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Walling v. American Stores Co.

February 11, 1943


Appeal from the District Court of the United States for the Eastern District of Pennsylvania; Harry E. Kalodner, Judge.

Author: Goodrich

Before BIGGS, MARIS, and GOODRICH, Circuit Judges.

GOODRICH, Circuit Judge.

The Administrator of the Wage and Hour Division, United States Department of Labor, brought this action in the District Court to restrain the defendant, American Stores Company, from violating §§ 15(a)(1), 15(a)(2) and 15(a)(5)*fn1 of the Fair Labor Standards Act of 1938. 52 Stat. 1060 (1938), 29 U.S.C.A. § 201 et seq. There was little or no dispute concerning the facts. Nor was there any doubt about the defendant's violation of the Act if, as a matter of law, it is subject to it. The court below after making extensive findings of fact, concluded that the company was subject to the Act and issued an injunction as prayed for by the Administrator except for the exclusion of certain employees. American Stores appeals from the decision holding it subject to the Act; the Administrator appeals from the ruling by which certain employees were excluded. The problem raised by the appeal of the American Stores will be discussed first.

I. Is the American Stores Company exempt under § 13(a)(2) of the Act?

Section 13 of the Act is the exemption section of which only the first two*fn2 classifications are relevant here. American Stores depends upon the second of these classifications which grants exemption according to the nature of the business of the establishment in which the employee is engaged, rather than the particular activities of the employee. The contention is clear and bold. The employer claims exemption because it says its entire enterprise is a retail establishment. If it is a retail establishment there seems to be no dispute that the greater part of its selling is in intrastate commerce. The Administrator does not contend that the employees whose duties consist of selling food products in defendant's retail stores come within the Act. Nor is it claimed that certain employees of the company-owned bakeries from which products are sold in the state of manufacture are within the Act. Except for the latter, the dispute concerns those employees of American Stores not employed in its retail stores. The question is whether the sum total of the activity of the American Stores Company constitutes a "retail establishment" so as to exempt the entire enterprise from the mandate of the statute.

The findings of fact made by the trial court give a comprehensive description of of the American Stores Company. Those necessary to the understanding of the question involved may be briefly stated.

The company is a Delaware corporation with its central office in Philadelphia. It operates eleven warehouses in five states and the District of Columbia, seven bakeries in three states, two canneries in Maryland, purchasing offices at New York City and Philadelphia, a coffee roasting plant, an automobile maintenance plant, a mechanical shop, a laundry and garment shop, a printing and multigraphing shop, a laboratory, and a bottling works, a large food processing and manufacturing plant, all of the latter being in Philadelphia. It also operates approximately 2300 retail stores in Pennsylvania, New Jersey, Delaware, New Yoek, Maryland and the District of Columbia. Defendant's subsidiaries, American Stores Company, Inc., a Virginia corporation, and American Stores Company, a West Virginia corporation, operate retail stores in Virginia and West Virginia, respectively. Defendant is also the parent of eleven other corporation, some of which are now inactive.

The financial volume of the transactions in which the defendant is engaged is large. In 1939 the sales of defendant's retail stores, directly owned, totaled $77,014,652.23. Its assets were $32,662,976.91. The value of the merchandise received by the defendant's warehouses in 1939 exceeded $75,000,000. A similar amount was shipped. Its bakeries manufactured in excess of $3,250,000 worth of breads, cakes and pies. Almost $2,000,000 worth of coffee was distributed in 1939 from its coffee roasting plant. Defendant's warehouse in Philadelphia contains a manufacturing, processing and packing plant at which salad dressings, jams, delicatessen items, gelatine, tapioca, teas and spices and various other grocery items, bacon, beef and other meats are prepared and packed, and soft drinks are bottled. The value of these products for 1939 totaled more than $8,000,000. Its two canneries produced goods in that year in excess of $675,000.

The defendant's warehouses, with the exception of one which is a coffee roasting plant, receive and stock the products manufactured and processed by itself, numerous private label items produced and packed expressly for defendant, and hundreds of other items of other manufacturers. Each warehouse serves the retail stores in its zone, the operational territory of the defendant being divided into several zones. Each warehouse carries various food products which it distributes upon order to defendant's retail stores and those owned and operated by its subsidiaries.*fn3 Each warehouse has its own storage, transportation and office facilities.

The retail stores are operated under a common general management. They vary, however, as to size, type of goods sold, service rendered and prices charged. Some stores sell dry groceries almost exclusively; others have groceries and a produce department; still others also have meat departments. Some operate on a self service plan. Some carry produce especially suited for the neighborhood in which they are located. The manager of each store bears the principal responsibility in ordering for his store. He also exercises discretion in setting certain prices. Hiring and discharging of store employees, and transfers of personnel rest solely with the defendant in all stores. The retail stores served by different warehouses are charged different prices for the same goods at the same time.*fn4 Separate accounting records are kept for each store which bears its own expenses of operation.

In the operation of its warehouses, offices, canneries, bakeries, coffee roasting plant, food manufacturing and processing plants, printing and multigraphing shop, auto maintenance and fixture plant, mechanical shop, and other non-retail selling units, the defendant employs approximately 3200 workers.

It is this great enterprise for which the defendant claims exemption from the Fair Labor Standards Act as a retail establishment. It is not disputed that the defendant is in the business of retailing food products to consumers. Nor do the facts show anything to indicate that the profit making transaction for the company is any other than the sale of merchandise on the retail store shelf to the individual food buyer. We may take it that defendant's canning of vegetables, its roasting of coffee, baking of bread and all the other acts done in preparing and assembling food products for sale are part of a plan whose terminus is the retail sale over the counter to the consumer. From the standpoint of business integration, it might conceivably be assumed that this whole enterprise is an "establishment". However, it is quite another thing to say that it is a retail establishment when it engages in so many important operations other than retailing, even though the retail sale is the event from which the defendant's income is derived.

The Administrator, provided for in the statute, has expressed a view contrary to the defendant's position in the Interpretative Bulletin, issued by the Wage and Hour Division of the United States Department of Labor, defining the scope and applicability of § 13(a)(2). Interpretative Bulletin No. 6, Retail and Service Establishments (June, 1941). Each of the defendant's retail stores under this interpretation, comes within the exemption as a single physical place of business, but not the "warehouses, central ...

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