Maryland v. Wirtz, No. 742

• Court: United States Supreme Court
• Writing for the Court: HARLAN
• Citation: 88 S.Ct. 2017,392 U.S. 183,20 L.Ed.2d 1020
• Parties: MARYLAND et al., Appellants, v. W. Willard WIRTZ, Secretary of Labor, et al
• Docket Number: No. 742
• Decision Date: 10 June 1968

392 U.S. 183 88 S.Ct. 2017 20 L.Ed.2d 1020 MARYLAND et al., Appellants,

v.

W. Willard WIRTZ, Secretary of Labor, et al.

No. 742. Argued April 23, 1968. Decided June 10, 1968.

[Syllabus from pages 183-184 intentionally omitted]

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Alan M. Wilner, Baltimore, Md. and Charles Alan Wright, Austin, Tex., for appellants.

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Solicitor Gen., Erwin N. Griswold, for appellees.

Mr. Justice HARLAN delivered the opinion of the Court.

As originally enacted,¹ the Fair Labor Standards Act of 1938 required every employer to pay each of his employees 'engaged in commerce or in the production

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of goods for commerce'² a certain minimum hourly wage, and to pay at a higher rate for work in excess of a certain maximum number of hours per week. The Act defined the term 'employer' so as to exclude 'the United States or any State or political subdivision of a State * * *.'³ This case involves the constitutionality of two sets of amendments to the original enactment.

In 1961, Congress changed the basis of employee coverage: instead of extending protection to employees individually connected to interstate commerce, the Act now covers all employees of any 'enterprise' engaged in commerce or production for commerce, provided the enterprise also falls within certain listed categories.⁴ In 1966, Congress added to the list of categories the following:

'(4) is engaged in the operation of a hospital, an institution primarily engaged in the care of the sick, the aged, the mentally ill or defective who reside on the premises of such institution, a school for the mentally or physically handicapped or gifted children, an elementary or secondary school, or an insti-

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tution of higher education (regardless of whether or not such Lospital, institution, or school is public or private or operated for profit or not for profit).'⁵

At the same time, Congress modified the definition of 'employer' so as to remove the exemption of the States and their political subdivisions with respect to employees of hospitals, institutions, and schools.⁶

The State of Maryland, since joined by 27 other States and one school district, brought this action against the Secretary of Labor to enjoin enforcement of the Act insofar as it now applies to schools and hospitals operated by the States or their subdivisions. The plaintiffs made four contentions. They argued that the expansion of coverage through the 'enterprise concept' was beyond the power of Congress under the Commerce Clause. They contended that coverage of state-operated hospitals and schools was also beyond the commerce power. They asserted that the remedial provisions of the Act,⁷ if applied to the States, would conflict with the Eleventh Amendment. Finally, they urged that even if their constitutional arguments were rejected, the court should declare that schools and hospitals, as enterprises, do not have the statutorily required relationship to interstate commerce.

A three-judge district court, convened pursuant to 28 U.S.C. § 2282, declined to issue a declaratory judgment or an injunction.⁸ Three opinions were written. Judges Winter and Thomsen, constituting the majority, concluded for different reasons that the adoption of the 'enterprise concept' of coverage and the extension of coverage to state institutions could not be said, on the

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face of the Act, to exceed Congress' power under the Commerce Clause. Both declined to consider the Eleventh Amendment and statutory contentions. Judge Northrop dissented, concluding that the amendments exceeded the commerce power because they transgressed the sovereignty of the States.

We noted probable jurisdiction of the plaintiffs' appeal, 389 U.S. 1031, 88 S.Ct. 772, 19 L.Ed.2d 819. For reasons to follow, we affirm the judgment of the District Court.

I.

We turn first to the adoption in 1961 of the 'enterprise concept.' Whereas the Act originally extended to every employee 'who is engaged in commerce or in the production of goods for commerce,' it now protects every employee who 'is employed in an enterprise engaged in commerce or in the production of goods for commerce.'⁹ Such an enterprise is defined as one which, along with other qualifications, 'has employees engaged in commerce or in the production of goods for commerce * * *.'¹⁰ Thus the effect of the 1961 change was to extend protection to the fellow employees of any employee who would have been protected by the original Act, but not to enlarge the class of employers subject to the Act.

