language is made all-embracing by the law's definition of it, which includes employees who have no contact with goods so produced, so long as they may be considered as "necessary to the production thereof."

No one who has carefully examined the decisions and regulations interpreting this law can escape the conclusion that the above language has been used as a springboard for authority to extend the law to regulate essentially local activities.1

Section 3 (j) will have the desirable effect of curtailing this practice. It will stop the practice of the Administrator of stretching the law to cover employees on the assumption that they are necessary to production for commerce where their employer is not himself producing any goods for commerce or is doing so only to a relatively insignificant extent.

3. Section 13 also makes a substantial contribution toward rendering the law more certain in its application and operation. The exemption for retail or service establishments is further refined so as to prevent it from being unreasonably confined and curtailed by interpretations which distort the original intent of Congress. Many owners of establishments which this exemption was intended to protect have found that because of a small amount of nonretail sales or servicing, or because of some incidental production of goods for commerce, they are being denied a status which Congress clearly gave them.*

Section 13 also provides long-needed clarification of the exemption for food processors and public carriers. And the exemption of employees earning a salary of $100 a week or over from the overtime provisions of the law is so manifestly fair that we doubt if anyone can honestly oppose it.

4. Section 3 (n) makes a serious attempt to end the confusion over what "regular rate of pay" shall include. However, unless I am mistaken, this bill does not affect the back-wage claims of the longshoremen in the Huron Stevedoring and Bay Ridge Operating Companies cases. If the Supreme Court should decide in favor of the validity of these claims, a $2,000,000,000 back-wage claim will be created and much of this loss will fall on the taxpayers, since the wages involved are owed under cost-plus contracts with the War Shipping Administration.

II. SUGGESTIONS FOR IMPROVING S. 2386

I have just discussed several features of this bill which we think are improvements over the present law. I should now like to point out three places where, in our opinion, it can be further improved.

1. Section 3 (j) clarifies the class of employees who would be covered by the law by reason of their being classed as necessary to the production of goods for commerce. It does so by setting up two conditions for determining whether an employee falls in this class. The first condition is concerned with whether his employer is directly engaged in the production of goods for commerce; and the second, with how much of the employer's business is necessary to the production of goods for commerce.

I have previously given you our reasons for believing that section 3 (j) is desirable and will accomplish much good by giving the law a certainty of coverage which it now lacks. By specifying the conditions which must exist before an employee may be considered necessary to production for commerce for the purposes of the act, Congress will be reasserting its right to rule on any expansion in coverage which the law should take, instead of having a myriad of decisions and interpretations usurping that prerogative of Congress.

This, we believe, is the intention of section 3 (j). It carries out this intention by striking down attempts to expand the law to include workers employed by employers who are not engaged in production for commerce or who do so only to a relatively small extent.

The first objective of excluding the workers of an employer who is himself not directly engaged in production for commerce is, I think, admirably accomplished by the bill in its present form.

However, when we consider the instances where the employer is engaged in production for commerce, but only to a very limited extent, then the bill does not appear as clear as it should be.

1 See Wage and Hour Release No. R-1890, holding that a window washer cleaning the windows of a building occupied by tenants more than 20 percent of whom are engaged in commerce or in the production of goods for commerce is covered by the law.

2 See Wage and Hour Interpretative Bulletin No. 6, which holds that sales by retail coal or oil distributors to apartment houses and the like are not retail sales if the quantity of the coal or oil delivered exceeds the quantity purchased by home consumers.

I have in mind, for instance, the provision requiring that more than 50 percent of the business of the employer be necessary to the production of goods for commerce, before any of his employees may be considered necessary to such production for the purposes of the law. What is the meaning of the word "necessary"? The bill does not define it, so apparently it is left to the Administrator to select his own interpretation. And, gentlemen, you may be sure if the Administrator is given this discretion, he will not read the word in the sense of indispensable, essential, or vital.

But even assuming that the Administrator does not take this approach, will the provision mean anything in practical effect? I doubt it very much. Every businessman will tell you that he views his business as a going unit. Continuous production is essential to operation, and the larger or more important a particular class of his business, the more necessary it is to the success of his whole operation. Take the case of a lumber manufacturer who produces only three percent of his products for interstate commerce. Is the 97 percent of his production which is for local use necessary or essential to the 3 percent which goes into interstate commerce? Obviously, the answer is, "Yes." For most certainly the 97 percent of production contributes substantially to the continuity of production and is, therefore, necessary to the production for commerce.

