week?

Mr. Fleming: If we did it each week, we could.

We don't do it each week, though.

I mean, they wait till it gets up to near the maximum of 240 hours in our case, and then they try and get it to come down a little bit, so they're not cutting back their time every week.

Chief Justice Rehnquist: Give me a specific example of what cashing out means.

Mr. Fleming: Cashing out is if an employee has some accrued compensatory hours, whether it's 1 hour or 240 hours, that the employer can pay for those hours in... at the... whatever rate the employee has at that time, or... and they can also do it when the employee leaves or is terminated, and they pay it out dollar for dollar based on the number of hours.

Now, the hours have been accumulated at time and a half.

Chief Justice Rehnquist: Yes.

There is no such thing as comp time for regular... for not overtime, is there?

Mr. Fleming: No, there's not.

Justice Souter: I want to go back to your answer to Justice Stevens' question.

If I understand it correctly, what this case boils down to is this.

If you reduce hours on a regular basis, and you also choose to cash out a portion of the accumulated time every week, no problem, no argument, but if you do it on an irregular basis, if you make a judgment that the fire department, sheriff's department says, gee whiz, next week we haven't got much process to serve, so I think we'll make so-and-so take Wednesday afternoon off, not a regularly scheduled thing every week, an irregular judgment from time to time, that's what we're fighting about?

Mr. Fleming: I don't want to state the petitioner's position, but...

Justice Souter: That's what you think we're fighting about?

Mr. Fleming: Yes.

Well...

Justice Scalia: It's not even as substantial as that.

You could, on an irregular basis, say we have so many... so few processes to serve next week, you know, Jones, take next Wednesday off.

Mr. Fleming: Yes.

Justice Scalia: Right?

And then make the decision to pay Jones... pay Jones' comp time down.

Mr. Fleming: If Jones didn't have any accrued compensatory hours we could do that.

He gets nothing.

Justice Scalia: So you don't... it really doesn't... it doesn't make any difference, and that leaves me in something of a quandary, whether the fact that it doesn't make any difference means that we should find for your opponent, because you can do what you want to do anyway very easily, or the fact that it doesn't make any difference should make me wonder why it should be prohibited to do it the more honest way by the Fair Labor Standards Act, why...

Mr. Fleming: Well...

Justice Scalia: I don't know which resolution that leaves you with.

Mr. Fleming: See, Justice Scalia, in looking at the Fair Labor Standards Act, there's nothing in there that prohibits us from doing this.

Justice Breyer: But it's symmetry.

Mr. Fleming: Well, it's symmetry...

Justice Breyer: You see, basically the statute says, we prefer money.

You work overtime, we'll give you money.

Now, you work overtime, you get the money.

Now, if you agree to take the comp time, that's fine, and that kind of idea, that it's money or you get their agreement... it says its money and they get their agreement, they get the comp time.

It says it's money, or you get the agreement if you want to force them to take the comp time rather than wait till the end and get the cash, all right.

I mean, it's symmetry.

Mr. Fleming: It's symmetry, but if you go back to what Justice Scalia said at the very beginning of the argument, was that the purpose of these amendments in the first place was to help out the governmental entities so they can manage their budgets and wouldn't have to pay this overtime in cash, and it was expected that the employees would use the compensatory time, and not expected that they would bank it...

Justice Breyer: I don't see why most of them don't, to tell you the truth.

I mean, why are they going to wait around for 20 years and cashing it out, instead of... don't most of them?

Mr. Fleming: Well, if they don't do it...

Chief Justice Rehnquist: Yes.

Mr. Fleming: okay, and we get to the position where they're reaching the maximum level and the Government's going to have to start paying time and a half in cash, then a fair reading of the...

Justice Breyer: Do we know any facts here, by the way, what actually happens?

Mr. Fleming: There's nothing in the stipulation, which is basically the record, as to exactly how many this occurred would amount to the...

Justice Scalia: It is not an unknown phenomenon in the Federal service for some people to save up sick time, which they're entitled to be compensated for at the end of their service, and it was not an unheard-of practice for people to save up vacation time, which is why some employers require you to take your vacation, because people would work the whole year and then, you know, save up all their vacation time, retire a year earlier.

I don't think it's at all fanciful to think that people would bank this stuff.

Justice Breyer: What about the other... sorry.

Did you want to answer that?

Justice Souter: Go ahead.

Mr. Fleming: Oh, I agree that... I mean, it's easy to see that people will do it, but under the act and the '85 amendments it was expected that people were going to use it, and that was their concern, is that the employees have the time, and the Fair Labor Standards Act makes sure that people aren't overworked, without getting paid time and a half for it.

It's not to make sure they get to work 40 hours.

Justice Stevens: Could you explain something else to me?

I think we understand now the 30-hour... you can make them work 30 hours a week, and pay them the extra 10 even if they don't want that.

How is it that you are in fact compelling them to use their comp time if it's not by that example?

What do you do to them when they get 220 hours, and they're getting close to 240?

Mr. Fleming: That...

Justice Stevens: How do you... what is the arrangement which makes the expend their comp time?

Mr. Fleming: They're told to do it.

Justice Breyer: They're told...

Mr. Fleming: That is how we're doing it.

Justice Breyer: Pardon me?

Mr. Fleming: That is how we were doing it.

Justice Stevens: You make them work 30 hours a week instead of 40?

Mr. Fleming: And 30's just an example, but it's, they're going to take the time off...

Justice Kennedy: Short week.

Mr. Fleming: And then we're going to cash you out under the act, some of your hours, to make sure you get a full paycheck.

Justice Stevens: I see.

Chief Justice Rehnquist: So they get the same paycheck that they would if they had worked the regular hours?

Mr. Fleming: They get the same paycheck, but they haven't had... they've got... the hours that are cashed out they accumulated at time and a half anyway, so that it's for a less amount of work, so they do get the same pay.

Justice Scalia: But you require... I mean, you require them to give you a slip of paper saying, I choose to take my comp time, or something like that?

No?

You just say, you are taking your comp time?

Mr. Fleming: They are asked to start reducing it voluntarily.

Justice Scalia: Right.

Mr. Fleming: Just under the stipulation.

If they... and within a reasonable time.

If they don't do it...

Justice Scalia: If they don't do it, then what?

Mr. Fleming: Then the supervisor can order them to do it, and try and... and still work with them to try to reach mutually agreeable times, but the effect is an order to do it.

Chief Justice Rehnquist: Well, to the extent you're talking now beyond the stipulation the record simply isn't developed, I suppose.

Do you feel you can speak for every division of the county government on this, that this is exactly how they do it?

Mr. Fleming: No, just as to the Sheriff's Department, which is the defendant in the case.

Chief Justice Rehnquist: The Sheriff's Department is the only defendant in the case?

Mr. Fleming: The county is a defendant as a result of the Sheriff's Department.

Chief Justice Rehnquist: All that's being challenged are the practices in the Sheriff's Department?

Mr. Fleming: Yes.

Justice Souter: If it's proper for you to do what we have been assuming in these hypotheticals you could do, why does the statute place a cap on the amount of comp time that can be accumulated?

There's absolutely no need to do that.

You and other employees can... employers can protect yourselves.

The cap implies to me that you don't have the autonomy that we have been assuming here.

Mr. Fleming: The cap, I believe, is for those employers that just don't... can't or won't let the employees take the time off, and I think the concerns when these enactments of '85 went into effect was that the employees are able to use the time, are able to take the time off.

On the other side...

Justice Souter: So they're protective devices so that we do not build... the employee does not build up so much comp time that the employer in effect is not, at the end of the road, going to be able to pay it.

It's for the protection of the employee, you're saying.

Mr. Fleming: It's a balancing.

An employee's protection is this, is that in the statute, as was mentioned, the employee is allowed to use it within a reasonable time if there isn't an undue disruption, and so the focus there is on the employee's ability to use the time.

On the other side, the employer's controls over this, since it is a balance, is the employer's ability to cash them out.

And I might add that on the ability of the employers to cash them out, it's an important distinction, because it is... that division gives the employers control, and the petitioners have maintained well, this comp time accumulation is under the sole control of the employees, and there certainly would be circumstances where the employers would choose to cash out the comp time, and it would be contrary to what the employees wished to do, such as if they wanted to stop them from using it at a certain time of the year, or if there had been an increase, county-wide budget increase in pay, the employer, the Department could cash them out before that goes into effect.

That hasn't been done in this case, but in... that certainly reflects that the act provides the employer with a certain degree of control over these comp time hours, and it's not within the sole discretion of...

Justice Ginsburg: Well, why doesn't that just underscore that the default rule should be, you pay them, not, you set the work rules any way you like?

I mean, the statute says, there's an exception, but the main rule is time and a half.

If the main rule is time and a half, then it's perfectly logical for the statute to say, you can... employer, you can always pay time and a half.

You can do the other if the employees agree to it, but you can always go down to the bedrock rule under the Fair Labor Standards Act, which is time and a half.

Mr. Fleming: Yes, they could, once they go over the 240.

Yes, Justice Ginsburg, that's correct, you could do that.

Justice Ginsburg: But you could cash out the credits at any time, right?

Mr. Fleming: Yes, that's correct.

Justice Ginsburg: And so it does suggest to me that this is a statute where the main rule is time and a half, but you have an exception.

Usually we construe exceptions narrowly, not broadly, and if Congress' idea is, let the workers know what you're doing, then it's just a question of notice, and you didn't give them notice of anything other than you were going to install comp time.

You didn't give them any notice that, quite contrary to what the statute indicates, that is, they may request it and the employer has to give it to them if it won't unduly disrupt.

It just doesn't seem... the statute doesn't seem to have space for a rule that says, and without prior notice you can require them to take it.

Mr. Fleming: It doesn't, but I don't think it's necessary, because I don't think that scheduling less than 40 hours a week is within the purview of the Fair Labor Standards Act.

Cashing them out at any time is, specifically, and so when we have the comp time agreement, which we have with the employees, it's to use the comp time, and then it's in accordance with the Fair Labor Standards Act, which it says, and so if we do that, though, within the Fair Labor Standards Act we can cash them out.

Chief Justice Rehnquist: Now, Mr. Fleming, your opponent says he agrees with Judge Dennis' view that neither side was entitled to summary judgment, and that you go back to the district court for development of a factual record.

Do you disagree with that?

Mr. Fleming: No, I... yes, I disagree with that, Mr. Chief Justice.

Chief Justice Rehnquist: You think that your side was entitled to summary... that the county was entitled to summary judgment, as the Fifth Circuit said?

Mr. Fleming: Absolutely.

On the deference issue, which was raised briefly by the opposing counsel, I would just say this.

The main case, of course, is Chevron, and the standard is if Congress has not directly spoke on the precise question... excuse me.

If the intent of Congress is clear, it's the end of the matter, and I think the intent is clear, if you look at what we're doing.

Shortening the work week is not within the Fair Labor Standards Act.

Cashing them out is.

Clearly, we can do it.

And as far as whether you use Chevron or you use Skidmore, Skidmore certainly is a lesser standard, but you can see in the regulations promulgated by the Secretary it cites Skidmore as to... that the regulation...

Justice Stevens: Wouldn't it be complicated... I understand you don't have that, but supposing your employees all had a contract that we'll work 40 hours a week.

Then what would you do?

Mr. Fleming: Then I think that they would be bound by contract law for that.

Justice Stevens: So they couldn't... then you could not compel them to take the contract...

Mr. Fleming: But their right would not arise from the Fair Labor Standards Act.

It would be under the contract.

Justice Scalia: It would be based on the contract, okay.

Mr. Fleming: Yes, Your Honor.

Well...

Chief Justice Rehnquist: You don't have to use all your time.

Unidentified Justice: [Laughter]

Mr. Fleming: I was going to invite some more questions, but I will... if there aren't any more questions, Mr. Chief Justice, I'll just stop there.

Thank you.

Chief Justice Rehnquist: Thank you, Mr. Fleming.

The case is submitted.

The Honorable Court is now adjourned until Monday next at ten o'clock.

Attribution:

The Oyez Project

Featured:

Auer v. Robbins - Oral Argument

Fri, 09 Jan 2009 14:50:07 +0000

Case:

Auer v. Robbins

Media File:

95-897_19961210-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of Michael T. Leibig

Chief Justice Rehnquist: We'll hear argument next in Number 95-897, Francis Bernard Auer v. David Robbins.

Mr. Leibig, you may proceed whenever you're ready.

Mr. Leibig: Mr. Chief Justice, and may it please the Court:

This case involves the application of a rule in the Fair Labor Standards Act dealing with the salary basis test.

The rule is contained in 29 C.F.R. 541.5d and 541.118.

The rule basically provides that for persons to be considered white collar exempt... that is, professional exempt adminis... professionals, administrators, exempt administrators or exempt executives, their salary must be fixed and not contingent.

The specifics of the rule provide that they must receive a predetermined amount not subject to deduction because of the variations in quality or quantity of work.

Unknown Speaker: I've noticed with interest that the Federal Government does not follow the salary basis test for employees that are under the jurisdiction of the Office of Personnel Management.

It chooses not to go along with that at all.

Mr. Leibig: Well, it attempted to choose not to go along with that at all.

In 1975, I believe, when the Federal Government first came under the act, Congress provided that the Fair Labor Standard Act would be enforced by the Office of Personnel Management, but that the rule... but the definitions would still be defined and delinated by the Department of Labor, and when the Office of Personnel Management initially issued regulations for the Federal sector, they defined exempt status for salaried persons based on salary classifications.

But that definition was challenged in court in a specific case involving the Uniform Division of the Secret Service, Police Sergeants and Lieutenants, and the court of claims in that case specifically found that the enforcement by the Office of Personnel Management has to be undertaken consistently, consistent with the Department of Labor regulations, because it's the Department of Labor that defines and limits exemptions--

Unknown Speaker: And now are all Federal employees applying this salary basis test?

Mr. Leibig: --Well, first of all the court of claims found that to be the case.

They found it... and they also found it in some other cases involving the AFG case, which is cited in the briefs, and currently the position in the Department of Labor... I'm sorry.

The position in the Federal Government is that the Office of Personnel Management often treats people as exempt even though they're not salaried, but the Court of Claims and the United States District... the United States Court of Appeals for the District of Columbia have held that they should apply the salary test.

And when that has been a challenge... and the one place it's been challenged specifically is in the Uniform Division of the Secret Service and for employees that are exactly... do the exact work of the employees in this case, that is, sergeants and lieutenants in the Uniform Division, and the court ruled that the Department of Labor pay classification things have to be applied consistent with the salary basis.

Unknown Speaker: But Justice O'Connor was not asking about court decisions, she was asking about the position being taken by the executive branch--

Mr. Leibig: I believe the--

Unknown Speaker: --and in fact... and OPM takes a different--

Mr. Leibig: --Right.

Unknown Speaker: --view from Labor, doesn't it?

Mr. Leibig: The Office of Personnel Management takes the position that Federal employees can be exempted based on pay classification alone.

I do not think that, and I think that the courts have found that to be the case, and I don't think it's consistent with the statute.

For example, when Congress passed the statute applying the Fair Labor Standards Act to themselves, they did make... apply the salary basis test to themselves, and under the Professional Accountability Act, the regulations under that act specifically say that the salary basis test does apply to congressional employees.

And it specifically includes the regulation including, there was some discussion in the comments on the regulation of whether 541.5d, which is a special rule limiting part of it... I'll talk about in a minute... how that should be dealt with by the Congressional Accountability Office, and after considering the comments they included the regulation and specifically made reference to the applicability of the salary basis test to congressional employees.

So... and in addition to that, in the record there's a history of the Department of Labor's current consideration of the regulations and as part of that history the Director of OMB has had a series of reports and considerations with the Department of Labor about this problem and what to deal... how to deal with it in the future.

So the answer is, the Office of Personnel Management, just like a lot of employers in a lot of places, claim that they can exempt people based on classifications alone, but when the Federal Government and when the Congress have looked at it they've said they have to--

Unknown Speaker: Well, they also have a regulation saying the Federal Government can dismiss or suspend employees for 14 days or less.

Mr. Leibig: --Right.

Unknown Speaker: By way of discipline.

Mr. Leibig: They have a regulation to... yes, that's true, they do, and in the... and the... that raises the question of whether that would make all Federal employees subject to that rule, which doesn't cover all Federal employees, but I think it covers all Federal employees in the Classified Service, nonexempt, and I think that is part of the struggle the Department of Labor has had, and that is why the Department of Labor has had the practical rule to the longstanding salary basis test, and I think I can explain how the practical rule I think works.

But if you look at, and we attach the Department of Labor briefs going back from 1981 and their positions, there has been some development in how you deal with the problem where there's a rule on the books that seems counterintuitive.

How can an employer apply that rule?

And I think the rule that I would argue is that the first rule of the regulation, and after all, the Department of Labor that issued this regulation issued it under a direct rule of Congress, is that the employee's salary must be fixed, and it cannot be contingent.

An exempt employee cannot have contingent income, and that, however... that is the test, and then, however, there can be a situation where there are rules on the books, where people have a rule that says you're... you can be subject to discipline by... for 14 days, which would be longer than a work period, so that would be okay.

But if under that rule they discipline somebody for 1 day, which, by the way, the statute... the Federal regulation doesn't say they can do, but if they did do it, that would raise the question of whether the people were practically subject to deductions for less than a full work period, and I think in that case you'd have to prove... if all you had was a rule and the employer claimed that the people were exempt and that they were not doing deductions, I think the burden's on the employer to come forward with some evidence.

They at least have to assert that we wouldn't exempt... we would not punish anybody for less than a pay period, which the Federal Government could do in a--

Unknown Speaker: Well, of course, here you're asserting, I guess, that because of one instance involving one sergeant that all the other people who have never been disciplined fall under some nonexempt status.

Mr. Leibig: --I am... I am--

Unknown Speaker: Just on the basis of some possibly broader State rule applicab... or a county rule, or police department rule here.

Mr. Leibig: --I'm asserting that all sergeants and lieutenants in the St. Louis Police Department whose pay is contingent and who all the witnesses, including the chief of police, including all... everyone who testified, no one ever testified that any sergeant or lieutenant's pay was not subject to discipline.

No one not only didn't testify, but nobody ever even asserted that.

I did not rely on Mr. Guzy... it isn't because Mr. Guzy received one 2-day suspension that that transferred all of the employees who had a contingent pay--

Unknown Speaker: Well, that's what it looks like, because it didn't happen to anybody else in the numerous plaintiffs here, did it?

Mr. Leibig: --It... I'm sorry, it didn't... there is evidence in the record that it did happen to other sergeants, in fact, and in fact it did happen to other sergeants.

What's not in the record is an example of a specific sergeant who testified that he was suspended, but the reason for that is, if you look at the whole record, the case was bifurcated, and it was tried on the basis of representative witnesses.

For example, there was only one witness that testified that he was a homicide detective--

Unknown Speaker: Well, the--

Mr. Leibig: --and yet all the homicide detectives--

Unknown Speaker: --The Eighth Circuit, as I read its opinion, said that a one-time suspension without pay for violating the city's residence requirement doesn't mean that the whole thing is over.

Now, do you disagree with that ruling?

Mr. Leibig: --I agree that a one-time suspension, standing in isolation, if the employer took the position that the pay was guaranteed and that was a mistake, it was inadvertent, that it wouldn't automatically mean, so a one-time suspension all by itself would not settle the case, and one reason for that is the burden's on the employer in the first in to establish... in the first instance to establish the employees are guaranteed a predetermined amount of pay.

One instance of a... somebody losing a guaranteed amount of pay would certainly raise a lot of suspicion, but if the employer were in some case... in a given case, for instance, to claim that was a mistake, it wasn't under the rules, that's different.

But in our case the chief of police, the 30(b)(6) designees of the employer for exempt status and for application to the regulations, and everyone else testified that in fact all sergeants were subject to being disciplined, and there is repeated evidence in the record which... which is cited in the brief.

Unknown Speaker: What evidence in the record of actual discipline, other than this one sergeant?

Mr. Leibig: In... there is... at page... the chief of police testified that all sergeants were subject to suspension.

Unknown Speaker: Yes, I... but that wasn't my question.

I asked you what evidence is there in the record of actual discipline, not whether someone was subject to discipline.

Mr. Leibig: Well, for instance, Sergeant Michael Fredericks testified that he knew of sergeants that were suspended for less than a day.

There's no... there is no... in the record there is no other name of a specific sergeant who was suspended, but there is a great deal of evidence that in fact other sergeants, other than Mr. Guzy, were suspended.

Unknown Speaker: Yes, but the Eighth Circuit didn't find the... didn't find for you as a fact on that point--

Mr. Leibig: No.

Unknown Speaker: --did it?

Mr. Leibig: Because the Eighth Circuit did not agree with the base rule... a) they didn't agree that the burden was on the employer to establish that pay was fixed rather than contingent, and b) they put the burden on the plaintiffs to establish actual instances of deduction, which I don't think they should have done, but looking at all the evidence of the record, no one could conclude from the evidence of that record that the regulation which says pay is not subject to deduction was followed in this case.

I mean, it would be different if the... and there are cases that are reported--

Unknown Speaker: You're just asking for a factual revision, then, from this Court.

Mr. Leibig: --No.

Unknown Speaker: The Eighth Circuit saw it one way, and you're asking us--

Mr. Leibig: No.

Unknown Speaker: --to see it a different way.

Mr. Leibig: No.

The Eighth Circuit... the Eighth Circuit said that Mr. Guzy was suspended.

The Eighth Circuit did not say that the Department did not have a rule that made everybody subject to suspension.

They don't think that's required.

For instance, if you compare the Eighth Circuit decisions to the decisions in, now, seven of the eight circuits, in the Second Circuit the Yourman case, in the Third Circuit the Balgowan case, in the Fourth Circuit the Shockley case, in the Sixth Circuit the two Michigan court cases, and in the Seventh Circuit Mueller and Bankston, and in the Ninth Circuit Abshire and six or seven other cases, in the Tenth Circuit Carpenter and Spradling, all of those cases heard said that the test is not whether or not there were actual individual instances of deductions.

The question is whether the person working there is subject is fixed... pay is fixed or contingent.

If you have contingent pay, then you cannot be exempt, and there's a reason for that.

If you only say the people who are disciplined lose the exemption, then you say only rule-breakers would be exempt.

For example, in--

Unknown Speaker: Well, but you have a letter, a couple of letters from the Secretary here--

Mr. Leibig: --Mm-hmm.

Unknown Speaker: --saying that the exemption... the exemption is lost as to all employees only if the employer engages in a regular and recurrent practice of making impermissible deductions, and the opinion we have before us does not find that the police department had a regular and recurring practice.

It dealt only with the one sergeant.

Mr. Leibig: The... there aren't a series of letters from the Department.

The Department of Labor has written one letter in one other place where they said that they will look for regularly recurring exemptions, but they've always done that in the context of whether... and the regulation itself, the plain wording of the regulation itself says the key is whether you're subject to deduction, not whether actual deductions occur.

There's also some confusion because--

Unknown Speaker: It would be an important factor in deciding whether you were subject to deduction to know whether actual deductions occurred, would it not?

Mr. Leibig: --Absolutely.

Unknown Speaker: May I ask one question--

Mr. Leibig: Could I make one other... yes.

Unknown Speaker: --Go ahead and finish... you had--

Mr. Leibig: Just one other point.

That Department of Labor letter also, there's another thing in the regulation.

There's a difference... there's two parts of the regulation.

One talks about deductions for part of a day for being absent.

Another part talks about disciplinary deductions, and I think the enact... the part about being absent for part of a day doesn't apply in the public sector any more anyway, and I can explain more about that why... why, if you need to.

But the point is, disciplinary deductions are different than deductions for part of a day.

An employer that allows employees to leave for part of a day means to adopt a flexible work schedule, and intends people to be able to come and go as they please.

It would be unusual if people didn't leave for part of a day, so you'd want to find... you'd expect to find a lot of people who did.

However, disciplinary rules are exactly the opposite.

The reason the employer imposes disciplinary rules is so people will obey them and anticipates that they will not disobey them.

Unknown Speaker: --May I ask a question about these disciplinary rules?

Is this manual applicable to all employees, including people who are undoubtedly covered by the Fair Labor Standards Act?

This is not a discrete code for--

Mr. Leibig: It's covered by... excuse me.

Unknown Speaker: --Just for professional, administrative, and executive?

Mr. Leibig: The manual, in this case the police manual is covered by all commissioned police officers, which in St. Louis includes... probably doesn't include the chief, but there's two deputy chiefs.

Unknown Speaker: But it would include people who are covered by the FLSA.

Mr. Leibig: Yes.

Unknown Speaker: All right.

Mr. Leibig: Regular line officers.

Unknown Speaker: Now, why couldn't somebody look at this code and say, gee, it's got a range of sanctions, from reprimand to dismissal, and we'll assume that a law-abiding employer is going to apply to the people who are subject to the act, the sanctions, the full range of sanctions, but to the people who are exempt, only... only those sanctions that would fit with exempt status.

Mr. Leibig: Hypothetically you could have this manual in some police department where you ask the people in charge of discipline do you apply this manual to sergeants and lieutenants, and they could say no, we don't, but in the facts of this case, the chief of police, the person in charge of discipline, the person in charge of record-keeping, and the 30(b)(6) designee in terms of exemptions, all testified that sergeants and lieutenants were subject to the manual, and those--

Unknown Speaker: Yes, but may I ask the question--

Mr. Leibig: --so it's not the manual alone.

It's the manual plus.

Unknown Speaker: --But it's... but one could say yes, the manual, but only those sanctions in it that are compatible with exempt status.

Mr. Leibig: No, but they testified that they were subject to 2-day suspensions and suspensions less than a day under the manual.

The chief testified to that, the 30(b)(6)... I mean, an employer could have that manual--

Unknown Speaker: What is the testimony in this record that says people who are in this category in fact got such sanctions, that there was a pattern and practice of applying the sanctions that would ordinarily be disqualifying?

Mr. Leibig: --The last part of your question... there is evidence, the evidence in the record that any police sergeant or lieutenant in the St. Louis Police Department who violates a rule that provides... has one of the potential penalties of a suspension of, say, 2 days, is subject to them, is that the... the chief testified to that at joint appendix page 60, and joint appendix page 62.

When he was asked did he recall any specific person... this is at page 62... who had ever been disciplined he said he didn't remember any names, but yes, there would be people that had done that.

Ms. Cortelyou, who was the recordkeeper that keeps track of exemptions testified in the joint appendix from page 49 through 57 that people were not subject for absenting themselves for part of a day under a flexible work week rule, but if they broke the rules, they were subject to being suspended for a day or two, and she specifically said that they could be disciplined and that they could lose pay for a day or two.

Larry Patterson--

Unknown Speaker: Could, but where--

Mr. Leibig: --If they broke the rules they would be, and they said that.

Unknown Speaker: --Where is this testimony?

Mr. Leibig: Well, that... let me get the joint appendix.

Why don't I, ma'am... at page 60... let's do one at a time.

That's the chief.

This is the joint appendix at page 60.

Unknown Speaker: And which is the testimony from there?

Mr. Leibig: This is the testimony of the chief of police at the time, Robert Sheetz, and at the top of the page... well, first he was asked, as a result of charges, could they be docked pay, and there's a question right before that.

And at the top of the page he says... this is if someone was... broke a rule, could they... and he said, I would say that he probably would be.

He could be.

He would be suspended in lieu of, say, maybe 1-day suspension or 2-days suspension.

I don't recall that we've ever docked anybody, you know, like you're docked $10 or something like that.

I don't know.

I don't recall any time the department has ever... that has ever happened.

But I--

Unknown Speaker: Well, that seems to me the answer is, as long as I've been in this Department, it hasn't happened.

Mr. Leibig: --No.

It could be, except he says more, because he's... that... there's a follow-up on that, and then on page 62--

Unknown Speaker: Where is the followup?

Mr. Leibig: --Well, it goes along... there's a series of questions about that--

Unknown Speaker: Well, I see the last statement he made is, I don't recall in my time in the Department that that ever happened.

Now, what qualifies that?

Mr. Leibig: --This... what he... let me get you the... it's on page 62.

On page 62 he says--

Unknown Speaker: Down at the bottom of the page.

Mr. Leibig: --He says at the bottom of where... 40... it says, Okay.

Do you know if a sergeant has ever been disciplined for AWOL, say in the recent past, in the last 3 or 4 years?

I don't recall any specifics, but I would say yes.

I don't take the chief's testimony, by the way, in isolation.

In our brief on page 42, on page 42 and then page 9 through 17, we go through... a whole bunch of witnesses testified that people--

Unknown Speaker: May I ask the question I've been trying to ask for a little while?

Mr. Leibig: --I'm sorry.

Unknown Speaker: The manual... you rely heavily on the manual, and you rely on this testimony they might be disciplined.

Mr. Leibig: Right.

Unknown Speaker: But would you not agree that there are forms of discipline other than docking for a day's pay, or 2 days' pay?

Mr. Leibig: Right.

There are.

Unknown Speaker: So this... the general... the text of the manual doesn't make out your case.

It's only if you can get enough--

Mr. Leibig: Well, there are some provisions in the manual that the penalty, the only penalty listed there is less than a full week's--

Unknown Speaker: --Well, do you take the position that the only form of discipline is docking?

Mr. Leibig: --No.

Unknown Speaker: All right.

So the manual itself doesn't get you home, at least, nor does the testimony at page 62, because he just says there's been some discipline, and I think that we must assume that there are possibly forms of discipline other than docking.

Mr. Leibig: There are, and there's a chart in the manual that says when it's docking and when it's not docking, and in some of the penalties, the only penalty... for instance, in the second... in the second non... in the preventable accident, the only penalty is a 1 or 2-day suspension.

And by the way, it's not just chief... the chief's not the only one who testified.

All of the designees testified that people were suspension and their pay... were subject to being suspended.

Unknown Speaker: Yes, but in actual cases, and what I tried to ask you before about this manual, which has a range of sanctions... and discipline doesn't show docking.

Discipline can be many things, from a reprimand to termination.

Mr. Leibig: No... I'm sorry.

It shows... the manual at page... in the manual from page 43a... this is in the appendix to the petition, and from page 43a through 50... 49a there are charts that have the list of all the violations and then it has a list of all the penalties, and it says what the penalty is for a first offense and a second offense, and many of those penalties include suspensions, from a letter of reprimand to a 5-day suspension, and for a first or second day, and for example, one of the penalties provides a 1-day suspension.

That's on page 147.

And so it's clear that the sergeants are subject to being suspended for periods of less than a full week.

Unknown Speaker: Well, I don't see even on that reasoning that it's clear, because I come back to a question that's been asked before.

In the absence of evidence to the contrary, why shouldn't we assume that an employer who knows that he cannot apply a particular disciplinary form consistent with the status, with the salaried status for the Fair Labor Standards Act, will not apply it?

You've got a manual that applies across the board to everybody.

Why shouldn't we assume, in the absence of evidence to the contrary, that the employer will not apply what is in that manual in such a way as to destroy the salaried status?

Mr. Leibig: First... for two reasons.

One is, under the statute the requirement to establish exemptions, the burden is on the employer, not on the employee, so you shouldn't assume anything.

The second thing, however, is, suppose the employer... the employer should at least be put to a standard of proof to assert that sergeants and lieutenants... have some witnesses or have somebody assert on the record that sergeants and lieutenants are not subject to being suspended for a 2-day suspension, for example, and in this case the employer simply never did that.

The reason they simply never did that is, people had been suspended, and it... there are--

Unknown Speaker: Well, we know of only one instance, right?

Mr. Leibig: --Well, for instance, Sergeant Frederick testified that there were other instances, but he didn't name--

Unknown Speaker: Yes, but he couldn't come up with any.

The only specific instance that is in fact shown on the record is this one--

Mr. Leibig: --Right.

Unknown Speaker: --instance, Guzy, or Guzy.

Mr. Leibig: The first reason you shouldn't assume that the employer, just because they claim exemptions, that they automatically are going to apply all the rules not to do exemptions, is because that would put the burden on the employees to prove exempt status.

The second reason which you should not approve it is because it's contrary to the whole idea of having... of the plain wording of the statute itself, which says it's not the act of making exemptions, but it's the fact of putting employees and making their pay subject to deductions, that's been the--

Unknown Speaker: But on that point, it seemed to me that the regulation, which says, subject to... not subject to reduction because of variations in the quality or quantity of work might not apply to discipline at all.

It might be just the operational needs of the employer.

On one day you have to unload the dustbin, and on the other day you get to perform a skilled job.

It seems to me that that is a plausible reading and that that's all that it means.

Is there any authority to support my reading at all?

Mr. Leibig: --Sure.

The Department... The regulations go on, if you read the whole regulations, and down at a later point it talks about discipline for safety reasons but not discipline for other reasons.

Plus, the Department of Labor has interpreted the regulations for 40 years to require disciplinary docking, and there's a lot of cites in the record, plus--

Unknown Speaker: Thank you--

Mr. Leibig: --the last 20 seconds--

Unknown Speaker: --Mr. Liebig.

Mr. Leibig: --the quality of work--

Unknown Speaker: I think you've answered the question.

Your time has expired.

Mr. Leibig: --Thank you.

Unknown Speaker: We'll hear from you, Mr. Gornstein.

Argument of Irving L. Gornstein

Mr. Gornstein: Mr. Chief Justice, and may it please the Court:

Our position is that the existence of the respondent's police manual cannot by itself show that petitioners as a class are subject to disciplinary deductions of less than 1 week's pay within the meaning of the Secretary's salary basis test, and we reach that conclusion for three reasons.

The first is that the Secretary interprets the phrase subject to reduction to mean that there must be more than a theoretical possibility that a violation of a work rule will result in a partial week disciplinary deduction.

Unknown Speaker: Would that more than theoretical possibility be satisfied in an instance in which the employer had promulgated the manual solely to salaried employees, and yet nonetheless provided as to them that there would be these impermissible dockings.

Would you say that was enough that--

Mr. Gornstein: I would say that if you just had that you could reach that conclusion, Justice Souter, subject to whatever the employer might show in response to that.

Unknown Speaker: --I've lost you here.

If you just had that you could reach what conclusion?

If you just--

Mr. Gornstein: That you are... that if the only possible sanctions are... if I took the--

Unknown Speaker: --Only possible sanctions and the only possible class--

Mr. Gornstein: --Class--

Unknown Speaker: --was a salaried class.

Mr. Gornstein: --It's a book for sergeants, and the only possible sanctions are partial week disciplinary sanctions.

I think you could infer from that that sergeants as a class are subject to reductions, subject to the employer coming back and say, look, we don't really... I know we said this, but this is out of date, or it's ineffective for some reason.

Unknown Speaker: But that's the part I don't understand... see, you're all knowledgeable, and I just don't understand this.

I don't know which way it cuts.

But there's a statute here, and the statute uses the words, executive, professional, or administrative employees, and it says they're not subject to overtime.

Mr. Gornstein: Correct.

Unknown Speaker: And then there's a reg that I can't fit with the statute.

That is, suppose Microsoft says, Bill Gates has to dock a day's pay every time he wrongly uses the corporate jet, okay.

Does that make Bill Gates an hourly employee, subject to overtime?

Mr. Gornstein: It does for purposes of the regulation, Justice--

Unknown Speaker: Well, if it does, how do you reconcile that with the statute, because I would think there's no one in history who's less an hourly worker than Bill Gates--

Mr. Gornstein: --And I doubt very much that--

Unknown Speaker: --and so if you have a reg--

Mr. Gornstein: --That's right, and I--

Unknown Speaker: --that seems to make him an hourly worker, that seems to me to be a problem.

Mr. Gornstein: --I think, Justice... I--

Unknown Speaker: And that's what I want to understand, how that fits within this case.

Mr. Gornstein: --I think what the Secretary did when he originally formulated the regulations was to try to draw a line that would not necessarily make a 100-percent case in every single case, but would be a reasonable line for the vast amount of cases.

And what the Secretary concluded, based on hearings that were held after, in the wake of the Fair Labor Standards Act being enacted, is that one of the hallmarks of having the exempt status, the exempt... that exempt employees, one of the hallmarks of the importance and status that those employees had is that they were paid on a weekly basis, that for any week in which they worked they would receive a full week's pay.

Unknown Speaker: But he makes it the hallmark.

He doesn't make it one of the characteristics.

He says, this is the criterion, and is it adequate to say, you know, that will handle maybe 90 percent of the cases.

It won't get Gates, but, you know, close enough for Government work.

Is that what you--

Mr. Gornstein: I think it is wrong to--

Unknown Speaker: --The statute doesn't say that.

The fact is, Gates shouldn't be within it.

Mr. Gornstein: --Justice Scalia, what the statute says is that they are executive, administrative, and professional, as defined by the Secretary.

That's what the statute says, and it gives the Secretary wide leeway to give content to the meaning of those terms.

And what the Secretary has done is set out an administrable statute, not to leave to a district court or an employer in every case to figure out whether under the totality of circumstances we are going to regard this person as executive, administrative, or professional.

Unknown Speaker: So your response is, if Microsoft doesn't like it, it can just rescind the rule that... you know, punish Gates some other way.

Mr. Gornstein: Some other way, or if it was a one-time deduction, then the window of correction could be used to retroactively restore his exempt status.

Unknown Speaker: And that's good, and so that's why you say the effect of making a deduction which is not permitted under the rule as a practical matter depends on the case.

Mr. Gornstein: It does, but I would--

Unknown Speaker: That's what the reg says, and are you saying that then here you look at practically what happens in this case.

You're saying as a practical matter the facts of this case show the deductions that they made didn't transmute them into hourly employees.

Mr. Gornstein: --That is correct, that that--

Unknown Speaker: And that's a--

Mr. Gornstein: --That as a practical matter in this case, I don't think you have to get to the window of correction to decide that, though.

I think you can look at just the text of the 541.118 and here we interpret the term, subject to reduction, to mean that as a practical matter the employees in the class have to face a significant possibility of having their pay reduced.

If there is no such practice, there is no such policy, and nonetheless there is a deduction taken, for whatever reason, then you look to the window of correction to restore retroactive status.

Now, the second point--

Unknown Speaker: --But the burden is on the employer--

Mr. Gornstein: --The burden--

Unknown Speaker: --to show that there is no such possibility, is that right?

Mr. Gornstein: --That there's not a significant possibility.

Unknown Speaker: Right.

Mr. Gornstein: That's correct, that there's not a significant possibility that employees in this class will face partial week disciplinary suspensions.

Unknown Speaker: And in this case the employer bears not just that initial burden, but also the burden of overcoming a manual which on its face is applicable to all employees, and on its face seems to say that these people are subject to it.

Mr. Gornstein: Well, let me talk about the manual on its face, because the manual is broadly applicable to all employees, both those who clearly perform exempt duties, like captains on up, and clearly perform nonexempt duties, like patrol officers who patrol the beat, and those rules can all be enforced in ways that are completely consistent with retaining exempt status for those employees who perform clearly exempt duties, so I think if you just look at the manual--

Unknown Speaker: Well, what do you do with the... what do you do with the point that your brother was making about the record, that the chief and the others who came in and testified didn't testify that these particular sanctions would be applied only to the nonsalaried.

They said something like, well, gee, yeah, I guess it could, but I can't think of any instance.

They didn't take the position that's consistent with your argument, did they?

Mr. Gornstein: --I think that as the case came to the court of appeals that the petitioner in this case really put the case to the court of appeals, you can just look at the manual and you can add in the Guzy incident, and we should win this case.

None of this was brought to the attention of the court of appeals.

None of this was part of the question that was framed for review by this Court.

Again, I think the question that was framed for review by this Court was, can you just look at this manual and conclude that these people are subject to disciplinary deductions.

The burden of proof issue was not raised in the court of appeals, and I don't think it was raised here.

I think there is a problem.

When you look at all the testimony there's a lot of ambiguous statements about what could or could not happen.

But I think as the case went to the court of appeals, and to this Court at the certiorari stage, the understanding was there was not a single incident of actual deductions having ever occurred with the exception of the one case of Sergeant Guzy, and that took place under such highly unusual circumstances that I don't think it was indicative that sergeants as a class face a significant possibility of having their pay reduced.

Unknown Speaker: The Government's position is that the judgment of the court of appeals should be affirmed.

Mr. Gornstein: It is that it should be affirmed.

Unknown Speaker: And that we don't need to get to the window of correction, or--

Mr. Gornstein: With respect to Sergeant Guzy, that in our view the only... the window of correction is only implicated with respect to Sergeant Guzy.

That incident doesn't show that the class is subject--

Unknown Speaker: --But isn't it probative of--

Mr. Gornstein: --but Sergeant--

Unknown Speaker: --Isn't it probative of the treatment of the whole class when they said, well, we'll correct it if we have to?

Mr. Gornstein: --I don't think that that is... I think that the position of the employer here is, we don't think we owed Sergeant Guzy money, but if we do, we want to be able to restore his retroactive status, and under the--

Unknown Speaker: If they don't think they owe him money, they must interpret the fact that they ever... they are agreeing with your opponent.

Mr. Gornstein: --I think that in fact what they did is, they took a view similar to the one that Justice Kennedy was raising in his question about what it means to be subject to reduction for quality and quantity of work, and they said, we don't think Guzy was reduced for that reason, but if he was, we want to restore his status retroactively.

In our view, the window of correction--

Unknown Speaker: And the court has to tell him why he was reduced.

I don't quite understand that.

Mr. Gornstein: --Well, there is nothing in the window of correction rule that precludes an employee from correcting after litigation.

I... we don't think that there is a prelitigation correction rule in the window.

Unknown Speaker: Maybe the employer... as I understand the Guzy case there was a kind of a plea bargain for this lesser sanction when the sanction that eventually was made, the single sanction termination, would not have affected FLS--

Mr. Gornstein: That's correct.

He was originally filed, or that was the original imposition of a penalty, was a firing, which would not implicate the rule at all.

Unknown Speaker: --Thank you, Mr. Gornstein.

Mr. Renick, we'll hear from you.

Argument of John B. Renick

Mr. Renick: Mr. Chief Justice, and may it please the Court:

Let me address this... at least partially this question about the chief of police's testimony.

First of all, I think it's important for the Court to understand that the chief of police does not impose discipline.

That is the role of the police board, which is the defendant in this case.

Secondly, if you examine the testimony that Mr. Leibig was referring to, the chief consistently says, you know, maybe that could happen, it's possible, but he can't recall it ever happening, and I think that's important, and I think that points out the problem with petitioner's position here as to someone who's subject to a deduction.

And it goes to Justice Breyer's point.

Logically, you could file one of these lawsuits and take the deposition of the chief executive officer and simply ask the question, is it possible that you could discipline one of your vice presidents who is found to have engaged in some kind of misconduct for a period of less than a week.

And if the answer to that is yes, it's possible, because that is part of the inherent right of management, then the logical extension of petitioner's argument is that everyone in that organization, because they are conceivably subject to an improper deduction, would be nonexempt.

Therefore, no one, whether you're a vice president, or Bill Gates, whatever it would be, under that theory would be exempt.

Unknown Speaker: Well, he could say that's not my fault, that's the Secretary's fault.

He wrote this regulation.

Mr. Renick: Well--

Unknown Speaker: I mean, we'll blame it on him.

Mr. Renick: --We think that that shows that that interpretation really doesn't make sense.

Unknown Speaker: Well, would you agree that if you had a manual that applied only to salaried employees, and specifically provided for discipline that would be inconsistent with salaried status, that that would be enough to preclude salaried status?

Mr. Renick: If the discipline... if the manual was worded in such a way that discipline was mandatory, I would agree with you, Justice Souter.

Unknown Speaker: Well, I... wouldn't... wouldn't we be entitled to act on the assumption that the manual was not a totally nugatory exercise and that, in at least some instances, consistently with the manual, discipline would be applied?

Wouldn't that be a reasonable basis for a decision?

Mr. Renick: Yes, but I still--

Unknown Speaker: I mean, your argument has to say... it seems to me seems to be, even when they specifically say they will do and are entitled to do what is inconsistent with salaried status, we won't take them at their word.

We'll wait and see.

That surely is--

Mr. Renick: --What I'm saying is, and I think the Secretary of Labor has agreed with our position, is that... is that as... you have to look at what actual experience... the best evidence is what is the actual experience in the application of whatever manual... if you have a manual or not, what has actually happened, and the evidence in this case is very clear.

In 1979, which was 6 years before the Garcia case was decided by this Court, the legislature of the State of Missouri amended the governing statute which controls the operations of the St. Louis Police Department to convert all commissioned officers at the rank of sergeant or above to a salary basis of payment.

It specifically amended the statute to disallow payment of overtime and to compensate for that they gave everyone an across-the-board 8 percent increase, and none of the individuals in this case have come forward... contrary to any other representations, the record is devoid of any evidence... we had 288 sergeants by the time we go to trial.

Not a single one of those sergeants took the witness stand and testified that he or she had actually suffered an improper deduction.

Unknown Speaker: --Oh, I quite agree, but that's not the case that I put to you in the question.

Mr. Renick: Well, I think I'm agreeing with you if you have a manual that says this is specifically applicable to exempt employees, or functionally exempt, and it provides that penalties will be imposed for certain forms of misconduct that would be periods of less than a week, if you accept the Secretary's interpretation of the salary basis test, then I would agree with you.

Unknown Speaker: But the Secre... but penalties may be imposed.

If it says penalties may be imposed, your position is that would not be enough.

Mr. Renick: Well, I think then you have to look at the practice, because I think as one of the justices earlier pointed out, I think you... where there are a range of penalties, as there are in this case, there's no reason to assume that the employer is going to choose a new proper penalty and thereby convert all of his or her salaried employees to nonexempt employees.

Unknown Speaker: Well, you know, all the text of the regulation says is not which amount must be reduced because of variations in the quality or... it says which amount is not subject to reduction, and you know, subject to reduction doesn't mean will certainly be reduced.

Mr. Renick: Well--

Unknown Speaker: It just means it's subject to reduction, and as I understood the exception is, if that thing is just a paper tiger, that in fact it is never used, that's one thing, but if it's even used in one case, it seems to me that's enough to show that it's for real.

Mr. Renick: --Well, but the state of the record here, Justice Scalia, is that in the period between 1979, when the statute was amended, and the time we went to trial in 1993, not one witness came forth to testify that he or she had been subjected to a disciplinary proceeding initiated by the department, by the police department, based on a variation, which is the word in the interpretation, on a variation in the quality or quantity of work.

There's--

Unknown Speaker: Of course, the burden's on the employer.

Mr. Renick: --Not one appears.

Unknown Speaker: The burden's on the employer here to show that nobody had.

Mr. Renick: The employer--

Unknown Speaker: Did anyone come in on behalf of the employer and say, nobody has?

Mr. Renick: --The employer prevailed on the salary test on partial summary judgment prior to the trial, and the record shows that I queried the trial judge both at the beginning and at the end of my presentation to ensure that that issue was no longer in the case.

Unknown Speaker: Do you claim to have established at trial that nobody had, that nobody had been subjected to this disqualifying kind of discipline?

Mr. Renick: At the trial there was no evidence to that effect because we had prevailed on partial summary judgment prior to trial.

Unknown Speaker: Okay, but it seems to me that's your burden.

Mr. Renick: The trial judge found that we met that burden when he ruled in a pretrial ruling which granted partial summary judgment on the salary basis issue and took that out of the case.

Unknown Speaker: May I ask you to just address the one thing that I find a little puzzling?

Why, if you're correct that the... Sergeant Guzy was not subject to the particular discipline he got, why hasn't he been repaid?

Mr. Renick: Well, I think there are a couple of reasons for that.

First of all, we believe, and I think it's clear, that the basis for the discipline in that case was the fact that he had violated a city residency requirement.

Unknown Speaker: Right.

Mr. Renick: Which was a requirement of employment.

That had absolutely nothing to do with the quality or quantity of his work, so it would be my position that he was never subjected to a reduction in his salary based on anything that had to do with the quality or quantity of his work, which is the phrase that the Secretary uses.

Secondly, our position has been consistently in this litigation that if we are wrong... and the Eighth Circuit's opinion actually only says arguably that this deduction made Sergeant Guzy nonexempt, and we think it's just as reasonable that it may not be, but our position has been all along that if at the outcome of this litigation it is determined that that was an impermissible deduction, the salary test basis is validly applied to the Board of Police Commissioners, then we will comply by reimbursing Sergeant Guzy, and we will continue our existing practice of not allowing deductions of less than a week for exempt officers.

Unknown Speaker: So you construe the disciplinary manual really as saying that although you may have some of the deductions, we won't have them if they're based on defects in quality or quantity of work.

Mr. Renick: That's correct.

Unknown Speaker: Now, you raise a lot of other issues, I think, in your response, an Eleventh Amendment issue, a claim that the FSLA does not apply at all to public employees of State and local government, and so forth.

Mr. Renick: Yes, Your Honor.

Unknown Speaker: Respondents never filed a cross-petition here, did they?

Mr. Renick: No, we did not.

Unknown Speaker: And the court below assumed without deciding that the Fair Labor Standards Act applied to the public employees here.

Mr. Renick: That's correct.

Unknown Speaker: And you went forward under that assumption the court--

Mr. Renick: Well, the first question presented in the petition for the writ of certiorari, as I recall, is does the salary basis test validly apply to public employees, and we would say on the facts of this case, just demonstrates that taking this disciplinary deduction rule and trying to apply it to a law enforcement agency is arbitrary and capricious.

Unknown Speaker: --Well, we really didn't grant, as I see it, on a question of applicability of the Federal Fair Labor Standards Act.

There was no request made by you in any event, by a cross-petition, that we consider Garcia... reconsider Garcia.

Mr. Renick: I agree with you, Justice--

Unknown Speaker: Some amici have made that point, but you did not raise that.

Mr. Renick: --That's correct, Justice.

We--

Unknown Speaker: And I assume that the respondents waived the Eleventh Amendment immunity below.

Mr. Renick: --I don't believe that we did.

We don't believe that we have ever waived that.

They pointed out that we consented to the judgment, but I believe the... our Eleventh Amendment argument is based on this Court's decision on Seminole Tribe v. Florida, which only came out, I believe, March of this year, but at the time this litigation was taking place, my recollection is that Pennsylvania v. Union Gas was still good law, and there was really no basis for me to make that claim until this Court decided the Seminole Tribe.

Unknown Speaker: I would have thought there might be some cross-petition to get into these things.

Mr. Renick: Well, we raised it simply at the point in time that the Court's Seminole Tribe decision had come out, and the timing of the sequence of events, we raised it basically as a jurisdictional issue, which, as I read the Court's cases, can be raised under these circumstances.

Unknown Speaker: Is there any authority in the circuits to support the argument that the subject to clause doesn't apply to disciplinary actions at all, it simply applies when the work changes, for the operational needs of the employer?

That is what I thought was the common sense reading of it when I read the regulation, but I don't know if there's any support for that.

Mr. Renick: I think that is the common sense reading.

When you read 541.118(a) in the general sense, what the Secretary of Labor--

Unknown Speaker: It's such a common sense reading that none of the circuits seem to have adopted it.

Mr. Renick: --The circuits--

[Laughter]

The circuits have all picked up the point of what we're dealing with here, that a disciplinary suspension fits under 541.118(a)(5), which says penalties... it's actually worded in the affirmative, that an employer may impose penalties which... for violations of major safety rules.

That has since been interpreted to mean a penalty can be a suspension without pay, and the courts have then read and said the converse of that, then, is that you can't impose a penalty for something that's not a violation of a major safety rule, and I think that's how we get where we are here.

Unknown Speaker: Has the agency ever expressly rejected the interpretation I suggest?

Mr. Renick: Not to my knowledge, although it is a matter of record at pages 43 through 46 of the joint appendix that the Secretary of Labor went on record this May and indicated that there was still confusion among litigants, particularly in the public sector, as to what all this means, and it appears that the Secretary intends to undertake some kind of a rulemaking procedure to review this disciplinary aspect of the salary test.

Unknown Speaker: In any number--

Mr. Renick: It has never been done to date.

Unknown Speaker: --Any number of the specific rulings, the letters that the Secretary has given seems to be inconsistent with the reading I suggest.

Or is that correct?

Mr. Renick: I can't cite you to one, Justice Kennedy.

Unknown Speaker: In any event, your main argument, as I understand it, is you... accepting the Government's current interpretation of the regulation, that you properly prevailed in the Eighth Circuit, but didn't you... you made... one of your border attacks was on the Government's position as irrational in distinguishing between suspension for a full week versus a couple of days.

Mr. Renick: That's correct.

We believe that, particularly on the facts of this case, we are dealing with a law enforcement agency where you have a recognized exception that... and you... and again, you have to go back to the premise that all of these sections of the salary basis test are based on studies that were conducted in the 1940's and fifties, when public employers were not subject to the law, and that's part of the problem, is now trying to take what seemed to make sense back in the 1940's and fifties, when these studies were done, and then there was never any contemplation that the law would apply to public employers.

Unknown Speaker: But if we were to get into that, we would be going considerably beyond where the Eighth Circuit was in this case.

Mr. Renick: That would be true, yes, but we believe that, as I said, on the facts of this case this demonstrates that... and the Secretary has specifically recognized that you don't treat law enforcement agencies the same as even other public employees, let alone private employees.

There are differences in the standards for hours worked, there are differences in the fact that they get compensatory time, and our point here is that this disciplinary deduction prohibition doesn't make sense when you try to fit it into this kind of a situation.

This is a... as the trial judge found, this is a quasimilitary organization, it would be my position, where the sole or primary function of the St. Louis Police Department is to ensure the public safety, that by limiting our ability to impose discipline on the members of that police department, that the Secretary of Labor, in application, that that application is improper, it's arbitrary, it's capricious, and should be invalid.

Unknown Speaker: That might be your dispute with the Secretary of Labor, but it doesn't... this case, your victory in this case doesn't turn on--

Mr. Renick: It doesn't depend on that.

Our position is that if you assume that the regulations and the Secretary's interpretations are entirely valid in their application to the St. Louis Police Board, that the actions in this case demonstrate first of all the... we tried the case.

We had 21 different categories of sergeants, all of whom were found to perform exempt functions as either executive or administrative employees.

They were functionally exempt, and they've come to this Court and claimed that solely because they were subject to a disciplinary action which might possibly include a suspension of less than a week, for that sole reason, without demonstrating that it ever actually happened, that they are thus nonexempt, and we think--

Unknown Speaker: --Why does the distinction between suspension for less than a week and suspension for a week make sense for non-Government employees, or nonpolice employees, rather?

Mr. Renick: --Why does it make sense?

Unknown Speaker: Yes.

Mr. Renick: I don't know that it does.

It just... that has been in the Secretary's interpretation of 541.118(a) I think since 1954.

Unknown Speaker: What's the theory of it?

Why does--

Mr. Renick: The Secretary--

Unknown Speaker: --suspended for a whole week, not--

Mr. Renick: --It's just included, a proviso that says in a week in which an employee performs no work at all, that the employer is under no obligation to pay the salary.

There are some distinctions as to when you have to pay the full salary.

The Secretary's interpretation is that generally, if you perform any work at all within a week, if you're a salaried employee, you shouldn't lok at the number of hours.

It shouldn't matter.

You're entitled to your full salary.

Then they draw the distinction and say, in a week in which no work is performed, that the employer need not pay the salary.

Unknown Speaker: --Yes, but they also... the docking rule also applies.

A docking for a whole week is okay, even though you work.

Mr. Renick: Docking for a whole week of work is okay, according to the Secretary of Labor.

Unknown Speaker: I don't understand that.

