Mitchell v. Brandtjen & Kluge, Incorporated

• Decision Date: 15 December 1955
• Docket Number: No. 4996.,4996.
• Parties: James P. MITCHELL, Secretary of Labor, United States Department of Labor, Plaintiff, Appellant, v. BRANDTJEN & KLUGE, Incorporated, Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

228 F.2d 291 (1955)

James P. MITCHELL, Secretary of Labor, United States Department of Labor, Plaintiff, Appellant, v. BRANDTJEN & KLUGE, Incorporated, Defendant, Appellee.

No. 4996.

United States Court of Appeals First Circuit.

December 15, 1955.

Bessie Margolin, Asst. Solicitor, Washington, D. C., with whom Stuart Rothman, Solicitor, Harry A. Tuell, Atty., Washington, D. C., and Thomas L. Thistle, Regional Atty., Boston, Mass., were on brief, for appellant.

David W. Kelley, Boston, Mass., with whom Peter D. Cole, Badger, Pratt, Doyle & Badger, Boston, Mass., and Felhaber & Larson, St. Paul, Minn., were on brief, for appellee.

Before MAGRUDER, Chief Judge, and WOODBURY and HARTIGAN, Circuit Judges.

MAGRUDER, Chief Judge.

In this case the Secretary of Labor filed a complaint seeking an injunction against defendant-appellee forbidding the corporation from violating the overtime provisions of § 7 of the Fair Labor Standards Act of 1938, as amended. 52 Stat. 1063, 63 Stat. 912, 29 U.S.C.A. § 207. The district court found that the wage payments which defendant had been making to its employees in question, in weeks in which any of them worked more than 40 hours, had been in pursuance of bona fide individual contracts of employment which in all respects complied with the requirements of § 7(e) of the Act. Accordingly the court ruled that the evidence did not warrant a finding that the defendant had violated the provisions of § 7, and entered judgment dismissing the complaint, from which judgment the Secretary of Labor has taken the present appeal.

Subsection (e) of § 7 was added to the Act by the amendments of 1949 in order to give specific legislative sanction to wage arrangements of the "Belo" type, which the Supreme Court had theretofore approved, by a sharply divided Court and without the aid of express statutory language, in Walling v. A. H. Belo Corp., 1942, 316 U.S. 624, 62 S.Ct. 1223, 86 L.Ed. 1716.

The difficulty which gave rise to the litigation in the Belo case was that, in § 7 of the original act as enacted in 1938, there was no statutory definition of what Congress meant by the phrase "the regular rate at which he is employed." Section 7(a) provided, with exceptions not now relevant, that no employer should employ any of his employees who is engaged in commerce or in the production of goods for commerce, as defined, for a workweek longer than 40 hours, "unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and one-half times the regular rate at which he is employed." It became firmly established that an employer might be guilty of an overtime violation under § 7, even though the total compensation which an employee of his might have received for a workweek in excess of 40 hours was equal to or in excess of the minimum hourly rate prescribed in § 6, for 40 hours of work, plus time and one-half such minimum hourly rate for every hour in the workweek in excess of 40 hours. Overnight Motor Transp. Co., Inc., v. Missel, 1942, 316 U.S. 572, 577-578, 62 S.Ct. 1216, 86 L.Ed. 1682. Also, it became established that the contract of employment need not express the agreed compensation in terms of an hourly rate, but might, for example, fix the compensation in terms of a lump sum weekly salary, regardless of the number of hours worked in any particular workweek. In such a case "the regular rate" for a particular week had to be determined by translating the agreed weekly salary into an hourly rate, through the device of dividing the amount of salary paid for the week by the number of hours actually worked in that week; and if the employee worked more than 40 hours in any particular week he was entitled to receive extra compensation for such excess hours, in addition to his weekly salary, in an amount at least equal to one-half the regular hourly rate so determined. See Overnight Motor Transp. Co., Inc., v. Missel, supra, 316 U.S. at page 580, 62 S.Ct. at page 1221. As the Supreme Court explained in the Missel case, instead of forbidding outright any employment in excess of 40 hours a week, as Congress might constitutionally have done, Congress chose, in general, to discourage such overtime work by making it cost something extra to the employer to work his employees in excess of 40 hours a week. "By this requirement, although overtime was not flatly prohibited, financial pressure was applied to spread employment to avoid the extra wage and workers were assured additional pay to compensate them for the burden of a workweek beyond the hours fixed in the act. In a period of widespread unemployment and small profits, the economy inherent in avoiding extra pay was expected to have an appreciable effect in the distribution of available work. Reduction of hours was a part of the plan from the beginning." 316 U.S. at pages 577-578, 62 S.Ct. at page 1220.

