them requires his utmost ingenuity and enterprise. An increased statutory minimum wage in the face of such factors of consumer resistance will compound an already extremely difficult problem. Laundries' principal competitor-the housewife An important feature of the laundry industry-a characteristic which is basic to all its economic and operating problems-lies in the fact that its greatest competition comes from its customers the housewife of the Nation. When she is faced with the alternative of buying laundry services or gasoline for her car, her dollar will go for gasoline, because she can't make gasoline, but she can do the washing and ironing. When laundry prices go too high, the housewife does her own laundry and laundry work volume diminishes. When laundry sales volume drops, the laundry lays off employees. These employees-generally women (approximately 84 percent of all laundry production employees are women) 2often become family laundresses and thus provide additional competition for the laundry's bundle. Indeed, But, of course, no minimum wage applies to housewives or laundresses. the housewife will work without any monetary compensation-not for a 75 cent or any other minimum established by statute. Other types of laundry customers, such as hospitals, universities, barber shops, hotels, or other institutions will, and do, process their own laundry if laundry prices rise too high. Such organizations merely have to buy and install laundry equipment in order to have their laundry done, and the modern automatic washers make this idea very attractive from the cost point of view. Thus, the laundry is "between the devil and the deep blue sea." Unless it raises its wages to comply with the required statutory minimum, it is in violation of the law and subject to the law's substantial liabilities and penalties. If it does increase its wages to satisfy the minimum, it must also increase its sales prices. But the market will not absorb further increases in price of laundry services, so the laundry loses business to its customers. Increased wages=increased prices=sales decline=loss of jobs Striking illustrations of the effect of wage and price increased in curtailing laundry sales and laundry employment are presented by the following three examples: 1. In the San Francisco-Oakland area laundry wage rates were increased 10 cents an hour in December 1946, 72 cents in December 1947, and 71⁄2 cents in 1948. As a result these laundries showed a profit of 2.9 percent in the first half of 1947, a loss for the second half of 1947 and a total profit of 12 percent for the year. The 1948 survey is not complete. A comparison of laundry sales in this area as between October 1946 and January 1949 discloses the following: And during the same period, total employment in the laundries in this area dropped from 1730 employees in 1946, to 1677 in 1947, and to 1481 in 1948. In other words, by reason of the constantly increasing wage rates with their resultant price increases, not only did the total volume of business of the laundries fall off to the extent indicated, but, in addition, 249 jobs were lost due to the drop in business volume. 2. In a midwestern laundry a 16-percent price increase was put into effect in August 1948. Since that time this particular plant received 8.7 percent fewer laundry bundles, and 13.6 percent less pounds of laundry than it did prior to the necessary price increase resultant from its wage increases. This plant was therefore required to lay off 8 percent of its productive workers because the resultant diminution of laundry volume made their services unnecessary. According to survey of Women Workers in Power Laundries bulletin of the Women's Bureau of the U. S. Department of Labor, 1947. 3. Similarly, in the Los Angeles area, since June 28, 1948, when increased labor costs went into effect under collective-bargaining agreements, laundry employment dropped 10 percent in the next 6 months. Laundry owners in this area estimate that if the proposed 75-cent minimum wage goes into effect their wage costs will be increased by 20 percent, and within 6 months thereafter the resultant price increases will cause laundry sales volume to drop to such an extent as to require the lay-off of 20 percent of the workers employed in those laundries. These case histories show the inevitable increased costs-increased prices— loss of business and loss of jobs cause and effect cycle which results when wage rates are increased through collective bargaining. Parallel results must obtain when wage rates are increased by statute. Thus, paradoxically, although one of the principal objectives of the Fair Labor Standards Act has often been stated to be to increase opportunities for employment, the effect in the laundry industry of an increased statutory minimum wage will, as shown above, be exactly the opposite. 