Bester v. Chicago Transit Authority, 88-1458

• Decision Date: 04 October 1989
• Docket Number: No. 88-1458,88-1458
• Parties: 29 Wage & Hour Cas. (BN 809, 112 Lab.Cas. P 35,272 Dorothy BESTER, et al., Plaintiffs-Appellees, v. CHICAGO TRANSIT AUTHORITY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 118

887 F.2d 118

29 Wage & Hour Cas. (BN 809, 112 Lab.Cas. P 35,272

Dorothy BESTER, et al., Plaintiffs-Appellees, v. CHICAGO TRANSIT AUTHORITY, Defendant-Appellant.

No. 88-1458.

United States Court of Appeals Seventh Circuit.

Argued Sept. 26, 1988.

Decided Oct. 4, 1989.

Donald G. Peterson, Schaffenegger, Watson & Peterson, Chicago, Ill., for Dorothy Bester, plaintiff-appellee.

James P. Daley, David M. Novak, and Jeffrey A. Blevins, Bell, Boyd & Lloyd, Chicago, Ill., for Chicago Transit Authority, defendant-appellant.

Before COFFEY, EASTERBROOK and KANNE, Circuit Judges.

KANNE, Circuit Judge.

In Garcia v. San Antonio Metropolitan Transit Authority, 469 U.S. 528, 554, 105 S.Ct. 1005, 1019, 83 L.Ed.2d 1016 (1985), the Supreme Court overruled National League of Cities v. Usery, 426 U.S. 833, 96 S.Ct. 2465, 49 L.Ed.2d 245 (1976) ¹ and held that the minimum wage and overtime provisions of the Fair Labor Standards Act ("FLSA") applied to all state and municipal employees including those performing services classified as traditional government functions. Public entities providing schools, hospitals, fire prevention, police protection, sanitation, public health, and parks and recreation were no longer exempt from FLSA liability. To ameliorate the financial transition caused by Garcia, Congress enacted the Fair Labor Standards Amendments of 1985. The 1985 Amendments expressly eliminated retroactive liability for functions categorized as "traditional." The 1985 Amendments also provided a one-year grace period during which the states and their political subdivisions could not be held liable for minimum wage and overtime compensation violations by employees newly brought under the protection of those provisions of the Act by reason of the Garcia decision.

On February 14, 1986, Dorothy Bester representing a class of Chicago Transit Authority ("CTA") employees filed a cause of action against the CTA seeking to recover unpaid wages and unpaid overtime compensation. Specifically, the complaint alleged that CTA's repeated failure to compensate employees at a rate of time and one-half for all hours over 40 hours per week during the years of 1983 through 1986 violated the minimum wage and overtime pay provisions of the Fair Labor Standards Act.

The Chicago Transit Authority is a statutorily created, tax-exempt municipal corporation which operates a public mass transit system in the City of Chicago. The CTA moved for summary judgment arguing under the 1985 Amendments that it was a governmental entity entitled to immunity from FLSA liability for any alleged violation occurring before April 15, 1986.

Applying the test announced in National League of Cities, the district court held that neither the CTA's historical development nor the general industry history qualified the CTA for the exemption from liability under the minimum wage and overtime provisions of the FLSA. The district judge denied the CTA's motion for summary judgment and held, as a matter of law, that the operation of mass transit by the CTA was not a traditional government function. 676 F.Supp. 833 (N.D.Ill.1987). Upon the CTA's request and pursuant to 28 U.S.C. Sec. 1292(b), Judge Zagel certified the issue raised in the summary judgment order for interlocutory review and we accepted the appeal. ²

We agree with the district court that the correct legal analysis in this case is the traditional government function test ³ and, we find that the CTA does not perform a traditional government function. Therefore the CTA is subject to Sections 3 and 13(b)(7) of the FLSA.

ANALYSIS

We begin our analysis with an examination of the provisions added to the Fair Labor Standards Act by the 1985 Amendments and the regulatory scheme under which the Act is applied.

Section 2(c)(1) of the 1985 Amendments dealing with liability and deferred payment states:

No State, political subdivision of a State, or interstate governmental agency shall be liable under section 16 of the Fair Labor Standards Act of 1938 [29 U.S.C Sec. 216] for a violation of section 6 ..., 7 ... of such Act [29 U.S.C. Secs. 206 and 207] occurring before April 15, 1986, with respect to any employee of the State, political subdivision, or agency who would not have been covered by such Act under the Secretary of Labor's special enforcement policy on January 1, 1985, and published in sections 775.2 and 775.4 of title 29 of the Code of Federal Regulations.

