increase their wage structure. The second step will be that the best available help in the town will gravitate to the newly covered stores. Employees who qualify for the minimum as well as those more highly paid will be attracted to the covered stores. This is because any increase in the minimum wage will inevitably force to higher levels all wage brackets above the minimum. The noncovered retailers will be forced to match the rates of the covered stores. If they do not make up their minds to do it immediately, they face the permanent loss of their best employees and of business. The same will be true of hours. The stores which are compelled to go on a shorter workweek will naturally attract the best employees from other stores where hours are longer. Your attention is also called, gentlemen, to the fact-and I mentioned that a while ago-that retailing in this country is a 48-houra-week proposition. I call attention to the fact also that it is the American consumer who dictates the 48-hour week in retail stores, by insisting that they remain open to meet the consumer's needs at his convenience. Thus, if the purpose of the proposed revision in the retail exemption (as written in the bill) is to protect the smaller retailer, it will have little or no effect. Indeed, it will hurt the smaller retailer. Moreover, enactment of the bill will seriously affect the employee. With minimums increased, both in covered and uncovered retail stores, the security of retail employment will be threatened in the event of a business recession. If the recession is serious, the retailer will have to cut costs, and one of the first of these costs must of necessity be labor cost. The greater the labor cost, the greater the necessity of curtailing the number of employees. The consumer is also seriously affected because an increase in retail wage rates will not be accompanied by an appreciable increase in the productivity of the employee. Therefore, the increased labor costs must be passed on to the consumer in the form of higher prices. This will be highly inflationary because at no point in the process will production of any kind be increased. This is not the time to force increases in present prices, particularly since there is now a gradual movement in prices toward a lower level. A reversal of this trend in the form of higher consumer prices certainly is not desirable nor in the public interest. The proposed increase in the minimum wage would serious jeopardize employee-training programs such as on-the-job training in distributive education under the George-Barden Act. In this Nationwide program, high school students earn as they learn in retail stores. Of course, their present productivity is limited because they are shifted from assignment to assignment in order to give them an over-all picture of store operation. If retailing should be blanketed under the Fair Labor Standards Act directly or indirectly, retailers might find it necessary to drop all local distributive education programs. Thus, these young men and women would be denied the opportunity to obtain instruction in retailing, and retailers would lose the prospect of obtaining future workers who will be more productive as a result of such training programs. Finally, I should like to comment briefly on the problems of enforcement. The proponents of this legislation do not realize the difficulty in policing more than 130,000 retail establishments which will be directly involved as this bill is written. The proponents haven't added up the additional expense to the Government that would be incurred if these establishments were to be inspected adequately. Many of these thousands of stores will be covered simply because they are owned in groups of more than four units. An efficient job of policing these stores will require a horde of inspectors. Now, when so many efforts are being made to keep down the costs of government, every item of additional expense should be scrutinized carefully. Obviously, the store which is not to be covered by this bill has no assurance of immunity. It may lose its exemption next year-or the year after-simply by increasing its volume or because of the whim or caprice of the Congress. I do not think that I need elaborate on the confusion, both to government and to the retailer, that this situation would create. In conclusion, I wish to summarize the reasons why the American Retail Federation opposes the proposals in this bill: 1. Retailing is a local business, dependent upon local conditions. Its regulation, if needed, can best be done by local authority. 2. The reasons given for the regulation of wages and hours on a national scale do not apply to retailing. 3. Retailing provides a year-round income to the great bulk of its employees without the hazard of lay-offs found in other industries. Furthermore, retail real wages are increased by a number of fringe benefits. 4. The effect of a national minimum wage rate in retailing would have disastrous effects on retialers (whether covered or not), on employees, and on the consumer in the form of higher prices. 5. The job of policing the act in retailing would be difficult, expensive, and, in my opinion, insuperable. In short, the destruction of the present retail exemption is not in the interest of the reail employee nor of the public he serves. To destroy the retail exemption would jeopardize the very existence of the small retailer whom this proposal attempts to exempt. And, finally, the destruction of the retail exemption would seriously hamper the retail industry in its essential function of moving into consumption the production of our factories and farms-a function upon which the stability of our entire economy depends. Now, Mr. Chairman, we have additional information that is coming in, and I would like to have permission, if I may, to file a supplemental statement. Mr. LESINSKI. Are there any objections? (No response.) Mr. LESINSKI. If not, the statement will be received. (The supplemental statement referred to follows:) SUPPLEMENTAL STATEMENT OF ROWLAND JONES, JR., ON BEHALF OF THE AMERICAN RETAIL FEDERATION In its main statement, the American Retail Federation confined itself to stating that it is the strong desire of the retail industry that the retail exemption in the Fair Labor Standards Act be continued and not narrowed as proposed in H. R. 2033. Another almost equally important issue is the need for clarification of the retail exemption, but it was thought best to limit the main statement to one particular issue both in order to save time of the committee and also in order not