1. Contracts of employment providing for the computation of
compensation on the so-called Poxon or split-day plan
held
not in conformity with requirements of § 7(a) of the Fair Labor
Standards Act.
Walling v. Belo Corp., 316 U.
S. 624, distinguished. P.
323 U. S.
39.
The vice of the split-day plan was that the contract regular
rate did not represent the rate which was actually paid for
ordinary nonovertime hours, nor did it allow extra compensation to
be aid for true overtime hours. It was derived not from the actual
hours and wages, but from a mathematical formula designed to
perpetuate the pre-statutory wage scale.
2. A suit by the Administrator under the Fair Labor Standards
Act to enjoin an employer from use of contracts of employment
providing for computation of compensation on the so-called
split-day plan
held not rendered moot by the employer's
voluntary discontinuance of the use of such contracts. P.
323 U. S.
43.
138 F.2d 705, reversed.
Certiorari, 321 U.S. 759, to review the affirmance, as modified,
of a judgment which, in a suit by the Administrator, sustained the
validity of certain contracts of employment under the Fair Labor
Standards Act.
MR. JUSTICE MURPHY delivered the opinion of the Court.
We are concerned here with the question whether certain
provisions of employment contracts relating to the
Page 323 U. S. 38
computation and application of regular and overtime wage rates
conform to the requirements of Section 7(a) of the Fair Labor
Standards Act of 1938, 52 Stat. 1060, 29 U.S.C. § 201
et
seq.
Respondent is engaged in the production of oil and gas for
interstate commerce, and its employees admittedly are covered by
the Act. Prior to October 24, 1938, the effective date of the Act,
certain of respondent's employees worked eight, ten and 12 hour
daily shifts, or "tours," and were paid a specified wage for each
tour. These wages were in excess of the minimum required by the
Act, though the number of tours per week would often cause an
employee to work more than the maximum hours allowed by the Act
without overtime pay's being required.
In order to maintain the same wage levels after the Act became
effective, respondent made new employment contracts with the
employees in question whereby they received their wages under the
so-called "Poxon," or split-day, plan. This plan arbitrarily
divided each regular tour into two parts for purposes of
calculating and applying hourly wage rates. The first four hours of
each eight-hour tour, the first five hours of each ten-hour tour,
and the first five hours of each 12-hour tour were assigned a
specified hourly rate described as the "base or regular rate." The
remaining hours in each tour were treated as "overtime," and called
for payment at one and one-half times the "base or regular rate."
The contracts then recited that the "base rate" set forth "shall
never apply to more than 40 hours in any work week."
These so-called "regular" and "overtime" hourly rates were
calculated so as to insure that the total wages for each tour would
continue the same as under the original contracts, [
Footnote 1] thereby avoiding the necessity of
increasing
Page 323 U. S. 39
wages or decreasing hours of work as the statutory maximum
workweek of 40 hours became effective. [
Footnote 2] Only in the extremely unlikely case where an
employee's tours totalled more than 80 hours in a week [
Footnote 3] did he become entitled to
any pay in addition to the regular tour wages that he would have
received prior to the adoption of the split-day plan. Until more
than 80 hours had been worked, the plan operated so that the
employee could not be credited with more than 40 hours of "regular"
work, the remaining time being denominated "overtime." Hence, since
the wages under the old system and under the split-day plan were
identical, the original tour rates could be used as the simple
method of computing wages for each pay period. The actual and
regular workweek was accordingly shorn of all significance.
The District Court and the Circuit Court of Appeals both held
that the split-day plan of compensation, under the decision of this
Court in
Walling v. Belo Corp., 316 U.
S. 624, did not violate the provisions of Section 7(a)
of the Fair Labor Standards Act. We cannot agree.
Section 7(a) limits to 40 a week the number of hours that an
employer may employ any of his employees subject to the Act unless
the employee receives compensation for his employment in excess of
40 hours at a rate "not less than one and one-half times the
regular rate at which he is employed." The split-day plan here in
issue satisfies neither the purpose nor the mechanics of this
requirement.
