Mitchell v. Whitaker House Cooperative, Inc.

• Decision Date: 13 February 1959
• Docket Number: Civ. No. 1050.
• Citation: 170 F. Supp. 743
• Parties: James P. MITCHELL, Secretary of Labor, United States Department of Labor, v. WHITAKER HOUSE COOPERATIVE, INC., Philip S. Bird, President, Evelyn M. Whitaker, Treasurer and General Manager, and Evelyn M. Whitaker, individually.
• Court: U.S. District Court — District of Maine

170 F. Supp. 743

James P. MITCHELL, Secretary of Labor, United States Department of Labor, v. WHITAKER HOUSE COOPERATIVE, INC., Philip S. Bird, President, Evelyn M. Whitaker, Treasurer and General Manager, and Evelyn M. Whitaker, individually.

Civ. No. 1050.

United States District Court D. Maine, N. D.

February 13, 1959.

COPYRIGHT MATERIAL OMITTED

Thomas L. Thistle, Regional Atty., U. S. Dept. of Labor, Wage and Hour Division, Boston, Mass. (Stuart Rothman, Sol., John J. Babe, Asst. Sol., U. S. Dept. of Labor, Washington, D. C., on the briefs), for plaintiff.

Philip S. Bird, Waterville, Me., for defendants.

GIGNOUX, District Judge.

This is an action brought by the Secretary of Labor under the Fair Labor Standards Act of 1938, as amended, 29 U.S.C.A. § 201 et seq., to enjoin the defendants from violating the provisions of the Act. Jurisdiction is conferred by Section 17 of the Act. 29 U.S.C.A. § 217.

The complaint, filed September 30, 1957, alleges that since July 18, 1957 defendant Whitaker House Cooperative, Inc., defendant Bird as President of the Cooperative, and defendant Whitaker as Treasurer and General Manager of the Cooperative, have violated the provisions of Sections 15(a) (1), 15(a) (2) and 15(a) (5) of the Act by paying wages to approximately 100 women (hereinafter descriptively called homeworkers) producing infants' knitted and crocheted outerwear which is sold by the defendant Cooperative in interstate commerce, at rates less than the minimum wage rates established by Section 6 of the Act; and by failing to keep certain records, and to obtain special homework certificates with respect to such homeworkers as required by the regulations issued by the Administrator of the Wage and Hour Division, Department of Labor, under Sections 11 (c) and 11(d) of the Act.¹ The complaint also alleges similar violations of the Act by Mrs. Whitaker, individually, from September, 1954 through July 17, 1957. However, at the conclusion of plaintiff's evidence the parties filed a stipulation of dismissal of the action against Mrs. Whitaker individually and in her capacity as Treasurer of the defendant Cooperative. There thus remain for consideration only the charges against the defendant Cooperative and the individual defendants in their respective capacities as President and General Manager of the Cooperative.

At a pre-trial conference on February 4, 1958, it was conceded by the defendants that the homeworkers herein involved are engaged in the production of goods for interstate commerce and that, with respect to these homeworkers, the defendants have violated the minimum wage, record-keeping and homework certificate provisions of the Act, if the Act is applicable. It was further stipulated by the parties that the only issue for determination by this Court is whether or not the homeworkers, all of whom are members of the defendant Cooperative, are "employees" of the defendants within the meaning of the Act. Defendants agree that if these homeworkers are "employees", defendants have violated the Act and the injunction should issue.

Evidence upon the issue as thus limited was heard by the Court on September 23, 24 and 25, 1958. Briefs were submitted by the parties on December 1, 1958, and reply briefs were filed on December 15, 1958. At the request of the parties, the Court heard oral argument on December 30, 1958, and the parties were provided until January 19, 1959 for the filing of additional materials requested by the Court relating to the legislative history of the Fair Labor Standards Act.

As indicated, the issue for determination by this Court is whether the homeworker-members of the Cooperative are "employees" of the defendants within the meaning of the Fair Labor Standards Act. Plaintiff's position is that the homeworker-members are covered by the Act, on two grounds. First, plaintiff contends that the Cooperative is not a bona fide cooperative controlled by its members; that, in reality, the individual defendants control the Cooperative and its business; and that hence an employment relationship exists between the homeworker-members and the defendants, and the Act applies, under the rule of Fleming v. Palmer, 1 Cir., 1941, 123 F.2d 749, certiorari denied, sub nom., Caribbean Embroidery Cooperative, Inc. v. Fleming, 1942, 316 U.S. 662, 62 S.Ct. 942, 86 L.Ed. 1739. See also McComb v. Homeworkers' Handicraft Cooperative, 4 Cir., 1949, 176 F.2d 633, certiorari denied, 1949, 338 U.S. 900, 70 S.Ct. 250, 94 L.Ed. 553. Plaintiff further contends that even if the Cooperative is a bona fide cooperative controlled by its members, still the Act applies to a member-controlled cooperative. Defendants take the position that the Cooperative is, in fact, a bona fide cooperative organized and controlled by its members for their own benefit, and that the Act does not apply to the relationship between such a cooperative and its members.

