Fred Wolferman, Inc. v. Gustafson

• Citation: 169 F.2d 759
• Decision Date: 21 September 1948
• Docket Number: No. 13662.,13662.
• Parties: FRED WOLFERMAN, Inc., v. GUSTAFSON et al.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

169 F.2d 759 (1948)

FRED WOLFERMAN, Inc., v. GUSTAFSON et al.

No. 13662.

Circuit Court of Appeals Eighth Circuit.

August 25, 1948.

Rehearing Denied September 21, 1948.

Robert B. Caldwell and Blatchford Downing, both of Kansas City, Mo. (John W. Oliver and Caldwell, Downing, Noble & Garrity, all of Kansas City, Mo., on the brief), for appellant.

Henry A. Riederer, of Kansas City, Mo. (Fred J. Freel, of Kansas City, Mo., on the brief), for appellees.

William S. Tyson, Sol., Bessie Margolin, Asst. Sol., Frederick U. Reel, and Helen Grundstein, Attys., Department of Labor, all of Washington, D. C., and Reid Williams, Regional Atty., Department of Labor, of Kansas City, Mo., for Administrator of the Wage and Hour Division, United States Department of Labor, amicus curiae.

Before SANBORN, JOHNSEN, and COLLET, Circuit Judges.

JOHNSEN, Circuit Judge.

The action is one to recover overtime compensation, liquidated damages and attorney's fees, under section 16(b) of the Fair Labor Standards Act, 29 U.S.C.A. § 216(b), for services rendered during the years 1940 to 1945 inclusive. The trial court gave judgment for the employees, and the employer has appealed.

The employees involved worked in a candy kitchen, located in part of the seven-story building in downtown Kansas City, Missouri, which housed a retail food store operated by the employer and the public restaurants run in connection with it. The employer operated three other retail food stores at different locations in Kansas City and one in Tulsa, Oklahoma. During part of the period in suit, it had also operated a store in Oklahoma City.

The candy kitchen was used for manufacturing fine chocolate candies, mayonnaise and other salad dressings, for sale in the employer's several stores.¹ Until 1942, when the Oklahoma City store was discontinued, shipments of such candy and salad dressing had been made from Kansas City to that store. Shipments also were made to the store at Tulsa until early in 1944. After that time, the products of the candy kitchen were sold only through the four Kansas City stores. But part of the candy and salad dressing manufactured by the employees and so sold still directly entered the channels of interstate commerce. Thus, the employer made deliveries of purchases from the stores by truck to customers in Kansas, who resided in the area immediately adjacent to Kansas City, Missouri. And candy purchased at the stores or ordered by mail also was forwarded by the employer into other states by parcel post.

The public did not have general access to the candy kitchen, and no sales were made there. The employees of the candy kitchen were engaged exclusively in carrying on its manufacturing activities and in packing and wrapping such candy as was to be forwarded to purchasers.

While the value of the candy produced in the candy kitchen represented only from 2½ to 3½ per cent of the total sales of goods made at the employer's stores during the period in suit, and the salad dressing approximately only 1¼ per cent, the amount of such candy sales in dollar volume ranged from $84,500 in 1941 to $166,950 in 1945, and the sales of salad dressing from $42,680 in 1941 to $73,100 in 1945.

The employer concedes here that the situation was one in which the trial court was entitled to hold that the employees of the candy kitchen were engaged in the production of goods for commerce, within the meaning of that term under the Fair Labor Standards Act, 29 U.S.C.A. § 201 et seq. It contends, however, that the court erred in not holding that such employees nevertheless were within the exemption of section 13(a) (2) of the Act, 29 U.S.C.A. § 213(a) (2), as being employees "engaged in any retail or service establishment the greater part of whose selling or servicing is in intrastate commerce."

In substance, the argument made is that the production of candy and salad dressing in the candy kitchen was simply an incident in the conduct of the employer's stores; that the candy kitchen was operated as a component part of the food store in which it was located; that this food store (as well as each of the employer's other stores) was wholly a retail establishment, within the exemption of section 13(a) (2), since its sales, as shown by the undisputed evidence, were made to household consumers and less than 10 per cent of its total sales by dollar volume was in interstate commerce; and that the exemption of the store as a retail establishment embraced the activities of the candy kitchen, as being a component part of the store and an incident in its operation.