Mr. Renick: Well, we think that's even more so demonstrated by the fact that in 1992 the Secretary of Labor amended the regulation 541.5d that applies to public employees, so that the salary basis test, if you read it, doesn't even mean what it says for public employees, because the salary basis test says you're supposed to receive a predetermined amount of compensation every pay period that is not subject to reduction based on quality or quantity of work.

The Secretary of Labor, through a rulemaking procedure in '91, looked at the outcry that this caused in the public area, that there are many people who are exempt, but because of principles of public accountability are... under State laws are not able to be paid for time they don't work, so the Secretary amended the regulation to specifically allow a public employer to make deductions on an hour-by-hour basis from an otherwise exempt employee's salary and still allow them to claim that they're paid on a salary basis, which in and of itself is inconsistent.

So the salary basis test as applied to public employers no longer means what it says, and we say, why should there be this disciplinary deduction aspect maintained when the Secretary has already recognized that the variation in quantity of work does not destroy the salary basis.

I would also point out that, in the petition that was filed by the petitioners in this case, they took the position very clearly that this Court was required to defer to the interpretations of the Secretary of Labor, and this Court invited the views of the Government, asking the Solicitor General to file a brief prior to deciding whether or not to accept this case.

In that case, the Secretary of Labor's views were specifically expressed, and it was described in that brief as for the sole... for the very specific purpose of clarifying what the Secretary's position was on these interpretations, and the Secretary has specifically disagreed with the position taken by the petitioners.

But the petitioners continue nonetheless to have had... apparently have had a change of heart as to the deference owed to the Secretary of Labor under the circumstances, and we would submit that the... whether or not the Secretary's interpretations are agreeable to the petitioner should not determine whether or not they are entitled to deference in this case, and we believe, under the circumstances, that they clearly are, and as I said earlier, if you accept the Secretary's current clarification of what the interpretations mean, this case fits squarely within it, whether or not you get to the window of correction.

If there are no other questions, thank you.

Chief Justice Rehnquist: Thank you, Mr. Renick.

The case is submitted.

Unknown Speaker: The honorable court is now adjourned until tomorrow at ten o'clock.

Attribution:

The Oyez Project

Featured:

Moreau v. Klevenhagen, Sheriff, Harris County, Texas - Oral Argument

Fri, 09 Jan 2009 14:49:28 +0000

Case:

Moreau v. Klevenhagen, Sheriff, Harris County, Texas

Media File:

92-1_19930301-argument.mp3

Related Transcript:

1992_92_1_argument.xml

Transcript:

Argument of Michael T. Leibig

Chief Justice Rehnquist: We'll hear argument now in No. 92-1, Lynwood Moreau v. Johnny Klevenhagen.

Mr. Leibig.

Mr. Leibig: Mr. Chief Justice, and may it please the Court:

The concern before the Court today involves the precise rules under which a state or local employer may reach agreements to substitute time off for cash overtime with their employees.

It involves the interpretation of section 207(o) of the Fair Labor Standards Act and regulations issued under that section.

It is important that, under the usual rules, to realize that the Fair Labor Standards Act makes non-cash payment for overtime work illegal completely.

It always has, and there is a reason for this.

In 1937 when President Roosevelt first sent a message to Congress about the Fair Labor Standards Act he emphasized that one of the main purposes was to protect the unorganized and to establish an hours of work rule.

It might seem that the comp time rule, or the cash overtime rule, isn't directly related to the overtime rules, but it is.

The reason cash overtime is required is because other schemes that were in existence widely in the United States before 1937, for instance paying for overtime in script or paying for overtime in time off or comp time are easily manipulated to avoid the 40-hour-a-week work rule.

And that's the reason that the Fair Labor Standards Act itself, prior to the 1985 amendments which adjusted the act to the public sector, always outlawed compensatory time as a means of paying for overtime work.

In the 1985 amendments, after this Court's decision in Garcia, Congress responded a request from state and local governments to lighten the burdens that the Fair Labor Standards Act without a special statute would place on state and local government, and made a number of changes in the acts in specific response to pleas by state and local governments and their employees that special adjustments be made to recognize the special status of the states.

The states were effective in those pleas, and section 2 of the 1985 amendments allowed the use of comp time and also changed the rules with regard to volunteers and a number of other rules with regard to joint employment.

Part of the amendments, section 6, expressly directed the Secretary of Labor to issue regulations interpreting and implementing the 1985 amendments.

It is our argument that section 207(o) that deals with compensatory time and the conditions under which a public employer may use compensatory time that is not otherwise available, and are laid out in 207(o)(2)(A), require an agreement.

And the issue that the Court needs to address today are the precise conditions under which an agreement needs to be reached.

There are a couple--

Unknown Speaker: Speaking of the Secretary of Labor, Mr. Leibig, why isn't he here?

Do we know that or do you know that?

Mr. Leibig: --Why isn't the Secretary of Labor?

Unknown Speaker: Yes.

I mean, why hasn't the Government expressed any view in this case?

Mr. Leibig: Your Honor, I'm not sure completely.

I'm not... I wouldn't be surprised if it had something to do with the fact that the briefs in this case were due almost immediately after the election in which the administration changed.

Unknown Speaker: I see.

Mr. Leibig: And I think that relates directly to one of the arguments I want to make which has to do with why regulations, when there's a statute... the way the Fair Labor Standards Act works generally is that it's an administrative act which is very dependent on the regulations not only for the use of comp time but across the board.

And one of the flexibilities in the act, the portions of the act that are in regulations are in the Executive Branch, given to the Executive Branch by Congress, I think, partly specifically because of the increased flexibility that that allows over if they were in the statute themselves.

And I think the increased flexibility has been demonstrated particularly under the 1985 amendments.

Not only did Congress make new amendments, but since then on issues in which the states have been particularly concerned they have gone to the Department of Labor and got adjustments to the regulations.

In the Abshire case, which is a Ninth Circuit case dealing with who is exempt and who is not, that case was appealed to the Court and the Court denied cert. But at the same time state and local governments went to the Department of Labor and the Department of Labor changed the rules with regard to exemption specifically to recognize the special needs of state and local government.

And that shows one of the reasons that it's wise under the Fair Labor Standards Act to have regulations dealing with this kind of an issue.

I want to emphasize that Congress was unmistakably clear that states, as states, are covered by the Fair Labor Standards Act.

Both section 203 of the act itself, subsections (d) and (x), and section 207(o), part 1, expressly and clearly leave no doubt that state and local employees are covered.

Secondly, the 1985 amendments make it absolutely clear that the state function, that is personnel functions and the relationship between personnel functions and the payment of overtime, is also specifically and clearly regulated by the statute.

The question that I think the statute is ambiguous about is whether or not... it is also clear that the statute requires an agreement prior to an employer using compensatory time.

Where the ambiguity lies is, in the situation where the employees designate a representative to deal with the employer, must an agreement be reached with the representative prior to the implementation of compensatory time system.

And I think the--

Unknown Speaker: Is that ambiguity solved by the Department of Labor's reg, the one that, well, it's set out on page 28 of the red brief, that the question of whether employees have a representative for purposes of 7(o) shall be determined in accordance with state or local law?

I mean, does that, is that the source of resolving the ambiguity?

Mr. Leibig: --The regulation is, but what is quoted on page... the reference to state law that is quoted in the red brief is not a reference to the regulations, it's a reference to the preamble to the regulation.

And that sentence in the preamble is put in the middle of sentences before it and after it which address one of the direct questions in this case.

The question asked in which the reference to state law was made was in a state that has... do you mean that you on need an agreement in states which have collective bargaining.

And the preamble says no, we didn't mean that, our regulations don't say that, but we do believe that to determine who the representative is in a given state there may be a reference to state law.

Unknown Speaker: But isn't it also to be read by saying to determine whether there is a representative the purposes of subsection 1 you look to state law?

In other words does this in a way take the same position the, I think it was the Senate version of the legislat history took?

Mr. Leibig: I think there are two questions there, Your Honor.

The first is the difference between the Senate and the House report.

If I could hold that a minute I will comment on that.

The other question a whether you look for state law, I do think you look to state law to determine whether or not there's a representative, but when you look to state law you do not look merely to state collective bargaining law.

In other words you're not just looking to state law to see whether or not there's a collective bargaining statute or not.

If you were, the wording in the statute would be much simpler than it is now.

It would not refer to all the things other than collective bargaining, which even little (i)(1) refers to.

So that you do look to state law, but you look for such things as if there is state law providing for collective bargaining, then state law requires exclusive representation and requires that unilateral changes can't be made on any wage-hour working condition without dealing with that representative.

That model, the National Labor Relations model, exists in less than 25 states, and even in those states there are all sorts of other models in place for different types of employees.

Most states have different types of models ranging from a meet and confer model, where you have to meet but you don't have to agree, to having a situation in Texas where there's a Texas state statute that says employees can have a representative, but the representatives don't have the rights to collective bargaining agreements.

So that I think--

But what the preamble to the regulation says, and I want to make clear this is the preamble to the regulation, so you've got to go to, it's a long drive from the statute to the preamble, but the preamble to the regulations I think are trying to say if two people show up or three people show up and say they're the representative, you look to state law, it might be agency law, it might be all sorts of law in the state.

Unknown Speaker: Why don't you just as readily look to state law to determine what the significance of the designation of the representative is in states which do not allow collective bargaining agreements?

Mr. Leibig: Because under the preamble, under that set reference in the preamble, which is the only reference to state law in this area anyway, if you read the whole paragraph it starts off by somebody asking exactly that question, do you look to state law to find out whether a collective bargaining representative can enter in full agreements.

And the answer that the Department of Labor in the preamble gave is no.

It's also the clear answer in the... the plain meaning of the regulations themselves contain a clear statement that the representative... what matters is the designation of the employees, not the recognition of the employer.

Unknown Speaker: Mr. Leibig, where is the preamble set forth?

Mr. Leibig: It's easier for... he, Justice Souter referred to the red brief, but I think it's easier if you have the Petition to Cert Appendix.

It is set forth in pages 30a and 32... I'm sorry, that's the actual regulation.

The preamble is set forth in 33a through 35a.

Unknown Speaker: Thank you.

Mr. Leibig: The actual regulations are in the pages just before that.

If I could also mention the Senate and the House report that Justice Souter asked about.

The House report refers to designated representatives, and the regulation, that is the regulation on 30a through 32a, adopt pretty much the House report.

The argument is made by the petitioners that the House report may support that, but what about the Senate report.

And I think the answer to that is if you look with rigor at the House and Senate report you will find that the actual language of section 207(o) is the direct language of the House report, not the Senate report.

During the conference committee this section, it was the language of the House report that became 207(o) precisely, and if you compare it you will see what I mean.

I don't think there were differences in the wording for this point in the statutory language, but the structure of the House report became... therefore you look to the legislative history of the House report and not the Senate report because the language that was enacted is the House language.

Unknown Speaker: Mr. Leibig, you argue basically that the statute is ambiguous and we ought to refer to a regulation?

Mr. Leibig: That's right.

Unknown Speaker: Do you think we have to take into account the case of Gregory against Ashcroft in interpreting this statute?

Certainly it is a traditional state function to determine whether the state is going to negotiate over overtime and whether the state must pay it.

And true, the statute does contemplate that states will be subject to it, but perhaps it doesn't contemplate it in the fashion you suggest.

And if we look to Gregory against Ashcroft we might come to a different conclusion, do you suppose?

Mr. Leibig: No, Your Honor, I don't think if you look to Gregory v. Ashcroft you would come to a different conclusion, for this reason.

First of all, I think on its face Gregory speaks of interfering with the usual state and local functions, and it does not, it seems to refer to the question of coverage.

The conference Congress has to be clear about coverage.

I grant it, not just coverage of the states as states, but also coverage of the function of the state that is being regulated.

Everybody agrees that this statute regulates the use of comp time by state and local employees.

The question that the statute is ambiguous about is how do you arrange comp time agreements.

In the statute, if you look to Gregory, Congress expressly says in the statute, there is an express delegation to regulations, and the regulations do this.

Now, the reason I think... it's really the interchange between Chevron and Gregory, and how do you read those together.

And I don't think the Court, I don't think that there are precedent I can cite to say how you read the two together.

I think that's a real challenging situation.

I do think, though, if Gregory meant to abandon Chevron we are launched on a very dangerous course because, for example in the Report on Intergovernmental Relations that was submitted by the amici it lists a great number of statutes, 32 statutes, I believe, passed before 1981 that regulate state and local functions, and most of those statutes rely on regulations.

The Fair Labor Standards Act will not work without its regulations, not just on the comp time issue, but it wouldn't work on many issues, and Congress knew that.

So I think that's the first point.

The second point is I do think, and there has been a number of law review commentary on the importance of increased rigor for Chevron, at least when it interacts with Gregory, but some would say generally.

To the degree that you are a literalist or a strict constructionist in a general sense, that's strictly looking at the words and meanings of the statutes, then you should also be quite rigorous about Chevron, and I recognize that.

Therefore--

Unknown Speaker: Well, if you just look at the terms of the statute in the absence of the regulation, doesn't it appear to say that if employees aren't covered by subclause (i) then an agreement between the agency and the employee will govern, in effect?

Mr. Leibig: --Subclause (i) in the first--

Unknown Speaker: I mean, that's what it says.

Mr. Leibig: --Subclause (ii) in the first prepositional phrase says in the case of employees not covered by subclause 1, granted.

Unknown Speaker: Yes.

Mr. Leibig: The problem is subclause 1 has a list of types of agreements, not types of employees.

Subclause 1... and that's where the ambiguity lies.

I don't think you can get to where I want to get by reading the statute alone, but you cannot also get to where the other side wants to get by reading the statute.

That's why it's ambiguous.

Unknown Speaker: Well, it seems to me you can get pretty far by just looking at the terms of the statute.

Perhaps the regulation simply isn't permitted.

Mr. Leibig: Let's do that for a minute.

If you just read the terms of the statute you get a situation, as read by Harris County, you get a situation where the statute would then say if you want an agreement you need a collective bargaining agreement, a memorandum of understanding, any other form of agreement, an agreement with individuals, or an agreement with individual employees.

That basically covers every possible type of agreement you have.

If that's what this means, you didn't need section 2(A) at all because you could have just said the employer can have comp time whenever they want to because all they have to do is refuse every agreement and they are automatically in a place where they can impose, as Harris County did as a condition of employment, comp time.

So if that's what Congress meant, first of all they didn't need any of these words.

Unknown Speaker: Well, but realistically the employer is not in a position to refuse every collective bargaining agreement that's pressed upon it.

I mean, you're quite right that they could get there by simply refusing every agreement, but realistically that's not an available option.

Mr. Leibig: It's isn't an available option in a limited number of states in the United States, and if Congress wanted to say that they could have.

But it is an available option in more than, for police employees, for example, well over 50 percent of total police employees in the United States it is an available option.

It's an option in fact in this case Harris County took.

They claim their agreement is based on an auditor's report.

It's a form that you file when you're hired.

It has your name, a bunch of boxes filled in how much money you're going to get paid, and then in little print at the bottom of the box it says I accept this employment and the conditions and regulations.

And that's what you sign.

Unknown Speaker: But that would still not be a vain act by Congress to set it up this way because it would preserve for those states that did have collective bargaining with public employees under 2(A) little (i), it would preserve the power and the position of the union in those states.

You should be the last person, you know, to criticize it.

Mr. Leibig: In that case, though, 2 little (i) would just say collective bargaining agreements, it wouldn't say... first of all it wouldn't say memorandum of understanding in the normal sense, but you could argue about that, but it wouldn't say any other agreement between the public agency and representatives.

Obviously this statute is not meant to provide only, that you only need agreement in states with collective bargaining.

I think you do need an agreement in states with collective bargaining, and that's why the preamble to the regulations makes the reference to looking at state law to find out how state law sets up rights of representation.

I would emphasize in Texas there isn't a collective bargaining statute, but there is a statute that says public employees can deal with their employer through a representative, not to reach contracts but to deal with them on all sorts of other things.

And the actual representative in this case regularly represents its members in grievances and before the city council in all sorts of ways, and has other agreements with Harris County that are enforced regularly.

It has a dues check off agreement.

It deals with Harris County all the time.

So that you're right, if Congress wanted to say there is only two situations, states with collective bargaining, and they have certain special rights, and states without collective bargaining, and in those states you can impose this as a term and condition of employment, they wouldn't have used these words.

More than that, what this... these words are ambiguous is you look at them rigorously, and therefore what these words meant Congress vested in the Department of Labor, appropriately I would say even under a rigorous application of Chevron, to decide, not in the courts to decide, in the Department of Labor.

Unknown Speaker: Well, I mean, words can be ambiguous but there is, you know, there is a scope of ambiguity.

Red can mean, you know, read or red, but it can't mean donkey.

Is what you're urging upon us within the scope of the ambiguity here?

Mr. Leibig: I think so, and I think the way you judge that is you look at the words and see if they are unclear, not... one definition of ambiguity is two meanings, but other... the word ambiguity I think is also used to mean when a, in this context, the context of using regulations, when a statute is unclear.

But to decide that--

Unknown Speaker: The critical phrase is employees not covered by subclause (i), and as you point out, subclause (i) does not describe employees but it describes agreements.

Why wouldn't it therefore be logical to say, you know, that it means employees not covered by agreements under subpart (i)?

Mr. Leibig: --That wouldn't be logical for a number... the first reason it wouldn't be logical is because if you play that out what that would mean, Congress wouldn't have needed all these words to say that.

That's one of them.

The second reason is if you look at the overall structure of the 1985 amendments that doesn't make sense, as we explain in the brief.

But more importantly, if you look at the structure of the Fair Labor Standards Act as a whole it wouldn't make sense because it would vest employers with the possibility of doing, it was exactly happened in Texas, that is completely abrogate the need for any agreement at all because comp time can be imposed as a condition of employment.

Unknown Speaker: Well, those are all good policy reasons, but what you urge upon us instead is that it means employees who do not have a representative?

Mr. Leibig: No.

What I urge on you is the statute is ambiguous.

It could mean, and it would be reasonable for it to mean what you described earlier.

It also could mean that the people covered by 1 are those people that have a representative and therefore could xx various forms of agreement.

The question before the Court is who decides which it means.

Unknown Speaker: But I don't see how yours is one of the available options.

I'm not sure that yours is within the scope of the ambiguity.

Mr. Leibig: If you... you mean because it could only--

Unknown Speaker: Because you're not covered by little (i).

You are not an employee covered by little (i) simply because you have a representative.

Mr. Leibig: --Whether you're an employee covered by little... first of all there are a couple reasons why I think you are.

One is from the regulations.

But let me make another point.

If you look... first of all, if you read it there is doubt about it.

Enough doubt at least, I would argue, to look at the legislative history.

Both the Senate and the House report don't agree... do agree about one thing, that (i) is meant to apply only where, in every case where there's a representative, and (ii) only applies where there is not a representative.

And both the Senate and the House reports are very clear about that, and specifically indicate at, in the Senate report in the petitioner's Appendix at 101A and in the House report at 36A.

So they both say the meaning that I said is what it means, that whether there's an agreement or not.

Another reason is the logical course of it.

If you do not have... if (i) only applies to where there are actually agreements, then even in states where there is collective bargaining, if there was a collective bargaining agreement between a designated representative and the state and it didn't deal with comp time, petitioner would argue they can use comp time, even though under state law they would not ordinarily be able to use comp time because they would be changing wage-hour working conditions unilaterally.

Therefore if that's what it meant you would raise the same problems that petitioners complain about, that is Congress imposing on states that chose to have collective bargaining a requirement other than their law would require.

So that the lack of logic... one of the reasons that you look beyond the statute is the lack of logic of the other interpretation.

Now, I must admit to get to the full brunt of the lack of logic you have to look at what is this all about.

This whole thing is to keep states from using comp time in a way that would undermine the basic 40-hour standard in the statute, which it can easily do.

Let me give you an example what happens in Harris County.

What actually happens in Harris County is an individual deputy sheriff, it's 4 o'clock in the afternoon and the county needs somebody to work until midnight, the individual deputy is supposed to get off at 6, the county can, and this is legitimate, nobody has disputed this, can order them to stay until midnight, work 6 extra hours.

Without these amendments they would have to pay for that in cash, but Congress, in order to lift burdens from the state, said you can pay for that time in comp time.

So they pay them in comp time.

He then has 9 hours on the books because he gets 6 hours at time and a half, he has 9 hours comp time.

The problem, and what happens in Harris County now is and then that week ends.

The next week, when you have unilaterally imposed comp time, every day the sheriff can come to that deputy at 5 o'clock, when he's supposed to work until 6, and say go home today because I've got to eat up your comp time bank.

And therefore they devalue the comp time.

And there are other ways that that could be done.

Unknown Speaker: How do you mean devalue it?

Don't give him enough notice to make any use of it?

Mr. Leibig: Right.

If, for example if he were paid in money he could take the money and put in a bank.

He would have the money there.

When you're paid in comp time, as Senator Black, as Hubert Black who was the sponsor of the 1980... 38 amendment said, if an employer pays you in time off, then you can put the comp time in a bank, and they call it a comp time bank.

But unless you have an agreement that works out how this is going to work, and what actually happened in Harris County, the employer can come to you and say withdraw the money from the bank today, go home, right inside your regular schedule.

And that happens.

That's what my clients are after.

Unknown Speaker: But is there any reason to think that that practice by an employer was condemned by Congress in this statute?

Mr. Leibig: First of all, that practice was condemned by Congress in the Fair Labor Standards Act xx they outlawed comp time.

What happened in this statute--

Unknown Speaker: But here they have reintroduced comp time.

Mr. Leibig: --Right.

They have reintroduced it.

That's my point.

They have reintroduced it, but reintroduced it by putting certain restrictions on it.

The reason for the restrictions is to open the window for state and local governments by lightening the burden a little bit, or half way.

And as we cited in our brief, the article by Easterbrook where he points out is once Congress... the state and local government went to Congress and said we want some relief from this statute.

Congress said get together with your employees, and this is in the legislative history, figure out what kind of relief you want, and come and tell us.

They did.

Both people said, both House and Senate said little (i) is what controls.

Then, after the rules were passed, now state and local government wants to say if you opened up the window a little bit, you've got to lift it all the way.

If that happens, that will undermine federalism because in the future Congress will not leave these areas where they can regulate to leave flexibility, which I think they have done under the act.

If I could reserve the rest of my time.

Unknown Speaker: Very well, Mr. Leibig.

Mr. Streicher.

Argument of Harold M. Streicher

Mr. Streicher: Mr. Chief Justice, and may it please the Court:

Petitioners here have created confusion where there is none.

The plain language of subsection (o) of 207 is clear and it does not require going to extrinsic sources at all, and this is where the petitioners have created their confusion.

The word agreement is the subject of both subpart 1 and subpart 2 of section 207, subsection (o)(2)(A).

And with that understood the meaning of the statute is clear, and no part of subsection (o) is rendered superfluous.

The plain meaning of paragraph 2 is that a public agency may provide compensatory time only pursuant to, one, an agreement between the public agency and representative of the employees, or, two, pursuant to an agreement between the employer and the employee.

And I note that in Harris County this is exactly what has occurred, as each Harris County employee, as each one of the petitioners has stepped up to accept employment they have signed this individual form that Mr. Leibig mentioned and have agreed to the terms.

Unknown Speaker: Well, Mr. Streicher, do you take the position that if there, in a state where there is a collective bargaining agreement but the agreement does not allow, it just doesn't cover comp time, now, do you think in such a state that the county would be able to enter an agreement with employees such as you have in this case?

An individual employee to cover it?

Mr. Streicher: Justice O'Connor, I don't know the answer to your question, and that is one of my points, that one would need to go to that particular state's law to determine under which section one can meet.

Unknown Speaker: Well, doesn't that indicate the statute is ambiguous?

I don't know what the answer to Justice O'Connor's question is, and to me that makes the statute ambiguous.

That is to say if there is a collective bargaining agreement but it's silent with respect to comp time, I'm not quite sure how to read the statute.

Perhaps you think it's clear.

Does little (i), or number 2, (ii) control?

Mr. Streicher: Yes, Justice Kennedy, I believe it would, there being no agreement in Justice O'Connor's scenario, then under subpart (i), then one would go, one would be authorized to go to subpart 2.

Unknown Speaker: Then why don't you know the answer?

Mr. Streicher: I believe then, Justice Scalia--

Unknown Speaker: That is the answer.

Mr. Streicher: --that I, if I understood Mrs. O'Connor's question correctly then, if there is no agreement under subpart (i), then one would be authorized to go to subpart 2.

Unknown Speaker: Well, but that's the question.

Is there an agreement if there is a collective bargaining agreement that is silent?

That doesn't seem to me that the answer to that is self evident.

Mr. Streicher: If one focuses on the words of this particular statute and focuses on the subject of subpart 1, that being is there an agreement reached between a representative and the employer, there be... if there is no such agreement then one would go to subpart 2.

Unknown Speaker: But it's not clear that there's such agreement, because it doesn't talk about agreement, it talks about agreement with reference to compensatory time.

Mr. Streicher: I perhaps don't understand your question, Justice Kennedy.

But if there is no agreement reached between the representative in those states that recognize a representative, and that one can meet and confer with that representative, then one would go to subpart 2.

Unknown Speaker: Well, I certainly think some employers could argue that single (i) controls, that there is an applicable provision, it just says nothing about it.

I think that's a plausible construction.

Mr. Streicher: One would have to go to the state law to determine the result of that answer, and in Texas, as we have stated in our Reply Brief and our Appendix, in Texas we cannot recognize a representative.

It is against public policy.

Unknown Speaker: Well, we're talking about two different things.

We're talking about the meaning of the statute in the context of the hypothetical agreement we have outlined, and then there's also the question of whether or not an employee is authorized to conclude it.

But those are two separate questions.

I suppose you would look at... if you're going to look at Texas law for little (i) as to whether you have a union agreement under little (i), suppose you look at Texas law for little (ii) as well, right?

I mean, if state law prohibits individual agreements apart from the collective bargaining agreement with the authorized union, then you cannot have an agreement or understanding arrived at between the employer and employee under little (ii), right?

Is that your position?

Mr. Streicher: No.

Unknown Speaker: No?

Mr. Streicher: No.

If in Texas, as we are, prohibited from entering into an agreement with the representative of employees, then we would be authorized, as we are, to enter into individual agreement with the employee.

Unknown Speaker: I understand, but I'm talking about another state that has public employee unions and that prohibits employees from dealing with the public employer apart from their union.

In such a state the employees would be disabled from making agreements under little (ii), wouldn't they?

Mr. Streicher: Yes.

Unknown Speaker: There would be no agreement or understanding, so you would preserve, you would preserve the exclusive bargaining power of the authorized union.

Mr. Streicher: If that was the effect of that state's law, yes, that was the exclusive bargaining agent.

I'd like to continue then on that particular point that the plain meaning of the statute, that being the subject of both part 1 and 2 is agreement, it allows the state laws to be preserved.

And with all the various state laws out there I ask how one can override this plain meaning of the statute.

I want to now turn your attention to the background in which subsection 207 arose in order to gain a correct understanding of subsection 207.

This Court had just decided the Garcia case in February of 197... 1985, which extended provisions of the FLSA to state and local governments.

However, a great variety of compensatory time arrangements had developed between public employers and their employees, and long-standing practices existed concerning the use of compensatory time which were of mutual benefit to both the public employee and the public employer.

This background of mutually beneficial compensatory time arrangements was the background in which Congress passed section 207(o).

Already by November of 1985 Congress had passed section (o) to help public employees and public employers preserve their mutually beneficial compensatory time practices.

Congress was not for a minute going to allow the full weight of the Garcia decision to descend upon the public employers, be they state governments or local government entities.

And for that proposition I point you to the Appendix for the Petition for Writ of Cert, page 65a, page 72a, 89a, 114a, and also the Garcia decision itself talks about this background in which existed when the Garcia decision was handed down.

Properly understood in light of this congressional purpose to preserve existing compensatory time practices, it's hard to imagine how Congress could have improved upon the statutory language that was actually chosen in section 207(o).

Unknown Speaker: Is it your position that the employer may on his own substitute comp time for overtime even if he doesn't deal with individual employees?

Mr. Streicher: No.

The employer can't, in those states that provide for dealing with the employees, as they do in Texas, in Harris County.

Unknown Speaker: So, does Harris County forbid dealing with individual employees?

Mr. Streicher: No.

In this particular case all of the petitioners have signed individual compensation forms whereby they accept the--

Unknown Speaker: Comp time.

Mr. Streicher: --comp time arrangement which exists in the personnel regs of Harris County.

And, by the way, those regulations provide, or the individual agreements provide that the first 240 hours of compensatory time shall be placed in a bank for the employee, so-called comp time bank.

After 240 hours... by the way, those hours are time and a half hours, after that time the employees receive cash for each hour worked at the rate of time and one-half.

Unknown Speaker: Mr. Streicher, you say it's hard to imagine how they could have put it better?

I can imagine how they could have put it better.

If it means what you say it means they could have said in little (ii), absent such applicable provisions, comma, an agreement or understanding arrived at between the employer and employee.

That's the meaning you want to give it, right?

Mr. Streicher: Yes.

Unknown Speaker: That would be a much clearer way to put it, don't you think, instead of in the case of employees not covered by subclause (i)?

Mr. Streicher: I believe they stated that, Justice Scalia, when they said those employees not covered by subsection 1.

Unknown Speaker: Well, it would have made sense to me to say pursuant to little (i), applicable provisions of the collective bargaining agreement, blah, blah, blah, blah, or other agreement, little 2, absent such applicable provisions--

--That's very clear.

Isn't that clear?

[Laughter]

But they didn't say that.

Do you take the provision the statute refers to agreements or to groups, or to types of employees?

Does it refer to types of agreements?

Mr. Streicher: Agreements.

The subject of both subpart 1 and subpart 2 is agreement.

It just cannot be any clearer than that.

The statement of the statute, if we could reread paragraph 2 to gain this understanding, a public agency may provide compensatory time only pursuant to subpart 1, there it talks about an agreement between the public employer and a representative, and 2, also the subject matter is pursuant to an agreement.

There it happens to be talking about an agreement entered into by the employer and the individual employee.

But it just cannot be any clearer that the subject matter is agreement in both subparts.

Unknown Speaker: May I ask you, what if there were an agreement, collective bargaining agreement in existence which prohibited the use of comp time, would subparagraph 2 apply, because those employees would not be permitted to do it by a collective bargaining agreement, they were forbidden to do it?

Mr. Streicher: I don't believe, Justice Stevens, that subpart 2 could apply because in section, subsection (o), subpart (B) it talks about existing collective bargaining agreements, and if the existing collective bargaining agreement were one wherein no compensatory time was allowed, then that collective bargaining agreement would have been entered into pursuant to subpart 1, and that would be the relationship between that employer and those employees.

Unknown Speaker: Haven't Labor Department regulations been against you?

Mr. Streicher: Justice White, I believe there is ammunition for both sides, but several of the Justices this afternoon pointed out the recognition by the Secretary of Labor himself that whether or not an employee has a representative shall be determined by state law.

One just cannot overcome that in this case, and it's extremely important in this case to remember that because under Texas state law one cannot have--

Unknown Speaker: I would think you would argue that it wouldn't make any difference whether they had a representative or not.

They might have a representative, but they would have no agreement.

Mr. Streicher: --That's correct.

I'm sorry, perhaps I misunderstood.

But again, the end result is there must be an agreement necessarily because we cannot recognize--

Unknown Speaker: There must be a collective bargaining agreement with their representative.

Mr. Streicher: --That's correct.

Unknown Speaker: What do you do with the language in the Statement of Basis and Purpose for the rule, which says that the Department believes that the proposed rule accurately reflects the statutory requirement, according to the agency, that a CBA memorandum of understanding or other agreement be reached between the public agency and the representative of the employees where the employees have designated a representative?

If they have designated a representative, says this, the agreement must be reached with that representative.

Preemption?

Mr. Streicher: Preemption, or I think then we have come into the Gregory, the Ashcroft area where there must be a plain statement by Congress to upset the balance, the traditional balance between Federal and state rights.

There is no such plain statement made by Congress in this subsection (o).

Unknown Speaker: Well, I mean, my goodness... it has to be in every detail of the scheme?

They have made the decision to apply the Fair Labor Standards Act to the states.

That's the decision.

It's clear that the states are going to be bound by the Fair Labor Standards Act.

Mr. Streicher: I agree with you.

Unknown Speaker: And you're saying that every detail of the Fair Labor Standards Act must moreover be particularly clear as applied to the states, otherwise in every little section of the act you're going to have one rule for the states and one rule for the private employer?

That doesn't strike me as very sensible.

Mr. Streicher: I agree with you, Justice Scalia, certainly that it was the intent of Congress to apply, or of this Court to apply the FLSA to the state and local governments, but it is not the intent of this Court without a plain statement by Congress to upset the traditional relationship between the rights of the states and the Federal rights.

Unknown Speaker: Well, isn't it your argument that the requirement for plain statement in effect arises because otherwise the Secretary or Congress, depending on whether you zero in on the reg or the statute, would be foisting or mandating a collective bargaining obligation onto the states that they did not have.

Isn't that your point?

Mr. Streicher: Correct, Justice Souter.

Although the Chevron case talks about the Secretary or the administrator of regulations, but the Gregory case talks about what Congress can do.

And to allow the regulations to have greater... to have the Chevron case take precedent over the Gregory case would allow the regulations to do what Congress itself cannot do.

Unknown Speaker: Is it your view in Texas that a public employer can use subclause 1 if it wants to, or that it must always use subclause 2?

Mr. Streicher: In Texas if the, pursuant to the statute, the Police and Firemen's Act, a election were held authorizing the collective bargaining arrangement, then one could get into subsection 1.

And that of course is page 3a in our Brief in Opposition to the Petition for Writ of Cert. Specifically page 7a of that act, section 5, upon the adoption of the provisions of this act by any city, town, or political subdivision in this state to which this act applies as herein in this section provided, fire fighters and/or policemen shall have the right to organize and bargain collectively with their public employer as to wages, hours, working conditions, and all other terms and conditions of employment.

Upon the passage of that statute and upon an election whereby the local voters adopt specifically this act, then only, Justice Kennedy, could a local governmental entity in Texas come under subsection 1.

Unknown Speaker: Mr. Streicher, there has been some colloquy between the bench and you and your opponent about the provisions of a regulation and there has been reference made to something on page 34a of the Appendix that apparently is the reaction of the Department of Labor to requests for comment on a rule.

And at the last paragraph on page 34a that carries over to 35a it says the Department believes that the proposed rule accurately reflects the statutory requirement that a collective bargaining agreement, memorandum of understanding, or other agreement be reached between the public agency and the representative of the employees where the employees have designated.

Now, what rule is that comment referring to?

Do you know?

It seems by its context it must be referring to a previously promulgated rule or regulation.

Is there a regulation to that effect?

Mr. Streicher: I believe there is, Your Honor.

Unknown Speaker: Where is it, do you know?

Well, if you don't know, just proceed, but it would--

--On page 30a of the Appendix, isn't it, section 553.23, as--

Mr. Streicher: I believe... I'm sorry.

Unknown Speaker: --as is set forth at the top of page 33a.

This is the Statement of Basis and Purpose.

It's not just a response to comments either, it's the Statement of Basis and Purpose that must be adopted with the rules.

And it's as authoritative as the rules themselves.

It's a part of the adoption of the rules, isn't it?

Mr. Streicher: I believe you're right, Justice Scalia.

It on page 30a talks about if the employees do not have a representative compensatory time may be used in lieu of cash only if there is such an agreement or understanding.

But I wish to note, Justice Rehnquist, that the comment on page 34a by the Secretary does not mean that he refused the point that this particular governmental entity was making, and I would submit that it can be read congruently with my interpretation that if the subject matter of subclause 1 is agreement, there being no agreement reached, then therefore--

Unknown Speaker: Yes, but what if the regulation says if there's a representative, if there is a representative been designated there has to be an agreement, regardless of what state law says.

Mr. Streicher: --This statute, Your Honor, does not say that, though.

And--

Unknown Speaker: But the regulation does, on page 31a, subpart (c), where employees of a public agency do not have a recognized or otherwise designated representative the agreement or understanding concerning compensatory time off must be between the public agency and the individual employee.

But that's only the case where employees do not have a recognized or otherwise designated, or otherwise designated representative.

And that language at the bottom of 34a is, as I understand it, an explanation of that same provision.

Well, is there some case or some law that says that a state may forbid or may not forbid collective agreements between their employees and a union?

I take it you think Texas is statutorily and constitutionally capable of forbidding such agreements?

Mr. Streicher: --I believe, Your Honor, that is the case, Justice White.

The states have been free to regulate labor relations.

And if I could also make one point in regard to the prior question--

Unknown Speaker: Well, if that's the law certainly the... if that's the controlling law the regulation, to the extent it says that if there's a representative been named there must be an agreement, that just doesn't hold up.

Mr. Streicher: --And that is not what this particular subpart (i) speaks of.

If I could take a brief moment to spend on page 31a, that the regulation states where employees of a public agency do not have a recognized or otherwise designated representative.

Harris County, nor any local governmental entity in Texas, can recognize a designated representative.

It is not possible to enter into an agreement in Texas with a representative unless the election that we previously discussed has been held.

Unknown Speaker: You said they can have a representative, they just can't enter into an agreement with them?

Mr. Streicher: That's right.

Unknown Speaker: So literally they have a representative.

Mr. Streicher: But not for the purposes of subsection (o), to enter into a compensatory time agreement.

The representative in Texas, as was previously discussed, can present grievances and other concerns, employee concerns, but because of 5451c and c-1, we cannot meet and confer with a union representative of a public employee to enter into--

Unknown Speaker: Of course if you read the Secretary's regulation literally that just would mean that's kind of tough luck.

You cannot make the agreement that you need to make to provide for comp time.

And that's one way to read it.

It's unfortunate, but state law just disables you from taking advantage of this exception in the statute.

Mr. Streicher: --Justice Stevens, if it were to stop there that may be true, but we have not stopped there.

We do have individual agreements with the employees.

Unknown Speaker: Yes, but if the regulations mean what they say literally, and they may or may not, you weren't entitled to do that because the subparagraph (i) prohibition kicked in and said you can't have it, as interpreted by the Secretary.

Well, I'm just covering the same ground that has been covered.

I gather that your answer in your brief, or in somebody's brief, to the language at the bottom of 34a was the language at the top of 35a, wasn't it, namely the sentence that says it is the Department's intention that the question of whether employees have a representative for purposes of FLSA section 7(o) shall be determined in accordance with state or local law and practices.

That and the preceding sentence, I gather, could be interpreted to mean that you cannot have an agreement with a designated representative if the state law does not permit that agreement.

Mr. Streicher: That's exactly correct.

Unknown Speaker: Yes, but what it says is they shall have a representative, not whether they shall have an agreement with a representative.

I mean, it's really not very clear.

Mr. Streicher: If I could take a moment with the impact of the Court's decision, it could have a substantial impact not only on the respondents but on all state and local governmental entitles.

It would have an impact in regard to their ability to provide essential services to the citizens of those entities, and I don't, can't think of a more quintessential service to the people of a local government entity than the police services.

The current value of Harris County's--

Thank you.

Unknown Speaker: Thank you, Mr. Streicher.

Mr. Leibig, you have 4 minutes remaining.

Rebuttal of Michael T. Leibig

Mr. Leibig: I would just like to make three points.

The first one deals with Texas law.

I'd like to point out that the statute referred to by Mr. Streicher also says in section 6 that employees may have representatives and the representatives may deal with issues arising in the work place including wages, hours, and working conditions.

I admit it doesn't, it prohibits having a collective bargaining agreement but it does allow representation.

It's very important, and we have emphasized in our brief that we are not claiming, and the Fair Labor Standards Act does not require that there be a collective bargaining contract covering comp time.

The only... it requires a special new entity directed by Congress which is a comp time agreement under the Fair Labor Standards Act.

The only consequences of having an agreement is that you can use comp time.

The only consequences of violating the agreement is that if you are sued for cash overtime you do not have that defense which Congress granted you.

Unknown Speaker: Yes, but to that extent you would have a collective bargaining agreement.

Mr. Leibig: Well, it's not a collective--

Unknown Speaker: I mean, you can call it anything you want to, but it's a collective bargaining agreement on that subject.

Mr. Leibig: --It's not a collective bargaining agreement in the sense that collective bargaining agreements are ordinarily agreements between, one, between exclusive representatives and their employees.

They normally... the situation in which collective bargaining agreements of the kind we're talking about are created normally prohibit unilateral dealings between employees and that.

This is different than that.

As the Fifth Circuit pointed out, a deputy sheriff in Texas could designate his minister to be his representative, or a lawyer, or anybody to be the representative.

It's only if they want a representative you have to deal with the representative.

And the reason for that is to encourage voluntariness of the agreements.

Unknown Speaker: Do you contend as a matter of Texas law that the collective bargaining agent can enter into comp time agreements?

Mr. Leibig: As a matter of Texas law employees can designate a representative--

Unknown Speaker: Right.

Mr. Leibig: --Even Texas law gives them the right to do that and recognizes the right of the representative to act for the employees as an agent would act for the employees.

Then they can enter into an agreement.

Once the agreement is entered--

Unknown Speaker: I wish you would tell me yes or no.

Mr. Leibig: --Yes.

Yes, I do.

Once an agreement is entered, though, it's very important... the only way to enforce the agreement is as a defense against statutory claims under the Fair Labor Standards Act for cash.

It's not enforceable anywhere else, and that's the only consequence of the agreement.

The state's courts can refuse to recognize it as a contract, a collective bargaining contract.

Another difference is it's not an exclusive representative situation.

Each employee can designate or not designate whoever they want.

Unknown Speaker: It's still a collective bargaining agreement, whether it's enforceable or not in this case.

Mr. Leibig: Right.

And the second thing I would like to point out--

Unknown Speaker: And so are employees covered by little (i)?

Mr. Leibig: --I think employees are covered by, the employees in this case would be covered by, they are employees who do not have an agreement and therefore you cannot use 2(i).

One other thing I just want to make clear while I have time is that the agreement that the employer is referring to is just a form that has a little place at the bottom that you sign.

It doesn't mention comp time, it doesn't mention anything.

It says as a condition of employment you're accepting whatever regulations we have now or ever have, and we can change them whenever we want, and you sign that to get your pay check.

It's not a negotiated agreement.

Unknown Speaker: I never doubted it, Mr. Streicher.

Mr. Leibig: And the point of all this is the reason to require the designation of a representative is the traditional way to guarantee that agreements are voluntary.

If you have a representative... as long as employees have a right to have a representative, which is what we're talking about here, if they don't choose to have a representative then you can presume when they sign this form and are paid in that way they were volunteers.

If they do designate the representative then you should have to deal with the representative.

And if the representative on an individual basis works out an agreement, then that agreement is only useful for one purpose, as a defense against claims for cash by the state under the Fair Labor Standards Act.

The state can ignore it.

Unknown Speaker: Does that position take you beyond the Secretary's position in the regs?

Mr. Leibig: No, I think that is the Secretary's position.

Unknown Speaker: Well, the Secretary took the position that if you have got a collective bargaining agreement this is the way you must agree on this subject.

Did he take the position that if you don't have a collective bargaining agreement then they be the kind of agreement that you speak of for defensive purposes and it must be done in that way?

Mr. Leibig: I think the Secretary's position is you either have to have one of the kinds of agreements talked about in little (i) 1--

Unknown Speaker: Which is not necessarily a CBA.

Mr. Leibig: --Right.

But the reason they say we look to state law... states can say public employees can only choose exclusive representatives, and if they do they are regulating the choice of a representative not the arrival at an agreement.

And states can, and Texas has.

Texas has a statute--

Unknown Speaker: Thank you, Mr. Leibig.

Your time has expired.

Mr. Leibig: --Thank you.

Chief Justice Rehnquist: The case is submitted.

Attribution:

The OYEZ Project

Featured:

Mclaughlin v. Richland Shoe Co. - Oral Argument

Wed, 13 Apr 2011 20:09:58 +0000

Case:

Mclaughlin v. Richland Shoe Co.

Media File:

86-1520_19880224-argument.mp3

Related Transcript:

86-1520_19880224-argument.xml

Transcript:

ORAL ARGUMENT OF DONALD B. AYER, ESQ. ON BEHALF OF THE PETITIONER

Chief Justice William H. Rehnquist: We will hear argument first today in Number 86-1520, Ann McLaughlin, Secretary of Labor, versus the Richland Shoe Company.

Mr. Ayer, you may proceed whenever you are ready.

Mr. Ayer: Thank you, Your Honor.

Mr. Chief Justice and may it please the Court, this case presents the question of the meaning of the term 29 USC Section 255(a).

That section provides that an action may be brought

"within two years after the cause of action has accrued except that a cause of action arising out of a wilfull violation may be commenced within three years."

This action was brought in 1984 by the Secretary of Labor to enjoin further overtime pay violations and to compel payment of overtime accrued during the prior two and a half years.

It was brought under Section 217 of the Act authorizing equitable relief, so there is in this case no question of the availability of liquidated damages.

We are simply talking here about compensatory relief and injunctive relief.

In that action the Secretary moved for summary judgment based primarily on the records of the employer, and that motion was granted by the District Court.

The court first rejected the defense of the employer that his behavior his conduct was justified under the so-called Belo plan exception of the Fair Labor Standards Act, Section 207(f), and went on to address the question of the statute of limitations provision.

The court rejected the contention that the three-year statute of limitations was inapplicable here on the ground that the conduct was not wilfull, and in doing so it applied what was at that time the uniform view of the Courts of Appeals, the so-called appreciable possibility test first adopted by the Fifth Circuit in the Jiffy June Farms case.

The court said that that test requires only an awareness of the possible application of the Fair Labor Standards Act and found on those facts that the vice president and general manager had made clear that he was indeed aware of the Fair Labor Standards Act, and that that Act does govern over time systems of compensation.

The Third Circuit Court of Appeals affirmed with regard to the issue of a violation and, however, reversed with regard to the statute of limitations question.

It found that the appreciable possibility test was inappropriate, stating primarily the reason that it has the tendency to collapse the two tiers that are plainly contemplated on the face of the statutory provision, the two tiers of liability, two years versus three years, because in virtually every case, although I think not in every case, an employer is going to be found to be aware of an appreciable possibility that the Fair Labor Standards Act will cover.

Instead of the at that point established appreciable possibility test, the court applied the test enunciated by this Court in the Thurston case, where it dealt not with this statute, but rather dealt in the context of the Age Discrimination Employment Act's section dealing with liquidated damages, and that test is generally articulated as requiring a knowledge of the violation or reckless disregard for the matter of whether or not the conduct is in fact in violation of the law.

Unidentified Justice: Mr. Ayer, do you think that the government's proof could have met that reckless disregard standard in this case?

Mr. Ayer: I think that there... the answer to that question turns upon the precise application given, the precise interpretation given to the reckless disregard test, and our concern with the reckless disregard test is essentially... it is not with the part that talks about disregard.

It's the part that talks about reckless.

And we feel that the term "reckless disregard" as it is used generally throughout the law carries with it a connotation of outrageous conduct, a connotation of highly unreasonable conduct, and that if you read that connotation into the Thurston test, I think it is arguable at least... I think it is unclear.

I think you would have to remand to get the determination whether we meet that test or not.

Unidentified Justice: Well, in your position is the evidence sufficient to meet that standard?

Mr. Ayer: I think our... the answer to that, I think, is yes, in two aspects.

Number One, with regard to overtime that everyone agreed had to be paid quite apart from the Belo plan issue, payments were not made anywhere close to the statutory one and a half times rate.

And secondly, there are four requirements for this Belo plan requirement.

It was our position below and it continues to be that none of the four were met, and we believe that in those two respects the plan is indeed outrageous and is indeed--

Unidentified Justice: Now, under the Federal Fair Labor Standards Act, liquidated damages can be sought for a violation, can't they?

Mr. Ayer: --Yes, they can.

They can be sought under Section 216.

Unidentified Justice: And could they have been sought here?

Mr. Ayer: They could have been sought had the action been brought under 216 rather than 217.

Unidentified Justice: And what standard should be applied for a violation if liquidated damages are sought under this Act?

Mr. Ayer: Well, we think that in the context of the Fair Labor Standards Act, there is strong authority that liquidated damages are themselves not punitive, as this Court found in Thurston in the Age Discrimination Act, but rather are compensatory.

The Court's reasoning in the Thurston case finding that the liquidated damages were punitive looked to the legislative history, where Congress had substituted in essence for the criminal provision, criminal enforcement provision of the FLSA a liquidated damages penalty and had specifically not applied the liquidated damages provisions of the FLSA.

In the FLSA, the authority of this Court, the Overnight Transport case and other cases have explicitly said that liquidated damages are compensatory, and I think that is not an implausible conclusion when you consider the various things they can be compensating for: number one, delay, interest that accrues on something that is unpaid for a period of years; number two, the emotional strain, the humiliation, as has been said by some courts that results in the context of a denial of pay to which you are legally entitled; and number three, consequential damages of whatever sort that may result when you are paid as your salary less than you are entitled to and perhaps at a rate that makes it difficult to live in the way that you are accustomed to or would like to.

Unidentified Justice: Well, I wonder if there aren't some advantages to having a more uniform test of what is meant by wilfull, whether it appears in this statute or another one.

Mr. Ayer: Well, I think there are indeed some advantages, but I think the approach that needs to be taken is not one that simply says there are some advantages, therefore the language must mean the same thing, but is rather an approach much like the one this Court took in Thurston of looking at the particular statute, looking at the particular context in which the words appear, and deciding whether or not... what the precise meaning should be.

In this situation we think that the proper standard is one that is really a refinement of what the Court said in Thurston, a refinement in the sense that it indeed does pay attention and adopt the notion of disregard, but the question is, disregard of what?

We think really what the Court ought to do in the context of the statute of limitations provision is start with the question of whether the employer was aware of an appreciable possibility that his conduct might not... might be governed by the statute, that is, start with the old Jiffy June appreciable possibility test, but go on beyond that test and ask the question, what does the employer do in light of that knowledge, in light of that uncertainty, and does he act in a way that is reasonable in light of that.

We think what the employer should be required to do is, when he has that uncertainty, seek and get reliable assurances that his conduct is in fact in compliance with the law, and if he doesn't do that and he rather proceeds to act aware that he may be violating someone's rights to minimum wage or to overtime compensation, then he should be made to bear the risk of that--

Unidentified Justice: Well, with that word "reliable advice" in there, how can he ever win if it turns out the Court decides the advice was not reliable, was just wrong?

Mr. Ayer: --Well, reliable in the sense that when he got it it was reasonable to rely on it.

That is what we mean by reliable.

Unidentified Justice: Even though it is wrong.

Mr. Ayer: Well, he can't... no, if he goes to a lawyer and the lawyer gives an opinion which on its face appears to be a reasonably reliable statement of what the law is and gives him basis on which he can fairly conclude that he is--

Unidentified Justice: And yet you say you can't always rely on a lawyer's advice.

Mr. Ayer: --I think you can't always rely on it.

For example, in a situation where the lawyer--

Unidentified Justice: I mean, the client is supposed to second guess the lawyer?

Mr. Ayer: --Well, if the lawyer, for example, assumes hypothetical facts that are incorrect, and he sends you a letter that says, assuming Situation X, then the law, I believe, is as follows.

In that situation, for example--

Unidentified Justice: Well, he hasn't got any advice at all about his case, then.

Mr. Ayer: --Well, that's right.

He has tried.

He has gone to a lawyer.

But he hasn't gotten advice.

Unidentified Justice: He has got a poor opinion.

He might have asked a lawyer about a tort case, and you say he can't rely on that advice in this case.

I go with that.

That is very reasonable.

Mr. Ayer: Okay, well, I think there is a question as to how far... as to how reliable it has to be, but I think considering this you have got to bear in mind what is at stake.

We are not talking here about punishing somebody.

We are only talking about the third year of liability.

Unidentified Justice: No, but you are saving that the word "wilfull" in the statute means unreasonable, right?

Mr. Ayer: I am saying... No.

Unidentified Justice: Sort of a negligence standard.

Right.

Mr. Ayer: No, we are not.

We are saying that the word "wilfull" means wilfully going forward knowing of a significant risk that you are not complying with the statute, and that is a reasonable approach.

Unidentified Justice: You can always phrase the wilfull, wilfully going forward and doing a negligent act.

I mean, you can always end up with kind of a negligence standard even though you start out with the word "wilfull", because some part of your act is always volitional.

You will to do something.

Mr. Ayer: Well, the "wilfull" here I think focuses on proceeding aware of the risk, and the reason--

Unidentified Justice: That is just an ordinary negligence standard, being aware of the risk, isn't it?

A reasonable man knows that there is a risk.

Mr. Ayer: --Well, I think it is a reasonable approach to take here, because you have to look at the consequence.

The consequence is not the assessment of some punitive measure.

It is certainly not the assessment of a criminal sanction.

It is rather the compulsion to pay what you are legally required to pay at the time that you didn't pay it, that is, during the third year.

Unidentified Justice: Yes, but Congress obviously wanted to distinguish in some way between the duty to pay for two years and the duty to add on a third year.

It wanted a heightened level there.

Mr. Ayer: I think it did, and I think it is useful to look at the context in which it put those words into the statute in 1966 and to compare it to the context in which the Congress acted in 1967 in the Age Act, as this Court found in the Age Act, it was a substitution for the criminal provision of the FLSA of a liquidated damages provision which was to be punitive.

In the context of this Act, which was amended in 1966, we were dealing with two competing policies.

The purpose of the FSLA amendments in 1966 was essentially to expand coverage.

They expanded coverage to seven million additional employees and to 700,000 additional employers, and they increased the minimum wage, and did a number of other things.

There were concerns raised at that time about the effect that that would have, these new and suddenly arising obligations, on particularly small businesses, and some restaurant people came in and testified, and what was done following the expression of those concerns, those concerns of unanticipated new liabilities on small entities relatively poorly suited to deal with those new and unanticipated liabilities, was to put this provision into the statute, modify it from a two-year statute of to a two-year provision with a three-year provision for wilfull violations, and that is why, that precise legislative history is why I, think our view makes sense.

When an employer goes forward aware of a substantial or a significant risk, that what he is doing is in violation of the law, you can't say that that risk is unanticipated.

It is fair to treat his conduct as wilfull in the sense that he is going forward wilfully aware of the risk that is being incurred.

Unidentified Justice: Mr. Ayer, it is not at all unusual that Congress, although it has a particular problem in mind, adopts language that entirely solves that problem but also solves some other problems as well or extends to some situations other than that problem.

What you are urging upon us is a very strange interpretation of the word "wilfull" based upon the principle that we should scrutinize legislative history and be sure that the only thing the statute covers is what you find in the legislative history as the primary, and as far as we know the exclusive concern of the Congress.

That is a very strange principle of statutory construction.

Mr. Ayer: Well, we don't think that this is at all a strange concept of the word "wilfull" in the context of this Court's interpretation of the word "wilfull".

Unidentified Justice: It took you a long time to come up with it.

Below you were just going with Jiffy June in its original version, weren't you?

Mr. Ayer: The government's position has been up until the filing of this petition that the Jiffy June so-called appreciable possibility test is the law.

Unidentified Justice: Has anybody ever thought of this meaning of wilfull before?

Mr. Ayer: Well, yes, I think so.

I think--

Unidentified Justice: Where does it exist, and what is--

Mr. Ayer: --Well, I think the D.C. Circuit decision in the Laffey case in 1976 enunciated something very close to it, talking about where an employer cognizant of an appreciable possibility that he may be subject to the statutory requirements fails to take steps reasonably calculated to resolve the doubt.

