TRANSPORTATION

The exemptions for the various transportation industries also should be revised into a consistent pattern. Here, again, it seems to me that there is no valid justification for a minimum-wage exemption from the act for any branch of transportation. Furthermore, the overtime exemption should be limited to transportation involving long hauls. For air lines, this suggests limitation of the exemption to flight personnel; for railroads, limitation of the exemption to operating employees; for motor carriers, limitation of the exemption to employees engaged in over-theroad transportation; and for water transport, limitation of exemption to seamen.

RETAIL AND SERVICE ESTABLISHMENT EXEMPTION

The present exemption for retail and service establishments should likewise be reconsidered. I believe that when Congress provided this exemption in 1938 they were thinking primarily of the small corner grocer, restaurant, home laundry, and similar types of retail establishments. Yet the exemption now applies to large department stores and chain organizations. I believe that the time has come to apply the standards of the act to these huge enterprises operating in interstate commerce in the retail and service field. Certainly substandard wages exist here to a very marked degree. There has been no substantial extension of State minimum-wage laws into this field during the last 10 years. If effective protection is to be provided for these employees, experience indicates it will have to be done through the extension of the Fair Labor Standards Act.

In extending the act to these groups, the problem arises of determining the best formula for distinguishing between the small local retail establishments that should continue to be exempt from the law and those merchandising organizations that should be brought within its scope whenever they are engaged in interstate commerce activities. After considering various alternatives, it is our feeling that the best measure for making such distinction is the gross annual volume of sales. S. 653 contains a half-million-dollar test for drawing the line between exempt and nonexempt enterprises, which I think is reasonable, but it also denies the exemption to any enterprise with five or more establishments regardless of the volume of sales. I suggest that this latter test be eliminated and that the distinction be made solely on the basis of gross annual sales or servicing.

Out of a total of 1,800,000 retail establishments, all but 125,000 would continue to be exempt under the proposed criterion of $500,000 gross annual sales of each enterprise. Only 8,000 of the 125,000 are independent establishments, and of these 8,000, a large proportion are department stores. The half-million-dollar test would affect chain stores primarily. A similar result would be reached in the service-establishment field. A maximum of 1,000 out of the 32,000 hotels in the country would lose their exempt status if the one-half-million-dollar test were adopted.

In addition to limiting the retail and service exemption to small local enterprises, I have suggested that the question of what is a retail establishment should be clarified in the law in order to make it clear that an insubstantial amount of wholesaling would not defeat the exemption, that ordinary sales to farmers would continue to be considered retail sales, and that small local establishments near a State line would be exempt regardless of the volume of sales across the State lines. All of these suggestions are contained in the provisions of S. 653 and I believe they are sound and necessary.

act.

REGULAR RATE OF PAY

S. 653 contains the substance of the recommendations which I have made to define "regular rate of pay" for the purposes of the overtime requirements of the It also contains the substance of the provisions contained in H. R. 858 relating to the so-called overtime-on-overtime question, and makes those provisions applicable to all industries. I believe the regular-rate-of-pay definition contained in S. 653 would solve most of the difficulties which have developed in the past 10 years. These difficulties developed largely as a result of the failure of the 1938 Congress to define "regular rate" of pay in the original law or, in the alternative, to grant to the Administrator rule-making authority to make a binding definition.

RULE-MAKING AUTHORITY

The proposed statutory definition of regular rate of pay, together with the rule-making authority provided for in section 4 (c) of the bill, would, in my

opinion, insure that the provisions of the act would be administered in a way that would carry out the purposes of the act without creating uncertainties and misunderstandings such as have occasionally occurred in the past.

It has been contended by some individuals that the rule-making provision incorporated in S. 653 is a novel and dangerous provision. As pointed out by the House committee in its report on H. R. 3190, it is a common provision of Federal statutes. In fact, similar authority is granted to the Secretary of Labor in the Walsh-Healy Public Contracts Act. It is my considered opinion that no other provision of this bill would help more in meeting the practical problems of administration of this law. Without such a provision, I believe additional difficulties may develop that cannot be foreseen at the present time, leading to extensive litigation and probably the need for additional legislative clarification by the Congress.

I might add that there is not the slightest doubt that the procedural requirements of the Administrative Procedure Act would be applicable to the proposed rule-making provision, despite statements which have been made to the contrary. Therefore, the safeguards contained in that act would be fully applicable to the rule-making authority proposed in S. 653.

COLLECTION OF BACK WAGES

In most of the States with minimum-wage laws it is taken for granted that proper enforcement of such laws requires that the enforcement agency collect back wages owing to underpaid employees as part of its regular duties. Such authority to collect back wages is provided either by provisions of the State minimum-wage laws themselves or by general wage-collection laws. In the exercise of this authority the States seldom have to resort to court action to collect unpaid minimum wages.

