Shultz v. Mack Farland & Sons Roofing Co.

• Citation: 413 F.2d 1296
• Decision Date: 09 July 1969
• Docket Number: No. 26884.,26884.
• Parties: George W. SHULTZ, Secretary of Labor, United States Department of Labor, Plaintiff-Appellant-Cross Appellee, v. MACK FARLAND & SONS ROOFING CO., Inc., et al., Defendants-Appellees-Cross Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

413 F.2d 1296 (1969)

George W. SHULTZ, Secretary of Labor, United States Department of Labor, Plaintiff-Appellant-Cross Appellee, v. MACK FARLAND & SONS ROOFING CO., Inc., et al., Defendants-Appellees-Cross Appellants.

No. 26884.

United States Court of Appeals Fifth Circuit.

July 9, 1969.

Charles Donahue, Sol. of Labor, Harold C. Nystrom, Acting Sol. of Labor, Bessie Margolin, Associate Sol., Robert E. Nagle, James H. Woodson, Edwin G. Salyers, Donald S. Shire, Attys., Dept. of Labor, Washington, D. C., Beverly R. Worrell, Reg. Atty., Dept. of Labor, Atlanta, Ga., for plaintiff-appellant-cross appellee.

John L. Britton, Feibleman, Friedman, Hyman & Britton, Miami, Fla., for defendants-appellees-cross appellants.

Before WISDOM and CARSWELL, Circuit Judges and ROBERTS, District Judge.

WISDOM, Circuit Judge:

The question for decision is whether the two related defendant corporations constitute an "enterprise" within the meaning of the Fair Labor Standards Act.¹ We hold that they do and reverse the judgment below.

The Secretary of Labor brought this action under Section 17 of the Act² to enjoin (1) Mack Farland & Sons Roofing Co., Inc., (2) Mack Farland Roofing Co., Inc., and (3) William A. McFarland from violating the overtime and record-keeping requirements of the Act. The Secretary also sought to restrain the defendant from continuing to withhold unpaid compensation due under the Act to their employees covering the period June 13, 1964, to January 29, 1968. It was admitted that defendants' employees were not paid in accordance with the Act's overtime provisions, defendants having falsified their records to make it appear that employees had been properly paid, either by failing to record all hours worked or by showing payment for recorded hours on the basis of fictitious hourly rates. Moreover, the parties stipulated that employees of defendant Mack Farland & Sons Roofing Co., Inc., were covered by the Act. The district court entered judgment enjoining future violations and granting part of the monetary relief prayed for as to such employees. The defendants contended, however, that employees of the other corporate defendant, Mack Farland Roofing Co., Inc., were not covered. The district court concluded that the Act did not apply to these employees until February 1, 1967, at which time the 1966 Amendments to the Act became effective. Accordingly, although the district court entered judgment enjoining compensation found to be due the employees of this defendant, such overtime compensation was limited to amounts which had accrued subsequent to February 1, 1967.

I.

The "enterprise coverage" provisions added to the Act by the Amendments of 1961 (75 Stat. 65) provide minimum wage and overtime protection to any employee who is "employed by an enterprise engaged in commerce or in the production of goods for commerce". Section 3 of the Act defines "enterprise" as follows:

"Enterprise" means the related activities performed (either through unified operation or common control) by any person or persons for a common business purpose, and includes all such activities whether performed in one or more establishments or by one or more corporate or other organizational units, including departments of an establishment operated through leasing arrangements, but shall not include the related activities performed for such enterprise by an independent contractor * * *. 29 U.S.C. § 203 (r).

Under Section 7(a) (1) of the Act covered employers were required to pay their employees the statutory overtime premium for all weekly hours in excess of 44 during the period prior to September 3, 1964, for all weekly hours in excess of 42 prior to September 3, 1965, and for all weekly hours in excess of 40 thereafter.

The Amendments of 1961 did not apply to enterprises "engaged in the business of construction, or reconstruction, or both", if the annual gross volume from the business was less than $350,000.

The Fair Labor Standards Amendments of 1966 (80 Stat. 830), which became effective February 1, 1967, eliminated the dollar volume test for coverage of enterprises engaged in the business of construction or reconstruction. Employers who became subject to the Act solely because of such Amendments were required to pay the statutory overtime premium only after 44 hours a week during the period February 1, 1967, to January 31, 1968 (Section 7(a) (2)).