Section 3 (j) also contains another provision which is designed to restrict the law's application in instances where the employer is engaged in only a small amount of production for commerce. I refer to the requirement that five or more and 20 percent or more of the employees in the establishment in which he is employed be engaged in commerce or in the production of goods for commerce in occupations not exempted by section 13.

The 20 percent figure would seem at first glance to be high enough to exclude those establishments which are primarily engaged in local activities. Clearly, this was the intent of the provision. However, we fear that this intention may not be fully realized if the provision is not amended. As it now stands, all employees engaged “in the production of goods for commerce not exempted under the provisions of section 13 (a) "may be included by the Administrator to make up the 20 percent needed. Section 3 (j) defines such employees to include those necessary to production for commerce. The Administrator will therefore find it easy to include such employees as maintenance workers, watchmen, clerks, stenographers, and messengers if the establishment produces some goods for commerce, no matter how small such production may be. There can be no doubt of this, because the Wage and Hour Division has already held that enterprises cannot operate without such employees and has stated that the mere fact that they are on the pay roll is evidence sufficient to hold them as necessary to production for commerce.

In light of these facts I offer for the committee's consideration the following amendments to section 3 (j) of the bill:

"(j) Produced' means produced, manufactured, mined, handled, or in any other manner worked on in any State; and for the purposes of this Act an employee shall be deemed to have been engaged in the production of goods, if such employee (1) was employed in producing, manufacturing, mining, handling, transporting or in any other manner working on such goods in any State; or (2) was employed in any State in any process or occupation necessary to the production thereof: Provided. That no employee shall be covered by the provisions of section 6 or section 7 if fewer than five and less than 20 per centum of the employees in the establishment in which he is employed are engaged in commerce or employed in producing, manufacturing, mining, handling, transporting or in any other manner working on such goods in any State provided that such employees are not exempted under the provisions of section 13 (a): Provided further, That no employee shall be covered by the provisions of section 6 or section 7 or section 12 solely by reason of his employment in a process or occupation necessary to the production of goods for commerce if his employer (A) is not directly engaged in the production of goods for commerce and (B) less than 50 per centum of the gross receipts of such employer are derived from sales of goods for commerce. An employer shall be deemed to be directly engaged in commerce if, but only if, his employees are employed in producing, manufacturing, mining, handling, transporting, or in any other manner working on such goods in State" (new matter italics).

2. I now turn to what we consider to be a most remarkable proposal in this bill and one which, if made into law, will cause severe hardship. Section 15. entitled "Prohibited Acts" would make it unlawful for any person, except a common carrier, to ship, deliver, or sell any goods with knowledge that shipment

in commerce is intended if in the production of which any employee was employed in violation of any regulation of the Administrator issued under section 11 (d) of the bill. Also prohibited is any act which violates a regulation of the Administrator issued under the same section 11 (d). What are these regulations that the Administrator has power to issue? Section 11 (d) states "the Administrator shall have power to make, issue, amend, and rescind, (1) interpretative regulations defining and particularizing the terms and provisions of this Act."

Apparently the intention of this bill is to give the Administrator's interpretative regulations the force and effect of law. The possible consequences of this are so far-reaching that it merits the closest attention.

The law in its present form does not confer upon the Administartor any power to issue interpretative regulations except in certain specific instances (i. e., defining excecutive, administrative, and professional employees, areas of production, etc.). However, the Administrator has issued interpretative bulletins covering all phases of the act for the sole purpose of informing the public as to the enforcement policies of the Administrator. But they have never been considered legally binding and, though the courts have given them great weight, they nevertheless have disagreed with them on many occasions.

Under this bill all this would be changed and the Administrator would hold powers considerably beyond what he now has. At the present time judges have wide latitude in exercising their own discretion by overruling an interpretation of the Administrator. But if this provision of the bill becomes law, they would feel more inclined to uphold the Administrator's interpretion as long as it was not a clear and plain distortion of the act. It is undoubtedly true that the courts always reserve to themselves the right to interpret laws passed by Congress. It is equally true, however, that in asserting this right the courts will exercise a greater amount of self-restraint if the law gives to an administrative head or body the power to interpret the law and to enforce this interpretation.

