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Theoretically, it is a simple matter to operate such plants within the framework of the proposed amendments by the employment of three or four shifts per week. In practice, this is not possible. Sixty percent of the cottonseed crushing mills are located in communities of less than 10,000 population. In these towns there does not exist any such floating labor supply as would be required to operate these plants on a 40-hour week. From a social standpoint, it would be highly undesirable to attempt to create such a supply to serve a highly seasonal industry, since off-season employment is not available in sufficient volume in these small communities. If, on the other hand, the cottonseed crushing mills were forced to pay time and one-half the regular rate for all hours worked in excess of 40 per week, it would involve an increase of about 25 percent in labor costs, even if no changes were made in the basic minimum rate. If the proposed increase in the minimum wage to 75 cents an hour were also made effective, the net result would be an increase of approximately 70 percent in the labor cost of crushing cottonseed.

3. Our third objection to the proposed amendments is that they would reduce farm income in order to increase the income of wage earners. Any sudden and arbitrary increase in processing costs, such as is involved in this legislation, can be met from only three sources: (1) Out of the earnings of the industry, (2) in the form of higher prices of products, and (3) in the form of lower prices for raw materials. In the case of cottonseed crushing, the increase involved in these amendments would exceed the earnings of the industry in even its most prosperous years. The major proportion of the increase, if not all of it, would therefore have to come from the consumer in the form of higher prices fr cottonseed products or from the cotton producer in the form of lower prices for cottonseed.

So long as price ceilings are effective, it is obvious that increased processing costs cannot be paid for by higher product prices. Because of the nature of the cottonseed industry, it is doubtful that this could be done even after price ceilings are removed. Cottonseed products are standardized commodities. The supply and price of those products are not subject to control by the processor, as are the supply and price of differentiated commodities, particularly consumers' durable goods. The manufacturer of a motor car or a refrigerator, for example, may, within limits, increase or decrease the supply of his product. He may introduce new models and add or remove accessories. As a result, he can within limits adjust the price of his products in line with changes in costs. The cottonseed crushing mill enjoys no such flexibility. Its products must be sold in the most competitive of markets and prices are determined to a considerable degree by the world price level of competing commodities. Consequently, the bulk of the cost increase involved in these amendments would be reflected in lower prices for cottonseed. The American farmer is already at a disadvantage, relative to industrial labor, in terms of income. We oppose legislation that would take away a part of his income for the benefit of industrial labor.

4. We oppose this legislation further on the ground that it would tend to eliminate the small, country mill. As stated previously, 60 percent of the cottonseed crushing mills are located in communities of less than 10,000 population and these communities do not have a sufficient supply of floating labor for the mills to operate on four shifts per week. Such mills could not pay the penalty rate for overtime and compete with mills located in the larger cities where labor is normally sufficient to permit the employment of several crews per week. The proposed amendments attempt to impose uniform standards on wholly different situations. If enacted, we are convinced that they would force many of the small country mills out of business, with serious losses to the communities in which these mills are located.

5. The amendments provide that an employer shall be liable for so-called unpaid wages and damages for a period of 5 years from the time such wages were due. If the employer's obligations were clearly and understandably written into the law, there would be little objection to this type of provision. However, under the present act and the proposed amendments, the meaning of much of the law is left to the definition and interpretation of the Administrator. During the past several years, we have had considerable experience with such interpretations and we find that the Administrator changes his mind. Our members have acted in good faith on certain administrative interpretations only to have those interpretations changed and to find that they had been "violating" the law for several years according to the new interpretations. This situation can easily bankrupt the small firm and the higher the minimum wage, the greater is the danger.

Based upon the above objections, we make the following recommendations: 1. That the overtime exemption presently afforded the agricultural processing industries by section 7 (c) of the act be retained.

2. That the present minimum wage rate provided in section 6 of the act be unchanged. We are convinced that industrial wage rates will advance steadily during the next few years as a result of increasing productivity and volume production. We are equally convinced that the establishment of the minimum rates proposed in these amendments will result in a reduction of employment and in the elimination of many small firms.

3. That the period during which the employer shall be liable to suit for claimed failure to pay wages called for in the act shall not exceed 2 years.