In the Belo case, the Supreme Court had before it an employer who, prior to the effective date of the Fair Labor Standards Act, had been paying weekly salaries by way of compensation to employees the length of whose workweeks fluctuated widely from week to week. If the compensation basis had been shifted merely to an hourly rate, the employees, due to the irregular hours of employment, never could count on an assured compensation per week. For the dual purpose of conforming its wage arrangements to the requirements of the Act, and at the same time to assure its employees that their previous weekly salaries would not be reduced, the employer entered into bona fide individual contracts of employment which fixed the employee's basic or regular rate of pay at an hourly rate substantially in excess of the minimum prescribed in § 6, and provided that the employee would receive not less than one and one-half times this basic hourly rate for each hour worked in excess of the maximum workweek stipulated in § 7, with a guaranty to the employee that, regardless of the fluctuations in the length of the workweeks, he would always receive at least an amount equivalent to his prior weekly salary. Under the contracts, because of the fixed relationship between the stipulated hourly rate and the weekly guaranty, each employee had to work at least 54½ hours a week before his guaranty was exceeded, in which event he would be compensated for the hours worked in excess of 54½ at a rate equal to time and one-half the basic hourly rate; but whether he worked 30 hours or 54½ hours in a particular workweek, the employee was still assured of receiving his guaranteed weekly salary. As indicating that the hourly rate stipulated in the contract was not an artificial or fictitious contrivance, the Court emphasized that whenever an employee received a raise in pay the employer would make a conjoint adjustment both of the employee's basic hourly rate and of his guaranteed weekly salary.

The Supreme Court upheld the foregoing wage arrangement in the Belo case. The basic hourly rate specified in the contract became the lawful "regular rate," and this was still true despite the additional provision of a weekly guaranty. There was such a consistent and reasonable relationship between the stated hourly rate and the guaranteed weekly sum that, in any week in which the employee worked a number of hours in excess of the maximum fixed in § 7 44 hours originally, now 40 but not enough to exceed the weekly guaranty, the parties might fairly be deemed to have contemplated that the guaranteed weekly sum embraced two factors: (1) A sum equal to 44 hours of employment now it would be 40 at the basic hourly rate, and (2) the balance, regarded as the equivalent of not less than one and one-half times the basic hourly rate for each hour worked in excess of the statutory maximum. In any week in which the employee worked in excess of the statutory maximum, but less than 54½ hours, it was true that this assumed overtime component of the guaranteed weekly wage was a sum in excess of that arrived at by applying the formula of time and one-half the stipulated basic hourly rate. However, the Court pointed out: "But the Act does not prohibit paying more; it requires only that the overtime rate be `not less than' 150% of the basic rate." 316 U.S. at page 632, 62 S.Ct. at page 1227.

From the start, the Administrator of the Wage and Hour Division has disliked the Belo decision and has sought to whittle it down because, to the extent that it was applicable, an employer might make a wage bargain with his employees which would permit him to work them for hours in excess of the maximum specified in § 7 without having to pay a premium therefor, provided the weekly guaranty is not exceeded. While this is true enough, the answer of the Supreme Court in the Belo case was as follows, 316 U.S. at page 635, 62 S.Ct. at page 1229:

"When employer and employees have agreed upon an arrangement which has proven mutually satisfactory, we should not upset it and approve an inflexible and artificial interpretation of the Act which finds no support in its text and which as a practical matter eliminates the possibility of steady income to employees with irregular hours. Where the question is as close as this one, it is well to follow the Congressional lead and to afford the fullest possible scope to agreements among the individuals who are actually affected. This policy is based upon a common sense recognition of the special problems confronting employer and employee in businesses where the work hours fluctuate from week to week and from day to day. Many such employees value the security of a regular weekly income. They want to operate on a family budget, to make commitments for payments on homes and automobiles and insurance. Congress has said nothing to prevent this desirable objective. This Court should not."

Accordingly, the Supreme Court declined to overrule the Belo case in Walling v. Halliburton Oil Well Cementing Co., 1947, 331 U.S. 17, 67 S.Ct. 1056, 91 ...