Unidentified Justice: --Isn't your position here essentially that of the D.C. Circuit?

Mr. Ayer: It is very close.

We think it is essentially identical to the D.C. Circuit.

And I would like to go back to the question of--

Unidentified Justice: Well, of course, the Jiffy June standard is even an odder interpretation of the word "wilfull".

Mr. Ayer: --Well, we agree with that.

Our position is that the Jiffy June standard has significant problems, and I cannot account for or justify the course of development under which the Fifth Circuit initiated it and other courts followed it.

Unidentified Justice: And the Secretary.

Mr. Ayer: Well, it has two problems.

Unidentified Justice: Suppose the Secretary was responsible for urging it on the Fifth Circuit.

Mr. Ayer: That's correct, Your Honor.

The problems that we have with it, just so we are clear as to why we are departing with it, are, Number One, it tends to collapse the two parts of the statute, the two parts of the statute of limitations, and Number Two, maybe even more seriously, it creates a disincentive for employers to go out and get good advice because the figure, well, I am going to be wilfully liable no matter what I do, so why don't I just go ahead and not worry about it?

What we want to put in place, what we want to adopt is the Laffey standard, which puts an incentive on the employer to get good advice.

It tries to make the statute work.

It tries to get the employer to get good advice, to comply with the statute, and when he takes those reasonable steps and he gets reliable assurances, he is not liable for that--

Unidentified Justice: Well, he is.

He is liable... he takes the risk that his lawyer is wrong for two years.

Mr. Ayer: --That is true in any event.

Unidentified Justice: Well, all right.

Mr. Ayer: That is true in any event.

Unidentified Justice: He is not off the hook just because he gets advice.

He is just off the hook if he gets good advice for the third year, for the third year of liability.

Mr. Ayer: That's right, but that is an incentive to... that is some incentive, depending on how much money is at stake, to get him to comply with the law, and that is good.

Unidentified Justice: And so long as he is not neligent in accepting the advice, in which case if he is negligent he is wilfull.

Mr. Ayer: Well, I would... we think that the concept of negligence is really a concept that is inappropriately applied here.

We think that it is possible that an employer acts non-negligently in getting advice that says, on balance we think your conduct is probably legal, but there are these risks and this possibility that you may not be acting legally.

It is conceivable, at least, that that is not negligent conduct on the part of the employer to go ahead in the face of that advice.

We would say that nonetheless under this wilfull violation standard the employer should be treated as wilfully violating because he went forward knowing that there was a significant risk that he was going to be violating the law, and we are not talking... again, I want to emphasize we are not talking about throwing the man in jail.

We are not talking about assessing a punitive sanction.

We are talking about whether the Secretary or individual employees can go into court to collect what they were legally entitled to at the time it wasn't paid.

Unidentified Justice: Isn't that essentially a question for Congress?

I mean, this would have been a very good argument to make to Congress when it was drafting this section, saying we are not talking about... don't put the word "wilfull" in.

But to say, now that Congress has put the word "wilfull" in, that this really isn't all that bad so we should disregard the word "wilfull"--

Mr. Ayer: We are not at all advocating disregarding the word "wilfull", nor are we advocating disregarding much of what is in the Thurston test.

We are talking about a test that says when an employer goes forward with conduct in disregard of his knowledge that it may violate the law, then he is liable for the--

Unidentified Justice: --You are not going to punish him?

Mr. Ayer: --No, we are not going to punish him.

We are going to make him pay what he was legally obligated to pay before.

All we are going to do--

Unidentified Justice: Plus maybe double damages or whatever it is.

Mr. Ayer: --Plus maybe double damages, but double damages in the context of this Act are not punitive, they are compensatory, and this Court's number of cases, the Overnight Transport case, other cases have said specifically that, that they are not punitive.

Unidentified Justice: Mr. Ayer, under your test of a significant risk of a violation when you take action, I suppose everybody who files an income tax return is at significant risk that he has made an error.

Mr. Ayer: I think that is right, and so to follow--

Unidentified Justice: And so is every error a wilfull failure to pay?

Mr. Ayer: --Well, but there you are mixing two different statutory schemes.

In the context of the tax situation it is obviously true that when a taxpayer doesn't pay the tax, and he has some thought that he may be making a mistake or he may be doing something wrong, he has to pay the tax.

All we are saying is--

Unidentified Justice: Yes, but if he does... if he files an incorrect return wilfully, he has a more serious consequence.

Mr. Ayer: --This Court has addressed that in a number of cases as to what wilfull means in the context of the tax laws, criminal sections, the ones I am thinking of, and that is a different context than the notion that the word "wilfull" has to mean the same thing throughout federal law is one that is contradicted in almost every single case this Court has written dealing with that word.

Unidentified Justice: Isn't it true that even under the wage and hour laws there are some rather complicated regulatory provisions where a person can take a significant risk even, you know, unless he gets a pretty skilled lawyer on the proposition?

There have been all sorts of significant risks of violation in the federal--

Mr. Ayer: Well, that's true.

Under the wage and hour laws there is a specific provision of Section 259 where you can go to the Labor Department and you can get advice, and if you get a definitive ruling, you not only are not wilfull but you are not liable for the unpaid overtime or minimum wage at all.

Unidentified Justice: --This man paid a weekly wage based on 48 hours of work, didn't he, and then he paid time and a half, he averaged that out and paid time and a half on the--

Mr. Ayer: He was supposed to.

In fact, Footnote A of our brief indicates clearly that he did not pay anything close to time and a half for the overtime over 48 hours.

Unidentified Justice: --But if the average wages for the 48 hours had been the proper regular wage, then it was time and a half over that, wasn't it?

Mr. Ayer: That he should have paid.

He in fact did not pay.

If you read that Footnote A it talks about several... they were only talking about seven mechanics here.

Unidentified Justice: Right.

Mr. Ayer: And as to a number of them we discuss there the fact that the employer was paying an hourly rate as you calculate it that was not only not time and a half, it was not even the minimum wage of $3.35.

So that there is no question, I think, but that with regard to the overtime that everyone agrees had to be paid, quite apart from this Belo plan, if we approve the Belo plan, they still had to pay overtime above the 48-hour regular week, and as to several of these employees, they were not paying anything that resembled not only overtime, it didn't even resemble their base regular wage.

It was way below it.

So that in that sense I think the answer to Justice O'Connor's question is that this is indeed something that would meet, should meet on a full assessment of the facts by the District Court the conclusion that they were in disregard of the law.

Unidentified Justice: If we agree with you on this standard that you propose, what do we do, send it all the way back to the District Court?

Mr. Ayer: I think you remand to the District Court.

The Court of Appeals, of course, had remanded to the District Court for application of its standard, of the Thurston standard, and the reason that we brought this case to you now is that we have this sharp split in the circuits.

We have four circuits that have adopted the Thurston test under 255(a) under the statute of limitations.

We have five since Thurston that have applied the Jiffy June test, and so you have the sharpest of splits in the circuits, plus you have three other circuits that apply different standards.

Unidentified Justice: And all those cases are wrong?

Mr. Ayer: Well, we think that the first nine, that the four that have applied Thurston and the five that have applied Jiffy June are poles, and we are in the middle.

Unidentified Justice: But nevertheless all wrong?

Mr. Ayer: They are incorrect.

We think they are not the most appropriate reading of this statute.

Unidentified Justice: Are there a lot of cases out there that will have to be done over, that are not final?

Mr. Ayer: There are, I think, a fairly large number of enforcement actions at various stages along the way, and I think a change in the law would allow them to be corrected at various stages.

We are only talking about an assessment... we are not talking about the basic assessment of liability.

We are talking about a judgment as to whether the violation itself is wilfull or not as to the third year.

Now, one thing I would like to say in answer to that is that the reason we are here is also because this really matters.

There are, for a variety of reasons, an enormous number of cases brought under this statute.

It takes a significant time in order to, Number One, get a report of a possible violation, Number Two, to investigate the violation, Number Three, if you find a violation that you want to enforce to try to settle the violation.

If you can't settle the violation, you then refer it to the U.S. Attorney's office or to a lawyer to prosecute.

All of that takes time, so that these cases are being brought at a time when not infrequently in fact quite commonly there is liability that is more than two years old, and so we are talking about impairing the enforcement scheme of this Act.

Unidentified Justice: How long had the Secretary been applying the Jiffy standard?

Mr. Ayer: Well, it was, I think, in 1973 is when Jiffy June was decided.

Unidentified Justice: That was the case.

Mr. Ayer: That was the case.

Unidentified Justice: Yes, but he must have been--

Mr. Ayer: I don't know the answer to that.

Unidentified Justice: --Of course, it was a construction by the agency charged with enforcing this statute.

It was a construction of the statute.

Mr. Ayer: I don't know precisely what the Secretary was urging between 1966, when this was enacted, and 1973, when Jiffy June was decided.

I do know, I think, that when Jiffy June was decided, and up until Thurston, it was the uniform position of all the Courts of Appeals that decided it that the appreciable possibility test was the law, and what we are asking the Court to do is to apply a rule that is more liberal for employers than that test, which was the uniform interpretation for a period of, what, 12 years.

Unidentified Justice: So I suppose you have to say, though, there just isn't any... if you are going to differ with the Sectetary's or reject the Secretary's original position, you are really having to say there is just no room for the Jiffy June standard under the words of this Act.

Mr. Ayer: Well, that's correct.

I would say it a different way.

I would say that both it and the reckless disregard Thurston test need refinement to be appropriate in this context.

We are borrowing the Jiffy June test as the first step of our test.

We think you first ask, does the employer have an appreciable knowledge of an appreciable possibility?

Unidentified Justice: Mr. Ayer, I understand that wilfull leaves some problems, and that the cases you cite on Page 16 of your brief, but those problems always relate to what has to be willed.

Is it just the act that has to be conscious and wilfull, or need the defendant in the case have to will the violation of the law?

That is an understandable ambiguity.

I don't see how your interpretation of the word has anything to do with that kind of an ambiguity.

How is yours based on what it is that must be willed?

I mean, the fact that a word is ambiguous in some respects doesn't mean that it is just an empty bottle and you can give it any meaning you want.

Mr. Ayer: Well, we certainly don't mean to suggest that.

Unidentified Justice: What is it that must be willed--

Mr. Ayer: What must be willed--

Unidentified Justice: --and therefore must be wilfull, in a sense?

Mr. Ayer: --What must be willed is conduct in the face of a known risk.

That is what must be willed.

And we think that that is a reasonable reading of the statute, given its history, because the concern at the time it was enacted was for unanticipated economic burdens on small business.

They are not unanticipated.

They are known.

The risks are known at the time the action is taken.

And that is why--

Unidentified Justice: I don't see how you get there.

The conduct must be willed or the violation of the law must be willed, and then you are just adding from nowhere an additional requirement, in face of a known risk.

I don't see how you get that out of the word "wilfull".

That is all I am saying.

Mr. Ayer: --Well, we get it out of the word "wilfull", and the only thing I would like to add before I sit down and try to reserve the rest of my time is, our reading of the word "wilfull" is well within the mainstream of words... of readings of that word as this Court has used it.

Indeed, in the Illinois Central case, which this Court cited approvingly in Thurston, you are dealing there with a concept of disregard.

There it was an instance of failing to unload a cattle car within 36 hours because some employee forgot to unload the car, and that conduct was found wilfull, and this Court said in Thurston, that's a reasonable reading of the word "wilfull".

Unidentified Justice: Mr. Ayer, I take it no Court of Appeals has applied the Laffey standard since the Thurston case came down.

Mr. Ayer: Well, it is hard to say, I think, precisely whether that is right or not.

We think that the Nolting case in the Eighth Circuit, which we have cited, and the Donovan case in the Sixth Circuit, they are not identical to the Laffey case, but they are certainly somewhere between Thurston and Jiffy June, appreciable possibility, and we think they give some support to the position that we are advocating.

If the Court has no further questions, I would like to reserve the remainder of my time.

Chief Justice William H. Rehnquist: Thank you, Mr. Ayer.

We will hear now from you, Mr. Ehrlich.

ORAL ARGUMENT OF LEON EHRLICH, ESQ. ON BEHALF OF THE RESPONDENT

Mr. Ehrlich: Mr. Chief Justice, and may it please the Court, I believe that the petitioner has stated something that is not entirely correct when he stated that the Jiffy June case was uniform.

I refer the Court respectfully to the footnote, Footnote 9 at Page 16 of the amicus brief, in which that same issue was addressed, and amicus states in its brief at Page 38 the government erroneously called the Jiffy June standard a majority rule.

In fact, only the First, Fourth, and Tenth Circuits have adopted the rule.

Four other circuits, however, have clearly rejected the Jiffy June standard.

I believe that the crux--

Unidentified Justice: Those cases that rejected it were after Thurston?

Mr. Ehrlich: --After Jiffy June?

Or after the Thurston?

Unidentified Justice: When were the Court of Appeals opinions that rejected the Jiffy standard?

Mr. Ehrlich: The Peters Shreveport case, 1987.

The Brock case, of course.

Walton versus Consumers Union, 1986.

Unidentified Justice: Okay.

Okay.

Mr. Ehrlich: I believe that the petitioner's case rests upon the allegation that the conduct would be wilfull if done in the face of a known risk.

I think that is a fairly close summary of what was stated.

However, one thread through the petitioner's brief and reply brief is the reference, and reference was made here, to the employer's uncertainties.

At Page 30 of the brief, they state

"Employers should bear the burden of a third year of liability when they engage in pay practices without resolving legal uncertainties."

And in the reply brief at Page 7,

"Only where an employer faces uncertainty about compliance with the FLSA need reasonable inquiry or other steps be taken to avoid a wilfullness finding."

If any part of this case can be stated with absolute certainty, it is that the respondent never experienced uncertainty about its pay practices.

The respondent believed that it was dealing fairly, generously, and in compliance with the law in its salary arrangement with the mechanics, so if for no other reason we respectfully submit to this Court that no wilfullness on the part of the respondent can be found, and the respondent should be relieved of any further obligation.

I think it would be a travesty were this case to be sent back to the District Court in the light of the testimony that has been adduced.

It was the respondent that submitted to the petitioner all the information that was requested.

The petitioner limited its inquiry based on the Jiffy June doctrine.

Once they found out from the general manager that he was aware of the existence of the Act, they said, fine, we have got you, and now have us go back, I think it would be a travesty considering the total amount of money involved.

Unidentified Justice: Mr. Ehrlich--

Mr. Ehrlich: Approximately $4,000.

Unidentified Justice: --Mr. Ehrlich, I thought the Court of Appeals decision below has remanded it to the District Court to apply its standard.

Is that not correct?

Mr. Ehrlich: That is a correct statement, Your Honor.

Unidentified Justice: And you think that shouldn't be done?

Mr. Ehrlich: I think that that should not be done.

Unidentified Justice: So you are not here supporting the judgment of the court below?

Mr. Ehrlich: I am here supporting the judgment of the court below insofar as it rejects the contention of liability.

I am contending--

Unidentified Justice: Well, did you cross--

Mr. Ehrlich: --that it should not go back.

Unidentified Justice: --Did you cross petition to this Court?

Mr. Ehrlich: May it please the Court, considering the amount of money involved in this case, we felt that it just didn't justify additional costs, and we felt that if we came--

Unidentified Justice: Well, if you didn't cross petition I don't know how you can argue what you are arguing, if I may say so.

You either have to argue in support of the judgment below or--

Mr. Ehrlich: --I believe that I can rightly argue it for the same reason that the petitioner is arguing a theory not advanced in either the District Court nor in the Circuit Court of Appeals.

I believe that this case should not have been granted certiorari because the issue here is one that is really seeking an advisory opinion.

The petitioner is interested in resolving what it concedes to be a conflict, and so they drag us into this Court, but the case that was presented in both courts below had nothing to do with the issue being argued here.

And we feel that if we are here, we might as well let the Court know our entire feelings.

Petitioner asserts at Page 44 of its brief that it is hard to imagine how the plan could have been the product of good faith reliance on sound assurances of the plan's legality.

We suggest that it is not hard and that no imagination is required to establish good faith on the part of the respondent.

The records of the respondent show that the total compensation received by these mechanics, the initial compensation was almost double the minimum wage, and though not required to do so, the respondent paid these mechanics for vacation, though not required to pay it.

They paid for holidays.

They paid insurance.

And they paid a bonus.

When all those figures are added up, they are greatly in excess of what a technical Belo contract would have required.

As a matter of fact, in the appendix, there is a reference in the deposition that one mechanic while receiving disability pay for which the employer had paid was also paid his full salary for 14 weeks.

Now, if that is the kind of conduct that shows wilfullness, then there is a total distortion of that term.

Unidentified Justice: --Would you say that if a corporation paid three mechanics excess of what they were expected to pay and paid all the rest of them less, then that wouldn't be wilfull?

Mr. Ehrlich: It would be wilfull--

Unidentified Justice: Well, what good is it to show that one or two got the just amount?

Mr. Ehrlich: --Beg pardon?

Unidentified Justice: What good does it do in this case to show that one or two were paid what they were entitled to receive?

Mr. Ehrlich: May it please Your Honor, we are dealing with all the mechanics.

All the people that are involved in this case, seven, are all mechanics.

We are not dealing with anyone else.

They were all treated the same way.

Unidentified Justice: Were they all given this extra money you were just talking about?

Mr. Ehrlich: Oh, all of them were.

All of them were given bonuses, holiday pay, vacation pay.

Unidentified Justice: All of them?

Mr. Ehrlich: All of them.

And as to intention, the depositions make it clear that the respondent was using the Department of Labor coefficient table, albeit incorrectly, it turns out, but they were using that coefficient table showing that they were intending to comply with the law.

Unidentified Justice: Mr. Ehrlich, we don't ordinarily decide evidentiary questions here.

The Third Circuit, which ruled in your favor on the standard, sent the case back to the District Court for further hearings, and as Justice O'Connor pointed out, you didn't cross petition for certiorari.

So the best result you are going to get here is an affirmance of the Court of Appeals, which means the case goes back.

All we are interested here is the proper standard which the District Court should apply when the case does go back.

Mr. Ehrlich: Can I not argue, then, that this case still resolves a request for an advisory opinion and then as a matter of law determined that under these facts there is nothing to go back?

Unidentified Justice: Well, I can only speak for myself.

I think there is very little to be said for that argument.

Mr. Ehrlich: Okay.

We propose, however, that the Third Circuit Court of Appeals decision is an appropriate one as to the application of the law.

But I think if it goes back and is remanded it should go back and we respectfully submit and suggest that it go back with instructions as to what should be looked for.

First, we think that the term "wilfull" should be taken in its ordinary sense, as the Circuit Court held, meaning a deliberate, intentional act.

With some variations, the petitioner has advanced a test for determining wilfullness set out in its brief at Page 13 as follows:

"We think an employer's unlawful pay practices should be found wilfull for purposes of the FLSA's limitation provision when the employer is aware of the potential application of the FLSA but pursued the pay practices without reliable assurances of their legality, and then in the same vein in the reply brief that a wilfull violation would exist where an employer is aware of the FLSA applicability and fails to take steps to determine the statute's demands, or having taken such steps do not secure a reasonable basis for eliminating uncertainties about their compliance."

As I believe was evident from some of the questions the petitioner offers amnesty only to those who sought reliable or reasonable advice on their legal obligation, and there is no definition of what the petitioner conceives to be reliable or reasonable.

It could very likely be only that which or who agree with petitioner's views.

Would the petitioner, for example, find that this respondent, relying on my advice, would not have acted properly because my advice might not have been considered reliable since I had disagreed with the Jiffy June decision?

Isn't that what an employee would be faced with?

Or, is the reliability of advice to be determined by a Martindale Hubbell listing?

It just boggles the mind that this is what the government conceives to be an appropriate substitute for the Jiffy June standard.

And what comfort or security can the respondent and others derive as to what would be the definition considering again that the Jiffy June argument was espoused in both the District Court and the Circuit Court of Appeals?

Meeting those tests, the three criteria, we admit the respondent knew that the Act applied.

As to the second, we submit, as I stated before, that they used the coefficient table, albeit improperly, and we further say that the final criteria called for by petitioner of reliability and reasonableness is unrealistic and onerous.

It would mean that every employer before doing anything would have to seek a legal opinion on any action he took.

We have got to remember that my client is a small business.

They don't have house counsel.

They can't afford to have everything run through attorneys.

But more unsettling is the fact that after that legal opinion would have been secured there is no assurance that the government would still say, you done a reasonable thing, what you are doing is not wilfull.

They would sit in judgment on the advice given the client.

That is an horrendous suggestion.

If we are talking about reasonableness and since the petitioner now espouses that theory, let us look at what the conduct of the petitioner has been.

How reasonable has its conduct been?

First, and it was mentioned in the argument, wilfullness requirement of the FLSA statute of limitations provision the petitioner states is designed to protect certain employers from unanticipated liability rather than to punish.

Nothing in the record indicates that my client anticipated this liability, and nothing in the record shows any recklessness.

So if we use that test, my client is home free.

They never anticipated this liability.

Is it reasonable to believe that my client established some contingent fund to take care of this?

If they did that would be an act evidencing wilfullness.

I believe mention was made of uniformity of construction.

And the Second Circuit Court in the case of Rousseau versus Trafari pointed out,

"We believe that wilfull should have but a single meaning within the ADA, and that therefore the Thurston definition applies."

"Construing identical language in a single statute in pari materia is both traditional and logical."

"Moreover, a single meaning avoids potential jury confusion resulting from different instructions."

And concerning the same word, the petitioner argued in support of that theory in the Thurston case, and yet in the brief here it would appear that the petitioner denies any need for uniformity.

I on that subject point out to one other fact, that in its petition for certiorari there was an admission that the federal government itself has taken different positions on the proper interpretation of wilfull violation as used in the FLSA statute of limitations.

That certainly doesn't give anyone assurance.

The reference to that is in its petition at Page 11.

The allegation then is made that the history of the Act suggests that the standard of wilfullness was to allow employees and the Department of Labor needed additional time to challenge unlawful pay practices, and the Circuit Court discussing the issue of punitiveness rejects the petitioner's position and states that more time is needed, that more time is needed by saying it is neither more difficult to detect nor more severe than it would be were the violations not wilfull.

And today again the petitioner acknowledges, as it did in its brief, that the In re Picture standard threatens to collapse the two-tiered scheme envisaged by Congress into a one-tiered scheme.

When did they first became aware of that obvious fact, and why did they subject us to this litigation?

I think the most bizarre of the petitioner's case rests in its proposal in its brief at Page 45, when the petitioner states,

"Respondent should be afforded an opportunity to present new evidence, including evidence of any efforts it undertook to secure reliable assurances that its pay practices complied with the FLSA."

"If respondent acknowledges in this Court that there is no such evidence, this Court should order affirmance of the District Court judgment."

"Otherwise, the case should be returned to the District Court for further proceedings on the third year of back pay liability."

Is that considered a reasonable approach?

If this were an appropriate choice, and we dispute it, why wasn't it advanced previously?

Why wasn't that alternative given to the respondent?

We submit that the alternatives offered the respondent are not properly stated.

If I may paraphrase, I would say it would be more reasonable for me since the petitioner does have the burden of proving wilfullness to state to the petitioner, if petitioner acknowledges in this Court that it has no further evidence of wilfullness than it has to date, despite what was said in answer to a question, this Court should order affirmance of the Circuit Court judgment and further hold that as a matter of law based on the evidence already in the picture respondent has no liability for the third year.

And then what was said here, the observation that the petitioner's standard be viewed at most as a variation on Thurston's standard, and that Thurston need not be read as substantially different from the petitioner's prose standard, I would suggest smacks more of salesmanship than accurate observation.

The standard now proposed, asserts the petitioner, was always a possible resolution as this case progressed.

If that were really the case, I would submit respectfully that it was the most carefully hidden secret in Washington.

And then, in the reply brief, the petitioner attempts to allay the fear of the respondent that there is no significant danger that wilfullness disputes will center on whether an attorney's advice if relied upon is reasonable.

The requirement, continues the petitioner, means only that a court must examine the advice as one factor in determining the issue.

Won't the petitioner examine that advice initially, at the outset, before it becomes a court case?

And what does one factor mean, 25 percent, 50 percent, 75 percent?

We have no assurance on what a person in the position of the respondent can expect?

We submit that this Court in Thurston has already determined the meaning of wilfull, that it is a knowing or a reckless disregard, and contrariwise the petitioner can point to no decision of this Court to support the definition now urged, nor can it point to any evidence in the record that would show a reckless disregard.

The petitioner seeks to distinguish the standard in this case and Thurston on the ground that Thurston dealt with liquidated damages rather than the statute of limitations.

We submit that the reasoning in Thurston is equally applicable here.

The end result of what is urged if a third year of liability is found to exist is added money paid out for a violation of a statute.

That is punitive.

The fact that it is called something else doesn't mean any less as far as the employer, the respondent is concerned.

It means paying out money for having done something conceived subsequently to be wrong.

We submit that on the record as it stands now, there is absolutely nothing to suggest that the respondent did anything improper, anything wilfull, anything other than a reasonable and responsible business would do.

We ask that this Court reject the contention of the petitioner.

Thank you.

Chief Justice William H. Rehnquist: Thank you, Mr. Ehrlich.

Mr. Ayer, you have two minutes remaining.

ORAL ARGUMENT OF DONALD B. AYER, ESQ. ON BEHALF OF THE PETITIONER -- REBUTTAL

Mr. Ayer: Thank you, Your Honor.

I would just like to make one point about the extent to which the statute of limitations provision in fact governs the recoverability of liquidated damages in answer to Justice O'Connor's earlier question.

I have already said that it is our view and I think it is the Court's historical view that liquidated damages under the FLSA are compensatory, not punitive.

The other point I want to make is that only in a very partial and somewhat peculiar sense does the statute of limitations control the recoverability of liquidated damages, and I say that because of the Section 260 provision that essentially governs whether or not an employer is going to be able to avoid the payment of liquidated damages.

That provision says that the employer can come in and show a reasonable basis for... a good faith reasonable basis for believing his action was legal, and then within the Court's discretion the court may decide to award no liquidated damages if it doesn't want to, so that it is only in the sense of avoiding considering that Section 260 that the statute of limitations controls the availability of liquidated damages.

If there are no further questions, I have nothing further.

Chief Justice William H. Rehnquist: Thank you, Mr. Ayer.

The case is submitted.

Attribution:

The OYEZ Project

Featured:

Citicorp Industrial Credit, Inc. v. Brock - Oral Argument

Fri, 09 Jan 2009 14:48:30 +0000

Case:

Citicorp Industrial Credit, Inc. v. Brock

Media File:

86-88_19870420-argument.mp3

Related Transcript:

1986_86_88_argument.xml

Transcript:

Argument of Rex E. Lee

Chief Justice Rehnquist: We'll hear argument first this morning in No. 86-88, Citicorp Industrial Credit versus William E. Brock.

Mr. Lee, you may proceed whenever you're ready.

Mr. Lee: Mr. Chief Justice and may it please the Court:

This case involves the competing claims of creditors to proceeds of an insolvent debtor's collateral.

The question presented is whether Congress when it enacted the Fair Labor Standards Act of 1938 intended not only to prevent employers from paying unconscionably low wages, but also to repeal otherwise applicable state and federal laws governing the lien priorities of wage earners vis a vis other creditors where the employer becomes insolvent and therefore fails to meet his payroll just before he goes out of business.

The legal issue in the case arises out of the following facts.

The Petitioner, Citicorp Industrial Credit, financed the manufacturing operations of a now defunct entity known as the Ely Group under an ordinary secured financing arrangement that gave Petitioner a security interest, which Petitioner properly perfected, in Ely's accounts receivable and inventory.

Approximately one-year later, Ely went out of business, defaulted on its obligations to Petitioner, and also failed to meet its payrolls in the last weeks of its operation.

Two district courts found... and this is a quote from both of those opinions... that:

"Both the employees and the secured creditor are innocent parties, the culprit being the manufacturer. "

Factually, therefore, the case fits the classic insolvency mold: no creditor is at fault, the debtor's assets are insufficient to satisfy all creditors, some will be paid and some will not.

So that the crucial practical question becomes, how do you determine which claims will be paid, which will be paid ahead of the others, and what law governs that priority.

The Secretary and the lower courts contend that that question is answered by our minimum wage and hour law, and that the FLSA resolves this issue in favor of the unsecured wage claimants because the FLSA's so-called hot goods provision, Section 15(a)(1), permits any person from shipping goods produced in violation of the Act.

That view, if adopted by this Court, is going to work some very large changes in state and federal statutes that specifically deal with the priorities of creditors' claims in cases of insolvency, notwithstanding the fact that even the Government agrees that there is no evidence Congress intended that result.

Everyone agrees that Congress has never considered whether the hot goods provision should apply to secured creditors.

Unknown Speaker: Mr. Lee, has this question just never come up before in the context of a secured creditor?

Mr. Lee: The Fair Labor Standards Act was... it has come up at least twice... well, several times.

The Fair Labor Standards Act was enacted in 1938.

So far as I can tell... and the best authority on this is the Second Circuit's decision in Powell Knitting, which was the first case to reach it in 1966... for the first quarter of a century the Secretary did not take the position that he takes today.

And indeed, if you look at that part of our brief that deals with a statement on how to insure against hot goods that the Secretary published early in the game, that was not his position.

The first effort to take this position, to apply it against secured creditors, apparently occurred about a quarter of a century after it was enacted, in the mid-1960's.

And on that occasion the Second Circuit rejected it.

Unknown Speaker: The plain language of the statute does support the Respondent's view, and Congress twice, I guess, has amended the statute to take care of situations that apparently it hadn't thought about before.

But it does not appear to have taken care of this situation.

Mr. Lee: Congress has amended the Act substantively, has amended the hot goods provision, once.

That amendment, in 1949, was to correct an erroneous interpretation by the Administrator as to its reach.

And I prefer not to go into all the detail of that legislative history here, but as set forth in our brief it is just quite clear that what Congress was doing simply correcting one erroneous interpretation by the Secretary.

Now, insofar as the language is concerned, the strongest argument that the Government has is the "any person" argument.

This is not the first time, however, that this Court has been called upon to consider a Congressional statute whose literal language reached any person or any case, and the Court has held that, though the language fit, it was not the kind of case that Congress wanted to cover with its statute.

Unknown Speaker: Is that a general rule or do we know when we ignore the language and consult the spirit?

Do we intuit that or what?

Mr. Lee: I think there is a real difference, Justice Scalia, between the kind of circumstance where Congress simply came up against the issue and there were competing views on both sides, neither side had the votes, and as a consequence they simply dodged it, and both sides made a lot of legislative history and then left it for this Court to fill in the details... I think that's one circumstance.

It is quite another circumstance where Congress, in order to achieve one objective, used some language that was maybe a little bit broader than it should have achieved... or than it might have used, and then later on there is a circumstance that everyone agrees Congress has simply never focused on.

And it is particularly different where the effect of that interpretation is going to be to displace some state and federal laws that have specifically focused on the issue.

The leading case on this issue... and frankly, the more I look at it, the more I conclude it is this case... is this Holy Trinity case.

That involved also a federal statute, and it was a federal statute which prohibited the importation of any person, any person, for the purpose of performing labor within the United States.

And then it provided exceptions, and there were exceptions for actors, lecturers, teachers, but not exceptions for ministers of the gospel.

And the Holy Trinity Church brought in a Reverend Walpole for the purpose of preaching to their congregation, and the Secretary... or, excuse me... the United States of America brought suit, contending that the statute was violated.

And they won in the lower court.

The argument they made when they came to this Court, argument by Mr. William A. Maury, Assistant Attorney General of the United States, was that: Where the meaning of a statute is plain it is the duty of the Court to enforce it according to its obvious terms; in such case, there is no necessity for construction.

The case really comes down to this, we submit--

Unknown Speaker: Does it seem to you like a bad statement of the law, what you just read?

Mr. Lee: --What I just read, of course, whether it is good or bad, was the statement that was rejected by this Court in Holy Trinity.

And they held, in that very famous language, that it may be within the technical language, yet if it is outside what Congress was obviously thinking about the narrow language may not govern.

The reason that it is particularly compelling, we submit, that you not apply the literal language in this instance is as follows.

It is agreed on all sides that Congress has never squarely dealt with the question whether in insolvency wage claims ought to come ahead of secured creditors.

It did not specifically intend, therefore, a change, to effect a change in the state and federal laws that specifically deal with that issue.

Yet, a specific, focused Congressional intent is exactly what this court's cases make very clear is required before state and federal law otherwise applicable can be displaced.

Unknown Speaker: Well, Mr. Lee, let me ask you one other question.

Under Section 215 to remove the taint, if the Sixth Circuit view is correct, would the secured creditor have to pay just the minimum wage or the full agreed wage, do you suppose?

Mr. Lee: I'm not sure, I'm not sure.

Unknown Speaker: Well, if it were only the minimum wage to remove the taint, certainly you could say that the statute... that your view continued to operate as to the difference between the minimum wage and the agreed wage.

Would that not be important--

Mr. Lee: Yes, and I would think it probably would only be the minimum wage.

But the fact is that either way the entity that is in first place--

Unknown Speaker: --If that were true, then certainly the statute wouldn't completely have altered the priority of claims.

There would still be something left to which traditional bankruptcy and priority would apply.

Mr. Lee: --There would be some money left, but insofar as the theory is concerned it would have changed around, it would have altered the priorities that are otherwise provided for, because the basic policy question is whose lien should be first, which claim should be first, in those instances where there is not enough money to go around.

Unknown Speaker: Mr. Lee, is it common ground that, if the employer had not gone into insolvency and had simply failed to pay a certain amount of wages, he still has plenty of money and he's still in business, would it have been a violation of the Labor Standards Act to ship the goods that was made by the labor for which he has not yet paid the wages?

Mr. Lee: Yes, yes.

Unknown Speaker: It would?

Mr. Lee: Yes.

Unknown Speaker: I mean, it's clear that it's not just a violation of you contract for a lower wage, it's also a violation if you contract for a proper wage, but fail to pay it?

Mr. Lee: I don't know that that is that clear, and that is another issue that... as far as I know, that is an issue that has simply never been decided.

Unknown Speaker: Are there any cases?

Mr. Lee: Not to my knowledge, not to my knowledge.

Unknown Speaker: If that weren't a violation, then this whole problem--

Mr. Lee: That is correct, that is correct.

And indeed, one of our positions is... you don't have to go quite that far... that the Fair Labor Standards Act was simply never intended to apply to instances where the employer was paying the minimum wage, there is no question that he was paying the $3.35 an hour, but he simply went out of business and went broke, and that the Fair Labor Standards Act was never intended--

Unknown Speaker: --Well, you say he was paying the minimum wage but went broke.

I take it you would add that a few weeks before he went broke he didn't pay the minimum wage because he was unable to?

Mr. Lee: --That is correct.

Unknown Speaker: So you would put up a means test a defense for any employer sued under the Fair Labor Standards Act?

Mr. Lee: Well, it is simply another approach, another view that we think supports our position, that the Fair Labor Standards Act was not intended to apply to the insolvency circumstance, for a couple of reasons.

Unknown Speaker: This doesn't take away the property of the secured creditor.

It just says he can't ship it in interstate commerce.

Mr. Lee: That is correct.

Unknown Speaker: Granted, that makes it largely valueless.

But it's not like a lien statute that says the property passes from A to B.

Mr. Lee: That is correct, and that's basically the Government's argument.

We think it's insufficient, for a couple of reasons, because frankly my client just doesn't take much comfort from the Government's assurance that the Sixth Circuit's Interpretation here does not create a lien, because the reality is that under the Sixth Circuit's rule Citicorp's first priority lien that it enjoys because of article 9 of the Uniform Commercial Code, which would otherwise govern but for the Sixth Circuit's ruling, does it no good unless it first pays off another batch of unsecured junior creditors.

So that the effect, though not the label that goes on it and not the concept... and that's part of our argument, that since this was not the intent of the Fair Labor Standards Act it shouldn't apply to this circumstance.

But the effect is not only to create a wage earner's lien, but also to move that new lien ahead of secured creditors.

Now, there is also a batch of federal statutes that will necessarily be affected by the Secretary's interpretation of the Fair Labor Standards Act.

They include: the Bankruptcy Act, which, like the UCC, gives secured creditors priority over unpaid wage earners; the Federal Tax Lien Act, under which either the Secretary of the Treasury or his delegate, usually the IRS district director, both of whom are clearly persons, have the responsibility of levying and enforcing federal tax liens; and two other federal statutes that give the unpaid sellers of livestock and perishable agricultural commodities a priority over other creditors, including employees whose wages have not been paid.

The Government observes, and correctly so, that this case does not involve bankruptcy and does not involve any of those other statutes.

But the point is that the literal interpretation of "any person" which the Government seeks will necessarily change a lot of lien statutes that would otherwise be applicable in this circumstance.

Unknown Speaker: Mr. Lee, you said earlier that the Secretary has taken his current position only since the sixties; and for the first 25 years what was the situation?

He had taken the opposite position or had taken no position?

Mr. Lee: We think he had taken the opposite position.

There is not a lot of evidence as to the position that he had taken.

I refer you to Powell Knitting, the Second Circuit decision which was the first one to come up in 1966, and that case observes that this is apparently the first time the Secretary has taken this position.

Unknown Speaker: Well, but that doesn't answer my question.

It may be the first time he had taken that position, but had he previously taken the opposite position or had he previously taken none?

Mr. Lee: Yes, he had previously in our view taken exactly the opposite position.

Unknown Speaker: In what form did he take it?

Mr. Lee: It was in the form, Justice Brennan, of a statement in a... the BNA put put a manual called a manual for Fair Labor Standards Act compliance, and there was a statement in that manual that dealt with insurance against hot goods.

And in that manual the Secretary took the position... it told you how you could get insurance against hot goods, and basically where it came out was that you could get insurance against hot goods if you could show that you had acted in good faith.

It used the example of those who bought... lumber processors who bought from mills, and said that if they would monitor the FLSA compliance of the lumber mills then that would be insurance against hot goods.

Now, under the provision... under the position that the Government takes today, there is no insurance against hot goods.

If they are hot at one time, they simply remain hot and no amount of insurance... or, excuse me... no amount of innocence will change that.

Now, the Government takes the position that what that manual said... or, not what the manual, what the insurance against hot goods was talking about was criminal prosecution.

And I simply submit that there is no way that that particular provision can be read that way, because what it talks about is goods that are in the hands of the creditor and that he can't ship them and how to avoid that circumstance.

Unknown Speaker: Mr. Lee, can I ask you one other question about the history.

What about the period between the Second Circuit case and the few cases recently?

Was there any litigation in the seventies, for example?

Mr. Lee: One.

It was the Fourth Circuit's decision in a case called Shultz versus Factors, Inc.--

Unknown Speaker: Wasn't that in the eighties?

Mr. Lee: --'71.

Unknown Speaker: That was '71.

Mr. Lee: '71.

And in that case, the Fourth Circuit agreed with the Second, but added one additional provision, with which we agree, and that is that there must not be any complicity, any collusion, between the creditor and the employer.

Unknown Speaker: But between that decision and this one, was there litigation all through the seventies?

I thought there was a period where the Government sort of threw in the towel.

Mr. Lee: Well, you know, they go for a quarter of a century and they don't do anything, and then they lose in '66, and then they lose again in '71.

I am not aware... and there was one other one that they lost, a district court decision under Secretary Dunlop.

The first... they do not have any victories other than in the Sixth Circuit before the 1980's.

Unknown Speaker: Right.

Mr. Lee: All of their victories have been Sixth Circuit victories, and they've all come in the 1980's.

The other federal statutes that will be affected are these two that deal with the trusts that are imposed on the sellers of perishable agricultural commodities and of livestock by federal statutes.

The point is that the wage and hour law need not be interpreted in such a way that it alters lien priorities, and it should not be.

It's a point that is further underscored by the Government's reliance on the Flammable Fabrics Act.

Unknown Speaker: You say it need not be, but all you appeal to is this Holy Trinity, which says it's a familiar principle, et cetera, et cetera, although it's apparently not a sufficiently familiar principle that counsel can ever find any case other than Holy Trinity to cite for it, because it's an old chestnut that comes up constantly when that principle is appealed to.

Is there any language, interpretation of the language, that you can give us that would lead to the conclusion that you want?

Or is it just you're inviting us to throw up our hands and say, well, it doesn't say that, but we appeal to the spirit of the laws?

Mr. Lee: Well, let me give you three brief answers.

The first is, it's an old chestnut but a good one.

It's been around for a long time and it's entitled to some respect.

And I submit, it is indistinguishable.

They were doing exactly the same thing.

They were bringing people here, and it fairly fit the statute that says that any person... it's unlawful to import any person any alien, for those purposes.

Unknown Speaker: They made an exception for ministers, is that right?

Mr. Lee: No.

That is, the Court did, the Court did.

The statute made an exception, made about six exceptions, and ministers did not fit any single one of those exceptions.

Unknown Speaker: You don't think they might have had some First Amendment concerns?

Mr. Lee: They certainly didn't say so.

It's strictly a matter of statutory interpretation.

Unknown Speaker: Did they say what besides ministers were covered by the spirit of the law?

Mr. Lee: No, no.

Unknown Speaker: Just ministers?

Mr. Lee: In the good spirit of true adjudication, they decided only that case that was before them at that particular instance.

But there was an exception for lecturers, there was an exception for teachers, there was an exception for domestics, and several others.

The second answer is that that isn't the only case.

There is another one that we think is right on point.

Unfortunately, we didn't find it until we were preparing for oral argument, though I have advised Mr. Rothfeld of that right after we found it.

It's a 1975 decision by this Court.

I would pronounce it Muniz versus Hoffman, and it also arose out of the labor context.

It involved the question of jury trial, jury trial for an individual who was convicted of contempt because of a violation of a court's order pending... for an injunction pending determination of that issue by the National Labor Relations Act.

And the statute says that in any case involving or growing out of a labor dispute the accused shall enjoy the right to a speedy trial.

This Court, relying on Holy Trinity, said:

"It is not unusual that exceptions to the applicability of a statute's otherwise all-inclusive language are not contained in the enactment itself, but are found in another statute dealing with particular situations to which the first statute might otherwise apply. "

All I'm saying is that there is good precedent for not extending the "any person" language where it's going to have the kind of mischievous effects that it's going to have here.

Unknown Speaker: Mr. Lee, weren't there wage priorities in the 1938 Bankruptcy Act?

Didn't unpaid wages have a degree of priority?

Mr. Lee: Junior to secured creditor.

Unknown Speaker: Yes, yes.

But that was subsequent to the Fair Labor Standards Act, I take it.

Mr. Lee: Well, there is a very--

Unknown Speaker: At least there's an inconsistency, you say, between the Bankruptcy Act and the Fair Labor Standards Act.

Mr. Lee: --That is correct.

Unknown Speaker: And I suppose one argument is that the Bankruptcy Act impliedly repealed it or, if the Fair Labor Standards Act came afterwards, it really didn't intend to repeal the Bankruptcy Act.

Mr. Lee: That's exactly right, and that is one of the most powerful arguments for Congress' real intent that there is in this whole case.

It so happens that the Chandler Act, which re-enacted provisions of... it was an amendment to the Bankruptcy Act, was enacted just three days before the Fair Labor Standards Act, and it continued in effect the same preference that had existed from the beginning in the Bankruptcy Act of secured creditor over unpaid wage claims.

Does anyone really seriously think that--

Unknown Speaker: Well, but of course.

I mean, secured creditor were still intended to have that preference.

But you know, we're not talking about all secured creditors here at all, and we're not talking about their preferential position.

Mr. Lee: --That is correct.

Unknown Speaker: Your clients can sell the stuff in intrastate commerce, I presume.

Mr. Lee: That is correct, that is correct.

But let's go back for just a moment to the question that you just asked--

Unknown Speaker: Well, they can't sell it in intrastate commerce if they think the seller is going to sell it in interstate commerce.

Mr. Lee: --That is correct, that is correct.

And given this Court's interpretation of interstate commerce, we're prevented from selling it.

Unknown Speaker: Was that the interpretation current at the time of the Fair Labor Standards Act?

Mr. Lee: Probably not, probably not.

The point is that, just as you referred to a moment ago, Justice Scalia, in connection with how many exceptions are carved out, your ruling in this case as to any person, if it means secured creditors, I don't see how you can stop it from meaning trustees in bankruptcy.

And I don't believe that anyone can seriously say that Congress three days after it passed the Chandler Act intended to reverse those lien priorities that were effected there.

And I also don't think--

Unknown Speaker: They didn't intend to.

Is it part of your theory that Congress can't make a mistake, that there is no such thing as a statute that has an unanticipated consequence, because whenever that happens we invoke the spirit of the law and correct it?

Is that the way the system works?

Mr. Lee: --I would not put it that way.

Unknown Speaker: Well then, maybe this was a mistake.

Mr. Lee: I would not put it that Congress cannot make a mistake.

I would rather say that in melding together the rules dealing with preemption and repeal by implication, and applying both the Muniz case and also the Holy Trinity case, that in those instances where everyone agrees that Congress simply didn't face or decide these kinds of issues that you're not going to preempt inadvertently nor repeal by implication inadvertently when there is another interpretation.

Mr. Chief Justice, I'd like to reserve the rest of my time for rebuttal.

Argument of Charles A. Rothfeld

Chief Justice Rehnquist: Thank you, Mr. Lee.

We'll hear now from you, Mr. Rothfeld.

Mr. Rothfeld: Mr. Chief Justice and may it please the Court:

This case is not about secret liens or state insolvency laws or priorities in bankruptcy, as Citicorp has argued this morning.

It is about the meaning of a completely unambiguous statute, the Fair Labor Standards Act.

Now, when it has talked about the Act at all, Citicorp has painted a picture that is a caricature of what was and is a dramatic piece of legislation.

The Act is written in the broadest possible terms.

It makes it illegal for any person to sell hot goods in interstate commerce until those goods are cured.

And Justice O'Connor, in response to your question, the goods are cured by the payment of the minimum wage, not all wages due the employees.

Unknown Speaker: Mr. Rothfeld, does the statute provide for that cure?

Mr. Rothfeld: No, that has been the Secretary's interpretation.

Unknown Speaker: That is something that has been added to the language of the statute.

If you read the statute literally, that cure would be impermissible, would it not?

Mr. Rothfeld: Well, the statute, as you say--

Unknown Speaker: Because the goods were produced in violation of the statute.

Mr. Rothfeld: --That's true.

Unknown Speaker: So how... where does the Secretary get the authority to okay a cure of that kind, in plain violation of the language of the statute?

Mr. Rothfeld: Well, I think the Secretary's interpretation is not in plain violation of the language of the statute.

The Secretary has taken the position that the goods essentially are tainted, are hot, because they were produced under substandard labor conditions.

Unknown Speaker: xxx in any way.

Mr. Rothfeld: That's true, Justice Stevens, the statute doesn't address that issue at all.

And the Secretary's reasoning, I think, is that because the goods were produced under substandard conditions, the taint is cured if the conditions are essentially corrected.

And the conditions are corrected by paying, albeit retroactively, what the employees were due.

I should add that Citicorp--

Unknown Speaker: Well, why is that any different from reading into the statute an exception for a business that just goes out of business and there's no ongoing violation, which is what Congress was obviously really thinking about?

Mr. Rothfeld: --I think that's quite different, Justice Stevens.

Let me preface my answer by saying Citicorp invited this relief and it was granted by the district courts, the Court of Appeals, over the Secretary's objection.

The Secretary did not agree that it was appropriate to stay the lower court judgments.

But I think that the Secretary is dealing with an issue which simply is not addressed in the statute at all, whether or not the taint can be cured.

The issue here that Citicorp is talking about is quite explicitly dealt with in the statute.

The statute says flatly no one can sell hot goods in interstate commerce, period.

Unknown Speaker: No, it says no one can sell goods which were produced under these conditions.

And they were produced in violation of the statute under your view, because the employees were not paid.

Mr. Rothfeld: As I say, Justice Stevens, that's true.

And the Secretary's position... well--

Unknown Speaker: Is he interpreting the statute necessarily, or maybe exercising his own prosecutorial discretion?

Mr. Rothfeld: --Well, that is one--

Unknown Speaker: Just as a prosecutor may say, I'm not going to prosecute for a small amount of marijuana, maybe the Secretary thinks that his prosecutorial discretion is better used on other things than seeking a remedy for wages that have been paid up.

Mr. Rothfeld: --That is one, I think one approach to what the Secretary is doing.

Unknown Speaker: So the Secretary would have had authority, if it wanted to, over these intervening years, simply not to enforce this provision in bankruptcy situations?

Mr. Rothfeld: That's true.

Unknown Speaker: The statute doesn't require it.

It's entirely up to the Secretary either to bring cases like this or not.

Mr. Rothfeld: That's quite right, Justice Stevens.

Section 1501 is not self-enforcing.

It can only be brought into effect, as it was in this case, by an action for injunction under Section 17.

So if the Secretary--

Unknown Speaker: xxx.

Mr. Rothfeld: --Clearly not, clearly not.

Unknown Speaker: Do you agree with your opponent's view that the same plain language argument would apply to the bankruptcy trustee?

Mr. Rothfeld: I think so, Justice Stevens.

I should add--

Unknown Speaker: So if a bankruptcy trustee, say, comes into possession of a large inventory of goods that have to be liquidated, he may not liquidate them, at least in interstate commerce, period?

Mr. Rothfeld: --Well, let me say several things about that, Justice.

Unknown Speaker: Or without paying them at least, which gives the wage earners a priority in bankruptcy.

Mr. Rothfeld: Well, as I said, there are several responses to that point, Justice Stevens.

First of all, this case does not involve bankruptcy, so all of Citicorp's arguments about bankruptcy are entirely hypothetical.

And anything the Court says about the applicability--

Unknown Speaker: Yes, but there are a lot of bankruptcy situations in which you get the secured creditor, I'm sure, claiming the right to dispose of goods.

It's not an unusual--

Mr. Rothfeld: --No, that is true, although the Court's decision here doesn't necessarily have to reach that.

Unknown Speaker: --I don't see why not, if the rule is that... all the policy reasons supporting the Government's position would apply equally in an ordinary bankruptcy, without any secured creditors.

Mr. Rothfeld: Well, I think actually that is quite right, Justice Stevens.

And there is no conflict that we see between Section 1501 and priorities in bankruptcy, for several reasons.

First of all, the Bankruptcy Code itself recognizes the distinction that we have drawn in our statute between regulatory statutes and creditor's rights provisions.

Section 362(b)(4) and (b)(5), it explicitly permits the Government to prosecute an action to enforce an injunctive... obtain injunctive relief when necessary to enforce public law requirements.

District courts and bankruptcy courts have uniformly concluded that the Fair Labor Standards Act is precisely that sort of statute.

So if this were a bankruptcy case, the code itself would permit this very action to proceed and the same relief to be awarded.

Second of all, we don't think that the application of the Fair Labor Standards Act here affects priorities in bankruptcy at all, even apart from the Section 362(b)(4) and (b)(5) relief.

Now, we talked about this at length in our brief, and what I would like to do, with your indulgence, is explain how we think the statute operates and what we think it means, because that I think answers the question about whether or not this affects priorities in bankruptcy.

The short answer is that as a statute like the Flammable Fabrics Act, for example, which we cite in our brief... if flammable fabrics turned up in a bankrupt estate, the trustee certainly couldn't claim that he had a right to sell those fabrics until they were conformed to the requirements of federal law.

Precisely the same thing is true here.

If goods that were tainted because they were produced under substandard labor conditions turn up in a bankrupt estate, the trustee cannot sell them until he satisfies the absolute requirements of federal law, which is that the taint be removed.

Now, the taint is removed by the payment of wages, essentially remedying the substandard labor condition.

But that doesn't affect priorities in bankruptcy.

And as I say, I think as I outline how the operation of the statute and what Congress meant to accomplish, that becomes quite clear.

I'd like to talk about, I think, two things.

First--

Unknown Speaker: xxx as a matter of law, is that it, not just discretion?

Mr. Rothfeld: --Well, I think the Secretary--

Unknown Speaker: That's the way you put it, anyway, although the law doesn't say that.

Mr. Rothfeld: --That is how I put it, Justice.

But I think however one approaches it, the priorities in bankruptcy, priorities under state insolvency law, are simply not--

Unknown Speaker: Do you think, Mr. Rothfeld, in the flammable fabrics example that you have discretion to permit these dangerous products to be shipped in interstate commerce?

Is there a difference between the flammable, violations of the Flammable Fabrics Act and this kind of "hot goods"?

Mr. Rothfeld: --Well, there would have to be an enforcement action of some sort.

Unknown Speaker: But you don't think that the Secretary would have discretion to say, well, we realize these are very dangerous, but we're too busy to enforce this statute?

Mr. Rothfeld: Well, I think it would be inappropriate for an enforcement official to do that.

Unknown Speaker: There is some difference between the two?

Mr. Rothfeld: Well, but the nature of the statutes are identical.

Both statutes are public laws that create general regulatory prohibitions on the introduction of certain goods into interstate commerce, for particular reasons, until those reasons are removed, whether or not it's a question of enforcement discretion or it's simply a straightforward interpretation of the statute.

Unknown Speaker: Well, but there is, it seems to me, a considerable difference between some item that's perhaps made out of flammable fabrics and is simply dangerous, branded so by the statutory scheme, and say an automobile that may have been manufactured by a bankrupt automobile company, that the last couple weeks didn't pay minimum wages.

That automobile is a source of value somewhere, and you certainly want to find some way that you can cure whatever defect there was and get it back in commerce, in a way that you don't with a flammable fabric.

Mr. Rothfeld: Well, I'm not sure that's entirely true, as a flammable fabric can be cured, can be brought Into conformity with the federal standards.

The flammable fabric is not without value.

It simply is of reduced value because it's defective.

And I think that--

Unknown Speaker: But certainly we shouldn't strain to reach a result that says Congress intended that these particular goods simply rot here because their defect can't be cured and they can't be shipped, if there's nothing really inherently wrong with the goods.

If Congress says that's the result, now that's what has to obtain.

But you don't certainly strain to reach that result.

Mr. Rothfeld: --Well, let me answer that in two ways, Justice Rehnquist.

First, we don't suggest that that's the result which should obtain in this case.

I think we all agree that if the employees are paid, if the statutory requirements are satisfied, the goods can be introduced into interstate commerce.

The Secretary won't object to that.

Second of all--

Unknown Speaker: You say we all agree.

I don't agree with that at all.

Mr. Rothfeld: --Well, I should say--

Unknown Speaker: It's plainly in violation of the statute if one's going to read it literally.

Mr. Rothfeld: --Well, I should say the parties, I think, agree.

Unknown Speaker: All right.

Mr. Rothfeld: And as to whether the Secretary will enforce the statute under those circumstances, I think it is clear the regulations would permit these goods to be introduced into interstate commerce.

Unknown Speaker: Maybe you agreed too readily that the goods are manufactured in violation of the statute, if the proper wages are not paid before they are rolling off the press.

I mean, what if the wages are paid in arrears and goods are manufactured before the monetary payment has been made?

Does it never occur that goods are shipped in interstate commerce before the workers who produced those goods picked up their paycheck?

Mr. Rothfeld: Well, not at all, Justice Scalia.

Unknown Speaker: Well, then maybe goods, you know, manufactured in violation of the Act doesn't mean that payment has to be made before they are manufactured; it just means that payment of the wages has to be made at some point, and if it's made at some point the goods have not been manufactured in violation of the Act.

