United States v. Webb, Inc

• Decision Date: 03 March 1970
• Docket Number: No. 63,63
• Citation: 25 L.Ed.2d 207,397 U.S. 179,90 S.Ct. 850
• Parties: UNITED STATES, Petitioner, v. W. M. WEBB, INC., et al
• Court: U.S. Supreme Court

397 U.S. 179

90 S.Ct. 850

25 L.Ed.2d 207

UNITED STATES, Petitioner,

v W. M. WEBB, INC., et al.

No. 63.

Argued Nov. 17, 1969.

Decided March 3, 1970.

Solicitor General Erwin N. Griswold for petitioner.

Joseph J. Lyman, Washington, D.C., for repondents.

Mr. Justice HARLAN delivered the opinion of the Court.

The respondents in this case, which was consolidated below, own boats that are used in commercial fishing in the Atlantic Ocean and the Gulf of Mexico. There fishing is carried out through contractual arrangements, shaped by established custom, with boat captains, who man the boats and manage their day-to-day operation. The question before the Court is whether the captains and crewmen of the boats are the 'employees' of the respondents within the provisions of the Federal Insurance Contributions Act (FICA)¹ and the Federal Unemployment Tax Act (FUTA),² which impose taxes on employers to finance government benefits for employees.

I

During the taxable periods involved here,³ the respondents' vessels were engaged in fishing for menhaden, a non-edible fish that is processed and used for various industrial purposes. The owner of each vessel equipped the vessel and secured the services of an experienced fisherman to be captain. The captain then assembled a crew. The captain customarily served on the same vessel for a full season, and occasionally for several consecutive seasons, although the oral arrangements between owners and captains permitted either to terminate the relationship at the end of any fishing trip. The fishing trips lasted from one to several days.

The vessels were operated from docking facilities owned by fish-processing plants, and discharged their catch at these plants upon the completion of each trip. The plants paid respondents for the fish according to the volume of the catch, and respondents paid the captains and crews on the same basis, following terms that had been negotiated in advance. Neither captains nor crews were guaranteed any earnings if they failed to catch fish. While respondents determined the plant to which the vessels would report and generally where and when the fishing would take place, the captains managed the details of the operation of the boats and the manner of fishing.

Respondents filed tax returns as employers under the FICA and the FUTA, and paid the employer's share of the taxes due on the earnings of the captains and crews. After making the appropriate claims for refunds, they sued for refunds in the District Court for the Eastern District of Louisiana. The District Court, sitting without a jury, determined after trial that the captains and crews were not respondents' employees for the purposes of these tax statutes. The trial court noted that both the FICA and the FUTA define 'employee' as any individual who has employee status under 'the usual common law rules' applicable to a determination of the master-servant relationship. It found 'without merit' the Government's contention 'that the common-law governing the relationship of the taxpayer and the fishermen in pursuing fishing ventures in the Gulf of Mexico and the Atlantic Ocean is the general maritime law.' 271 F.Supp. 249, 257 (1967). The court found further that the degree of control exercised by respondents over these fishing activities was not sufficient, under the common-law standards governing land-based occupa- tions, to create the relationship of employer and employee between respondents and the captains and crews. Respondents were thus held entitled to their refunds.

On appeal, the Court of Appeals for the Fifth Circuit affirmed. It reviewed the facts and observed that 'it is clear that under maritime law the captain is the agent of the owner * * * and the crew hands are employees,' and that '(i)f we were free to apply maritime law as a test of the employer-employee relationship, we would reverse the decision of the district court.' 402 F.2d 956, 959 (1968).⁴ However, the Court of Appeals agreed with the District Court that the statutes' prescription of 'common law rules' barred application of maritime standards.

This conclusion conflicts with the approach of the Court of Claims in Cape Shore Fish Co. v. United States, 330 F.2d 961, 165 Ct.Cl. 630 (1964). In that decision the court found scallop fishermen, operating under arrangements similar to those here, to be employees of the shipowner for the purposes of these statutes. It reached this conclusion by applying to the facts the standards of maritime law. We granted certiorari in this case, 394 U.S. 996, 89 S.Ct. 1591, 22 L.Ed.2d 774 (1969), to resolve this conflict, and to clarify the application to maritime workers of these important federal statutes.