Í regard the failure in the original Fair Labor Standards Act to authorize the collection of back wages as the most serious weakness in the act's enforcement provision. Apparently, Congress then felt that the provision for injunctions and for criminal prosecutions, together with provision for employee suits under section 16 (b), would be adequate to assure that violations of the act would be effectively handled and that employees would receive the minimum wage and overtime benefits which Congress by statute provided. I do not believe that the Congress anticipated the possibility that many employees would never receive wages found by the divisions to be due them under the statute.

The fact is that an increasingly large proportion of unpaid minimum-wage and overtime compensation is not being received by the employees involved. It is our experience that, in over 90 percent of the cases in which violations were found, they were suitable neither for civil litigation, usually because the violation had ceased, nor for criminal prosecution, because the element of willfulness was not present or could not be proved. In an overwhelming proportion of these cases in which litigation has not been undertaken by the divisions, the employees do not utilize the provisions of section 16 (b). The divisions have no other course of action under the present law. The result is that the great preponderance of back pay found due does not get paid.

In my opinion, it is unreasonable to expect employees to hire an attorney and to resort to court action against their emplovers for wages they are entitled to by statute of Congress. The Congress has delegated to the Division the responsibility for enforcing this statute. There certainly should be a provision in the law authorizing us, upon making an inspection and finding that back wages are due, to supervise the payment of those back wages to the emplovees affected. If an employer refuses to pay, we should have the authority to institute court action, if necessary, to collect such back wages.

I am confident that, once this authority has been established, rarely would it be necessary for the Secretary to go to court to collect back wages. I believe, too, that there should be a provision which would assure an employer that, once he has paid back wages under this proposal, he would be completely protected from the possibility of employee suits for an additional amount as liquidated damages.

All of these suggestions are contained in section 16 (c) of S. 653. It is my profound conviction that this provision is essential for effective and equitable enforcement. The seriousness of the problem may be suggested by the fact that although the Division's field staff at one time was able to secure voluntary restitution of about 85 percent of back wages owing to employees, recently the back wages paid have dropped to about 30 percent of the amount found due, and the

proportion being paid is going down daily More and more employers are refusing to make restitution on the grounds (1) that the Division has no authority to collect back wages: (2) that many other employers are not paying back wages voluntarily; and (3) that, even if they voluntarily restored back wages, they still would be subject to the possibility of suits under section 16 (b) of the act for an additional amount as liquidated damages.

FOUR-YEAR STATUTE OF LIMITATIONS

The collection of back wages by the Department cannot be the sole remedy under the act. The provisions of section 16 (b) would still be vitally needed. The staff of the Wage and Hour Division has always been much too limited to permit the periodic inspection of all covered establishments. The present staff of the Division can inspect each year less than 5 percent of the establishments now covered by the law. Consequently, the provisions of section 16 (b) must remain in effect.

The period for filing suits under section 16 (b) was limited only by State law until the passage of the Portal Act in 1947. The statute of limitations in the State laws ranged from 1 year to 8 years. On the average, the States permitted about 4 years, although many of the most populous States, such as New York and Pennsylvania, had 6-year statutes of limitations. The Portal Act of 1947

drastically reduced the effective statute of limitations to 2 years. This is totally inadequate and is a far shorter period than is usually allowed the creditors of these same employees to collect money owed for the grocery, clothing, furniture, or rent bills. Consideration should also be given to the fact that almost half of the 22,600,000 workers covered by the Fair Labor Standards Act are not organized and are not familiar with their rights under various laws. It is not fair to these employees, nor to the employers who voluntarily comply with the act, to encourage an employer to gamble that his violations will not be disclosed and to assure him that if they are disclosed he need only worry about liability for a 2-year period.

In order to conserve the committee's time, I have not discussed all of the important provisions of S. 653. Even without such discussion, I am afraid that I have taken too much of the available time. If members of the committee wish to ask questions on these other provisions, I shall be glad to try to answer them, with the assistance of staff who are with me. I should like to add by way of conclusion that we will be glad to make available members of my technical staff and of the Solicitor's legal staff to assist the subcommittee in the task which it must perform subsequent to the completion of the hearings. We are anxious to make available to the committee the benefit of our 10 years' experience in administration of this law and in that way contribute whatever we can to a very much needed revitalization, revision, and extension of the Fair Labor Standards Act.

Senator PEPPER. The committee now will take a recess until 2:30 at which time we are to hear Hon. Albert J. Loveland, Under Secretary of Agriculture.

(Whereupon, at 1:30 p. m., a recess was taken until 2:30 p. m. of the same day.)

AFTERNOON SESSION

Senator PEPPER. The committee will come to order.

We have with us this afternoon the Honorable Albert J. Loveland, Under Secretary of Agriculture. Mr. Loveland, we will be glad to have any statement you care to present.

STATEMENT OF ALBERT J. LOVELAND, UNDER SECRETARY OF AGRICULTURE, ACCOMPANIED BY EDWARD J. OVERBY, ASSISTANT TO THE SECRETARY OF AGRICULTURE

Mr. LOVELAND. I have a prepared statement. I appreciate the opportunity given me to come here and ad vise you about this problem. Senator PEPPER. We are very glad to have you. You may go right ahead.

