McComb v. HOMEWORKERS'HANDICRAFT COOPERATIVE

• Decision Date: 22 August 1949
• Docket Number: No. 5888.,5888.
• Citation: 176 F.2d 633
• Parties: McCOMB v. HOMEWORKERS' HANDICRAFT COOPERATIVE et al.
• Court: U.S. Court of Appeals — Fourth Circuit

176 F.2d 633 (1949)

McCOMB v. HOMEWORKERS' HANDICRAFT COOPERATIVE et al.

No. 5888.

United States Court of Appeals Fourth Circuit.

Argued June 29, 1949.

Decided August 22, 1949.

Bessie Margolin, Asst. Solicitor, U. S. Department of Labor, Washington, D. C. (William S. Tyson, Solicitor, William A. Lowe and Helen Grundstein, all of Washington, D. C., Attorneys, and Beverley R. Worrell, Regional Attorney, U. S. Department of Labor, Birmingham, Ala., on the brief), for appellant.

Thornton H. Brooks, of Greensboro, N. Car., Robert G. Cabell, of Richmond, Va., and Morris E. Lasker, New York City (Brooks, McLendon, Brim & Holderness, of Greensboro, N. Car., and Battle, Fowler, Neaman, Stokes & Kheel, New York City, on the brief), for appellees.

Before PARKER, Chief Judge, and SOPER, and DOBIE, Circuit Judges.

PARKER, Chief Judge:

This is an appeal by the Administrator of the Wage and Hour Division from adverse decrees in a suit instituted against the Millhiser Bag Company, the Chase Bag Company and the Homeworkers Handicraft Cooperative, to restrain violations of the Fair Labor Standards Act of 1938, 52 Stat. 1060, 29 U.S.C.A. § 201 et seq. The complaint alleged that Millhiser and Chase were bag manufacturers who employed homeworkers on a piece work basis to insert draw strings in bags of their manufacture at a wage rate below that allowed by the statute, and that these homeworkers were members of the cooperative, which was not a true cooperative but a mere agency for dealings between Millhiser and Chase and these homeworking employees. The District Judge denied relief and dismissed the complaint as against Millhiser and the cooperative on the ground that the homeworkers were not employees of the bag companies but independent contractors functioning through the cooperative. Additional grounds given for the dismissal were that the defendants had acted in good faith, relying upon rulings of the Bureau of Internal Revenue, and that the administrator had been guilty of laches and delay in instituting the proceedings. As to Chase, the suit was dismissed on the ground that that company had ceased using homeworkers in the stringing of bags several months before the hearing and had no intention of using them in the future.

The facts are that the insertion of draw strings is an essential step in the manufacture of tobacco bags and other bags of the sort manufactured by Millhiser and Chase. The insertion of the strings is a simple operation requiring little or no skill and no supervision. After the bags are finished except for the insertion of draw strings, these are inserted by a handworker with a needle. The bags are taken to the homes of the workers for this to be done and they are paid for the labor on a piece work basis of so much per thousand bags. The evidence shows that the workers realize between 5 and 13 cents per hour at the rate allowed them. Between 1800 and 2000 women are engaged in the work, which they perform at their homes in Virginia and Western North Carolina.

Prior to the passage of the Fair Labor Standards Act in 1938, there was little complication in the dealings of the bag companies with these women workers. The relationship was a simple one of homework done for the companies and compensated on a piece work basis without any attempt to camouflage its true nature. Agents of the company distributed the unfinished bags to the women workers and collected them after they had been strung, paying to the workers the piece rate compensation allowed. Shortly after the passage of the act, in an effort to avoid its application, a corporation was organized to deal with these workers. They were paid for stringing the bags as formerly; but payment was made by the corporation, which was allowed by the companies 15c per thousand bags above the amount paid to the workers. The corporation merely did what the bag companies had formerly done through their agents, who were employed by it after its organization; and, so far as the workers were concerned, the business went forward in the same way as before.

