Schulte v. Gangi

• Decision Date: 29 April 1946
• Docket Number: No. 517,517
• Citation: 90 L.Ed. 1114,66 S.Ct. 925,328 U.S. 108,167 A.L.R. 208
• Parties: D. A. SCHULTE, Inc., v. GANGI
• Court: U.S. Supreme Court

328 U.S. 108

66 S.Ct. 925

90 L.Ed. 1114

D. A. SCHULTE, Inc.,

v GANGI.

No. 517.

Argued March 1, 1946.

Decided April 29, 1946.

Dissenting Opinion As Amended June 10, 1946.

Mr. Edwin A. Falk, of New York City, for petitioner.

Mr. Isidore Entes, of New York City, for respondent.

Mr. Justice REED delivered the opinion of the Court.

The issues brought to this Court by this proceeding arise from a controversy concerning overtime pay and liquidated damages under the Fair Labor Standards Act of 1938, 29 U.S.C.A. § 201 et seq. Under Section 7(a), the employer is required to pay for excess hours of work not less than one and one-half times the regular rate.¹ An employer who violates this subsection is liable to his injured employees in the amount due and unpaid and in an additional equal amount as liquidated damages.²

The primary issue presented by the petition for certiorari is whether the Fair Labor Standards Act precludes a bona fide settlement of a bona fi e dispute over the coverage of the Act on a claim for overtime compensation and liquidated damages where the employees receive the overtime compensation in full. As the conclusion of the Circuit Court of Appeals on this issue in this case³ conflicts with that of the Fourth Circuit in Guess v Montague 140 F.2d 500, 504, 505, and the Fifth Circuit in Atlantic Co. v. Broughton, 146 F.2d 480, we granted certiorari in order to determine the issue which was not passed upon in Brooklyn Sav. Bank v. O'Neil, 324 U.S. 697, 702—704, 708, 65 S.Ct. 895, 899—901, 903, Note 21. 326 U.S. 712, 66 S.Ct. 177.⁴

Respondents were employed by petitioner as building service and maintenance employees in its twenty-three story loft building in the garment manufacturing district of New York City during the period October 24, 1938, to February 5, 1942. Each put in varying hours of overtime for which no payment had been made prior to our decision in Kirschbaum v. Walling, 316 U.S. 517, 62 S.Ct. 1116, 86 L.Ed. 1638, on June 1, 1942, by which service and maintenance employees in buildings tenanted by manufacturers producing for interstate commerce were held to be covered by the Wage-Hour Act. Shortly thereafter respondents made claims for overtime pay and liquidated damages which were refused by petitioner on the ground admittedly true that its tenants did not ship the products they produced directly in interstate commerce but delivered them to distributors or producers in the same state who thereafter used the products of petitioner's tenants for interstate commerce or the production of goods for that commerce. Under threat of suit, petitioner paid the overtime compensation and obtained a release under seal signed by the several respondents. It is set out below.⁵ Petitioner computed the amount of overtime and respondents raise no question as to its accuracy. Respondents then brought this suit in the District Court to recover liquidated damages due them under Section 16(b) of the Act. It was stipulated that the liquidated damages, due if recoverable, were certain stated amounts which corresponded to the overtime compensation already paid. Petitioner denied that it was covered by the Act and pleaded affirmatively, as a defense, the releases which it asserted were obtained in settlement of a bona fide dispute as to coverage.

The District Court held that there was a good accord and satisfaction and release of all claims for liquidated damages because there was a bona fide settlement of a bona fide dispute. It specifically refused to pass upon the defense that the Act did not cover the respondents except to indicate that it presented a difficult issue. 53 F.Supp. 844. This judgment was entered prior to our decision in the O'Neil case. The Circuit Court of Appeals reversed. That court thought the O'Neil case substantially determined that a bona fide compromise of a dispute as to coverage was invalid. Its conclusion as to the invalidity of such compromises was in accord with its prior comments that the liability of unpaid overtime compensation and liquidated damages is single and 'is not discharged in toto by paying one-half of it.' Rigopoulos v. Kervan, 2 Cir., 140 F.2d 506, 507, 151 A.L.R. 1126; Fleming v. Post, 2 Cir., 146 F.2d 441, 443, 158 A.L.R. 1384.

