The opinion of the court was delivered by: GOURLEY
This action is brought pursuant to Section 16(b) of the Fair Labor Standards Act of 1938, 52 Stat. 1060, 29 U.S.C.A. § 216(b), and which must be considered in light of the Portal-to-Portal Act of 1947, 61 Stat. 84, 29 U.S.C.A. § 251 et seq. Frank Burke and Napoleon Massa brought the suit as representatives of four hundred fifty-one (451) employees of the defendant.
Plaintiffs seek to recover overtime compensation which it is claimed should have been paid under the provisions of the Fair Labor Standards Act, 29 U.S.C.A. § 201 et seq., an additional equal amount as liquidated damages, a reasonable attorney's fee and the costs of the action, as authorized and required by Section 16(b) of the Act.
After the trial, but before the submission of arguments or any disposition of the case, the Portal-to-Portal Act of 1947 was approved. On June 11, 1947, defendant presented an amendment to its answer, by which it has pleaded the additional defenses permitted by Section 9 and Section 11 of the Portal-to-Portal Act.
The gravamen of the suit is that between the time that the Fair Labor Standards Act became effective on October 25, 1938, and May 1, 1943, defendant did not compensate the employees for overtime hours 'at a rate not less than one and one-half times the regular rate at which (they were) employed,' as required by Section 7(a) of the Act, 29 U.S.C.A. § 207(a). Instead, defendant paid for statutory overtime hours at one and one-half times the 'basic hourly rate' which it established for each employee, which was not the 'regualr rate' prescribed by the Act.
The right of any plaintiff to recover, without consideration of the many other involved factual and legal questions which exist, in the first instance must be premised on the fact that each plaintiff was paid an incentive bonus during some pay period in which he had also been allowed overtime hours.
This consideration eliminates from any further part in the case one hundred seventy-six (176) individuals who were listed as plaintiffs in the action. Said plaintiffs received no incentive bonuses in any pay period during which they worked any overtime and, therefore, no error in the defendant's manner of computing overtime upon incentive bonuses could have affected them.
For other reasons, which are not material to the determination of the issues, additional plaintiffs were dropped from the suit.
As a result thereof the list of four hundred fity-one (451) plaintiffs has been reduced to two hundred fifty-five (255).
The applicable provisions of the Fair Labor Standards Act to be considered in the adjudication of the questions which exist are as follows:
Section 3(b), 29 U.S.C.A. § 203(b) --
"Commerce' means trade, commerce, transportation, transmission, or communication among the several States or from any State to any place outside thereof.'
Section 3(i), 29 U.S.C.A. § 203(i) --
"Goods' means goods, * * * wares, products, commodities, merchandise, or articles or subjects of commerce of any character, or any part of ingredient thereof, but does not include goods after their delivery into the actual physical possession of the ultimate consumer thereof other than a producer, manufacturer, or processor thereof.'
Section 3(j), 29 U.S.C.A. § 203(j) --
"Produced' means produced, manufactured, mined, handled, or in any other manner worked on in any State; and for the purpose of this Act an employee shall be deemed to have been engaged in the production of goods if such employee was employed in producing, manufacturing, mining, handling, transporting, or in any other manner working on such goods, or in any process or occupation necessary to the production thereof, in any State.'
Section 7(a), 29 U.S.C.A. § 207(a) --
'No employer shall, except as otherwise provided in this section, employ any of his employees who is engaged in commerce or in the production of goods for commerce --
'(3) for a workweek longer than forty hours after the expiration of the second year from such date, unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and one-half times the regular rate at which he is employed.'
Section 16(b), 29 U.S.C.A. § 216(b) --
'Any employer who violates the provisions of section 6 or section 7 of this Act shall be liable to the employee or employees affected in the amount of their unpaid minimum wages, or their unpaid overtime compensation, as the case may be, and in an additional equal amount as liquidated damages. Action to recover such liability may be maintained in any court of competent jurisdiction by any one or more employees for and in behalf of himself or themselves and other employees similarly situated, or such employee or employees may designate an agent or representative to maintain such action for and in behalf of all employees similarly situated. The court in such action shall, in addition to any judgment awarded to the plaintiff or plaintiffs, allow a reasonable attorney's fee to be paid by the defendant, and costs of the action.'
