Wirtz v. Idaho Sheet Metal Works, Inc.

• Decision Date: 15 September 1964
• Docket Number: No. 18887,18888.,18887
• Parties: W. Willard WIRTZ, Secretary of Labor, United States Department of Labor, Appellant, v. IDAHO SHEET METAL WORKS, INC., a Corporation, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

335 F.2d 952 (1964)

W. Willard WIRTZ, Secretary of Labor, United States Department of Labor, Appellant, v. IDAHO SHEET METAL WORKS, INC., a Corporation, Appellee.

Nos. 18887, 18888.

United States Court of Appeals Ninth Circuit.

August 10, 1964.

Rehearing Denied September 15, 1964.

Charles Donahue, Sol. of Labor, Bessie Margolin, Associate Sol., Robert E. Nagle, Caruthers G. Berger, Attys., U. S. Dept. of Labor, Washington, D. C., Altero D'Agostini, Regional Atty., San Francisco, Cal., for appellant.

Eli A. Weston, Vestal Coffin, Boise, Idaho, for appellee.

Before POPE, HAMLEY and MERRILL, Circuit Judges.

POPE, Circuit Judge.

The Secretary of Labor brought two actions in the court below for the purpose of enforcing compliance by the defendant Idaho Sheet Metal Works, Inc. with certain requirements of the Fair Labor Standards Act.¹ In one action the Secretary sought to enjoin further violations by the defendant of the overtime provisions of the Act.² In the other action the Secretary sought recovery of unpaid overtime compensation on behalf of one of the defendant's employees.³ The two actions were consolidated for trial and after dismissal of the actions by the trial court, with prejudice, the appeals therefrom were consolidated for hearing in this court.

The facts here are undisputed. It is conceded that during the years 1959 through 1961, the defendant did not pay its employees, some twelve in number, in accordance with the overtime provisions of the Fair Labor Standards Act, and it is admitted that this practice has continued thereafter. It was stipulated that if recovery was had in the action to recover the employee's overtime compensation, recovery should be for the sum of $500 plus costs.

Upon the trial and in this court two questions were presented. The first question was whether any of the defendant's employees were engaged in the production of goods for commerce within the meaning of the Act. Since the record shows that the defendant's employees were engaged in the performance of work for its customers who were producing goods for interstate commerce, the query, stated more particularly, was whether defendant's employees were engaged in a "closely related process or occupation directly essential" to the interstate production of its customers.⁴ The second question presented is whether the defendant is a retail establishment exempt from the requirements of the Act under Sec. 13(a).⁵ The trial court found against the Secretary on both questions.

During the years 1959 through 1961, the defendant was engaged in manufacturing, installing, maintaining and repairing equipment made of sheet metal for five large potato processors located in the general area of Burley, Idaho, where defendant's place of business was located. During that period 83 per cent of defendant's gross income was derived from those customers. In addition it performed comparable work for five other companies which were engaged in producing goods for interstate commerce including sugar mills, flour mills, seed and grain companies, and a container corporation. This accounted for an additional 3 per cent of defendant's gross income. The equipment which defendant fabricated or repaired for these companies included tanks of a capacity to hold 5,000 pounds of peeled potatoes, hoods for carrying off steam, and elevator buckets and chutes for transferring items within the plants.⁶ During many weeks in those years the employees of defendant spent a substantial part of their total work hours in these activities relating to the fabricating of equipment for the customers mentioned. A substantial portion of this work was carried on in the customer's plant.

In dealing with the question whether the defendant's employees were engaged in production of goods for commerce within the meaning of Sec. 3(j) of the Act, the court, while finding in so many words that the defendant's business was "not closely related to nor directly essential to the production of goods for or in commerce,"⁷ based its conclusion upon its finding that the defendant's "enterprise is a local business". The reasoning adopted by the trial court was that once it had determined that the employer was engaged in a "local business" it followed that his employees could not be engaged in the production of goods for commerce.