The first issue thus presented is one of fact and requires an examination of the background, organization and present operation of the Cooperative. The evidence in this respect establishes the following history:

Mrs. Whitaker has lived in Troy, Maine for approximately forty-seven years. About twenty-five years ago, she first became engaged in the business of buying hand-made infants' knitted and crocheted outerwear for various out-of-state concerns.² The articles handled by her at that time were obtained from approximately 100 ladies in the vicinity of Troy, who either knitted or crocheted the garments as part-time work in their homes. Mrs. Whitaker furnished the yarn. About fifteen years ago Mrs. Whitaker ceased doing business and transferred her yarn business to Mrs. Pearl L. Nutter, a neighbor in Troy.³ Approximately five years ago Mrs. Whitaker reentered the business, and from September, 1954 to July 17, 1957 she was engaged, as before, in purchasing, handling and selling infants' knitted and crocheted outerwear from her home in Troy. During this period 163 ladies furnished articles to Mrs. Whitaker. All of these ladies did their work during their spare time in their homes. At her home in Troy, Mrs. Whitaker employed one helper to add ribbon or embroidery to the garments received by her from the homeworkers, and to assemble the garments in sets. Mrs. Whitaker packaged the garments and shipped them to her retail outlets. She maintained an inventory of goods, which varied in amount from season to season, and kept complete books and records. She did not employ a broker to sell the garments, nor did she furnish the yarn, which the homeworkers obtained from other sources. She set the price which she paid for the finished garments on a piece-rate basis. The finished garments were either mailed or delivered to her residence, and payment was by check. In short, the relationship between Mrs. Whitaker and these homeworkers was substantially identical to that between Mrs. Nutter and her homeworkers, which this Court described at length, and held to be an employment relationship within the Fair Labor Standards Act, in Mitchell v. Nutter, D.C.Me., 1958, 161 F.Supp. 799. There can be no question that if Mrs. Whitaker were presently operating as previously, her operations would fall within the scope of Nutter, and an injunction should issue.

In January, 1957, following a compliance investigation by the Wage and Hour Division of the Department of Labor, Mrs. Whitaker, through her attorney, Mr. Bird, was formally advised by the Regional Attorney of the Wage and Hour Division that the homeworkers were her employees within the meaning of the Fair Labor Standards Act, and that if she wished to continue her business in the manner in which she was then operating, it would be necessary for her to comply with the minimum wage and record-keeping provisions of the Act. Various conferences were thereafter held among Mrs. Whitaker, Mr. Bird and the Wage and Hour Division Investigator, both at Mrs. Whitaker's home in Troy and at Mr. Bird's office in Waterville, Maine, for the purpose of determining the steps which could be taken to insure compliance with the Act. At these conferences the possibility of the organization of a cooperative was discussed, and it was suggested that the Act would not apply if the business were to be conducted by the homeworkers themselves as the members of a cooperative.⁴

As a result of these conferences, in late June and early July, 1957 Mr. Bird proceeded with the organization of a cooperative under the Consumer's Cooperative Act of the State of Maine (R.S.Me. 1954, c. 56). The following steps were taken for this purpose. Small subscription fees were obtained from various prospective members to help pay the expenses of organization. Mr. Bird mailed to prospective members a letter dated June 28, 1957, describing the nature and advantages of cooperatives and the method of their organization, and calling a meeting "of all the homeworkers who are interested in establishing a cooperative," to be held on July 9, 1957 at the Jefferson Hotel in Waterville.⁵ Approximately 40 women, all of whom had previously supplied Mrs. Whitaker with infants' wear, were present at the organizational meeting thus called. Mr. Bird presided, and Mrs. Whitaker was also present. At this meeting formal Articles of Association were signed by the individual defendants and 26 of the ladies present; Mr. Bird explained the proposed Certificate of Organization and By-laws which had been prepared by him; after discussion and a few minor changes, the form of Certificate of Organization was approved and the By-laws were adopted; and a board of five Directors and a Clerk was elected. The Directors elected were Mrs. Fernande Loubier, Mrs. Dana Banton, Mrs. Audrey Leavit, Mrs. Nettie Boyington and Mrs. Harold Edmonds. Stanley L. Bird, Esq., the defendant Bird's father, was named Clerk. Immediately following adjournment of the organizational meeting, the Board of Directors met and elected Mrs. Banton as its...