At least there's a linguistic way to get there, isn't there?

Mr. Rothfeld: Well, I don't think that that's true, Justice Scalia.

Unknown Speaker: He's trying to help you a little.

Of course, if you follow that argument you might prove these goods were not manufactured in violation of the Act, because they might have had a practice of shipping the goods out before the end of the week when the payroll was due.

Mr. Rothfeld: Well, I think that's right, Justice Stevens.

And the result that the Act ordains is quite clear.

Certainly if goods are produced, in the normal course of business employees are not paid until the week following the production of the goods, those goods are not hot goods during the week prior to the payment of the employees.

But if the employees are not paid in the normal course of business, if in this case they are not... as in this case, they are not paid at all, certainly there is a violation of the Fair Labor Standards Act.

The statute says flatly on its face in Section 6 that every employer shall pay statutory minimum wage, and it says flatly on its face in Section 7 that every employer cannot... no employer can work its employees more than 40 hours a week unless they--

Unknown Speaker: Mr. Rothfeld, supposing you got an accumulation of inventory that was manufactured without the payroll being met for three or four weeks, and there are not enough assets in the estate to make up the wage shortage so the goods could... you could not generate enough money to comply with the statute.

I take it under your view they could never be shipped?

You'd just have to burn them.

Mr. Rothfeld: --Well, I think it will be an extraordinary situation where the goods themselves are worth less than the value of the labor that went into them.

If that--

Unknown Speaker: It depends on how long this has been accumulating.

Mr. Rothfeld: --Well, if there were a case--

Unknown Speaker: They may have shipped 90 percent of those, but then the ten percent that's left over in inventory is not enough to pay for the full, you know, the full amount of the arrearage.

That could happen.

Mr. Rothfeld: --Well, if there were a case where it were impossible to pay the employees what they were owed, the statutory language is quite clear.

Congress provided that no person shall ship hot goods in interstate commerce.

Unknown Speaker: So the trustee would just have to dispose of those goods, even though it's highly uneconomic?

Mr. Rothfeld: Well, as I say, Justice Stevens, that is a situation which I think is unlikely and that's demonstrated by the fact that it has never arisen In the 50 years the Act has been in operation.

Unknown Speaker: Mr. Rothfeld, am I correct that it is also common ground between you and Mr. Lee that there is going to be a frustration of the bankruptcy laws by reason of the Fair Labor Standards Act in a lot of situations?

That is, whenever you have an employer who has intentionally violated the Act and has contracted to pay substandard wages and then goes into bankruptcy, those employees, you both agree, have preference over other creditors if the goods are ever going to be sold; is that right?

Mr. Rothfeld: The answer is both yes and no, Justice Scalia.

I think that your characterization of giving the employees priority and characterization of this as affecting priorities in bankruptcy is not correct.

Unknown Speaker: All right.

On the assumption that it amounts to priorities in bankruptcy, there are going to be a lot of cases where that happens, and we're arguing here not about bringing order into the whole scheme of things, but just whether one little corner of disorder is going to be eliminated.

Mr. Rothfeld: Well, let me give you two answers to that.

First of all, accepting your assumption, it is true that this does not disturb generally priorities in bankruptcy.

Congress was legislating with a particular problem in mind, the problem of employees who did not receive wages, and that is dealt with in this statute explicitly.

And no matter what any other provision of state law or the Bankruptcy Code says, this is the statute which deals with that problem.

The second answer to the question again is that this does not affect priorities in bankruptcy.

The Fair Labor Standards Act does not give employees any claim in the goods, does not give employees a claim on the bankrupt estate, does not create liens, does not adjust Citicorp's property interest in the goods themselves vis a vis anyone else.

It simply provides a general federal prohibition, a universal prohibition, on the sale of tainted goods.

Unknown Speaker: Mr. Rothfeld, in the normal violation situation doesn't the employee have a claim against his employer for a violation of the Fair Labor Standards Act?

Mr. Rothfeld: Yes, an employee is given a right under Section 216.

Unknown Speaker: But he doesn't have a right to invoke this particular provision?

Mr. Rothfeld: That's quite right.

This is something... and I think that's an important point, Justice Stevens.

An action of this sort under Section 17, 27 U.S.C. Section 217, is brought in the public interest by the Secretary.

It is not brought to benefit individual employees.

It is brought to combat generally the spread of substandard labor conditions and to exclude tainted goods from interstate commerce... all considerations that Congress was very concerned about when it passed the Act.

I think the Courts of Appeals have uniformly held that this should not be viewed as an action on behalf of the individual employee.

This is an action to enforce a requirement of public law.

Unknown Speaker: And the purpose of that is to prevent the goods going into the market at depressed prices because they were produced at depressed wages, I suppose.

Mr. Rothfeld: Well, there are a variety of purposes to be served.

Unknown Speaker: But one of the things is unfair competition to the employers who pay a decent wage scale.

Mr. Rothfeld: Well, that's quite true, Justice.

Unknown Speaker: And of course, that purpose would not be served by the sale of these goods anyway, even after the wages are paid.

They're going to be sold no doubt at a great discount because it's a liquidation of an inventory.

Mr. Rothfeld: Well, let me take a step backward.

Unknown Speaker: So that purpose isn't served no matter which way we decide this case.

Mr. Rothfeld: Well, I don't think that's true.

But again, let me step back and talk about all of the purposes in context.

First of all, Congress viewed the exclusion of hot goods in and of itself as a goal of the statute and as an appropriate result.

When Congress passed the Act in 1938, it specifically endorsed President Roosevelt's characterization--

Unknown Speaker: The goal itself is offended by these--

Mr. Rothfeld: --Well, I think that's right--

Unknown Speaker: --these wicked goods being in interstate commerce?

It's a sort of conceptual problem they have about evil goods just being there in the stream?

You don't really think that that--

Mr. Rothfeld: --Well, all I can tell you, Justice Scalia, is Congress endorsed the description of the goods offered by President Roosevelt--

Unknown Speaker: --It's a public policy, we don't want these offensive goods moving?

Surely there was some human objective.

Mr. Rothfeld: --Oh, yes.

There were a considerable number of objectives, Justice Scalia, and I can tick them off for you.

Unknown Speaker: That was in the tradition of a lot of these Acts, the Webb-Kenyon Act, the Asher-Summers Act, that all described the tainted goods interstate commerce.

That was the way Congress got at them.

Mr. Rothfeld: Well, that's quite right, Justice Rehnquist.

There were two aspects of this.

One is that was the way Congress got at a problem and accomplished its purpose.

Another is Congress viewed these goods as, as then Assistant Attorney General Jackson put it, the product of ruined lives and, as President Roosevelt put it, contraband which should not be allowed to pollute the channels of interstate trade.

I think Congress did in fact want to exclude these goods for its own sake.

But there were also other purposes--

Unknown Speaker: Of course, that rhetoric applies to an ongoing business doing it month after month after month.

It doesn't really apply to a liquidation of a bankrupt, inventory in a bankruptcy, does it?

Mr. Rothfeld: --Well, again--

Unknown Speaker: Don't you get the same price whether the employees were paid or not?

The rhetoric just doesn't fit.

Mr. Rothfeld: --Well, there were a number of purposes to be served.

First of all, the Congress was concerned... Citicorp has sort of raised the suggestion that Congress was not really concerned with problems of insolvency or employers who just didn't meet their payroll occasionally.

We think that is just plainly not true.

Congress applied the Act to every employer.

Congress wrote the Act in 1938 and it was aware of problems of insolvency and marginal employers.

And while it is certainly true that an employer can chisel, in Citicorp's phrase, an employee by paying him regularly at half the minimum rate, it can chisel him just as effectively by skipping half of its payrolls.

There is no reason to think that Congress was unconcerned with that group of marginal employers who managed to operate close to the edge and stayed in business by bouncing payroll checks that they had no real expectations of ever being able to meet.

Unknown Speaker: Well, Mr. Rothfeld, there really is no concrete evidence in the legislative history, is there, to tell us that Congress was thinking about this problem of the bankrupt employer?

Mr. Rothfeld: Well, I think the clearest evidence of what Congress had in mind, Justice O'Connor, is what it said, and what it said is every employer--

Unknown Speaker: You have to fall back on plain language.

You certainly can't find it in the legislative history.

Mr. Rothfeld: --Well, I think it does appear in the legislative history.

Unknown Speaker: Well, do you feel, if you had the choice between the plain language and the legislative history, which would you choose?

Mr. Rothfeld: Well, I think we've clearly won on the plain language, Chief Justice Rehnquist.

I'll be happy to belabor the obvious and emphasize to the Court that there is no question that the plain terms of the statute say exactly... well, say precisely that Citicorp cannot sell hot goods in interstate commerce.

Unknown Speaker: Do you have any cases in which, never mind bankruptcy, but you just have had an employer who has not paid his employees?

He contracted with them to pay above the minimum wage, but he failed to pay them.

And I asked Mr. Lee the same question and he said that he doesn't think the law is clear on it.

Is the law clear?

Mr. Rothfeld: We think it is clear, Justice Scalia.

We cited in our brief on pages 16 and 17 a number of cases in which employers were sued for back pay.

There is no indication in the case, and I believe there is affirmative indication in the case, that the employers contracted to pay the regular rate, but simply didn't pay for reasons of financial difficulty.

And when they were sued for back pay, the Courts of Appeals uniformly held that an employer's financial difficulty is not a defense in the case, not a defense to a suit under the Fair Labor Standards Act.

Unknown Speaker: If they're sued for back pay, why do you have to use the Fair Labor Standards Act?

Mr. Rothfeld: Well, the Fair Labor Standards Act provides a number of--

Unknown Speaker: I mean, if he's promised to pay it it doesn't matter whether he is legally obliged to promise to pay it.

I don't know why you'd have to bring a suit for back pay.

Mr. Rothfeld: --Well, I think that that's not quite right, Justice Scalia.

The Fair Labor Standards Act provides a number of remedies which are in addition to those available under state contract law.

Unknown Speaker: I see.

Mr. Rothfeld: It provides liquidated damages and it allows the Secretary to sue.

And that is an important point, because Congress was very concerned that the Act was benefiting employees who were least able to protect themselves and that they would need the assistance of the Secretary's enforcement.

And the Court emphasized that point in--

Unknown Speaker: Do you have cases where the employer has also been forbidden to ship his inventory in interstate commerce, just because he hasn't paid wages which were above the minimum?

Mr. Rothfeld: --I'm not aware of any cases in which the hot goods clause--

Unknown Speaker: That would be sort of self-defeating, wouldn't it?

You say, you must pay your wages before you can ship your goods and get the money to pay them.

Mr. Rothfeld: --Well, generally speaking an employer must pay its employees in the course of business.

Unknown Speaker: Of course, of course.

Mr. Rothfeld: An employer can't operate on the edge.

Unknown Speaker: So I ask you, are there some cases where the employer has been forbidden to ship his goods in interstate commerce or to sell the goods until he's paid unpaid wages?

Mr. Rothfeld: I am not aware of any reported decisions, Justice White.

The Secretary I know does bring as a matter of practice suits under both Section 15(a)(1) and 15(a)(2), that combines the hot goods clause and a direct suit against the employer for violating the minimum wage and overtime requirements.

So I think it is a common practice to bring such suits, and I think it is so clearly accepted that perhaps it hasn't been discussed generally by the Courts of Appeals.

Unknown Speaker: Mr. Rothfeld, what about the point Mr. Lee makes, that the Secretary has taken a contrary position in the past?

Mr. Rothfeld: Well, I think that's simply not true, Justice O'Connor.

The Secretary first dealt with this issue in 1966, as Mr. Lee suggested, in the Powell Mills case, largely because, I suspect, the issue didn't arise very often and still doesn't arise very often.

We cite in footnote 31 in our brief all of the actions of which we're aware in which the Secretary has tried to enforce the hot goods clause against secured creditor.

There were two in the 1970's.

There have been a number in the 1980's.

There was one in 1966.

Prior to 1966, this issue simply wasn't addressed.

Mr. Lee has suggested that in 1949 the Secretary took a contrary position.

We discussed that at length in our brief at pages 29 to 31, and we think it is quite clear from the circular that Citicorp relies upon that the Secretary simply meant to say that good faith operators... the Secretary was not dealing there at all with secured creditors, but good faith operators generally could protect themselves only by making certain that their suppliers had complied with the Act.

The Secretary said innocence was a defense simply to criminal prosecution under Section 16, 16(a).

And I invite the Court's examination of the document that Citicorp relies upon.

I think it is quite clear that our reading is correct.

The Secretary since 1966 has consistently taken the position in every case in which this issue has arisen--

Unknown Speaker: Within the period between 1938 and 1966, this fact pattern surely arose many, many times.

Mr. Rothfeld: --Well, I'm not sure that's true.

Citicorp represents, and I think it's probably right, that early on inventory bank financing was relatively rare.

So it may be that there simply were not that many factual situations like this.

And I should add that even since 1966 there have been relatively few cases.

In order to prosecute an action of this sort, the Secretary has to find the violation and obtain an injunction relatively quickly, and he has to do it in the circumstance in which he thinks it's appropriate.

So it may be that there simply are not that many instances in which this issue arises.

I should return, while on that point, to the question of the Act, but before I do that I want to deal more directly with the plain language of the statute.

Citicorp's entire argument, I think as the Court generally has noted, is devoted to running away from what Congress actually said in Section 15.

Its entire argument is based on cases like Holy Trinity, which relies upon the proposition that Congress here simply didn't know what it was doing when it wrote Section 15(a)(1).

Whatever the propriety of departing from the statutory language in a situation like that, where Congress specifically intended an outcome in a given case, obviously a claim that Congress didn't know what it was doing is one that should be treated with great skepticism.

Unknown Speaker: The SG's office isn't promising not to cite Holy Trinity to us in the future?

Mr. Rothfeld: I cannot make that commitment for all time, Justice Scalia.

Unknown Speaker: I doubt it.

Mr. Rothfeld: But I can certainly say that we think that the plain language of the statute is the clearest indication of how the statute should be applied.

And if one even deals with Citicorp on its own ground and says, did Congress mean what it was saying when it wrote Section 15(a)(1), I think there is no question that Congress meant precisely what it said.

Citicorp never exactly says precisely what the term "person" should mean if it doesn't mean what it is defined to mean in the statute.

But it sort of hints in its brief that it means perhaps dealers and subcontractors or culpable parties.

If Congress had wanted to write those restrictions into the statute, it knew how to do that.

It wrote precisely those restrictions into other provisions of the Fair Labor Standards Act.

Dealers and manufacturers are dealt with by the child labor prohibitions of Section 12.

Willful violators are dealt with in the criminal penalty provisions of Section 16.

Other provisions of the Act deal only with employers.

But Section 15(a)(1), alone among the substantive prohibitions of the Act, deals with "any person".

That could not have been inadvertent.

If there is any doubt about this, Section 15(a)(1) contains two explicit exemptions, one for common carriers, which was added only because Congress didn't want a test of the constitutionality of the statute to arise in a case involving a carrier's obligation to transport goods; the other for certain good faith purchasers which was added in 1949.

That exemption is worth looking at closely, because it is unusually strict.

It is not enough that a purchaser acquire goods for value and in good faith.

To benefit from that exemption, he also must acquire goods in reliance on the producer's written statement of compliance with the Act.

Now, if Congress felt it necessary to write special exemptions of that sort into Section 15 to benefit two discrete and demonstrably innocent categories of people, it certainly thought that the Act otherwise would reach everyone, no matter how innocent or uninvolved.

Unknown Speaker: Would it be consistent with the plain language of the Act if the employer produced a bunch of goods and put it in a warehouse and half of the goods in the warehouse were produced while he was paying his employees and half of the goods were produced when he wasn't; could he ship the goods that were produced while he was paying his wages?

Mr. Rothfeld: Well, probably, Justice White.

The term 3, I believe it's Section 3(j), to include goods that were handled by employees who... both production and handling.

So if the goods were handled by employees who hadn't been paid, those goods could not be shipped either.

If the goods had entirely been treated by employees who were paid in compliance with the Act, they could of course be shipped.

There would be no statutory prohibition.

Our point is that the plain language of the statute applies in a case like this one, where there was the statutory obligation to pay and no pay was made, and where the person as defined in the statute, and Citicorp undoubtedly is a person as defined in the statute, is trying to introduce those goods into interstate commerce.

Section 15 says on its face that Citicorp shouldn't be able to do that.

Applying the statute here accomplishes precisely what Congress set out to accomplish when it wrote Section 15, because Congress intended to make sure that everyone... well, Congress intended to apply Section 15 to everyone, so that no one would be able to deal in hot goods, so that everyone would be aware to watch out for hot goods, everyone would be aware that they could not benefit from an employer's failure to pay minimum wage.

That is part of the entire enforcement scheme of the Act.

Citicorp's argument to the contrary simply ignores the theory on which the Fair Labor Standards Act operates.

I should add one additional thing about this insolvency and bankruptcy point, which we think is a red herring thrown into the case by Citicorp to distract the Court from the plain language of the statute.

As I was suggesting before, the Act essentially creates a universal prohibition on anyone's ability to deal with certain types of goods.

It does not create property interests in those goods, it does not create liens.

It simply says no one can deal with those goods until they have been cured in the meaning of the statute or until the Secretary determines not to bring an enforcement action.

Nothing in that addresses insolvency.

Nothing in that type of enactment addresses priorities in bankruptcy.

It simply, as I say, creates a universal prohibition as a matter of public policy, a familiar type of prohibition that Congress created many times.

There is no doubt that if, for example, any of these goods had been flammable rather than hot, they could not have been introduced into interstate commerce.

And we think precisely the same principle is at stake in this case.

We urge the Court to apply the statute as it was written, to accomplish the purposes Congress tried to accomplish.

If there are no further questions.

Rebuttal of Rex E. Lee

Chief Justice Rehnquist: Thank you, Mr. Rothfeld.

Mr. Lee, you have four minutes remaining.

Mr. Lee: One objective of the Fair Labor Standards Act was to force the payment of minimum wages by chiseling employers, and it had one other objective which was supportive thereof, and that was to take away the competitive advantage in interstate commerce that the substandard employers would enjoy vis a vis those who had paid standard wages.

You do not get at that objective by requiring third parties whose only leverage existed because of something they did a year before the insolvency occurs.

Mr. Rothfeld has conceded, as of course he must, that there is a conflict between the substantive provisions of the Bankruptcy Act, which deal with creditors' priorities, and the Fair Labor Standards Act as it would be interpreted here.

Unknown Speaker: Mr. Lee, you do acknowledge that you have got a problem with the Bankruptcy Act in the case where... I mean, assuming that this affects priorities, you have a problem where the employer has intentionally paid substandard wages.

Now, why shouldn't we correct that impingement--

Mr. Lee: No, not where it's intentionally, but where there's been some complicity between the creditor and the employer.

Unknown Speaker: --Oh, you say that even where the employer has contracted, and not because of insolvency but he's been a bad actor all along, he's contracted for substandard wages, if he later goes into bankruptcy you think that even those goods can be shipped in interstate commerce?

Mr. Lee: Once they're in the hands--

Unknown Speaker: Once they're in the hands?

Mr. Lee: --Yes, yes.

Unknown Speaker: I see.

Mr. Lee: As they are... as he has exercised his secured lien, unless there is some complicity, unless there is some fault on the part of the secured creditor.

Unknown Speaker: Okay.

I didn't understand that.

Mr. Lee: There is no question that Congress has the power to repeal state and federal laws dealing with these lien priorities and to move wage creditors to the head of the line.

But this Court said just last year in Bowen versus American Hospital Association that the implications and limitations of our federal system constitute a major premise of all Congressional legislation and that Congress will not be deemed to have displaced state law unless otherwise the purpose of the Act would be defeated.

At a very minimum, we submit that means that in making decisions such as in this case some kind of a comparative balance of the comparative impact on state and federal laws must be taken into account.

That does not mean that we are taking the position that Congress did not know what it was doing.

We are simply saying that in every instance that I am aware of in which the Court has faced the identical situation in this case, Congress was aiming at a particular problem, used language that would sweep in a few other instances, this Court has not simply woodenly said, therefore those other instances were also legislated unintentionally.

The only cases that deal with it so far as I am aware are Holy Trinity... and there has been no attempt to distinguish Holy Trinity... this Muniz case, and then there is a case that comes fairly close to it, this Court's recent decision in the Jersey Shore Bank case.

Unknown Speaker: The only cases in 200 years in which you think Congress has written a statute that picks up something that maybe, had they thought about it, they wouldn't have wanted to pick it up, and we caught both of them?

[Laughter]

All three.

Mr. Lee: But the point is that in every instance where you caught it, you were consistent.

You were consistent in what you did.

And all I'm asking is that you be consistent for a fourth time.

Unknown Speaker: Mr. Lee, may I ask you, do you think the Johnson case we decided the other day is such a case, the Weber case is such a case?

Mr. Lee: Oh, Johnson, I do know the Johnson case, I do know the Johnson case.

It's an entirely different--

Unknown Speaker: The language is pretty clear there, wasn't it?

Mr. Lee: --That goes back to the conversation that I had with Justice Scalia.

May I answer the question, Mr. Chief Justice?

It goes back to the conversation that I had earlier with Justice Scalia.

There is a difference between the circumstances where Congress was facing either one interpretation or the other and didn't actually make it clear which it was doing.

That's the Johnson and the Weber circumstance, at least as I read Johnson and Weber.

This is a circumstance that is quite different, where Congress used language that no one contends, no one contends, was intended to be applicable.

Chief Justice Rehnquist: Thank you, Mr. Lee.

The case is submitted.

Attribution:

The OYEZ Project

Featured:

Tony & Susan Alamo Foundation v. Sec'y Of Labor - Oral Argument

Fri, 31 Aug 2012 18:29:30 +0000

Case:

Tony & Susan Alamo Foundation v. Sec'y Of Labor

Media File:

83-1935_19850325-argument

Related Transcript:

83-1935_19850325-argument

Transcript:

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?

Several thousand?

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.

Now--

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.

But I--

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?

Just--

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.

Mr. Fried.

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?

Are they--

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? "

Question.

Answer:

"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?

In Walling--

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.

Featured:

Garcia v. San Antonio Metro. Transit Authority - Oral Reargument

Fri, 31 Aug 2012 18:10:43 +0000

Case:

Garcia v. San Antonio Metro. Transit Authority

Media File:

82-1913_19841001-reargument

Related Transcript:

82-1913_19841001-reargument

Transcript:

ORAL ARGUMENT OF REX E. LEE, ESQ., ON BEHALF OF APPELLANT DONOVAN

Chief Justice Warren E. Burger: We will hear arguments first this morning in Garcia against San Antonio Metropolitan Transit Authority and the related case.

Mr. Solicitor General, you may proceed whenever you're ready.

Rex E. Lee: Mr. Chief Justice, and may it please the Court:

The issue in this case is whether Congress can constitutionally prescribe wage and hour limitations for the employees of San Antonio Metropolitan Transit Authority, which is a public entity under Texas law.

It is undisputed but for SAMTA's public status, Congress would clearly have this authority pursuant to its Commerce Clause powers.

In setting the case for reargument, the Court has asked that the parties address the question whether or not the principles of the Tenth Amendment as set forth in National League of Cities v. Usery should be reconsidered.

Our answer to that question is that those principles must be preserved.

The difference between the power of the federal government to regulate private businesses and to regulate the states as states is rooted solidly not only in the Tenth Amendment, but also in the broader principle of federalism.

That is both historically and also structurally a mainstay of the Constitution itself.

It is a principle which this Court has consistently and unequivocally reaffirmed on four separate occasions subsequent to National League, and whose doctrinal foundations in the precedents of this Court reach back more than a century prior to National League.

This does not mean, however, that the appellees should win this case.

The key issue is the requirement that the local government show that the federal law impairs its ability to structure integral operations in areas of traditional governmental functions.

I'll discuss in just a moment our view that the supports... that this test, this traditional governmental functions test, imports an historical standard.

But under no conceivable meaning of that term have the appellees in this case satisfied that third of the Virginia Surface Mining test requirements.

The district court acknowledged that the historical record is not one of predominant public ownership and operation of transit services, and the American Public Transit Association itself has recognized in its official public literature, and I quote:

"Public ownership of transit is a recent development. "

A House report issued in 1964 observed that as late as 1960, 95 percent of local transit service were privately owned and operated.

And it was not until the late 1970s that the majority of this country's transit systems were publicly owned.

Indeed, it is quite apparent, as explained on pages 26 through 34 of our first brief, that the change from private to public dominance in the mass transit field is directly attributable to federal funding.

Sought by local governments in the early 1960s on the basis of pleas by them that without massive federal aid the change from private to public ownership would not be possible and service might cease.

Typical of the representations that were made to Congress was the statement by San Antonio itself, and I'm quoting:

"If we do not receive substantial help from the federal government, San Antonio may join the growing ranks of cities that have inferior transportation or may end up with no transportation at all. "

Unidentified Justice: General Lee, may I ask whether the Federal Fair Labor Standards Act requirements apply to all federal employees?

Do you know?

Rex E. Lee: I would--

Unidentified Justice: Do you know which ones might be exempted, if any are?

Rex E. Lee: --I would... I'm just going to have to check on that.

I would assume that they do, but I'm not certain.

The Sixth Circuit, we submit, was quite correct when it stated in the Kramer case that

"Tradition for these purposes must be gauged in light of what actually happened, and what happened is a federal program of local transit services in which the states participate as latecomer junior partners. "

"There is, therefore, no tradition. "

--and I'm still quoting from the Sixth Circuit...

"of the states qua states providing mass transportation. "

There is a related point.

Congress did not have to accomplish its mass transit spending objectives the way the states requested.

Congress could have given the subsidy direct to the private carriers instead of to state and local governments.

And in this respect the case is very much like FERC v. Mississippi.

Central to the Court's holding in FERC, as I read that opinion, is the common sense proposition that by acceding to an alternative preferred by the states, Congress should not be taken to have forfeited Commerce Clause powers that it otherwise clearly has and that would be unassailable if Congress had accomplished its objective other than the way the states requested.

We submit that the same principles applies here.

Probably the dominant theme of the briefs filed by the appellees and their amici is that the ability of state and local governments to make certain policy choices otherwise available to them may be impaired in the event the federal government has the authority to set wage rates for their employees.

And as a starting point that is a relevant argument, because we agree that as this Court said in FERC v. Mississippi and has repeated several times since, the authority to make policy choices, to make policy decisions is probably the quintessential attribute of sovereignty.

But we find it ironic that the appellees' petition in this respect purports to be based on federalism; because the authority to make fundamental policy decisions is no less an essential attribute of sovereignty for Congress than it is for the states, and both are affected by this case.

Because while it is true that SAMTA's ability to make some mass transit policy choices could be affected... the federal government regulates its wages and hours... it is equally true that SAMTA's wage and hour decisions, if left to their unfettered control, can also limit Congress' ability to regulate Congress.

And the reason is that wage and hour decisions by a publicly-owned mass transit employer have just as much effect on interstate commerce as the same decisions, the same wage and hour decisions by a non-governmental mass transit employer.

And if there is one thing that is clear concerning Congress' Commerce Clause prerogatives, it is that the authority to decide, the power to decide concerning the effects on interstate commerce, the comparative effects of different kinds of practices, lies solidly within Congress' stewardship.

And this brings us to the crucial issue of what should be the governing constitutional standard.

The reason that there is a constitutional issue in this case is that a central structural feature of our Constitution is the side-by-side existence of two sets of governments.

And in any case like this one where you have federal regulation under the Commerce Clause of the states qua states, then the complete and uninhibited exercise of sovereign power by either of these sets of governments creates a potential conflict with the sovereign powers of the other.

That is the constitutional problem, and if the governing constitutional standard is to be adequate, it must take that fact into account.

Unidentified Justice: Do you think... do you think Maryland v. Wirtz was wrong?

Rex E. Lee: We accept the overruling of Maryland v. Wirtz that was accomplished in National League of Cities, and we're not--

Unidentified Justice: So you would have... you would have... you have been on the other side of National League of Cities, then.

I mean you would have... you would have... you wouldn't have been making the argument the Government made in National League of Cities.

Rex E. Lee: --Had I been the Solicitor General at the time of Maryland v. Wirtz, I--

Unidentified Justice: I mean... no... National League of Cities.

Rex E. Lee: --Had I been the Solicitor General at the time of National League of Cities, I would have taken the same position the Solicitor General took in that case.

But in the interim since that time, National League of Cities has been decided.

There is a rather comprehensive body of law that has developed, including this three-part test plus the balancing safety valve which we think gets it just right, so long as there is an understanding as to what is meant by traditional.

There has been some reliance by the states on that test, and there is significant interest in preserving the existing precedents of... of this... of this Court.

And for that reason--

Unidentified Justice: Well, General Lee, how does a focus on the historical services provided by a state serve to protect the more fundamental ability of the state to make and carry out its policy choices as a sovereign?

I'm not sure that I understand how that serves us well in protecting sovereign rights of states.

Rex E. Lee: --It serves to protect sovereign rights of states and the sovereign rights of Congress, Justice O'Connor, and this is absolutely fundamental to our case, the answer to that question.

We start from the premise, as I've just developed, that the basic constitutional problem is that ours is a federal system, and that if you concentrate only as my opponents do on the fact, with which we have no dispute, that the unfettered exercise by Congress of its powers can erode some state prerogatives, then that leads you in one direction.

Mr. Garcia, on the other hand, focuses in his brief on an equally correct proposition, which is that the unfettered exercise by the states of their prerogatives to make wage and hour decisions, if there are no limitations, can also limit Congress' authority, which it otherwise clearly has, to make decisions concerning effects on Congress.

Our point of view is that this Court really did get it right when in Hodel v. Virginia Surface Mining and three subsequent occasions it said that it's to be... that the... that the test is to be three parts plus a balancing safety valve, which permits us to take into account the fact that there is... there is this equipoise, there is this... that there are these... the need to accommodate the competing interests of both state and federal.

Now, as to the... as to the basis for the historical test, we think that the historical test is also sensitive to the competing needs of both sets of governments; because on the one hand, once again, you can say that regardless of when the states come into the field, that their problems do relate to legitimate police power objectives.

Unidentified Justice: Mr. Solicitor General, are we not talking really in the broadest sense of the power of Congress to regulate compensation of state and city and county employees?

In other words, we're not talking just about a transit system.

We're talking about sewage and water and street lights.

Rex E. Lee: Well, all we are talking about in this case itself, of course, is the applicability--

Unidentified Justice: Yes, yes.

Rex E. Lee: --Of the Fair Labor Standard Act to San Antonio--

Unidentified Justice: But we're... we're also talking about broad constitutional principles and the division of or allocation of power between state and, federal government.

Rex E. Lee: --That is correct.

There are those issues in the background.

But I would urge that the only issue that needs to be decided at this time is the narrow issue of... of wages.

Now--

Unidentified Justice: Issue... issue really is who pays... which entity pays the compensation of... of state and city employees.

And if the federal government starts down this road, where does one stop it.

Rex E. Lee: --Well, that is an issue, and that is the perspective from what... that... that is the question as placed in the perspective from the appellees' standpoint.

But I can also say that there is a question concerning the prerogative of the Congress to set... to regulate commerce.

The appellees have very properly raised the question... probably the dominant theme in the appellees' briefs is a concern that if they lose this case, there will be an adverse impact on their... particularly if... if... if our historical test is... is adopted, that this will freeze their prerogatives to enter new fields.

My answer to that, and to further answer to your question, Justice Powell, is that there is nothing in this historical test which freezes in any way or adopts any kind of a static view which prevents the states from entering new fields.

All it says is that when they do enter new fields, if it is a field that is already subject to regulation by Congress, then they may have to enter it subject to the same to some reasonable Commerce Clause regulations of the same type that their private competitors are already facing.

And that is a principle that has been established by this Court at least as early as 60 years ago in Helvering v. Powers and has been reiterated numerous occasions since then, in California v. United States v. California, Harden v. Terminal Railway.

Unidentified Justice: What is the... what, Mr. Solicitor General, is the competitor of a private mass transit system in today's terms?

What competitors are there?

Rex E. Lee: Well, there... of course, at the time... at the present time, it is dominantly a field that is dominated... it is a field that is dominated by public transit systems, though I would add quickly and parenthetically that came about because of this mass... this massive federal aid.

But at the time... the issue really must be gauged as of the time the states first entered the field.

And you have to ask in answering this question, has there been a law... is this a traditional governmental function?

Unidentified Justice: Mr. Solicitor General, this time point troubles me.

Are you talking about a majority of the states or state by state?

And before you answer that question, my next question would be are you talking about city by city or county by county, or what is the limit of the standards you advocate?

Rex E. Lee: No.

I think you have to look at it as a national problem.

And I think--

Unidentified Justice: A majority of the states?

Rex E. Lee: --I don't think that you... I don't think that it would be profitable to look at.

I don't think it would be that helpful to look at in terms of a majority.

Indeed, I would urge that that issue not be reached in this particular case, but that the only decision that be reached in this particular case is that where you have the circumstance that you had here where prior to the massive federal aid, and indeed, where you had federal regulation in the employment relations field reaching back to 1935 and at least as early as 1961 that you had federal regulation applying to... to... to transit employees, and a circumstance in which as of 19... there simply was not a well established... there simply were not well-established patterns of state ownership already in the field at the time that the federal government entered.

Now, I grant--

Unidentified Justice: Mr. Lee, I take it these questions, for me anyway, raise a secondary question, and that is whether the traditional governmental function test is a correct one.

I take it you feet it is.

Rex E. Lee: --Indeed I do, Justice Blackmun.

We think the entire approach is sound, and an integral part of that approach is the third test which is the traditional governmental functions test.

Unidentified Justice: But this is why you're getting these questions from the bench.

Rex E. Lee: That is correct.

That is correct.

And I wish to emphasize that we do believe that that test is a sound one, and it's sound for three reasons.

One is it has the force of precedent behind it.

The second is that it is responsive to the basic underlying constitutional problem.

You cannot focus simply on the problems under federalism that the states have or the problems under federalism that the Congress has.

You have to accommodate in some way both of them, and we believe that this historical test accomplishes that.

Mr. Chief Justice, I'd like to reserve the balance of my time.

Chief Justice Warren E. Burger: Mr. Gold.

ORAL ARGUMENT OF LAURENCE GOLD, ESQ., ON BEHALF OF APPELLANT GARCIA

Laurence Gold: Mr. Chief Justice, and may it please the Court:

It is our position that there are several and different and distinct arguments, each of which leads to the conclusion that the application of the Fair Labor Standards Act to publicly-owned mass transit systems is constitutional.

There are certain broader arguments than those made by the Solicitor General for that proposition which I wish to begin with.

I also agree for the individual appellants here that the arguments... the basic argument that he has made concerning the situation in which the states and localities move into an area which was pioneered primarily by the private sector, and do so under conditions in which the federal government is a major cause of the states and localities entrance into that field, is not a situation in which the state thereafter can claim that the exercise of that authority free and clear of federal authority is essential to federalism.

In this system that we have of both a federal and state government, to say that such an example of cooperative federalism where the federal government no less than the states and localities is part and parcel of creating the regime in which the states and localities are providing a goods and... is... are providing a good or service is one which expands state authority and narrows federal authority, seems to us to be impermissible.

There are at least two arguments which have broader ramifications than the argument I've just outlined and on which we agree with the Solicitor General.

The first, which I... I think I ought to begin by saying would require the overruling of National League and Cities... National League of Cities is that the system of federalism, which we all agree the Constitution creates, is a system in which the national government has enumerated powers but is supreme within those enumerated powers, and where the distinctive feature is that the national government does not have plenary powers.

We believe that the argument for that proposition has three basic components.

The first is the language of the Supremacy Clause and of the Tenth Amendments themselves.

The Supremacy Clause says this Constitution and the laws of the United States which shall be made in pursuance thereof shall be the supreme law of the land, anything in the Constitution or laws of any states to the contrary notwithstanding.

And the Tenth Amendment says simply that powers

"not delegated to the United States by the Constitution nor prohibited by it to the states are reserved to the states respectively or to the people. "

And all this against the background, as I have said, of a Constitution which does not say that the rational government shall have plenary power, but rather enumerate certain powers, including the power to regulate commerce, and which includes also those powers necessary and proper to carry out that basic authority... an authority which was indeed the very foundation of the process which led to the formation of this nation and the rejection of the Articles of Confederation.

We set out in our brief on reargument at pages 5 to 12 and then in our reply brief on reargument at pages 2 to 10 the understandings that underlie the bare words and the structure that I have just stated.

We take Madison as the embodiment of the consensus on these major questions of structure and relationship, and we trace what he said in particular in the Federalist Papers and thereafter.

That is not a submission that lends itself to oral presentation, but I wish to note two brief snippets.

They can be judged in the context or by the totality of our presentation.

While serving in Congress, Madison stated during the debates over the creation of the Bank of the United States, interference with the power of the states was no constitutional criterion of the Power of Congress.

If the power was not given, Congress could not exercise it.

If given they might exercise it, although it should interfere with the laws or even the constitution of the states.

And the Constitutional Convention, I would note, considered and rejected a proposal which would have precluded Congress from, and I quote:

"Interfering with the government of the individual states in any matter of internal policy with... which respects the government of such state only, and wherein the general welfare of the United States is not concerned. "

Unidentified Justice: Mr. Gold, do you think the framers of the Constitution would have envisioned that they were authorizing the federal government to tell the states how much they could pay their own employees to carry out their necessary sovereign functions?

Laurence Gold: I... I think, Justice O'Connor, that the... the answer to that question is the following... is what follows.

The states and localities at the time of the adoption of the Constitution had very small establishments indeed.

And the basic question of the extent to which the commerce power would eventually expand seems to us to be cancelled out by the fact that there was also a belief at the time that the wide variety of services that the government provides today would not be provided by the states and localities at all.

I am quick to add that the essential animating concern in the two National League of Cities argument and this argument is the one that you have stated.

I can only say two things about that argument that concern insofar as it applies to those activities that are truly and uniquely governmental.

One, as Justice Harlan said in Maryland v. Wirtz, any activity of the federal government under the commerce power has to be shown to be in activity which... an action based on an effect on commerce.

I am not clear that an attempt to regulate the governor or the legislatures or their staffs could pass that test.

I don't want to argue the point one way or the other, because the interesting fact of 200 years of history is that it has never occurred.

The Founding Fathers, insofar as they were concerned about the states and state sovereignties put... state sovereignty, put their faith in a political system rather than in a system which would provide that the federal government has enumerated powers, with an exception that the Court shall judge whether those enumerated powers unduly interfere with state sovereignty, and the trust has not yet been abused.

What was said in the tax immunity cases by Justice Frankfurter with regard to creating doctrine on worst case fears ought to be remembered in this context as well.

The beginning of my answer to your question also gets me to the second distinct argument we would make, and that is that the production of goods and services is not an essential of state sovereignty.

In preparing for this argument I was reading through a book called

"American Public Works Association History of Public Works in the United States, 1776-1976. "

cited in the Solicitor General's opening brief.

There was little or nothing in the way of the production of goods and services--

Unidentified Justice: Mr. Gold, forgive me for interrupting you.

Laurence Gold: --Yes.

Unidentified Justice: But when you use the term "services", a state does very little beyond providing services for the public; so is there any limitation to your use of the word "services"?

Laurence Gold: Yes, Justice Powell.

It is our view that there are certain activities of the states which we just do not regard as a good and service that is rendered in common with the private sector, or that has historically been rendered in common; and that is the making and enforcement of public law.

And--

Unidentified Justice: But... but the typical category of services that the public is interested in primarily and that have thought to have been subject to local democratic control, basically you start with police, and fire, and streets, and light.

All of those, I take it from your brief, you would say are subject to the Commerce Clause.

Laurence Gold: --No.

The... the police seems to--

Unidentified Justice: Did you say--

Laurence Gold: --Oh, I apologize, Your Honor.

Unidentified Justice: --Well, you said they are or are not subject to the Commerce Clause?

Laurence Gold: I--

Unidentified Justice: Are all of those services subject or not subject to the Commerce Clause regulation?

Laurence Gold: --I started answering.

I apologize for breaking in.

The... it is our view that the police function is properly seen as part and parcel of the lawmaking and law enforcement function, and that that... and we are now talking about how to delimit a National League of Cities test rather than a test... rather than whether the test should be over... overruled entirely.

It is our sense that that's part of the law enforcement function.

On the other items which we have grown used to seeing as part of a widely expanded state, locality and federal role, we say this: in almost every instance in the 18th century, the activity was performed either in whole or in part in the private sector, and that that was true well into the 19th century as well.

What has been the determinant factor so far as we can tell in looking at this history is the availability of capital in the state and locality, the capital needs, the interest of individual entrepreneurs entering--

Chief Justice Warren E. Burger: I think you've concluded your answer now to Justice Powell, and your time has expired.

Laurence Gold: --Thank you.

Chief Justice Warren E. Burger: Mr. Coleman.

ORAL ARGUMENT OF WILLIAM T. COLEMAN, JR., ESQ., ON BEHALF OF THE APPELLEES

William T. Coleman Jr: Good morning, Mr. Chief Justice, and may it please the Court:

On reargument this case involves two basic questions: first, whether constitutional federalism provides any limitation on Congress' exercise of its commerce powers directly against the state to supplant core state functions such as the establishment of wages, hours and overtime policies for state and local governments.

The second question is whether local public mass transit, constituting 94 percent of all transit services today, is a traditional governmental function.

I think since the Solicitor General agrees with so much of our position, we ought to get to the one thing on which we have the disagreement.

Today, 100 out of 106 major urban communities have publicly-owned local mass transit, as do all communities with transit in Texas.

Ninety-four percent of all transit riders nationwide ride on public mass transit.

San Antonio started to supply public mass transit service in 1959, which is well before there was any attempt of federal regulation of transit or wages and hours.

Now, General Lee explains his modified historical test for traditional functions as follows.

The state activity must be well established prior to the development of the federal regulatory presence in the field.

Public transit, we submit, clearly meets this test and is not distinguishable from the traditional activities the Solicitor General concedes were correctly protected in National League of City.

I'd ask you to turn to page 2 of SAMTA's original brief to show you the legislative history.

Enacted in 1938, the Fair Labor Standards Act expressly exempted all states and their political subdivisions, and all transit systems, public or private, from the minimum wage and overtime provisions.

Furthermore, the National Labor Relations Act, enacted in 1935, exempts all public agencies, including transit systems... an exemption that continues until today.

The first attempt to extend any Fair Labor Standard provisions to any private transit provisions was in 1961 when minimum wage coverage only was extended only to a few private systems... those which had revenues in excess of a million dollars.

Now, that doesn't sound like much today, but project yourself back to 1961, and you will realize that that meant that very few private systems were covered.

Then, all public systems remained completely exempt according to the express language of the... of the statute.

The city of Philadelphia... the city of San Antonio, as I said, began to furnish the service in 1959.

Thus, we have a picture where Congress expressly exempted public transit service from FISA and NRL... NLRA requirements during the period in which such transit became well established as a common local governmental service.

By 1965, before there was any attempt by Congress to cover any public transit system, the majority of transit employees worked for public transit companies... some 56 percent.

In 1966, Congress extended the minimum wage requirements to public hospitals, schools, and only those public systems whose rates and services were regulated by a state or local public utility commission.

Transit operators, private and public, continued to be exempt from all overtime provision.

Now, you recall it was in 1965 when the UMPTA statute was passed, and there's not a word in that statute, as you recognized, Mr. Justice Blackmun, in Jackson Transit Company, which said that if the cities took the money, that there would be any condition of federal regulation with respect to wages and hours.

In fact, you said, Your Honor, in that case that that statute specifically says that wages and hours and other labor conditions were to be left to local law.

Unidentified Justice: Mr. Coleman--

William T. Coleman Jr: It was not until 1970--

Unidentified Justice: --Mr. Coleman, could I just ask this question?

In your historical development I suppose it would be perfectly clear under your argument that Congress would not have the power to apply Title VII of the Civil Rights Act to your client either.

William T. Coleman Jr: --Oh, no, sir.

That... one thing's clear: the Fourteenth Amendment was a dramatic passage of saying that that was one thing in which the federal government had the power to interfere with respect to states.

Unidentified Justice: But if they had just relied on the commerce power, they could not have done it.

William T. Coleman Jr: They could not have... they could not have done it.

And that's what they clearly relied upon here.

Unidentified Justice: But you say that this limit applies to exercise of the commerce power but does not apply to exercises of power under the Fourteenth Amendment.

William T. Coleman Jr: Well, I would say that I'd have to look at the members on the Court.

Some of you have indicated, as you did, Mr. Justice Brennan, in... in the EEOC v. Wyoming, that when you get around to exercise power under Section 5 of the Fourteenth Amendment that the Tenth Amendment, or federalism, has no restriction whatsoever.

The Chief Justice, and there were three that joined you, said that even there, there was a restriction, although the restriction obviously was a different nature.

But I would say that there ought to be some restriction even when you're proceeding under Section 5, because I believe there's one thing in this country that is very important: that we do preserve the independent and separate existence of the state.

And I don't think that under Section 5 of the Fourteenth Amendment that Congress can do something which destroys that independent existence and separate existence of the state.

As I was saying, we have a picture here that one, you have no regulation of public transit specifically, no regulation of private transit, and it was only in 1974 that Congress attempted to extend minimum wage and hour and overtime provisions to all public transit systems.

Prior to the time that Congress attempted to do that, the state practice had become entrenched, because prior to the Congress that enacted, 90 percent of all transit services were provided by public transit agencies.

Thus, publicly-owned local mass transit meets even the Solicitor General's own ill-founded and unprecedented historic test for traditional governmental activity.

For 30 years as the states assumed this vital service, Congress told the states that they would be exempt from the Fair Labor Standards Act.

Even when Congress provided in UMPTA for assistance to local transit, they did not intend to disrupt the settled practices of labor relations governed solely by state law, and that's what was held in Jackson Transit.

In fact, the Government's unsupported historical test bears no relation to the purpose of federalism: restraints on Commerce Clause regulation of the states as states.

Federalism ensures that state and local governments can fulfill their role in the Union by providing those governmental services which their citizens require.

Whether an activity has been historically public has nothing to do with the present day realities of state involvement in providing the modern requirement of a state citizenry.

Clearly, the word "traditional" does necessarily mean historical.

For example, for decades the tradition in this Court when I stood before this Court was to address the Justices as Mr. Justice.

In the last three or four years the tradition has become instructed to address them as Justice.

In any event, this Court decisions rejects the equation of traditional with the passage of many decades.

The decisions do not support the suggestion that even if the service is now supplied by most state and local government, it is not traditional merely because the current public sector pervasiveness does not have ancient historic roots; that, in fact, in National League of City, the services protected were defined sometime as integral, other times as important, and also at other times as traditional.

Long Island Railroad clearly states that traditional... that traditional does not give rise to an historic test.

The Court held the same in New York v. The United States.

I think in this case, Your Honors, these systems had become public and were traditional even before Congress gave any money to the systems.

In addition, when Congress gave the money to the systems, it did not say that the systems had to abide by the Fair Labor Standards Act.

And your cases make it clear... Jackson Transit and the Pennhurst... that unless Congress says that if you want the money, you have to abide by this condition, that you do not read conditions, impose them on the local governments.

The other argument the Solicitor General makes is that somehow you will have unfair competition between the private and the public systems if you don't apply the Fair Labor Standards Act.

The language that he quotes in his brief was describing the situation in 19... which led to the passage of the 1966 act, which covered hospitals, schools and some transit companies.

And this Court rejected that argument in... in National League of Cities.

In addition, I would just ask you to see whether when, for example, in San Antonio it costs you 60 cents per passenger to give the service, and the passenger pays only 18 cents, or 10 cents if a school child, or the elderly, or the handicapped, or if they ride downtown in order to eliminate traffic congestion, to promote unemployment... to promote employment and to serve the people, it's for free... I would just ask you how one can come in and compete with that type of system?

So it is clear that the competition argument certainly has no relevancy here.

Now, the next argument that the Solicitor General makes, but he hasn't made it at the bar of this Court today, but when you read his brief, you're not quite sure what he's talking about when he says it's the state core function which is to be protected.

We think it is clear that the cases say that the state core function is its ability to fix wages and hours and overtime policies.

That's what was said in National League of Cities; that's what was said in EEOC; that's what was said in the FERC case.

It is not that we also have to show, as the Government at certain places suggests, that the... that the functioning or providing of transit service will... if you end that that you will end the existence of the city.

And in Long Island Railroad, the Chief Justice made it quite clear that when he held that the railroads were not... were subject to federal regulation, he said that we're dealing with the third prong of the test which is solely whether the railroads is a traditional government function.

The fact that there were only two of them, the fact that there had been a long history of government regulation made the difference.

I'd now like for a moment to turn to the question of the federal constitutionalism which really answers the argument made by the union.

It is clear that when the Constitution was set up that states were to remain and they were to have separate and independent existence.

If that's so, then if you don't have a constitutional federal limitation, Congress could presumably even tax a percentage of all revenues collected by state taxes.

I think Justice Blackmun in dissent in Nevada v. Hall made it clear, however, that there is an implicit federalism restriction on Congress and the states.

He says,

"I would find that source for Nevada sovereign immunity not in expression of the Constitution but in a guarantee that is implied as an essential component of federalism. "

"The Court has had no difficulty in implying the guarantee of freedom of association or implying a right of interstate travel. "

"I have no difficulty in accepting the same argument for the existence of a constitutional doctrine of interstate sovereign immunity. "

"The only reason why this immunity did not receive specific mention in the Constitution... that it was too obvious to deserve mention... is for me significantly fundamental to our federal structure to have implicit constitutional dimension. "

Now, we have collected on page 17, footnote 17 of appellees' supplemental brief other cases where constitutional limitations were found implicit from the structure and language of the Constitution.

In fact, I stand before you and say that few such principles are more often reiterated than this; that the framers' notion of the continued separate and independent existence of the states places a limitation on Congress' exercise of its plenary powers against state and local government.

Unidentified Justice: Mr. Coleman, if you were... if you were arguing this for the first time or if the issue had just come up for the first time, would you be more likely to have made kind of a federalism argument than... than to try to pose it under the Tenth Amendment?

William T. Coleman Jr: Well, I... it's also the Tenth Amendment, but--

Unidentified Justice: Well--

William T. Coleman Jr: --And you get to the Tenth Amendment in one of two ways.

One... and I think--

Unidentified Justice: --Well, if you can get to it the other way, there's no need to, is there?

William T. Coleman Jr: --Well, no, no.

I'll tell... I'd like to give you the problem, Your Honor.

One, if you follow--

Unidentified Justice: We have it, all right.

[Laughter]

William T. Coleman Jr: --The approach of... of Justice Brennan, he would say that within the Commerce Clause if what you're trying to do is to destroy the separate and independent existence of the state, that he would read the Commerce Clause as not going that far; and so, therefore, he would say the power wasn't delegated.

Within the other approach... and I think the cases tend to support this... is that, one, you assume that under the Commerce Clause that the federal government has plenary powers, and if it's commerce and any person today after Wickert and Philburn and the Kassenbach case can spell out how anything affects interstate commerce.

But there are other provisions of the Constitutiona also.

And it's clear, for example, that even though you exercise the plenary power under the Commerce Clause, you could not say and on the trains people can't speak or read the newspaper.

Why?

Not because there's any... that's not a regulation of Congress, but because of the First Amendment.

By the same token, you say that as you look at the Constitution, and if you say that there should be separate and independent positions of the state, there's certain things that the state... that the federal government can't do because that would seriously affect and destroy the existence of the state.

Unidentified Justice: Even though the power was otherwise there.

William T. Coleman Jr: That... that the power was there, but the same way, if the power was there, then you'd go to the First Amendment or you go to the Fifth Amendment to limit it, here you go to the structure of the Constitution, and you say that--

Unidentified Justice: That was the... well, that was the basis of the tax immunity cases, wasn't it?

William T. Coleman Jr: --Well, that's the basis of the tax immunity cases.

It's the basis of the Ashton case dealing with the bankruptcy case as to whether you can force a city to go into reorganization.

Now, with respect to the Commerce Clause, for example, Mr. Justice Marshall for the Court in Bry, footnote 7, says it.

In Hodel v. Virginia Surface Mining, again for the Court, he says it, as well as he says it in... in concurring opinion in Employees v. Missouri Department of Public Health and Welfare.

Mr. Justice Brennan for the Court in EEOC v. Wyoming at footnote 18 says it.

The dissenting opinion of the Chief Justice in EEOC and his opinion for the Court in Long Island Railroad says it, in which, incidentally, it was a unanimous opinion.

The dissenting opinion of Justice Powell in EEOC says it.

The principle has also been asserted by Justice Blackmun in his concurring opinion in National League and his opinion for the Court in FERC v. Mississippi.

Unidentified Justice: Mr. Coleman, I have to confess, what do they all say?

William T. Coleman Jr: They all say that--

[Laughter]

They all say that when you exercise plenary power under the Commerce Clause that there's a limitation which is based in constitutional federalism that you have to recognize that the... that the state... that the federal government... I mean that the... that the Convention intended to keep the states separate and distinct, and therefore, this limitation--

Unidentified Justice: But do they all say that the organ of the government that was going to keep them from going too far was necessarily the judiciary rather than the Congress, because after all, the states are rather well represented in Congress.

William T. Coleman Jr: --Well, they... that... that's... that's... well, in that... I'd first like to say... to answer twofold.

One, there's no presumption of constitutionality here, because the one thing that's clear, that Congress enacted the 1974 amendment only because this Court in Maryland v. Wirtz said that there was no such principle of constitutional federalism, and the federal government had absolute power.

And so now since when in National League you... you reversed that, it's hard to say that there's still a presumption, normal presumption.

Secondly, the one thing that's clear, that when there was a dispute between the various organs of government, the... the--

Unidentified Justice: Mr. Coleman, my question was directed to what the framers probably thought would be the correct protection against having the federal government devour the states.

Would it be the judiciary or the Congress itself in which the states are represented?

William T. Coleman Jr: --Ultimately... ultimately it would be the judiciary.

I think that Mr. Ellsworth, who I think was the second Chief Justice of the United States, he says it, and we quote where he says it.

It's also said by the other people that where there is a dispute between the federal government and the state as to whether this type of action was appropriate within the Constitution, that the federal judiciary was to make the determination.

It also suggests in the Chadda case where there the dispute is between the Congress and the President of the United States, and each one felt that what they were doing was right and correct, and each one was equally familiar with federalism and everything else and separation of power, but there this Court made the determination.

Also in the Nixon tape case you had the same problem where you had--

Unidentified Justice: Yes, but in this case you have a peculiar situation, because the issue is one that vitally affects the states, and they are the ones who, in turn, have the primary control over Congress through their own representatives.

William T. Coleman Jr: --Well, I... I--

Unidentified Justice: Which is not true in the Chadda situation or the Nixon tapes.

William T. Coleman Jr: --Well, I would suggest if you call up any... any governor in any one of the 50 states and... and ask him whether he thinks that his state is protected in everything that the state wants to do because there's two Senators down here from that particular state or that members of the House are down here, I... I just don't think that you can say that the... that the... that the states, because they have members in the Congress, are nevertheless... don't have a separate, independent interest which sometime is not reflected.

And once again I say that even though in other cases you can say this, here you have to recognize that the reason why Congress did what it did was because you decided Maryland v. Wirtz, and now you've overruled Maryland v. Wirtz.

So at least you ought to uphold the court below and send... and say that the statute is unconstitutional; and then if Congress wants to take another look at it in light of the fact that they don't have all the power that they thought they had, then at that point the... the presumption... the presumption argument might make some sense.

