Goldberg v. Whitaker House Cooperative, Inc.
81 S. Ct. 933, 366 U.S. 28, 1961 U.S. LEXIS 2026 (1961)
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Rule of Law:
The Fair Labor Standards Act's definitions of "employer" and "employee" are interpreted broadly based on "economic reality" rather than technical legal forms, meaning a cooperative can be an employer and its members employees if the cooperative controls their work and compensation.
Facts:
- Whitaker House Cooperative, Inc. (WHC) was organized in 1957 under Maine law with the corporate purpose to manufacture, sell, and deal in knitted, crocheted, and embroidered goods of all kinds.
- WHC employed a general manager and a few employees who engaged in finishing work, such as trimming and packaging.
- Approximately 200 members of WHC worked in their homes, producing goods for the cooperative.
- To become a member, an applicant bought a sample from WHC, copied it, submitted it for approval, and if satisfactory, could become a member by paying $3 and agreeing to the bylaws.
- Members were prohibited from furnishing others with articles of the kind dealt in by WHC and were required to remain members for at least a year.
- WHC's board of directors could expel members at any time for violating rules or if their work was substandard.
- WHC management fixed the piece rates at which members worked, and members were paid monthly or bi-monthly as an "advance allowance" until "excess receipts" were distributed as patronage refunds based on the percentage of work submitted.
- At the time of trial, WHC had made no distribution of "excess receipts" to members and was in arrears even with its managerial employees.
Procedural Posture:
- The Secretary of Labor filed a suit under § 17 of the Fair Labor Standards Act against Whitaker House Cooperative, Inc. in District Court, seeking to enjoin the cooperative from violating the Act's provisions concerning minimum wages, record-keeping, and industrial homework.
- The District Court denied the requested relief, finding that the cooperative was not an employer and its members were not employees. (170 F. Supp. 743)
- The Court of Appeals affirmed the District Court's decision by a divided vote. (275 F. 2d 362)
- The Secretary of Labor, as petitioner, filed a petition for certiorari, which the Supreme Court granted due to the importance of the problem in the administration of the Act. (364 U. S. 861)
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Issue:
Does a homeworkers' cooperative, which controls its members' production, quality, and compensation, constitute an "employer," and are its homeworking members "employees" subject to the minimum wage, record-keeping, and industrial homework provisions of the Fair Labor Standards Act?
Opinions:
Majority - Mr. Justice Douglas
Yes, a homeworkers' cooperative is an "employer," and its homeworking members are "employees" within the meaning of the Fair Labor Standards Act because the cooperative's control over their work and compensation reflects an employment relationship under the "economic reality" test. The Court emphasized that the legislative history of the FLSA, including rejected amendments to exempt homeworkers and the strengthening of the Administrator's authority over homework regulations (Section 11(d)), showed a clear intent to regulate industrial homework to prevent circumvention of minimum wage laws. The Court found that there is nothing inherently inconsistent between a proprietary and an employment relationship. Applying the "economic reality" test (citing United States v. Silk and Rutherford Food Corp. v. McComb), the Court concluded that the members were not self-employed or independent sellers. Instead, they were "regimented under one organization, manufacturing what the organization desires and receiving the compensation the organization dictates." The management's power to fix piece rates, and to expel members for substandard work or rule violations, amounted to the power to hire or fire, making the cooperative's structure too transparent to evade the statutory definitions of "employ" and the homework regulations.
Dissenting - Mr. Justice Whittaker
No, a homeworkers' cooperative is not an "employer," and its members are not "employees" under the Fair Labor Standards Act when the cooperative functions as a true cooperative, and members work for themselves, marketing their products through the cooperative. Justice Whittaker argued that the District Court and Court of Appeals correctly found that Whitaker House Cooperative was created and operated as a "true cooperative" under Maine law. He contended that these findings, which were not "clearly erroneous," showed that members worked for themselves—in their own homes, when and as they chose—to produce knitted articles that they marketed through the cooperative. He saw no evidence that the cooperative ever "employed" its members or "suffered or permitted them to work for it." Instead, he highlighted that members received an advance allowance and ultimately a balance of proceeds after expenses, distributed according to the percentage of work submitted, which he found inconsistent with an employment relationship, especially given that the cooperative's assets would be refunded to members in this manner upon dissolution.
Analysis:
This case significantly reinforced the Supreme Court's commitment to the "economic reality" test in defining employment relationships under the FLSA, extending its application to organizational structures like cooperatives. It demonstrated that courts will prioritize the practical realities of control, dependency, and compensation over formal legal labels to ensure the protective intent of social welfare legislation is not circumvented. This ruling serves as a precedent against businesses attempting to evade labor protections by adopting non-traditional or ostensibly cooperative models, ensuring that individuals who are functionally dependent on and controlled by an entity receive statutory benefits.