Page 323 U. S. 40
As we pointed out in
Overnight Motor Co. v. Missel,
316 U. S. 572,
316 U. S.
577-578, the Congressional purpose in enacting Section
7(a) was two-fold: (1) to spread employment by placing financial
pressure on the employer through the overtime pay requirement,
see also Southland Gasoline Co. v. Bayley, 319 U. S.
44,
319 U. S. 48,
and (2) to compensate employees for the burden of a workweek in
excess of the hours fixed in the Act. Yet neither objective could
be attained under the split-day plan. It enabled respondent to
avoid paying real overtime wages for at least the first 40 hours
worked in excess of the statutory maximum workweek, thus negativing
any possible effect such a payment might have had upon the
spreading of employment. And the plan was so designed as to deprive
the employees of their statutory right to receive for all hours
worked in excess of the first regular 40 hours one and one-half
times the actual regular rate. The statutory maximum workweek of 40
hours was by contract twisted into an 80-hour maximum workweek. No
plan so obviously inconsistent with the statutory purpose can lay a
claim to legality.
The split-day plan, moreover, violated the basic rules for
computing correctly the actual regular rate contemplated by Section
7(a). While the words "regular rate" are not defined in the Act,
they obviously mean the hourly rate actually paid for the normal
nonovertime workweek.
Overnight Motor Co. v. Missel,
supra. To compute this regular rate for respondent's
employees, assuming the same wages and tours, required only the
simple process of dividing the wages received for each tour by the
number of hours in that tour. [
Footnote 4] This regular rate was
Page 323 U. S. 41
then applicable to the first 40 hours regularly worked on the
tours, and the overtime rate (150% of the regular rate) became
effective as to all hours worked in excess of 40.
But respondent's plan made no effort to base the regular rate
upon the wages actually received or upon the hours actually and
regularly spent each week in working. Nor did it attempt to apply
the regular rate to the first 40 hours actually and regularly
worked. Instead, the plan provided for a fictitious regular rate
consisting of a figure somewhat lower than the rate actually
received. This illusory rate was arbitrarily allocated to the first
portion of each day's regular labor; the latter portion was
designated "overtime," and called for compensation at a rate one
and one-half times the fictitious regular rate. Thus, when an
employee on regular eight-hour tours had actually worked 40 hours,
respondent could point to the employee's contract and claim that he
had worked only 20 "regular" hours and 20 "overtime" hours. Hence,
he was entitled to no additional remuneration for work in excess of
40 hours except in the unlikely situation, which never in fact
occurred, of his actually working more than 80 hours. The vice of
respondent's plan lay in the fact that the contract regular rate
did not represent the rate which was actually paid for ordinary
nonovertime hours, nor did it allow extra compensation to be paid
for true overtime hours. It was derived not from the actual hours
and wages, but from ingenious mathematical manipulations, with the
sole purpose being to perpetuate the pre-statutory wage scale.
[
Footnote 5]
Page 323 U. S. 42
It is no answer that the artificial regular rate was a product
of contract, or that it was in excess of the statutory minimum. The
Act clearly contemplates the setting of the regular rate in a
bona fide manner through wage negotiations between
employer and employee, provided that the statutory minimum is
respected. But this freedom of contract does not include the right
to compute the regular rate in a wholly unrealistic and artificial
manner so as to negate the statutory purposes. Even when wages
exceed the minimum prescribed by Congress, the parties to the
contract must respect the statutory policy of requiring the
employer to pay one and one-half times the regular hourly rate for
all hours actually worked in excess of 40. Any other conclusion in
this case would exalt ingenuity over reality, and would open the
door to insidious disregard of the rights protected by the Act.