Certainly no one would deny that any judge would be entitled to view action by Congress in giving to the Administrator the power to issue legally binding interpretations, as an effort to strengthen the hand of the Administrator in enforcing the act as he deems it is intended. It is highly unlikely that the expression of such an intent as this bill now contains would go unoticed or unheeded.

I also call the attention of the committee to the fact that this bill makes any willful violator of the Administrator's interpretations subject to a fine ranging up to $10,000 or imprisonment of not more than 6 months or both. The severity of these penalties is such as to make it exceedingly hazardous for any employer to disagree and refuse to follow the Administrator's interpretation, even though there may be serious doubts as to its validity. Employers who are not willing to take this risk will have the choice of either following the Administrator in blind adherence or investing large sums of money in an effort to persuade the courts to nullify his ruling. This is a serious deprivation of remedial rights which can have no justification. We therefore recommend that section 11 (d) (1) and all reference to it be entirely deleted from the bill.

3. Neither the Fair Labor Standards Act as it now stands nor the Portal-toPortal Act nor this bill makes it possible to comprise future claims under the law.

During the consideration of the Portal-to-Portal Act many expressed the fear that allowing comprise settlements between employers and employees would work to the disadvantage of the employee. It was said that all kinds of duress and pressure would be placed on employees to agree to a comprise not in their interests. However, such a statement completely overlooks the fact that any comprise resulting in a release from damages must be entered into by both parties voluntarily without force or duress to be binding in court.

It seems clear to use that employees themselves have much to lose by not permitting compromise settlements. Under a statute as uncertain as the FLSA, many cases arise where the employees have a doubtful cause of action. By prohibiting a binding settlement out of court the law forces the employee to hire attorneys to take his case to court, or receive nothing. Yet many employers would be willing to compromise the claim, doubtful as it may be, to avoid needless expense, if nothing more. But this uniquely paternalistic law foolishly says no, you must pay the employee all he says you owe him-otherwise he cannot give you a binding release. It has been truly said that the only group benefited by this provision are the lawyers.

Another reason advanced by those who wish to prevent settlement of wage-andhour claims out of court is that employers would use compromise settlements as a device to escape from paying wages which they know are owing under the law. Here again, there is a lack of understanding as to what is required to make such settlements valid. Under the common law there must be a bona fide dispute over what wages are due before there can be a legally enforceable settlement. Further more, as you will note from the language of our suggested amendment, we believe that the release and waiver allowed should not extend to any payment based on less than the basic, statutory minimum-wage rate, and less than time and a half of this basic rate for all hours worked overtime.

Before concluding my remarks on the need for this amendment I should like to point out that it is made necessary not by anything specifically placed in the law by Congress, but by judicial interpretations.3

During consideration of the FLSA prior to its passage, Congress struck from the bill a clause providing that any agreement for waiver of compliance with any provision of the act should be void. Had the courts and the Administrator been more disposed to follow the intent expressed by Congress when they eliminated this clause prohibiting binding compromise agreements, you would not have the present problem of how to reassert this original intent.

We suggest the following amendment:

"SEC. 16 (c). Any cause of action under this section or any action to enforce such a cause of action, may hereafter be compromised in whole or in part, if there exists a bona fide dispute as to the amount payable by the employer to his employee; except that no such cause of action may be so compromised to the extent that such compromise is based on an hourly wage rate less than the minimum required under this Act, or on payment for overtime at a rate less than one and one-half times such minimum hourly wage rate."

III. RAISING THE MINIMUM RATE

In dealing with the direct economic dollars-and-cents impact of the proposal to raise the minimum wage from 40 cents to 60 or 70 cents, it seems to us that Congress is forced to choose between two approaches or hypotheses.

One is what might be called the hypothesis of wishful thinking which involves the assumption that the existing boom conditions will continue; that we have in fact reached the permanent high plateau which some people thought we had attained in the twenties.

The other possibility which must be taken into account is far less agreeable to contemplate. Yet if we are to profit from the lessons of experience, we shall ignore it only at our peril. It is that the present inflation in wages and prices may not prove to be permanent and that, for this and other reasons, it would be the part of wisdom to keep the wage structure flexible-flexible enough to ride on and not under the economic tides of supply and effective demand.

The truth is, of course, that we have had no experience whatever in operating under this law except under unprecedented boom conditions. Almost simultaneously with the promulgation of the first wage order-raising the minimum wage in the cotton-textile industry from 25 to 32% cents-Hitler marched into Poland and from that day to this, practically every industry in the country has been operating in a sellers' market.

