Fahs v. Tree-Gold Co-op. Growers of Florida

• Decision Date: 03 February 1948
• Docket Number: No. 11961.,11961.
• Citation: 166 F.2d 40
• Parties: FAHS, Collector of Internal Revenue, v. TREE-GOLD CO-OP. GROWERS OF FLORIDA, Inc. UNITED STATES v. GENTILE BROS. CO.
• Court: U.S. Court of Appeals — Fifth Circuit

166 F.2d 40 (1948)

FAHS, Collector of Internal Revenue, v. TREE-GOLD CO-OP. GROWERS OF FLORIDA, Inc. UNITED STATES v. GENTILE BROS. CO.

No. 11961.

Circuit Court of Appeals, Fifth Circuit.

February 3, 1948.

Irving I. Axelrod and Sewall Key, Sp. Assts. to Atty. Gen., and Herbert S. Phillips, U. S. Atty., and Joseph E. Gillen, Asst. U. S. Atty., both of Tampa, Fla., for appellants.

Charles O. Andrews, Jr., of Orlando, Fla, for appellees.

Before SIBLEY, HOLMES, and LEE, Circuit Judges.

HOLMES, Circuit Judge.

These two cases were consolidated for trial in the court below; and, after separate judgments had been entered, it was stipulated by the attorneys for all parties that they also be consolidated for the record and hearing on appeal. They involve taxes for the period extending from January 1, 1937, to March 31, 1940, and for the calendar years 1937, 1938, and 1939, under Titles VIII and IX, respectively, of the Social Security Act, 42 U.S.C.A. §§ 1001 et seq., 1101 et seq., and corresponding provisions of the Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code, §§ 1400 et seq., 1600 et seq.

The question presented is whether certain individuals who assembled fruit boxes, labeled, filled, and loaded them for transportation, were, when performing these services, employees of the taxpayers within the meaning of Sections 811(b) and 907 (c) of the Social Security Act, and Sections 1426(b) and 1607(c) of the Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code, §§ 1426(b), 1607(c). The facts touching the question here in dispute, as found by the court below, are substantially as follows:

During the years in question, the taxpayer was engaged in the business of producing, harvesting, packing, and marketing citrus fruits and the products thereof; and, as a part of its business, owned and operated, among others, a packing house in Winter Park in Orange County, Florida. A part of the business of taxpayer, which was carried on in its packing house, consisted in preparing boxes for the fruit, securing the lids when filled, and loading the boxes for shipment. In the performance of these operations in its packing house, the taxpayer employed contractors at a stipulated rate per box. Each contractor was under an individual contract, and acted at various periods during the years in question. The contractor performed all or part of the boxing operations for the taxpayer, and employed such workmen as were necessary to accomplish what was intended. Under the terms of its contract with the respective individuals so employed as contractors, the taxpayer made payments to each, calculated upon the number of boxes handled by each contractor at the contracted rate per box.

The taxpayer used different types of boxes in which to pack its fruit and fruit products. Some were bought by the taxpayer in a knocked-down condition and unloaded from freight cars, whence they were carried to the second floor of the packing house, where they were assembled. Those boxes were bound by wire, and when received there were six boxes to a bundle. One of the companies that sold the boxes furnished the tools that were used in pushing the wires together and thus making the boxes. Another type of box, called the standard box consisted of three sides, two ends, a middle, and two bottoms. Such boxes were nailed together as contrasted with the wire-bound boxes, and constituted only a small portion of the total boxes used. They also were stored on the second floor and assembled there. During the years involved, the annual number of all boxes used averaged 300,000. During the seasons of 1937-1938 the contractor was paid 85¢ per one hundred boxes assembled. For the season 1938-1939, he was paid 62½ ¢ per one hundred boxes assembled. He was paid at the end of each week on the basis of the boxes shipped during the week, as shown by the manifest of the taxpayer. At the end of the season, if more boxes had been assembled than were shipped, the contractor counted such boxes and was paid for them at the same rate per hundred. The contractor and his employees unloaded the knocked-down boxes from freight cars and trucks, and put them on the conveyor which carried them up to the second floor. There was enough space on the second floor for the knocked-down boxes and for a one-day's supply of assembled boxes, which generally consisted of two thousand to four thousand boxes.