The trial court was led to this reasoning by its interpretation of the decision in Mitchell v. H. B. Zachry Company, 362 U.S. 310, 80 S.Ct. 739, 4 L.Ed.2d 753. While it is true that the opinion in that case contains certain references to "local business", to "activities of a dominantly local character", to "primarily local activities", and to "local production", we think that the trial judge was misled by the use of these phrases, and that, contrary to the trial court's opinion, the Zachry decision does not hold that employment in "a local business" excludes it from being treated as employment in the production of goods for commerce.

The court below fell into the same error which led to the decision of the Court of Appeals for the Fourth Circuit in Mitchell v. Lublin, McGaughy & Assoc., 250 F.2d 253, 259. In that case the employees involved were draftsmen, field clerks and stenographers employed by an architectural firm. All of these employees worked with plans and specifications prepared by their employer for the repair and construction of various interstate instrumentalities including air bases, roads, radio and television installations. The Court of Appeals held that "the defendants in this case were independent engineers and architects engaged in essentially local activity in each of the offices which they maintained." Referring to the fact that the firm sent telegraph messages, and used the mails to transmit documents to other states, the court said (pp. 259-260): "Where the business is essentially local and there is no production of `goods', communication which is merely incidental to the local enterprise cannot be classed as commerce. * * * The Act does not attempt to regulate local activity. * * * The architectural work itself was local and of necessity gave color to the activities of their subordinates and took them outside the scope of the statute." After grant of certiorari this judgment of the Court of Appeals was reversed, Mitchell v. Lublin, McGaughy & Asso., 358 U.S. 207, 211, 79 S.Ct. 260, 264, 3 L.Ed.2d 243. The Supreme Court noted that the decision of the lower court was based upon its conclusion that the activities of the employing firm were "local in nature". It held, however, that in order to determine whether these employees were engaged in commerce "we focus on the activities of the employees and not on the business of the employer." Said the Court (p. 212, 79 S.Ct. p. 264): "The test is `whether the work is so directly and vitally related to the functioning of an instrumentality or facility of interstate commerce as to be, in practical effect, a part of it, rather than isolated local activity.' * * * Respondent contends that its activities are essentially local in nature. But as we stated, Congress deemed the activities of the individual employees, not those of the employer, the controlling factor in determining the proper application of the Act. Here the activities of the employees show clearly that they are `engaged in commerce' and thus are eligible for the protections afforded by the Act."

It is important to note that in the language just quoted the Supreme Court first inquired whether the work of the employees is "directly and vitally related to the functioning of an instrumentality or facility of interstate commerce." If that question is answered in the affirmative then it can be said that the enterprise is not a local activity. It is obvious that the Court of Appeals in that case, as did the court below in this case, began its inquiry at the wrong end by first asking whether the enterprise was a "local activity". As the Supreme Court in the Lublin case, above, made clear, that is in no sense the test.

In the Zachry case, supra, upon which the trial court relied, the respondent employer was a construction contractor employed to construct a dam for impounding water for a water district to supply water to the City of Corpus Christi. An unspecified amount of the water supplied by the district was consumed by facilities and instrumentalities of commerce. It was plain here that neither the city nor the district was engaged in the production of goods for commerce. The Court held in that case "neither a facility of `commerce' nor a facility of `production' is under construction. Operation of the completed dam will merely support production facilities; and construction of the dam is yet another step more remote." (362 U.S. p. 319, 80 S.Ct. p. 745) Thus the decision is based upon the Court's finding of the remoteness of the construction from any facility of commerce or of production that might be within the terms of the Act, and not upon any finding that the construction work was of "a local character."⁸ In setting forth the test to be applied in a case of this kind the Court made it plain that an answer to the problem presented cannot be predicated upon a finding as to whether the enterprise carried on by the employer is local or otherwise. The Court alluded to (p. 315, 80 S.Ct. p. 743) "the governing principle that coverage turns upon the nature of the employees' duties, and not upon the nature, local or interstate, of the employer's general business."

A Supreme Court case whose facts most closely resemble those in the case now before us is Roland Co. v. Walling, 326 U.S. 657, 66 S.Ct. 413, 90 L.Ed. 383 (1949). Roland Co. was engaged in manufacturing, installing, and servicing electrical motors, generators, etc. A substantial portion of its business was done with companies directly engaged in interstate commerce. During practically every work week Roland's mechanics did some of this work for some of these customers, either in the...