But even assuming that the present postwar boom and the inflated wage structure will remain permanent, is it safe to conclude that the direct dollars-andcents economic impact of a 60- or 70-cent minimum would be relatively insignificant.

We think that those who adopt this conclusion are ignoring the indirect effects of an increased minimum on wages paid to employees who already receive a rate above the proposed minimum, as well as to employees who are not covered by the law at all.

It is true that only a relatively small percentage of workers covered by the law are employed at a wage rate below the proposed 60- or 70-cent minimum. However, raising the rate of these employees cannot help but lead to a demand of the part of their higher-paid fellow workers for an increase to restore the preexisting differential. A skilled worker who today is earning a rate of 70 cents more per hour than his unskilled helper will naturally feel entitled to more f this helper gets a 10- or 20-cent hourly increase. Employers will find it difficut to withstand the logic of such demands, for to do so would be rewarding the

3 Brooklyn Savings Bank v. O'Neil (324 U. S. 697 (1945)).

4 S. 2475, sec. 17 (b) 75th Cong., 1st sess.

unskilled at the expense of the skilled. Furthermore, such increases in both the higher and lower wage brackets would not be compensated for by any increase in production and hence would be inflationary.

Another indirect effect of an increased minimum is its impact on wages in industries and trades not covered by the act. Employers in agriculture and in the distribution and service trades are for the most part not bound by the terms of the FLSA. But they are bound by the economic conditions which the law creates; they must, for instance, compete in the labor market with businesses which are under the law. Agriculture especially, which uses a large amount of unskilled labor, is certain to be vitally affected by raising the wage minima. The same is true for small business.

IV. THE BASIC OBJECTION TO THE PRESENT ACT AND TO S. 2386

So far, I have attempted to do three things: (1) Point out wherein, in our opinion, S. 2386 is an improvement over the present law; (2) suggest certain changes whereby we think the bill could be further improved; and (3) state the Council's position-and the reasons therefor-on the separate issue of raising the minimum wage. In conclusion, I should like to make it very clear that, in applauding this attempt to provide some measure of relief and offering certain more or less technical suggestions of our own directed at the same end, we do not wish to be understood as favoring this type of legislation-no matter how carefully it is drafted. The Council has gone on record many times for the outright repeal of the entire law, with the exception only of its child-labor provisions.

I shall not detain you with a detailed exposition of our reasons for opposing Government fixation of wages and hours. However, I should like to take a few minutes to present a summary of our views in this respect.

When Congress passed the minimum-wage provisions of the law it was intended to benefit the lower-paid workers by raising and maintaining their standard of living. Certainly no one would wish to quarrel with this objection. However, the law and its supporters assume that this objective can best be realized by making it illegal for employers to pay a wage rate that is below a fixed amount. This first and basic assumption which underlies the law is unfounded, and I offer the following reasons to support this conclusion:

1. The FLSA does not and cannot assure a worker a wage in any amount-or a standard of living at any level. All it does-all it can do is to give the employer the choice of paying a worker a prescribed minimum rate or not hiring him.

2. The law fixes a minimum-wage-rate and not the wage itself. No fixed money-wage rate can account for changing price levels or varying needs of different wage earners.

3. The law does not prevent exploitation of workers since a worker is being exploited only when he is being paid less than he is worth.

4. The law does not have the effect of increasing the efficiency of workers by improving their living conditions and stimulating incentive. Worker efficiency may come about but only to the extent that employers are able and willing to pay the less efficient worker for more than he is producing for a length of time necessary to enable him to react to his improved economic status.

5. Low-wage industries are usually the most competitive and pay higher wages in relation to their total processing costs plus profit than do the high-wage industries.

6. The law does not reach the cause of the trouble. It does nothing to help the worker increase the value of his services but assumes the existence of an American proletariat which can never improve its economic worth and which must be protected against the consequences of its own incompetency.

The overtime provisions of the law are equally without merit. They were passed for the sole purpose of "spreading the work" and there can be no doubt that they operate today as a serious deterrent to working overtime. The retention of them in the face of our present need for more production and the shortage of skilled labor is unsupportable from every point of view.

Such a spread-the-work law as this has no place in a free economy such as ours, and certainly not now in the midst of mounting inflation and a critical foreign situation.

Mr. BALLEW. May I say, Senator, in my remarks, as choosing between those two plans, I would not have it understood that we are