EXHIBIT 15

STATEMENT OF STANLEY I. POSNER, GENERAL COUNSEL, LINEN SUPPLY ASSOCIATION OF AMERICA, NATIONAL INDUSTRIAL LAUNDERERS AND CLEANERS ASSOCIATION, AND NATIONAL INSTITUTE OF DIAPER SERVICES

Mr. Chairman, my name is Stanley I. Posner. I am general counsel for and appear on behalf of the Linen Supply Association of America, National Industrial Launderers Association, and the National Institute of Diaper Services. These three national trade associations are engaged in the business of supplying and laundering clean work clothes, restaurant, hotel, and barber shop linens, and diapers to hospitals and individual families. These activities are all recognized branches of the power laundry industry. A large number of the members of these three associations are members of the American Institute of Laundering. That organization encompasses all phases of the laundry industry-hand laundries, power laundries, including linen supply, industrial laundries, and diaper services.

My statement is presented in connection with S. 1349 which proposes increased minimum wage and other amendments to the Fair Labor Standards Act of 1938. Section 7 of this bill proposes an amendment to section 13 of the act. Our members request that this committee clarify a portion of section 13 which will guarantee execution of the congressional intent despite present efforts to defeat a necessary exemption created in the original act.

The Fair Labor Standards Act of 1938 contains an exemption in section 13 (a) (2) for "retail or service establishments the greater part of whose selling or servicing is in intrastate commerce". This exemption was consistent with the intention of Congress to leave local business to the regulation of the States. The report of the Senate Committee on Education and Labor stated:

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"The bill carefully excludes from its scope business in the several States that is of a purely local nature. *** It leaves to State and local communities their own responsibilities concerning those local service and other business trades that do not substantially influence the stream of interstate commerce. For example, the policy in this regard is such that it is not even intended to include in its scope those purely local and small business establishments that happen to be near State lines and solely on account of such locations, actually serve a wholly local community within two States" (p. 5, S. Rept. No. 884).

When the bill was debated in the House, Congresswoman Norton was asked by Congressman Dempsey, "May I ask whether by the wildest stretch of imagination, or regardless of any possible administrative interpretations, this bill can in any way affect such business as that of the local groceryman, druggist, clothing store, meat dealer-any merchant, in fact-laundry, hospital, hotel, or even transportation companies operating solely within a State?" Mrs. Norton replied: “Absolutely not" (Cong. Rec. vol. 83, p. 7299, 75th Cong., 3d sess.).

All branches of the laundry industry have been recognized as "service establishments." I submit an excerpt from the 1939 Census of Service Establishments, classifying the laundry industry and including wholesale plants. Accordingly, laundry operators throughout the country were satisfied that they would continue to be regulated by various State minimum wage-hour laws adapted to conditions prevailing in local areas. Service establishments have always been recognized as a special category in labor legislation because of the high ratio of labor cost to total operating costs. (1939 Census of Service Establishments showed that more than 5 percent of total receipts were paid out as wages. This contrasts with the situation in manufacturing industries, where in 1939 less than 16 percent of total receipts were paid out to labor.)

For more than a year the Wage-Hour Division recognized the congressional intent to exempt all laundries. In 1940, however, the Wage-Hour Division announced that service establishments were exempt only if they were "retail service establishments." Thereupon, the Wage-Hour Division began enforcement proceedings against laundries and linen supply companies which rendered services to hotels, barber shops, restaurants, or other types of commercial customers. This interpretation (incorporated in Wage-Hour Interpretative Bulletin No. 6) encouraged a number of workers to bring suits against laundries. With only one exception the courts have agreed that the statutory exemption for service establishments includes all laundries whether or not they do work for hotels, restaurants, or other commercial customers.

The Administrator of the Wage-Hour Division has admitted that the interpretation in Bulletin No. 6 is contrary to the intention of Congress. About the middle of 1942 there was an exchange of correspondence between Metcalfe Walling, Administrator for the Wage-Hour Division, and Congressman Hartley of New Jersey, who was a member of the House Labor Committee and conference committee which handled the original Fair Labor Standards Act. Mr. Walling unequivocally stated in a letter dated July 2, and again on February 22, 1943, that he was "very much inclined to the view that all laundries regardless of whether they do so-called commercial work or not were intended by the Congress to be exempt." Mr. Walling explained that the ruling incorporated in Interpretative Bulletin No. 6 had been issued by his predecessor, General Fleming, and that he felt he could make no change until the conclusion of a court case (Lonas v. National Linen Service) which was then pending on the very question.

Shortly thereafter the United States Court of Appeals for the Sixth Circuit unanimously held that all laundries, regardless of whether they do commercial work or not, are service establishments and exempt. The court by unanimous decision on June 22, 1943, held as follows:

"Section 13 (a) (2) exempts from the minimum wage and overtime compensation provisions of the act contained in paragraphs 6 and 7, the following: 'Any employee engaged in any retail or service establishment the greater part of whose sel'ing or servicing is in intrastate commerce.'

