Hodgson v. Arnheim and Neely, Inc.

• Decision Date: 15 June 1971
• Docket Number: No. 18772-18774.,18772-18774.
• Citation: 444 F.2d 609
• Parties: James D. HODGSON, Secretary of Labor, United States Department of Labor, Appellant in No. 18,772, v. ARNHEIM AND NEELY, INC., a Corporation, Appellant in No. 18,773. Appeal of the INSTITUTE OF REAL ESTATE MANAGEMENT OF the NATIONAL ASSOCIATION OF REAL ESTATE BOARDS, Intervenor, No. 18,774.
• Court: U.S. Court of Appeals — Third Circuit

444 F.2d 609 (1971)

James D. HODGSON, Secretary of Labor, United States Department of Labor, Appellant in No. 18,772, v. ARNHEIM AND NEELY, INC., a Corporation, Appellant in No. 18,773 Appeal of the INSTITUTE OF REAL ESTATE MANAGEMENT OF the NATIONAL ASSOCIATION OF REAL ESTATE BOARDS, Intervenor, No. 18,774.

Nos. 18772-18774.

United States Court of Appeals, Third Circuit.

Argued March 17, 1971.

Decided June 15, 1971.

Carin Ann Clauss, U. S. Dept. of Labor, Washington, D. C. (Laurence H. Silberman, Sol. of Labor, Bessie Margolin, Assoc. Sol., Sylvia S. Ellison, Atty., U. S. Dept. of Labor, Louis Weiner, Regional Sol., Washington, D. C., on the brief), for James D. Hodgson, Sec. of Labor.

Eugene B. Strassburger, Jr., Strassburger & McKenna, Pittsburgh, Pa., for Arnheim and Neely, Inc.

Frank L. Seamans, Eckert, Seamans & Cherin, Pittsburgh, Pa. (Robert P. Lawry, Pittsburgh, Pa., on the brief), for intervenor.

Before ADAMS and GIBBONS, Circuit Judges, and WHIPPLE,^* District Judge.

OPINION OF THE COURT

ADAMS, Circuit Judge.

In this case, we are asked to decide whether a real estate management company which operates and maintains, but does not own, certain commercial buildings is an employer whose activities are regulated by the Fair Labor Standards Act as amended.

The Secretary of Labor sought an injunction in the District Court for the Western District of Pennsylvania under § 17 of the Fair Labor Standards Act, 29 U.S.C.A. § 201 et seq., to enjoin Arnheim and Neely, Inc. (Company) from violating the minimum wage, overtime, and record keeping provisions of the Act, and to require the Company to pay back wages owed to the employees.

The District Court decided that from January, 1964 until February, 1967 the Company had not been subject to the Act's requirements, but thereafter, as a result of the 1966 amendments to the Act, the Company came within the enlarged scope of the Act, because the 1966 amendments reduced the economic criteria for coverage. Accordingly, the District Court granted the relief sought by the Secretary of Labor for the years following 1967 only. The Government appealed, and the Company filed a cross appeal.

The facts have been stipulated. The Company manages eight office buildings and one apartment house located in the greater Pittsburgh area. The Company does not own these buildings except for a minor interest in one of them, but operates them under a management contract. Pursuant to the contract, the Company obtains tenants, negotiates and signs leases, institutes legal actions regarding these leases when necessary, alters and redecorates the buildings according to its own judgment, obtains utility contracts, and pays taxes and other bills relating to the properties. The Company collects the rent receipts for each building and deposits them in a separate bank account established for each building. The funds deposited in these accounts are the property of each building's owner, and expenses for each building are paid from the bank account established for that building. Any loss suffered in regard to a particular building is the loss of the owner of such building and not of the Company. Likewise, the profits belong to the respective owners of the buildings and not to the Company. Periodically, the Company withdraws the balance of funds having accrued in each account and forwards them to the respective owners.

The Company hires, discharges and supervises all employees necessary for the operation and maintenance of the buildings. Such employees include building superintendents and their assistants, cleaning ladies, custodians, watchmen, and elevator operators. Subject to the approval of the building's owner, the Company assigns each worker to his particular duties, fixes hours of work, and negotiates rates of pay and fringe benefits. In each building at least two employees operate elevators which carry postmen and messengers who deliver mail and packages to the building's tenants; a portion of such mail and packages originate from points outside of Pennsylvania. In one of the buildings, the Buhl Building, two employees personally deliver to tenants parcels, some of which originate outside of Pennsylvania. At another building, 319 Fifth Avenue, the elevator operators transport freight from the tenants, a portion to be delivered to points outside of Pennsylvania.

