328 U.S. 108 (1946), 517, S. A. Schulte, Inc. v. Gangi

Docket Nº:No. 517
Citation:328 U.S. 108, 66 S.Ct. 925, 90 L.Ed. 1114
Party Name:S. A. Schulte, Inc. v. Gangi
Case Date:April 29, 1946
Court:United States Supreme Court

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328 U.S. 108 (1946)

66 S.Ct. 925, 90 L.Ed. 1114

S. A. Schulte, Inc.



No. 517

United States Supreme Court

April 29, 1946

Argued March 1, 1946




1. An employer cannot be relieved from liability for liquidated damages under § 16(b) of the Fair Labor Standards Act by a compromise or settlement of a bona fide dispute as to the coverage of the Act. P. 114.

2. The purpose of the Fair Labor Standards Act -- to secure a subsistence wage for low income workers -- requires that neither wages nor the damages for withholding them be reducible by compromise of controversies over coverage. Pp. 116-118, 121.

3. Maintenance employees of a building the occupants of which receive, work on, and return in intrastate commerce goods belonging to nonoccupants who subsequently, in the regular course of their business, ship substantial proportions of the occupants' products to other States held covered by the Fair Labor Standards Act. P. 120.

4. The burden of proof that rests upon employees to establish that they are engaged in the production of goods for commerce within the coverage of the Fair Labor Standards Act must be met by evidence in the record. P. 120.

5. In determining whether employees are engaged in the "production of goods for commerce" within the meaning of the Fair Labor Standards Act, it is sufficient that, from the circumstances of production,

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a trier of fact may reasonably infer that the employer has reasonable grounds to anticipate that his products will move in interstate commerce. Walling v. Jacksonville Paper Co., 317 U.S. 564, distinguished. Pp. 119, 121.

6. Mere separation of the economic processes of production for commerce between different industrial units, even without any degree of common ownership, does not destroy the continuity of production for commerce. P. 121.

150 F.2d 694 affirmed.

Respondent, suing on behalf of himself and other employees similarly situated, brought suit against his employer to recover liquidated damages under § 16(b) of the Fair Labor Standards Act. The District Court held that the liability of the employer had been validly released. 53 F.Supp. 844. The Circuit Court of Appeals reversed. 150 F.2d 694. This Court granted certiorari. 326 U.S. 712. Affirmed, p. 121.

REED, J., lead opinion

MR. JUSTICE REED delivered the opinion of the Court.

The issues brought to this Court by this proceeding arise from a controversy concerning overtime pay and liquidated damages under the Fair Labor Standards Act of 1938. Under Section 7(a), the employer is required to pay for

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excess hours of work not less than one and one-half times the regular rate.1 An employer who violates this subsection is liable to his injured employees in the amount due and unpaid and in an additional equal amount as liquidated damages.2

The primary issue presented by the petition for certiorari is whether the Fair Labor Standards Act precludes a bona fide settlement of a bona fide dispute over the coverage of the Act on a claim for overtime compensation and liquidated damages where the employees receive the overtime compensation in full. As the conclusion of the Circuit Court of Appeals on this issue in this case3 conflicts with that of the Fourth Circuit in Guess v.

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Montague, 140 F.2d 500, 504, 505, and the Fifth Circuit in Atlantic Co. v. Broughton, 146 F.2d 480, we granted certiorari in order to determine the issue which was not passed upon in Brooklyn Sav. Bank v. O'Neil, 324 U.S. 697, 702-704, 708.4

Respondents were employed by petitioner as building service and maintenance employees [66 S.Ct. 927] in its twenty-three story loft building in the garment manufacturing district of New York City during the period October 24, 1938, to February 5, 1942. Each put in varying hours of overtime for which no payment had been made prior to our decision in Kirschbaum v. Walling, 316 U.S. 517, on June 1, 1942, by which service and maintenance employees in buildings tenanted by manufacturers producing for interstate commerce were held to be covered by the Wage-Hour Act. Shortly thereafter, respondents made claims for overtime pay and liquidated damages which were refused by petitioner on the ground, admittedly true, that its tenants did not ship the products they produced directly in interstate commerce, but delivered them to distributors or producers in the same state who thereafter used the products of petitioner's tenants for interstate commerce or the production of goods for that commerce. Under threat of suit, petitioner paid the overtime compensation and obtained a release under seal signed by the

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several respondents. It is set out below.5 Petitioner computed the amount of overtime, and respondents raise no question as to its accuracy. Respondents then brought this suit in the District Court to recover liquidated damages due them under Section 16(b) of the Act. It was stipulated that the liquidated damages, due if recoverable, were certain stated amounts which corresponded to the overtime compensation already paid. Petitioner denied that it was covered by the Act, and pleaded affirmatively, as a defense, the releases which it asserted were obtained in settlement of a bona fide dispute as to coverage.