Section 9, 29 U.S.C.A. § 258 --
'In any action or proceeding commenced prior to or on or after May 14, 1947 based on any act or omission prior to May 14, 1947, no employer shall be subject to any liability or punishment for or on account of the failure of the employer to pay minimum wages or overtime compensation under the Fair Labor Standards Act of 1938, as amended, the Walsh-Nealey Act, or the Bacon-Davis Act, if he pleads and proves that the act or omission complained of was in good faith in conformity with and in reliance on any administrative regulation, order, ruling, approval, or interpretation, of any agency of the United States, or any administrative practice or enforcement policy of any such agency with respect to the class of employers to which he belonged. Such a defense, if established, shall be a bar to the action or proceeding, notwithstanding that after such act or omission, such administrative regulation, order, ruling, approval, interpretation, practice, or enforcement policy is modified or rescinded or is determined by judicial authority to be invalid or of no legal effect.'
Section 11, 29 U.S.C.A. § 260 --
'In any action commenced prior to or on or after May 14, 1947 to recover unpaid minimum wages, unpaid overtime compensation, or liquidated damages, under the Fair Labor Standards Act of 1938, as amended, if the employer shows to the satisfaction of the court that the act or omission giving rise to such action was in good faith and that he had reasonable grounds for believing that his act or omission was not a violation of the Fair Labor Standards Act of 1938, as amended, the court may, in its sound discretion, award no liquidated damages or award any amount thereof not to exceed the amount specified in section 216(B) of this title.'
Defendant is engaged at its plant in West Homestead, Pennsylvania, in the manufacture of steel rolling mill machinery and equipment, including strip mills, cast iron and steel and forged rolls, blooming mills and hot strip mills. It has been engaged continuously in this type of production since 1898, and at all times since October 25, 1938. Its normal products are large machines, custom built for the owners of steel and metal working plants and establishments, commonly costing several million dollars each, and each requiring a year or more of manufacturing and construction work in the defendant's plant; some of the machines of this kind built betwen 1938 and 1943 were sold for installation within the Commonwealth of Pennsylvania, and others for use in other States.
The production of goods by the defendant for interstate commerce was spread throughout each year, and according to the records of the company during the whole of the period of time involved in this proceeding, part of each day's goods produced would be sent in interstate commerce. During each calendar year between 1938 and 1943 the defendant manufactured and shipped to purchasers outside the Commonwealth of Pennsylvania products of a value of at least $ 250,000. Subsequent to this country being involved in the Second World War, the defendant had numerous government contracts for the production of materials and other equipment for the war effort. In this connection the materials or goods were sold to the United States Government at the plant where they were produced and the defendant did not actually deliver the goods outside the state of Pennsylvania.
The company normally employs three thousand (3,000) men but during the war the number was expanded to approximately four thousand five hundred (4,500). The company does not maintain any type of separation, in so far as its production activities are concerned, with respect to the production of goods which are destined for shipment outside of Pennsylvania. When the employees are working on the product, they do not know whether that product is going to be shipped outside of Pennsylvania, or is going to stay in Pennsylvania, nor are any records kept by the company in this respect.
1. It has paid a rate of one and one-half times the employee's regular basic hourly rate for all hours over forty worked in any one workweek;
2. It has paid a rate of one and one-half times the employees' regular basic hourly rate for all hours over eight worked on any one day;
3. It has paid at rates double the regular basic hourly rates for all hours worked on Sundays or holidays, except for the period between November, 1942, and December, 1945;
4. Between November, 1942, and December, 1945, it paid at a rate of time and one-half the regular basic hourly rate for all hours worked on New Year's Day, Memorial Day, the Fourth of July, Labor Day, Thanksgiving and Christmas.
The following questions or issues are for determination:
First: Are the employees on behalf of whom the action is brought within the coverage of the Act in that they were engaged in interstate commerce, in the production of goods for such commerce, or in processes or occupations necessary to such production during the periods covered by the complaint?
Second: Was the defendant required to include additional regular incentive bonus earnings which were paid by the defendant to each of the employees in determining the 'regular rate' of pay and amount of overtime compensation?
Third: Where the employer fails to include the 'incentive bonuses' as aforesaid in its computations of overtime rates and earnings and, in fact, pays overtime compensation substantially in excess of that required by the Act, is the employer entitled to credit said payments against the plaintiff's claims for additional overtime based upon their incentive bonuses?
Fourth: Is the Portal-to-Portal Act of 1947 as it relates to Section 9, 29 U.S.C.A. § 258 (Liability Exoneration), and Section 11, 29 U.S.C.A. § 260 (Liquidated Damages) constitutional?