to confuse two important points. This supplemental statement shows that the retail industry not only desires that the retail exemption be preserved, but feels that there is strong need for clarification of the language used in the law. The language of the exemption, particularly that language used in section 1 (a) (2), is fairly clear when applied to the great bulk of retail employees. There is, however, a zone of uncertainty which may not include more than 5 percent of the total number of retail employees, which needs clarification. This need for clarification was admitted by Mr. William R. McComb, the Administrator of the Wage and Hour Division, in his testimony before this committee. The federation agrees with the Administrator in the need for clarification, and as stated later on, with some of his proposals for clarification. The federation reiterates that it does not agree with the proposals for broader cov erage through the use of the term "affecting commerce" and through the use of a retail exemption based on size and volume rather than on the actual character of the business involved. Among the retail employees whose statuts is in doubt are employees who sell to farmer items used in production of goods; warehouse employees; service and office employees. This doubtful statuts has originated partly because of judicial decisions and partly because of administrative interpretations. The members of the federation, therefore, offer the following language as an amendment to section 13 (a) (2) of the Fair Labor Standards Act, and attach to it an analysis of the language proposed. This proposed language, the federation believes, does not go beyond the original intent of Congress to exempt local retailing because of its strictly local and intrastate character. TEXT OF PROPOSED AMENDMENT "SEC. 13. (a) The provisions of sections 6 and 7 shall not apply with respect to (1) * * ; or (2) any employee engaged in any retail or service establishment the greater part of whose selling or servicing is in intrastate commerce and the greater part of whose gross income is from the sale of goods at retail or for farm use, or the performance of repair, maintenance, installation, or other services upon such goods, and any employee engaged in the warehouse or service operation, of one or more such establishments, the greater part of whose receiving, holding, repair, maintenance, installing, and distribution is within the same State, and any employee in any office maintained for the operation of such establishment or establishments the greater part of whose selling or servicing is within the same State.” [Italics represent proposed new wording.] ANALYSIS OF THE PROPOSED AMENDMENT The following is an analysis of the amendment to the retail exemption in the Fair Labor Standards Act (sec. 13 (a) (2)). The amendment is intended to follow the original intent of Congress in passing the Fair Labor Standards Act. At that time the Congress was primarily concerned with the competitive effect which low wage rates in one part of the country had on other parts of the country. A manufacturer in a low-wage section could produce goods and ship them, in interstate commerce, to a high-wage section, where they would undersell competitive goods made by higher-paid labor. The tendency was that the lower-wage section tended to drag down the wages in the higher-wage section. As stated in the Roland Electric case "The primary purpose of the act is not so much to regulate interstate commerce as such, as it is, through the exercise of legislative power, to prohibit the shipment of goods in interstate commerce if they are produced under substandard labor conditions." In drafting this amendment this philosophy of Congress and some of the interpretations which have already been put on the act by the Supreme Court of the United States have been taken as a guide as to the scope of the exemption. Following is an analysis of the proposed amendment: "(2) Any employee engaged in any retail or service establishment the greater part of whose selling or servicing is in intrastate commerce." This language is simply the present language in the act in section 13 (a) (2). It was deemed best to begin any amendment with the language of the present exemption to show that the added language proposed was simply a clarification of existing law and did not constitute an attempt to change the law as it was originally written. "and the greater part of whose gross income is from the sale of goods at retail * *." The purpose of this clause is to eliminate an artificial interpretation which has been made by the Wage and Hour Division. Their present interpretation of the exemption divides the sales of an establishment into two classes, retail and nonretail. If the nonretail sales amount to more than 25 percent of the total, the Division holds that the establishment is not a "retail" establishment. This part of the amendment would change the 75-25 percent rule, and, by law, substitute a more logical test, simply that the greater part of the business determines the character of the business. As a matter of fact this amendment is in line with an earlier interpretation made by the Division. "or for farm use, * * *." Some statements by the Division, and some court cases might lead to the interpretation that sales of equipment to farmers were sales of goods necessary to the production of goods for interstate commerce, thereby denying the exemption to retail dealers who would otherwise qualify. An amendment, similar in purpose, was approved by the Senate (79th Cong.) with the blessing of the Wage and Hour Division at that time. It may be worth noting that since the sales for farm use must be made by a retail or service establishment, it does not seem probable that the exemption could be stretched to include sale of this type of material in wholesale lots. The Administrator, in his testimony, also suggested this clarification. "or the performance of repair, maintenance, installation, or other services upon such goods * * * "" This clause has the same intent as 2 and 3 above and is intended to prevent administrative rulings to the effect that income received from these activities is of a nonretail character thus possibly depriving an otherwise exempt establishment from the exemption intended by Congress. "and any employee engaged in the warehouse or service operation, of one or more such establishments, the greater part of whose receiving, holding, repair, maintenance, installing and distribution is within the same State, Under the doctrine laid down by the United States Supreme