Hodgson v. Centralized Services, Inc., 71-1641.

• Decision Date: 15 March 1972
• Docket Number: No. 71-1641.,71-1641.
• Citation: 457 F.2d 824
• Parties: James HODGSON, Secretary of Labor, U. S. Department of Labor, Appellee, v. CENTRALIZED SERVICES, INC., a corporation, and C. A. Cloninger, Appellants.
• Court: U.S. Court of Appeals — Fourth Circuit

457 F.2d 824 (1972)

James HODGSON, Secretary of Labor, U. S. Department of Labor, Appellee, v. CENTRALIZED SERVICES, INC., a corporation, and C. A. Cloninger, Appellants.

No. 71-1641.

United States Court of Appeals, Fourth Circuit.

Argued December 7, 1971.

Decided March 15, 1972.

Rehearing Denied May 16, 1972.

James C. Gray, Gastonia, N. C. (Frank Patton Cooke, Gastonia, N. C., on brief), for appellants.

Sylvia S. Ellison, Atty., U. S. Dept. of Labor (Alfred G. Albert, Acting Sol. of Labor, Bessie Margolin, Associate Sol., Beverley R. Worrell, Regional Sol., Carin Ann Clauss and Judith Bleich Kahn, Attys., Dept. of Labor, on brief), for appellee.

Before BRYAN, RUSSELL and FIELD, Circuit Judges.

Rehearing En Banc Denied May 16, 1972.

FIELD, Circuit Judge:

This action was instituted by the Secretary of Labor under Section 17 of the Fair Labor Standards Act ¹ to restrain the defendants from violating the Act's minimum wage, overtime and record keeping requirements, and from withholding unpaid wages allegedly due certain employees engaged in the preparation of Federal and State income tax returns. The operative period alleged by the Secretary was from December 12, 1967, to the date of the filing of the complaint in December of 1969. The defendants denied that the employees were engaged in commerce, or in the production of goods for commerce, and took the position that, in any event, they were entitled to the exemption provided by Section 13(a) (2) of the Act² for "retail or service establishments." The individual defendant, C. A. Cloninger, also contended that he was not an "employer" within the meaning of the Act. Based upon the evidence, the pleadings and pretrial admissions, the District Court filed a memorandum decision which in effect held against the defendants on each of these contentions and an order was entered in favor of the Secretary, D.C., 325 F.Supp. 138. This appeal followed.

While we entertain serious doubts that the defendants' employees were "engaged in commerce" within the meaning of the Act, we find it unnecessary to reach that issue since we conclude that the contention of the defendants that they fall within the "retail or service establishment" exemption is valid and dispositive of this case.

The facts are substantially undisputed and were found by the District Judge to be as follows: Centralized Services, Inc. is a North Carolina corporation with its one office and place of business located at Gastonia, North Carolina. It employs three or four clerical employees throughout the year, but during the tax season of some three months from January until the middle of April as many as twenty or more temporary employees are employed. The work of these employees incident to the preparation of tax returns consists of interviewing patrons, obtaining basic data such as income, dependents and deductions, and preparing Federal and State tax returns. Most of the customers are married couples where both the husband and wife are gainfully employed. Under the procedure of the defendants, the employees make up the information and supply it to the defendant, Cloninger, who ordinarily makes the final computation and completes the returns. The returns are then prepared in smooth form, duplicated and delivered to the customers who usually take them with them and mail them to the appropriate tax authorities.

The North Carolina returns are mailed to the Revenue Department of the State in Raleigh and the federal returns are mailed to the Internal Revenue Service. Until 1969, the federal returns were mailed to the Collector of Internal Revenue at Greensboro, North Carolina; however, commencing with the year 1969, residents of North Carolina were required to mail their federal returns to a record center located in Chamblee, Georgia. The defendants supply preaddressed envelopes for these mailings and on occasion returns are mailed for a customer as a matter of courtesy. The general practice, however, is that the customers mail their own returns.

During the years in question the income tax customers of the defendant numbered about 6,000 per year. The total gross volume of the business of Centralized never exceeded $70,000.00 a year, and virtually all of the business was from sources in the vicinity of Gastonia and within the State of North Carolina. The service was open to the general public and was characterized by the District Judge as "walk in" business. On very few occasions tax returns were mailed to patrons outside North Carolina addressed primarily to individuals who were temporarily in the military forces.

The exemptive provisions of Section 13(a) (2) of the Act³ set up three tests which must be met by an employer seeking to qualify thereunder: (1) fifty percent of its annual dollar volume of sales of goods or services must be made within the state; (2) seventy-five per cent of its total sales volume must not be for resale; and (3) seventy-five per cent of its total sales volume must be recognized as retail sales or services in the particular industry. The District Judge, in effect, found that Centralized met the first two of these tests, but stated that he was "quite doubtful" that the preparation of tax returns has the retail concept contemplated by Section 13(a) (2) of the Act. Additionally, he observed that the defendants had failed to show that the preparation of tax returns was "recognized as retail sales or services in the particular industry."

Upon this appeal the Secretary takes the same position which was successfully urged upon the District Court to the effect that the business of the defendants lacks the "retail concept" necessary for qualification under Section 13(a) (2). The Secretary does not contend that in the context of retail vis-a-vis wholesale, the defendants would fall within the latter category but he suggests that in failing to present evidence on the issue of the "retail concept" as well as the "industry recognition" test, the defendants have failed to carry the burden of this affirmative defense. See Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 80 S.Ct. 453, 4 L.Ed.2d 393 (1960); Mitchell v. Kentucky Finance Co., 359 U.S....