Ever since the act became effective, there has been widespread confusion concerning its meaning and application. Literally hundreds of court actions have been filed because the act does not define "regular rate," and an almost equal number of cases have been brought because of uncertainty, concerning the meaning of "production of goods" for commerce. "Area of production" problems have been the source of continuing disputes and litigation as have the Administrator's regulations defining "executive, "administrative,' and "professional" employees. Every student of the subject has long recognized these uncertainties. The Wage Hour Administrator has referred to them on several occasions. As early as 1941, he advised Congress in his annual report that even the experts in the Department of Labor were uncertain about the meaning or applicability of the statute. Annually thereafter, he has pointed to sources of confusion and needless litigation, and during the present session of Congress he has recommended that Congress define certain terms. REGULAR-RATE RECOMMENDATION As indicated previously, the bill before this committee would define "regular rate" in a somewhat detailed fashion. In lieu of that definition, we have recommended that this term be defined in a more simple fashion in order that all parties to the labor relation may have genuine flexibility in their contracts and in their bargaining, provided of course, they conform in good faith with the minimum requirements of the statute. PRODUCTION OF GOODS The Fair Labor Standards Act in its present form has two bases for coverage. It applies to employees engaged (1) in commerce; or (2) in the production of goods for commerce (including any occupation necessary to such production). The question of what constitutes an activity in commerce has been relatively well settled for many years. However, the concept of what constitutes production of goods for commerce has been ever expanding and changing, and has been the source of hundreds of disputes between employers and their employees. When the act was passed, it was quite generally assumed that under the "production of goods" clause, employees were covered by the act if (1) they produce goods for shipment over State lines, or (2) their work was so intimately connected with such production as to be a part of it. The first major change in this concept was brought about by the Supreme Court's decision in Kirschbaum v. Walling ((1942) 316 U. S. 517), when the Court ruled the act applies to maintenance employees in loft buildings where manufacturers rent space. Thereafter, that Court ruled employees were engaged in production and covered by the act (1) when washing windows in an establishment of another employer where production took place, Martino v. Michigan Window Washington Co. ((1946) 327 U. S. 173); (2) when rebuilding motors for use by customers in commerce or in producing goods, Roland Electrical Co. v. Walling ((1946) 326 U. S. 657); and (3) when doing maintenance work in an office building occupied by the headquarters staff of a company elsewhere engaged in production of goods for commerce, Porden v. Borella ((1945) 325 U. S. 679). United States courts of appeal have ruled that employees are engaged in covered "production" (1) when constructing buildings for subsequent use in producing goods Walling v. McCrady Construction Co. (C. C. A. 3 (1946), 156 F. 2d 932), certiorari denied, November 25, 1946; (2) when watering livestock for a commission company furnishing facilities for temporary holding and transfer of the livestock, Walling v. Friend (C. C. A. 8 (1946), 156 F. 2d 429); (3) when maintaining irrigation ditches, Reynolds v. Salt River Valley Water Users Association (C. C. A. 9 (1944) 4 WH cases 617), certiorari denied, November 6, 1944; (4) when "preparing, executing, or validating bonds, shares of stock, commercial paper, bills of lading and the like," Rozant v. Bank of New York (C. C. A. 2 (1946), 156 F. 2d 787); and (5) when producing fertilizer in Puerto Rico for use on farms in Puerto Rico, McComb v. Super-A-Fertilizer Works (C. C. A. 1 (1948), 7 WH cases 639). The Wage-Hour Administrator has used the "necessary to production" clause to justify interpretations that workers only remotely connected with production are covered by the act. Thus, he has ruled that employees are engaged in covered production (1) when producing printers' ink for consumption in the same State and community where it is produced, and (2) when making lubricants for use by industrial establishments in the same State. The ll (S. 653) before this subcommittee does not seek to settle any of the existing confusion concerning the meaning of the term "production of goods.” Instead, it proposes to extend coverage of the act to employees of every employer in an activity affecting commerce. Of course, should Congress determine to so extend coverage of the act, it is recognized that a definition of "production" could have limited practical application at best. However, should this Committee or the Congress determine that the present basis of coverage is adequate, then we strongly recommend “production of goods" be defined. In our judgment, this term should be defined in such a way as to limit its meaning to that normally understood before 1945. A simple and effective definition could provide that the "production of goods" concept of coverage brings under the act only those employees of an employer who is engaged primarily in producing goods which actually enter the channels of commerce. ANNUAL-WAGE CONTRACTS The mandatory character of the overtime provisions of the act and the inflexible character of permissible annual wage agreements have presented definite obstacles against guaranteed annual wage plans. These were summarized by Mr. Murray W. Latimer in his report to the President on "Guaranteed Wages” (January 1, 1947) when he said with respect to the Fair Labor Standards Act: "Although section 7 (b) (2) was chiefly intended to encourage the adoption of guaranteed wage plans, it is obvious that it has accomplished very little toward that end * * *. In part the insignificant results are due to the inflexibility of the provision; moreover, interpretations have not always been