3 Moreover, the latest figures of the Bureau of Labor Statistics clearly show the extent to which employment in power laundries has been falling off in the 5 months from July 1948 to November 1948. According to these figures, in July 1948 the power-laundry industry employed 239,000 production and related workers. This was approximately the same number of employees that had been employed in November 1947. By November of 1948, however, the total number had dropped to 225,000-a loss of 14,000 jobs. Any increase in statutory minimum wages will drastically accelerate this existing serious trend. Resultant increases in cost of living That the cost of laundry services has a significant effect on the family budget of those families utilizing laundry services cannot be doubted. Nor can it be doubted, as indicated above, that in order to comply with increased statutory minimum wage requirements the price of laundry services to the housewife will have to be increased. In the laundry industry it is figured, as a general rule of thumb, that for every 1 cent per hour increase in our total pay-roll costs, the sales price of laundry services must be increased by approximately 1.2 percent in order to maintain existing profit margins-which, as seen above, are quite reasonable, if not nominal. Thus, for example, a laundry whose minimum wage under collective-bargaining agreement or otherwise is now 61 cents, must raise all of its basic pay rates (including its present minimum) by 14 cents per hour across the board. This amount of increase is conservative, for it does not take into consideration added costs for overtime, vacation, holiday pay, taxes, etc. But even on a 14-cent across-theboard increase, this laundry's sales prices must be increased by about 17 percent. This, in turn, means that the price for laundering a shirt will have to be increased from 24 to 28 cents per shirt, and the cost to the housewife for laundering her average bundle of flatwork will have to be increased from $2.11 to $2.47. Undermining collective-bargaining agreements In August 1, 1947, the Department of Labor found that as of that time approximately 40 percent of the production workers in the power laundry industry were covered by union agreements. It is believed that since that time the proportion of the total industry which operates under collective-bargaining contracts has been increased. As in all such contracts, these contracts in the laundry industry make provision for all conditions of employment, including wages and hours of work. The provisions governing wages and hours in laundry plants or shops are arrived at through the process of free collective bargaining, which ultimately results in an agreement between laundry management and the union representing laundry employees. Now it certainly cannot be said, and indeed should not be said, that the various international unions involved do not adequately and properly represent the interests of laundry employees. Yet, many of these agreements, taking cognizance of the nature of the laundry industry and of the local conditions peculiar to the locale within which the laundry operates, have established minimum rates of pay which are appreciably under the proposed statutory minimum of 75 cents an hour. There is set forth below an illustrative tabulation of minimum wage rates (exclusive of beginners) for production workers in laundries as established by current collective-bargaining agreements with local affiliates of international labor organizations. 3 Monthly Labor Review, January 1949, p. 101, table A-9. Monthly Labor Review, U. S. Department of Labor, August 1947, p. 158. 1 The rates specified apply not to single laundries but to numbers of laundries in each area. 67 70 These facts, we submit, constitute of themselves an indictment of the principle of the application of statutory as distinguished from collectively bargained— minimum rates of pay in this industry. It is also apparent that the enactment of statutory minimum wage requirements will be most detrimental to these collective-bargaining relationships. The imposition of a superseding statutory minimum-wage rate will not only disrupt and make valueless existing collective-bargaining provisions establishing lower minimum rates of pay, but will actually interfere with and impede free collective bargaining thereafter. The increased statutory minimum wage cannot help but have this result. For then the statute, and not the collective agreement will establish the terms of wages and hours and overtime requirements which will govern laundry workers' employment. And to the extent that employees can look to Congress for the establishment of minimum wages rather than to their unions, the Congress, in effect, will supplant the union in this field. The union will thus lose interest and support of its membership by reason of its influence having been undermined by the Congress. For since wages and hours of work are the very heart, the crux, of the conditions of employment which are the subject of collective bargaining, there will be very little left for the union to bargain about. Adverse effect on dependent industries Bankrupt or closed laundries, or reduced laundries' sales have repercussions beyond the laundry industry itself. Loss of jobs in laundries affect the economic life of the workers as well as the community in which he lives and all the enterprises in it upon