The trial court rejected this contention and argument, on the ground that to engage in manufacturing was not in economic aspect immediately incidental to the business of retail selling; that the production activity of the candy kitchen, therefore, although carried on in the retail store building and managerially made a part of the business of operating the store, could not be said to be one of the generally inherent and recognizedly incidental functions of an ordinary retail establishment, such as section 13(a) (2) must be regarded as having been designed to exempt; and that in this situation, and since the operations of the candy kitchen constituted in fact the production of goods for commerce, in competition with candy produced by the employees of other manufacturers in interstate commerce, the employees of the candy kitchen, as much as the employees of such other candy manufacturers, should be held to be within the coverage of section 7 of the Act.

Some of the earlier decisions lend support to the employer's position here. But the point has been passed where such general manufacturing activities as the operator of a retail establishment may choose to engage in for reasons of his own, which constitute in fact the production of goods for commerce, under the definition of section 3(i) and (j), 29 U.S.C.A. § 203(i) and (j), can justifiably be accorded economic refuge in the exemption of section 13(a) (2), as against the coverage provisions of the Act. To the extent that a retail establishment engages in the production of market goods, it steps outside the institutional character and economic function, for which section 13(a) (2) would seem to have been designed to provide exemption. And the economic effect, attritively and aggregately, in relation to the purposes of the Act, if employees, who in fact are engaged in the production of goods for commerce, were to be held exempt from the benefits of sections 6 and 7, because their production activities are performed under the roof of a retail establishment and are made to serve a purpose of that business, hardly requires demonstration.

As the Supreme Court has said, "Production and distribution are different segments of business." United States v. Silk, 331 U. S. 704, 712, 67 S.Ct. 1463, 1468, 91 L.Ed. 1757. In economic aspect, retail establishments have inherently and traditionally been instrumentalities of distribution. And their distributional function fundamentally has been one that is performed on a local-community and house-hold-consumer level. It is in this function and on this level, we think, that section 13 (a) (2) is intended to afford exemption to a retail establishment from the minimumwage and overtime-compensation provisions of the Fair Labor Standards Act.

"The origin of this clause, § 13(a) (2), had nothing to do with establishments producing goods for interstate commerce'. It is rare, if not impossible, for an employee who is engaged in the production of goods for commerce or in an occupation necessary to the production of such goods * * * to be said to be at the same time an employee engaged in a retail or service establishment whose selling and servicing is confined to ultimate consumers. These employments are largely mutually exclusive." Roland Electrical Co. v. Walling, 326 U.S. 657, 667, 66 S.Ct. 413, 417, 90 L.Ed. 383. And in the present situation as has been previously indicated, the employees of the candy kitchen, in the nature of their tasks and the result of their work, were as exclusively engaged in the activities and incidents of production as if they had been performing their tasks in an independent candy factory.

Again, in slightly different terms, as the Court expressed it in A. H. Phillips, Inc. v. Walling, 324 U.S. 490, 497, 65 S.Ct. 807, 810, 89 L.Ed. 1095, 157 A.L.R. 876, "Congress was interested only in exempting those regularly engaged in local retailing activities and those employed by small local retail establishments, epitomized by the corner grocery, the drug store and the department store." It is difficult to see how the production in a retail store of from $127,000 to $240,000 worth of market goods per year can be said to constitute such activity as is customarily engaged in by "those employed by small local retail establishments, epitomized by the corner grocery, the drug store and the department store." But even if it were possible to argue that production of this type represented a normal and recognized incident in the operation of a retail food store and that the candy kitchen therefore should be accorded a componency in that store for the purposes of the Act, the argument still would not avail here, because the candy kitchen did not just have a componency in the store in which it was located, but it was made to serve as a source of production for the employer's other stores as well.

And so, in the nature of their activity and in relationship to the economic significance of their hiring, the employees of the candy kitchen were not in our opinion "engaged" in a retail establishment, within the use of that term in section 13(a) (2). Beyond this, in serving as a production agency for the employer's other stores, the candy kitchen was in any event more than simply a component in the operation of the retail establishment in which it was located. And within the purview of the Act, establishment componency could hardly...