Court in Phillips V. Walling the term "establishment" in the law means the individual store, or place of business. In this case the chain-store operation involved was held to consist of 49 exempt retail establishments and 1 nonexempt wholesale establishment, the warehouse. It was admitted by the company that the warehouse employees in this case were engaged in interstate commerce. * This decision, however, does not necessarily mean that all warehouse employees are covered by the act. The requisite for coverage is that an employee must be engaged in interstate commerce or in the production of goods for interstate commerce. Unfortunately there are no clear-cut cases as to whether retail warehouse employees are engaged in interstate commerce under situations most commonly prevalent in retailing. The leading case is Walling v. Jacksonville Paper Co. This case involved a wholesaler whose business was divided, by the Supreme Court, into three different types. The first concerned drop shipments and special orders. These, the court said, remained in interstate commerce until received by the person who had ordered them. The second included stocks of goods kept on hand either by contract, or by a special understanding with the purchaser. These also were held to remain in interstate commerce until delivered to the purchaser. The balance of the company's business consisted of goods bought to be sold to individual purchasers. As to this class of business the Wage and Hour Division contended that most of the customers formed a stable group and that the orders were recurring, so that the company could estimate their needs with considerable precision. Therefore, it was contended that these goods also remained in interstate commerce until sold to the prospective purchasers. In this connection the Court said, "We do not mean to imply that a wholesaler's course of business based on anticipation of needs of specific customers might not at times be sufficient to establish that practical continuity in transit necessary to keep a movement of goods 'in commerce' within the meaning of the Act * *. We do not believe, however, that on this phase of the case such a course of business is revealed by the record. The evidence said to support it is wholly of a general character and lacks that particularity necessary to show that the goods in question were different from goods acquired and held by a local merchant for local disposition * *." The court went on to say that "Congress enacting this statute plainly indicated its purpose to leave local business to the protection of the States * *. There is no indication in the legislative history that but for the exemption of retailers it was thought that all movement of goods from manufacturers to wholesalers and on to retailers would be ‘in commerce' when the wholesalers and retailers were in the same State." * This case has been heavily relied upon by the Wage and Hour Division to support its theory that the goods in a retailers' warehouse do not come to rest there, but continue their interstate journey until delivered to the store or directly to the customer from the warehouse. There is, however, equally persuasive legal opinion that the case supports the retailer's theory that the goods do come to rest in the warehouse, although they may move again in interstate commerce if delivered to a store in another State. The Government, however, can afford to fight a case of this type through all the courts, whereas a retailer facing a long and expensive court battle often finds it cheaper to accept coverage which he is not really legally required to do. The purpose of this part of the amendment, therefore, is to state in the law the principles which we believe the Supreme Court laid down in the Jacksonville case. The exemption would cover the employee of a warehouse which served more than one store, where common ownership of the stores and the warehouse existed, but only when the greater part of the functions of the warehouse is the holding and distribution of goods for the retail stores it serves and is within the same State as the stores which it serves. It is possible that some may argue that the exemption goes beyond the doctrine which we have read from the Jacksonville decision that it requires only the greater part of the warehouse activities to be in intrastate commerce. However, the exemption as now written seems to be in line with that part of the decision dealing with local business as quoted above. "or any employee in any office maintained for the operation of such establishment or establishments the greater part of whose selling or servicing is within the same State." This last part of the proposed amendment is designed to exclude employees in central offices not under the same roof as the exempt establishment. In order to qualify for the exemption the establishment or establishments maintaining the office must themselves be exempt and the office must be located in the same State as that in which the establishments do the greater part of their business. This part of the exemption is thus in line with the attempt to confine the retail exemption to purely local business. Mr. LESINSKI. Has the gentleman finished? Mr. JONES. I have finished. Mr. LESINSKI. Are there any questions, gentlemen? Mr. LUCAS. Will such legislation as this promote employment or unemployment in the retail industry, sir? Mr. JONES. Without doubt, it will create unemployment. Mr. LUCAS. That is all. Mr. KENNEDY. I would like to ask this. Are you familiar with some of the stores in Boston, like Jordan-Marsh and Filene's? Are they considered retail stores under your interpretation? Mr. JONES. Yes, sir; they are retail stores. Mr. KENNEDY. I have never had much sympathy with the wage that Jordan-Marsh and Filene's pay to the girls who work behind a counter. They pay them $31 or $32 a week, and they work extra hours about 10 weeks of the year, I think, for which they may get straight-time pay. But they do it under the assumption that these girls live at home. Here is a big city like Boston where the expenses are high. The girls are not very union-minded, and the unions have not had much success. But I have always felt that the profits that Filene's and Jordan-Marsh and some of the other stores have made could easily enable them to pay these girls a much better wage than $31 a week. Some assistant buyers get $35 a week. Mr. JONES. The answer to the question must be a general answer, because I do not know the facts about Filene's and Jordan-Marsh. If those are the wages Jordan-Marsh and Filene's are paying, then |