Usery v. Pilgrim Equipment Co., Inc.

Decision Date03 March 1976
Docket NumberNo. 74--2909,74--2909
Citation527 F.2d 1308
Parties22 Wage & Hour Cas. (BN 783, 78 Lab.Cas. P 33,343 W. J. USERY, Secretary of Labor, United States Department of Labor, Plaintiff- Appellant, v. PILGRIM EQUIPMENT COMPANY, INC., et al., Defendants-Appellees.
CourtU.S. Court of Appeals — Fifth Circuit

William J. Kilberg, Sol. of Labor, Donald S. Shire, Carin Ann Clauss, Assoc. Sol., U.S. Dept. of Labor, Washington, D.C., George T. Avery, William E. Everheart, Atty., Reg. Sol., U.S. Dept. of Labor, Dallas, Tex., Sandy McCormack, U.S. Dept. of Labor, Washington, D.C., for plaintiff-appellant.

William Key Wilde, Ron D. Daugherty, Houston, Tex., for defendants-appellees.

Appeal from the United States District Court for the Southern District of Texas.

Before WISDOM, CLARK and RONEY, Circuit Judges:

CLARK, Circuit Judge:

The Secretary of Labor challenges the independent contractor status assigned to approximately 60 women operators of laundry pick-up stations by 10 related corporations, which we group here under the common appellation Pilgrim. 1 In capsule, each operator works at a separate location to which customers bring items to be cleaned. Pilgrim picks up, cleans and returns the items. The operator then makes delivery to the customer and collects the cleaning price.

Concluding from undisputed facts that Pilgrim had correctly classified these operators as nonemployees for wage and hour purposes under the Fair Labor Standards Act (FLSA), 2 the district court denied the relief sought by the Secretary's complaint. Although it framed its findings in the proper indicia for testing statutory employee status, the district court's conclusion of what the frame enclosed failed to give sufficient emphasis to the all-pervasive determinant economic dependence. The legal conclusion reached by the trial court from its factual findings was, therefore, in error. We reverse and remand for a determination of the appropriate relief for these employees.

The purpose of the FLSA is to 'eliminate low wages and long hours' and 'free commerce from the interferences arising from production of goods under conditions that were detrimental to the health and well-being of workers.' 3 The statutory scheme makes the wage and hour provisions applicable to 'employees.' Employee is defined as one 'employed,' and 'employ' is defined as 'to suffer or permit to work.' 4 Given the remedial purposes of the legislation, an expansive definition of 'employee' has been adopted by the courts.

As the federal social security legislation is an attack on recognized evils in our national economy, a constricted interpretation of the phrasing by the courts would not comport with its purpose. Such an interpretation would only make for a continuance, to a considerable degree, of the difficulties for which the remedy was devised and would invite adroit schemes by some employers and employees to avoid the immediate burdens at the expense of the benefits sought by the legislation. 5

The common law concepts of 'employee' and 'independent contractor' have been specifically rejected as determinants of who is protected by the Act. 6 The test is not one which allows for a simple resolution of close cases. However, the lesson taught by the Supreme Court's 1947 trilogy 7 is that any formalistic or simplistic approach to who receives the protection of this type legislation must be rejected. in Bartels v. Birmingham, 332 U.S. 126, 67 S.Ct. 1547, 91 L.Ed. 1947 (1947), the Court held 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.' 8

Five considerations have been set out as aids to making the determination of dependence, vel non. They are: degree of control, opportunities for profit or loss, investment in facilities, permanency of relation, and skill required. 9 No one of these considerations can become the final determinant, nor can the collective answers to all of the inquiries produce a resolution which submerges consideration of the dominant factor--economic dependence. See Mednick v. Albert Enterprises, Inc., 508 F.2d 297 (5th Cir. 1975). The five tests are aids--tools to be used to gauge the degree of dependence of alleged employees on the business with which they are connected. It is dependence that indicates employee status. Each test must be applied with that ultimate notion in mind. More importantly, the final and determinative question must be whether the total of the testing establishes the personnel are so dependent upon the business with which they are connected that they come within the protection of FLSA or are sufficiently independent to lie outside its ambit. Reviewing each of the five indicia used by the lower court, with the emphasis placed as required, compels the ultimate conclusion that the pick-up station operators in this case were dependent on Pilgrim and, therefore, come within the Act. It also discloses that the district court's factor-by-factor resolutions were wrong.