Nothing in this Court's decision in
Walling v. Belo Corp.,
supra, sanctions the use of the split-day plan. The
controversy there centered about the question whether the regular
rate should be computed from the guaranteed weekly wage, or whether
it should be identical with the hourly rate set forth in the
employment contract. There was no question, as here, pertaining to
the applicability of the regular rate to the first 40 hours
actually and regularly worked, with the overtime rate applying to
all hours worked in excess thereof.
One final point remains. Petitioner here filed a complaint in
the District Court seeking, in part, an injunction to compel
respondent to cease its use of the split-day contracts. Two months
after the complaint was filed, but
Page 323 U. S. 43
before the case came on for trial, respondent discontinued the
use of these contracts and substituted different compensation plans
not now before us. The District Court, however, denied the
injunction on the merits insofar as the split-day contracts were
concerned, and the court below affirmed on a like basis. 138 F.2d
705. In granting certiorari upon the question of the legality of
the split-day plan, we asked for a discussion of the question
whether respondent's discontinuance of the plan rendered the case
moot. 321 U.S. 759. We hold that the case is not moot under these
circumstances. Despite respondent's voluntary cessation of the
challenged conduct, a controversy between the parties over the
legality of the split-day plan still remains. Voluntary
discontinuance of an alleged illegal activity does not operate to
remove a case from the ambit of judicial power.
See Hecht Co.
v. Bowles, 321 U. S. 321,
321 U. S. 327;
Otis & Co. v. Securities and Exchange Commission, 106
F.2d 579, 583, 584. Respondent has consistently urged the validity
of the split-day plan and would presumably be free to resume the
use of this illegal plan were not some effective restraint made.
There is thus "an actual controversy, and adverse interest,"
Lord v.
Veazie, 8 How. 251,
49 U. S. 255,
with a "subject matter on which the judgment of the court can
operate,"
Ex parte Baez, 177 U. S. 378,
177 U. S. 390;
St. Pierre v. United States, 319 U. S.
41,
319 U. S.
42.
We accordingly reverse the judgment of the court below with
directions to remand the case to the District Court for further
proceedings in conformity with this opinion.
Reversed.
[
Footnote 1]
Thus, the rotary helpers employed by respondent formerly
received $7 for each eight-hour tour. Under the split-day plan,
they received a "regular rate" of 70 cents an hour for the first
four hours of each tour and an "overtime" rate of $1.05 for each of
the remaining four hours. This totalled $7 for the tour.
[
Footnote 2]
During the first year after the effective date of the Act, the
maximum was 44 hours; during the second year, 42 hours, and
thereafter 40 hours.
[
Footnote 3]
For an employee working on 12-hour tours, it was necessary to
work at least 96 hours per week before becoming entitled to
increased wages under the split-day plan.
[
Footnote 4]
In this case, the weekly wage divided by the number of hours
actually worked in the week would have yielded the same regular
rate. Under either computation, a rotary helper being paid $7 for
each-eight hour tour was receiving 87 1/2 cents per hour. This was
his regular rate regardless of the number of tours per week. That
rate was applicable to the first 40 hours regularly worked, or to
the first five tours. For all hours in excess of 40, the rotary
helper was entitled to one and one-half times that rate, or $1.31
1/4. We, of course, express no opinion as to the proper computation
of the regular rate under other circumstances. Nor do we intend to
indicate that the formula we have used as satisfying the statutory
requirements is the only one which respondent could adopt as
complying with them.
[
Footnote 5]
In paragraph 70(4) of Interpretative Bulletin No. 4, as revised
in November, 1940, the Administrator expressed his opinion that a
plan similar to that of respondent's did not conform to the Act.
While this opinion is not binding on the administration of the Act,
it does
"carry persuasiveness as an expression of the view of those
experienced in the administration of the Act and acting with the
advice of a staff specializing in its interpretation and
application."
Overnight Motor Co. v. Missel, 316 U.
S. 572,
316 U. S.
580-581, note 17.