In 1941, the attorney who had organized the corporation for the handling of the bags, becoming fearful that it might be held subject to the provisions of the act, proceeded to dissolve it and to organize the cooperative, composed of the homeworkers, to take over its functions. The cooperative is now doing what the agents of the bag companies did in distributing and collecting bags and paying the workers prior to the organization of the corporation and what the corporation did thereafter. It receives the bags from the companies, distributes them to and collects them from the workers and ships them out as the companies direct. It contracts with the companies for the stringing of the bags at a rate in excess of what it pays the workers; but any excess over the cost of its operations is distributed among the workers, not per capita, but in accordance with the amounts which have been paid them for work done. There is evidence to the effect that the cooperative is controlled, not by its members, but by certain salaried employees who were formerly connected with the bag companies; that the salaries of these employees have been raised while the compensation paid the workers was allowed to remain at the same rate until after this suit was instituted, notwithstanding the rise in the cost of living and of wages in all other lines of industry; and that the cooperative functions as a mere instrumentality of the bag companies. It is not necessary to go into this, however, as we are satisfied that the homeworkers are employees of the bag companies within the meaning of the Fair Labor Standards Act and that their status as employees has not been affected by the organization of the cooperative, whatever view be taken as to who exercises the real control over it.

Four questions are presented for our consideration: (1) whether the homeworkers are employees of Millhiser and Chase within the meaning of the Fair Labor Standards Act; (2) whether their status as employees has been affected by the organization of the cooperative; (3) whether relief should be denied because of a ruling of the Bureau of Internal Revenue under the Social Security Act, 42 U.S. C.A. § 301 et seq., or on the ground of laches or estoppel; and (4) whether the suit was properly dismissed as to Chase.

As to the status of the homeworkers, we think it perfectly clear that, under common law concepts, they are employees and not independent contractors. They are not engaged in an independent calling but are performing unskilled manual labor, which constitutes a single step in the manufacturing process in which the bag companies are engaged. The bags on which the labor is performed never become their property in any sense, but remain the property of the companies by whom they are sold when the stringing operation is completed. It is true that there is no supervision of their work; but it is so simple that it requires no supervision. They are manifestly mere laborers compensated on a piece work basis and are not converted into independent contractors because they are allowed to do the work in their own homes and away from the premises of those who employ them. As we said in United States v. Vogue, Inc., 4 Cir., 145 F.2d 609, 611, the law of independent contractors has an important place in the law, but surely it was never intended to apply to humble employees of this sort.

Whether or not the homeworkers are employees within the meaning of the Fair Labor Standards Act, however, is to be determined, not by common law concepts, but by a consideration of the purpose which Congress had in mind in the passage of the act, which defines "employ" as including "to suffer or permit to work". 52 Stat. 1060, 29 U.S.C.A. § 201, sec. 3. This definition of employment has been called by Senator, now Mr. Justice, Black the "broadest definition that has ever been included in any one act". 81 Cong.Rec. 7659; United States v. Rosenwasser, 323 U.S. 360, 362, 65 S.Ct. 295, 89 L.Ed. 301. "The motive and purpose" of the legislation, as said by the Supreme Court in United States v. Darby, 312 U.S. 100, 115, 61 S.Ct. 451, 457, 85 L.Ed. 609, 132 A.L.R. 1430, are "plainly to make effective the Congressional conception of public policy that interstate commerce should not be made the instrument of competition in the distribution of goods produced under substandard labor conditions * * *". As pointed out in a later case, "The statute was a recognition of the fact that due to the unequal bargaining power as between employer and employee, certain segments of the population required federal compulsory legislation to prevent private contracts on their part which endangered national health and efficiency and as a result the free movement of goods in interstate commerce. To accomplish this purpose standards of minimum wages and maximum hours were provided." Brooklyn Savings Bank v. O'Neill, 324 U.S. 697, 706-707, 65 S.Ct. 895, 902, 89 L.Ed. 1296. Such being the purpose of the statute, common law rules as to distinctions between servants and independent contractors throw but little light on who are to be deemed employees within its meaning. This was clearly stated by the Supreme Court in National Labor Relations Board v. Hearst Publications, 322 U.S. 111, 64 S. Ct. 851, 855, 88 L.Ed. 1170, brought under the National Labor Relations Act, 29 U.S. C.A. § 151 et seq., a companion piece of legislation, where the court said:

"The principal question is whether the newsboys are `employees.' Because Congress did not explicitly define the term, respondents say its meaning must be determined by reference to common-law standards. In their view `common-law standards' are those the courts have applied in distinguishing between `employees' and `independent contractors' when working out various problems unrelated to the Wagner Act's purposes and provisions.

"The argument assumes that there is some simple uniform and...