Hale v. Arizona
1992 WL 139326, 967 F.2d 1356 (1992)
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Rule of Law:
Prison inmates who work for a state-run correctional industries program that manufactures goods for sale in the private sector can be considered 'employees' under the Fair Labor Standards Act (FLSA), and thus may be entitled to the federal minimum wage.
Facts:
- Inmates in the Arizona prison system, including Berry and John Leroy Fuller, were required by state statute to engage in hard labor.
- A portion of these inmates worked for Arizona Correctional Industries (ARCOR), a program owned and run by the Arizona Department of Corrections (DOC) that makes a variety of products for sale or use outside the prison.
- ARCOR is deemed by Arizona statute to be a 'private enterprise' subject to the laws governing similar business enterprises.
- The inmates in the 'Fuller' case worked for various ARCOR enterprises, producing goods such as hogs for Farmer John meats and license plates.
- Inmate Berry, the appellant in 'Hale', worked for an Inmate-Operated Business Enterprise (IOBE) under ARCOR's supervision, which made and sold products like belt buckles to the private sector.
- To obtain these jobs, inmates had to apply and be accepted by both the specific enterprise and the DOC.
- The inmate workers were paid approximately 50 cents per hour for their labor.
- Revenues from ARCOR enterprises were placed in a revolving fund to pay wages and expenses, while IOBE profits belonged to inmate owners after the DOC took a portion as rent.
Procedural Posture:
- Inmates in two separate cases, Fuller and Hale, filed suits in federal district court against the State of Arizona, ARCOR, and prison officials.
- The inmates alleged violations of the Fair Labor Standards Act (FLSA), Arizona state law, and 42 U.S.C. § 1983, seeking the federal minimum wage.
- The district court in Fuller dismissed the inmates' FLSA claim.
- The district court in Hale granted summary judgment in favor of the defendants on all claims.
- The inmates in both cases, as appellants, appealed the district court decisions to the U.S. Court of Appeals for the Ninth Circuit.
- The Ninth Circuit consolidated the Hale and Fuller appeals for review.
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Issue:
Does the Fair Labor Standards Act apply to prison inmates who work for a state-run correctional industries program that produces goods for sale in the private sector, thereby entitling them to the federal minimum wage?
Opinions:
Majority - D.W. Nelson, Circuit Judge
Yes. The Fair Labor Standards Act applies to these inmates because the economic reality of their work establishes an employer-employee relationship. The court reasoned that the FLSA's definition of 'employee' is exceptionally broad, and prisoners are not among the specifically listed exemptions. Applying the FLSA furthers one of its core purposes: preventing unfair competition from employers using cheap labor. To determine if an employment relationship exists, the court applied an 'economic reality' test, considering factors such as the power to hire and fire, control over work conditions, determination of pay, and the risk of unfair competition with private industry. In both the direct ARCOR employment (Fuller) and the IOBE employment (Hale), the court found that the DOC and ARCOR exercised sufficient control over the essential aspects of employment to be considered an 'employer' under the FLSA.
Dissenting - Fletcher, Circuit Judge
No. The FLSA does not apply because precedent from Gilbreath v. Cutter Biological is controlling and precludes finding an employment relationship. The dissent argues that the controlling concurrence in Gilbreath established that inmate labor 'belongs to the institution' and the relationship is penological, not pecuniary. The dissent sees no meaningful factual distinction between Gilbreath and the current cases, as the DOC's role remains fundamentally the same. It contends that the Gilbreath court's focus was on the lack of competition in the labor market (inmates inside prison walls are not competing with outside workers for jobs), not the product market, a distinction the majority overlooks. Therefore, under binding precedent, the inmates cannot be considered employees.
Analysis:
This decision establishes that prisoner status does not automatically preclude coverage under the Fair Labor Standards Act. By applying an 'economic reality' test that considers the commercial nature of the work and its competitive impact, the court shifted the focus from the worker's status as an inmate to the nature of the work relationship. This precedent significantly affects state-run prison industries that compete with private businesses, potentially forcing them to either pay minimum wage or restructure their operations. It signals that courts will look past the prison context to the substance of the economic relationship when determining FLSA applicability.