II

The parties agree that both the FICA and the FUTA impose taxes on employers measured by the compensation paid to employees, and that in terms of this case the two statutes define 'employee' identically. In the FICA 'employee' is defined to include 'any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee,' and the language of the FUTA is to the same effect.⁵ These definitions were not included in the original Social Security Act as it was adopted in 1935, which defined 'employee' merely by specifying that it 'includes an officer of a corporation,'⁶ but were added by amendment in 1948. We must consider the events that prompted the amendment.

In 1935 the draftsmen of the Social Security Act apparently thought it unnecessary to elucidate the meaning of 'employee' because they assumed that the term, as it was applied to varying factual situations, would be given the 'usual' meaning it bore at common law. See S.Rep.No.1255, 80th Cong., 2d Sess., 3—4 (1948). However, over the years of applying the Act to a myriad of work relationships, the lower federal courts developed somewhat varying approaches, certain courts relying more heavily on common-law precedents and others attempting to discern a special meaning for the term from the purposes of the legislation.⁷ In addition, the courts tended to look to local precedents to determine the common-law standards, producing different results for similar factual situations in various parts of the country.⁸ This divergence of views led this Court, in 1947, to render two decisions in an attempt to clarify the governing standards. United States v. Silk, 331 U.S. 704, 67 S.Ct. 1463, 91 L.Ed. 1757; Bartels v. Birmingham, 332 U.S. 126, 67 S.Ct. 1547, 91 L.Ed. 1947.

In Silk, the Court upheld the lower courts' determination that certain truck drivers were, under the circumstances, independent contractors rather than employees, but it upset a similar ruling with respect to a group of men who unloaded coal from railroad cars. In Bartels the Court, reversing the Court of Appeals, held that the members of certain dance bands were not employees of the owners of the dance halls at which they were engaged, despite contractual provisions characterizing them as employees. While the Court's opinions in these cases stressed many of the factors that had been important in common-law determinations of employee status, they also contained language that could be read to detach the ques- tion of statutory coverage from the common-law tests. ⁹ The Court stated, in Bartels, that 'in the application of social legislation employees are those who as a matter of economic reality are dependent upon the business to which they render service.' 332 U.S., at 130, 67 S.Ct., at 1550.

Acting upon this language, the executive agencies set about replacing their original regulation, which had defined the employment relation in terms of the incidents of employment at common law,¹⁰ with a new regulation that would embody the test of 'economic reality.'¹¹ However, the proposed new regulation never took effect. Within two months of its announcement, a resolution was introduced in both the House of Representatives and the Senate calling for 'a reassertion of congressional intent regarding the application of the act.' S.Rep.No. 1255, supra, at 7. This resolution, which was finally passed over the President's veto, added to the statutes the present definitions of 'employee.'¹²

The report of the Senate Finance Committee on the resolution makes clear a congressional purpose to disapprove the proposed regulation and to reaffirm that determinations of employee status were to be based on the traditional legal tests. The Committee seems to have thought that the Silk and Bartels decisions had applied traditional common-law standards, despite the language in the opinions suggesting a less constrictive approach. However, nothing that the Treasury Department claimed support in those decisions for its contemplated new departure, the Committee declared: 'But if it be contended that the Supreme Court has invented new law for determining an 'employee' under the social-security system in these cases, then the purpose of this resolution is to reestablish the usual common-law rules, realistically applied.' Id., at 2.

The causes of congressional dissatisfaction with the proposed regulation were twofold. As a fiscal matter, the Committee cited testimony that the new regulation would extend social security benefits to between 500,000 and 750,000 new workers, who had not been covered previously and had not contributed to the trust fund from which benefits would be paid, thus, endangering the integrity of the fund. More generally, the Committee was fearful of the uncertainty that would be created by the new regulation, and the discretion it would give to the executive agencies in determining the applicability of the statutes. The report stated:

'In a word, by unbounded and shifting criteria, (the proposed regulation) would confer in those administering the Social Security Act full discretion to include, or to exclude, from the coverage of the act any person whom they might decide to be, or might decide not to be, an 'employee...