But even though there's a presumption, I still think ultimately the Congress... I mean this Court is the one that has to make the decision whenever there's a conflict between the... the federal government and the state.

Unidentified Justice: Mr. Coleman... Mr. Coleman, after all, regardless of how members of Congress are elected, the Congress of the United States is a part of the federal government, isn't it?

William T. Coleman Jr: Yes, sir, that's true.

Now, the... the other point I'd like to turn to is the... what impact of the... does the Fair Labor Standard Act have on public transit service.

First, we all know that both National League of Cities and EEOC says that an assessment of actual impact is not necessary to resolve... to resolution of the states' immunity.

The federal government concurs in its brief in the lower court or this point.

It is not the millions of dollars of extra compensation that is at issue here.

It is the displacement of state policy choices that creates the impermissible intrusion.

That interferes with an attribute of sovereignty, and therefore threatens the separate and independent existence of the state.

The state, here, unlike in FERC, have no choice between providing the service consistent with federal law or opting not to provide it.

State and local governments do not have the budgetary resources to adopt costly federal requirements whenever imposed.

Most state... most state constitutions require a balanced budget or set a limit on debt.

Since labor costs are about 65 to 73 percent of the operating cost of transit, the Fair Labor Standards Act costs may be tremendous.

State and local governments with public transit services will be forced by the FLSA to choose between raising fares or curtailing services.

The person most hurt by this will be the poor, the elderly and the disadvantaged who depend on public transit to get to school or work or to their other basic... or for their other basic needs.

SAMTA, for example, at rush hour 60 percent... 66 percent of all riders are Hispanic, 14 percent are black, 84 percent have incomes of under $15,000.

Bus drivers, like policemen and firemen, must meet the public need for essential services.

Schedules and working conditions are designed to respond to these needs.

They cannot be tailored to eight-hour days.

Furthermore, compensation is geared to the unique conditions in the transit sector and do not mesh with the requirements of the Fair Labor Standards Act.

Through the years, special premiums have evolved to compensate transit operators for split shifts, early sign-in and travel time to locations other than principal bus depot and other unique scheduling requirements.

Under the Fair Labor Standards Act, these special treatments may be included in the regular rate, and therefore would greatly increase the amount of overtime cost for transit.

The Solicitor General's only answer is that cities and states should renegotiate their labor contract.

And I just ask you to look at all the problems when you ask any union for give-ups, and it seems to me that the one thing that National League of Cities made clear is that you ought not to impose that type of disruption the state.

And it does not lessen the undeniable fact that the states' ability to make policy choices now and in the future would be displaced by federal regulations.

Also, in certain of these cities when the transit system is acquired, the people get slotted into the general civil service ledger for other city employees.

Now, can you imagine a mayor faced with the problem where he's negotiating with the... with... with policemen and firemen, and you say the Fair Labor Standards Act doesn't apply, but the people performing the same type of work on a transit company, you say oh, gee, the Fair Labor Standards Act does apply here.

To be accountable and responsive to all the citizens of the local community in the provisions of important public service and to be able to experiment, as Justice Brandeis thought so important, state and local governments must have the capacity to make the political judgments about fares, general and special tax increases, services and the costs of providing local public transit.

To subject one essential element of this local political equation to remote proxy control in Washington undermines the state's political capacity to be responsive to the community it serves in providing these governmental functions that uniquely must be provided at the local level.

We urge you, Your Honor, to affirm the decision of the court below.

Chief Justice Warren E. Burger: Do you have anything you can cover in thirty seconds, Mr. Solicitor General?

ORAL ARGUMENT OF REX E. LEE, ESQ., ON BEHALF OF APPELLANT DONOVAN -- REBUTTAL

Rex E. Lee: Just this point, Mr. Chief Justice.

Unless tradition does refer to what's happened in the past, then some opinions of this Court are going to have to be written... rewritten as well as some dictionaries.

Unless it is an historical test, then there is to be no effective vouchsafer for the principle unanimously announced by this Court in Long Island that states are not to have the power to erode federal authority.

Just as much... just as there must be some... my time is up.

Chief Justice Warren E. Burger: Thank you, gentlemen.

The case is submitted.

We'll hear arguments next in alexander v. Choate.

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Argument of Charles S. Rhyne

Chief Justice Warren E. Burger: We'll hear arguments next in 74-878, National League of Cities against Dunlop, and 879, California against Dunlop.

Mr. Rhyne, you may proceed whenever you're ready.

Mr. Rhyne: Mr. Chief Justice and may it please the Court.

The appellants here states and cities challenge the constitutionality of some 1974 amendments to the Fair Labor Standards Act, which covered the -- all the remaining employees of states and cities under that act.

The way it was done was by declaring all states and all cities to be commercial enterprises and under that enterprise interpretation to apply all of the regulations of the act to the states and cities.

But first of all, I'd like to point out that this is not a minimum wage case.

It isn't a case involving the low paid people.

It's the application of this act to their relatively high paid people, the wiping out of state and local Government civil service laws, processes, procedures, the forced restructuring of the way that they will render far service for example, it is the -- which results in enormous increases in cost.

These are the things that the states and the cities complain of and say to this Court that this act is really a very massive complex regulatory act which in affect reaches every employee, be he working in the executive, legislative, or judicial branches of state Government.

Now, there are some exemptions for elected officials and their confidential age and for professional people.

But, the interesting thing about the application of this act in the claim repeatedly that is to correct substandard labor conditions is that in the entire record made over three or four years in the Congress, the appellee's predecessors in the Department of Labor were only able to find they claim.

95,000 people out of 11,400,000 who in 1973 they thought could be covered by this act, who where getting less than the minimum wage and we doubt frankly that figure because it shows here in the record that firefighters get $12,000.00 a year, the highly publicized New York garbage collectors and sweepers get $20,000.00 up to $24,500.00, and out in San Francisco, they get almost as much.

So we're not talking about minimum wages, we're not talking about substandard conditions.

What we are talking about is a basic restructuring of Government in the United States of America, big change in our federal system of Government whereby for the first time, in all history, the federal Government is asserting power over every state, over every city and every employee they have.

There can be no question about that because as appellee admits, you have to keep a record for even the exempt people.

So this is a massive takeover, it's in the massive overlapping duplication, nullification of civil service, debt limit, tax limit, budget limit laws and it affects this vast change in power and we talked mostly about power.

Appellee talks about payroll cost and say they are nothing but we talk about power of Government and we say here that the federal Government is asserting jurisdiction for the first time over their most important element in every state and local budget for personnel cost.

Cities have 80% to 85% of their budget in personnel cost.

States, California has 76% and other states are similar.

So, we say that this act is a massive takeover of functions that had been performed on the local level since the founding of our nation.

I used one illustration of the wiping out of ballot box control.

In the record pages 4, 14 and following, there's a copy of the New Jersey statute.

That statute applies to the platoon system for fireman.

It says you have the fireman on 24 hours, off 24 hours, and they can work 56 hours a week, but only after that has been approved by referendum of the local voters and no one can look.

If the regulations were promulgated on the 20th of December 1974 by the wage in our administrator for the Secretary of Labor and not see that this New Jersey statute is wiped out completely.

And all across this nation from the New England town meetings to the referenda that they are so popular at West where they have a referenda almost on everything, every time we have had a fundamental increase in money or fundamental change in providing unique services uniquely needed by a particular city or state because of geography and other reasons, there's always the possibility new other people voting on it as they did in New Jersey.

But under this act and under the actions of the appellee that ballot box control is gone forever.

Now, this act as I say is a massive imposition down at top of massive legislation that's already in effect, affecting states and cities.

This is where they spend most of their money.

Mr. Solicitor General, I didn't mean to hit you.

They spend as I say, 85% of their money on personnel and they have a very -- carefully down through the years developed civil service and tenure laws for their people.

And now, instead of -- and I think this illustrates it best.

Instead of looking to the city council, looking to the local processes, procedures, the Civil Service Commission of the City of New York are the Civil Service Commission in the State in New York.

What they do here is they look to the appellee, the Secretary of Labor and they looked to the Congress because once this power is established, every kind of employee in this whole nation has to go to the Congress or can go to Congress to get their employment status changed.

So they no longer look to City Hall, they no longer look to the state capitol.

This is a vast change in the outlook and the power and it's the centralization here in the federal Government of power over the most important group, because the cities are bundles of legal powers.

They can only act through people and this act touches every one of them.

It's an assertion of sovereign power over every employee of a state and city throughout the nation.

One of the experts that I would like to call the Court's attention to, to nail down how complex, to nail down how massive, to nail down the fact that this is a double standard of hours and wages is the Chairman of the Civil Service Commission.

The Chairman of the Civil Service Commission appeared and I quote from about three sentences from page 9 of our brief.

He appeared on the 26th of February 1975 before the Committee on Post Office and Civil Service in the House of Representative and this is what he said,“The extension of the Fair Labor Standards Act to federal employment is a case in point.

It adds a new set of complex provisions to the already existing provisions of Title V.

It creates two standards, governing pay and hours of work.

It results in double record keeping and double work.

It is an extremely high administrative cost --

Justice William J. Brennan: Mr. Rhyne, what are you talking for us?

Mr. Rhyne: I'm reading three sentences from page 9 of our brief Mr. Justice Brennan.

Justice William J. Brennan: But why --

Justice Potter Stewart: -- your replied brief.

Mr. Rhyne: Yes, I'm sorry.

Justice Potter Stewart: By of April 12?

Justice Potter Stewart: Yes.

On page 9 down in the middle of the page, I'm reading three sentences from the testimony of the Chairman of the Civil Service Commission who spoke of how complex this act when it's imposed down upon the civil service system of the United States of America and how it imposes double standards, double bookkeeping, double work for negligible benefits.

Now, it's even worst for states and cities because while the Congress gave this regulatory power to the Civil Service Commission so that disruption could be avoided.

Just think of what it's doing to the states and cities, we were all placed in with commercial enterprises before the Secretary of Labor.

We have in the act and in its application in this power shift, so many instances similar to the one I cited in the New Jersey where the existing law of states is wiped out, where the existing processes, procedures and such with respect to employee rights is wiped out.

Now, another thing this act does, it brings a whole new set of definitions of overtime of who is an expert.

There are 51 pages in the Code of Federal Regulation about who about what overtime is.

There are 42 pages defining who is an exempt person.

Now, the Civil Service Commission that we quoted in our brief said they're going to define themselves who is an exempt person.

But my major point is that there is such a vast shift in power to say what overtime shall be, just say who shall be exempt.

All these kind of things when you impose those down on the area where states and the cities spend the majority of their money, where they have developed all these rules and regulations as in New Jersey for years and years, and their people have voted them in or voted them out and that's all gone now.

You're going to have it imposed from on high by the Secretary of Labor or by the Congress.

The big impact in one area I think is most dramatic and that is in the area of voluntarism.

In the United States of America, in Government areas, we depend more on volunteers than any other system of Government in the world.

And if the local level, we have volunteer fireman, we have volunteer police, we have volunteer of this and volunteer of that, there are millions of them.

Now, this act when it was written, it defined employ as to suffer our permit to work.

Now, that's all right insofar as private industries are concerned because they don't have this volunteer problem.

But look at the states and cities who sometimes pay a volunteer fireman $2.50 to go on each fire, look at the situation that exist where they sometimes give the volunteer policeman uniforms and they sometimes pay insurance on them.

Now, the only answer to that appellee is well, you just have to take it case by case as to where.

A volunteer crosses over the line from being a volunteer to being an employer or employee.

And so, that creates this consternation all across our nation and in other area, it's going to be very, very damaging.

At the local level, we use thousands of interns.

Now frankly, the interns are not worth that much to local Government, it's more of a favor to the intern to bring then in then it -- to a really a benefit for a state or city.

But now, they are going to have to be paid if certain things occur because of the interns have to leave and you pay him a little bit, you're going to have to pay him a lot.

But there's another area where this whole thing really hurts.

Many of the volunteer firemen, as the record showed, many of the volunteer policemen are already, let's say a city engineer or schoolteacher.

Now, if they go out as a volunteer on a fire or for some as a policeman and they worked in addition to their 40 hours as an engineer or schoolteacher, a few more hours and they are rule to be an employee during their volunteer time because they receive some minor compensation.

Well, the act says that you've got to pay them time and a -- over -- time and a half for overtime at their same rate of pay.

Their may be a highly paid engineer getting $25,000.00 a year and when you look at paying him overtime for his volunteer firework or as volunteer police, you just mess up the structure of voluntarism throughout our nation.

I don't think there's ever been anything that has so cost, confusion, and this massive confusion was referred to by Mr. Alan Prichard, the Executive Vice President of the League of Cities in the record here saying that, “No one could really tell where you are and where you're going because you have all of these complex regulations imposed suddenly down on already complex, already regulatory regulations of the status and tenure of city employees."

But, perhaps, one of the most devastating fears of states and cities is that this act creates class actions.

Now, you don't have class action against cities under their current set up but they do have fair hearings, they do have court cases, and as we point out giving any time, the one-third of all litigation before state courts is really involving personnel matters.

So here, you have this act saying that you can either -- the appellee or an employee can bring a class action.

His attorney gets attorney's fees, it gets cost, and you get double time, triple time if you win.

Now, from a state in determining whether a man has crossed that line as a volunteer, from a state is to whether the intern gets too much, the damage is enormous because they can make a mistake of fact or law.

In a city like New York, it cannot run up to enormous, enormous cost.

Justice William H. Rehnquist: Mr. Rhyne.

Mr. Rhyne: Yes.

Justice William H. Rehnquist: I supposed that Darby Lumber Company probably made most of the arguments you're making now when it sought to challenge the exercise of Congress under their commerce for passing the Fair Labor Standards Act to applicable or private business.

Certainly, private business is when if the act went into effect in 1938 had to make very, very significant changes.

I take it -- your point is that not only other changes but that this is somewhat different than just the Congress imposing regulation on a private business.

Mr. Rhyne: Yes, Mr. Justice Rehnquist, it certainly is.

I think commerce is commerce and business is business.

And in this area here, you didn't have a lot of private business that had laws.

You see, private business can't legislate, adjudicate tax and so they're an entirely different category than the private businessman.

He can immediately adjust to take care of any cost.

So these in states have to give all kinds of notices or a wait until you come around for the next budget year and things like that.

So, I am not sure at all that Darby presented the same kind of impact.

I don't think so because you didn't have the civil service laws in states similar to the federal service law.

You didn't have all of these appeals that you have there through Civil Service Commissions or personnel commissions.

You didn't have all of that kind of thing and you certainly didn't have the volunteer situation in Darby.

So, I think this is entirely different in -- actually, the basis of our whole argument is the distinction between Government and commerce.

And so, I would --

Justice Byron R. White: Well, have you made any arguments that were made in Maryland against Wirtz?

Mr. Rhyne: I think we have Your Honor.

I think that we have here presented the massive impact of this act upon states and cities looked upon as an entirety.

Now in --

Justice Byron R. White: So you would leave Maryland against Wirtz alone?

Mr. Rhyne: I would not.

I would not.

I would say in Maryland v. Wirtz --

Justice Byron R. White: So you think we must overrule Maryland against Wirtz?

Mr. Rhyne: I would say -- I would like to see it overruled.

There are some distinctions but I can't tell you that -- what the distinctions I draw.

Justice Byron R. White: But the hold for you must be overruled Maryland against Wirtz?

Mr. Rhyne: No, but I think it should be.

I think like the lower court which said it was troubled and that the broad language of Wirtz that this Court might want to call back from.

Justice Byron R. White: I supposed you did think of a lot of cases in the books that you think about to be overruled, but --

Mr. Rhyne: Well, I'm just thinking of this one right now.

Justice Byron R. White: Well I know you're thinking of this one, but why is it involved in this case, Maryland against Wirtz?

Mr. Rhyne: Why isn't it?

Justice Byron R. White: Why is it?

Mr. Rhyne: Well --

Justice Byron R. White: Why do you think we should overrule it?

Mr. Rhyne: All right.

I think you should overrule it number one, because it is so fuzzy.

You can't really tell.

I'm going to the ultimate now what it decided.

You left open for example the ultimate consumer question --

Justice Byron R. White: But why is it involved in this case?

Mr. Rhyne: Why is it?

Justice Byron R. White: Yes.

Mr. Rhyne: Because after looking at the enterprise system and upholding it as applied to all these private business criteria and all those private business cases, the next thing the court did, the majority opinion was to say now that we have upheld that act as applied to this criteria of nexus to commerce that's always been applied in a private business thing, we don't find enough of impact on states here to bring the Tenth Amendment into focus.

Now, of course hospitals and schools, they don't legislate, adjudicate or tax, and so, there's an -- and then to the -- the court pointed out, there's a court below who found that these schools and hospitals were in competition with the private business.

So, I would say to you Mr. Justice White, we are presenting an entirely different in many ways, factual picture to you and we think that distinguishes Wirtz there, but we also think that as the dissent in Wirtz said, “If we uphold this enterprise system as to schools and hospitals, then the Congress can declare an entire state or an enterprise and the federal Government can regulate its entire budget.

Chief Justice Warren E. Burger: But if you can distinguish it, that seems to be one of your objectives, why not tell us what you --

Mr. Rhyne: Well, the distinction is out.

I withdraw Mr. Chief Justice are these: Number one, the court didn't decide this ultimate consumer question you have here now before you in Brennan v. Iowa.

Number two, it seems to limit the application of the act to those schools and hospitals who are in competition with private schools and hospitals.

And then finally, it seemed to say to the dissenters when they say you can take over a whole state by declaring an enterprise.

The comment was not while this Court sits.

So, I think that there are factual distinctions there which showed that Wirtz hasn't had the impact on state and local Government that this massive takeover that we have here has had.

So -- but I still think that the court should have in Wirtz considered the principles of constitutional federalism which we urge upon this Court and it didn't.

It just said because we've already upheld this, commercial enterprise, the Tenth Amendment doesn't mean anything.

We go ahead and apply it.

So, I would say to Maryland versus Wirtz that it does not control this case because I draw from the principles of constitutional federalism and certainly, we have in our briefs going into this very, very deeply.

This general rule that under the constitution at it was written even prior to the Tenth Amendment, all of the framers of the constitution were enunciating this idea that the federal Government could not and would not interfere with the states in their area of operation as Mr. Chief Justice Marshall said in MCulloch v. Maryland and vice versa.

There would be no interference.

And where do I find that rule?

Well, I find it in the debates on the constitution of 1787.

I find it in the Federalist Papers.

I find it in the decisions of this Court.

I find it in statements of two Secretaries of Labor who opposed the application of this act to states and cities because it would be an undue interference and undue disruption and might bankrupt some of the small cities of this nation.

I find it in the veto message of one president.

I find it in the statements by the Intergovernmental Relations Commission, which is the expert commission set up to look at these things.

I also find it overwhelmingly in the interpretation which the Congress itself has given to this intergovernmental relationship from the beginning of our constitution until now.

In statute after statute, they have exempted states and cities for this very constitutional reason and even in this act up until 1966, it was complete exemption, they didn't take out that complete exemption until they brought public agencies in now as commercial enterprises.

So, I think our founding fathers understood the difference between Government and private business all through that constitution.

There's more than a hundred mentions of states, only states can bring an original action here, no private person can do that.

I believe there has been an awful lot of fuzzy thinking about everything in our whole nation being commerce and it isn't.

Certainly, the act of a policeman in making an arrest isn't commerce.

The act of a fireman in putting out a fire isn't commerce.

The act of a judge of a state or of a city in deciding a case isn't commerce.

The action of a zoning board in deciding a zoning, it isn't commerce.

Now, all of this kind of thing Mr. Justice White was not presented in Maryland versus Wirtz as far as I can tell and I've read all the briefs in that case and there's no reference to it in the majority opinion.

And I think these are the kind of things that the dissenters were concerned with when they were saying you get a mighty small little perspective on this whole problem when there is looking at hospitals and schools.

And now, we're presenting the whole picture, and when you look at the whole picture, there's certainly a massive intrusion, a massive control by the federal Government for the first time in the history of our nation of every person, every service rendered by states or cities because what this act does is it re-spummels the way they're going to do for service, it re-spummels the way you're going to do a lot of things.

And we say that it imposes enormous cost and when you impose enormous cost, that's one thing, but the big thing we talked about is the shift in power, the shift in power from the states to the federal Government.

Now, do we want it?

Isn't this a massive interference with our constitutional system of shared powers, our federal system?

We talked about federalism, federalism, federalism.

Well, federalism has served this nation very well and up until now, states and cities who are urged have fairly taken care of their employees, who have collective bargaining of statutes and agreements and there are thousands of their members belong to unions as you can see from the amicus brief here.

All of that was never forcefully presented as far as I can tell in Maryland versus Wirtz.

And here, I could not say it -- more strongly than I have, I just think that we're looking at such a major shift of governmental power in our nation.

Something we have never had before and when you look at the necessity of it, what does the appellee said?

He says that in 1973 when they were considering this act, it would only increase the payroll cost of states and cities three-tenths of 1%.

He says also in 1974, it only increase the payroll cost and that would be $120 million a year incidentally.

And in 1974, it would increase the payroll cost only one-half of 1% or $165 million.

He says these police and fire regulations that he put out in December will only cost $27 million.

Justice William H. Rehnquist: How many employees are covered by these amendments?

Mr. Rhyne: Mr. Justice Rehnquist, all employees of states and cities are covered because you have to keep a record on each of them.

Justice William H. Rehnquist: Oh, how many are those?

Mr. Rhyne: 11,400,000.

Justice William H. Rehnquist: And the ones that exempt from the --

Mr. Rhyne: Under the professional exemption and such?

Justice William H. Rehnquist: Yeah.

Mr. Rhyne: We have a great dispute among us is to how many that is, the elected people.

So I think the safest thing for me just to say is; we are looking at the whole of it because they require that a record be kept with respect to the state court judges, all the exempt people.

So I think that the pervasive nature of it, the fact that it touches everybody that a state or city employed, I don't think can be dispute.

Justice William H. Rehnquist: What if you look at it from the point of view most favorable to the Government; that is the most limited number of people who are actually affected by the minimum wage and overtime provisions.

Mr. Rhyne: Your Honor, I don't believe that that changes in the slightest, because de minimus impact doesn't create constitutional power and as I read; all the background of the constitution and history of it up until now.

Chief Justice Warren E. Burger: Well, does this record show how many would fall into this exempt class under the 11 million and 4?

Mr. Rhyne: It doesn't show it absolutely Your Honor.

They try to contend.

Of course, there are very few covered and we say well everybody is covered, and we don't have figures as to the exact numbers.

Now, they claim that very few were covered under the hospital, thing very few covered here.

I think they would probably claim that less than half of all the 11 million and 4 are covered.

But I say that has no constitutional significance because they claim power over them all.

Justice William H. Rehnquist: Well briefly, if less than half are covered, that could still be what, four or five million?

Mr. Rhyne: Yes, I think they will admit up to six million.

Justice William H. Rehnquist: Well, I wouldn't call that de minimus.

Mr. Rhyne: Well, the -- they say that has a -- only a showing that they're not covering everything.

I don't call it de minimus either.

But, they are attacking the statement made by Congress that because in the overtime area for example, states and cities have such fair overtime premium laws now that there would be less than 1% added to the payrolls by the new overtime provision of this act and things like that.

Now, I just think that de minimus, de minimus, de minimus, doesn't create constitutional power.

And I find here in all of this history of constitutional federalism a sturdy, steady unwavering adherence by everyone up until now including the decision to this Court that the constitutional federalism is something that limits everything where you have -- in the constitution where you have a conflict between two Governments.

You have the tax power, you have the bankruptcy power where time and time again this Court had said hands off states, hands of cities.

You have cases like in the transportation field where over Maryland versus Johnson for example where the court held and Mr. Justice Holmes wrote the opinion.

He said, “Don't try to get us to decide this on these commerce cases involving private entry have nothing to do with it.

What we're talking about here is Government.�?

And so on the basis that he held it was invalid from Maryland to charge a postal truck driver a $3.00 driver's license fee.

So, the amount regardless of how many you have on either side should not decide this case because I think on this record, it is beyond question that the Congress is claiming power to regulate every state and city employee.

And I believe that the factual picture of this overwhelming massive change in Government, the centralization here of everything with everybody running to the Congress as they want to change in time or in their personnel status.

Thank you.

Chief Justice Warren E. Burger: Thank you Mr. Rhyne.

Mr. Jones.

Argument of Talmadge R. Jones

Mr. Talmadge R. Jones: Mr. Chief Justice and may I please the Court.

I bring to the Court what must surely be a simple and true proposition but which is nevertheless escape the attention of our distinguish Congress; namely that the states are Governments not commercial enterprises.

We examine today the constitutionality of the 1974 amendments to the Fair Labor Standards Act, an effort to convert the states into enterprises and thereby regulate and control the minimum wages in the maximum hours of their respective employees.

I wish to briefly outline the an foreseen consequences of the amendments on the California civil service system and then time permitting and if really necessary to point out the unconstitutional dimension of this unprecedented intrusion into the severance sphere of state Government in the name of commerce.

If I may, I'd like to turn to a purely governmental function of state Government namely fire-suppression; certainly, that is unique to the states in the cities in the counties.

I think our brief is out of what we pointed out the physical impact, but let me give you a few statistics and show you why a fireman is not a fireman.

California does not operate a Norman Rockwell type fire department with the friendly Dalmatian sitting in front of the station house.

We're 700 mile in length and we have 61 million acres of force that we protect out there, you could squeeze in eight of the North Eastern States into the State of California and still have room left over.

We have more wide land undeveloped acreage then the library of Congress has books.

Its rugged topography, it takes you three hours to get to a fire many times, sometimes you have to come in by parachute.

40% of the United States Force Service budgets is spend in the state to California in 18 national force.

And when we have fires we have fires, we don't extinguish fires; we have wars against fires.

They last for weeks.

In 1970, we lost over 500,000 acres.

At one point in one single period in a 13-day period at one peak, we have nearly 20,000 fire fighters on duty in the State to California fighting fires.

Chief Justice Warren E. Burger: Where these all full time or that includes volunteers?

Mr. Talmadge R. Jones: These were professional fire fighters Your Honor.

Chief Justice Warren E. Burger: Full time professional --

Mr. Talmadge R. Jones: Full time fire fighters from the cities, the counties, the state, all joining together to fight this tremendous holocaust we have in California.

Chief Justice Warren E. Burger: What are the total number of employee as in California if the record shows its --

Mr. Talmadge R. Jones: The total number of permanent personnel Your Honor is over 2,000 in the California division of force.

Chief Justice Warren E. Burger: I'm not speaking of just the force; I'm speaking of all public employees who would be subject to having their wages fixed under this act not just reporting.

Mr. Talmadge R. Jones: I can't give you the exact statistics on that, although I think the court can take judicial notice of the fact that in California, there's more Indians than there are chiefs; namely, the supervisory and professional executive exempt what the Department of Labor claims exempt and we still don't know who those are.

Those are far less than the number of employees that are covered.

Chief Justice Warren E. Burger: The State of California must know how many public employees there are in state of local Governments.

Mr. Talmadge R. Jones: We have -- if you want the raw numbers, we have over 200,000 total state employees.

Chief Justice Warren E. Burger: That's what I was trying to get on that.

Mr. Talmadge R. Jones: Okay.

And I'm sure that if we can extrapolate, I'm sure we have over a 100,000, at least a 100,000, that will covered by the FLSA amendments.

Now what's the point of this dramatic recitation of mine on the fires in the State of California?

Well namely, this firemen run up a lot of overtime and our practices then according to state law to give this man a premium during the entire fire season of 15%, they suddenly jump grade 15% during the whole season.

And the overtime they worked, they taken the winner months which they prepare so they can work secondary jobs and visit with their families during the holidays and the like and you don't hear that California employees association complaining about the current arrangements.

Yet according to Fair Labor Standards Act now, we've got to reduce these men to 60 hours per week and pay them time and half for every hour in excessive that, and our ability to recognize this overtime in order than cash is completely eliminated because the Fair Labor Standards Act requires that if you going to give them compensating time off, you have to do it within 28 days or pay the bill.

Now, what possible business is it of the federal Government to dictate how we run our fire service program in the State of California when it's been proven satisfactory for all these years?

The impact is $23.6 million annually to change our practices in accordance with the Fair Labor Standards Act.

What about volunteerism?

Mr. Rhyne mentioned volunteerism.

In California, the cities and the counties work side by side in a mutual aid program that is unmatched any place in the country.

They furnished these services to each other gratuitously.

In some of the type of fires I mentioned a moment ago, the big ones, the uncontrollable fires, the Fair Labor Standards Act is going to wipe that out.

The impact on mutual aid alone in California is $6 million because volunteerism -- because these firemen are firemen.

When they're pulled in to cover a reserve unit while the rest of the crew goes in helps a neighboring jurisdiction, overtime rule start applying and the bill is a big one.

We may point out that the national league statistic on this thing on the effective this act nationally is very conservative.

They estimated it $200 million and they base that on paying overtime to all the firemen affected.

That's a conservative figure.

What the Fair Labor Standards Act would like us to do and what we've base our statistics on the State of California is reducing those hours and hiring new employees.

The act wants to hire new employees.

So if you take that figure, if the national league had gathered those figures, we be talking about $400 million annually to state and local Government.

The other adverse effects on civil service have been demonstrated by Mr. Rhyne I think very well during his argument.

Another thing that you don't realized when you start fooling around with the working class salary at state levels is that you suddenly create compaction problems in the supervisory classes too.

Let's remember that if you start paying overtime and adjusting the wages of the working line firemen in state in local service, you're going to be paying the Indians more than the chiefs and that's not going to last very long.

So the rippling effect all the way up through civil service is going to be felt and we have no idea what those figures are going to run but they're going to be big ones, and once which we think can't be supported in fact or in the constitution.

Justice William H. Rehnquist: Well, Mr. Jones about a generation ago, the State of California was back here saying it was none of the federal Government's business how it run the beltline railway.

And, this Court in the anonymous opinion give fairly short shrift to its argument said that if Congress wanted to exercise the commerce's power that was Congresses prerogative.

Mr. Talmadge R. Jones: It's my distinguish colleagues in the Office of the Attorney General have taken the broad of this Court on three different occasions, on the federalism issue.

And the Solicitor General argues, these are the wrong facts, this is the wrong time and the wrong place to draw any lines on the Commerce Clause.

I disagree.

I think if you look at those early cases, you'll see they're easily distinguished from what we're talking about here.

Let me emphasis that virtually all state employees are covered under this act.

Chief Justice Warren E. Burger: I supposed one difference is that the State of California or any other state can run or not run a railroad but they have no choices about running or not running a police departments and fire departments.

Isn't that one that's been --

Mr. Talmadge R. Jones: That's correct Your Honor and that's the very next point I was getting to.

Solicitor General argues that the FLSA does not affect the policy making powers of local Government, but merely the means by which we implement that policy.

You're point Your Honor is right on point; namely, there is no election.

There is no election.

We have to provide fire service, and police, and law enforcement.

Mr. Justice Marshall said in his concurring opinion in the employees of the State of Missouri versus the Department of Public Health, when we were talking about Article 3 Immunity of the States that the states couldn't waive their immunity because they have no election.

They have no option.

You can't waive what you have no opportunity to waive.

You have to provide fire service.

You have to provide police service.

Therefore, any imposition by the federal Government is a mandate.

It has nothing to do with discretion.

So, let's be clear that this Fair Labor Standards Act is a direct intrusion, a mandate into state and local Government.

We'd loved to the words case overruled because Congress, when they read your words, what we think are clear words, they misconstrue them.

Thus in words, you warned in the response to Justice Douglas and Justice Stewart that under the enterprise theory, you convert the entire state into an enterprise.

That's exactly what Congress has done.

They've turned the states into a commercial enterprise.

Look at Footnote 27.

Justice Thurgood Marshall: What you want this Court to do is to decide this case on its facts and then in the last sentence say and while we had it, we overrule round against words.

That's really what you want?

Mr. Talmadge R. Jones: That's an excellent suggestion Your Honor.

Of course, in my brief at least on behalf of the State of California, I haven't said that directly but I have attack words from so many sizes that you have to draw that conclusion.

This is not a words case.

The state is not an enterprise.

This Court specifically held in many cases involving federal acts that if we were going to talk about what affects commerce and you want to talk about enterprises affecting commerce, then, be specific.

And I talked about two recent cases of this Court, very recent cases, not two months old.

Lament, the lack of specificity in these federal acts.

Justice Thurgood Marshall: Those two where we headed?

Mr. Talmadge R. Jones: That's on this Your Honor.

I think that you held in one of those cases that Congress said not been specific.

They haven't been specific here either.

We're not talking about schools and hospitals, in fact they took schools and hospitals right out of the act.

And now they say, “All state employees�?, except to the Department of Labor at its pleasure decide should be exempt.

We think that words of course is irrelevant.

It could be overrule simply on the fact that because the state purchases goods in interstate commerce, it's thereby engaged in interstate commerce.

A question this Court has never addressed itself to is what do the states and cities and local Government do with the goods they purchased in interstate commerce?

Do they mark them up and sown with the public?

Absolutely not.

Even the Fair Labor Standards Act itself recognizes that ultimate consumers of goods purchased in interstate commerce are exempt.

This is been an implied recognition at least on our part that people like states who consumed goods, they don't pass them on, our ultimate consumers exempt from the act but of course California doesn't compete.

The lower court found that to be true.

We don't complete in interstate commerce.

You won't find California recruiting state employees.

They're waiting in line in the civil service roles in the State of California to join state service.

Art state employees are among the five highest paid in the country.

So, don't tell me about competition.

We don't compete.

We don't run ads in the New York Times which I've seen in one of the amicus briefs.

And what about labor strife, that's another rational that they're trying to hit us with.

No labor strife in California.

State employees go out on strike, we get things call injunctions and they go back to work.

And I haven't -- nothing has been pointed out to me showing that there's any labor strife in California that requires the Department of Labor to regulate local activity.

Your Honors, the Fair Labor Standards Act touches the very heart of state sovereignty as a patent denigration of the constitutional right.

Yes, I said, the constitutional right of the sovereign states to deal with their employees in a manner best suited to local needs.

Simply stated, the act is unconstitutional and we hope and we trust that this Court will so hold.

Thank you Your Honor.

Chief Justice Warren E. Burger: Mr. Solicitor General, there's only one minute waiting before lunch.

I think we'll not ask to speak for one minute.

We'll resume after 1 o'clock.

Mr. Solicitor General.

Argument of Robert H. Bork

Mr. Bork: Mr. Chief Justice, may it please the court.

I take it to the crux of the argument we're having today is really the impact of the 1974 amendments upon the Fair Labor -- to the Fair Labor Standards Act upon state in local Government sovereignty or to put another way upon the system of federalism established by the constitution.

I think the issue therefore is whether Maryland against Wirtz should be overruled in the position of the dissent there become the new law.

I intended about myself primarily to that question because the preliminary matters seemed to me to be too plain to require much additional extended discussion.

Chief Justice Warren E. Burger: I take it that means you see no difference between policeman and fireman on the one hand and hospital attendants on the other for constitutional purposes.

Mr. Bork: Not for the purposes of this case Mr. Chief Justice.

This does not -- the statute does not require state to give up any payments or any number of policemen and firemen state if it does financially pinch.

And I think it will not for reason that will come too can give a peripheral services which are not inherently governmental, which in no sense of the word are inherently governmental.

Chief Justice Warren E. Burger: That becomes the business of the Congress of the United States that they should give a peripheral service.

Mr. Bork: It's not the business that Congress of United States to tell them what they must give up and the statute is not.

Chief Justice Warren E. Burger: Transposition, if that's the bound on this wound that you're thinking about this morning?

Mr. Bork: No.

I think in the first place Mr. Chief Justice, I failed to see the wound for reasons I will develop.

But in the second place, I think this is a very unintrusive statute, much less intrusive than many kind of statutes that are concededly valid under the commerce power.

As we've said, this statute does not tell a state that it must give up any objective or that it must pursue any substantive object or any program.

It leaves the state free entirely to choose all of its programs, keep them all abandon anyone that sees fit, but it does not have any policy control over the states as many federal statutes do which are valid into the Commerce Clause.

But I thought I would spend a moment upon the Commerce Clause predicate here before coming to the issue of whether federalism isn't some sense threatened.

I think there can be no doubt that interstate commerce is involved when state and local Governments in 1971 purchased goods and services worth $135 billion which was at that time 12% of our gross national product, and I think there can be no doubt of a significance of these 1974 amendments to interstate commerce when we realized that they extend the coverage of the act to an additional 3.4 million state and local Government employees.

The 1966 amendments upheld in Maryland against Wirtz extended the coverage to 2.9 million employees, so that there are now a total of 6.3 million employees protected by the Fair Labor Standards Act.

And there are variety of reasons why this wage is an hours long is rationally related to Congress's power to control commerce.

Now, I'm really sketch because I think they've been upheld in so many decisions of this Court that they need not be argued at length.

But first of course is simply that substandard working conditions can lead to labor disputes which interrupt the flow of goods and services across state lines.

Justice William H. Rehnquist: Of course, the kind of reasons you have giving now are equally applicable to a private business.

Mr. Bork: That's what I meant Mr. Justice Rehnquist when I said I would spend just a moment on the predicate treating this as a commerce power case before we come to the special problem, appellant's raise about the fact to the state and local Government.

That labor strife theory of course is in the congressional findings in the original act.

It is a basis for this Court upholding the 1966 amendments and their application to state and local Government in Maryland against Wirtz.

It was advanced by Senator Javits in debate in advancing the 1974 amendments and of course it is the theory under which the National Labor Relations Board -- National Labor Relations Act was upheld in Jones against Laughlin.

Competition again between governmental units and private industry which is required to comply with the Labor Standards Act is an unfair method of competition.

Third, competition between Governments exist and if some Government is used substandard labor conditions and compete with other Governments for new industries, new residence tourist and rather than raise taxes lower working conditions, they will tend to spread those working conditions to other Governments that are trying to compete for the same industries and rather than for tourist.

And in that connection, I would call the Court's attention to the brief, amicus curiae filed by the State of Alabama, Colorado, Michigan, and Minnesota, states who apparently feel that their sovereignty is not seriously threatened here.

And at pages six and seven of that brief which I will not go through, they explained the competition between Governments and why that competition justifies the kind of statute amendments we have here.

And particularly, I would call the Court's attention to the advertisements in the appendix which showed the State of Massachusetts advertising in the Sunday New York Times in March of this year to attract industry with tax incentives and the State of New York advertising in Fortune Magazine with tax incentives.

Justice William H. Rehnquist: Your earlier argument to the Chief Justice as I understood it was that this law has no effect on state policy choices.

Now, you're in the effect saying it seems to me that the state is to be precluded from the sort of thing that Massachusetts is doing.

It's not to promote tourism at the expense of employees' salary.

Mr. Bork: Oh, the only -- what I meant by that Mr. Justice Rehnquist was simply this.

It says “A state may follow any policy it wishes.�?

The only thing -- only limitation upon that is that any policy it wishes to follow may not be done at the expense of workers being paid substandard wages.

But, it does not attempt to dictate the policy that must be followed or tell the state that it must eliminate any policy.

Justice Harry A. Blackmun: General Bork, for which states was brief file?

Mr. Bork: Well, there were two briefs file.

The original one, it's the identical brief.

All it happened is in the second filing and the State of Minnesota was added, it's Alabama, Colorado, Michigan, Minnesota.

Justice Harry A. Blackmun: I just don't have the second filing and I want to be sure about it.

Mr. Bork: The red brief, there were two red brief filed.

They are identical as I far as I can see.

Chief Justice Warren E. Burger: -- red too.

Mr. Bork: They both red, yes sir.

Justice Byron R. White: Speak for yourself.

Chief Justice Warren E. Burger: Minnesota didn't take the trouble to supply enough at least so that I got one Solicitor General.

Mr. Bork: The fourth theory that supports the commerce power here of course is the one cited in Katzenbach against McClung which is that the increase in purchasing power that follows from a setting a floor upon wages and so forth does benefit interstate commerce.

And finally of course, Congress believed as the Senate report said that raising a minimum wage rate at a level which at least helps to assure the worker a decent income at or above the poverty level is essential to the reduction of welfare roles and overall reform of the welfare system in United States.

And I would think that obviously spreading the work through overtime requirements and requiring minimum wages is a way of getting people off welfare roles and train as productive workers and that's so obvious importance to interstate commerce.

But these considerations, these various theories and so many times accepted by this Court and so overwhelmingly support that Commerce Clause predicate of the 74 amendments that I think the real argument, and the one I was spend my time on is the argument about federalism.

Now, there is no doubt of course that states enjoy no absolute immunity from Commerce Clause regulation.

And the cases to that effect recited in both the majority and to dissent in Maryland against Wirtz and in fact there is no doubt that the Commerce Clause maybe use to regulate what one might think of as an essential governmental function, similar to fire or police protection.

For example, in Sanitary District against United States, Chicago was prohibited under the federal power to control navigation and aspect of commerce from diverting water from Lake Michigan in order to carry away sewage, which I would think is an essential governmental function.

The real argument is not that there is an essential governmental function that may not be touched.

It's that these amendments are swipe so broadly and has such an impact that they imperil state sovereignty and on entire constitutional system of federalism.

Now, that contention is advanced here in very hided terms, indeed in apocalyptic terms so that at first glance, one might think that this was very serious constitutional case.

But I think upon calm analysis, it would be seen that the only substance to the appellant's argument here is a mixture of misunderstanding of the statute and a capacity for unlimited hyperbole.

Appellants asked this Court to overrule Maryland against Wirtz and I will not dwell upon the doctrine of stare decisis, more will I dwell upon the reliance of Congress and a variety of individuals upon the 1966 amendments and upon Maryland against Wirtz, although those are obvious factors which support the appellee Secretary of Labor here.

But I want to go to the policy question and I want to speak the constitutional policy question, and I want to speak to those issues under the constitution which indicate that Maryland against Wirtz should be followed.

The question raised by the dissent in Maryland against Wirtz and I take it, it is the same question being raised the appellants here, is does this federal regulation overwhelmed state fiscal policy?

Does the principle that must necessarily underlie the validity of the 1974 amendments permit the Congress virtually to draw up each state's budget?

The answer to that I think is unqualifiedly no.

It does not.

The commerce power does not permit the Congress to destroy federalism.

Federalism is also a constitutional principle.

Justice William H. Rehnquist: You would conceive then that Congress does not have the same freedom under the commerce power to regulate activities of states and cities as it does those have private businesses?

Mr. Bork: I wouldn't choose the word concession Mr. Justice Rehnquist because I think --

Justice William H. Rehnquist: You would affirm it.

Mr. Bork: I would affirm it.

Congress could -- under the commerce power, I take it, perhaps nationalize private -- much of private industry with compensation of course, but they could nationalize.

I take it there is no doubt that Congress could not takeover state Government and make the states merely administrative satrapies.

There's no doubt it.

And if this case involved anything like that, appellants would have a very strong point and this case involves nothing of the sort so that --

Chief Justice Warren E. Burger: Do you agree with the figures that were suggested this morning that the pay of personnel working for state and Governments in the country and municipalities generally is about 80% of the total cost of Government?

Mr. Bork: As I understand that the states of -- pardon me, municipalities, the budget is 80% to 85% wages.

However, the affect of these amendments upon that share of the budget is under 2% which means that we're talking about less than 2% of 80% to 85% of the budget.

Chief Justice Warren E. Burger: Well, are you measuring the 2% by the increase that will be involved to bring them up to FELA standards?

Mr. Bork: Yes, I think -- I think that is correct.

The best estimates, minimum wage law and overtime regulation.

Chief Justice Warren E. Burger: But it reaches into by the figure you mentioned, 85% of the total cost of Government of municipalities, is that the figure --

Mr. Bork: Yes, I believed California's figure was 70%.

Chief Justice Warren E. Burger: 76% I think.

Mr. Bork: We said 76% and then the brief says 70%.

I forget to -- that part matters --

Chief Justice Warren E. Burger: It was not for state and local?

Mr. Bork: No, I take it that's for state.

It reaches into in the sense that it applies to about half of the state employees now, and it will have an effect upon 80% to 85% of the state budget, but I don't regard that as a meaningful figure because the effect that will have is very slight.

It spread very thinly across a large part of the state budget.

Chief Justice Warren E. Burger: What's to -- was there anything that would limit the power of Congress to raise the entity just double the wages arbitrary or triple them or quadruple them?

Mr. Bork: Yes, I think there's a variety of things to prevent that.

One thing that prevents it is that I -- and this is not my whole answer, but I think it is a realistic answer of those worth giving, is the political makeup of Congress.

Congress is drawing from the states.

State parties are quite powerful, so that --

Chief Justice Warren E. Burger: I'm talking about a practical political consideration.

I'm talking about, is there anything constitutionally to prevent?

Mr. Bork: No, I think there is.

I think there is.

I was -- the practical political consideration I regard is constitutional in the broader sense the way our political parties and our nation is constituted.

We have a structural protection against that kind of thing happening.

The second line in constitutional in the constitutional law sense is of course this Court and I think if this Court ever sees that states are being deprived of political autonomy so that they are no longer variable policy choosing and policy making centers, this Court can say the value of federalism is being impaired and strike down the statute involved.

Justice William H. Rehnquist: Well, how could we make a principle distinction if we uphold this law and the case posited by the Chief Justice then does by some perhaps fluke of the political system come to us?

Mr. Bork: You can make a principle decision only in this sense Mr. Justice Rehnquist.

When this Court has over the centuries attempted to find a formula for confining the Commerce Clause, they have never found an adequate formula.

I suggest to you that you will never find a mechanical bright line distinction which will tell the Congress, you may do this to the states but you may not do that.

It is necessarily as in many constitutional matters are question of degree, a question of balancing.

And I think -- I think it is not unprincipled to make judgments of degree to say there is a spectrum here and we will cut it at this point.

That I think is not unprincipled and that I think is the only kind of test that's available in this area.

And I think -- I think it is not unprincipled to make judgments of degree to say there is a spectrum here and we will cut it at this point.

That I think is not unprincipled and that I think is the only kind of test it's available in this area.

But let me -- in approaching this matter and in showing why if this Court were to draw a line and say “We're going to strike down a statute of Congress to preserve federalism�?, I would think that this statute would be one of the last choices this Court would make.

There are other statutes which this Court is upheld, which I think are far more intrusive upon federalism than this statute for reasons I will develop.

But I would like to add a dash of realism to the discussion so far just to put the matter in perspective.

And the first point about that is that it is true that the federal Government contributes far, far more to the state's budgets then this major will ever cost them?

In 1975, the federal aid, the state and local Government is expected the total of $52 billion.

Chief Justice Warren E. Burger: They could stop anytime?

Mr. Bork: They can stop that anytime Mr. Chief Justice.

I'm just suggesting that realistically, in terms of the drastic impact, we're being asked to see here.

This is not much of -- and in fact, I would suppose the kinds of conditions upon employment here could have been added as conditions to the grants.

Chief Justice Warren E. Burger: What is that furnished support for a constitutional argument in this area Mr. Solicitor General?

Mr. Bork: Well, I think it does it only in the sense.

We have heard this morning extensive argument about policy issues and Congress shouldn't do this because it's going to cost us the following amounts of money.

I agree that those arguments perhaps have been addressed by the appellants to Congress rather than to this Court because they are not constitutional arguments as they were put.

But I think it's relevant at least in counter balancing that to realize that we're talking about a Fair Labor Standards Act which will have less than 2% impact upon a State budget and the figure I just cited means that the federal Government is financing about 22% of state and local expenditures, so that -- this 1974 amendments are not as matters now stand going to swamp any fiscal policy that they hardly begin to measure up to what the federal Government pays for the states and local Governments.

The other item of realism that I would like to object, they inject is at this cry of the destruction, the immanent destruction of federalism has been raised in this Court in Commerce Clause cases ever since John Marshall was Chief Justice and I think it's no more accurate here than it was in Gibbons against Ogden.

One of the more recent points of examples of this kind of rhetoric appeared in fact in the plaintiff's states brief in this Court in Maryland against Wirtz.

I enjoy this particular line.

The States then said in Maryland against Wirtz, pardon me, ever before in the history of this nation has the federal Government presumed to enact the law which both in theory and in practice, serves as the basis for the other destruction of the state as a sovereign political entity.

Now that rhetoric so closely resembles the rhetoric of the briefs here and of the oral argument here that I begin to think that perhaps it must be a boiler plate somewhere for resisting the exercise of the commerce power.

Chief Justice Warren E. Burger: Well, isn't it the camel's head in the tenth kind of argument?

Mr. Bork: Yes Mr. Chief Justice, it is a camel's head in the tenth kind of argument impart, impart the briefs refer to this as -- and the oral argument does as massive takeover, complete user patient, etcetera, etcetera, which I take it as not camel's nose, I think it is the whole camel.

But then they back off and say, well, it is camel's nose because if you allow this, then you must go all the way.

Chief Justice Warren E. Burger: Well whatever it is, more of the camel is getting into the tents under this Court of Appeals holding then was in the tent before, is that not true?

Mr. Bork: Every time a Commerce Clause regulation is passed more of -- of any kind, more of that camel is in tenth, I would suggest to you that this statute is less intrusive than most of the other kinds of federal regulations under the Commerce Clause, upon the area of state sovereignty than the other kinds are.

And therefore, if one is looking for -- is calibrating the camel's nose for the danger point, one would not choose this statute as a place to see the danger point.

But hardly enough, despite this rhetoric in Maryland against Wirtz or should I say so closely parallel as a rhetoric here, if the states were not destroyed, they were not even damaged, and I take it there, they seem to be healthier in many ways than they were at that time.

So I think just in terms of the rhetoric we're talking about and in terms of the money we're talking about, I mentioned this merely to suggest that the appellant's argument about the imminent fall of the republic is entitled to be taking with a large dollop of skepticism.

Now, I'd like to make just three points about federalism.

First, in enacting these 1974 amendments, Congress was very responsible, went to a very responsible process and indeed it was very sensitive to state and local problems and to state sovereignty.

Second, I will argue to the law here involved is simply not of the type which is most threatening to state sovereignty and by nature, much less intrusive than other concededly valid exercises of the commerce power.

And third, I will argue that even if one ignores completely federal assistance to state budgets, the financial impact of the 1974 amendments is far too small to be thought threatening to state sovereignty in anyway.

Since the appellants accused Congress essentially of negligence and failing to make estimates and make a credible study of the cost impact and so forth, it's important to realize what the Congress did and the responsibility of the process.

This is not a case of an unconsidered statute reeking unpredicted havoc.

It's not that at all.

I will draw the Court's attention to the amicus brief filed in this case by Senators Williams and Javits, and particularly at pages 5 to 13, the Senators described the process which Congress went through here.

They had before them a detailed study of the cost impact of the 1966 amendments so that they could be guided by experience.

They had before them a detail study of the feasibility of extending the acts coverage's was done in the 1974 amendments.

They had calculations of cost and they held lengthy hearings.

The National League of Cities and appellant here expressed in those hearings concern about the overtime requirements as applied to firemen.

In response, the Senate House Conference wrote Section 7 (k) which I will discuss later and which permits a departure from the acts other overtime requirements precisely to meet the kind of problem with the National League of Cities and the California are talking about.

So that -- and Congress also exempted from coverage I might say, not only executive, administrative, and professional personnel, but also persons who hold public elective office, members of their personal stuff, persons who serve with a policy making level and so on.

Chief Justice Warren E. Burger: Could Congress include them if they chose to do so?

Mr. Bork: I would assume Mr. Chief Justice that the question -- they probably could include for example administrative or supervisory personnel.

I don't think it's necessary to reach that today to decide this case.

I would assume they could.

I think the question is, is the state seriously hurt?

Is the state no longer a viable policy making, policy implementing center because of what Congress has done rather than a question of the category of person covered.

Justice Potter Stewart: When you talk about what the Congress could do, it really brings you back to the conventional test and constitutional adjudication of any enactment of the Congress to United States.

Inquiry one, always is, is this enactment within the express or implied powers of Congress conferred upon it by the constitution of United States.

That's your first inquiry when you talk about, could the Congress do this and you spent briefly, the first part of your argument saying yes so far as the commerce power goes.

Yes, it can, the Congress could do this.

The second inquiry always in the conventional procedure of constitutional adjudication when what's involve is the validity of an Act of Congress is, even if within the power, does it run into some other prohibition or impediment contained in the constitution of the United States.

Be that impediment or prohibition in the Bill of Rights or in some other provision, explicit or implicit in the constitution.

So an answer to the Chief Justice's question, you said that it could then I suppose it certainly could from the point of view of the power of Congress under the Commerce Clause.

The question is, could it from the point of view of some other impediment in the constitution?

Mr. Bork: I have meant Mr. Justice Stewart to answer that by saying that it could obviously in terms of the commerce power per se.

And when I said that the question --

Justice Potter Stewart: Something may well be clearly within the commerce power but also a clear violation for example of the First Amendment.

Mr. Bork: I had meant to say when I said that I didn't think it depends upon the category of person but depended upon whether the states were in some sense destroyed as sovereign entities.

That was a case where you're running into the counter bailing interest of federalism which I fully concede or affirm is a counter bailing constitutional principle which must be taken account of.

Justice Potter Stewart: And I say you gather you concede that there is a point with any similar legislation where that impediment or prohibition would make an Act of Congress unconstitutional even though within its commerce power.

Mr. Bork: That is entirely true Mr. Justice Stewart.

If Congress pass the statute tomorrow which said that every state employee should be paid $50.00 an hour and it is all became impossible for state Governments to operate.

I would think that that would be not only seriously in question but I would expect it, it would be unconstitutional as a destruction of federalism.

And that's why I say these things --

Justice William J. Brennan: Would it also be, perhaps implicate a violation of the obligation of the United States for public --

Mr. Bork: I think it might.

It seems to me, the republican form of Government Clause has a lot more in it than we have conventionally taken out of it.

Justice William J. Brennan: Well, I would suppose the situation -- it certainly would be implicated whether or not the Congress had betrayed its obligations.

Mr. Bork: I didn't mentioned that one solely because at least went into the argument about whether a republican form of Government is a political question and whether is justiciable and so forth, but I quite agree with you that I think whether or not it's justiciable that would be a violation of the obligation United States to guarantee every state or republican form of Government.

But also runs back into the principle of federalism and I have --

Justice Potter Stewart: The structure of the constitution.

Mr. Bork: That's correct.

Well, the principle of federalism as the appellants quite already point out is build into the structure of the constitution.

Nothing is more basic and my argument here has in no way suggests that it is not basic, it must not be protected.

It is simply is that this statute does not threaten that principle.

So that my point is, the Congress was concerned with the preservation of state and local autonomy in terms of general financial impacts, in terms of particular local problems which they adjusted the statute to take care of, and in terms of exempting anyone in any degree of proximity to policy making and they try to preserve the value of federalism.

And my remaining two points are that they completely succeeded.

The first one is that these amendments are by their nature, less of a threat to state sovereignty, then, most concededly valid exercises of the commerce power.

This is a conceptual argument and I will come to the financial impact to a moment which is a factual argument.

These amendments do not tell a state other than paying standard wages instead of substandard wages, do not tell a state that it must follow any policy objective, does not forbid them to follow any policy objective.

The law merely says that whatever policy you choose, you will not carry it out by paying the workers who carry it out, substandard wages and putting them under substandard working conditions which I think is a quite modest to constraint.