which he depends and which are dependent on him. The substantial detrimental effect on those related industries which are themselves dependent upon a healthy vigorous laundry industry is also clear. For the welfare of the one depends on the welfare of the other. The important magnitude of this fact as to our industry is shown by volume of annual purchases by power laundries. Thus, in the year 1947, power laundries bought from other industries the following items in the following dollar amount: Aprons, covers, pads. Paper, twine, tape.. Boards, bands, envelopes, cases.. Dry cleaning solvent (based on dry cleaning sales only). Gas, oil, grease_ Tires and tubes. $8, 672, 000 27, 683, 000 6, 504, 000 11, 090, 000 12, 674, 000 7, 587, 900 2, 959, 000 6, 920, 000 1,250,000 25, 682, 000 10, 558, 000 12, 915, 000 7, 447, 000 To the extent that increased minimum wages place the business life of industries in jeopardy, they also jeopardize those industries dependent upon a vigorous healthy laundry industry. II. EFFECT ON LAUNDRIES OF THE APPLICATION OF THE SECTION 13 (A) EXEMPTION OF S. 653 Provisions of section 13 (a) of S. 653 This provision, which purports to exempt some "service establishments" such as laundries from the provisions of the bill, not only does not help laundries, but, on the contrary, would, if enacted, seriously injure a large number of them. Section 13 (a) of S. 653 would not exempt laundries in the following categories: (a) Those laundries whose total annual volume of sales exceeds $500,000. (b) Those laundries which operate five or more "establishments"-regardless of total volume of sales. (c) Those laundries-regardless of total volume-whose annual dollar volume of "nonretail servicing" exceeds 25 percent of the total annual dollar volume. Retail servicing is defined, in effect, to include only sales involving types or quantities normally required by private individuals for personal or family consumption or sales to farmers. These provisions represent a legislative codification of some of the more important principles which have been progressively developed by the Administrator through 11 years of administration of the comparable exemption in the present act. They apparently are an adoption of the recommendation contained in the Administrator's Annual Report for 1948 5 to the effect that there be incorporated into the act "specific language similar to that used in the tests applied by the Division in determining the eligibility of an establishment for the exemption." The laundry owners' past experience under the administration of the present act thus becomes most pertinent for the light it sheds on what can be expected in the future if this or a similar proposal is enacted. Laundry owners' past experience under FLSA administration The Fair Labor Standards Act has now been administered and enforced for almost 11 years. One might reasonably expect that within such a period of time the circumstances under which, and the extent of the application of this statute to laundries, might become reasonably clear. Simple justice to laundry owners under basic American principles of fair paly would seem to demand that this be so. The startling and incredible fact is, however, that after nearly 11 years of the Fair Labor Standard Act's administration, a great many laundry owners throughout the country are still uncertain as to their status under the law. Not only that, but after 11 years of administration the uncertainty and confusion of laundry owners as to their standing is immeasurably worse than it was the day the statute was enacted. Indeed, as of today no one, including the Administrator himself, is able to ascertain the precise status of many laundries under this statute. Not only is it impossible for laundry owners themselves to determine their status, but it is also impossible for their attorneys to advise them with accuracy respecting where they stand. Simply stated, the situation is that in the present state of the law they cannot know the answers-it cannot be said with certainty whether a given laundry is within or without the act. And this indescribably confused and uncertain situation exists after nearly 11 years of administration of a statute, which, as it stands, carries potential sanctions and liabilities more than adequate not only to disrupt the small businesses constituting the laundry industry, but to bankrupt and ruin many of them completely. Under the proposed statute increasing the minimum wage and authorizing suits by the Secretary of Labor, this situation will be many itmes compounded. In order to make clear to the committee the sound grounds on which these statements are based, we attach hereto as exhibit A a statement of the chronological history of application of the FLSA service establishment exemption to laundries during nearly 11 years of administration. It will be observed that in the column captioned "Extent of application of section 13 (a) (2) to laundries," we have made an effort to outline in graphic form the numerous, inconsistent, and conflicting rulings to which laundries have been subjected in the course of efforts to exclude them from the benefits of this provision. Insofar as the fundamental question of whether the act was applicable to laundries generally at all, you will note that laundries have gone through the following stages: 1948 Annual Report of the Wage and Hour and Public Contract Divisions entitled, "An EvaluationFair Labor Standards Act-1938 to 1948," p. 118. 