I. Control

The district court determined that operators are largely independent of their manager's control. However, a look at the rules and restrictions on the operators contained in the written lease agreement and the undisputed facts shows the operators are totally dependent upon Pilgrim to provide direction or control in every major aspect of their work. Pilgrim handles substantially all advertising for the stations. It sets the prices charged for all but a few nonstandard items. It requires that operators deal exclusively with Pilgrim Laundries. 10 It prevents the assignment of the lease arrangements which govern the parties' respective obligations. It requires that each operator remit a certain amount of money every day for the cleaning work done by Pilgrim. It requires that accounts be settled between Pilgrim and each operator once a week. It prevents operators from posting any signs on the premises unless prior permission is given. It prevents any improvement to the premises without permission. The lease is drawn by Pilgrim and the only negotiated item is the percentage of income the operator would retain, an item which is usually unilaterally imposed at the outset by Pilgrim and then negotiated on the anniversary of each contract. Pilgrim maintains the right to specifically enforce or declare the contract void if any covenant is not performed by the operator. The contract has a duration of 1 year. Each operator is given the right to set her own hours, hire helpers and is not subject to inspection of supervision in the minor details of her daily operation. A sign posted on the front door of each pick-up station, however, states the standard Pilgrim Laundry hours. With minor exceptions, all operators testified that they followed these hours. Some of the operators hired helpers or substitutes from time to time and some did not.

In the total context of the relationship neither the right to hire employees nor the right to set hours indicates such lack of control by Pilgrim as would show these operators are independent from it. In reality, even the hours are 'controlled' by Pilgrim. It is not significant how one 'could have' acted under the contract terms. The controlling economic realities are reflected by the way one actually acts. 11 Moreover, women who work at home, completely free of specific hour requirements, have been found to be employees for purposes of this Act. 12 Occasional exercise of the right to hire helpers also has not been found sufficiently indicative of independence to allow a finding of nonemployee status. 13

The most significant conclusion from all these facts is that the operators cannot exert control over any aspect of their business lives independent of Pilgrim. They have no viable economic status that can be traded to other laundry companies and the lack of supervision over minor regular tasks cannot be bootstrapped into an appearance of real independence. 14 Control is only significant when it shows an individual exerts such a control over a meaningful part of the business that she stands as a separate economic entity. All meaningful aspects of this business--advertising, right to deal with other cleaning plants, price fixing, payment arrangements--are controlled by Pilgrim.

II. Opportunity for Profit or Loss

The lower court concluded that the opportunities for profit or loss were the same as in any independent business. The major determinants of the amount of profit which an operator could make, however, were directly controlled by Pilgrim. Since the operators were paid on a percentage basis, the amount of business done by an operator governs total profit. The lower court found that convenience of hours, extra service provided, and rapport with customers were factors which affected profits and were within the control of each operator. However, price, location, and advertising--determinants of customer volume at least as vital as those governed by the operators--are regulated by Pilgrim.

The record shows some operators sold ties, wigs, or took in special work in their pick-up stations. These sales minimally supplemented their income. Such minor additional income made from work which is not connected with the actual business under examination is not relevant to a court's determination of employee status. 15

Finally, except for being responsible for bad-check and theft losses, there is no way any of the operators can suffer a loss in their alleged independent contractor operations. Each week they receive a percentage of the total money taken in by their pick-up station. The lease requirement--which the record does not show was ever subject to negotiation--that the operators accept responsibility for bad-check and theft losses does not show independence. Rather it shows that Pilgrim chose to place this added burden on its operators. Persons with similar pecuniary obligations have been found to be employees. 16

No...

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