Fifth: If defendant's failure to consider the incentive bonuses in its computations of overtime compensation were wrong, was the error an intentional and knowing violation of the Act, or was it, on the other hand, done
(a) ' * * * in good faith in conformity with and in reliance on any administrative regulation, order, ruling, approval or interpretation, of any agency of the United States, or any administrative practice or enforcement policy of any such agency * * * ' within the meaning of Section 9 of the Portal-to-Portal Act, 29 U.S.C.A. § 258, or
(b) ' * * * in good faith' and 'with reasonable grounds for believing' that it was 'not a violation of the Fair Labor Standards Act of 1938 * * * ' within the meaning of Section 11 of the Portal-to-Portal Act, 29 U.S.C.A. § 260?
Discussion of Questions or Issues
1. Production of Goods for Commerce --
Were the employees engaged in interstate commerce, in the production of goods for such commerce, or in processes or occupations necessary to such production during any of the periods involved herein?
The fact that the employer is engaged in the production of goods for commerce does not mean the employees are covered by the Act. Mabee et al. v. White Plans Publishing Co., 327 U.S. 178, 66 S. Ct. 511, 90 L. Ed. 607; Kirschbaum v. Walling, 316 U.S. 517, 524, 62 S. Ct. 1116, 86 L. Ed. 1638; Walling v. Jacksonville Paper Co., 317 U.S. 564, 571, 572, 63 S. Ct. 332, 87 L. Ed. 460; Pentland et al. v. Dravo Corporation, 3 Cir., 152 F.2d 851; Burke v. Mesta Machine Co., D.C., 5 F.R.D. 134.
Section 6(a) of the Act, when read with the definitions of 'commerce,' 'goods,' and 'produced' in Section 3(b), (i), and (j), requires every employer to pay no less than the required minimum wages to each of his employees who is employed in any process or occupation necessary to the production, in any State, of any part or ingredient of any articles or subjects of trade, commerce or transportation, of any character, for trade, commerce or transportation among the several States. Roland Electrical Co. v. Walling, 326 U.S. 657, 66 S. Ct. 413, 90 L. Ed. 383.
The burden is upon the employee to show that a substantial portion of his time was devoted to work within the protection of the Act. Walling v. Jacksonville Paper Co., supra; Schwarz v. Witwer Grocer Co., 8 Cir., 141 F.2d 341, 343; Noonan v. Fruco Const. Co., 8 Cir., 140 F.2d 633, 634; D. A. Schulte Inc., v. Gangi et al., 328 U.S. 108, 120, 66 S. Ct. 925, 90 L. Ed. 1114, 167 A.L.R. 208; Warren-Bradshaw Drilling Co. v. Hall 317 U.S. 88, 90, 63 S. Ct. 125, 87 L. Ed. 83; Kelly v. Ford, Bacon & Davis, 3 Cir., 162 F.2d 555, 561; Regulation Wage and Hour Administrator, 12 F.R. 4583, 4584.
It is, therefore, the obligation of each plaintiff to establish that he is entitled to the benefits of the Act, and that he has not received them, i.e.:
(a) That the defendant was engaged in the production of materials sold in other states, or engaged in interstate commerce.
(b) That each plaintiff performed work which consisted of the production of goods for interstate commerce.
(c) That while engaged in the performance of work which produced materials used in interstate commerce, said plaintiff has been required to work overtime hours and has been denied his proper overtime pay.
The employees were divided into two classifications:
(a) Those who worked directly in manufacture of the product, and
(b) those whose work materially contributed to production of the products but who did not work directly on the goods.
The work of the latter group of employees was essential and necessary for the production of the company's 'goods,' including, of course, the unsegregated substantial portion produced for commerce.
The employee is not required to be directly 'engaged in commerce' among the several States, or is the employee required to be employed in the production of an article which itself becomes subject to commerce or transportation among several states. It is enough that the employee be employed, for example, in an occupation which is necessary to the production of a part of any other 'articles or subjects of commerce or any character' which are produced for trade, commerce or transportation among the several States. An employee is not required to be employed exclusively in the specified occupation nor is it necessary that the occupation in which he is employed be indispensable to the production of goods for interstate commerce. It is enough that the occupation of the employee by 'necessary to the production.' Even though there may be alternative occupations that could be substituted for it, it is enough that the one at issue is needed in such production and would, if omitted, handicap production. Roland Electrical Co. v. Walling, supra.