The District Court held that there was a good accord and satisfaction and release of all claims for liquidated damages, because there was a bona fide settlement of a bona fide dispute. It specifically refused to pass upon the defense that the Act did not cover the respondents, except to indicate that it presented a difficult issue. 53 F.Supp. 844. This judgment was entered prior to our decision in the O'Neil case. The Circuit Court of Appeals reversed. That court thought the O'Neil case substantially determined that a bona fide compromise of a dispute as to coverage was invalid. Its conclusion as to the invalidity of such compromises was in accord with its prior comments that the liability of unpaid overtime compensation and liquidated damages is single, and "is not discharged in toto by paying one-half of it." Rigopoulos v. Kervan, 140 F.2d 506, 507; Fleming v. Post, 146 F.2d 441, 443.

Petitioner urges that the theory of a single liability of the employer to the employee under Sec. 16(b) is unsound,

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and that this Court should not find a lack of power in employers and employees to settle amicably controversies over coverage and amounts due for violations of the unpaid minimum wage or unpaid overtime compensation under Sections 6 and 7 of the Act. Petitioner reasons on its first contention that there were two claims -- one for overtime compensation and the other for an equal amount as liquidated damages -- and that the payment for the first in full was sufficient consideration for the release of the second. On its second contention, petitioner advances the argument that, since the Congressional intent to forbid compromises of such claims is not clear, such a sharp departure from the traditional policy of encouraging the adjustment, instead of the litigation, of disputes cannot be inferred from the purposes of the Act. Petitioner points out that a seaman may [66 S.Ct. 928] release his claims under statutes enacted for his protection in a bona fide settlement,6 and that settlement of accrued claims is permitted under the Federal Employers' Liability Act.7 Petitioner adds that, in doubtful cases, it may be advantageous to the employee to compromise, that to force litigation may disrupt employer-employee relationships, and that numerous compromise settlements have been made for less than full liability.8

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We do not find it necessary to determine whether the liability for unpaid wages and liquidated damages that Section 16(b) creates is unitary or divisible.9 Whether the liability is single or dual, we think the remedy of liquidated damages cannot be bargained away by bona fide settlements of disputes over coverage. Nor do we need to consider here the possibility of compromises in other situations

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which may arise, such as a dispute over the number of hours worked or the regular rate of employment.10

The reasons which lead us to conclude that compromises of real disputes over coverage which do not require the payment in full of unpaid wages and liquidated damages do not differ greatly from those which led us to condemn the waivers of liquidated damages in the O'Neil case. We said there, 324 U.S. at 708:

The same policy which forbids waiver of the statutory minimum as necessary to the free flow of commerce requires that reparations to restore damage done by such failure to pay on time must be made to accomplish Congressional purposes. Moreover, the same policy which forbids employee waiver of the minimum statutory rate because of inequality of bargaining power prohibits these same employees from bargaining with their employer in determining whether so little damage was suffered [66 S.Ct. 929] that waiver of liquidated damage is called for.

In a bona fide adjustment on coverage, there are the same threats to the public purposes of the Wage-Hour Act that exist when the liquidated damages are waived. The damages are, at the same time, compensatory and an aid to enforcement. It is quite true that the liquidated damage provision acts harshly upon employers whose violations are not deliberate, but arise from uncertainties or mistakes as to coverage. Since the possibility of violations inheres in every instance of employment that is covered by the Act, Congress evidently felt it should not provide for variable compensation to fit the degree of blame in each infraction.11 Instead, Congress adopted a mandatory requirement

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that the employer pay a sum in liquidated damages equal to the unpaid wages, so as to compensate the injured employee for the retention of his pay.12

It is realized that this...

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