McComb v. McKay

Citation164 F.2d 40
Decision Date04 November 1947
Docket NumberNo. 13517.,13517.
PartiesMcCOMB, Administrator of Wage and Public Contracts Divisions of U.S. Dept. of Labor, v. McKAY et al.
CourtUnited States Courts of Appeals. United States Court of Appeals (8th Circuit)

John J. Bab?, Asst. Sol., U. S. Dept. of Labor, of Washington, D. C. (William S. Tyson, Sol., U.S. Dept. of Labor, of Washington, D. C., and Reid Williams, Regional Atty., U.S. Dept. of Labor, of Kansas City, Mo., on the brief), for appellant.

G. C. Holdrege, of Omaha, Neb. (C. B. Matthai, of Omaha, Neb., on the brief), for appellees.

Before SANBORN, THOMAS, and JOHNSEN, Circuit Judges.

SANBORN, Circuit Judge.

The Administrator of the Wage and Hour Division, United States Department of Labor, brought this action to enjoin the appellees (who will be referred to as "the McKays") from violating the Fair Labor Standards Act of 1938, 52 Stat. 1060, 29 U.S.C.A. ? 201 et seq. The McKays were charged with having failed (1) to keep proper records as required by ? 11(c) of the Act, 29 U.S.C.A. ? 211(c), and (2) to pay their employees overtime compensation as provided by ? 7(a), 29 U.S.C.A. ? 207(a). The defense of the McKays was that the employees in suit were employees of the Union Pacific Railroad Company and were unaffected by ? 7, which, by the terms of ? 13(b) (2) of the Act, 29 U.S.C.A. ? 213 (b) (2), is inapplicable to "any employee of an employer subject to the provisions of Part I of the Interstate Commerce Act," 41 Stat. 474, 49 U.S.C.A. ? 1 et seq.

The case was tried upon evidence which was virtually undisputed and much of which was stipulated. It was agreed that the employees in suit had not been paid overtime compensation as required by ? 7(a), and that the McKays had not kept the records required by ? 11(c). The District Court determined that the employees were not employees of the McKays, and that the McKays and their alleged employees were employees of the Union Pacific Railroad Company, an employer subject to the provisions of Part I of the Interstate Commerce Act. Walling v. McKay, 70 F.Supp. 160. The action was dismissed, and from the judgment of dismissal this appeal is taken.

The appellant contends (1) that, under the evidence and the applicable law, the employees in suit are employees of the McKays within the meaning of the Fair Labor Standards Act,1 and (2) that, in any event, the employees are entitled to the benefits of ? 7 of the Act, since the exemption contained in ? 13(b) (2) is inapplicable to them.

The railroad maintains upon its right-of-way at Sidney, Nebraska, a yard for the manufacture, repair and storage of temporary grain doors and coal doors for freight cars. The McKays supervise the operation of the yard under an arrangement with the railroad.2 The doors are used in connection with the transportation of grain and coal in bulk, both in interstate and intrastate commerce. The yard, which contains a small structure used in its operation, and all the necessary materials, tools, and equipment for the manufacture, repair and storage of the doors, belong to the railroad, except that the men employed to work in the yard supply their own hatchets. A tractor used in moving cars upon the spur track which serves the yard is owned by the McKays. They furnish the gasoline to operate the tractor. The railroad furnishes the electricity for power and light and all of the lumber, nails, and other material for making and repairing the doors. The manual labor is done by crews of from five to ten workers, and occasionally as many as fifteen. The members of the crew are selected, hired, supervised, paid, and discharged by the McKays. The employment records are kept by them, and they withhold amounts from the wages of the employees for income taxes and taxes under the Carriers Taxing Act of 1937, 45 U.S.C.A. ?? 261-273. The amounts withheld from the employees' wages are accounted for by the McKays to the Treasurer of the railroad on the first of each month. The railroad pays the amounts withheld to the Collector of Internal Revenue, and furnishes each of the employees with a "Withholding Receipt for Income Tax Withheld on Wages."

The work done by the employees consists of unloading cars of lumber, running the lumber through a power saw to cut it into specified lengths, stacking the lumber, making and repairing doors according to specifications furnished by the railroad, stacking completed doors, and loading such doors into freight cars. The work of making doors does not require much skill, but is "hammer and nail work." For unloading, sawing and stacking lumber and for loading and unloading car doors, the employees are paid by the hour, but for making car doors they are paid on a piecework basis. The employees receive their pay weekly from the McKays. The employees are paid overtime compensation for work in excess of eight hours per day, but only on that basis.

