Foremost Dairies, Inc. v. Wirtz, 23530.

Citation381 F.2d 653
Decision Date20 September 1967
Docket NumberNo. 23530.,23530.
PartiesFOREMOST DAIRIES, INC., and Home Town Foods, Inc., Appellants, v. W. Willard WIRTZ, Secretary of Labor, United States Department of Labor, Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)

John Bacheller, Jr., Fisher & Phillips, Atlanta, Ga., for appellants.

Bessie Margolin, Assoc. Sol., Dept. of Labor, Washington, D. C., Charles Donahue, Sol. of Labor, Robert E. Nagle, William Fauver, Caruthers G. Berger, Attys., Dept. of Labor, Beverley R. Worrell, Regional Atty., for appellee.

Before COLEMAN and AINSWORTH, Circuit Judges, and CARSWELL, District Judge.

AINSWORTH, Circuit Judge:

We are called upon here to interpret the meaning of the phrase "irregular hours of work" contained in Section 7(e) of the Fair Labor Standards Act of 1938.1 Our interpretation will determine the validity of a number of individual wage contracts between defendant and certain of its employees.

The Fair Labor Standards Act is a major enactment by Congress of social and economic policy, intended to protect certain groups of the population from substandard wages and excessive hours which endanger the national health and well-being and free flow of goods in interstate commerce. See Brooklyn Sav. Bank v. O'Neil, 324 U.S. 697, 706, 65 S.Ct. 895, 902, 89 L.Ed. 1296 (1945). Section 7(a) of the Act2 prescribes a maximum workweek of forty hours for an employee engaged in commerce unless the employee is paid at the rate of one and one-half times the regular rate for hours worked over forty. As the result of two decisions of the United States Supreme Court, Walling v. A. H. Belo Corporation, 316 U.S. 624, 62 S.Ct. 1223, 86 L.Ed. 1716 (1942), and Walling v. Halliburton Oil Well Cementing Co., 331 U.S. 17, 67 S.Ct. 1056, 91 L.Ed. 1312 (1947), Congress in 1949 amended the Act by adding Section 7(e) to give statutory recognition to the principles in those decisions.3

Section 7(e), commonly known as the "Belo" provision, provides an exception to the regular forty-hour maximum workweek where the employee is engaged in "irregular hours of work." Under this subsection the employer is deemed not to have violated the provisions of Section 7(a) by employing any employee for a workweek in excess of forty hours, if the employee is hired pursuant to a bona fide individual contract and his duties necessitate "irregular hours of work," and the contract (1) specifies a regular rate of pay not less than the minimum hourly rate provided in the Act and compensation of not less than one and one-half times such rate for all hours worked in excess of forty in any workweek, and (2) provides a weekly guarantee of pay for not more than sixty hours based on the rates so specified.

On June 18, 1963, the district court enjoined Foremost Dairies, Inc., a large milk processor and ice-cream manufacturer, from violating the minimum wage, overtime and record-keeping provisions of the Act. Thereafter, on September 4, 1964, Home Town Foods, Inc. purchased substantially all the assets and operations of Foremost and is, therefore, its successor. Inspections of Home Town plants by representatives of the Wage and Hour Division resulted in the charge that Home Town was not complying with Section 7(a) of the Act in connection with payment to certain employees of a guaranteed weekly wage. This meant, in effect, that the Secretary did not agree that Home Town's so-called Section 7(e) Belo contracts with these employees were valid because the employees' hours of work were not irregular within the contemplation of the subsection, since they fluctuated only in overtime (i. e., over forty hours per week) and did not fluctuate in straight time below forty hours per workweek. On July 17, 1965, Home Town petitioned the district court to reopen the injunction proceedings in order to amend the judgment so that the company would not be denied the right to pay its employees pursuant to guaranteed weekly wage plans as authorized by Section 7(e) of the Act. The Secretary responded and petitioned the court for an adjudication of civil contempt.