I believe that the plaintiffs in both classifications have that close and intimate tie to the production of goods for interstate commerce upon which the application of the statute is predicated. There was a substantial and continuous production of goods for commerce with no segregation of intrastate from interstate production. Each employee in this action was necessarily engaged in the production of goods for commerce during each workweek involved herein. Kirschbaum Co. v. Walling, supra, 316 U.S.pages 525, 526, 62 S. Ct.pages 1120, 1121, 86 L. Ed. 1638; Martino v. Michigan Window Cleaning Co., 327 U.S. 173, 66 S. Ct. 379, 90 L. Ed. 603; D. A. Schulte, Inc., v. Gangi, 328 U.S. 108, 119, 66 S. Ct. 925, 90 L. Ed. 1114, 167, A.L.R. 208; Roland Electrical Co. v. Walling, supra; Walling v. Jacksonville Paper Co., supra; Overstreet v. North Shore Corporation, 318 U.S. 125, 128, 63 S. Ct. 494, 87 L. Ed. 656.
The question does not appear to have been decided by the Supreme Court of the United States, nor can I find the exact question to have been considered by the Circuit Court of Appeals in the Third Circuit.
The decisions of the district courts and circuit courts of appeal are in conflict as to whether or not the transportation of goods across state lines by the United States to its military facilities which were to be used in the prosecution of the war is commerce, or, on the other hand, an administrative act of the Government.
Such transportation has been held to be interstate commerce and not an administrative act in the following cases: Walling v. Higgins, D.C., 47 F.Supp. 856; Walling v. Kerr, D.C., 47 F.Supp. 852; Clyde v. Broderick, 10 Cir., 144 F.2d 348; Timberlake et al. v. Day & Zimmerman, Inc., D.C., 49 F.Supp. 28; Walling v. Haile Gold Mines, Inc., 4 Cir., 136 F.2d 102; Umthun v. Day & Zimmerman, 235 Iowa 293, 16 N.W.2d 258; Bell et al. v. Porter et al., 7 Cir., 159 F.2d 117; Walling v. Patton-Tulley Transportation Co., 6 Cir., 134 F.2d 945; Divins et al. v. Hazeltine Electronics Corporation, 2 Cir., 163 F.2d 100; Ritch et al. v. Puget Sound Bridge & Dredging, 9 Cir., 156 F.2d 334; St. Johns River Shipbuilding Co., Appellant v. Adams et al., 5 Cir., 164 F.2d 1012; Fox v. Summit King Mines, 9 Cir., 143 F.2d 926, 928; Devine et al. v. Joshua Hendy Corporation, D.C. 77 F.Supp. 893.
Contrary to -- Anderson et al v. Federal Cartridge Corporation, D.C., 72 F.Supp. 644; Barksdale v. Ford, Bacon & Davis, Inc., D.C., 70 F.Supp. 690; Pfoser v. Federal Cartridge Corporation, D.C. 70 F.Supp. 701; Deal & Co. v. Leonard, 210 Ark. 512, 196 S.W.2d 991; Lynch v. Embry-Riddle Co., D.C., 63 F.Supp. 992; Kennedy et al., Appellant, v. Silas Mason Co., Appellee, 5 Cir., 164 F.2d 1016; Brue et al. v. J. Rich Steers, Inc., D.C., 60 F.Supp. 668; St. John's River Shipbuilding Co., Appellant, v. Adams et al., 5 Cir., 164 F.2d 1012.
With due deference to the courts holding to the contrary, although the transportation of some or all of the materials produced by the plaintiffs in the instant case was transported across state lines by the United States to military or naval destinations to be used in the prosecution of the war, I believe such activities constitute commerce within the provisions of the Fair Labor Standards Act, and is not an administrative act of the Government.
To hold to the contrary would in reality mean that the Fair Labor Standards Act would not have had application to any industry which was engaged in the production of goods which were used by the Government in the successful prosecution of the Second World War. In other words, the millions of men and women who contributed so faithfully by the untiring application of their efforts to the manufacture and production of goods, which were necessary for the war effort, would not fall within the provisions of the Fair Labor Standards Act where the goods produced in any instance were transported across state lines from the site of manufacture by any agency of the Government to the site or location where they were to be used, assigned or distributed to our armed forces. If such had been the intention of congress, I believe the legislative branch of our Government would have so spoken. I believe it would be a stange technical interpretation of the Act to hold employees, under the circumstances which exist in this case, to not be engaged in the production of goods for interstate commerce.
I, therefore, do not stand wrapped in the solitude of my own originality but on the solid ground of the opinions which I have cited, which had construed the production of goods by employees for the war effort to fall within the provisions of the Fair Labor Standards Act. I can see no reason for isolating the employees in the instant case from the general mass of employees in war plants because the goods which they produced were to be used ...