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TOBIN v. HOUSEHOLD FIN. CORP.

June 24, 1952

TOBIN
v.
HOUSEHOLD FINANCE CORP. et al.



The opinion of the court was delivered by: KIRKPATRICK

Household Finance Corporation (of which the other corporate defendant is a wholly owned subsidiary) operates a small loan business in over 300 cities in the United States and Canada, in 28 states and 8 provinces. Its main office is in Chicago and it is licensed to do business in Pennsylvania, under the Small Loan Law of that state. The question presented by this action, brought by the Secretary of Labor, is whether the employees of the defendant's office at Lancaster, Pennsylvania, are covered by the Fair Labor Standards Act. Most of the relevant facts relating to the scope and character of the defendant's business and the kind of work done by the employees at Lancaster have been stipulated, leaving two specific issues to be determined:

(1) Are the defendant's employees engaged in commerce, so as to make the Fair Labor Standards Act applicable to them?

 (2) Is the Lancaster office a retail or service establishment, within the meaning of Section 13(a)(2), 29 U.S.C.A. § 213, which exempts employees of such establishments from the coverage of the Act?

 The applicability of the Fair Labor Standards Act depends upon the character of the employee's work. The employer may be in commerce or in the production of goods for commerce and the employee not. That the employer is so engaged, while not decisive, is always a relevant fact bearing upon the relation of the employee's activities to interstate commerce. Sometimes it may not be a very important consideration. Thus, where the employee is engaged in one of those auxiliary activities which are not essential to the employer's business, as for example in McLeod v. Threlkeld, 319 U.S. 491, 63 S. Ct. 1248, 87 L. Ed. 1538, the fact that the employer is in commerce, is only a starting point. On the other hand, where the employee's activities are so intimately connected with the business as to be an essential part of it, the fact that it is an interstate business will bring the employee under the coverage of the Act. Such a case is that now before the Court.

 These employees are actually conducting the defendant's business. Of course, they are not conducting the whole business, but, without them and hundreds of others who are doing the same things that they are doing, in other cities, there would be no business. They pay out the money loaned and make the connections (which operations really constitute the business) and they keep the books and records, transmit the balances and make the reports, all of which activities are so closely connected with the business as to be an indispensable part of it.

 The decision of the Supreme Court in U.S. v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 64 S. Ct. 1162, 88 L. Ed. 1440, on the question of the interstate character of the business of the defendant in that case, is controlling here and compels the holding that Household is in commerce. Naturally, there are differences between the insurance business and small loan banking. For one thing, the loan contracts in the present case, which are the heart of the business, are not made at the home office in Chicago and the instruments evidencing the loans are not transmitted across state lines, as in the case of policies of insurance. This, however, is a difference in detail only. In this case, money, the assets of the defendant used directly by it for its business, flows from its banks and depositories in Chicago to the Lancaster office and to other similar offices in cities all over the United States and in Canada. As the loans are collected, the money flows back from the various local branches to the main office. The stream is regular and steady and is continuously paralleled by reports of various kinds, which are for the purpose of keeping the company informed of its business throughout the country and which are necessary if it is to maintain control of it. The money loaned is not the money of the branch offices. The credit extended is credit extended, not by the branch offices but by the defendant in Chicago, acting through its employees in its branch offices.

 Regardless of form and phraseology, the defendant's argument is in substance that its business is separated into distinct territorial compartments which function in isolation from each other. The Court in the Underwriters case, supra, said that that was not true of the insurance business, and it is not true of this defendant's business. Although there is very little *fn1" direct interrelation between one branch office and another, the entire business is integrated and is conducted across state lines.

 In U.S. v. South-Eastern Underwriters Ass'n, supra, 322 U.S. at pages 553, 547, 54 S. Ct. at pages 1173, 1170, 88 L. Ed. 1440, the Court laid down the broad principle 'No commercial enterprise of any kind which conducts its activities across state lines has been held to be wholly beyond the regulatory power of Congress under the Commerce Laause', and 'a nationwide business in not deprived of its interstate character merely because it is built upon sales contracts which are local in nature.'

 If the employer's business in interstate in character, then, as has been said, those employees whose activities are essential to its operation are also so engaged. It seems unnecessary to go, in detail, into the activities of each of the employees here involved. Of course, no single employee in the Lancaster office is vitally necessary to the continuance of Household's business, and the Lancaster office could probably continue to function if the force were reduced by eliminating some, but the test is whether the type of work which an employee performs is so intimately related to the defendant's interstate business as to be in practice and legal contemplation a part of it. I think that that is true of all the employees involved in this case.

 (2)

 The Fair Labor Standards Act of 1938 exempted from the coverage of the Act:

 '* * * any employee engaged in any retail or service establishment the greater part of whose selling or servicing is ...


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