In Goldberg v. Whitaker House Co-op., Inc., 366 U.S. 28, 81 S. Ct. 933, 6 L. Ed. 2d 100 (1961), the Supreme Court held that members of a knitting cooperative who performed “homework,” were paid on a piece-rate basis to make items for the co-op, and who were subject to expulsion for substandard work, were “employees” of the co-op within the meaning of the Fair Labor Standards Act. The case is important because, inter alia, it applied an “economic realities” test for determining the existence of an employment relationship under the FLSA.
Statutory and Regulatory Background
The FLSA requires covered employers to pay minimum wages and overtime compensation to certain categories of employees. 29 U.S.C §§ 206-207. The FLSA also imposes recordkeeping requirements on employers. 29 U.S.C. § 211. These requirements raise questions about what it means to be an “employer” or an “employee,” and, more specifically, about the nature of the employment relationship that falls within the scope of the FLSA’s minimum wage and overtime requirements.
Relevant to the decision in Goldberg, Section 203 of the FLSA defines “employer” to include “any person acting directly or indirectly in the interest of an employer in relation to an employee[.]” 29 U.S.C. § 203(d). The FLSA defines the term “employee” to generally mean “any individual employed by an employer.” 29 U.S.C. § 203(e). And it defines “employ” as “includes to suffer or permit to work.” 29 U.S.C. § 203(g).
Facts
Whitaker House Co-op made, sold, and dealt in knitted, crocheted, and embroidered goods. The co-op’s members made these goods in their homes and delivered them to the co-op. The co-op paid the members periodically for work submitted for sale on a rate-per-dozen basis. This payment was considered to be “an advance allowance” pending the sale of the goods. 366 U.S. at 28-30. The co-op planned to distribute “excess receipts” to the members “on the basis of the amount of goods which each member has submitted to [the co-op] for sale.” 366 U.S. at 30.
The members manufactured what the co-op desired, received compensation determined by the co-op, and were subject to being expelled from the co-op for failing to meet the co-op’s work standards or failing to obey its rules. 366 U.S. at 28-30.
The central question for the Court in Goldberg was whether the co-op was an “employer” and its members “employees” within the meaning of the FLSA. 366 U.S. 28, 29-33.
The Court’s Decision
The Court held that the co-op was an “employer” and its members were “employees” within the meaning of the FLSA.
The Court initially pointed out that there was “no reason in logic why these members may not be employees[,] because “[t[here is nothing inherently inconsistent between the coexistence of a proprietary and an employment relationship.” 366 U.S. at 32. In other words, a worker’s membership in the co-op does not mean the worker cannot also be an employee of the co-op.
For example, the Court observed, “[i]f members of a trade union bought stock in their corporate employer, they would not cease to be employees within the conception of [the FLSA] … For the corporation would ‘suffer or permit’ them to work whether or not they owned one share of stock or none or many. We fail to see why a member of a cooperative may not also be an employee of the cooperative. In this case the members seem to us to be both ‘members’ and ‘employees.’” 366 U.S. at 32.
In finding an FLSA employment relationship between the co-op and its members, the Court then applied the “economic realities” test that it had previously articulated in United States v. Silk, 331 U.S. 704 (1947) and Rutherford Food Corp. v. McComb, 331 U.S. 722(1947).
First, the Court observed that the co-op provided the members with the opportunity to work, and the co-op paid the members for that work. 366 U.S. at 32 (“It is the cooperative that is affording them ‘the opportunity to work, and paying them for it[.]’”) Regardless of whether they received the co-op’s net proceeds (referred to as “excess receipts”), the members “work[ed] in the same way as they would if they had an individual proprietor as their employer.” Id.
Second, the Court pointed out that the members were not in business for themselves, but rather were performing a manufacturing task for the co-op’s business. “The members are not self-employed; nor are they independent, selling their products on the market for whatever price they can command. They are regimented under one organization, manufacturing what the organization desires and receiving the compensation the organization dictates.” 366 U.S. at 32 Apart from a few formal differences, “they are engaged in the same work they would be doing whatever the outlet for their products.” 366 U.S. at 32-33.
Third, the Court pointed out ways in which the economic reality of the co-op arrangement showed that members were not in business for themselves, but were truly employees of the co-op: “The management fixes the piece rates at which they work; the management can expel them for substandard work or for failure to obey the regulations. The management, in other words, can hire or fire the homeworkers.” Thus, the Court observed, “if the ‘economic reality’ rather than ‘technical concepts’ is to be the test of employment … these homeworkers are employees.” 366 U.S. at 33 (citing United States v. Silk, 331 U.S. 704, 713 and Rutherford Food Corp. v. McComb, 331 U.S. 722, 729 (1947)).
The Court accordingly held that under the “economic reality” test, the co-op was an “employer” and its members were “employees” within the meaning of the FLSA. Therefore, the co-op was subject to the FLSA’s minimum wage and recordkeeping provisions.
Analysis
In sum, Goldberg held that co-op members who performed “homework,” were paid on a piece-rate basis to make items for the co-op, and who were subject to expulsion for substandard work, were “employees” of the co-op within the meaning of the FLSA. The case is important because, inter alia, it applied an “economic realities” test for determining the existence of an employment relationship under the FLSA.
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