McComb v. Edward S. Wagner Co.

• Decision Date: 25 January 1950
• Docket Number: Civ. No. 8847.
• Parties: McCOMB v. EDWARD S. WAGNER CO., Inc., et al.
• Court: U.S. District Court — Eastern District of New York

89 F. Supp. 304

McCOMB v. EDWARD S. WAGNER CO., Inc., et al.

Civ. No. 8847.

United States District Court E. D. New York.

January 25, 1950.

John A. Hughes, Regional Attorney, U. S. Department of Labor, New York City, C. Ira Funston, Supervising Attorney, Washington, D. C., for plaintiff.

Benjamin L. Lasky, Brooklyn, N. Y., and Charles M. Joseph, New York City, for defendants.

KENNEDY, District Judge.

This is a suit for a permanent injunction. The defendants are charged with violation of the Fair Labor Standards Act of 1938, 29 U.S.C.A. § 201 et seq.

Some explanation ought to be made of the condition of the record of the trial. At preliminary discussions between counsel and the court it seemed to be obvious that the underlying facts were substantially undisputed. Depositions had been taken in the case, and a good deal of documentary evidence collected. But at the time of the trial, I thought, and I still think, that it was perfectly possible for counsel to stipulate all the operative facts. However, as is often the case, each side was desirous of stressing some factual elements and minimizing others, and there ensued a long rambling discussion between counsel and the court. The upshot of this discussion was not a stipulation, as had been hoped, but the introduction of the evidence.

What follows is my own skeletonized summary of the facts, as established, not only by the evidence but by the unchallenged statements of counsel. Edward S. Wagner Co., Inc. (hereafter called Wagner, at least as to matters occurring after 1940) is a distributor of infants' wear. Its line of goods consists of bootees, caps and sacques (or sets of these). The individual defendant Wagner dominates and controls the corporation (references to "Wagner" include the individual). Wagner has been in the same business since 1937. Prior to October 1938 business was transacted in the name of E. S. Wagner Company (a trade-name). There was, however, an affiliate called Flagstaff Knitting Mills (which was also a trade-name). The business was financed by a man named Meyers, now dead, and Wagner's role was that of employee, managing agent, or managing partner — it does not much matter which, for present purposes. Through Flagstaff Knitting Mills, prior to October 1938, the enterprise employed home workers who were paid at a piecework rate. These home workers were furnished with designs, samples, patterns and instructions by Flagstaff, and their product was distributed through E. S. Wagner Company. At or shortly before the effective date of the Fair Labor Standards Act, Wagner notified all the home workers that it was no longer possible that they be compensated as such, and that they must return the materials on hand, which was done. However, some of these persons continued to supply the same goods, either on the invitation of Wagner or in the hope that he would buy them. In November 1939 the Wagner Corporation was organized but it did not actually begin operations until April 1940. In the interval Meyers died and Wagner purchased his interest. Between 1939 and 1948 the number of suppliers (i. e., persons who knitted the products at home), who at one time or another furnished goods, had reached a figure of about 3,000. This is not to say that there were 3,000 persons continuously supplying Wagner with goods: as might be expected, some of them from time to time ceased production or sold their goods elsewhere. In the year 1948, for example, 1,105 persons supplied goods. They resided in 14 different states — principally in New England — and they sent in 3,437 packages (9,282 dozen); 227 were new suppliers who had no earlier contact with the Wagner Corporation, or with Wagner. All of these persons paid for their own yarn and paid the parcel post charges. Although most of the suppliers bought their yarn at one source, that fact is probably irrelevant, because concededly there was no relationship between Wagner and any yarn manufacturer in the way of facilitating credit arrangements or in discharging any of the obligations of Wagner suppliers to yarn manufacturers. It is generally true that Wagner did not purchase all of the material sent in; in fact, the percentage of rejections was very high, probably amounting to two-thirds of the number of packages received. I have previously mentioned that Wagner did not furnish designs. It did from time to time suggest to suppliers that the yarn used by that particular person was unacceptable and of course from time to time it told suppliers that the design followed by that supplier was not what was wanted and made suggestions concerning how it could be improved.

Enough has been said at this point to foreshadow what the controversy is about. The plaintiff administrator takes the position that those who supply defendants with goods are under the coverage of the Fair Labor Standards Act; Wagner Corporation and Wagner himself urge that they are not employees, but independent contractors.

It is not surprising that very soon after the enactment of several types of social legislation the same thought occurred to many lawyers who were advising business men: that it might be possible to remove from the coverage of the act large numbers of persons connected with any particular business, if those persons could be given the common-law status of "independent contractors". But in every instance Congress had wisely framed such legislation in language which negatived the idea that the word "employ" was used in the common-law sense. Thus it happened that newsboys were held to be employees so far as labor relations were concerned, National Labor Relations Board v. Hearst Publications, 1944, 322 U.S. 111, 64 S.Ct. 851, 88 L.Ed. 1170, and that coal unloaders who worked only casually were nevertheless employees for purposes of social security. U. S. v. Silk, 1946, 331 U.S. 704, 67 S.Ct. 1463, 91 L.Ed. 1757. Dealing with the very act here under consideration, Judge Frank says, (Walling v. Twyeffort, Inc., 2 Cir., 1947, 158 F.2d 944, 947, 948): "Drawing the line between employees and independent contractors cannot be done mechanically; it calls for rational judgment as the facts vary, but that need not terrify us".

Of course industries which employ persons working at home have provided fertile fields for debate concerning the line of distinction between independent contractors and employees spoken of by Judge Frank, e. g., Walling v. American Needlecrafts, 6 Cir., 1943, 139 F.2d 60; Walling v. Wolff, D.C.E.D.N.Y.1945, 63 F.Supp. 605. But the Fair Labor Standards Act uses a definition of the word "employ" which, according to Mr. Justice Black (then a Senator) "is the broadest definition that has ever been included in any one Act". 81 Cong.Rec. 7657.

The plaintiff in this case suggests that the rationale of all the cases already mentioned, as well as that of Rutherford Food Corp. v. McComb, 1947, 331 U.S. 722, 67 S.Ct. 1473, 91 L.Ed. 1772, supplies six tests which are useful in the determination of the nature of the relationship between the employer and the supplier or worker:

(1) Is the service rendered an integral part of the employer's business?

(2) What is the extent of the so-called contractor's investments in facilities and equipment?

(3) Is the relationship characterized by permanency and long duration?

(4) To what extent does the principal exercise control over the individual whose status is in question?

(5) What opportunity does the so-called contractor have for profit or loss as the result of sound management or risk undertaken?

(6) What amount of initiative judgment and energy is required for the success of the enterprise which is claimed to be independent?

It would be very unwise to say that these are all the tests that can be used, or to say that any particular one is controlling, or that a majority of negative or affirmative answers, as the case may be, will furnish the solution. To do this would be to draw the line "mechanically", but a consideration of each one of these questions separately will at least serve to narrow the dispute.

In the case at bar there is no question at all that those who supply Wagner products are an integral part of the business. Nor is there any doubt that the investment in facilities and equipment on the part of these suppliers is negligible in amount. Again, the opportunity for profit or loss arising from...