Shultz v. Falk

• Decision Date: 03 March 1971
• Docket Number: No. 14572.,14572.
• Citation: 439 F.2d 340
• Parties: George P. SHULTZ, Secretary of Labor, United States Department of Labor, Appellant, v. E. E. FALK, individually and as a partner in Drucker and Falk, et al., Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

439 F.2d 340 (1971)

George P. SHULTZ, Secretary of Labor, United States Department of Labor, Appellant, v. E. E. FALK, individually and as a partner in Drucker and Falk, et al., Appellees.

No. 14572.

United States Court of Appeals, Fourth Circuit.

Argued January 8, 1971.

Decided March 3, 1971.

COPYRIGHT MATERIAL OMITTED

Mack A. Player, Atty., Dept. of Labor (Laurence H. Silberman, Sol. of Labor, Bessie Margolin, Associate Sol., Marvin M. Tincher, Regional Atty., Carin Ann Clauss and David A. Drachsler, Attys., Dept. of Labor, on the brief) for appellant.

Herbert W. Kelly, Newport News, Va. (E. D. David, and Jones, Blechman, Woltz & Kelly, Newport News, Va., on the brief) for appellees.

Before WINTER, CRAVEN and BUTZNER, Circuit Judges.

WINTER, Circuit Judge:

The Secretary of Labor sued for an injunction under § 17 of the Fair Labor Standards Act, 29 U.S.C.A. §§ 201 et seq. to enjoin defendants from violating the minimum wage, overtime, and record-keeping provisions of the Act, and to restrain them from withholding back wages owed to their employees. Defendants are copartners carrying on a building management business and the employees concerned are maintenance workers. The district court denied relief on the grounds that the defendants were not covered by the Act during the period in question, because defendants' "annual gross volume of sales made or business done" was insufficient to effect coverage and because defendants' activities did not constitute an "enterprise." The district court also concluded that defendants were not the "employer" of the maintenance workers. We think otherwise and reverse.

I

Defendants manage approximately thirty apartment buildings located in various cities in Virginia. In addition they engage in selling real estate and insurance. Their real estate management is carried on under contracts with the owners, some of whom are nonresidents of Virginia. Defendants advertise the availability of apartments for rent; sign, renew and cancel leases; collect rents; initiate, prosecute and settle all legal proceedings for eviction, possession of the premises and unpaid rent; make repairs and alterations; negotiate contracts for electricity, gas, fuel, water, telephone services, window cleaning, rubbish removal, repair work and other services; purchase supplies; pay all bills, including mortgage payments; prepare an operating budget for the owner's review and approval; submit periodic reports to the owner; and hire, discharge and supervise all labor and employees required for the operation and maintenance of the premises. The contracts are for specified periods, not less than a year. The owner is made responsible for all expenses except those wrongfully incurred by defendants, and the defendants hold the rent money in trust for the owner, pay expenses out of it, and periodically remit the excess to the owner. Any excess of expenses over rents collected must be made up by the owner. As payment for their services, defendants receive a fixed percentage of gross rent receipts.¹

To carry out their contractual management duties, defendants employ various management employees, including six area managers, and various clerical employees and rental agents, all of whom are admitted by defendants to be their employees. Defendants carry out the day-to-day operations of each project through a maintenance superintendent or project manager who is, under the supervision of the area manager, in charge of each project, and who hires, fires, and supervises the maintenance employees. Each project manager and his maintenance employees are characterized in the contract between defendants and the owner as employees of the owner, although defendants hire and fire them, promote them and make out their paychecks, for which they are reimbursed by the owners. The owners do not appear to exercise any supervisory power over the maintenance workers beyond approval or disapproval of the overall budget. The owners inspect their projects but direct their suggestions to the defendants. Occasionally, but only rarely, defendants have transferred maintenance personnel from one project to another; in each case, this was done with the knowledge of the owners. Defendants employ some maintenance personnel to work on two projects with different owners.

The owners are not parties to this suit. We are told that, viewed separately, the gross rental income of each project except one, is too small for it to be covered by the Act.

II

The Secretary's complaint, filed in 1969, charged defendants with failing to pay the wages and keep the records required by the Act. The Fair Labor Standards Act requires covered employers to pay their employees a minimum wage of $1.60 an hour, with various exceptions, including lower rates for employees newly brought under the Act by the 1966 Amendments.² There is a time-and-a-half pay requirement for work beyond forty hours a week, with similar exceptions for employees recently covered.³ Relevant record-keeping provisions are also set forth in the margin.⁴

In the district court, defendants did not contend that the employees received these levels of pay, but denied that the Act applied, arguing that the coverage conditions of the Act were not satisfied. Defendants argued there and before us that they were not the "employer" of the workers at the apartment buildings within the meaning of the Act, and that their business was not an "enterprise" as required for application of the Act. In addition, they argued that their annual gross volume of sales was less than that required for application of the Act, and that they did not have "employees engaged in commerce."