"The Administrator, basing his argument upon Interpretative Bulletin No. 6 issued December, 1938, and revised June 1941 by the Wage and Hour Division of the United States Department of Labor, contends that the exemptions in paragraph 13 (a) (2) are limited to establishments retail in character whether they sell goods or services. This view is based upon what he conceives to be the implications to be drawn from the legislative history of the act and the grammatical construction of the exemption section. Since the related terms are coupled in the same sentence and are used in the disjunctive with the terms 'retail' and 'service' both modifying the word 'establishment,' they refer to employers who Ideal directly with private consumers as distinguished from commercial and industrial customers. In other words, the service establishment exemption extends only to those establishments having the characteristic of retail stores, and the defendant's business is not a retail service establishment because 60 percent of its customers are industrial or business concerns.

"We find no support for this interpretation in the language of the exemption section. Two enterprises are therein exempted, one a retail establishment and the other a service establishment, the exemption of each subject to the condition that in the case of the retail establishment the greater part of its selling must be in intrastate commerce, and in the case of a service establishment, the greater part of its servicing must be in intrastate commerce. Had the Congress intended to limit the exemption of service establishments to those which perform services for private individuals as distinguished from business enterprises, it would have had little difficulty in clearly expressing such purpose.

"Linen supply companies and laundries have long been regarded and classified as local service enterprises by Federal departments and agencies, as well as by trade associations and the public. The 1939 census included linen supply services in its classification of service establishments without differentiation in respect to the character of customers. To read into the exemption clause phrasing that would limit it to services performed for private individuals in their homes, would 'merit the condemnation expressed in the principal case relied upon by the Administrator. Kirschbaum v. Walling (316 U. S. 517). There, on page 522, it is said: 'when the Federal Government takes over such local radiations in the vast network of our national economic enterprise and thereby radically readjusts the balance of State and National authority, those charged with the duty of legislating are reasonably explicit and do not entrust its attainment to that retrospective expansion of meaning which properly deserves the stigma of judicial legislation.'

"The exemption section being without ambiguity, we find no occasion to resort to extrinsic aids to construction, though it may be said in passing that even though we were to consider the legislative history of the section as reviewed by each of the litigants, it would be far from clear that the Congress intended anything other than what it clearly expressed. Nor do we think that the court was premature in dismissing the action without receiving proofs in support of the complaint. The allegations originally were silent as to the interstate extent of the defendant's servicing, and alleged that but 25 percent thereof was rendered to industrial and commercial customers as distinguished from private families or individuals. An amendment several months later charged that 20 percent of the appellee's servicing was to customers in the State of Kentucky and the State of Virginia, and 60 percent to industrial and business concerns. It must be assumed that proofs would not expand the allegations of the amended complaint

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and further amendment was not requested even in the face of the motion to lismiss

"The decree is affirmed."

The Supreme Court of the United States denied certiorari.

After this decision, Mr. Walling instructed his field offices to take no further steps to enforce the interpretations, but he did not change the official interpretation itself. Thus, workers in laundries and linen supply companies throughout the United States are still encouraged by the Wage-Hour Division to believe that in some cases laundries are not exempt. This has resulted in numerous other suits in various State courts and Federal courts throughout the country and has caused great expense and embarrassment to many employers. The question is currently being tried in several courts.

Apparently, the only way to resolve this question is for Congress to indicate learly that it intended to exempt all laundries whether or not they serve hotels, restaurants, etc. The Wage-Hour Division bases its interpretation on the hairsplitting argument that the phrase, "retail or service establishment" which appears in section 13 (a) (2) means "retail or retail service establishment." Accordingly, it is suggested that the clause be amended to avoid this absurd interpretation. In its present form section 13 (a) (2) exempts "any employee engaged in any retail or service establishment. It is suggested that this be amended to read "any employee engaged in any retail establishment or service establishment.

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When the act was passed in 1938 Congress was well aware of the fact that "service establishments" required an exemption from the wage-hour law. Senator Aiken of this committee several weeks ago stated publicly that the minimum wage must be revised upward. He cautions, however, that increases must not be so rapid as to disrupt industry and there must be fair safeguards for exemptions. The history of administrative agencies discloses numerous instances of expansion of activities beyond the scope originally contemplated by the legislation which created the agency. This, however, appears to be the first case where an agency publicly recognizes congressional intent and yet distributes its official bulletins inviting employee suits based on an interpretation in direct conflict with the intent of Congress.

We ask this committee to make the change which I have suggested here and bring this intolerable situation to an end.

I appreciate the opportunity which this committee has given me to present the views of the associations which I represent.

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