Fair Labor Standards Amendments of 1985, Pub.L. No. 99-150, Sec. 2(c)(1), 99 Stat. 788-89 (1985) (amending 29 U.S.C. Sec. 216) (set out as a note under 29 U.S.C. Sec. 216 (supp. 1989)) (emphasis supplied). Sections 775.2 and 775.4 referred to in the 1985 Amendments were an attempt by the Labor Department to clarify what functions of state and local government fell under the "traditional government function" rubric for the purpose of determining FLSA liability. The regulations specifically embraced the test for minimum wage and overtime compensation announced in National League of Cities.

29 C.F.R. Sec. 775.2 states:

(a) On June 24, 1976, the United States Supreme Court ruled in National League of Cities v. Usery, 426 U.S. 833, 96 S.Ct. 2465, that the minimum wage and overtime compensation provisions of the Fair Labor Standards Act (FLSA) are not constitutionally applicable to the integral operations of the States and their political subdivisions in areas of traditional governmental functions. Such areas include, among others, schools and hospitals, fire prevention, police protection, sanitation, public health, and parks and recreation. They do not include, among others, the operation of a railway by a State; 426 U.S. at 854, n. 18, 96 S.Ct. at 2475, n. 18.

29 C.F.R. Sec. 775.4 states in full:

(a) In the National League decision, it was made clear that schools and hospitals, fire prevention, police protection, sanitation, public health, and parks and recreation are traditional functions or activities of States and their political subdivisions.

(b) In addition, the Administrator [of the Wage and Hour Division of the Department of Labor] has determined that the following functions of a State or its political subdivisions are traditional. (From time to time, this section will be amended to list other such functions determined to be traditional.)

(1) Libraries

(2) Museums

Although these regulations were drafted originally as mere interpretive guidelines for the Department's Enforcement Policy, pursuant to the 1985 Amendments, they are given the force and effect of law by Congress. Ridings v. Lane County, OR, 862 F.2d 231, 234 (9th Cir.1988).

The Eleventh Circuit interpreted Section 2(c)(1) as follows:

The very words of Section 2(c)(1) demonstrate that the April 15, 1986 chronological threshold it sets for certain FLSA enforcement actions was not intended to limit the ability of state and local government employees working outside areas of traditional governmental function to bring suit to enforce the minimum wage/overtime compensation protections afforded them by the FLSA. On its face Section 2(c)(1) ... bars this action only if the [employees] were employed in areas of traditional governmental function.

Ackinclose v. Palm Beach Co., 845 F.2d 931 at 937 (11th Cir.1988) (emphasis supplied); see also Ridings v. Lane County, OR, 862 F.2d 231, 234 (9th Cir.1988).

Section 7 of the 1985 Amendments, in clear and unambiguous language, states:

The [1985] amendments ... shall not affect whether a public agency which is a State, political subdivision of a State or an interstate governmental agency is liable under section 16 of the Fair Labor Standards Act of 1938 [29 U.S.C. Sec. 216] for a violation of section 6, 7, or 11 ... [29 U.S.C. Secs. 206, 207 or 211] occurring before April 15, 1986, with respect to any employee of such public agency who would have been covered by such Act under the Secretary of Labor's social enforcement policy on January 1, 1985, and published in section 775.3 of title 29 of the Code of Federal Regulations.

Fair Labor Standards Amendments of 1985, Pub.L. No. 99-150, Sec. 7, 99 Stat. 791 (amending 29 U.S.C. Sec. 216) (set out as a note under 29 U.S.C. Sec. 216 (supp. 1989)) (emphasis added). The Report of the Senate Labor and Human Resources Committee explains that the 1985 "[A]mendments do not effect whether employees of state and local governments who are engaged in nontraditional functions as defined by the [Department of Labor] at 29 C.F.R. 775.3-- notably mass transit systems --are covered by FLSA prior to April 15, 1986." S.Rep. No. 159, 99th Cong., 1st Sess., reprinted in 1985 U.S.Code Cong. & Admin.News 651, 663. The determination of "whether transit employees, prior to the decision in Garcia were entitled to FLSA compensation for overtime hours worked is still being litigated in federal court. The amendments are intended to protect the rights of both sides to resolve their differences through litigation without taking a position in the matter." Supra at 663 (emphasis supplied).

Obviously, one of the problems we encounter in this appeal is that the operation of mass transit is not among those government functions specifically listed in Secs. 775.2 and 775.4 as "traditional." In fact, 29 C.F.R. Sec. 775.3 declares that the operation of mass transit is a nontraditional government function. However, Section 2(c)(1) does not incorporate Section 775.3 of the Secretary of Labor's Special Enforcement Policy. This omission and the legislative history of the Amendments make it clear, that notwithstanding the descriptive language in Sec. 775.3, Congress decided to leave to the courts the question of whether the operation of mass transit systems is a traditional government function, independent of the position of the Department of Labor.

This assessment is consistent with the view taken in Ridings v. Lane County, OR, 862 F.2d 231, 234 (9th Cir.1988). Although the alleged FLSA violations that occurred in Ridings transpired prior...