Now, that constraint conceptually is a much smaller interference with state sovereignty than a federal substantive statute which tells a state that from now on, you may not have a state law on this subject; it must be the federal law.

Now, that is an intrusion upon state sovereignty.

Justice William H. Rehnquist: Well, I'm not at all sure I agree with you on that point General Bork.

Under the Supremacy Clause, if you're talking about federal regulation of a universe of private individuals versus state regulation of the universe of private individuals, certainly, the implication or not just implication but the provision.

The constitution says, if the federal Government acts within its delegated authority, the Commerce Clause, it shall be supreme.

But I don't regard those preemption cases as being necessarily a guide to the situation where Congress seeks to work its will, not just on private individuals or businesses that have not been in a state but on the state itself.

Mr. Bork: Mr. Justice Rehnquist, I think -- I would urge upon you that they are identical in that sense and let me put it in two ways.

One is between two individuals, if individual A is doing 50 things which he enjoys most to do and individual B has some power over him and says, you will not do item three anymore.

From now on, you'll do what I want.

So it is left with 49 that he wants to do.

Or individual B says, I don't care which one you will give up but you have to give up anyone you choose.

I take that the first is a far more coercive intrusive interference with a individual's autonomy and hence by analogy with the state's sovereignty than the second.

Justice William H. Rehnquist: If you're right, then you're wrong in conceding that there is any federalism limitation on the commerce part because this Court has said time and time again or that it's simply a private business challenging Congresses' regulation under the Commerce Clause without asserting any affirmative constitutional defense of his own, the power of Congress is plenary and there is no limitation or whatever.

Mr. Bork: I doubt that that would be -- I know that the court said that in those cases Mr. Justice Rehnquist and I think they are quite distinguishable cases in this sense.

Perhaps I can illustrate it by going to Maryland against Wirtz, the dissent there, was afraid that if the power to set a floor under wages is at a ceiling over ours was conceded.

The same principle might be extrapolated to the point where the Congress could draw up to the states budge which would be a destruction of federalism.

Now, I suggest to you that the same thing might have been said about the National Labor Relations Act which was upheld in Jones against Laughlin and deals with much the same subject matter is this.

People come in and say, you are ousting a state policy in the area of Labor Management Relations completely.

Whatever the state wants in this area doesn't matter anymore.

The federal Government will tell them what the law is.

Now, the objection could have been made if we want to admit the principle that the federal Government can do that, then it follows that the federal Government can draw up the entire legal code of the states and I suggest to you Mr. Justice Rehnquist, if the federal Government acting into the Supremacy Clause, suddenly decided to draw up the entire legal codes of all the states for them that this Court would say, that goes too far, you have destroyed federalism.

Justice William H. Rehnquist: Well, so long as it was able to tie it the Commerce Clause and do certainly read a lot of congressional legislation has gone far to supersede otherwise valid state legislation.

Mr. Bork: I know it has and I think the question is always one of the aggregate impact, the question is always one of degree.

I cannot believe that this Court is really willing to concede that using the Commerce Clause, Congress can write every law of state has and it can virtually do that under modern interpretations of what affects commerce.

At some point, you can turn a state into nothing more than a geographical area.

Justice William H. Rehnquist: And you say that a private individual could assert that to the same extent that a state could?

Mr. Bork: I don't see why not if a private individual happen to be hurt and a major constitutional value was in play, of course, perhaps the state would come in.

But I take it that if a state came in and brought an action to have the National Labor Relations Act declared unconstitutional rather than a private individual because it interfere of a state sovereignty.

I take it and it made the same argument that I just made that this principle would allow the federal Government to draw up the entire state code.

I take it that this Court would have upheld the act just as much as it did when a private individual brought the lawsuit.

But that is indeed my point that a law which does not oust a state policy but merely says, choose your own policy, there is going to be a slight additional cost in standard working conditions is a less coercive, less intrusive, less threatening to state sovereignty form of law.

And if you uphold the federal statutes which actually oust state policy from the whole areas, then this law I should think is not the law to start being concerned about federalism.

Justice Potter Stewart: If colley is in the other examples you've given us, the state often just -- isn't aware of the threat or even relaxes and enjoys it.

Mr. Bork: Well, I assume --

Justice Potter Stewart: And so, we don't get the argument from the states.

We get it from the private individuals.

I'm thinking about the things such as the validity of the federal anti loan sharking law which was upheld to this Court with only one dissent or the Federal Relations Act for another example.

The states don't see their interest affected and you're telling us that they're more gravely affected by that kind sort of legislation.

Then by this, the state sees the threat and therefore, we get the argument in these cases.

And an adversary system perhaps, we don't fully consider the argument or apprehended in the other cases in which you've already told us, you see a greater threat to federalism.

Mr. Bork: I think that the kind of thing is greater.

I would trust that when a private individual comes in and says that state sovereignty is being destroyed that the court would not say, well, the state seem to be relaxing and enjoying it so we will uphold the statute on that ground.

I would trust the real consideration is what is happening to the system of federalism and not are the states willing to consent.

Justice Potter Stewart: But in an adversary system of justice, you have to have adversaries and in those other cases, the state has not been an adversary.

Mr. Bork: That is true, that is true, but I take it it's the same value as in play and I take it to the court purports in those cases to address often the question of interstate or intrastate which is a way of protecting federalism so that they do pay attention to the principle.

Justice William H. Rehnquist: Many of those cases where the Commerce Clause legislation was upheld, the states were happy to have it upheld because there had been a no man's land before.

The states couldn't regulate because it was interstate commerce and the federal Government couldn't regulate because there was some defect in congressional authority.

So your case is in the 30's that uphold commerce regulation by Congress that was basically the full approval of the states.

Mr. Bork: It may be Mr. Justice Rehnquist for the full approval of the states.

I think the Labor Management Relations was not a “no man's land�?.

There were state laws, there were state courts.

Congress was not happy with what the state courts and the state laws were doing to Labor Management Relations and ousted the states from that field.

Chief Justice Warren E. Burger: The 1938 on states have comprehensive labor laws of that kind.

Mr. Bork: Well, it might not have been comprehensive Mr. Chief Justice but they certainly had a common law --

Chief Justice Warren E. Burger: Even a skeletal?

Mr. Bork: Well, they have common law of Labor Relations and there is a call up one of Congress's complaints was that it was too easy to get injunctions out of state courts.

There was a developing law of Labor Management Relations.

It wasn't a very happy law of Labor Management Relations which I think was the reason Congress entered the field.

Justice Byron R. White: But your point is about well made if the state policy has no law.

Mr. Bork: That's right.

If the state chooses to have no law and let the thing be fought out by the adversaries, still, the entry of the federal Government is an intrusion upon a state policy choice.

I think -- I do not quarrel with those cases.

I think upholding those statutes was a correct decision.

All I say is that this statute is less of an intrusion upon sovereignty than those statutes.

And therefore, one is to draw the line, one would not draw with this statute as made myself a point about it.

And I should say that its hardly even theoretically possible that one could use a wage in hours law in a way that would destroy state sovereignty because they are tied to necessarily -- as long as they are similar to the wages and hours required of private employers and indeed of the federal Government as an employer of the impact upon the state and local Government cannot be so severe that state sovereignty is destroyed.

Well, this theoretical distinctions or considerations seem to me in and of themselves, sufficient to rebut appellant's predictions of impending doom.

But I would like to move on to point out that the appellants have also rather thoroughly misunderstood the statute and its impact upon them so that the extravagant figures, claims as takeover and so forth are not really accurate.

Now, the charges made us so plentiful and reflect such a rich and very misunderstanding of what's involved here that I can only touch upon the major items.

First, the charge is that the 1974 amendments would cost some unspecified number of billions of dollars.

There are dozens appear to be any foundation for that at all.

The 1966 amendments had no impact even beginning to do that and there is nothing in this case that supports any speculation, we have had a breakdown of the items.

Now, the impact as I said is on 409,000 workers.

95,000 new workers covered by the statute and 314,000 workers covered by the 66 amendments now have the minimum wage raised to $2.00 from a $1.80.

But for the appellant's theory of this case would of course strike down the 1966 amendments also so that I assume about 409,000 workers would be vulnerable with substandard wages.

But, their principal concern appears to be the overtime requirements to the act and that concern I must say is greatly exaggerated.

The premium for work over 40 hours per week can be avoided by using additional employees on a straight time basis.

That will spread employment and that is what the Congress intended.

When they complain about that, I can only say that of course this statute requires states to do some things, not very many, differently than they might otherwise do them; that is the purpose of the statute.

But the only specific national figure they give for the overtime cost is an estimate of $200 million for fire protection services.

And we agree that most of the cost of this statute will be indeed overtime cost.

But this $200 million that is mentioned is a vastly inflated figure.

It is based on the assumption that local Governments will not take advantage of the exemption of Section 7 (k) which I mentioned earlier which was put in the Senate House Conference on this bill, specifically because of the concern to express about fireman and overtime, and that Section 7 (k) provides that no overtime pay is due unless the employee works on average of over 60 hours per week in any 28-day period.

Now only about 10% of the firefighting personnel in this nation work in excess of 60 hours per week and even the appellant as to that 10% apparently calculates only about $30 million in additional cost across the nation for them.

Now California argues in its brief that these firefighters -- their firefighters work an 84-hour week during the fire season, and that this act would have drastic results with respect to them.

I can see no impact of this statute upon the California system as it was described this morning.

The 84-hour week they described it in the California brief works as follows.

The firefighters worked four 24-hour days on followed by three 24-hour days off, followed by thee 24-hour days on and four 24-hour days off.

California assumes, since there is an 84-hour week in there that it will have to pay 24-hours of overtime every week.

But that is not the case.

Under the statute, since these firefighters are in duty for over 24-hours continuously, sleep and meal times can be deducted, so if you take four, if you deduct sleep and meal times from this, they will not exceed 60 hours a week and overtime will not be due.

Now in this connection, California complained readability about the compensatory time these firefighters work very hard during the fire season and take time off in the non-fire season.

But compensatory time does not arise as a problem under these amendments unless you work the fireman more than 60 hours a week.

If they don't work the fireman more than 60 hours a week, they can give them compensatory time or anything else they want in anyway they choose without interference from this statute.

So that the entire system described this morning seems to me to fit well within the statute and not to impose the kind of additional cost or problems that California is talking about.

Now, the vexed matter of records and reports which seems to be confused almost beyond recognition, the question of reports which are discussed in the brief is simple, the act doe not require the preparation or the filing of any report.

The question of records is about as simple and let me say this, when the appellant say that this act reached every employee of every local and state Government, it does so only in the sense that, even exempt employees must have a record kept, but if we look at the nature of the records, there are records which are not required by the federal Government to be kept in any particular form and the only information they require is information that any employer would obviously have about his workers.

It's the most elementary kind of thing.

You have to have --

Justice William H. Rehnquist: Subject to inspection the way private employer's records of wages and hours paid and kept are?

Mr. Bork: Yes they are.

What one must keep is the employee's name, the date of his birth, his address, his social security number, and except for exempt employees, the daily hours he worked and the total wages he earned.

Now that as a record keeping requirement seems to me well within what any employer must keep as a matter of course.

Now the appellants have tried to confuse this issue by quoting at length from Robert Hampton who was the Chairman of the Civil Service Commission who was complaining about the application of this statute to the federal system and the federal system as at Page 9 and my brother Rhyne read from Page 9 this morning, I would point out the Robert Hampton had a special problem.

Congress want to pass this statute said you must give the federal worker whichever is better, Title V or the Fair Labor Standards Act so that they do have to keep records under Title V which different and under the Fair Labor Standards Act and they double computations and figure out in each case which gives the employee the better result.

No such requirement is imposed upon the state.

So that Mr. Hampton's complaints are not relevant to the state.

Now the act does preserve the state may keep more beneficial statute than this if it wished but they are not mandated as they are for the federal Government, and therefore Mr. Hampton's remarks are quite beside the point.

Now as to volunteers, the act as it has been interpreted and as it is enforced does not prevent the hiring -- the use of volunteer in any part of state Government and indeed reimbursement for reasonable expenses is allowed as a guideline for example for volunteer fire departments.

$2.50 per call will not even be questioned above $2.50 per call.

They may look at it to see whether the amount of reimbursement.

There is a reasonable relationship to the cost incurred by the volunteer firefighter, but he may be a volunteer above that price.

And by the way, the labor departments mad a study, the average volunteer fire department call is 20 minutes.

Now, there was reference to collective bargaining.

This statute does nothing the collective bargaining.

Employee unions are free to bargain collectively for anything above these standards they wish.

The civil service processes states civil service protection remains in four states civil service processes to protect their worker remain enforced.

They are not ousted.

Now, we have answered a variety of other charges in our brief which I showed when I go though here and the various amicus briefs answer charges.

But I think what it boils down to is the appellant's case rest upon misunderstanding of the statute, and alarmist rhetoric is not a constitutional crisis here.

There is not even a stiff reason at teapot.

It's astounding to hear it argued I think in this stage of our constitutional history that federalism and state sovereignty depend upon the ability to give employees substandard wages and hours to give them less and the federal Government gives them, to give them less than private industry gives them, indeed often less than enough to keep them off the welfare rules, that cannot be the test of state sovereignty.

Justice William H. Rehnquist: Well presumably, though Congress, if it were to enact the entire local code for the states, which you say even you would draw back at in each case would be saying, surely states sovereignty doesn't depend on denying the beneficent purpose of Congress had in mind with the statute, that the real complaint is that the states have lost the power to determine this matter for themselves, isn't it rather than that they've lost the power to pay substandard wages?

Mr. Bork: The only power they have lost Mr. Justice Rehnquist is to determine to pay substandard wages.

They have not lost the power to pay more than that.

They have not lost the power to adjust in a variety of ways.

And I think the power to -- as I have suggested perhaps too many times, the power to pay substandard wages must be less important to state sovereignty than the power to enforce your own social policy within your boarders.

The Commerce Clause allows the federal Government to override the ladder.

I cannot believe that the power to pay substandard wages is the place where we suddenly trench upon the value of federalism.

Justice Potter Stewart: Well that's a – it's a nice rhetorical phrase substandard wages, but it means more than that, it means technically that every hour work over 40 hours a week is time and a half.

And maybe an employer wants to say, “Well, I want you to have a regular week of 50 hours because of a particular need of this municipality or this particular public service and not be bothered with computing overtime.

And that may or may not be substandard in the ordinary economic sense to worry, you maybe getting higher wages, but all these nonsense with the federal bureaucratic red tape when he is running his municipal Government.

Mr. Bork: Well, there is not much bureaucratic red tape and furthermore substandard obviously refers to a national standard set for private industry and for the federal Government.

Justice Potter Stewart: It's s rhetorical phase that involves -- it could many rather technical rules and regulations.

Mr. Bork: Well, it necessarily involves some technical rules and regulations.

I might say that when a locality has a good case that to have to do something and someway, as in the firefighter's case, Congress is proved responsive and made an adjustment.

It would not be true to say that this statute will not require some public employers to change some ways of doing business or of governing if you want it to put it that way but it's affecting interstate commerce, but that's the purpose of this statute.

It may spread jobs --

Justice Potter Stewart: I think that was the point as I understood of my brother Rehnquist question, that's the question here, whether or not the federal Government is impeded by the structure of the constitution from exerting the power to change the ways as the municipalities will and the states want to do their business with respect to their employees (Voice Overlap) in a substandard wages.

Mr. Bork: I guess I do two things.

I guess I say in the first place that the state and local Government workforce is expanding quite rapidly and is continuing to grow.

It is now I think about 14% of our national workforce and is going up.

And to say that that is an exempt from all of the protections, we extend to federal workers and to all private industry workers is to make a rather large statement that unless there were compelling constitutional reasons, I don't think we ought to.

I think they are not compelling constitutional reasons because it escapes me, why state sovereignty is threatened by being required to pay a dime or two more an hour is threatened by being required to pay time and a half over 40 or over 60 hours or to hire additional workers is a massive intrusion upon states' political and Governmental autonomy.

We have done all kinds of substantive laws to tell the states you may not have laws on this subject.

This seems to be a much less intrusive.

Justice William H. Rehnquist: Well, what if the statute that required all states and local Government to bargain collectively with their employees as in matter of wages and hours, you have exactly the same arguments available to you.

Wouldn't you that this large segment of employee shouldn't be exempt from standards that were imposed by private employers?

Would that raise any more difficult constitutional question?

Mr. Bork: If I would have exactly the same arguments available to me, I would think, and I don't think it's a difference of constitutional dimension that that would be a larger intrusion than this one.

This if you look at what is actually done, the degree of impact is really not that large.

It's been vastly overstated here.

Every extension of the Fair Labor Standards Act has been met with these cries or takeover and destruction.

It's something that hasn't happen.

Well, I have addressed myself to the concerns of the Maryland dissent which I think are the real concerns in this case and I've shown I submit, I hope I have shown that this measure does not involve or imply the federal intrusion upon states sovereignty that that dissent feared.

And for that reason and because we permit easily other kinds of federal ousting of state policy which are far more intrusive, I suggest it would be illogical and arbitrary to draw the line at the commerce power here in this case.

And I therefore ask that the judgment of the District Court be affirmed.

Chief Justice Warren E. Burger: Mr. Rhyne.

Rebuttal of Charles S. Rhyne

Mr. Rhyne: Mr. Chief Justice and may it please the Court.

I take it that my distinguished adversary admits that there is such a thing as constitutional federalism that exist but he says unless an Act of Congress, if I heard him right, unless an Act of Congress really wipes out the ability of a state Government to be a viable Government, you don't call it into play as a bar against legislation.

Now, he says that the states are not hurt here, that this isn't enough of an intrusion.

But I call again to the Courts attention the $3.00-license fee was too much for Mr. Justice Holmes in Johnson versus Maryland when you're taking about a matter of power.

We're talking about a matter of governmental power.

We're not talking so much about money but on money.

They say that our figures are exaggerated.

Well, the record proved just to the contrary, this man who gave us the $200 million estimate of cost on fire service to comply with his act as a greatest expert in the United States on this subject.

And there's one other little thing distinguished Solicitor General keeps talking about confusion.

If there is anyone thing that is confused in his whole argument, it's this.

He talks about working 60 hours or 84 hours.

Now, the plain truth is that of that 60 hours or that 56 hours in New Jersey, so much of it is what you call standby time.

In the record at page 321, it's pointed out that when you're on duty for 24 hours and then 24 hours, that you have -- in that 24 hours, the first 24 hours, he has 16 hours of standby time.

So, these people are there but only the difference between 16 hours and 24 is work-related time.

The most popular jobs in the United States are these firemen's job because they don't have work related all the time.

Now the other thing is that these regulations that were put out on the 20th of December last year, they provide this, that if that firemen is New Jersey under that New Jersey statute which over on Page 414, 415 or appendix works 24 hours, you cannot under the federal -- the new federal rule, you can't deduct sleep and eat time.

And you see what that does immediately when he comes to the next 24 hours, he's very quickly into overtime.

And we're not talking about substandard wages here.

We're talking about people who earn $20,000, $25,000, or $30,000 or more a year working overtime.

This idea, the most false idea that has been put forth is that substandard labor conditions exist in state and local Governments, they do not.

And you notice how clever it is -- they start out by saying, we're talking about 409,000, 314 of those were really covered in 1966; nothing has been done about them.

We only have 95 new people who we claim are getting a salary below the minimum wage.

And we tried to find out who they are, well it's just a statistic that somehow rather, somebody has come up with down it to the Department of Labor, you can't trace them down.

And I say they don't exist and we've said that throughout.

There is no substandard labor conditions among states and cities.

They live with these.

They're not going to starve them to death and justice in New Jersey, if they're going to go to a new platoon system, if they're going change the overall pay, these people in the New England town meeting or crosses country, they've vote on it.

After now, they have been able to vote on nothing.

The most important question was from Mr. Justice Brennan when he talked about the republican form of Government because the biggest part of that republican form of Government if ballot box control and Mr. Justice Brennan is gone if this act is upheld.

Now, my distinguished colleague, the governor of Utah, Governor Hampton, leaned over to me and he made a statement that I think I should pass onto you.

He said, “If they uphold this, there is no other stopping place.�?

From that complete swallowing up of state Government under the commerce clause and there is no logical place, just on and on.

You talked about the nice Labor Relations Act, well, those acts are all being held over here in committees on Congress that you act on this.

If you uphold this, frankly, cities are gone.

Their commercial enterprises and I just don't believe that anyone can't read the history of our nation when you come to a new claim of power, you have to go back to the sources of power.

And I mentioned it was made for the Solicitor General about is being so amenable.

It didn't have any impact at all.

But I will remind the Court, I'll remind the Court as I was reminded again by Governor Hampton that the impact of Tea Tax in Boston was minimal but the principal was more than the people could stand to have someone else taxing them, someone else running their local affairs and this is what the states and cities are fighting for here.

That's exactly what they're fighting for here.

Now this idea that this act has no payroll impact, it not only a false statement but that is not a point at all.

The point is who is going to determine that payroll impact and this is just the beginning, the camel's nose under the tip -- that's certainly very, very true.

And look at the enormous impact or just this one ruling that a fireman who works 24 hours on the job, you can't deduct his sleep and eat time.

But for every other person in the entire nation, you can.

So, there's no misunderstanding on our part.

We know what this act says and he tries to justify it by saying, “Oh well, this might help welfare.

It might unemployment.�?

And then he said, “In any event, we give $52 billion in revenue sharing,�? well again putting Governor Hampton's note to me, he said he is very presumptuous to imply that state sovereignty is for sale for $52 billion or any other term.

And after all, that money is the people money just being returned to them.

The idea that you can pay for it and take over the states is totally repugnant to our whole system of Government.

I believe that the concession both by the Solicitor General, by the Congress in it's report that this would have virtually no impact on the cities, the concession by Senators Javits and Williams in their brief that it will have no impact, why do it?

Why take over?

And statement about California, that's completely wrong.

Sleep and eat time is included in 84 hours to 72 hours or 60 hours, it has been up until now, and the only thing that they say, they say they're not forcing states or cities do anything; they are.

This 24-hour no sleep-no eat thing is going to force them to hire an awful lot of new firemen and maybe some new police and as Mr. Jones pointed out, is a very, very costly things to hire and train all of these people.

After all the states and cities have gotten along pretty good up until now and again I would reiterate over and over again, over and over again, there are no substandard labor conditions, there is no justification for this act.

Anyway, anyhow, no matter how you approach it, and the one thing also that I think is not particularly happy thing to have represented to this Court that the governors and mayors who presented these figures that were included here of 200 million and a billion in cost are liars.

I don't think they are.

I think they can make just as good estimates as a lot of other people and I think they made honest testament.

They are honest people, they are hardworking people and they live there with their own people.

And so, I think they gave their very best estimates and certainly this, well, for example, in the House Committee report, they estimate it, the first year impact of this act on the entire federal Government, do you know what it was?

250,000.

I saw the Post Master General sitting back here a few minutes ago and I saw a statement by him the other day that $68 million of his deficit is caused by this act.

I tried awfully hard to and I found a publication to that effect.

I tried awfully hard to get some other figures but all they tell me is this is awful, you can't get it.

And the idea that the civil service of the Unites States and the civil service of the states is different, it's just plain did wrong.

So, Mr. Hampton is right.

You got all of these statutes of states, he did been building up for 200 years, trying to be fair with these people and after all, if their not fair, they are there to tell them about it.

They live with them, day-in and day-out.

And so, I think that here where this act really obliterates the division or governmental power upon which are whole nation is founded.

Now is the time and Governor Hampton view.

And the view of the governors he represents is chairman of all of the mayors and other public officials, now is the time to call to put a stop to this, let's call Government-Government and commerce-commerce and not try to turn just by a few words, whoever heard of the statute?

This one I've every seen where it calls commercial enterprises Government and over and over again defines and so write in the statute, they say our commercial enterprise is a city, public agency, well, that's not true.

This idea of competition that was mentioned in connection with Wirtz, well the court below found there was no competition here.

They don't like that.

The idea that somehow rather because Government might compete with each other, well that's preposterous, the only competition I ever see is when they bid against each other for a city manager to improve their whole operations of Government.

So, I would just correct one other things, I have a letter here from the governor of Colorado instructing his Attorney General to withdraw his name from that brief that was just called your attention.

So, in the idea of the Solicitor General said all you got to do is comply with 7 (k) and then you have no problem.

Well if you comply with 7 (k), you have to comply with this rule 24-hours on, you don't deduct sleep and eat.

So, I come back, I started out by saying that we don't have substandard conditions here.

And what do they come up with this figure of 95,000 faceless wonders that they got from nowhere and there's no evidence whatever, not once until that those 95,000 exist and without that, the substandard idea is gone forever.

Cities are not here to fighting to maintain substandard labor conditions, states are not here fighting to maintain substandard living conditions, these are their people.

They live with them and we feel that they should continue as they have for 200 years and to tear up this system of shared governmental powers that has worked so well and this bicentennial year would be a monstrosity indeed.

I end by saying Government is not commerce, and I ask the Court to recognize that ‘Government is Government and commerce is commerce' and that this decision below should be reversed because even there, the court doubted very much that this Court would want to stick with some of the broad language that was contained in Wirtz but they felt District Court judges shouldn't overrule this Court.

Thank you.

Chief Justice Warren E. Burger: Thank you gentlemen.

The case is submitted.

Featured:

Falk v. Brennan - Oral Argument

Thu, 23 Aug 2012 18:25:13 +0000

Case:

Falk v. Brennan

Media File:

72-844_19731011-argument.mp3

Related Transcript:

72-844_19731011-argument

Transcript:

Argument of Herbert V. Kelly

Chief Justice Warren E. Burger: Mr. Kelly, you may proceed whenever you’re ready.

Mr. Herbert V. Kelly: Mr. Chief Justice and may it please the Court.

Briefly as to the factual matters Drucker & Falk is a real estate insurance and property management firm that operates in Eastern Virginia.

It manages one and two-storey apartment projects, the smallest of which is probably in the 30 to 40 unit area and they run up to units that are covered under the act and not a part of this suit.

Each project is separately owned, each owner has an independent contract with Drucker & Falk as to the management of the premises and as its -- as to its services and the contracts generally call for Drucker & Falk to manage through resident -- to manage their property and manage the maintenance by Residents Maintenance Superintendents.

They are all maintenance employees in each project that are on the payrolls of the owner of the project who stay at that project in the main with some very unusual exceptions and in effect, go with the property.

It’s the position of Drucker & Falk in this case, that the Secretary of Labor has taken an illusory and strain definition of the Fair Labor Standards Act to reach down and include the employees of the apartment projects as covered under the Act where they could not reach down, two of them except through the rental agent and that they thereby bootstrapping themselves in the coverage where it does not exist.

Factually as presented here, unless you include the gross rental income as income of Drucker & Falk, there would be no coverage under the Act.

In addition, unless you include the employees who work after projects then there is no coverage of Drucker & Falk under the Act.

It is our position that you have to strain and come up with illusory result in order to include the rental income and include the employees.

It is our position with the first matter of income that income to Drucker & Falk is the gross commission, therefore, our six commissions on the rentals and that that is the measure of their sales.

It’s our position, therefore, that what they are selling is services and that what they get paid for the services is their commission.

And it’s our position that you look at this from two different -- three different directions.

One, you look at the provisions of the statute with regards to what is sales.

You can look at the intent of Congress with regards to what is sale, or you can reach, look at the legal conclusions that you come to after applying common law principles to the facts involved.

First, with regard to the statute itself, the statute has a definition of sale, as the Court is well aware which says that the sale is a sale.

It is in any sale.

It says a sale is any sale, exchange, consignment for sale, shipment for sale, or other disposition.

The statute goes on further to say that an enterprise is covered and that enterprise is any enterprise whose, whose annual sales, and I emphasize the ‘whose’.

Volume of sales meets a test, which in this case is $500,000. Petitioners suggest to the Court that certainly the definition that I’ve read to you of sale does not cover what sale and this instance means.

Now, the Fourth Circuit found some comfort in the last three words which were “or other disposition”.

It’s our position that “other disposition” can only apply to a disposition of what you are selling, and what Drucker & Falk is selling is their services, and the measure of that is the income to them, their commissions for the services, which they are selling.

The gross volume of sales made or business done is what is sold by the agent, his services.

He cannot sell for himself what is not his and what he sells for the owners is the owner’s sale.

And what the Secretary of Labor has tried to do is call the owner’s sale his sale.

So, under that definition, there is no definition which would include the factual situation presented to the Court in this case.

If we turn to the intent of Congress, I don’t think it’s even necessary to argue to the Court that it was -- that the congressional reports and the statements of the Secretary of Labor in amending the statute where such that the intent of Congress was to set the monetary limits with regard to what they felt was impact on commerce, the $500,000 in this particular instance, they felt was sufficient to be an impact on Congress and therefore you had bigness, and it was the intent of Congress to include the big and leave out the small.

If, by way of example, I could say it seems apparent that it was their intent to include the owner and his sales from the owner of the World Trade Center in Chicago, but not to include the owner of the Strip Center in Stony Creek, Virginia.

And it seems to me, you have to strain and reach an illusory conclusion if you conclude that by happenstance, this strip operator in Stony Creek Virginia is employing a branch office of the real estate agent in Chicago who runs the World Trade Center and thereby, he is in commerce.

That’s a strained conclusion which is contrary to the obvious intent of Congress.

Thirdly, if we turn strictly to common law principles, it seems to the petitioner that the rentals do not fit any definition that would say that, that was the gross sales of the agent.

The rentals do not belong to Drucker & Falk; they belong to the apartment project owner.

The Drucker & Falk does not control the property, nor the rentals except as agent.

The rent which is collected is not theirs.

It’s put in a trust account in and out, and they spend it in an even strong -- even more -- a fiduciary position rather than a dead end creditor position, because they hold those sums in trust for the owner whose income is the rentals and not that of Drucker & Falk.

And the sums are the distributed, we would suggest, under the direction and control of the owner and not of Drucker & Falk.

Justice Harry A. Blackmun: On this issue, the Courts of Appeals have given that theory hard going, haven’t they?

Mr. Herbert V. Kelly: Well, yes sir, but I don’t think there was any basis for giving it hard going.

They -- actually the Court of Appeals decided in the main based on the Wirtz versus First National Bank in which they say that in that case, it was concluded that rental income is sales.

And I have no problem with that at all.

I agree with that.

It’s a question of whose sales.

Justice Harry A. Blackmun: I don’t mean just the Fourth Circuit; I mean all of Courts of Appeals who have been decided, didn’t have go the other way, am I correct or not?

Mr. Herbert V. Kelly: No.

Well, it’s honorably set by two in the Wirtz on the same principle, yes sir.

That -- the case is that a number of cases, which I would suggest do not apply in this case, have ruled and if you look at either one of the cases, you see that they summarily dispose of it by saying, it has already been decided in the such and such case that rental income is sales.

And I have no argument that at all.

There’s no question about that.

The question is whose sales.

And we are saying that it’s the sales of the owner, not the sales of the petitioners in this case.

Justice Byron R. White: Well, does the rental agent’s activity constitute an enterprise within the meaning of the Act?

Mr. Herbert V. Kelly: I think that you have decided that it did on the Arnheim & Neely I think that the --

Justice Byron R. White: Yes; yes, and so the real question is what the income of the enterprise is.

Mr. Herbert V. Kelly: Yes sir and the question is whether the rental income is sale.

It’s not a question of income.

You’re covered if your total sale is in excess of $500,000 and the statute says whose sales.

And you’ve got to conclude for that to be liability that this is a sale on the part of Drucker & Falk as versus the sale on the part of the owners.

And where the Courts of Appeals --

Justice Byron R. White: He made the sale.

He earned the commission for making a sale.

Mr. Herbert V. Kelly: Yes sir.

His sale -- what he sells, the owner is selling his premises.

He signs the lease.

What it gives to the tenant is --

Justice Byron R. White: Well, the rental agent made a sale and he earned -- and he earned the commission.

Mr. Herbert V. Kelly: Yes sir and what he sold was his services.

Justice Byron R. White: He sold the owner’s property.

Mr. Herbert V. Kelly: Sir?

Justice Byron R. White: He sold the owner’s property, in a sense?

Mr. Herbert V. Kelly: Well, he -- He is an advisor and assistant to the owner in selling his property, yes sir.

Chief Justice Warren E. Burger: How did he sold his own services?

Mr. Herbert V. Kelly: He sold his services as advisor and assistant as well he’s selling.

But you certainly carry that is far as Mr. Justice White is going say in effect by advising, he’s helping him to sell.

But he’s selling his product which is his services and his sale is service.

His advisory help -- may help the owner to get his sales in but the Courts of Appeals went off on these cases saying, we’ve already decided that this is sales and did not consider the question of whose sales and the statute says, an enterprise who sales.

And you have got to define those sales and we suggest on the common law principles that these sales or selling what you have to offer which in the case of Drucker & Falk is its services as a managing agent.

Now, the other position that we have taken in the case is that, it was improper to consider the employees who were working at the projects as maintenance people maintaining the project employers of Drucker & Falk.

It is our position that they are employees of the owner.

They work for the owner.

He is their -- he pays their bill, their wages.

He keeps their records.

He turns in the reports that need to be taken and that the employee is the employee of owner, of project, and not the employee of Drucker & Falk.

And we say this knowing that there is a definition in the statute which says that an employer includes any person acting directly or indirectly in the interest of an employer in relation to an employee.

And we do not deny that Drucker & Falk fits that definition.

They are an employer under that definition.

But you must go further than that under the Act. Because that’s just the definition what the access is under the 6 (a) and 6 (b), every employer shall pay to each of his employees.

Under 7 (a), shall employ any of his employees and we suggest to you that the way -- we admit that he fits the definition of employer, but we say to you that he is not -- the employee is not his employee when you are talking about Drucker & Falk.

He is his employee with reference to the project where he works.

And there is nothing so unusual about this argument.

Otherwise, we come to a strange conclusion in the law that a great multitude of people would be liable under this Act for compliance with the Act.

Because under that definition, anyone who acts directly or indirectly in the interest of the employer you would include every supervisor that you include under the National Labor Relations Act case.

A supervisor under the Act is one who has the right to effectively hire or fire or vote or otherwise.

And all those sort of people are acting fit to definition includes any person who acts directly or indirectly in the interest of an employer in relation to an employee.

Justice Potter Stewart: And each of those were required to pay the employee, the sum specified in the statute, the employee would have pre-hire pay, wouldn’t he?

Mr. Herbert V. Kelly: Yes sir and certainly would and that the point I am making is that if you say just because he fits the definition of employer, that it is his employee that you take for instance in the Gamet with General Motors, you’ve got the President of General Motors as his employer.

The head of stenographic pool who runs the pool and may have the right to hire and fire.

The ladies in the stenographic pool would fit the definition of employer, but I do not think that Congress intended that she would be considered as an employer under the definition his employee under the Act.

Justice Thurgood Marshall: Your argument is that in General Motors, a man -- every employee would have a thousand employers?

Mr. Herbert V. Kelly: Yes sir.

Exactly.

Justice Thurgood Marshall: Why -- you’re not telling me that is anybody goes that far, are you?

Mr. Herbert V. Kelly: No sir.

I am not telling you anybody goes that far.

Justice Thurgood Marshall: Or will anybody go that far?

Mr. Herbert V. Kelly: Yes sir, I am saying to you that the Court of Appeals in concerning this matter in Arnheim said that the definition in this statute says an employer is so and so and therefore there is coverage and that the --

Justice Thurgood Marshall: But do you take that Court or any other Court will go that far as to say one employee has a thousand employers?

Mr. Herbert V. Kelly: No sir.

I am saying to you they would go that far and stop and find coverage here when they should have kept on going to determine whether it was his employee or not.

I am saying to you, if you please that the foreman and his employee in the event of bankruptcy will be looking both to that company that went bankrupt for their wages.

They are not employers.

Justice Thurgood Marshall: Well, a lot of companies I know go bankrupt but the foreman retire?

Mr. Herbert V. Kelly: Yes sir.

The Fourth Circuit in deciding case Mr. Justice Marshall took care of this, decided on the basis that there were some cases which had found liability on part of the agent and cited one or two and these are the cases that are cited in the Government’s brief where they say this has already been decided.

I suggest that in each of those cases, that question of whether the agent is an employer, whether they are his employees has not been decided.

In all of those cases, the party’s defendant included the owner of the premises.

And secondarily, included the rental agent, and in each case, the Court disposes of the rental agency after finding liability on the part of the owner by saying, if the owner is liable, the derivative agency liability applies and the agent is liable just the same as the owner.

But in our particular case, there has been no proceedings against the owner and therefore, we haven’t found any liability.

As a matter of fact, I assume it is pretty well conceded by the Government that there is no liability on the owner of these projects.

Justice William H. Rehnquist: So, it against the owner would it fail?

Mr. Herbert V. Kelly: Yes sir.

Because he didn’t need it.

So, what they have done is use an illusory coverage to reach down the end in boot scrap off these people who wouldn’t be covered by saying that the people worked for Drucker & Falk and by saying that the income of Drucker & Falk, the sales of Drucker & Falk is the rent.

And I say to you, if you please that you just don’t have an act, where an owner can control whether he is covered by the act or not because if that be so, this man can go in and out of agents four times a year.

He can be in an out of coverage just as often as he wants to get a new agent and we suggest that, that was not the intent of the Congress, nor was it the intent of the statute.

And I would save the time I have if i may.

Chief Justice Warren E. Burger: Very well, Mr. Kelly.

Mr. Frey.

Argument of Andrew L. Frey

Mr. Andrew L. Frey: Mr. Chief Justice and may it please the Court.

To begin with I’d like to point out in line with what Mr. Justice Blackmun noted earlier that both of the issues that are here before the Court today, have been before four different Courts of Appeals.

And in each instance, there have been unanimous decisions in favor of the Government’s position.

Obviously, in the case below in the Fourth Circuit on both issues and Arnheim & Neely in the Third Circuit on both issues.

With respect to the rent commissions issue in the First National Bank case in the Tenth Circuit and in Jernigan case in the Fifth Circuit, unanimous decisions holding that you don’t look simply at the commissions that are earned but at the rentals or on in the case of Jernigan the ticket sales of bus tickets.

In the case of the employment issue, you have the Second Circuit’s decision in Arsenal Building and you have rather significant decision of the DC circuit in the Herbert Harvey case which I will get to when I discuss the employment issue.

I’d also like to point out that we are not dealing here with a small business.

Drucker & Falk manages 30 apartment projects and they employ, that is, they hire, supervise, and discharge over a hundred persons in connection with this venture.

They procure annual rentals and excess of eight million dollars.

We’re not talking about any mom and pop operation.

Now, taking up the rent and commissions issue first, I have no difficulty with the --

Chief Justice Warren E. Burger: That has significance only when you reach the conclusion that it’s one enterprise, doesn’t it?

Mr. Andrew L. Frey: Well, no the Court has decided in Arnheim & Neely that the management company conducts a single enterprise which consists of its building management operations.

Chief Justice Warren E. Burger: That flows from Arnheim.

Mr. Andrew L. Frey: That was decided in Arnheim & Neely.

Now, the question on the rent commission’s issue for instance is how do you determine the size?

How do you measure the dollar volume?

Chief Justice Warren E. Burger: Let us assume Mr. Fry that you have a gross sales taxes of some kind in a State which was three percent of the gross income of an enterprise.

On what would that three percent tax rests in this circumstance?

Mr. Andrew L. Frey: Well, it would rest on income and of course, that is very significant distinction because this case does not turn in any way on the enterprises income.

The congressional test was not put on the basis of income.

For on the basis of income, Penn Central or Lockheed or people like would not have to pay the minimum wage.

Chief Justice Warren E. Burger: But it would -- and it would be the answer to the question I suppose you’d have to say it progressed on the commission.

Mr. Andrew L. Frey: The income would of course be the commissions.

Chief Justice Warren E. Burger: And not only total rentals.

Mr. Andrew L. Frey: No question about that, but that’s not the statutory standard for coverage.

Chief Justice Warren E. Burger: And probably gross income, the gross sale tax would rest on the --

Mr. Andrew L. Frey: Would rest on the sales.

Chief Justice Warren E. Burger: The owners in terms of what they receive, I suppose if the tax is brought and --

Mr. Andrew L. Frey: Not at all.

If you had -- suppose you have a consignment store which sell goods on consignment or suppose you have a jeweler which usually does not own the jewelry that they’re selling but has it on what's called on memorandum from some larger jeweler.

When he sells that, he collects the full sales tax and he is responsible for paying that full sales tax to the taxing department.

Unknown Speaker: He also collects the full purchase process?

Mr. Andrew L. Frey: He collects the full purchase price and then he must remit --

Unknown Speaker: Sure.

Mr. Andrew L. Frey: The portion that belongs to the original owner of the piece of jewelry or the consigned merchandiser.

Justice William H. Rehnquist: Mr. Frey, I am trying to understand your response to the Chief Justice's question in terms of if the gross income were the case in Penn Central and Lockheed wouldn’t have to pay the minimum wage.

So, certainly they have the gross income that would bring them within the status, do they not?

Justice Byron R. White: We're talking about net income like that?

Mr. Andrew L. Frey: Well, I suppose that’s true but in any event income is not standard.

Justice William H. Rehnquist: But it's gross sales and --

Mr. Andrew L. Frey: It’s gross sale.

Yes, its sales that made a business stand.

Justice Byron R. White: And many -- in many businesses, gross sales and gross income are pretty close, isn’t it?

Mr. Andrew L. Frey: They could be, yes.

Justice Harry A. Blackmun: But in some businesses however gross income maybe far less than -- no, greater than gross sales?

Mr. Andrew L. Frey: Well that could be also -- I’ll re-track that.

I don’t think it matters in the context of the statute with which we’re dealing here, which is the context in which we must take the case.

Now, nobody disputes that the rental of properties is a sale.

I think that’s conceded.

The question then is who is it who makes these sales.

Is there some sense in which we can say, well this is not Drucker and Falk sale, this is building owner’s sale.

But we submit that -- first of all, we submit that you don’t have to divide it in this way.

You don’t have to say either.

It’s Drucker and Falk’s sale or it is the building owner’s sale because there are many situations as with the consignment sale situation where both parties may have made a sale.

Now, in this case, the building owners might as well be on the moon or on the bottom of the ocean for all that they have to do with selling this rental property.

It’s petitioners who advertise vacant apartments, who interview prospective tenants and negotiate leases, who evict people for non payment of rent, who handle every aspect of the transaction between the building and the tenant.

Justice Byron R. White: Mr. Frey, isn’t the rental agent the agent of the owner?

Mr. Andrew L. Frey: Well, there’s sense in which he is the agent of the owner.

There is a sense --

Justice Byron R. White: Well, isn’t the action on his behalf and doesn’t he have any authority to sign a binding lease on behalf of the owner?

Mr. Andrew L. Frey: Oh, yes!

Justice Byron R. White: Don't you -- you usually talk about the agent’s acts as acts of the principal?

Mr. Andrew L. Frey: Well, I don’t think.

I think it’s --

Justice Byron R. White: Can you say that the acts of whatever principal we have to be acting --

Mr. Andrew L. Frey: Well, if we were asking ourselves the more difficult question of whether we could reach the building owner and attach these sales to him even though he has nothing to do with it, we could say, “yes, he has retained these people as an agent.”

But of course they have an independent business.

They are not purely an agent in a sense --

Justice Byron R. White: I don't think businesses earn their commission and that's why that's their business.

Mr. Andrew L. Frey: Well, their business is to rent property.

Justice Byron R. White: Their business is management.

It's management, selling services --

Mr. Andrew L. Frey: No, no they have -- well, they have two.

Justice Byron R. White: That’s the only thing you said --

Mr. Andrew L. Frey: They sell services -- no, I think we have to make a basic distinction because there are two kinds of sales involved here.

It’s true that they sell their services to the building owners and the property --

Justice Byron R. White: And they act on his behalf in running the property.

Mr. Andrew L. Frey: Well -- but the proper measure of their sale of services to the building owner is unquestionably, their commissions.

We don’t dispute that.

The point is that they also sell the property.

It’s true they do it on behalf of the building owner, but nevertheless, they sell it.

Justice William H. Rehnquist: But they’re not selling their property.

They’re selling somebody else’s property.

Mr. Andrew L. Frey: That’s true but that makes no difference under the statute and in the --

Justice Byron R. White: That is the issue.

Justice William H. Rehnquist: That is the issue, yes.

Mr. Andrew L. Frey: Well, I'm -- in the --

Justice Byron R. White: Isn't the issue, yes.

Mr. Andrew L. Frey: Our contention is that it makes no difference under the statute.

In the 1966, --

Justice Byron R. White: But why doesn’t it?

Mr. Andrew L. Frey: -- in the senate report compelling the 1966 Amendments which is set forth the pages 16 and 17 of our brief, the committee explained the dollar volume test and they said that it was intended to measure the size of an enterprise in terms of the business transactions which result from the activities of the enterprise as measured by the purchase price paid by the purchaser.

Now, I find it very hard to dispute the empirical conclusion that these leases of property are business transactions that arise from the activities of petitioner’s enterprise and that is the standard.

And if you look behind it in terms of the congressional policy that underlay setting a dollar volume cut off point, Congress was concerned with the impact on commerce, and whether the building owner himself, if someone owned authority of these buildings, and conducted these sales operation of rental space, or he was acting as an agent for different owners and conducted this sales operation of rental space.

In both cases, you would have the same impact on the flow of goods and men across state lines same impact on commerce.

Congress chose an objective external standard, yes Mr. Chief Justice.

Chief Justice Warren E. Burger: And would a real estate sales organization come within the reach of this Act, say if it has over $500,000 and so forth?

Mr. Andrew L. Frey: Yes, with our -- the position of the administrator would be and it has been held by --

Chief Justice Warren E. Burger: Well, I'll ask these questions to you then.

Suppose that you have a real estate agency as many of them do have, a hundred agents in their operation, selling houses.

How do you -- would it be your view that you would measure the enterprise by the gross sales of houses?

Mr. Andrew L. Frey: Yes, by the dollar amount of the sales.

Yes, certainly.

Now, let me point out that we do make a distinction which I think is relevant here between rental collection agents, and people such as petitioners or businesses such as petitioners.

A rental collection agent, who goes around and collects rents, is only selling his services in collecting rents.

And the Department of Labor would measure his enterprise size by the commission that he earns and that is because he does not sell the rental property.

Justice Byron R. White: What about the insurance agent selling policy is ended over a period of time -- the premiums are going to be certain amount of money and that all he does is earn a commission?

Mr. Andrew L. Frey: That would be the amount of premiums I believe by which you would measure even though some of the premiums are --

Justice Byron R. White: Any agent -- insurance agent who sells insurance policy for the premiums are not more than $500,000 although his commission maybe $20,000 is covered.

Mr. Andrew L. Frey: Yes that’s right.

Justice Byron R. White: Has that been the law, is that?

Mr. Andrew L. Frey: I believe that is consistently the law.

The closest case that I know to it is slightly different is the Montelvo case.

Justice Byron R. White: Wasn’t that the same question as involve here, or not?

Mr. Andrew L. Frey: Well yes, that would be the same question.

It would be the same -- let’s take gasoline service stations which are common example.

Many gasoline stations do not own the gasoline that they sell.

It belongs to the oil company.

It’s consigned to them.

When they sell it, they earn a certain number of cents per gallon on the sale.

The rest of the proceeds belong to the oil company.

Now, under petitioner’s rationale, you would measure the sales of this gas company by the amount of commission it earned and you would ignore what the purchase were paid despite the fact that the Senate Report says that it’s what the purchase paid.

Chief Justice Warren E. Burger: What's the difference when something is placed in the exclusive possession of the dealer on consignments and the management?

Mr. Andrew L. Frey: These buildings are placed in the exclusive possession of Drucker and Falk.

Chief Justice Warren E. Burger: I thought they’re in the possessions of the tenants, by the very definition of tenancy --

Mr. Andrew L. Frey: Oh, yes.

So as the gasoline in the possession of the person who buys it once he buys it.

Chief Justice Warren E. Burger: Well, I don’t see how a buyer makes sense of that.

You were making an analogy between the operator of the refilling station and the manager of this management company.

Mr. Andrew L. Frey: That’s correct.

Chief Justice Warren E. Burger: Now the management company does not have the ownership and the exclusive possession or the exclusive possession or the occlusive possession of the building?

Mr. Andrew L. Frey: Well, it was respect to on rented premises and we will start off with the vacant premise or a new building which is turn over to them and which is empty, they have the exclusive possession of that building for purposes of selling it to tenants, just like the gas station has the gasoline.

Now, when it is sold, that is when the tenant signs a lease and moves in, that they and the building owners both lose their possession of the premises for the term of the lease.

With Drucker --

Chief Justice Warren E. Burger: Going back to the real estate’s analogy if there is any analogy to it, that would -- your theory would bring a very small real estate agency under the reach -- within the reach of the Act because two good men, sometimes one man will sell a million dollars worth of dwellings in one year and certain of two men if they are good at their trade will sell a million dollars worth in a year.

Say, you have a two-man organization with a telephone operator answering the phone would be under the Act, is that you think that reaches the Act?

Mr. Andrew L. Frey: Yes, I think that’s correct.

And so would let’s say a relatively small car dealership might or grocery store, anything where there is a small profit margin.

A two-man business where let us say both individuals are making $30,000 or $40,000 a year is likely to generate gross sales in excess of $500,000.

And Congress -- that’s what Congress provided.

We’re simply attempting to carry out what we --

Chief Justice Warren E. Burger: You are saying flatly because I simply don’t know and want to know that a one-man real estate office with a secretary having a million dollar sales a year is under the Act?

Mr. Andrew L. Frey: If it’s an enterprise engaged in commerce, yes.

I mean, there has to be the commerce connection also.

It has to have employees engaged in commerce, which is somewhat different problem.

Now in 1961, when Congress adopted the enterprise concept, they referred to real estate firms as one of the businesses that would come within the coverage of the Act and it’s little hard for me to imagine that they were thinking that commissions would be the measure since they were relatively few who would have met the one million dollar standard at that time, but many real estate firms that would have met the $1,000,000.00 as measured by the volume of sales or rentals.

The key is, that this is approach on an empirical basis.

You look at who makes the sale, who physically does the selling operation.

Now, the District Court and petitioners in their brief have attempted to analogize this situation to bank deposits or to loans that maybe closed by lawyers.

Those are completely different.

The banks of volume of business are not in anyway measured by deposits that is not considered a sale by the bank.

What the bank sells is the use of money when it loans money and when the bank makes a loan, we don’t measure, even there, the size of its enterprise by the phase amount of the loan, but rather what they’re selling, which is the units of the money, which is measured by the interest.

Similarly with a law firm, they are not selling the loan.

All they are selling are their services in connection with the loan and therefore, you measure it by their fee.

Now, the fact that a big and a small business are associated together in an enterprise, as here petitioners and their business of managing and renting real property and the building owners and their business of investing money in real estate, it is true that the building owners standing along will be exempt that there is not uncommon to have an exempt, a non exempt person in a joint enterprise, in a joint relationship with an employee and therefore the employee is covered.

The purpose of the Act, is to protect employees who are happen to be employed in enterprises that are large enough to come within the coverage.

The fact that they may also be employed at the same time in a smaller enterprise is no basis for exemption.

That’s established by the Herbert Harvey case for instance which is a Labor Board case, but involved the same issue.

Herbert Harvey managed, I think it was the World Bank and international organization are exempt from the bargaining requirements of the Labor Relations Act.

And the theory of the case was that, these individuals, janitors, and so on, were employees of the management agent which was exactly a management agent just like petitioners are here.

And the DC Circuit held that indeed, these persons were employees of the management agent, for the purposes of the Labor Relations Act.

And that the fact that they were also employees of an exempt organization, did not deprive them of the benefits of the act and the right to engage in collective bargaining.

Justice Byron R. White: Well, technically I suppose if you -- even if you say this is an enterprise, it has an income or has sales above $500,000, and you could say that the building employees aren’t covered.

I mean, that’s the argument?

Mr. Andrew L. Frey: Well, because if we are turning to the employment argument now?

Justice Byron R. White: Yes.

Mr. Andrew L. Frey: Yes, that could be that you would say it’s true that Drucker and Falk is a covered enterprise but these are not their employees, and I will turn that issue now.

Justice Byron R. White: Which would mean -- which would mean that their own employees in their office would be.

Mr. Andrew L. Frey: Would be covered.

Yes and they have treated them as covered and there has been no dispute about the coverage of the Central Office Personnel.

Justice Byron R. White: There has not, why not?

Mr. Andrew L. Frey: Well, I as far as I know they’re paid above the minimum wage.

Justice Byron R. White: Well, Oh!

Well, they haven’t treated them as covered then.

I mean, there's no instruction they were covered.

They wouldn’t be covered if it was not an enterprise (a) and (b), if it was an enterprise where its income was over $500,000.00.

Mr. Andrew L. Frey: Well, you have to look at where they were employed to determine if they were employed in an enterprise engaged in commerce.

Justice Byron R. White: I understand that but what if the -- what if the measure here of sales was commissions, not rents?

Mr. Andrew L. Frey: Well, you have to look at the rest of their business as we submit you have to do anyway.

If we had lost the rents commission issue, and won the employment issue, you'd still have to go back to District Court to look at the other aspects of Drucker and Falk businesses to see whether they --

Justice Byron R. White: Yes, let's just to assume that is all they -- the only income they had were their sales?

Mr. Andrew L. Frey: And they would be exempted and the Central Office Personnel would be exempted also.

Justice Byron R. White: Yes.

Justice Lewis F. Powell: Mr. Frey, before you move on to the other issue, you have intimated in your brief argues that the intent of Congress among other things was to reach enterprises that had a significant impact on commerce.

And as I read your brief of page 18 and that which follows your general discussion suggests to me that you may think that if this rental agent didn’t handle these 30 apartment units that the impact on commerce would be less.

Is that correct?

Mr. Andrew L. Frey: Well, it’s the question of the impact of an enterprise on commerce, Justice Powell and --

Justice Lewis F. Powell: But the substance really is the effect on commerce and these rental units, presumably, would be rented by the owners whether or not they were a rental agent?

Mr. Andrew L. Frey: Well, but of course, there are differences still.

Even the terms of the impact on commerce because the petitioners for instance purchase all the supplies.

They do all the hiring and on a unit basis, that is their enterprise, carries for all 30 of these separate projects.

It has all the efficiencies of scale that are here.

Justice Lewis F. Powell: That might make the impact less rather than having 30 separate people who purchased the supplies?

Mr. Andrew L. Frey: Well, that goes to the underlying purpose of Congress was distinguished on the basis of the impact of an enterprise on commerce, not the impact of unrelated business activities.

What they said was if you had related business activities which taken together have a sufficient impact on commerce to meet our dollar volume test then the employees and all those activities will be protected.

If you split it up, fragment it into a series of separate enterprises then you do not have an enterprise which itself has a sufficient impact on commerce to meet the test.

Justice Lewis F. Powell: But in terms of economic reality, the impact on commerce is likely to be pretty much the same you said in the rental of apartment has it?

Mr. Andrew L. Frey: Well, I suppose that if General Motors were divided into 10 companies, each of which had a share of the market equivalent one-tenth of General Motors' share, you might suppose that in some senses, the impact on commerce would be the same.

But there are also senses in which the fact that it is General Motors all together in one piece makes a difference in terms of the impact on commerce.

But I don’t think Congress was suggesting that the level of national business activity has to be changed, but rather that it was picking out for coverage employees who are in enterprises which themselves had a sufficient impact on commerce.

Now, on the employment issue, it’s conceded that these people are employed, that the petitioners are employers of these employees.

