(a) One of the most important requirements of sections 9 and 10 is
proof by the employer that the act or omission complained of and his
conformance with and reliance upon an administrative regulation, order,
ruling, approval, interpretation, practice or enforcement policy, were
in good faith. The legislative history of the Portal Act makes it clear
that the employer's ``good faith'' is not to be determined merely from
the actual state of his mind. Statements made in the House and Senate
indicate that ``good faith'' also depends upon an objective test--
whether the employer, in acting or omitting to act as he did, and in
relying upon the regulation, order, ruling, approval, interpretation,
administrative practice or enforcement policy, acted as a reasonably
prudent man would have acted under the same or similar
circumstances.95 ``Good faith'' requires that the employer
have honesty of intention and no knowledge of circumstances which ought
to put him upon inquiry.96
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95 Colloquy between Representatives Reeves and Devitt, 93
Cong. Rec. 1593; colloquy between Senators Ferguson and Donnell, 93
Cong. Rec. 4451-4452.
96 See statement of Senator McGrath, 93 Cong. Rec. 2254-
2255; statement of Representative Keating, 93 Cong. Rec. 4391; statement
of Representative Walter, 93 Cong. Rec. 4389.
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(b) Some situations illustrating the application of the principles
stated in paragraph (a) of this section may be mentioned. Assume that a
ruling from the Administrator, stating positively that the Fair Labor
Standards Act does not apply to certain employees, is received by an
employer in response to a request which fully described the duties of
the employees and the circumstances surrounding their employment. It is
clear that the employer's
employment of such employees in such duties and under such circumstances
in reliance on the Administrator's ruling, without compensating them in
accordance with the Act, would be in good faith so long as the ruling
remained unrevoked and the employer had no notice of any facts or
circumstances which would lead a reasonably prudent man to make further
inquiry as to whether the employees came within the Act's provisions.
Assume, however, that the Administrator's ruling was expressly based on
certain court decisions holding that employees so engaged in commerce or
in the production of goods for commerce, and that the employer
subsequently learned from his attorney that a higher court had reversed
these decisions or had cast doubt on their correctness by holding
employees similarly situated to be engaged in an occupation necessary to
the production of goods for interstate commerce. Assume further that the
employer, after learning of this, made no further inquiry but continued
to pay the employees without regard to the requirements of the Act in
reliance on the Administrator's earlier ruling. In such a situation, if
the employees later brought an action against the employer, the court
might determine that they were entitled to the benefits of the Act and
might decide that the employer, after learning of the decision of the
higher court, knew facts which would put a reasonably prudent man upon
inquiry and therefore had not provided his good faith in relying upon
the Administrator's ruling after receiving this advice.
(c) In order to illustrate further the test of ``good faith,''
suppose that the X Federal Agency published a general bulletin regarding
manufacturing, which contained the erroneous statement that all foremen
are exempt under the Fair Labor Standards Act as employed in a ``bona
fide executive * * * capacity.'' Suppose also that an employer knowing
that the Administrator of the Wage and Hour Division is charged with the
duties of administering the Fair Labor Standards Act and of defining the
phrase ``bona fide executive * * * capacity'' in that Act, nevertheless
relied upon the above bulletin without inquiring further and,
inconformity with this advice, failed to compensate his nonexempt
foremen in accordance with the overtime provisions of the Fair Labor
Standards Act for work subject to that Act, performed before May 14,
1947. If the employer had inquired of the Administrator or had consulted
the Code of Federal Regulations, he would have found that his foremen
were not exempt. In a subsequent action brought by employees under
section 16(b) of the Fair Labor Standards Act, the court may decide that
the employer knew facts which ought to have put him as a reasonable man
upon further inquiry, and, consequently, that he did not rely ``in good
faith'' within the meaning of section 9, upon the bulletin published by
the X Agency.97
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97 See statement of Representative Gwynne, 93 Cong. Rec. 1563,
and colloquy between Senators Connally and Donnell, 93 Cong. Rec. 4453.
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(d) Insofar as the period prior to May 14, 1947, is concerned, the
employer may have received an interpretation from an agency which
conflicted with an interpretation of the Administrator of the Wage and
Hour Division of which he was also aware. If the employer chose to reply
upon the interpretation of the other agency, which interpretation worked
to his advantage, considerable weight may well be given to the fact that
the employer ignored the interpretation of the agency charged with the
administration of the Fair Labor Standards Act and chose instead to rely
upon the interpretation of an outside agency.98 Under these
circumstances ``the question could properly be considered as to whether
it was a good faith reliance or whether the employer was simply choosing
a course which was most favorable to him.'' 99
This problem will not arise in regard to any acts or omissions by
the employer occurring on or after May 14, 1947, because section 10
provides that the employer, insofar as the Fair Labor Standards Act is
concerned, may rely only upon regulations, orders, rulings, approvals,
interpretations, administrative practices and enforcement policies of
the Administrator of the Wage and Hour Division.100
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98 This view was expressed several times during the debates.
See statements of Representative Keating, 93 Cong. Rec. 1512 and 4391;
colloquy between Representatives Keating and Devitt, 93 Cong. Rec. 1515;
statement of Representative Walter, 93 Cong. Rep. 4389; statement of
Representative MacKinnon, 93 Cong. Rec. 4391; statement of
Representative Gwynne, 93 Cong. Rec. 1563; statement of Senator Cooper,
93 Cong. Rec. 4451; colloquy between Senators Connally and Donnell, 93
Cong. Rec. 4452-4453.
99 Statement of Senator Cooper, 93 Cong. Rec. 4451.
Representative Walter, a member of the Conference Committee, made the
following explanatory statement to the House of Representatives (93
Cong. Rec. 4390): ``The defense of good faith is intended to apply only
where an employer innocently and to his detriment, followed the law as
it was laid down to him by Government agencies, without notice that such
interpretations were claimed to be erroneous or invalid. It is not
intended that this defense shall apply where an employer had knowledge
of conflicting rules and chose to act in accordance with the one most
favorable to him.'' Representative Gwynne made a similar statement (93
Cong. Rec. 1563).
100 Statement of Senator Wiley explaining Conference
agreement to the Senate, 93 Cong. Rec. 4270; statement of Representative
Walter, 93 Cong. Rec. 4389.
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