The parties stipulated in this case that during each year in question the "annual gross volume" from the business of Mack Farland & Sons Roofing Co., Inc. exceeded the $350,000 specified in Section 3(s) (4), but that the "annual gross volume" of Mack Farland Roofing Co., Inc., was at all times less than $350,000. Thus it was undisputed that at all times pertinent here Mack Farland & Sons Roofing Co., Inc., was a covered enterprise required to pay overtime compensation after 40 hours a week, but that Mack Farland Co., Inc., if considered alone, became a covered enterprise only when the dollar volume test was eliminated on February 1, 1967, and was required to pay overtime compensation only after 44 hours a week from that date until January 31, 1968. However, it was the Secretary's contention that the two corporations at all times comprised a single enterprise within the meaning of Section 3(r), entitling the employees of both corporations to overtime compensation after 40 hours per week throughout the period covered by this action.

The case turns on whether the defendant corporations engaged in "related activities" through "unified operations" or "common control" for a "common business purpose".

II.

We turn now to the record. It shows that William A. McFarland dominated both corporations, exercised control over their operations, and in practical effect used the two corporations as a single enterprise to engage in the roofing business.

McFarland, who has been in the roofing business since 1952, founded both corporations and is a major stockholder, president, and director of both corporations. During the period covered by this action (June 13, 1964, to January 29, 1968), the companies were in the roofing business in Broward County, Florida.

In 1959, Mr. McFarland organized Mack Farland & Sons Roofing Co., Inc., which has its principal office in Hollywood, Florida. He provided all of the necessary capital. Although 100 shares of stock are authorized, only 18 shares were issued, held as follows: Mr. McFarland eight shares (44%), his son, Larry McFarland, also eight shares, Mary Lee Straub Piltz (Mr. McFarland's secretary and bookkeeper for both corporate defendants) one share, and Adolphus Smith one share. Only Mr. McFarland had any financial investment in the corporation. The officers and directors of the Hollywood corporation are Mr. McFarland, his brother, Charles McFarland, and Mrs. Piltz.

The Hollywood corporation performed most of its work in the southern part of Broward County, but it also performed some work in the vicinity of Pompano, some fifteen or twenty miles to the north, necessitating the establishment of a place of business in Pompano. The employees at that location, however, continued to be carried on a single payroll with the employees at Hollywood.

In 1963, McFarland incorporated the Pompano business under the name of Mack Farland Roofing Co., Inc. Again, he provided all of the capital and, as he testified, he set the management policy of this corporation, as he did the original corporation, and was considered the "boss" by the employees. The new corporation took over the jobs that the Hollywood establishment had in that area, but most of its business was developed on its own. According to the testimony of Mr. McFarland, the Pompano corporation took care of the work in the norther portion of defendants' sales territory, while the work in the southern end was handled by the Hollywood corporation. This division, he stated, was "more or less" a matter of "geographical convenience," since it was "a little too far for our foremen to go from Hollywood to Pompano".

Of the 100 shares of stock authorized for the Pompano corporation, only 30 were issued. Although these were equally distributed among Mr. McFarland, his brother, Charles McFarland, and Mrs. Piltz, again Mr. McFarland is the only person with any financial investment in the corporation. Mr. McFarland, Larry McFarland and Mrs. Piltz serve as officers and directors.

The two corporations maintained separate supervisors and crewmen, but on occasions there were interchanges of employees when a crew was shorthanded or far behind in its work. In 1965, or 1966, shortly after the wage and hour investigation giving rise to this action, Charles McFarland quit, and the Pompano establishment was closed. As stated by William McFarland, when "my brother quit me, * * * I pulled the personnel back down to Hollywood and ran it out of there". The Pompano employees now work out of the Hollywood establishment.

Although Mr. McFarland has placed both corporate defendants under the immediate management of various supervisors during the three or four years preceding the trial the record shows that he retained ultimate control over their operations. He testified that he has "a lot to do with the business", that he still maintains his office at the Hollywood establishment, that he goes there on "numerous occasions" and that he has not diminished his ownership interest in the business. And, while the supervisors and crew chiefs (foremen) had the authority to hire and fire employees, and to set their rates of pay, Mr. McFarland testified that he still exercises authority concerning the hiring and firing of supervisory personnel. He testified that his brother's operations in managing the Pompano corporation were subject to his veto, because he himself was still the "top man".

Thus the record shows that Mr. McFarland is the founder, president, and sole investor in both corporations; that he set the management policy for each corporation;...