The district court found for the defendants on the grounds that their annual volume of sales was insufficient, holding that the rents collected by defendants could not be included in gross sales. The court also expressed doubt that defendants were an "enterprise" within the meaning of the Act, because they acted solely as agents for apartment owners. Because defendants were the owners' agents, the district court concluded that the maintenance employees were employees of the project and not employees of defendants.⁵

Because of the two-year statute of limitations, 29 U.S.C.A. § 255(a), we are here concerned solely with back wages during the period after January 30, 1967, two years before the filing of the complaint.⁶ In 1966, the Act was amended in ways pertinent to this case, and the amendments took effect on February 1, 1967. Thus, the 1966 amendments were in effect during all the pay periods here at issue.

III

First, we turn to defendants' contention that they are not the employers of the workers at the apartment projects. The Act states that "`Employer' includes any person acting directly or indirectly in the interest of an employer in relation to an employee * * *."⁷ "Employee" is defined as including "any individual employed by an employer,"⁸ and "Employ" is defined as including "to suffer or permit to work."⁹ These definitions are very broadly cast, and courts have accordingly found an employment relationship for purposes of the Act far more readily than would be dictated by common law doctrines. See, e. g., Rutherford Food Corp. v. McComb, 331 U.S. 722, 67 S.Ct. 1473, 91 L.Ed. 1772 (1945) (workers in slaughterhouse who removed bones from carcasses held to be employees of the slaughterhouse despite the fact that in some respects their operations were conducted like those of an in dependent contractor;) Southern Ry. Co. v. Black, 127 F.2d 280 (4 Cir. 1942) (redcaps in railroad station held employees of the railroad despite the fact that their compensation was solely derived from tipping;) McComb v. Homeworkers' Handicraft Cooperative, 176 F.2d 633 (4 Cir. 1949), cert. den., 338 U.S. 900, 70 S.Ct. 250, 94 L.Ed. 553 (1949) (pieceworkers who inserted draw strings in bags for bag manufacturers held employees of manufacturers despite the fact that their pay and work was distributed through a homeworkers' cooperative). Courts have also found that workers could have joint employers for purposes of the Act. See Mid-Continent Pipe Line Co. v. Hargrave, 129 F.2d 655 (10 Cir. 1942); Durkin v. Waldron, 130 F.Supp. 501 (W.D.La.1955).¹⁰

The Second Circuit has held that rental agents may be employers, jointly with the building owners. In Greenberg v. Arsenal Building Corp., 144 F.2d 292 (2 Cir. 1944) (per curiam), rev'd. in part on other grounds, 324 U.S. 697, 65 S.Ct. 895, 89 L.Ed. 1296 (1945), the Court held that a rental agent was properly found to be the employer of maintenance workers where the agent hired and supervised the workers, and paid them wages, for which it was reimbursed by the owners. The same result was reached in Asselta v. 149 Madison Avenue Corp., 65 F.Supp. 385 (S.D.N.Y.1945), affirmed, 156 F.2d 139 (2 Cir.), affd., 331 U.S. 199, 67 S.Ct. 1178, 91 L.Ed. 1432 (1946); in Shultz v. Arnheim & Neely, Inc., 324 F.Supp. 987 (W.D.Pa.1969), appeal docketed Nos. 18772-18774 (3 Cir.); and in Shultz v. Isaac T. Cook Co., 314 F.Supp. 461 (E.D.Mo.1970).

It is true that building rental agencies are not as fully vested with the powers and benefits involved in being an employer as a company which owned as well as operated its buildings would be. Rental agencies, such as defendants here, are not solely responsible for the setting of wages, nor are they the sole beneficiaries of the underpayment of wages. But they may share a substantial part of these powers and benefits. Defendants either directly or indirectly hire, fire, and supervise the building workers. Within the limits of generalized and fairly long-term budgets, they set the wages of the building workers. Even the decisions behind budget allocations appear to be considerably influenced by defendants' recommendations, since defendants are real estate management experts. We, therefore, have no doubt that defendants act "directly or indirectly in the interest of an employer in...