What Mr. Kelly did not point to which we also attach considerable weight to is the definition of employ in Section 3 (g), which is to suffer or permit to work.

Now, who is it who suffers or permits these employees to work?

It’s perfectly clear that its petitioners again, the building owners are off at the bottom of the ocean.

They have nothing to do with these people.

The only connection that they have with these people is approval of an overall labor budget.

As far as the record discloses and from the contract that appears, they don’t even have the right to exercise a veto over the hiring and firing and so on as was the case in Arnheim & Neely.

Justice William H. Rehnquist: Don't you think that they pay them has some connection?

Mr. Andrew L. Frey: There is some connection, again, if we were here with the difficult case of whether these were employees of the building owners, which we would contend, they are but in a secondary sense, we would rely on the fact that the services they perform benefit the building owners and payment comes out of the building owner’s funds.

But when you say who pays them, the arrangement that the building owners have with the management company happens to provide for their payment by the building owners.

We do not in any sense suggest though or concede that has a common law matter as between the employees and petitioners, that petitioners are not responsible for their salaries.

Justice William H. Rehnquist: But in fact, the money that used to pay their salaries is that of the owners and not that of petitioners?

Mr. Andrew L. Frey: That’s right.

But it’s never been viewed either in the social legislation cases before this Court or in common law cases that payment of money alone, is the governing indicia of an employment relationship although it maybe sufficient.

Justice William H. Rehnquist: Well, I quite agree.

I just questioned your statement that the owners had virtually no connection with the employees and you’re not mentioning the fact that, it was their money that paid them which may not be overwhelming, but it seems at least a factor.

Mr. Andrew L. Frey: I’m not sure they would be materially different case if the employees were paid by the management company which in turn took off cost plus kind of a fee to do it.

In our view, that would make no significant difference on the case.

Now, well we’ve – I’ve adverted to the reality of the economic relationship between the management company and the employees.

I’d like to point out which is very important that these people are not simply employed in the building owner’s enterprise which is real estate investment.

They were also employed in a very real sense in petitioner’s enterprise which is the management of buildings for others.

Petitioners could not conduct their enterprise, if they did not have these janitors, these elevator operators, these maintenance personnel.

So, to say that they are not employed in a meaningful sense in petitioner’s enterprise, I think it is completely incorrect.

Now, I think the Court was troubled or perhaps at least petitioner’s counsel was troubled by the notion that you might have all these different employers under the definition of employer in the Act.

Now, I think that a case could be made out that Congress intended to permit multiple liabilities not in the sense, Justice Stewart that you could recover more than once for the statutory liability but in the sense that there might be several jointly liable individuals.

However, the McKay case, carved out which is the Eighth Circuit case which is discussed in both briefs.

Carved out what in effect is the fellow servant exception that says that “Well, if the person who you are looking to does not have his own independent business enterprise, but is simply an employee, that is a supervisor or head of the personnel office or somebody like that, you cannot hold him independent liable."

We’re not dealing with that case at all here.

We’re dealing with an independent business enterprise to which these employees are vital.

Now, there was a question asked to the owner’s liability.

The owners in this case would be considered unquestionably liable, derivatively because they also employ these individuals who are employed in petitioner’s enterprise.

That is if the Court were to conclude that these individuals are covered under the Act by virtue their employment in petitioner’s enterprise which is of sufficient size then the building owners would be liable not for all of petitioner’s employees but for those who were employed at the owner’s own building.

Justice Potter Stewart: But for those whose paychecks, they actually pay?

Mr. Andrew L. Frey: That would be our position although I could see a case here where the building owner would argue that, well the management company maybe liable, but our connection is so remote because we’re not involved in -- we don’t actually employ these people. We don’t suffer or permit them to work except in an indirect sense.

I’m not arguing that point of view but I think we would have harder case.

Justice Potter Stewart: Well, certainly there’s nothing.

It’s a common place I suppose know that under this Act and under its language, there can be a more than one employer of the same person?

Mr. Andrew L. Frey: It’s no doubt that has been recognized.

No question.

It is recognize by this Court in the Labor board context in the Greyhound case.

And its been recognize by numerous Courts of Appeals in cases that we have cited and the amicus brief treat it as though there can only be one employer and they spend all of their time establishing proposition that the building owner is an employer of these employees and our view is that, that gets them nowhere because it is not just mutually exclusive with petitioners also being an employer.

Justice William H. Rehnquist: Will each owner be covered even though he did not himself made the dollar volume test by virtue of the fact that petitioner met the dollar volume test?

Mr. Andrew L. Frey: He would be derivatively responsible with respect to those persons employed at his building.

If they are employed in an enterprise engaged in commerce, by him, then the fact that his enterprise is not big enough.

If you remember in the Arnheim argument, we had the example of the hair dressing salon and the department store with a hair dresser himself may not have a big enough enterprise but if he puts a unit in Woodward & Lothrop and they have a big enough enterprise then those persons employed in the Woodward & Lothrop enterprise hair dresser section would be covered and the hair dresser would be liable for the payment of their wages and Woodward & Lothrop would not unless – that Woodward & Lothrop would be would depend on whether it would be part of Woodward & Lothrop sales also.

But in other words, you do not have to yourself be an enterprise that’s subject to the Act under the dollar volume test in order to have some of your employees for some other reason responsible.

Accordingly, we submit the judgment of the Court of Appeals should be affirmed.

Thank you.

Chief Justice Warren E. Burger: Very well, Mr. Frey.

Mr. Kelly, do you have anything further?

Rebuttal of Herbert V. Kelly

Mr. Herbert V. Kelly: Yes sir, if I may take a moment.

The Court understands that we don’t agree that the First National Bank case or the Jernigan case either one are applicable, though, counsel asserts that they are.

The First National Bank case, the defendant bank owned the building and rented it through a management company that was the wholly owned subsidiary of that company.

As a matter of fact, as I recall the facts, the present company drew $50,000 a year from the bank as salary and $1800 a year for the management firm.

That was strictly an ownership case where they proceeded against the owners of the property.

And the Jernigan case is again a proceedings against the owner.

There, the operator of the restaurant service station facilities with the bus depot owned it and the Court concluded that he spent the greatest portion of his time operating the bus station and that’s where you are with the gasoline cases that counsel refers to.

There, you have sued the owner who is operating and in the business of selling the gasoline.

The problem that I find with the counsel’s argument is that he talks about sales of apartment, space, like you sell them everyday, like you move in a new tenant every, every Monday.

Suppose we had an apartment project where there is no turnover during the entire year the contract of management, what has he sold?

The rents come in each month, has he sold any space?

Same persons there when he was employed and there when he left as managing agent?

What has he sold them, is his services in managing the project and supervising the --

Justice Byron R. White: That would be the rent that was reserved in the lease for a period of time?

Mr. Herbert V. Kelly: Yes sir, the rents then existing as what I say to you.

When they come on as managing agent as an existing lease, they may want for two years.

They don't sell a thing so far as space, they sell their services.

And you could have a project where you would never sell anything, but services if there was no turn over.

That's the problem I have, and I was sit down, is that it seems to me, if you take all these theories of counsel as who is covered, that the judges, example on a District Court level where you had the lawyer who was managing the large estate that bought and sold stocks, bonds, assets, real estate, in the estate, and distributed the money, then had a total gross income that he covered.

Now, that’s not what the Act says and I don’t think it’s the intent of Congress that that be true.

I don’t think it’s the intent of Congress.

That I think it is illusory, I submit to you to say that the impact of a 40-unit apartment project on Warwick Boulevard in the city of Newport News has one with more impact on commerce sitting there, with Drucker and Falk managing it, than would be managing it.

The intact impact of those 40 units sitting on Warwick Boulevard is whatever it is.

And it don't impacted a bit more if I manage it or Drucker and Falk.

It would be just managed not quite as well and we submit that the decision and the Court of Appeals should be reversed.

Chief Justice Warren E. Burger: Thank you gentlemen.

The case is submitted.

Featured:

Brennan v. Arnheim & Neely, Inc. - Oral Argument

Thu, 23 Aug 2012 18:20:13 +0000

Case:

Brennan v. Arnheim & Neely, Inc.

Media File:

71-1598_19730116-argument.mp3

Related Transcript:

71-1598_19730116-argument

Transcript:

Argument of Andrew L. Frey

Chief Justice Warren E. Burger: We’ll hear arguments next in number 71-1598 Hudson against Arnheim.

Mr. Frey, you may proceed whenever you are ready.

Mr. Andrew L. Frey: Mr. Chief Justice and may it please the Court.

This case is here on writ of certiorari to review a judgment of the United States Court of Appeals for the Third Circuit holding an elevator operators, cleaning ladies, and other operating maintenance and personnel at eight office buildings and one apartment complex in the Pittsburgh area, managed by respondent Arnheim and Neely, are not entitled to the protection of the Fair Labor Standards Act’ minimum wage and overtime provisions.

The decision below conflicts with the decision of the Fourth Circuit involving identical issues and holding that the employees were covered.

Arnheim is a real estate firm engaged among other activities in the management of office buildings and apartment houses as agents for the owners of such buildings.

At the time this suit was brought, it managed a total of nine such buildings for various unrelated owners.

Arnheim’s management activities are carried out under basically identical contracts with each of the building owners.

Under which Arnheim assumes all of the functions of managing and operating the buildings including the procurement of tenants and negotiation and enforcement of leases, the collection of rents, arrangement for utilities and other services, in short all aspects of the operation of the buildings.

Now Arnheim’s business is conducted from its central office and managed by supervisory management personnel operating out of that central office.

With respect to each building, Arnheim collects the rents, deposits them in separate bank accounts and uses the funds to pay the operating expenses of the buildings to pay its commissions and to remit the balance to the owners.

Now, Arnheim has extensive responsibilities in connection with personnel employed at the various buildings and I am talking about such personnel as elevator operators, cleaning ladies, watchmen, building engineers and so on.

Functions and responsibilities of Arnheim with respect to these personnel are spelled out in detail in the stipulation that was filed in the District Court and that’s in the appendix and also at pages 5 and 6 of our brief.

Now briefly summarized, these functions involved hiring, promotion, and firing of all personnel; supervision of their performance of their employment, making work assignments and scheduling the time of work, negotiating union contracts, determining rates of pay and benefits, preparing payroll and maintenance of other employee records and payment of salaries.

In short, every conceivable incident of the employer-employee relationship is encompassed in Arnheim’s responsibility, although the owners are consulted and enjoy of veto with respect to certain matters such as the rates of pay and promotions.

Unknown Speaker: Are these personnel ever shifted from building to building?

Mr. Andrew L. Frey: I don’t believe that in this -- that the record reflects that they are shifted.

They are employed for a particular building.

Unknown Speaker: Or it’s every conceivable relationship except that an employer and employee, isn’t it?

Mr. Andrew L. Frey: Well, I would say that it is a relationship of employer and employee.

Our position is and I think this Court has clearly held certainly in the context of the Fair Labor Standards Act that in determining the employer-employee relationship, you don’t look solely at the common law concepts and you don’t -- and in any event even if you did the right to hire, the right to fire even if it is a shared responsibility with another person gives you a status as an employer.

Unknown Speaker: As I understand it, for each building there is a separate bank account?

Mr. Andrew L. Frey: There is a separate bank account.

Unknown Speaker: And the employees in that building are paid from that account?

Mr. Andrew L. Frey: That’s correct.

Unknown Speaker: And are those checks drawn by --

Mr. Andrew L. Frey: By Arnheim and Neely.

Unknown Speaker: But they are both what --

Mr. Andrew L. Frey: Yes, it isn’t Arnheim and Neely account, it would be labeled Arnheim and Neely clock building accounts.

Unknown Speaker: Suppose there are insufficient funds at a rent or something to pay the current salary bill, whatever it is, who pays?

Mr. Andrew L. Frey: Well, --

Unknown Speaker: That never arises?

Mr. Andrew L. Frey: The record doesn’t indicate that that arises.

Our position in such an instance, suppose the building owner went bankrupt and -- I will come this a little later.

Our position would be that Arnheim would be responsible for payment of minimum wages then Arnheim is under the act of employer in that sense. And it has every power that an employer has.

Unknown Speaker: Well if that so, then if it so happened, not because the building was bankrupt but because it is simply weren’t enough funds to pay the current bills, you say that Arnheim would still be in law, obliged to pay the minimum wage?

Mr. Andrew L. Frey: That would be our position.

I don’t think that that’s essential for the disposition of this case.

Justice William H. Rehnquist: Under the Fair Labor Standards Act.

Mr. Andrew L. Frey: Under the Fair Labor Standards Act, their responsibility to pay the light bill would be a matter of state law and of contract between them and the building owner but here we have a special situation which is that they do serve as employers of these people under the Act and if these people are entitled to the acts protection, then the employer is reliable to see that they get it.

And as both Arnheim in this case and the building owners and I will expand on this shortly.

Unknown Speaker: Mr. Frey, am I correct in my impression the Third Circuit decided the employer issue in the Government’s favor?

Mr. Andrew L. Frey: That’s correct Your Honor.

Unknown Speaker: And there is no cross-petition here?

Mr. Andrew L. Frey: That’s correct Your Honor.

Again later on, I think I will indicate that there is an argument that’s made that this is somehow still relevant to the enterprise question which is really before the Court today but we think that argument is fallacious.

Now, the Secretary of Labor brought suit in the District Court for the Western District of Pennsylvania to compel Arnheim and Neely, to comply with the minimum wage, the overtime and the record-keeping provisions of the Act.

Arnheim raised basically four defenses.

First, it contended that it was not the employer of these employees that the building owner was.

The District Court rejected that contention, it looks both that the relationship in Arnheim actually had to these employees and to the definition in the Act on how that it was an employer.

Secondly, Arnheim contended that that in determining whether the dollar volume requirements of the Act are met, the Court should consider only Arnheim’s commissions and not the gross rents from the buildings.

This argument too was rejected by the District Court.

Thirdly and this is the key issue in this case today, Arnheim contended that its business was not an enterprise under the Act but rather that the employees at these buildings were employed and its many different enterprises as there were separate building owners.

Finally, an issue that is not raised by either side here, there was an issue regarding the nexus to interstate commerce and the District Court held that prior to February 1, 1967, the necessary nexus did not exist and dismissed the secretary suit as to that prior period subsequent to February 1, 1967 when the statute was amended.

The Court held that the necessary nexus did exist and we don’t understand that issue to be contested.

On appeal, the Third Circuit held an agreement with the Government’s position on the District Court that Arnheim is an employer of these employees under the act.

It secondly held also an agreement with the Government and with the District Court that the proper measure of gross revenues for purposes of determining coverage under Section 3 (s) of the Act is rents and not merely Arnheim’s commissions.

However, they agreed with Arnheim that it was not conducting a single enterprise but rather as many different enterprises as they were different building owners.

Accordingly, it remanded the case to the District Court for a hearing whether each of these, whether any of these separate enterprises met the dollar volume requirements of the Act to create an enterprise in which the employees would be covered.

Our petition for certiorari raised solely the issue of the correctness of the Court of Appeals definition of Arnheim’s enterprise.

No cross-petition was filed with respect to the issues won by the Government below nor were they raise in the brief in our position to the certiorari petition.

Turning to the merits, the Government’s theory is that these employees are employed in Arnheim and Neely’s Enterprise, the management of office and apartment buildings for others and that the activities that all the buildings Arnheim manages are part of a single enterprise.

Question presented to this Court is fundamentally one of interpretation of the provisions of the Fair Labor Standards Act.

We submit these provisions are acceptable of only one interpretation and that interpretation provides coverage for these employees.

Let’s take John Doe, an elevator operator of one of the buildings that Arnheim manages, in order to determine whether he is protected by the minimum wage provisions which it contained in Section 6 of the Act would begin by looking at Section 6 which says every employer shall pay to each of his employees and I am skipping to the relevant part, employed in an enterprise engaged in commerce or in the production of goods for commerce wages at certain rates.

Now the phrase “engaged in the --employed in an enterprise engaged in commerce or the production of goods for commerce” is defined in Section 3 (s).

Its there defined as an enterprise whose annual gross volume of sales made or business done is not less than $500,000 if we are talking about the period from February 1967 to January 1969.

So the question is, is John Doe employed in an enterprise which has the necessary dollar volumes?

Now “enterprise” as defined in Section 3 (r) and here we are the crux of the case.

The relevant portion says that an enterprise means “the related activities performed either through unified operation or common control by any person or persons for a common business purpose, and includes all such activities whether performed in one or more establishments or by one or more corporate or other organizational units.”

Now Arnheim’s activities as a manager of office and apartment buildings for others clearly constitute a single enterprise under this definition.

There are three elements that need to be met.

Are they related activities?

And Congress has not defined related activities per se but the legislative history makes it clear that consider related activities to be those that are the same or similar.

Looking in Arnheim’s activities that each of the office buildings and apartment buildings that have manages, it does the same thing under basically the same agreement with the building owner clearly related activities we submit.

The second requirement is, are these activities performed through a unified operation or common control?

Now, the common control requirement is satisfied if they’re performed by a single company.

Arnheim and Neely incorporated runs the business of Arnheim and Neely, Incorporated and that’s what we are talking about here.

The common control requirement is met.

In addition, although it’s not necessary to meet both, Arnheim’s business of managing buildings is run through unified operations.

That is out of its central Arnheim and Neely office where its management and supervisory personnel and clerical personnel work.

Finally, these related activities must be engaged in, for a common business purpose.

Again, we think it’s clear that the requirement is met.

The emphasis of Congress was on the word “business” to distinguish between business and charitable.

Here, the activities that each of the nine buildings are undertaken by Arnheim for its business purpose of managing buildings and making a profit from that activity.

How then did the Court of Appeals reach a different conclusion?

It did so by completely ignoring Arnheim’s enterprise and by looking instead at Arnheim’s clients the building owners.

It found that the building owners did not share common business purpose that they have nine distinct enterprises.

This finding was absolutely correct.

We have no problem with it, whatsoever.

But it’s irrelevant as applied to this case because it’s Arnheim’s enterprise in which we contend that these individuals are employed.

Now, there is a fact which is perhaps overlooked by the Court of Appeals and by the respondents herein which is that under the Fair Labor Standards Act, it’s possible to be employed in more than one enterprise at the same time.

And indeed that’s exactly what appears to have happened here.

These persons are employed in the building owners enterprise which is to own real estate.

They are employed in Arnheim and Neely’s enterprise which is to manage real estate.

They are involved in both of those businesses.

Now, where they are employed by more than one enterprise, if one of the enterprises comes within the coverage requirements of Section 3 (s) then the employee is protected regardless of whether the other enterprise by which he may also be employed comes within Section 3 (s) or not.

Now, I think the example that we gave in our reply brief of the warehouses retaining the protective agency will illustrate the fallacy of the reasoning of the Court of Appeals.

Supposed you have nine separate warehouses, each completely independent business having no connection with one another.

They all require security services, night watchmen, they all retain the same protection agency and the issue is, are these night watchmen entitled to the protection of the Act?

Now of course if you look at the enterprises of the warehouses in which they may be employed, their station let us say at the same warehouse every night that they were.

You might say “well, the warehouse doesn’t have an enterprise that fits the statutory requirement, therefore they are not covered.

But of course they are also employed in the protection agencies enterprise which is to provide night watchmen and various warehouses and other business as there in the city.

Justice William H. Rehnquist: Of course your typical protection agency contracts for the services of the people it hires and pays them.

The warehousemen isn’t necessarily responsible for their wages and the protection agencies generally, primarily responsible.

Mr. Andrew L. Frey: Well, the structure of the Act makes it quite clear that coverage does not turn on who is responsible for your wages.

The question is “are you employed in an enterprise?” which comes within the definition.

Now, how could one say that these elevator operators are not employed in Arnheim’s enterprise?

Arnheim’s enterprise is to operate buildings and these -- without the elevator operators, Arnheim couldn’t conduct its business in managing these buildings.

And therefore these men are employed in Arnheim’s enterprise and it doesn’t matter whose employees they are.

It doesn’t matter who pays them.

Now, the redcap cases which we cited in our brief are an illustration of a situation in which the Court has held that even though the railway company is not paying the redcaps their salary, they are totally dependent upon tips from the passengers that it isn’t payment of salary who bears the ultimate salary burden.

That’s the critical issue.

The issue is, who has control over the day to day conduct of these employees?

Are they involved in the aircraft?

Justice William H. Rehnquist: Would you say a plant manager was himself an employer because he has control over the day to day conduct of the employees as well as the owner who hires the plant manager?

Mr. Andrew L. Frey: Well, one of the cases cited by the respondents or perhaps by the amicus, I think it’s the Royal Crown case involves the situation where the president of a company was held personally liable under the Act because of the extent of his involvement.

But here, I don’t think that’s the point.

The plant manager would not be considered to have an enterprise.

We are talking about whose enterprise to these people working.

Are they working in an enterprise which is covered under the Act?

Now, it would be possible that they could work in an enterprise and the operator of that enterprise would not be liable for their wages and the example of that would be the beauty salon operating as leasing space in a department store.

Now, the employees of that beauty salon, if the department store’s enterprise qualified under the Act, the revenues of the beauty salon would be included within the department stores enterprise to determine whether it was subject to the Act and the employees in the beauty salon would be entitled to the protection of the at even though the department store exercise, no control whatsoever over them.

The department store might have no liability to pay the minimum wages.

The beauty salon operator who does not have an enterprise with $500,000 would be liable to pay because these persons are employed in an enterprise which meets the Acts requirements.

And this is a very important point that that is overlooked in the briefs of the respondents in the amicus.

Now, I think I was just getting to this point actually and I think perhaps I’ve adequately covered it.

So, in closing, let me say this, it seems clear that the underpinnings of the Third Circuits decision was a concern for the impact of the minimum wage laws on the business of the building owners.

Now, it is of course an inevitable feature of such laws that they raise the cost of certain goods and services and thereby adversely affect the consumers of those goods and services, many of whom maybe small businesses.

This is never in the past in anyway discouraged Congress from adopting and from expending the coverage of the Fair Labor Standards Act. Any event, the concern of the Court of Appeals for these building owners seems to us misplaced in this instance.

It’s by retaining a firm such as Arnheim and Neely to manage its buildings but the building owners realize important benefits of an economic nature for themselves.

These benefits derive from the skill of Arnheim’s operation from the fact that it manages many buildings that it is able to hire for instance experienced top management personnel to manage office buildings which wouldn’t be justified if only a single office building were being managed so that substantial benefits are being conferred upon the building owners when they retain Arnheim and this notion that if they have to pay the minimum wages, they will all stop retaining Real Estate Management firms is totally without foundation in the record and we believe contrary to normal experience.

Chief Justice Warren E. Burger: Mr. Frey, let me go back to that bank account a moment.

The bank account is separate for each building you indicated.

Does the record show who is the owner of that bank account?

Mr. Andrew L. Frey: I’m not certain who was the owner.

I believe that it’s in Arnheim’s name, I assume that it is a trust at least that is in our --

Chief Justice Warren E. Burger: What goes into that bank account is the property of the building owner, is it not?

Mr. Andrew L. Frey: Yes, that’s right.

Chief Justice Warren E. Burger: And Arnheim and whatever form that account takes is holding it to -- in trust and in agency?

Mr. Andrew L. Frey: That’s right but that has nothing to do with the statutory issue with which --

Chief Justice Warren E. Burger: But perhaps not, it’s probably all the bits and pieces of these things that answer that question.

Mr. Andrew L. Frey: Well, I think that if you look at the structure of the statute, it’s quite clear that the question is, are they employed in an enterprise and looking at Arnheim and Neely.

What is Arnheim and Neely’s are their activities at each of these nine buildings, part of one single enterprise?

Chief Justice Warren E. Burger: What about the workmen’s compensation liability?

Where does that rest?

Mr. Andrew L. Frey: I am not certain Your Honor where that would rest.

Unknown Speaker: Well, I know that stipulation makes reference to payment of all insurance.

I was looking for the same thing with the Chief Justice.

I do not see any express reference to workman’s compensation.

There is here, a reference to the payment out of those accounts of all insurance premiums etcetera, for each building.

Mr. Andrew L. Frey: Well, I think that the question of the workman’s compensation law would be governed in part by the state law.

We are talking here about the Fair Labor Standards Act and the question is, what does that Act mean?

And --

Chief Justice Warren E. Burger: But to determine what that Act means, we have to analyze, great many elements, do we not? Of the relationship, you have analyzed some of them yourself.

Mr. Andrew L. Frey: Well, I -- but I believe that it’s possible to totally ignore the relationship between the building owners and Arnheim.

The relationship with which we are concerned is between Arnheim and the business that Arnheim is conducting and secondly between Arnheim and this personnel.

Chief Justice Warren E. Burger: But you were drawing an analogy of someone like Burns Detective Agency that would furnish security service for 15 or 28 buildings or warehouses or what not?

Mr. Andrew L. Frey: Yes, that’s right.

Chief Justice Warren E. Burger: Where Burns would hire them all?

They would be on the payroll of Burns.

They would be interchangeable.

The workman’s compensation would be Burns, the public liability which they undoubtedly would carry since these men are armed, that sort of thing.

That’s -- isn’t that quite a different situation from this one?

Mr. Andrew L. Frey: I don’t mean to suggest that in the Burns illustration, I didn’t mean necessarily that the protective agency would hire these people.

They could be joint employers and I think it’s very important that in this case, the agreement between Arnheim and the building owner could be setup in such a way that Arnheim would not be liable under the Act.

Arnheim can simply get out of the business of running these buildings with these personnel and leave that to the building owner.

It could stick to collection of rents and procurement of tenants and handling the bank account for the building let’s say.

If it did that, then these employees would no longer be employed in Arnheim’s enterprise and we would not be seeking to establish Arnheim’s liability.

By that same token, the building owners can get out of liability under the Act by withdrawing any of their employment control.

That is, they could leave it up to Arnheim to pay whatever salary Arnheim wants and just reimburse Arnheim on a cost plus basis for doing that.

And such a case which would be irrelatively minor change in the existing agreement, the building owners would be off to hook as far as liability for payment of minimum wages and for making sure that the necessary records are kept and so on, that would all be Arnheim.

In this case, they have chosen to setup their relationship in a manner that makes them both liable because they are both -- because these persons are employed in both of their enterprises and they are both employers under the definition of the Act which both courts below have held.

Now, I think when we are talking about the policy that informs and underlies the Fair Labor Standards Act, there are numerous references in the legislative history to this policy and I want to refer to one in the House Report in connection with the 1966 Amendments to the Act.

The Committee said, in keeping with the broad statutory definitions of the “coverage” phrase is used.

The courts have repeatedly expressed and adhere to the principle that the coverage phrases should receive a liberal interpretation consonant with the definitions with the purposes of the Act and with its character as remedial and humanitarian legislation.

However, despite the Acts broad coverage terms and the court’s liberal interpretations regarding coverage and restrictive interpretations regarding exemptions, there is great need for extending the present coverage of the Act to large groups of workers whose earnings today are unjustifiably and disproportionably low.

Now, it’s that policy and not any concern for small business man that as a basic policy that underlies the Fair Labor Standards Act and given that policy, there is no reason to ignore or distort the clear statutory language for the purpose of preventing these employees from obtaining the benefits of the Act.

If there are not further questions I would like to reserve the balance of my time for rebuttal.

Chief Justice Warren E. Burger: Very well, Mr. Frey.

Mr. Strassburger.

Argument of Eugene B Strassburger, Jr.

Mr. Eugene B Strassburger, Jr.: Mr. Chief Justice, may it please the Court.

I first would like to answer the Court’s question respect to who owns the bank accounts involved in this case.

On the bottom of page 23 of the stipulation, it says specifically the funds deposited in these accounts for the property of the owner and not of Arnheim and Neely.

And Arnheim and Neely is not liable in the event of bankruptcy or failure of the depositor.

There’s no question, Your Honors, that these are agency accounts and that Arnheim and Neely would not be liable for any of the wages personally if these buildings could not meet the payroll itself.

Now, this history of this case started in 1965.

At which time, one of the Labor Department representatives came in to Arnheim and Neely’s quarters to examine the operation, decided that Arnheim and Neely was an enterprise and we have been on the road ever since.

When we reach the litigation stage in 1967, we knew that we were guinea pig and that we were the first to be hit with the suit by an agent who had no ownership in any of the buildings which it managed.

Because of the importance to the industry, the instituted Real Estate Management asked to leave to intervene as a party defendant and was given that permission.

We lost the first trial in the Federal Court in Pennsylvania.

Shortly after our case came down, a similar case was started by the Federal Government in the District Court of Virginia.

And despite the holding against us, the District Court of Virginia decided in favor of the real estate managing.

In that case, they made a threshold question as to whether or not the measure should be gross receipts or gross commissions and they held it should be gross commissions because the real estate manager didn’t own any of the gross receipts themselves.

So we went into the Circuit Court in the Third Circuit feeling pretty good that the -- at least we had one case in our favor namely the Virginia case.

Justice Potter Stewart: And that was -- that was the District Court?

Mr. Eugene B Strassburger, Jr.: That was the District Court.

Right.

Prior to the argument in the Third Circuit, the Fourth Circuit got ahead of use and decided and reversed the lower court in Virginia.

So then the Government came in to the argument and said we got a pretty good case also.

Despite the Fourth Circuit case and the lower court case in its own district, the Third Circuit decided that Arnheim and Neely was not an enterprise.

In a very well-reasoned opinion, concise, logical and I may be a little prejudice but I still say it’s that.

I don’t have to go in to detail as to the nature of Arnheim and Neely’s activities, it’s already been discussed.

There are many unusual type of activities than usual type of management activities.

But there is one point, Your Honors that I have to make clear and emphasize.

Arnheim and Neely does not own any of the buildings in which it manages.

They are just no ownership present, that’s all.

Every case of enterprise must have some type of ownership going with it.

And they don’t have any ownership here.

Also in discussing --

Justice Potter Stewart: Theory, is that literally true?

Do you have -- you could be a service organization and clearly be an enterprise, couldn’t you?

Mr. Eugene B Strassburger, Jr.: Well I’m coming to that Your Honor, as to whether or not --

Justice Potter Stewart: I mean it’s not literally true that in order to be an enterprise you have to own something.

Mr. Eugene B Strassburger, Jr.: I think almost it is Your Honor.

I really think that in order to show an enterprise that you have to show some ownership.

Justice Thurgood Marshall: How about the security guards?

Mr. Eugene B Strassburger, Jr.: Sir?

Justice Thurgood Marshall: How about the security guards?

Mr. Eugene B Strassburger, Jr.: The security guards may or may not be an enterprise depending on whom they work for.

Justice Thurgood Marshall: Or do they have to own something?

Mr. Eugene B Strassburger, Jr.: Not the security guards Your Honor.

Of course --

Justice Thurgood Marshall: Well what is the difference?

You said they had to own something to be an enterprise.

Mr. Eugene B Strassburger, Jr.: Well, I may have been misunderstood but I say that the enterprise doctrine itself must show some and I think I will be able to point to that Your Honors little more clearly that the enterprise doctrine must contain some type of ownership in order to --

Justice Potter Stewart: Well your own paper and pencils and typewriters and what not.

You mean you have your own --

-- real estate?

Mr. Eugene B Strassburger, Jr.: I am talking about title to the receipts which they receive for example, the gross rentals that they receive.

Well, let me continue and I think I will be able to explain it.

This Court decided back in 1945, the case of 10 East 40th Street building versus Callus.

That case involved a local building operation and because of that decision, the Court held that the employees were not within the interstate commerce rule and it was a part -- simply a local operation.

Now, we have here nine separate buildings, all of which can be considered to be Callus cases.

The Government says, well since that case, we have gone into the enterprise doctrine and therefore that case doesn’t hold right.

Of course the case is still being cited everyday for the proposition for which it stands and the crux of the real issue here is, does the enterprise doctrine nullified the holding of the Callus case.

So we are back again to the definition situation as to what is an enterprise.

And Mr. Justice Douglas and Mr. Justice Stewart deplored the exercise in semantics in the Maryland versus Wirtz case.

We are going to have to do a little exercise in semantics, nevertheless.

The definition states related activities performed either through unified operation or common control by any person or persons for a common business purpose.

The word “common” appears in this definition twice in three lines.

So, I must assume that the word is rather important.

But let’s take each of the definition words as it goes down.

First, it says related.

What are related activities?

Well, the Government would have us believe that they are the internal activities of Arnheim and Neely which are related.

Well, of course any building has internal activities which are related to each other.

This is not what the Congress meant Your Honors.

The related activities are those which concern more than one business.

Not just Arnheim and Neely business but more than one business with common ownership.

Lacking the common ownership, there can be no related activity, unified operation or common control.

Well, I could only refer to those activities where there is more than one business.

Naturally, a single business has unified operation in common control and not as the Government contends to a single operation.

As a matter of fact, common control may not even be enough.

A recent case in the Tenth Circuit decided since out case called University Club Tower case involved a situation where one corporation controlled both an apartment building and a hotel.

And the Court said, well the business purpose of a hotel is not the same as the business purpose of a apartment building, therefore, no enterprise.

So, I submit to you Honors, if a hotel and an apartment building which are commonly owned and controlled are not an enterprise, how can there be an enterprise where you have a number of unrelated buildings merely because they have a common agent.

The use of the work “common” as I said before is a very important phrase -- word.

When you talk about “common,” you talk about more than one.

Even the definition of common in the dictionary says, belonging to, or equally shared by two or more individuals.

Well now, I know that Learned Hand once said, “We are not going to make forth recite a dictionary and I’m not saying that we should in this case.”

But nevertheless, this Court had talking to Mr. Justice Vinson once said, “We have consistently refused to pervert the process of interpretation by mechanically applying definitions in unattended context refused to pervert.”

Those are strong words in those days but they have a different connotations today and I am not going to accuse the Government of any type of perversion but they are certainly are distorting the words of this definition of enterprise.

“Common,” if I use my driveway with my wife and family, if I created a common driveway?

Of course not.

But if I use my driveway with somebody on the other side who has got a property on the other side, then I have created something in common.

The Government, however says because Arnheim and Neely is operating more than one building, it is in common.

It’s operating with itself and I say that this thus doesn’t mean anything as far as definition at large is concern.

Now, I’ve taken the definition apart.

Let’s put it back together again.

What is an enterprise?

Well, I think an enterprise is demonstrated mainly by the so-called bank and insurance cases.

The bank owns an office building.

It uses part of the office building itself and it rents out to the general public the balance of the building.

Prior to the institution of the enterprise doctrine, the bank guard was subject to the Act and the office building guard, he worked along side with him was not subject to the Act.

And to correct that, Congress said, if you are in an enterprise then this is where both people should be under the same Act and I quite agree.

But that’s not the situation with we have.

In that case again, the ownership was the bank who own the office building and that I said Your Honors is what a true enterprise really is.

Now, there was some discussion when the Honorable Solicitor was talking about some of the economic reality and situation and this Court has said that when we are dealing with social legislation such as this, we must look at the economic realities.

Now, what are the economic realities with respect to the employees of these separate buildings?

First place, the employees go with the building.

They don’t go with Arnheim and Neely.

Since the case has been instituted, Arnheim and Neely has lost the management of some of these buildings that are mentioned here.

They gained other ones and there is a continual shifting over because some buildings are sold, some buildings are tired of the manager, they want a new manager for one reason or another that buildings are no longer managed by Arnheim and Neely.

The employees stay with the building, they don’t go with Arnheim and Neely.

The rates are paid, the fringe benefits, other wage and salary matters all are subject to the approval of the owner without exception.

Chief Justice Warren E. Burger: I didn’t find the workmen’s compensation for example specifically sent forth in the stipulation.

Mr. Eugene B Strassburger, Jr.: I don’t think it’s in the stipulation Your Honor, probably this wasn’t thought about with respect to talking about the minimum wage, we are talking about workmen’s compensation but I think there is enough in the stipulation itself to show especially at the bottom of page 23 that the funds deposited in these accounts are the property of the owner and that the owner himself would have to stand all those -- well, as a matter of actual fact and actual practice, I know as my own knowledge that each account is kept separate.

There is the end of a question with workmen’s compensation came up, it would be paid out of that particular account and no other.

Unknown Speaker: What about the stipulation at page 24 that expenses and including a number of things, one of which is insurance?

Mr. Eugene B Strassburger, Jr.: Well, it paid out of the account, that’s right Your Honor.

Unknown Speaker: Well, would that mean with insurance could workmen’s compensation?

Mr. Eugene B Strassburger, Jr.: That could be workmen’s compensation, any type of insurance.

That’s right.

Chief Justice Warren E. Burger: I suppose you don’t --

Mr. Eugene B Strassburger, Jr.: All paid by the owner.

Chief Justice Warren E. Burger: -- public liability also?

Mr. Eugene B Strassburger, Jr.: Absolutely.

Chief Justice Warren E. Burger: You think it’s clear from this record as a whole that if an employee is injured on the job, he is injured on the account of the building owner and not of Arnheim?

Mr. Eugene B Strassburger, Jr.: I think it’s perfectly clear, Your Honor.

Quite clear.

Chief Justice Warren E. Burger: If an elevator operator, it’s in to a quarrel with one passenger and there is a lawsuit, they sue Arnheim in your view or --

Mr. Eugene B Strassburger, Jr.: They sue the owner, there is no question.

Chief Justice Warren E. Burger: As the employee of the owner.

Mr. Eugene B Strassburger, Jr.: That’s correct Your Honor.

Any economic law suffered on the part of any of the buildings is suffered by the owner and not by Arnheim and Neely.

Arnheim and Neely is compensated through its commissions.

Unknown Speaker: You wouldn’t suggest that the -- Arnheim wouldn’t be a proper defendant negligent, so as you?

Mr. Eugene B Strassburger, Jr.: No, I would not.

And that brings me to a point of as to who it is --

Justice Thurgood Marshall: If all of this is so true, why do you have them?

Because I gather what you say, they don’t do anything.

Mr. Eugene B Strassburger, Jr.: But the question is, they don’t do anything Your Honor.

They do --

Justice Thurgood Marshall: Well, am I correct as to this day, do you said they don’t do anything.

Mr. Eugene B Strassburger, Jr.: Who doesn’t do anything -- they don’t do -- Arnheim and Neely doesn’t do anything?

Justice Thurgood Marshall: That’s right.

Mr. Eugene B Strassburger, Jr.: Oh! No, I don’t.

If I said that, I certainly didn’t mean this thing.

Justice Thurgood Marshall: No, you didn’t say it but you -- you say that the real -- I mean that the owners of the building do everything.

Mr. Eugene B Strassburger, Jr.: The owners of the building do everything with the respect to paying the freight, let’s put it that way.

The owners of the building pay the wages, they pay the salaries, the overtime, everything is paid, the expenses.

The real estate taxes, everything else.

Justice Thurgood Marshall: Well on your idea, what is an enterprise?

Will it conglomerate to be an enterprise?

Mr. Eugene B Strassburger, Jr.: Not if they don’t have a common business purpose but if they do, it could be an enterprise because a conglomerate would be a common ownership type of situation.

Justice Thurgood Marshall: That’s right, would that be an enterprise?

Mr. Eugene B Strassburger, Jr.: Yes, sir.

I believe that’s right.

Justice Thurgood Marshall: A conglomerate, it dealt in everything from two (Inaudible).

Mr. Eugene B Strassburger, Jr.: Well, I say it unless there is a common business --

Justice Thurgood Marshall: Well, that would be an enterprise.

Mr. Eugene B Strassburger, Jr.: That would be an enterprise.

Justice Thurgood Marshall: You admit that.

Mr. Eugene B Strassburger, Jr.: If it has a common business purpose, that’s correct Your Honor.

Justice Thurgood Marshall: And that don’t give any trouble with this case?

Mr. Eugene B Strassburger, Jr.: That doesn’t give me any trouble in this case.

Unknown Speaker: It would make any difference to you if Arnheim’s commission exceeded the statutory amount.

Mr. Eugene B Strassburger, Jr.: If Arnheim’s commissions exceeded the statutory amount, you mean for coverage?

Arnheim and Neely’s real employees might be covered.

Arnheim and Neely has no --

Unknown Speaker: So your point, at your point -- well so your answer is no, it wouldn’t make any difference because these employees are not Arnheim’ employees.

Mr. Eugene B Strassburger, Jr.: That’s correct.

The Government equates who is an employer with coverage as oppose to enforcement.

It’s possible that Arnheim and Neely as an employer because it perhaps have right to hire and fire is responsible for the enforcement of the Act.

The same as it would be possible for Arnheim and Neely to be subject to the zoning laws, governing that particular building and also the safety regulations of the building.

But to say that Arnheim and Neely is subject to the enforcement provision of the Act is not the same as saying that they are covered under the Act.

I don’t think that they are the same things.

And that’s what the Third Circuit was saying when it said we are going to look at each individual building and that the vicarious responsibility as cited in the Third Circuit is what they are referring to there.

Unknown Speaker: Are you in a position to argue here that these people were not employees of Arnheim?

The Court of Appeals held that they were, didn’t it?

Mr. Eugene B Strassburger, Jr.: The Court of Appeals -- you mean in my -- in the position --

Unknown Speaker: And you didn’t petition for certiorari?

And the Court of Appeals simply -- it held that they were employees and that simply its order remanded the case to the District Court to the sole purpose of finding out whether each buildings grow straddles during relevant years exceeded the statutory exemption.

Mr. Eugene B Strassburger, Jr.: Well, we’re not asking the Court to expand on that at all.

Therefore, we are not asking the Court to expand on the order of Third Circuit.

I think we have a right to argue anything which might be --

Unknown Speaker: Well no, that would expand on the order of the Third Circuit, they are not employees, there is no point remanding the case to find out anything.

Mr. Eugene B Strassburger, Jr.: Well, they can be employees, I say Your Honor.

If they are not -- if we are not employer, you are saying that there is no sense of going on any further with the case?

Unknown Speaker: Correct and you are not in the position therefore to make that argument because you are asking that that would lead to us revising the judgment of Court of Appeals.

Mr. Eugene B Strassburger, Jr.: Well, Your Honor --

Unknown Speaker: You are asking us, I though to affirm the judgment of the Court of Appeals.

Mr. Eugene B Strassburger, Jr.: We are, that’s correct Your Honor and because we were satisfied.

Unknown Speaker: And since you didn’t petition for certiorari, you can’t -- but you revised it, didn’t you?

Mr. Eugene B Strassburger, Jr.: Since we were satisfied with what Third Circuit said, we didn’t feel it was incumbent upon us to file a cross-petition in order to protect something which may or may not be important after it gets back to the local Court.

After it gets back to the local Court, the local Court can then again take up the question of whether or not we are an employer for purposes of --

Unknown Speaker: Well can it?

Can it?

Isn’t that now been decided?

That’s -- that’s the law of the case, isn’t it?

Mr. Eugene B Strassburger, Jr.: Well, the Third Circuit really --

Unknown Speaker: And you did not cross-petition for certiorari.

Mr. Eugene B Strassburger, Jr.: That’s true Your Honor but the --

Unknown Speaker: Had you prevailed on the issue, would you not be entitled to an upright reversal?

Exactly, just --

Mr. Eugene B Strassburger, Jr.: That’s correct Your Honor but I say -- I submit that it’s possible that if you take a question of who is an employer with respect to coverage as oppose to enforcement that there might be a difference and the Third Circuit doesn’t make this distinction, they just said it was the employer.

Chief Justice Warren E. Burger: Well, that’s because the contrary finding would have been dispositive of the case.

Finding of a no employer but can’t you support the argument, the position of the Court of Appeals on any ground up here.

You started to say something about that.

Mr. Eugene B Strassburger, Jr.: I submit Your Honor that the most important part of the case is the enterprise doctrine and the Third Circuit said, it can’t be an enterprise, it have to look to each individual building separately.

An anomaly would be created if Arnheim and Neely were to be considered a -- an enterprise.

Unknown Speaker: The Chief Justice is suggesting that you as a respondent are entitled to support the judgment of the Court of Appeals on any ground that will support the judgment even if the point you are urging here will decide to the contrary by the Court of Appeals.

Mr. Eugene B Strassburger, Jr.: Well, that’s essentially correct, that’s I didn’t understand the Chief Justice remark but I thought he wanted me to give other reasons for sustaining the --

Justice Potter Stewart: Judgment.

Mr. Eugene B Strassburger, Jr.: Sustaining the judgment.

Justice Potter Stewart: But the lack of an employee relationship would not sustain the judgment of the Court of Appeals.

Mr. Eugene B Strassburger, Jr.: I understand that Your Honor, yes.

Justice Potter Stewart: It would go further.

Mr. Eugene B Strassburger, Jr.: It would go further than that, that’s right.

But I repeat that we still don’t know what kind -- whether we are talking about employer for coverage or employer for purposes of enforcement.

The Third Circuit has pointed out the anomaly that is created if the Arnheim and Neely business is considered an enterprise.

It would be anomalous said the Court to treat the owners of commercial buildings as proprietors of individual businesses when they manage the buildings themselves and as participate in a common business purpose with other building owners merely because they hire a rental agent who manages other buildings.

Now, Your Honor I can point this up with an illustration from Arnheim and Neely’s own situation.

At the time this suit was instituted, Arnheim and Neely manage the building called University Square number one, a ten-storey apartment building.

Next to what is University Square number two not managed by Arnheim and Neely, a similar ten-storey building separated only by a party wall.

If the Government’s theory is correct, the janitor in University Square number one is covered by the Act and the janitor in University Square number two is not covered by the Act.

Now this is a situation where the Government is creating a disparity between employees coverage whereas, the Congress was trying to avoid this when they pressed the enterprise doctrine where two employees side by side where not covered by the same act.

Now, the Government comes in and says we’re going to cover some of these and not cover others.

And the very question of the coverage of each of these employees depends on who the management agent might be.

So, I say Your Honors that if Arnheim and Neely is an agent which it is and if Arnheim and Neely manages buildings which it does, and if Arnheim and Neely manages buildings which are all local in character which they are, how can the agent rise higher than his principle?

How can the Government do indirectly what it can’t do directly because of the Callus case?

Congress never intended such a result, Your Honors.

The law doesn’t provide for it and the logic and reasoning had shown in the Third Circuit opinion should be sustained.

Thank you.

Chief Justice Warren E. Burger: Thank you, Mr. Strassburger.

Mr. Seamans.

Argument of Frank L. Seamans

Mr. Frank L. Seamans: Mr. Chief Justice and if the Court please.

I think it’s apparent why the institute of Real Estate Management is concerned about this case, your permission now.

I just make one brief argument concerning the construction of the statute, and that is that we don’t believe the Congress intended the result that the Government position would achieve in this case.

We’ve been arguing about what is an enterprise and what is an employer and what is an employee.

But we believe when the statute doesn’t define itself and you apply it to a set of facts.

If you are convinced that Congress didn’t intend to that result that that should bear on your interpretation.

Now, I based that on two premises.

It’s my understanding that it is acknowledged that Congress didn’t go as far as they might go under the Interstate Commerce Act with the Fair Labor Standards Act, something has held back and Congress itself adopted the monetary limit, a financial limit in its application so I argue that there is a Congressional intent that there are still to be some local buildings that do not have to meet the minimum wage, the overtime requirements.

It’s purely economic.

I argue that Congress intended that somebody is still left up whether they should be or not, I suggest that that’s what Congress intended.

The consequence here is, in the opinion of the clients that I represent and there are some 2,500, pardon me, these realtors in the institute represent some 2,500 small office buildings and some 5,000 small apartment buildings across the country and that’s why the District Court permitted the intervention.

It is our concern that if this rule applies and the building owner considers the employment of a rental agent, he would be well advised to ask that rental agent two questions.

First, are you Mr. rental agent in interstate commerce?

Secondly, do you have any other client who is?

Because if the answer is yes to either of those questions and automatically I go in and automatically my elevator operator, my maintenance people are paid time and a half.

I can’t afford it will effect my maintenance.

Pardon me, my financial operation.

This as we see it is coverage by association with whom do you associate yourself and not who are you and what do you do.

So that is the position if Your Honors please of the institute that we can get lost in a morass of semantics in using manufactured words and statutory words like enterprise and employer and employee and we find our selves chasing our tail.

But if we are convinced that Congress never intended the result that this would achieve, we submit that that is the place to fire and the answer for the pure construction of this statute.

And we’re quite convinced and I think if Your Honor will reflect on it, the idea that you get coverage by association and not by your own status or activity would lead to conclusion that however you do it, whether why an interpretation of enterprise whether by an interpretation of the employer.

The achievement here of a result not intended by Congress should not be sustained.

Thank you, Your Honors.

Chief Justice Warren E. Burger: Thank you Mr. Seaman.

Mr. Frey, you have about four minutes left.

Rebuttal of Andrew L. Frey

Mr. Andrew L. Frey: Yes sir.

First with respect to Mr. Seamans’ comments, I think he misses a fundamental point.

It’s not the building owners that are subject to the Act or covered by the Act.

It’s the employees that are covered by the Act.

The issue is, are these employees in an enterprise?

Not are these building owners covered by the Act?

Well, I --

Chief Justice Warren E. Burger: Well, he assumed his argument was directed at the proposition of the small apartment owner who economically couldn’t meet the standards and who by the very exclusion of the small category by Congress was not intended to be covered.

Mr. Andrew L. Frey: Well, Congress intended that employees who were employed in an enterprise -- who are not employed in an enterprise of a certain size would not be covered.

Chief Justice Warren E. Burger: And they might be a long side, a large building where the person during the same work would be covered is that not true?

Mr. Andrew L. Frey: Oh, it’s entirely possible that you could have two buildings, one small and independently operated where the only enterprise is under $500,000 and one along side that’s larger where the enterprise were either the office building itself has enough revenues to come within there.

Chief Justice Warren E. Burger: So that all discrimination, all disparity could not be eliminated under the Act.

Isn’t that true?

Mr. Andrew L. Frey: Well, I think no matter how you structured it unless you just made it applicable across the board to all employees, there would be some discrimination.

Justice Potter Stewart: But Congress made that discrimination.

Mr. Andrew L. Frey: Yes, Congress.

Chief Justice Warren E. Burger: Now isn’t that partly a matter -- a practical matter of enforcement, is that at least one of the considerations?

Mr. Andrew L. Frey: Well, I think that Congress felt that in -- where you were dealing with what say the Mom and Pop grocery store.

That the impact on commerce was relatively limited from such an enterprise and that Congress would give them a break, these vary small business.

Now, Arnheim and Neely is not such a business.

This is not a Mom and Pop store.

And of course they keep trying to talk about the building owners as the one Arnheim and Neely had no business.

For instance, they say an enterprise must have an ownership.

Well, there is ownership here.

Arnheim and Neely owns Arnheim and Neely.

And it conducts the enterprise of Arnheim and Neely.

That’s the sense, the only sense in which ownership is required.

Unknown Speaker: And that was held that these employees are their employees?

Mr. Andrew L. Frey: And it was held that these are their employees.

That’s correct.

Unknown Speaker: Mr. Frey, what about Mr. Seaman’s argument as I understood is that if a real estate agent represented one office building that would come within the Interstate Commerce Clause and say had the representation of a hundred other various small buildings, some of which were office buildings, others were small apartments.

And none of which independently would perhaps meet the standards of interstate commerce.

Would you regard that that agent had a single enterprise embracing the 101 people whom he represented?

Mr. Andrew L. Frey: Well, we would not make any distinction on the basis of whether any particular ones of the buildings that were managed happened to meet the dollar limit.

What we would say is, is he conducting an enterprise?

If his enterprise may for instance the doctor-patient example used in the respondent’s brief.

I think highlights this point clearly.

They say, well the patients, each come to the doctor and the patient are unrelated to one another.

The patients are not engaging in related activities.

They have no common health purpose when they come to the doctor, therefore, how could you say that there would be an enterprise.

Well, the doctor is engaged in a common business purpose.

Unknown Speaker: You said occasioned in the example output is engaged in a common enterprise.

Mr. Andrew L. Frey: I would look at the way in which -- I would look at the activities that he undertakes and I would look to see whether they are related activities.

Whether they are conducted through unified operation and common control and whether they are conducted for common business purpose.

If I found all those things then I would say yes.

He is an enterprise under the Act regardless whether the individual pieces of his business.

The individual customers of the grocery store, the department store have any connection.

Justice Thurgood Marshall: That’s what where it means.

Unknown Speaker: And the employees of this hundred various small operations said a part-time janitor which might be the only employee would be brought under the Act in the example output.

Mr. Andrew L. Frey: Because under the Act, they are not merely the employee of these small businesses.

Unknown Speaker: I understand but --

Mr. Andrew L. Frey: Yes.

Unknown Speaker: -- the answer to my question is yes?

Mr. Andrew L. Frey: Yes that the Act --

Unknown Speaker: And they pay it not by the agent but by the owner of these two apartment building or these four office buildings.

Mr. Andrew L. Frey: Even if we were to agree arguendo that Arnheim was not the employer.

The Act does not speak about being employed by an enterprise.

It says being employed in an enterprise.

Now Arnheim has an enterprise.

I don’t see how anybody can deny that Arnheim has a business which is managing office and apartment buildings for others.

I don’t see how anybody can deny that these persons are employed in Arnheim’s business.

Justice Thurgood Marshall: Do you have to go this far as saying that if Arnheim had the management on review were of trademark of two buildings in New York, and one Mom and Pop Grocery store?

Mr. Andrew L. Frey: That’s right.

Justice Thurgood Marshall: (Inaudible)

Mr. Andrew L. Frey: It would be possible.

Justice Thurgood Marshall: Do you have to go that far?

Mr. Andrew L. Frey: No, it would depend --

Justice Potter Stewart: Well in this case you do, I mean don’t you?

Mr. Andrew L. Frey: No, you might find that these were not related activities.

The question would be, is there management of the small grocery store or related activity to their management of the World Trade Center and the point in the legislative history, Congress said, suppose you have a one company which is engaged in the retail apparel business and also the lumbering business.

Now, Congress said, this is what we mean by activities that are not related.

You would not consider the revenues of the lumbering business in determining the enterprise of the apparel business nor would the lumbering business employees be covered.

Now, this concept that you have to have more than one owner that the word “common” requires more than one, leads to the result that General Motors is not covered under the Act.

Unknown Speaker: What’s the reason here?

If you are going to separate Arnheim which you do as the enterprise as the separate company and make it liable for which you are?

Mr. Andrew L. Frey: Yes.

Unknown Speaker: Why would you -- what’s the reason for saying that the major coverage is the total receipts of all the buildings, the total rentals of all the buildings rather than Arnheim’s commissions?

Mr. Andrew L. Frey: Well, that we would submit to begin with is clearly an issue that is not before this Court because it would have require to completely different kind of hearing on remand from the kind of the Court of Appeals order but to the extent that this -- that the Court wants to reach it.

A situation is not --

Unknown Speaker: Well can you reach it?

I mean, is that the issue here?

No.

Mr. Andrew L. Frey: We don’t believe that the issue is here.

Unknown Speaker: Again, no cross-petition on here.

Mr. Andrew L. Frey: There was no cross-petition.

In the Mills versus Electric Auto-Light case which I --

Unknown Speaker: Was it in the Court of Appeals by your opponents that in any event, the measure should be commissions rather than total rentals?

Mr. Andrew L. Frey: Absolutely it was urged in the court.

Unknown Speaker: And it was rejected by the Court of Appeals?

Mr. Andrew L. Frey: It was rejected by the Court of Appeals on the -- and it was rejected by the Fourth Circuit and the --

Unknown Speaker: Why can’t without a cross-petition that your opponents urged at that point here?