"Staff managers" employed by the Company maintain records relating to these buildings and submit periodic reports to the owners of each building. Some of the owners are located in states other than Pennsylvania. In 1964, the aggregate gross receipts from the nine buildings was approximately two million dollars, and from 1956 until the present the gross receipts have exceeded one million dollars per year.¹ The Company's commissions have varied from year to year, but at no time have they exceeded five hundred thousand dollars in any one year.

The Fair Labor Standards Act requires employers covered by the Act to pay their employees a fixed minimum wage,² forbids employers to require their employees to work more than a forty hour week unless they receive one and one half times their regular wages for such work, and mandates that records of wages and hours be maintained by the employers.

In reaching its ultimate conclusions regarding the scope of the Act's coverage before and after the 1966 amendments, the District Court made several subsidiary legal determinations. Each has been attacked, either by the Secretary or the Company.

I

The District Court decided that the Company, notwithstanding the fact that it was acting as an agent in hiring employees to maintain the buildings, was an "employer" as defined by the Act. In so deciding the District Court rejected the Company's contention that the term "employer" was to be given its common law or its traditional meaning. Instead, the Court applied the standard contained within the Act itself. The Act provides "that the term `employer' includes any person acting directly or indirectly in the interest of an employer in relation to an employee * * *" 29 U.S.C.A. § 203(d). On its face the statute adopts a definition of the term "employer" broader than that of the common law, and applicable under the present facts to the Company. Thus, in Greenberg v. Arsenal Bldg. Corp., 50 F.Supp. 700 (S.D.N.Y.1943), aff'd 144 F.2d 292 (2nd Cir. 1944), rev'd on other grounds sub nom. Brooklyn Sav. Bank v. O'Neil, 324 U.S. 697, 65 S.Ct. 895, 89 L.Ed. 1296 (1945), it was held that a real estate management company is an employer for purposes of the Act despite the agency relationship of the management company to owners of the managed buildings.

The fact that the owners of the buildings may also be considered "employers" as a result of their ultimate right to review policies and hiring practices followed by the Company does not preclude a finding that the Company is also an "employer." The Act contemplates the possibility of several simultaneous "employers", any one of which may be liable as an employer under the Act. Wirtz v. Hebert, 368 F.2d 139 (5th Cir. 1966); Mid-Continent Pipe Line Co. v. Hargrave, 129 F.2d 655 (10th Cir. 1942).

The Company argues that Bartels v. Birmingham, 332 U.S. 126, 67 S.Ct. 1547, 91 L.Ed. 1947 (1947), provides the applicable test — one of economic reality — to determine whether it is an "employer." As support for this contention, the Company stresses certain language of the Bartels opinion: "Obviously control is characteristically associated with the employer-employee relationship but in the application of social legislation employees are those who as a matter of economic reality are dependent upon the business to which they render service." 332 U.S. at 130, 67 S.Ct. at 1550. The District Court read this language in conjunction with United States v. Silk, 331 U.S. 704, 67 S.Ct. 1463, 91 L.Ed. 1757 (1947), decided a week before Bartels, which held that in social legislation the term "employer" was not to be given a restrictive common law construction. 331 U.S. at 712, 67 S.Ct. 1463. Thus the courts are required to avoid technical concepts of the employment relationship and are admonished to examine the economic realities presented by the facts of each case. Goldberg v. Whitaker House Coop., 366 U.S. 28, 33, 81 S.Ct. 933, 6 L. Ed.2d 100 (1961). Applying the "economic reality" test to the present facts, there can be no doubt of the appropriateness of treating the Company as an employer. The Company's business is that of maintaining and managing real property for the individual owners of such property. Such activity provides economic benefit to the Company's clients as well as to the Company itself. Unsatisfactory work will harm both the Company and the building owners. Since the Company hires these employees and provides the conditions of their employment, it appears that the Company is "acting directly or indirectly in the interest of an employer in relation to an employee." The District Court correctly decided that the Company was an "employer" of the various persons working at the buildings, as such term is defined by the Act.

II

A second test imposed by the Act concerns the amount of "gross volume of sales of the enterprise." 29 U.S.C.A. § 203(s) (3) before the 1966 Amendments; 29 U.S.C.A. § 203(s) (1) after the 1966 Amendments. The District Court, over the objections of the Company, decided that the economic test contained in the Act applied to the gross rental receipts of the buildings and not to the gross commissions earned by the Company. We agree with the District Court. The statute clearly refers to the gross sales of an "enterprise,"³ which term is defined as "related activities performed * * * by any person or persons for a common business purpose. * * *" § 203(r). Thus, in Wirtz v. Jernigan, 405 F.2d 155 (5th Cir. 1968), it was squarely held that in deciding whether the seller of bus tickets came within the Act's coverage, the gross dollar volume of ticket...