Petitioner urges that the theory of a single liability of the employer to the employee under Sec. 16(b) is unsound and that this Court should not find a lack of power in employers and employees to settle amicably controversies over coverage and amounts due for violations of the unpaid minimum wage or unpaid overtime compensation under Sections 6 and 7 of the Act. Petitioner reasons on its first contention that there were two claims—one for overtime compensation and the other for an equal amount as liquidated damages—and that the payment for the first in full was sufficient consideration for the release of the second. On its second contention, petitioner advances the argument that since the Congressional intent to forbid compromises of such claims is not clear, such a sharp departure from the traditional policy of encouraging the adjustment instead of the litigation of disputes cannot be inferred from the purposes of the Act. Petitioner points out that a seaman may release his claims under statutes enacted for his protection in a bona fide settlement⁶ and that settlement of accrued claims is permitted under the Federal Employers' Liability Act, 5 U.S.C.A. § 51 et seq.⁷ Petitioner adds that in doubtful cases it may be advantageous to the employee to compromise, that to force litigation may disrupt employer-employee relationships, and that numerous compromise settlements have been made for less than full liability.⁸

We do not find it necessary to determine whether the liability for unpaid wages and liquidated damages that Section 16(b) creates is unitary or divisible.⁹ Whether the liability is single or dual, we think the remedy of liquidated damages cannot be bargained away by bona fide settlements of disputes over coverage. Nor do we need to consider here the possibility of compromises in other situa- tions which may arise, such as a dispute over the number of hours worked or the regular rate of employment.¹⁰

The reasons which lead us to conclude that compromises of real disputes over coverage which do not require the payment in full of unpaid wages and liquidated damages do not differ greatly from those which led us to condemn the waivers of liquidated damages in the O'Neil case. We said there, 324 U.S. at page 708, 65 S.Ct. at page 902:

'The same policy which forbids waiver of the statutory minimum as necessary to the free flow of commerce requires that reparations to restore damage done by such failure to pay on time must be made to accomplish Congressional purposes. Moreover, the same policy which forbids employee waiver of the minimum statutory rate because of inequality of bargaining power, prohibits these same employees from bargaining with their employer in determining whether so little damage was suffered that waiver of liquidated damage is called for.'

In a bona fide adjustment on coverage, there are the same threats to the public purposes of the Wage-Hour Act that exist when the liquidated damages are waived. The damages are at the same time compensatory and an aid to enforcement. It is quite true that the liquidated damage provision acts harshly upon employers whose violations are not deliberate but arise from uncertainties or mistakes as to coverage. Since the possibility of violations inheres in every instance of employment that is covered by the Act, Congress evidently felt it should not provide for variable compensation to fit the degree of blame in each infraction.¹¹ Instead Congress adopted a mandatory re- quirement that the employer pay a sum in liquidated damages equal to the unpaid wages so as to compensate the injured employee for the retention of his pay.¹²

It is realized that this conclusion puts the employer and his employees to an "all or nothing' gamble,' as Judge Chase phrased the result in his dissent below (150 F.2d 698). Theoretically this means each party gets his just deserts, no more, no less. The alternative is to find in the Act an intention of Congress to leave the adjustments to bargaining at the worst between employers and individual employees or at best between employers and the employees' chosen representatives, bargaining agent or some other. We think the purpose of the Act, which we repeat from the O'Neil case was to secure for the lowest paid segment of the nation's workers a subsistence wage, leads to the conclusion that neither wages nor the damages for withholding them are capable of reduction by compromise f controversies over coverage.¹³ Such a compromise thwarts the public policy of minimum wages, promptly paid, embodied in the Wage-Hour Act, by reducing the sum selected by Congress as proper compensation for withholding wages.¹⁴

The only other material question presented by this certiorari¹⁵ is whether the Wage-Hour Act covers service and maintenance employees of a building that is tenanted by occupants who receive, work on and return in intrastate commerce goods belonging to non-occupants who subsequently in the regular course of their business ship substantial proportions of the occupants' products to other states.¹⁶ It is agreed by petitioner and respondents that if certain tenants are included as producers for interstate commerce the occupants of the building who are engaged in production for interstate commerce are sufficiently numerous and productive to bring the maintenance em- ployees of the building within the coverage of the Act. Gangi v. D. A. Schulte, Inc., 2 Cir., 150 F.2d 694, Note 5. That is, petitioner's building then would be in the same classification, so far as the coverage of its maintenance employees by the Wage-Hour Act is concerned, as were the buildings in Kirschbaum v. Walling, 316 U.S. 517, 62 S.Ct. 1116, 86 L.Ed. 1638, and Borden Company v. Borella,...