Mr. Andrew L. Frey: Because it doesn’t support the judgment below which is a remand for a particular type of hearing.

Justice Potter Stewart: The judgment is on page 24 of your certiorari petition and its remand to introduce evidence regarding each building’s gross rentals.

That’s the reason it doesn’t.

Unknown Speaker: And he asked that the judgment is -- the judgment of the -- the Court of Appeals decided against you?

Mr. Andrew L. Frey: No.

The Court of Appeals decided in our favor on this issue.

Unknown Speaker: Right.

Mr. Andrew L. Frey: They said you look at gross --

Unknown Speaker: Well, not this issue.

But yes, but what was it overall to you, you are the petitioner here.

Mr. Andrew L. Frey: Well, the overall result was that they decided in our favor on two of the three issues they considered and against us on the third.

Now, the actual effect of that putting it into practice is that many of the employees whom -- for whom we seek to obtain the benefits of the Act would not get that protection.

Unknown Speaker: Well, then that would in the Arnheim and Neely?

Mr. Andrew L. Frey: None of them.

That would depend upon the revenues of each of the -- under the Third Circuit’s theory, you would go back to the District Court, you would look for year subsequent to 1967 at the revenues of each individual building.

Unknown Speaker: Don’t you give the rentals in your --

Mr. Andrew L. Frey: Only for 1964.

Unknown Speaker: Mr. Frey, how do you answer Mr. Seamans’ comment about coverage by association?

Only by saying this is the way the Act provides?

Mr. Andrew L. Frey: Well, there is an association between these employees and Arnheim and Neely’s enterprise.

It is certainly what the Act provides.

That is if the building owners chose to run their own buildings and not have the benefit of retaining an expert large Real Estate Management company to do it, then they would possibly not have to the pay the minimum wage.

Although the stipulation at page 21 indicates that one of these buildings, the Clark building had $800,000 in rentals in 1964.

Unknown Speaker: But it is an unusual situation, isn’t it?

Where the basic employer is brought under the Act only because of his hiring a specified rental agent?

Mr. Andrew L. Frey: Well, but that’s not the only context in which that comes up.

That is the least department example.

If I operate a beauty parlor and I may have a very small business.

But if I want to go and put that beauty parlor in Woodward and Lothrop, as part of the Woodward and Lothrop Department Store and lease space for them to do that, I then have to pay my people the minimum wage because they are then employed in Woodward and Lothrop’s enterprise.

That just is the way Congress structured this Act and I think there is no way to escape the clear provisions of the Act.

Chief Justice Warren E. Burger: Would you conceive that that’s a much closer and much more intermittent associational basis than buildings spotted all around the different city where they have no contact with each other at all as distinguished from the beauty parlor operator who is mingling constantly with the other employees regarded by the public as same kind of a person.

Mr. Andrew L. Frey: Well, but we -- our case in no way depends on establishing any relationship between the building owners.

It said -- they simply -- when they go in Arnheim and Neely and Arnheim and Neely goes out and retains John Doe to operate, it hires John Doe to operate the elevator at the building subject to whatever approval or role the building owner may pay and setting his salary and so on.

It’s Arnheim who he comes to.

It’s Arnheim who he submits his reference to objects them out.

It’s Arnheim with whom he deals on a day to day basis.

It’s Arnheim that supervises his work.

Now, he’s working in Arnheim’s enterprise and that’s what Congress said was determinative of whether he is entitled to be paid the minimum wage.

Chief Justice Warren E. Burger: When you say he is working in Arnheim’s enterprise, that’s what this case is all about.

That’s what we have to decide, isn’t it?

Mr. Andrew L. Frey: Well, perhaps so.

But I think that it’s not -- I am not just bootstrapping myself because I think that Arnheim’s enterprise is the management of these buildings.

And they can’t manage these buildings without these employees.

And it’s for that reason that I say that these employees are necessarily involved in Arnheim’s enterprise.

Justice Harry A. Blackmun: Well you have one fact that the beauty parlor situation that you have and that is that Arnheim hires and fires these employees themselves whereas the beauty parlor operator as I understood it just took the whole staff that she had originally have.

Mr. Andrew L. Frey: No.

What I am saying in the beauty parlor example Mr. Justice Blackmun is that the beauty parlor operator may not have an enterprise, yet he -- and Woodward and Lothrop on the other hand may not be the employer of these people who work in the beauty parlor at all.

And Woodward and Lothrop may have no liability to pay the minimum wage.

But they are protected by the minimum wage laws because they are in Woodward and Lothrop’s enterprise and the beauty parlor operator small business, though it be has to pay them the minimum wage.

Chief Justice Warren E. Burger: Thank you gentleman.

The case is submitted.

Featured:

Employees v. Missouri Public Health Dept. - Oral Argument

Thu, 23 Aug 2012 18:19:32 +0000

Case:

Employees v. Missouri Public Health Dept.

Media File:

71-1021_19730115-argument.mp3

Related Transcript:

71-1021_19730115-argument

Transcript:

Argument of A. L. Zwerdling

Chief Justice Warren E. Burger: We’ll hear arguments next in 71-1021, Employees against to the Department of Public Health and Welfare.

Mr. Zwerdling, you may proceed whenever you’re ready.

Mr. A. L. Zwerdling: Mr. Chief Justice, may it please the Court.

We are here on certiorari from a five-four decision of Eighth Circuit granting motion to dismiss a complaint filed by employees of the State of Missouri.

They sue for time-and-a-half overtime pay and additional equal amount as liquidated damages and reasonable counsel fees as provided for in a Fair Labor Standards Act known as the Wage-Hour Law.

That Act was amended in 1966 to apply to such state employees.

Complaint was filed on Federal District Court in 1969, alleging violation of the overtime provisions commencing in 1967 on February of that year and continuing thereafter.

In 1966, amendments to the Act under which these employees of state schools and hospital sue was held to a proper exercise of the congressional power under Commerce Clause in Maryland versus Wirtz by this Court.

And the case today presents the question which was expressly reserved in Maryland versus Wirtz as unnecessary to decision there of whether employees may sue in federal court to enforce rights given them by 1966 Amendments.

We submit that Congress intended to permit such employee suits against the States for violation of the Act and that Congress have the power under the Commerce Clause to so provide not withstanding the Eleventh Amendment.

The congressional intent is clear.

Statute in 16 (b) of that Act provides and I quote “Any employer -- any employer who violates the provisions of Section 6 or Section 7, those are the minimum wage and overtime pay provisions.

Any employer who so violates the provisions of this Act shall be a liable to the employees affected in the amount of their unpaid minimum wages or their unpaid overtime compensation as the case may be, and then in additional equal amount as liquidated damages.

Actions to recover such liability may be maintained at any court of competent jurisdiction in Section (b), the language of States. Now the term “employer” which is used in that Section as defined in Section 3 of the Act and what those amendments in 1966 did was to expand this definition to bring under the statute as employers within the meaning of that Section, the States and their political subdivisions with the respect to certain institutions, schools, and hospitals. Prior to that year of the amendments, the Section said employer shall not include the United States or any state or political subdivision of a state.

But when they added the amendatory language, Congress specifically injected a removal of that exclusion of the states from the definition by inserting the language in 1966, “except with respect to employees of a state or political subdivision thereof, employed in a hospital, institution, or school referred to in a last sentence of Subsection (r) of this Section.

And so Congress chose explicitly to remove this previously excluded category and the subsection to which it reversed in this definition is the definition of the word “enterprise.”

Here, Congress added to the list of covered enterprises, the operation of a hospital, institution, or school, and once again on those amendments, Congress underlined its expressed intention by adding these words, “Regardless of whether or not such hospital, institution, or school is public or private or operated for profit or not for profit.”

Nothing could be clear or more explicit and again, in the next Subsection which speaks of the definition of “enterprise engaged in commerce or in the production of goods for commerce.”

Congress added the same language once again stressing, “Regardless of whether or not such hospital, institution, or school is public or private.”

The remedy of the employee’s suit in Section 16 (b) has existed in the statute since it was enacted in 1938.

It reaches the States here because it says, “Any employer who violate this Sections will be subject to such suits.”

And by expanding that definition of employer thus this remedy comes into play.

Justice Potter Stewart: It actually says, shall be liable to the employee and --

Mr. A. L. Zwerdling: That’s right, Your Honor.

Justice Potter Stewart: It’s for a -- do I understand that if there is a recovery, it is automatic that the recovery be a double recovery?

Mr. A. L. Zwerdling: That is explicit in Section 16 (b) it says, “And in an additional equal amount as liquidated damages.”

Justice Potter Stewart: And it’s a lot clear that there is no discretion in the trial court too?

Mr. A. L. Zwerdling: There is some discretion, Your Honor.

But the purpose of the liquidated damages is it is instead of interest rates for purposes of certainty in setting the language --

Justice Potter Stewart: For other purpose, but I asked -- I wondered and I am asking for information, is the law clear or is it not that when there is a recovery, the recovery has to be a double recovery?

Mr. A. L. Zwerdling: There is discretion in the courts to reduce at other some circumstances, Your Honor.

Justice Potter Stewart: That’s, is that clear under the law?

Mr. A. L. Zwerdling: Yes, Your Honor.

Justice Potter Stewart: And how about the provision further down in 16 (b), the Court in such action shall in addition to any judgment awarded, allow reasonable attorney’s fee to be paid, that’s of course in addition to the double recovery.

Mr. A. L. Zwerdling: Yes, Your Honor and cause of the action.

Justice Potter Stewart: And cause and what is the law as to whether or not there is any discretion.

Mr. A. L. Zwerdling: And I understand that there is discretion and the specific section is Section 60 that is its 260 of 29 U.S. Code.

Justice Potter Stewart: Is that you know in the appendix to your brief?

Mr. A. L. Zwerdling: That’s -- that section is not the appendix, Your Honor.

Justice Potter Stewart: I was asking as I say for information because I didn’t know whether how automatic this statutory language had been held to be.

It sounds as though there is no discretion.

Mr. A. L. Zwerdling: In the brief in the court below, there is citation of that Section on page 11 (a) of the white document which is a petition for certiorari, Your Honor which says, quoting the Court, “Under the Section 260 remission of liquidated damages in whole or in part is only allowable,” quoting the statute now, “if the employer shows to the satisfaction of the court that the act or omission giving raise to such action was in good faith and that he had reasonable ground for believing that his act or omission was not a violation of the Fair Labor Standard Act that was amended”.

The court goes on and even if they required showing is made, the remission is left to the sound discretion of the court.

Justice Potter Stewart: And that there’s nothing there about attorney’s fees?

Mr. A. L. Zwerdling: No, Your Honor.

Chief Justice Warren E. Burger: Do you suggest that that discretion that we exercise with respect to an erroneous evaluation of the law for example.

If you are correct in your case here, would the judgment of the State of Missouri which is in disagreement with yours be the kind of factor that would allow the court to exercise that discretion?

Mr. A. L. Zwerdling: As to whether or not Congress had exerted its jurisdiction through exercise the Commerce Clause, Your Honor?

Chief Justice Warren E. Burger: Oh, no, no on double -- the same subject as Justice Stewart has been presenting to you on the double damages on the penalty.

Mr. A. L. Zwerdling: Yes, I believe there would be the discretion.

Justice Potter Stewart: Well, except to Maryland against Wirtz, I wonder if Missouri could say that it had reasonable grounds for believing that its act was not a violation of the Federal Labor Standards Act of 1938.

Mr. A. L. Zwerdling: And I misunderstood the question then.

If the question addresses itself to whether there is discretion to be exercise by the court in reviewing whether or not the state exercise the waiver, that is something that is dealt with as I would point out -- as pointed out in the brief in the decision of a court in which it’s made clear that that waiver occurs by virtue of continuing to operate and that that waiver need be neither knowing nor intelligent to use the citation by the dissent in that case of what the court held.

In the case to which we refer in the Parden case which is the case which is key to the problem before us, in that case, which was Parden versus Alabama Terminal Railroad.

That was the case that was decided in 1964 in which the Court had before it that Federal Employers’ Liability Act and in that case as here, there was the question of private employees suit to enforce the rights under that statute.

And there the court held that by virtue of the fact that the statute enacted by Congress in the exercise of its commerce power as was the case here and the exercise by Congress of its commerce power here in dealing with the federal -- the Fair Labor Standards Act in the Parden case which involved the Federal Employers’ Liability Act which is the Act under which employees can sue for redress, for damage to the employee and injury on the railroad.

In that case, involving a railroad which was a state owned railroad at the docks of Alabama.

The Court held that Commerce Clause enabled Congress to act in this manner to provide that private employee remedy that’s lawsuit as a means of remedy and the court held that this occurred by virtue of the continuing operation of that railroad.

The same principal applying here and has --

Justice Byron R. White: This is one of those -- these businesses that States didn’t usually engage in railroad or the railroad business?

Mr. A. L. Zwerdling: As to whether it’s usually engage in, Your Honor.

I do not believe that is a distinction that the courts have held to make the constitutional difference.

That discussion has occurred by this Court in two cases involving the State of California which we discuss in our brief.

And in the Parden case and numerous other cases in which the question -- I think Your Honor is alluding to the concept --

Justice Byron R. White: No, the question is -- the question is you say that labor does not need even to be voluntary?

May not need to be intelligent, but is it does have to be voluntary to be labor at all?

Mr. A. L. Zwerdling: Well, it’s a voluntary in the sense that as here, the state of Missouri was well aware of the fact that in the case of Maryland versus Wirtz in which the validity of the Wage-Hour Law Amendments here before the Court was dealt with expressly as to their constitutionality in that case --

Justice Byron R. White: But it does -- the state might have a choice about whether they will engage in a railroad business, but it doesn’t have much choice about whether it’s going to conduct certain operations or to -- it doesn’t have much choice about whether he’s going to run a mental hospital?

Mr. A. L. Zwerdling: Well, I think Your Honor is alluding to what we are familiar with as the ancient argument as to proprietary versus governmental powers --

Justice Byron R. White: I didn’t state it.

You brought those words up, I didn’t.

I just said that the state does not have much choice about whether it’s going to run to mental hospital.

Does it or not?

Mr. A. L. Zwerdling: I presume that the state doesn’t have much choice as to whether it is going to run a mental hospital.

Justice Byron R. White: And so it’s priced for running a mental hospital as to waive its constitutional right to immunity under the Eleventh Amendment, is that it?

Mr. A. L. Zwerdling: When Congress enacts this kind of statute under the commerce power which is plenary unlike the federal taxing power, commerce can lay down under the commerce power, the conditions or operation in reference to anything that affects commerce and that is what Congress did in this case.

That is what was upheld in Maryland versus Wirtz.

That is what was dealt with in Maryland versus Wirtz which involved the very state which is before us here today among other states, the State of Missouri.

And the State of Missouri was unnoticed when that decision was handed down in 1968, that commerce and the exercise of its plenary power under the Commerce Clause had determined that the problem of labor disputes, the problem of maintaining of eliminating unfair competition between the States and the effects on commerce was best dealt with by that enactment in its wisdom and it’s so acted and the Court so upheld the action of Congress in Maryland versus Wirtz.

As I say, that case involved not only the State of Maryland, but the State of Missouri, they were a party to it.

It was ruled upon.

They continue to operate thereafter.

They were on full knowledge of the situation.

But as the majority held in the Parden case, such waiver need be neither knowing nor intelligent.

The point is that it is a matter of the plenary power of Congress under the commerce power.

Chief Justice Warren E. Burger: But then, what you’re saying in effect is that under the Eleventh Amendment, the governmental function aspect of the activity is irrelevant?

Mr. A. L. Zwerdling: As to the distinction between governmental and proprietary, and if I may now allude to those words Mr. Chief Justice.

Maryland versus Wirtz said, “In the first place, it is clear the Federal Government, when acting within a delegated power may override countervailing state interest whether this be described as governmental or proprietary in character.”

That was disposed of many times before.

Mr. Chief Justice Frankfurter in the Indian Towing case which involved a waiver of immunity question said, “There is nothing in Tort Claims Act which was involved there which shows that Congress intended to draw distinctions so finespun and capricious” to use the words of the Court as Mr. Justice Frankfurter as to be almost incapable of being held in mind for adequate formulation.

And again, in the Rayonier case, Rayonier Inc. versus United States, the court said, “we expressly decided in Indian Towing that an injured party cannot be deprived of its rights under the Act by resorting to an alleged distinction, imported from the law of municipal corporations between the Government’s negligence when it acts on a proprietary capacity and its negligence when it acts in uniquely governmental capacity.”

Justice William H. Rehnquist: Well, didn’t Mr. Justice Frankfurter also say in those bottled water cases in -- was New York --

Mr. A. L. Zwerdling: Sanitary District or the bottled water --

Justice William H. Rehnquist: But there could be a distinction between what the state traditionally did as a state and the state entering into business.

Mr. A. L. Zwerdling: There was reference to that just as in contrast in the Sanitary District case which I thought, Your Honor had in mind.

There was reference to the overriding commerce power enabling the Congress to prevent the state from taking water from Lake Michigan which was essential to its inhabitants because it was in contravention of an enactment by the state -- by the United States in connection with the commerce power.

Justice William H. Rehnquist: But that wasn’t authorizing any private individual to sue the state, was it?

You know this isn’t --

Mr. A. L. Zwerdling: That did not involve a private suit.

Parden which is the governing case here we believe, Parden versus Alabama Terminal Railway did so involved private suit.

And in that case, this Court upheld the specifically ruled on this very questioned of the immunity of the States from private suit and held that that immunity did not fasten to the extent of precluding the exercise of the commerce power to enable this private suit which has its purpose, not simply to help the individual as such, but more importantly as has been pointed out by the courts including Parden, the purpose of enforcement of the statute of enabling what could not, otherwise occur by the Government, the enforcement of this exercise of commerce power.

Justice William H. Rehnquist: When you say a state operation for railroad, it’s no different than a state operation of a mental hospital?

Mr. A. L. Zwerdling: It depends, Your Honor, on whether one is a mental patient or one who is involved in railroad operation.

I don’t need to be fictitious whether it’s essential or not and one fixes on mental hospitals.

This statute embraces much more than mental hospitals.

It involves hospitals, institutions which exist in the private sector as well as the public sector and it’s function is as stated to by eliminating the differential between what must be paid over 40 hours time-and-a-half, and what may much be paid minimum wage for a public employee as opposed to a private employee by eliminating the unfair competition against private industry by that enactment.

Justice Byron R. White: Well, do you agree, you do agree that the state has a constitutional right to immunity from suits by its own citizens or citizens of other States?

Mr. A. L. Zwerdling: We believe it is totally unnecessary here for purposes of this suit to -- of this case to challenge the Eleventh Amendment interpretation, that is right, Your Honor.

Justice Byron R. White: Well, that was an Eleventh Amendment interpretation, was it?

Mr. A. L. Zwerdling: Hans versus Louisiana.

Justice Byron R. White: I didn’t think that was an interpreted to Eleventh Amendment?

Mr. A. L. Zwerdling: I believe it is, Your Honor?

Justice Byron R. White: I thought it said there was a constitutional right to immunity?

Mr. A. L. Zwerdling: By virtue of the Constitution other than the Eleventh Amendment, Your Honor?

Justice Byron R. White: Yes.

Well anyway, you do -- you do agree there is a constitutional right in the state to immunity suit?

Mr. A. L. Zwerdling: When it does not collide with the plenary power of Congress over the commerce power, Your Honor.

Justice Byron R. White: Well the Congress could certainly -- the issue here isn’t whether Congress can impose the wage and hour conditions of the state.

The issue is whether private individuals can sue the state to enforce it.

Mr. A. L. Zwerdling: The issue, Your Honor --

Justice Byron R. White: Congress can’t legislate the way the constitutional immunity just by saying it doesn’t exist.

Justice Potter Stewart: As far as the Federal Constitution immunity goes, isn’t it applicable only in federal courts?

Mr. A. L. Zwerdling: The statute, Your Honor?

Justice Potter Stewart: No, no, the Federal Constitutional immunity of a sovereign state from suit?

Mr. A. L. Zwerdling: That is right --

Justice Potter Stewart: Is that only in Federal [Voice Overlap]

Mr. A. L. Zwerdling: Federal support, that’s right.

Justice Byron R. White: But its just private individual reports -- does the statute prevent these suits being brought in state courts?

Mr. A. L. Zwerdling: No Your Honor.

May I cite what Mr. Justice Right -- White wrote in United State versus California, which is -- I’m sorry in the Parden case in which statement was made on behalf of minority, and this was on behalf on the minority, “I agree that it is within the power of Congress to condition a States’ permit to engage in the interstate transportation business which is what was involved there.

On a waiver of the state sovereign immunity from suits arising out of such business, Congress might well determine that allowing regular both conducts such as the operation of a railroad to be undertaken by a body legally immune from liability directly resulting from these operations is so inimical to the purposes of each regulation that the state must be put to the option of either forgoing participation in the conduct or consenting to a legal responsibility or injury caused thereby.”

Justice Byron R. White: In case involving a railroad?

Mr. A. L. Zwerdling: Yes, Your honor.

I’d like to reserve the balance of my time if there are no further questions.

Justice Byron R. White: And I spoke it the same?

Mr. A. L. Zwerdling: Yes, Your Honor, as I pointed out.

Chief Justice Warren E. Burger: Mr. Wallace.

Argument of Wallace

Mr. Wallace: Mr. Chief Justice and may it please the Court.

The petitioners here are nonprofessional employees of state hospitals and of a state school in Missouri.

Their complaint which was dismissed does not specify their citizenship, but presumably, they are also citizens of Missouri and the suit therefore does not come within the literal terms of the Eleventh Amendment.

The protections of the Fair Labor Standards Act were extended to these employees in 1966 Amendments to the Act which this Court upheld as constitutional in Maryland against Wirtz.

And they are seeking here to sue their employers in Federal Court for unpaid overtime compensation.

As Mr. Zwerdling ably pointed it out at the beginning of his argument on their face, the remedial provisions they invoked under the Act apply to these employees and their employers just as they do to any others covered by the Act.

And so the question presented is whether constitutional considerations nonetheless require that this category of employees be discriminated against by being denied a remedy against their employers provided by Congress and available to all others within the Act’s coverage.

The answer in our view is to be found by putting together this Court’s decision in Maryland against Wirtz, with its prior decision and Parden against Terminal Railway.

What Parden holds is that where a state engages in activities that are validly subject to congressional regulation under the Commerce Clause, it is subject to that regulation as fully as if it were private person or a corporation, and specifically that Congress can in effect condition the states continued participation in the regulated activity on constructive consent to be sued under the federal regulatory statute.

And Maryland against Wirtz of course adds to this that the activities involves here are activities that are validly subject to congressional regulation under the Commerce Clause.

It seems to us that these cases have developed that as the relevant test rather than the old distinctions that were attempted to be drawn between governmental and proprietary functions or what might be called essential functions or traditional functions.

Justice Byron R. White: But the function really is, whether you can reasonably say the state has waived, isn’t that the basic question?

Mr. Wallace: I -- we don’t regard Parden --

Justice Byron R. White: What Parden is all about?

Mr. Wallace: Well, the dissent said that it was a waiver.

I don’t think that word was used in their court’s opinion.

It really amounted to a constructive consent.

It’s a condition.

It’s --

Justice Byron R. White: And if you want to do this, you have to do that so --

Mr. Wallace: Congress has undertaken to regulate the activities in this field rather perform by a state or by a business and to undertake them evenhandedly it has notified the state that if they continue to engage in this activity, they are subject to the same federal regulation of that -- of the business enterprises also engaging in this activity are subject to.

And by continuing to engage in the activity the state constructively consents to be sued.

Therefore, that’s what the court reasoned in Parden.

Justice Byron R. White: That’s what’s all about it where there is consented -- it is said to have consented to suit in a federal court?

Mr. Wallace: That is correct Your Honor, by engaging in the activity.

Now, indeed, we think that in two important respects, this case really follows a fortiori from Parden.

First, the FELA which was the statute at issue in Parden made no reference to state-owned railroads.

It merely said that “Every common carrier by railroad while engaging in commerce” is liable to injured employees and subject to suit and the court there had to decide whether this general language should be construed to include state-owned the railroads.

A majority held that it should although four dissenting justices were of the view that Congress should speak more specifically in order to subject States to suit if they engage in activity subject to regulation under the Commerce Clause and here Congress has explicitly amended a series of definitional provisions in the Fair Labor Standards Act to make the Act’s provision apply.

Justice William H. Rehnquist: Mr. Wallace, would you say that Parden is basically a constitutional holding?

Mr. Wallace: The Court was unanimously of the view in Parden that Congress had the constitutional power to impose in effect this constructive consent under States activity that was divided five to four on whether Congress had in fact done so.

So it was both the constitutional under statutory decision.

The court was unanimous on its constitutional holding but divided five to four on a statutory construction.

There is no question but under this Act, the state has been put on noticed which was the query raised in the dissent in part.

It’s been put on noticed that the provisions applied to it and it is been put on noticed that it surely a subject to suit if it violates them by withholdings, the wages that are due surely subject to suit by the secretary and on the face of the Act also subject to suit and by the employees as well.

So, --

Justice Potter Stewart: The remedies in suit by the Secretary or what and injunction he can enjoin --

Mr. Wallace: He can enjoin --

Justice Potter Stewart: And he can get a recovery of the single wages, is that it?

Mr. Wallace: Of the single wages without interest and without consequential damages of any kind.

In the ordinary suit brought by the employee to fully compensate him, Congress has provided for liquidated damages --

Justice Potter Stewart: Double recovery plus interest, plus attorney’s fees?

Mr. Wallace: It’s not plus interest, Your Honor.

Justice Potter Stewart: Plus attorney’s fees?

Mr. Wallace: It is in lieu of interest and in lieu of consequential damages --

Justice Potter Stewart: And plus attorney’s fees?

Mr. Wallace: Plus attorney’s fees, otherwise, many of these suits I doubt would be in Court.

Justice Potter Stewart: Right.

Mr. Wallace: Because many of them are relatively smart --

Justice Potter Stewart: Well, I understand the argument.

I am just asking for information and the -- if the Secretary does move in and the wage earners’ lawsuit is displaced, is that right?

Mr. Wallace: That is correct.

That is correct.

And those instances where the Secretary sues.

The Court long ago held that the liquidated damages provision is compensatory in nature that there are many consequential damages as suffered by wage earners in low pay categories such as, the non-professional employees in hospitals, schools and volunteers and many consequential damages from withheld wages which are difficult to ascertain in lieu of either interests or consequential damages, this is the measure of compensation.

Justice Potter Stewart: What happens when Secretary recovers money?

Is that payable immediately to the employees?

Mr. Wallace: That is turned over to the employee the recovery, yes.

Justice Potter Stewart: With just that much?

Mr. Wallace: Just that much, just the amount of the withheld wages.

So that in effect the judgment against the employer in that case is nothing but he should have paid all along and sometime earlier and he’s had the use of the money in the 31:48.

Now, there is another important respect in which this case in our view follows a fortiori from Parden.

Here the substantive requirements of the Act clearly apply to the state of employers and the only question is whether in the context of state employment, this substantive right should be separated from the statutory remedy provided for employees.

In our view, even if this kind of divorce of rights from remedies might be possible in interpreting some statutes, it is particularly inappropriate with respect to the Fair Labor Standards Act.

Because under the Fair Labors Standards Act, the remedy is not merely compensatory as it is in most statutes including the FELA which was involved in Parden but the remedy itself also accomplishes an important part of the regulatory objective that Congress had.

Since one of the principle purposes of the act is to insure that some employers do not gain an unfair advantage over their competitors by paying substandard wages, that is why this Court has said that Section 16 (b) of the Act involved here has both a public and a private character that it is both compensatory and an enforcement provision.

And significantly, the Senate Report on the 1966 Amendments specifically said that one of the purposes of extending the Act to cover this state-run institutions was to bring about a competitively equality with similar activities carried on by business enterprises.

We have the quote on page 17 of our brief from the report.

They were attempting to follow through on the Act’s original basic purpose of eliminating unfair methods of competition in Congress -- in commerce.

Chief Justice Warren E. Burger: Would that -- that means you’re telling us that the operation of a mental hospital or a university by the States is unfair competition against private universities and private hospitals?

Mr. Wallace: Well, this was the view Congress took.

They are --

Chief Justice Warren E. Burger: If you think that was --

Mr. Wallace: I think there is a rational basis for concluding that in many instances they are competing with privately run instances they are competing with privately-run enterprises and Congress spell was unfair for the privately-run enterprise to have to comply with the provisions in the Fair Labor Standard Act and to have competing services made available by state institutions at lower clause to uses of those services partly because low paid non-professional personnel are being paid substandard wages.

This was one of the conclusions Congress came to and enacting the amendments that this Court upheld in Maryland against Wirtz.

Another basic purpose of the Fair Labor Standards Act resided in the Act itself was to avoid labor disputes that interfere with the commerce.

Congress wanted to take these controversies about substandard wages and overtime compensation out of the streets and into the courts.

Yet what could be more calculated to lead to labors strife than a holding that employees whose federal statutory rights have been violated are to be denied a judicial remedy.

So in this respect too, the remedy here is an integral part of the regulatory objective.

But it is not merely compensatory and not merely designed to encourage compliance with the Act as our most remedies in statutes.

Of course, it also does encourage compliance and thereby furthers the Act’s other objectives such as reducing unemployment by encouraging employers to hire more people rather than to work their employees at overtime.

This is one of the basic objectives of the act and except continuing importance with our persistent unemployment.

Now, the fact that the Secretary of Labor is also empowered to bring enforcement suits here which will not fully compensate the employees does not in our view call for a different result than in Parden because of the vast numbers of employees and establishments covered by the Act.

The Secretary is unable to bring suits except in the small proportion of the cases in which violations occur.

Indeed, the Secretary is not staffed even to be able to investigate.

All possible violations let alone to bring suit against all the violations that occur and of necessity the Secretary’s limited staff of 15 attorneys and 13 regional offices must concentrate their efforts on cases that involved the greatest public interest.

From the beginning, Congress decided to provide a private remedy in the Act rather than to create the best federal bureaucracy that would otherwise be required if enforcement were to be entirely in the hands of the Secretary.

Chief Justice Warren E. Burger: But how much exactly of vast bureaucracy would you need if you allocated this enforcement just with respect to the States?

Mr. Wallace: Well, of the covered employees to 2.7 million of them are in these covered state institutions and this involves 118,000 such institutions, so it’s a substantial part.

All together we’re talking about 2 million establishments and 45 million employees but it is still a very substantial figure and the problem would be very much exacerbated Mr. Justice by the same issue which arises under 1972 amendments to the Fair Labor Standards Act which extend coverage of the equal pay for equal work regardless of sex provisions to professional employees in this covered institutions including the state institutions.

Those are cases that tend to involve special facts that have to be developed with regard to the particular individuals covered and to whether their work is comparable to somebody else’s work.

They’re quite time-consuming lawsuits and in many instances of employees denied compensation.

You have time-consuming factual problems to be developed in the suits.

There’s little doubt to what the Secretary could not bring suit on behalf of all who would be entitled to recovery and the Secretary would then be in a very awkward position and his refusal to bring suit that would constitute a final denial of a remedy in particular cases.

And there is no reason to believe that Congress intended to give the Secretary that kind of essentially unreviewable authority over the rights of individuals protected by this Act.

Thank you.

Chief Justice Warren E. Burger: Very well.

Mr. Blackmar.

Argument of Charles A. Blackmar

Mr. Charles A. Blackmar: Mr. Chief Justice, may it please the Court.

I think I would discuss first of all, what is not at issue in this case the way the State of Missouri to use the case.

First, there’s no question that Congress has the power to include state schools and hospitals under the definition of employer found in the Federal Labor or Fair Labor Standards Act and there is no doubt that Congress has done so.

That is Maryland versus Wirtz in the 1966 Amendment to the Act.

Furthermore, there’s no doubt that Missouri has an obligation to obey the Act.

And looking at the Parden case, we do not dispute the fact that Congress has power to require Missouri to waive its constitutional immunity from suit as a condition to entering into activities where Congress has regulated it -- regulated the activities pursuant towards commerce power, if Congress so provides.

And finally, there is no question presented by this case as to whether a state court would be required to hear an action brought under 216 (b) or 16 (b) by a private employee whether that would be required either by Federal Constitutional law or by Missouri law.

Justice Potter Stewart: You -- do I understand that you concede that an action such as this could be brought in a state court?

Mr. Charles A. Blackmar: No, Your Honor, I am saying that that question is not presented by this case.

I do not concede that in this case although I think there are very persuasive arguments that certainly could be made that the state court would under the Sixth Amendment or Article 6 of the Constitution where it required to enforce the federal laws have a duty to hear such a case.

Justice Potter Stewart: And you do concede I would or do you that so far as the Federal Constitution goals with its protection of state sovereign immunity that protection extends only to federal court actions?

Mr. Charles A. Blackmar: Yes, Your Honor.

Justice Potter Stewart: Certainly the terms of the Eleventh Amendment talked in terms of extending the power in federal courts.

Mr. Charles A. Blackmar: Whether we speak in terms of the Eleventh Amendment or the basic constitutional principle recognized in the Hans case --

Justice Potter Stewart: Hans against Louisiana.

Mr. Charles A. Blackmar: That was not the Eleventh Amendment.

We will suggest that it only applies to the federal courts.

Justice Potter Stewart: Federal courts.

Mr. Charles A. Blackmar: What is at issue is one narrow question that is whether the remedies provided that private employer by 16 (b) were intended by Congress to be available to such employees against the State of Missouri.

Now, in 1938 --

Chief Justice Warren E. Burger: Will you concede the right then that say but you challenge the remedy?

Mr. Charles A. Blackmar: That’s precisely it, Your Honor.

I feel we have to concede the right on the basis of both the minority and majority in the Parden case which recognized that Congress does have a power to require the state to waive it’s consent to suit as a condition to entering activities regulated by Congress and the Maryland versus Wirtz case which holds that Congress has the power to regulate wages from schools.

Justice William J. Brennan: So you say, the only issue then is where the Congress required Missouri to waive?

Mr. Charles A. Blackmar: Yes, Your Honor.

That is Missouri’s position.

In 1938 when the wage Fair Labor Standards Act has initially passed, states were excluded from coverage of the Act.

In 1966, an exception to that exclusion was written into the Act in the case of state schools and hospitals.

The Act has four remedy provisions.

First of all, there are criminal sanctions in Section 16 (a).

Secondly, the Secretary of Labor by Section 16 (c) is authorized to file a suit when requested by employees in behalf of the employees to recover wages that are not been paid to them.

Chief Justice Warren E. Burger: We’ll resume right there after lunch.[Noon Recess]

You may continue Mr. Blackmar.

Mr. Charles A. Blackmar: Mr. Chief Justice and members of the Court, we were discussing the four remedies that Congress has provided under the Fair Labor Standards Act.

In matching that first was this criminal sanction under Section 16 (a).

Secondly, there was the suit by the Secretary of Labor when the employees requested him to maintain a suit where he may recover unpaid wages in behalf of the employees which he ultimately will turn over to the employer.

Justice Potter Stewart: And he can do that only on requests?

Mr. Charles A. Blackmar: This is a suit under 16 (c).

Now, there is a remedy under Section 17 as to the third remedy where the Secretary of Labor may seek an injunction against the employer and as part of this equitable relief, request restitution of unpaid wages.

It would seem that Section 17 has pretty much eliminated Section 16 (b) as an effective remedy by the Secretary of Labor, because he can do more under that Section with fewer restraints than it can under Section 16 (b).

16 (b) has a provision that he may not bring an action when there is a novel legal question undecided by the courts.

That restraint is not found on Section 17.

And finally, the remedy of Section 16 (b) if I say 16 (b) before I meant 16 (c), the Section 16 (c) allows private individuals to sue there employers to recover their unpaid compensation an equal amount as liquidated damages, termed “liquidated damages” are the words that Congress has used and reasonable Attorney’s fees.

I get --

Justice Potter Stewart: We’re talking here only about 16 (c)?

Mr. Charles A. Blackmar: Only 16 (c) and this is the only situation where the employer is required to pay more than has been withheld illegally.

Again, to the question presented in this case as specifically and expressly left unanswered by the Maryland versus Wirtz question.

And the question is, “Did the exclusion of State employees under the Fair Labor Standards Act automatically result in an intention that Congress would make applicable the 16 (b) remedies of private suit against the State to such employers?”

Really the question is, “Did Congress destroy the State’s constitutional immunity from suit in this area?”

We note that there is not one word in the Fair Labor Standards Act itself where the 1966 amendments indicates that a state is subject to suit by private individuals notwithstanding its constitutional immunity.

It has often been observed that the federal courts are courts of limited jurisdiction.

Now, the Fair Labor Standards Act does not, in itself, confer jurisdiction to hear a case arising from the Act in the federal courts.

The jurisdiction is conferred by 28 U.S.C. Section 1339, which is a jurisdiction statute and an act -- deals with an act of Congress regulating commerce.

That is the jurisdictional section that the plaintiffs below brought this case under.

Now, it has been held by this Court that the mere fact that there is a federal question in the case does not mean that the states are subject to suit by private individuals in the federal courts.

And we would submit that since the basic federal question jurisdictional statute is little different except for jurisdiction amount and the jurisdiction statute that is involved in cases of Congress or cases arising out of acts of Congress regulating Congress that it can be argued and should be argued that Congress has not intended one, in one way to any degree to change the State’s basic position which is that they are immune from suit in the federal courts.

Justice Byron R. White: How does that argument survive Parden?

Mr. Charles A. Blackmar: Well, Parden, Section 56 of the FELA specifically allowed the employee to maintain an action in the federal courts.

I would submit that that is a jurisdictional --

Justice Byron R. White: That is expressly an congressional intent that is not present in this case?

Mr. Charles A. Blackmar: Yes, Your Honor.

That is the jurisdiction that I think not only shows an attempt on Congress --

Justice Byron R. White: Now, but that the 16 (c) permit the employee to suit?

Mr. Charles A. Blackmar: In the court of competent jurisdiction and the federal courts here are not courts of competent jurisdiction.

Justice Byron R. White: Unless --

Mr. Charles A. Blackmar: The State --

Justice Byron R. White: Unless they are otherwise competent?

Mr. Charles A. Blackmar: Unless the State has consented to suit.

And that’s the Eleventh Amendment and the constitutional principle of sovereign immunity.

Now, the Parden case --

Justice Thurgood Marshall: But isn’t it true that without that the employees are practically without remedy?

Mr. Charles A. Blackmar: I don’t think that this is certainly the situation in Missouri as our brief indicates the Secretary of Labor has filed an action under Section 17 against the State of Missouri.

That action included some 2,000 or 3,000 employees and they have been successful in that action and the State has as a matter of fact had an appropriation to pay those employees and it has paid those employees.

Justice Thurgood Marshall: But that’s not the Congress’ action as I understand it.

This private action was in order to get enforcement sufficient for the employees, am I right?

Mr. Charles A. Blackmar: To have future enforcement, although the Court declined an injunction and to recover past unpaid compensation.

Justice Thurgood Marshall: That was the purpose of 6 (c)?

That was the purpose of that Section, am I right?

Mr. Charles A. Blackmar: The purpose of Section 16 (b) was to permit private actions by the employees.

The suit that I'm talking about --

Justice Thurgood Marshall: Well, isn’t that just as valid if the State is or as a private person?

Mr. Charles A. Blackmar: Pardon me?

Justice Thurgood Marshall: Isn’t that just as valid to protect the employee of a State as it is necessary to protect the employee of a private employer?

Mr. Charles A. Blackmar: Well, except that there has been a traditional principle that the states are immune from suit in the federal courts and --

Justice Thurgood Marshall: But why did Congress leave it there?

Why did Congress leave it, 16 (c)?

Mr. Charles A. Blackmar: Well, because it would have application.

Well, 16 (c) is the section that permits the Secretary of Labor to bring suit.

Justice Thurgood Marshall: Well, I thought I was -- well, which ever Section involved allows the private employee.

Now, what section is that?

Mr. Charles A. Blackmar: That’s 16 (b).

Justice Thurgood Marshall: That’s what I thought.

But under 16 (b), is it just as necessary for the employee working for the State as it is for an employee working for private individual?

Mr. Charles A. Blackmar: I don’t know.

I would think that there are different considerations between public employment and private employment.

I think for one thing that you have a single entity that is generally inclined to obey the law.

It is generally not engaged in competition, and as soon as it can administratively solve the problems that exists in complying with the Fair Labor Standards Act is reasonable and it has been our experience in Missouri that it has.

It seems to me that there are special incentives possibly to private employers to violate the Act in competitive --

Justice Thurgood Marshall: But then there’s no need to bring the State under the Act?

Mr. Charles A. Blackmar: Competitive advantage.

Well, Congress has brought some activities of the State under the Act, but I think that the congressional purposes in so doing can be fully vindicated without finding that Congress intended that the State waived its immunity from suit.

And that is the proposition that I am arguing to the Court today.

Congress did not say that the State would lose its immunity as a condition of continuing to operate state schools and hospitals after it became covered with respect to those activities.

And I submit that it is not reasonable to infer that that was the congressional intention.

Chief Justice Warren E. Burger: The Solicitor General’s brief I think and the argument indicated that about 95% of all the employees covered with the Act are private, truly private employees, and perhaps 4-5% more or less are public.

Do you quarrel with that figure?

Mr. Charles A. Blackmar: I would think that would be a reasonable estimate.

Very few --

Chief Justice Warren E. Burger: In your point of view, the only thing supporting the -- govern the Solicitor General’s view and his friend is that it’s more convenient to let the private -- the employee sue in a private suit rather than have the Secretary sue for them?

Mr. Charles A. Blackmar: That appears to be the Solicitor General’s argument and I thought he advanced to a rather novel proposition which was because of the limited staff available in the Solicitor of Labor’s Office that Congress must not have intended that would be the sole vehicle by which the Act could be enforced against the State.

As a matter fact, the Department of Labor has sued Missouri and has sued, to my knowledge, at least ten other states to recover unpaid overtime compensation.

I think that in this area that one or two state suits against the State pretty much forces sustaining the containing the compliance.

When that is done, the State gives its employees what they have coming under the Act.

Since there are only 50 States, I think sooner or later, United States persist in disobeying the Act and it will be compelled by the remedies available under the Act to comply whether it likes it or not and it will not be particularly difficult for the Secretary of Labor to maintain such suits.

Parden recognizes that a State must consent to suit and the Court in that case went on to find that Alabama when it commenced operation of a railroad 20 years after the FELA was enacted necessarily consented to such suit.

In this case, we would have to ask, when did Missouri consent?

Did it consent when Congress passed the Act and the Act became effective?

That it consents after Maryland versus Wirtz were decided or was it some other date at which it was consented.

It is known and is recognized by the court below that Missouri operated schools and hospitals prior to the effective date of the 1966 Amendments.

At some point according to the arguments advanced by the petitioners Missouri must have consented to the Act.

But I do not see how you can say that the State continuing the activities that it has historically engaged in, in which it had been recognized as functions of state government consented to waive its constitutional immunity from suit in a federal courts.

Certainly, the Act did not advise Missouri in express language that it was going to have to make what the District Court in Idaho was temred to Hobson’s choice of either foregoing the operation of its schools and hospitals or consenting to suit by private individuals in the federal court.

Congress very easily could have provided an expressed waiver provision where it would advise the States that they would lose this immunity but it has not done so.

And that leads me to three factors which the court below distinguished this case from Parden, and I think each of these factors are very important in considering that question of what did Congress intend when it made the State subject to the Act.

First of all, there is the very nature of schools and hospitals.

There are traditionally activities States engage in.

Considering the nature of those activities, is it reasonable to infer that Congress would intend that an employee would recover double before the State were to spend funds on the care of the patients or the students of the institutions covered?

And of course, there’s the fact that there are double damages and attorney’s fees that are available to the private employees that they are permitted to maintain the suit.

It does not seem again that Congress would intend that this type of remedy be available against the State.

I think that there are more -- at least it’s a policy judgment that should be made expressly and not found by a court on the basis of silence.

And finally, the Court --

Justice Byron R. White: Would you make that argument if there was a suit brought under the Act in the State Court?

Mr. Charles A. Blackmar: I would consider making that argument, I don’t know.

Justice Byron R. White: It would be very difficult for you to do so?

Mr. Charles A. Blackmar: It would be very difficult to argue that if the State Court had jurisdiction that the provisions of the Act did not apply.

Justice Byron R. White: Yes.

Mr. Charles A. Blackmar: And as I mentioned earlier, I am not necessarily conceding that the --

Justice Byron R. White: So really -- your argument really is should be whether the Congress intended to make the remedy available in the federal court?

Mr. Charles A. Blackmar: That’s -- well, the argument -- yes, it would be --

Justice Byron R. White: Rather than et al.

Mr. Charles A. Blackmar: This goes to -- the fact that there are the double damages, I think, goes to the intent of the Congress and I think that when you have an extreme remedy of that nature, that it certainly raises a question as to whether Congress intended that that type of remedy would be available against the State.

Chief Justice Warren E. Burger: Well, what does that -- enlighten me on this.

What does that have to do with whether the suit is brought in the state court or to the federal court?

Mr. Charles A. Blackmar: Well, the Parden case --

Chief Justice Warren E. Burger: Eleventh Amendment is --

Mr. Charles A. Blackmar: It’s whether the Congress intended that the State waive its immunity.

Chief Justice Warren E. Burger: Well, but you’ve indicated or at least I thought you had that you would not have this defense that you’re arguing to a suit in the state court.

Mr. Charles A. Blackmar: Yes.

Chief Justice Warren E. Burger: How could they recover double damages in all of the statutory remedies in the state court?

Mr. Charles A. Blackmar: They will certainly be in a position to argue that they could, and we would be --

Chief Justice Warren E. Burger: Is there anything in the Act that indicates that you wouldn’t get the same remedy in the state court as in the federal court?

Mr. Charles A. Blackmar: No, there isn’t.

Chief Justice Warren E. Burger: So, you’re really just arguing the forum, aren’t you?

Mr. Charles A. Blackmar: I am arguing the forum and I think in view of the remedy there is -- it certainly raises the question as to whether Congress intended that the forum be available.

Justice Potter Stewart: Well as I understood you General Blackmar, you haven’t conceded, however, that this kind of suit could be part of the state court.

You simply pointed out that question is not before us?

Mr. Charles A. Blackmar: Yes, I have to try to limit it to that question.

The final factor I think the Eight Circuit relied on and I think is significant is the fact that there are alternative remedies which will vindicate the congressional purpose behind the Fair Labor Standards Act amendments.

Now in the Parden case, if the Court had not found that the federal form was available to the employee suing the State of Alabama, he would’ve been left without a remedy.

The whole purpose of the Federal Employers Liability Act was to permit injured employees to recover.

Now I think, the Fair Labor Standards Act and it's been discussed by the --

Justice William J. Brennan: No, but that Act, that Act permit suit in the state court?

Mr. Charles A. Blackmar: It permits suits in state court as well as federal court and expressly and expressly -- expressly says to either court this Act, Your Honors, only says a court of competent jurisdiction.

Chief Justice Warren E. Burger: Well, that certainly doesn’t give any intimations of excluding state courts --, state courts being courts of general jurisdiction. I thought earlier under your argument you have virtually conceded that not in this last colloquy but --

Mr. Charles A. Blackmar: Well, I’ve considered --

Chief Justice Warren E. Burger: Well, what?

Mr. Charles A. Blackmar: -- that the State of Missouri -- I do not believe the question is before the Court.

Chief Justice Warren E. Burger: Well, I know. I know, of course.

Mr. Charles A. Blackmar: But I would say --

Justice Byron R. White: Well, don’t we?

Mr. Charles A. Blackmar: That is a difficult question and that Missouri placed on several cases would be hard-pressed to argue that the state court cannot or did not have jurisdiction to hear the action.

Justice William H. Rehnquist: Mr. Blackmar, Am I right in taking that there might be two separate inquiries as to whether a suit like this might be entertained in the state courts of Missouri.

The first being whether under Missouri State law, you could sue this particular public institution and the second being whether Congress might have by implication required the state courts to entertain such action?

Mr. Charles A. Blackmar: Right, it would be right.

I’ll probably reverse the order as to the order you asked the questions but there would be two separate inquiries.

If it wasn’t --

Justice Byron R. White: May I ask you -- is there a form of Missouri for employees to stay in suit for back pay? Let’s assume there is -- has Missouri waived its own sovereign immunity with its own?

Mr. Charles A. Blackmar: Missouri historically has been very, very reluctant to yield one bit of its sovereign immunity. Now, there is a fairly recent case involving a state contract where the court --

Justice Byron R. White: Is this judicial -- almost an entirely judicial constructed Missouri or is it statutory?

Mr. Charles A. Blackmar: No, it is basically judicial.

We do not have constitutional provisions like Alabama does and I believe Illinois which are very expressed on that question of sovereign immunity.

Justice Potter Stewart: I suppose you could therefore make the argument that a state court would not be a court of competent jurisdiction?

Mr. Charles A. Blackmar: Well, --

Justice Potter Stewart: But in any event you have pointed out at the outset that [Voice Overlap].

Mr. Charles A. Blackmar: I would hate to leave myself into the position of arguing against the position. I may have to rgue sometime in the state court.

Justice Potter Stewart: All right.

In any event that questions not before us and that’s your real point?

Mr. Charles A. Blackmar: And finally, the Eighth Circuit didn't consider the alternative remedies that are available which I think really will indicate the Act and certainly have in Missouri. After the Secretary of Labor filed his action in Missouri Legislature for the first time took cognizance of the problem. They appropriated a sum of money which was sufficient to satisfy the judgment.

The people who had compensation coming to them were paid and the State was able to pay them reserving its traditional practices of paying on appropriations and warrants drawn by the State Treasurer, after action by the state legislature.

It was asked as to whether the State of Missouri would have a defense to the double damage provisions.

Section 11 of the Portal to Portal Act, allows us an employer to make a defense that the act or admission giving rise to such action was in good faith that is act or admission giving rise to the failure to pay wages.

After reading the Portal to Portal cases, I do not -- I am not at all share and I’m rather pessimistic that Missouri would have any defense that would meet the traditional Portal to Portal Act arguments that Missouri has acted in good faith and should be in permitted not to have to pay the double damages.

This is a serious question and it’s a question that goes to where I think the heart of our federal system. It may not be fair from a strict equity sense that States are immune from suit in the federal courts for their wrongs where there is established law.

When the Court held otherwise back in the case Chisholm versus Georgia, there wasn’t immediate response by on the part of Congress and the States with the enactment of the Eleventh Amendment.

Ever since that date, the courts have been very respectful of the States Sovereign Immunity.

Congress has not expressly said that the States are to lose that immunity.

I don’t think it’s fair to read that into Act by implication.

I would like to close my argument of this observation.

When the Portal to Portal Act was enacted, the Congress started out with this finding.

The Congress finds that the Fair Labor Standards Act of 1938 as amended has been interpreted judicially in this regard of long established customs and precedents.

I would think that if the Court would find that Missouri has lost its constitutional immunity that that would be a holding that would be contrary to long established customs and precedents.

Thank you.

Chief Justice Warren E. Burger: Thank you Mr. Blackmar.

Mr. Zwerdling you have few minutes left.

Rebuttal of A. L. Zwerdling

Mr. A. L. Zwerdling: Mr. Chief Justice, my approach to the statutory intent here was perhaps more pedestrian than that of my brother debar.

I went to the statute and I cited very carefully and explicitly to this Court the language that Congress injected in 1966 by its amendments.

And I traced carefully the result by virtue of that set of statutory amendments and nothing could be more explicit than the congressional intent of that.

I will not yield to the temptation of laundering into the thicket of the question of whether the state courts are in or out.

I would merely observe that assuming for the sake of argument only that the state courts are available as a remedy, Congress chose to give the employees access to the federal system to the federal courts with all of the advantages that flow therefrom.

Including --

Chief Justice Warren E. Burger: What specific language do you rely on to indicate that they were explicit, I think you said, in granting a federal a suit against the state in federal court?

Mr. A. L. Zwerdling: By saying that in a definition, in the Amendment of Section 3 of the definitions, giving access to Section 16 (b) to these employees covered by amendments where it says in Section 16 (b) “Any court of competent jurisdiction.”

Chief Justice Warren E. Burger: And do you think that’s explicit enough to take care of the Eleventh Act?

Mr. A. L. Zwerdling: It is particularly explicit in the light of the fact that the statute has been on the books since 1938 and almost invariably the suits occur in federal court.

And Congress had the experience of all of the years since 1938 of the exercise of this statutory language in thousands and tens and thousands of private employee suits in federal court where they almost been variably go under Section 16 (b).

And in the light of that experience, Congress and its Amendment of the definitions chose to pass on to the public employees covered as it had in 38 private employees that access.

Chief Justice Warren E. Burger: Does the legislative history show any discussion or consideration of the Eleventh Amendment problem?

Mr. A. L. Zwerdling: Not at such, Your Honor.

Chief Justice Warren E. Burger: You wouldn’t think that that would escape their attention?

Mr. A. L. Zwerdling: It would escape their attention I believe it were -- if it were not in question as it appeared not to be in question since they enacted this amendments in 1966 barely two years after this Court handed down Parden, which laid down the disposition of this question, and in the light of that knowledge, Congress enacted the amendments of 1966.

There are 50 States as this counsel points out, but there are some 118,000 establishments in question here which is a harsh of somewhat of different color in terms of the problem of the Secretary of Labor enforcement.

And just to illustrate in the facts of this case, the complaint here was filed when?

The compliant was filed by these employees in August of 1969 for backpay and liquidated damages commencing in February of 1967.

The Secretary of Labor came in later in January of 1971, reaching back only to January of 1969 and then only because of the course of this litigation and its disposition.

Let me just conclude by reemphasizing once again that as was said in Parden, “By empowering Congress to regulate commerce then, the states necessarily surrender any portion of their sovereignty that would stand in the way of such regulation.”

Such regulation involves two parts, two sides of the coin.

It involves reaching the substantives matter by exercise of the commerce power to achieve this coverage that we’re talking about, but at the same time, there goes with that exercising commerce power to reach the remedy which is the chosen means, which has been utilized successfully since 1938 which Congress in the light of that long experienced with millions of situations around the country with some 40 million people decided to extend to certain limited classes of state employees as they did here.

We believe that Maryland versus Wirtz and Parden govern and as was said in Maryland versus Wirtz, I conclude on this if I may.

It said “This Court was, of course, concerned only with the finding of a substantially effect on interstate competition and not where the consequent policy decisions.”

Quoting another case, Katz and Buck, this Court said, “Where we find that the legislatures have a rational basis for finding a chosen regulatory scheme necessary to the protection of commerce, our investigation isn’t at an end.”

May I submit that in Parden when that case was concluded the Court had already determined as to this situation that that case -- that this investigation is at an end.

Chief Justice Warren E. Burger: Mr. Zwerdling, would you think as another factor to be taken into account the greater uniformity that might be achieved in dealing with these cases in Eleventh Circuit as distinguished from 50 --

Mr. A. L. Zwerdling: Mr. Chief Justice, that argument is better than mine.

It is all of the aspects of the federal jurisdiction, the availability of liberal discovery which is very important to employees in these suits, the uniformity that you point out, the fact that there is more expertise in interpreting federal laws, all of the panoply of reasons, which would cause Congress to be moved to make this remedy available in any court of competent jurisdiction.

If there are not further questions, thank you.

Chief Justice Warren E. Burger: Thank you Mr. Zwerdling.

Thank you gentlemen.

The case is submitted.

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