Mr. LOVELAND. The Department of Agriculture welcomes this opportunity to express its endorsement of the proposed measure to raise the minimum-wage provisions of the Fair Labor Standards Act and to make it a better instrument to serve its intended purposes. The Department considers this an essential part of the Government's program to help maintain our economy on an even keel and to assure high levels of income, employment, and purchasing power for all sectors of the economy.

We

We in the Department of Agriculture have always pointed to the intimate dependence of farm prosperity on the maintenance of high employment levels and good wages for America's wage earners. believe that almost every farmer now understands the importance and relationship to farm prosperity of good wages for city and industrial workers. We also think that industrial workers are fully aware of the importance of having a sound and prosperous agriculture in order to maintain and expand the great market for industrial goods and services that the purchasing power of our farm people represents. An amended and improved Fair Labor Standards Act will have special significance to agriculture because it will improve and protect the wage standards and purchasing power of a relatively low-paid group of urban and industrial workers. These are the very people who spend the highest proportion of their income for food. They also spend for food the highest proportion of each additional dollar of income obtained. This can be illustrated with a few figures from the latest available national study of the pattern of expenditures of city families.

A Bureau of Labor Statistics study for 1944 showed that city families in the over $4,000 income classes tended to spend for food only 7.3 cents out of each additional dollar of income. However, families with incomes under $2,000 spent for food about 27 cents out of each additional dollar of income.

In addition to this direct benefit which will result to agriculture from raising the minimum wage, it is significant for the future that the floor set under wages together with the overtime-pay requirements will act as a brake on declines in purchasing power for farm products. This is a very important consideration for our modern agriculture which is geared to high production levels, and therefore even more greatly dependent now than in the past on high consumption levels of food and fiber.

Since the time when the present Fair Labor Standards Act was passed in 1938 our economy has made remarkable strides forward, with a tremendous rise in income. During this period net farm income has increased fourfold, income of industrial workers has also quadrupled, and, in general, there has been an advance in industrial and agricultural labor productivity and in the levels and standards of living of our people. Yet, during this dramatic decade the minimum wage of 40 cents an hour set as a goal in 1938 has remained unchanged in the legislation.

The need is very great to modernize the Fair Labor Standards Act to bring its provisions more in keeping with the standards and productive capacity of our present economy. The provisions of S. 653 and related bills propose to do just that. As we understand the provisions of the proposed amendments, they are also designed to build upon the

90175-49- -7

experience gained in the administration of the present Fair Labor Standards Act. This includes removing, as far as practicable, inequities between covered and uncovered employees and establishments, embodying specific statutory definitions where ambiguity now exists, and providing reasonable exemptions from overtime penalties where the nature of the operations has demonstrated a real need for such tolerances.

We note that the proposals being considered by this committee do recognize the need for certain exemptions from the hours provision. These are important during periods of seasonal peaks to industries which are of a seasonal character or are engaged in handling or processing of farm products as they come from the farms. Many farm commodities are highly perishable and farmers are unable to control their movement to processing plants and to market. This makes it essential for the industries involved to operate in a manner that permits an uninterrupted flow of farm products from the farm to the processing plant or storage facility. I don't know if the exemptions are broad enough-some people don't think they are. However, this committee will, no doubt, appraise for itself, on the basis of its own investigations, the specific duration of the exemption period from the overtime provisions for the types of operations involved.

It is relevant that the House Committee on Education and Labor, after extensive studies of this problem in the course of their hearings, has provided in H. R. 3190 for the possibility of an exemption for a period of up to 6 weeks, in addition to a 14-week exemption, for industries engaged in the handling, packing, storing, and processing of fresh fruits and vegetables. It is possible that this exemption should be extended to other industries which assemble and process farm products.

In conclusion, I want to emphasize that the legislative action of the type proposed in the amendments to the Fair Labor Standards Act is an essential part of the wider program to enact and improve legislation designed to maintain the living standards of our urban people and farmers alike. In our farm program we are striving to build an economy of full production without penalizing farmers for capacity production. This requires essential safeguards of the price structure of farm products so that it will be equitable both to farmers and consumers. But just as farmers need price supports, nonfarm wage earners need the protection of minimum-wage legislation. Such protection must be in keeping with conditions of the present rather than being based on standards that have been severely outmoded. Senator PEPPER. Senator Withers, do you have any questions to ask Mr. Loveland?

Senator WITHERS. Do you recommend the minimum of 75 cents, Mr. Loveland?

Mr. LOVELAND. I think we do; yes.

Senator WITHERS. I want to ask you this: The present rate is 40 cents?

Mr. LOVELAND. As I understand it, yes.

Senator WITHERS. Is that not a pretty big jump from 40 to 75 cents as a minimum wage?

Mr. LOVELAND. Well, we think that there has been that much of a jump in our economy. That 40-cent law went into effect in 1938.

Is that right?