unambiguous, and it has been difficult for employers and labor organizations to be reasonably certain that a plan upon which they have agreed meets the requirements of the law * * * It is thus possible for an employer unwittingly to incur a large liability if the plan is later adjudged not to conform to those standards." Section 7 (b) (2) of S. 653 would provide more flexibility for annual wage plans than the present law permits. We believe the proposals are in the right direction. Present experience in connection with annual wage agreements is insufficient to determine whether they would provide enough flexibility to encourage and permit effective annual wage contracts. In view of this, we would suggest that Congress make provision for a continuing study of the operation of such provisions to determine whether any additional legislation is necessary. AREA OF PRODUCTION PROBLEMS When Congress enacted the Wage-and-Hour law, it recognized that employees engaged in occupations subsidiary, or closely related, to agriculture could not reasonably be required to work under the standard maximum workweek. Accordingly, the statute provides an exemption from the maximum hour provisions for such employees if they worked on agricultural products obtained from an "area of production” as defined by the Administrator. The first "area of production" regulations issued under this authority were invalidated by the Supreme Court in the case of Addison v. Holly-Hill Fruit Products Co. ((1944) 322 U. S. 607). New regulations were issued in December 1947. Current regulations were seemingly designed to meet suggestions of the Supreme Court, but they are vague and indefinite with the result that many employers and employees cannot know today whether they are under or outside the act. In view of existing confusion and the continuing need for permitting processors of agricultural and related products to engage their employees for workweeks in excess of 40, we strongly urge the Congress to retain the "area of production" exemptions, which would be eliminated by S. 653, and to define this term by statute. MANAGEMENT PERSONNEL EXEMPTION Section 13 (a) (1) of FLSA exempts from its wage and hour provisions em ployees whose du ies and responsibilities compel them to work irregular hours in the management of the business. The act, and the bill before the committee, make these exemptions applicable only to employees who are engaged in strict conformity with regulations issued or authorized to be issued. The present regulations were promulgated in 1940 after extensive hearings. On their face they seem reasonable, and in that respect, seem to conform with the intent of Congress. However, they have been interpreted and applied in such a way that no employer can know with certainty that any management employee, including a company officer, may be treated as exempt. In addition the regulation defining an "executive" is wholly unrealistic in its approach, in that it places all emphasis on the least important duties the executive might perform. We believe that Congress should guarantee that bona fide management employees should be free to manage the employer's business without reference to the maximum hour provisions by defining exempted positions. VALIDATION OF CONTRACTS AND PRACTICES Time and again since the FLSA became effective, the Administrator and the courts have construed the act as invalidating collectively bargained contracts fixing terms and conditions of employment more beneficial to employees than those required by the act. At the same time, long standing customs and practices in individual plants and industries have been set aside. Developments of this character caused the Congress to enact the Portal-toPortal Act of 1947 and to declare the policy that customs, practices, and agreements concerning worktime must be recognized by the Administrator and the courts in applying and enforcing the law. The same kind of developments have brought before this Congress proposals to legalize certain types of overtime contracts. Perhaps as an indication of the difficulty Congress encounters when legislating to correct a specific problem, it is now contended by the Wage and Hour Administrator that much of the time sought to be excluded from the legal workday by the "Portal" Act, must be considered as compensable under that act if the nature of an employee's job requires or encourages him to perform "preliminary" or "postliminary" activities such as putting on special clothes or washing up before or after work. Thus, within a relatively short time after Congress has acted to correct recognized evils of interpretation of the FLSA, it would seem necessary that it enact additional legislation to guarantee that its intent as expressed in a statute will be followed. In our view, the FLSA should be amended to make it abundantly clear that any bona fide contract which meets the basic and minimum standards of the act will be recognized as valid under the act. Senator PEPPER. I will say this by way of preface. You recall that we started in 1937, or rather, an effort was begun in 1937, to enact a minimum-wage and maximum-hour law. As I recall then, Senator Hugo Black, of Alabama, introduced the first 30-hour week bill, and there was a good bit of debate and discussion. I am not so sure but what the Senate passed that bill. Mr. WIXCEY. I think that evolved into the Fair Labor Standards Act. Senator PEPPER. As Mr. Wixcey said, that evolved, I think, into the Fair Labor Standards Act of 1938. The first witnesses to be heard this morning are from the American Hotel Association, and we have here the president of the American Hotel Association, Mr. Joe H. Adams, of Miami, Fla.; also Mr. Packard and Mr. Sherrard. STATEMENT OF JOE H. ADAMS, PRESIDENT, AMERICAN HOTEL ASSOCIATION, ACCOMPANIED BY ARTHUR J. PACKARD, HOTEL OPERATOR, MOUNT VERNON, OHIO, AND GLENWOOD J. SHERRARD, PRESIDENT, PARKER HOUSE, BOSTON, MASS. Mr. ADAMS. Mr. Chairman and members of the committee, my name is Joe H. Adams and I am president of the American Hotel Association. I operate the El Commodore Hotel in Miami. Upon being elected president of the American Hotel Association, I appointed a governmental affairs committee, representing