1. From the time of congressional debates prior to enactment of the statute in June 1938 until June of 1941, or a period of 3 years, laundries generally were considered to be exempt from the act and the Administrator had officially endorsed this understanding. 2. In June of 1941, however, this status changed and laundries other than "home laundries" (whatever might be connotated by that term) were ruled to be excluded from the exemption. Thereafter varying tests were announced for the purpose of allegedly assisting in the determination of what laundries were subject to the act and what laundries were not subject to the act. 3. In July 1942, however, the Administrator advised Congressman Hartley that these distinctions were incorrect, that all laundries should be exempt and that the Division's prior interpretation should be reversed. 4. Nevertheless, the Administrator continued to pursue litigation against laundries, insisting to the courts that some laundries were subject to the act. 5. In August of 1943, however, he officially announced the policy of nonenforcement of the act as to any laundries. 6. But in December of 1946, after a Supreme Court decision, which does not directly relate to laundries at all, he withdrew his nonenforcement policy and stated that as of January 15, 1947, the act would be enforced against laundries and that the 13 (a) (2) exemption would not apply to laundries whose sales to other than to private individuals amounted to more than 25 percent. The flagrant inconsistencies apparent in the foregoing respecting the basic question of the application or nonapplication of the act to laundries generally, has also been demonstrated in connection with less fundamental but equally important subsidiary questions bearing on laundries' exemption status under the statute. Thus, for example, as shown in exhibit A: 1. In 1940 the Wage-Hour Administrator established a 50-percent rule for determining whether an establishment was a retail one. In June 1941, however, this percentage test was changed to 25 percent. And, in June 1947, this 25-percent test was entirely rescinded in a blanket order. Then in March 1948 it was re instated. It would now be made a matter of statute under S. 653. 2. In June of 1941 revised interpretative bulletin No. 6 also established a price test for determining whether sales were retail. In November 1946, however, the Administrator advised that his office was considering withdrawal or revision of this price test. Only recently in his 1948 annual report has the Administrator announced that, "the price test has not contributed significantly to effective application of this provision of the act." And the S. 653 proposal does not include it. To cap this entire quite ludicrous, yet gravely serious history, in June 1947, the Administrator withdrew all previous interpretations, releases, opinions, etc., with the result that as of today many laundries cannot possibly know where they stand. Now, therefore, it is anybody's guess whether the act is applicable to many laundries at all, or to what laundries the section 13 (a) (2) exemption applies and to what laundries it does not apply. Current problems of laundry owner applying present statute It is nothing short of incredible as well as being basically unjust and inherently unfair to appreciate the intricacies of interpretation and the niceties of hair-splitting distinctions which a laundry owner must go through in order to achieve one basic and desirable simple conclusion; namely, does the act apply to the laundry owner in question. In order to illustrate the difficulties attendant upon the answer to this fundamental question, we have prepared a further exhibit attached hereto as exhibit B. This exhibit, which is entitled, "Steps a Typical Laundry Owner Must Take (Assuming He Knows the Law) to Determine (If He Can) Whether He Must Comply With the Fair Labor Standards Act," is designed to illustrate the problems confronting a typical laundry owner in seeking to decide the deceptively simply question of whether or not the Fair Labor Standards Act applies to him. Reference to exhibit B demonstrates that as many as 60 steps may be involved in ascertaining the answer to the one question of whether the act applies to the laundry. We conceive this to be a typical, a quite usual, situation. Any specific case may involve a less number of steps, and yet other cases may involve a great many additional steps. But even after this lengthy, confusing, legalistic type of analysis, there can be, in many instances, no assurance that the conclusion is a correct one. Yet the gamble on the correctness of that conclusion is a considerable one. Moreover, under the present law the conclusion may change from time to time. The laundry 90175-49-18 |