After a hearing the district court held Home Town in civil contempt of the injunction, ordered it to pay fines in the sum of $1,888.65 and back pay of $8,819.16 to the employees involved, all of whom were employed under so-called Section 7(e) Belo contracts. In well-considered, detailed reasons for judgment, the district judge found that all of the Section 7(e) employees worked a minimum of forty hours a week or more, and that Home Town had failed to satisfy its burden of proof4 that the duties of these employees necessitated "irregular hours of work" within the meaning of Section 7(e) of the Act. The court held that the duties of none of these employees fluctuated within the range of hours in the Belo and Halliburton cases,5 and that all of these employees have by reason of custom, practice or policy worked at least a regular minimum schedule of weekly hours except for absences due to vacations, holidays, illness or personal reasons. The court found that many of the instances of hours worked above the employees' regular minimum schedules were attributable to vacation and similar relief of other employees, predictable, seasonal and periodic work loads, and occasional short periods at the end of regular work days. We affirm.

There is no contest about the sufficiency in form of the separate Home Town employee (Belo) contracts providing a guaranteed weekly wage or that the rate of pay in the contracts provided overtime pay of one and one-half times the agreed hourly rate for a specified number of hours in excess of forty but less than sixty per week. In this case the specified hours for different employees varied, being forty-eight, fifty, fifty-two or fifty-four hours per week. It is not disputed that each of the employees involved worked mimimum regular weekly schedules of forty hours or more each week. The fluctuations, therefore, were all in overtime hours in the range above forty hours per week. The serious issue presented for decision concerns the validity of the Belo contracts. If the contracts are void, the employees were not paid proper overtime compensation as required by the basic overtime standards of Section 7(a).

Home Town contends that the fluctuation in employees' working hours was necessitated by their duties involving unpredictable exigencies and unpredictable hours and that these fluctuations, though they occurred only in overtime hours, constituted "irregular hours of work" within the meaning of Section 7(e) of the Act. The company states that guaranteed wage contracts were used by it to minimize the variations in weekly pay to which these employees would be subject if paid on a regular hourly basis without any guarantee. It argues that Section 7(e) is concerned solely with eliminating or minimizing variations in overtime pay caused by irregular overtime hours and that the purpose of Section 7(e) is to afford stability of income which would not be possible under a regular hourly rate of pay; that the Secretary is attempting administratively to prevent effective use of Belo contracts and thus abrogate Section 7(e).

The Secretary contends that Section 7(e) was not intended to apply to employees who regularly work a minimum schedule of hours equal to or exceeding the statutory workweek standard of forty hours where the only irregularity is in the overtime hours worked. He states that since each employee works a minimum of forty hours or more each week, he thus has the necessary workweek security referred to in the Belo case and the guaranteed weekly salary does no more.6

The Secretary's Interpretative Bulletin, 29 C.F.R. § 778.406, provides that Belo contracts lack the irregularity of hours required by Section 7(e) where the employment hours fluctuate only in the overtime range above the maximum forty-hour workweek prescribed by the statute.7

The Secretary states that historically his interpretation dates back to 1950 and his first bulletin interpreting the 1949 amendments, which contained the following provision:

"The type of employment agreement permitted under section 7(e) can be made only with (or by his representatives on behalf of) an employee whose `duties * * * necessitate irregular hours of work.\' It is clear that no contract made with an employee who works a regularly scheduled workweek or whose schedule involves alternating fixed workweeks will qualify under this subsection. * * *" Feb. 4, 1950, Fed. Register p. 637, § 778.18(b)

The Secretary further states:

"This provision has been consistently continued in the successive reprints and amended Interpretative Bulletins through the most recent one issued February 2, 1965 (Fed. Reg. § 778.405). Since, as found by the trial court, all of the employees here involved `have regularly worked minimum daily and weekly schedules * * *\' * * *, the above-quoted interpretation — which dates back to the first year after enactment of Section 7(e), and has been consistently maintained since — would, without more, operate to exclude the application of Section 7(e).
"The more specific position that the irregularity of hours requirement is not met in cases where the employee\'s hours fluctuate only in the overtime range — which, in effect, is no more than an elaboration of the earlier more general interpretation — was expressly enunciated by the Secretary in 1958 shortly after the decision in Trager v. J. E. Plastics Mfg. Co., decided February 27, 1958 * * *. As appears in the opinion in Mitchell (Secretary of Labor) v. Independent Stave Co., 168 F.Supp. 830, at 832 (W.D.Mo., September 22, 1958), the Secretary at that trial advanced this position in reliance on the Trager decision. The Secretary also took this specific position in the Winn-Dixie and Midland Finance cases (decided in September 1962 and June 1963, respectively). The courts in the latter two cases approved and adopted this specific
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1 provisions
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