the different types of hotels that we represent, some 7,000. I appointed Mr. Glenwood Sherrard of Boston as chairman, and members of the committee are Mr. Arthur Packard, Mr. Ed. Froeley, and Mr. Dan O'Brien. On this particular case I have asked Mr. Sherrard, the chairman of this committee, and Mr. Packard, who represents small hotels, to appear before you today. Without taking up more of your time, I would like to present Mr. Sherrard, our chairman of the governmental affairs committee, of Boston, and Mr. Packard, of the small-hotel operators. Mr. Packard, will you proceed with your remarks. Senator DOUGLAS. Before Mr. Packard begins, may I say that the American people are indebted to the Parker House for many things, including the Parker House rolls. [Laughter.] Mr. PACKARD. I think that is the most gracious advertising Mr. Sherrard has had on Capitol Hill. Senator WITHERS. Do not take Senator Douglas too seriously. Mr. PACKARD. Mr. Chairman and gentlemen of the committee: I am Arthur J. Packard of Mount Vernon, Ohio. I own and operate hotels in Ohio, none of them with more than 100 rooms and all of them in smaller cities, that range from 14,000 to 30,000 in population. I am a director of the American Hotel Association for three States— Indiana, Michigan and Ohio-and I am a member of the committee of which Mr. Sherrard, my colleague, is chairman-the governmental affairs committee. I have been in the hotel business for about 20 years. My father before me was an innkeeper. He owned and operated for years one of the hotels which I now own and operate and which is my business headquarters, as well as my home. Our people in the hotel business appreciate this opportunity to talk over our problem with you. The first point we want to make with you is that the hotel business is a service business. Hotels produce no goods for commerce. They wholesale and they process nothing. We offer only one thing, personal service, within the four walls of a hotel establishment. We house the guest, providing him sleeping accomodations, and we provide food and beverages. Nothing is sold for resale or transported. Nothing is carried away. We function 24 hours a day, 7 days a week. To the best of my knowledge, hotels are the only service business that must operate 24 hours a day, every day in the year. Hotels just can't close and lock their doors. To keep those doors open, to meet the requirements of our business and the demands of the public under present conditions, the 48-hour week, we have to provide working crews for 168 working hours every week in the year. This 168 hours of operation every week means we must have three full 8-hour shifts, and one relief shift, to take care of days off, absentees, et cetera. Under this present 48-hour week program, this is entirely practical, and, experience has shown, is satisfactory to both employer, and to most employees. But it would not be practical on a 40-hour basis, which would, of course, be compulsory on us under the proposed amendments to the law. It would not be practical either for us, as operators, nor would it be practical, as a matter of fact, for most of the employees. On a 48-hour basis, our workers earn a sound living wage; they are enabled to arrange their working schedule so they have a balanced way of life. On a 40-hour week basis we would be compelled to maintain four complete shifts of employees in many job classifications, we would have to shift all our crews, so each employee would work only 5 days a week; and then, to complete our full crew, we would have to hire additional workers. There are a number of reasons why that wouldn't and couldn't be done without real risk of disaster. First of all, employees are not readily available in either the union or the nonunion labor markets. We compete with other employers. Our only alternative would be to let our present crews remain and simply pay them time and a half for an additional 8 hours every week. But that is easier said than done. The money to pay that overtime just isn't at hand. Like most all businesses, the hotel industry has enjoyed unprecedented volume during the past 6 years, and by this item of volume. alone, we have been able to meet the rising costs of operation. Not the least of these rising costs has been the cost of labor. It is a fact, as recorded on page 101 of the January 1949 Monthly Labor Review, that wage levels in hotels have increased nearly 100 percent since 1943, 6 years ago. This, of itself, proves that the industry as a whole is constantly improving the lot of its workers. Actually, hotels have kept pace with the increased cost of living. But it is equally a fact that our business is now on the decline. We are entering, or are already in, a buyers' market with keen competition for the buyers' dollar. Our only source of revenue, as in every business, is our customers the people who sleep in our rooms and eat our food. But we know from quite sad experience over the past several months that there is a definite customer resistance to present prices, and that that resistance is becoming more pronounced daily. We have a feeling that we have reached our peak, both in room rates and menu prices. As the economists say, "We have reached the point of diminishing returns." Increased income is not "in the cards"diminishing income is a real probability. We all remember, too vividly, the squeeze of the thirties when 81 percent of the hotels either went broke or were obliged to refinance. We now know that survival for our industry will depend not on greater volume of sales-which are declining not on higher prices to a price conscious resisting public-but on the reduction of operating costs. Our break-even points are too high today. The Bureau of Labor Statistics reports that hotel employees, aside from those receiving tips, meals, et cetera, are now receiving an average of 73 cents per hour. But, as the Bureau recognizes by its exceptions, the hourly rate is not the wage yardstick and are not the last word on the pay roll of hotels. Not by a long shot. Hotels furnish meals to practically all employees. There has grown up in the hotel business a queer combination of circumstances, whereby real wage is strikingly different from cash wage. The whole |