In United States v. Darby, 312 U.S. 100, 61 S.Ct. 451, 85 L.Ed. 609, this Court found the original Act a legitimate exercise of congressional power to regulate commerce among the States. Appellants accept the Darby decision, but contend that the extension of protection to fellow employees of those originally covered exceeds the commerce power. We conclude, to the contrary, that the constitutionality of the 'enterprise concept' is settled by the reasoning of Darby itself and is independently established by principles stated in other cases.

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Darby involved employees who were engaged in producing goods for commerce. Their employer contended that since manufacturing is itself an intrastate activity, Congress had no power to regulate the wages and hours of manufacturing employees. The first step in the Court's answer was clear: '(Congress may) by appropriate legislation regulate intrastate activities where they have a substantial effect on interstate commerce.'¹¹

The next step was to discover whether such a 'substantial effect' existed. Congress had found that substandard wages and excessive hours, when imposed on employees of a company shipping goods into other States, gave the exporting company an advantage over companies in the importing States. Having so found, Congress decided as a matter of policy that such an advantage in interstate competition was an 'unfair' one, and one that had the additional undesirable effect of driving down labor conditions in the importing States.¹² This Court was of course concerned only with the finding of a substantial effect on interstate competition, and not with

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the consequent policy decisions. In accepting the congressional finding, the Court followed principles of judicial review only recently rearticulated in Katzenbach v. McClung, 379 U.S. 294, 303 304, 85 S.Ct. 377, 383, 13 L.Ed.2d 290:

'Of course, the mere fact that Congress has said when particular activity shall be deemed to affect commerce does not preclude further examination by this Court. But where we find that the legislators * * * have a rational basis for finding a chosen regulatory scheme necessary to the protection of commerce, our investigation is at an end.'¹³

There was obviously a 'rational basis' for the logical inference that the pay and hours of production employees affect a company's competitive position.

The logical inference does not stop with production employees. When a company does an interstate business, its competition with companies elsewhere is affected by all its significant labor costs, not merely by the wages and hours of those employees who have physical contact with the goods in question. Consequently, it is not surprising that this Court has already explicitly recognized that Congress' original choice to extend the Act only to certain employees of interstate enterprises was not constitutionally compelled; rather, Congress decided, at that time, 'not to enter areas which it might have occupied

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(under the commerce power).' Kirschbaum Co. v. Walling, 316 U.S. 517, 522, 62 S.Ct. 1116, 1120, 86 L.Ed. 1638.

The 'enterprise concept' is also supported by a wholly different line of analysis. In the original Act, Congress stated its finding that substandard labor conditions tended to lead to labor disputes and strikes, and that when such strife disrupted businesses involved in interstate commerce, the flow of goods in commerce was itself affected.¹⁴ Congress therefore chose to promote labor peace by regulation of subject matter, wages, and hours, out of which disputes frequently arise. This objective is particularly relevant where, as here,¹⁵ the enterprises in question are significant importers of goods from other States.

Although the Court did not examine this second objective in Darby, other cases have found a 'rational basis' for statutes regulating labor conditions in order to protect interstate commerce from labor strife. The National Labor Relations Act¹⁶ had been passed because

'(t)he denial by employers of the right of employees to organize and the refusal by employers to accept the procedure of collective bargaining lead to strikes and other forms of industrial strife or unrest, which have the intent or the necessary effect of burdening or obstructing commerce * * *.'¹⁷

In National Labor Relations Board v. Jones & Laughlin Steel Corp., 301 U.S. 1, 57 S.Ct. 615, 81 L.Ed. 893, this Court held that the National Labor Relations Act (NLRA) was within the commerce power. The essence of the decision was contained in two propositions: 'the stoppage of those (respondent's) operations by industrial

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strife would have a most serious effect upon interstate commerce,' id., at 41, 57 S.Ct., at 626; and '(e)xperience has abundantly demonstrated that the recognition of the right of employees to self-organizztion and to have representatives of their own choosing for the purpose of collective bargaining is often an essential condition of industrial peace.' Id., at 42, 57 S.Ct., at 626.

The Fair Labor Standards Act, including the present 'enterprise' definition of coverage, may also be supported by two propositions. One is identical with the first proposition supporting the NLRA: strife disrupting an enterprise involved in commerce may disrupt commerce. The other is parallel to the second proposition supporting the NLRA: there is a basis in logic and experience for the conclusion...