In addition to assembling the boxes, the contractor and his employees stamped and labeled them to show the different grades of fruit which they were to contain. In order for them to know how many boxes to assemble, the taxpayer would tell them the approximate number that would be needed each day, and would also state the size of the boxes that would be required, the stamp to be used, and the label to be put on them, that is, whether for the best grade or a lesser grade. The nails and nailing machine used in the assembling of the standard boxes were furnished by the taxpayer. During the season, the contractor worked under his contract exclusively for the taxpayer, and did not hold himself out as being available to the public. His employees needed no skill or experience for the work that they performed. They were covered by Workmen's Compensation taken out by the taxpayer. The contractor reported and paid social security taxes covering his employees. Their hours were substantially the same as admitted employees of the taxpayer, except on occasions when work had to be done at night in order to assemble the necessary number of boxes in which fruit was to be packed. During the time that these employees worked, assembling boxes, their entire time was absorbed by such work, and the compensation therefor constituted their only source of income. Prior to the 1937-1938 season, one of the contractors had worked as an employee of taxpayer on an hourly basis doing the same work for the taxpayer.

Another contractor and his employees did the lidding, or fastening down the tops of the boxes, after the fruit had been packed. This work was done on a conveyor when the boxes came from the packers. The fastening or nailing was done on the first floor of the packing house, and in close proximity to the admitted employees of the taxpayer. On some occasions, instructions in respect to the nailing and lidding of the boxes were given directly to the employees of the contractor by the foreman or supervisor of the taxpayer. This contractor was paid 87½ ¢ per one hundred boxes fastened or lidded, and was paid at the end of each week on the basis of the boxes shipped during the week.

Still another contractor loaded the boxes of fruit for the taxpayer. He was paid at the rate of 87½ ¢ per one hundred boxes loaded, and received compensation at the end of the week on the basis of the boxes shipped during the week. The loading was carried on by the contractor and his employees by the use of hand-trucks, in which the boxes were removed from the conveyor and carried to the freight cars or trucks, where they were loaded. The packing-house manager gave instructions to the contractor as to whether the boxes were to be loaded on trucks or freight cars, the types of boxes to be loaded, and the place of destination. The boxes were shipped mainly in carload or truckload lots with only a few exceptions when the oranges were used to fill out already partially filled cars or trucks. For the 1939-1940 season this contractor performed all three operations, that is, the assembling, lidding, and loading of boxes, for which he was compensated at the agreed rate of $1.35 per one hundred boxes. He hired all of his employees, some of whom were proposed by the taxpayer.

Except to instruct or inform the contractors or their employees as to the labels to be placed upon the boxes, the number of boxes to be required in the immediate future, and to caution all concerned about removing cut fruit, or to draw attention to defective work that did not comply with the specifications, the company exercised no control over the contractors or their employees. Except to object to incompetent or careless workmen, or disorderly conduct by them on the premises, the company had no right to interfere with the full authority of the contractor to employ or discharge whomsoever he pleased. The company had no right to control the number of employees, their wages, or hours worked. The company had the right to insist that the work of the contractor keep pace with the requirements of the company; but whether this was accomplished by a large number of men working short hours or a small number working long hours was not within the company's control. The method of contracting for this work was current among packing houses.

All the moneys paid by the taxpayer, as taxes herein sought to be recovered, were moneys that belonged to the taxpayer, and included no moneys that had been deducted from the amount due or paid the named individuals.

The district court found that the payments made by the taxpayer to the named individuals, with respect to which the taxes were assessed and collected, were paid to the named individuals as independent contractors, and were not wages for employment within the meaning of Titles VIII and IX of the Social Security Act. The court also found that the relationship of employer and employee did not exist between the taxpayer and the named individuals and their employees with respect to the operations performed for the taxpayer, for which payments were made by the taxpayer to the named individuals as above found.

At the time of the decision below, the common-law tests of master and servant were widely thought to be controlling upon the courts in determining the ultimate fact of whether the persons in question were employees of the taxpayer. The weight of authority among the Circuit Courts of Appeals was to the effect that the...