The McKays are paid monthly by the railroad for all work done in the yard on the basis of unit prices, which have been adjusted from time to time to reflect changes in costs of production and wage increases granted railroad employees. The McKays present a monthly bill to the railroad, which it pays within twenty days. The McKays deposit the money received in a joint bank account upon which either may draw. The account is carried under the name "McKay Brothers, Arthur E. and Elmer O." They do not wait for the payment of their bill by the railroad before paying the employees.

The operations in the yard at Sidney are under the direct supervision of R. J. Murphy, Assistant General Storekeeper of the railroad, stationed at Denver, Colorado. All of the material for the doors is purchased by the railroad and charged to "Union Pacific Storekeeper, Store 38, Sidney, Nebraska." The McKays do not order lumber. The loading and unloading of cars in connection with the operations in the yard are directed by the Storekeeper of the railroad at Sidney. He gives the necessary switching orders. The McKays do not place such orders. After cars of lumber are unloaded and the lumber is sawed and stacked, the Storekeeper at Sidney instructs the McKays, on the basis of the railroad's requirements, whether to make grain doors or coal doors or to load the lumber out for use at other points on the railroad. The McKays may be directed by the Storekeeper to cease making one type of door and to make another type or to stop making doors. He may direct them to load or unload cars instead of making doors. He also controls the order in which cars are to be unloaded.

When grain doors stored at Sidney are needed at some other point, the railroad agent at that point forwards a requisition to the railroad superintendent, which, after approval by him, is sent to the Storekeeper at Sidney, who orders the necessary cars set in and directs the McKays how to load them.

R.J Murphy inspects the yard at intervals for fire and other hazards. The McKays obey his directions for eliminating such hazards. The Storekeeper at Sidney makes a check in the yard every morning to determine the number of doors which were made the previous day. He then prepares a "store order notification and receipt in triplicate, acknowledging a given number of grain doors or coal doors, and has either of the McKays that are there sign where it says `Foreman.'" The Storekeeper then signs the notification and receipt as "Stockman." One of the triplicates is given to the McKays, the Storekeeper retains one, and the third goes to the Auditing Department of the railroad at Omaha, to be used in verifying the McKays' monthly bill. Payment for the work done upon an hourly basis, such as the sawing of lumber and the loading and unloading of cars, is based upon a report of the railroad's "inspector-in-the field" as to the amount of lumber loaded into each car shipped by the railroad to the yard at Sidney.

For each of the years 1944, 1945 and 1946, the railroad gave to the McKays "Standing Orders." The one for the year 1946 may be taken as typical. It reads:

"Union Pacific Railroad Company "Purchasing Department "G. T. Wickstrom "General Purchasing Agent "Order No. 17-X-140 "Omaha, 2, Nebr "1-2-46 "McKay Brothers, Contractors "Box P.O. 104 "Sidney, Nebraska

"Please furnish the following and ship to Union Pacific Railroad Company, care of Store 38, Sidney, Nebraska.

"Ship via:

"Standing Order ?€” Year 1946

"To cover manufacture, repair, and storage of temporary grain and coal doors and sawing of lumber at Sidney, Nebraska.

"In consideration of work when performed, R.R. Company will pay: Here follows a list of unit prices to be paid for work "when performed."

* * * * * *

"G. T. Wickstrom "General Purchasing Agent."

The orders did not specify the amount of work to be performed.

Prior to 1944 the arrangement between the railroad and the McKays was evidenced by written contracts. It is necessary to refer only to the contract of April 24, 1942. In it the McKays were called "Contractors." The contract provided:

"The Contractors shall, during the term hereof, furnish (except as herein otherwise specifically provided) all superintendence, labor, tools, plant and equipment, and shall in an expeditious, substantial and workmanlike manner to the satisfaction and acceptance of the Railroad Company ?€”

"(a) manufacture, repair and/or store all temporary grain doors and temporary coal doors which the Railroad Company may desire to have manufactured, repaired and/or stored; and

"(b) handle from cars or piles to saw, saw to proper lengths and widths and pile after sawing, all lumber required by the Contractors in connection with the manufacture and repair of temporary grain doors and temporary coal doors for the Railroad Company, * * *."

The contract required the "Contractors" to make and repair doors in accordance with the railroad's specifications; to make good defects in workmanship; to "increase or decrease their forces at any time, as the occasion may demand, when such increase or decrease in said forces of the...

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