DATE: July 6, 1994
CASE NO.: 92-CLA-91
IN THE MATTER OF
SMF MANAGEMENT, INC.,
BEFORE: Theodor P. von Brand
Administrative Law Judge
DECISION AND ORDER
Preliminary Statement
This is a case under the Child Labor Provisions of the Fair Labor Standards Act 29
U.S.C. §201 et. seq. (the "Act). The Wage and Hour Division's
investigation commenced in April of 1991. On June 17, 1991, the Wage and Hour Division
issued a notice of assessment of civil money penalties in the amount of $65,150.00 for alleged
violations of the Act and applicable regulations (EX 1). On July 3, 1991, SMF Management
Inc. (Respondent) filed timely exceptions to the assessment of penalties and requested a
hearing. On March 25, 1992, this matter was referred to the Office of Administrative Law
Judges. After protracted pre-trial procedures, the parties on June 23, 1993, submitted this
matter for decision on the basis of a stipulated record.
Certain of the violations herein involve 29 C.F.R. §570.35 (also referred to as
Regulation 3). That regulation provides in pertinent part as follows:
§570.35 Periods and conditions of employment.
(a) Except as provided in paragraph (b) of this section, employment in any
of the occupations to which this subpart is applicable shall be confined
to the following periods:
(1) Outside school hours;
(2) Not more than 40 hours in any 1 week when school is not in session;
(3) Not more than 18 hours in any 1 week when school is in session;
[PAGE 2]
(4) Not more than 8 hours in any 1 day when school is not in session;
(5) Not more than 3 hours in any 1 day when school is in session;
(6) Between 7 a.m. and 7 p.m. in any 1 day, except during the summer
(June 1 through Labor Day) when the evening hour will be 9 p.m.
The other violations documented involve 29 C.F.R. §570.63 (Hazardous Order
12) which provides as follows:
§570.63 Occupations involved in the operation of paper-products
machines (Order 12).
(a) Findings and declaration of fact. The following occupations
are particularly hazardous for the employment of minors between 16 and 18
years of age:
(1) The occupations of operation or assisting to operate any
of the following power-driven paper products machines:
(i) Arm-type wire stitcher or stapler, circular
or band saw, corner cutter or mitering machine,
corrugating and single-or-double-facing machine,
envelope die-cutting press, guillotine paper cutter
or shear, horizontal bar scorer, laminating or
combining machine, sheeting machine, scrap-paper
baler, or vertical slotter.
. . .
(2) The occupations of setting up, adjusting, repairing, oiling,
or cleaning these machines including those which do not involve
hand feeding.
(b) Definitions. (1) The term
operating or assisting to operate shall
mean all work which involves starting or stopping
a machine covered by this section, placing or
removing materials into or from the machine, or
any other work directly involved in operating the
machine. The term does not include the stacking
of materials by an employee in an area nearby or
adjacent to the machine where such employer does
not place the materials into the machine.
(2) The term paper products machines shall mean all
power-driven machines used in:
(i) The remanufacture or conversion of paper
[PAGE 3]
or pulp into a finished product, including the preparation of such materials for re-cycling; or
(ii) The preparation of such materials for
disposal. The term applies to such machines
whether they are used in establishments that
manufacture converted paper or pulp products, or
in any other type of manufacturing or
nonmanufacturing establishment.
Also relevant to this case is the regulatory definition of "oppressive child labor" in 29
C.F.R. §570.117 which provides in relevant part:
(b) The term "oppressive child labor" includes
generally the employment of young workers under
the age of 16 years in any occupation. In
addition, the term includes employment of minors
16 and 17 years of age by an employer in any
occupation which the Secretary finds and declares
to be particularly hazardous for the employment of
children of such ages or detrimental to their health
or well-being. authority is also given the
Secretary to issue orders or regulations permitting
the employment of children 14 and 15 years of
age in nonmanufacturing and nonmining
occupations where he determines that such
employment is confined to periods which will not
interfere with their schooling and to conditions
which will not interfere with their health and well-
being. The subsection further provides for the
issuance of age certificates pursuant to regulations
of the Secretary which will protect an employer
from unwitting employment of oppressive child
labor.
The parties have stipulated that the violations on which the civil money penalties are
based are established for the purposes of this proceeding. The sole issue presented for
resolution is accordingly the reasonableness of the amount of the civil money penalties
assessed.
Seventy-eight minors were involved in violations pertaining to the operation of
hazardous machinery and three minors were involved in Regulation 3 violations (appendix 1).
Findings of FactSMF Management Inc., the Respondent, is a Tennessee corporation which owned
and operated six supermarkets in the Memphis, Tennessee, area in the period April 4, 1989, to
April 2, 1991 (EX 2).
[PAGE 4]
Respondent and its grocery stores in the relevant period were an "enterprise" engaged
in commerce or in the production of goods for commerce within the meaning of 29 U.S.C.
§203(5)(1) (EX 2). The annual dollar volumes of sales of Respondent for the
fiscal years indicated were as follows:
FY 1988 (12/1/87 - 11/30/88) $16,422,428
FY 1989 (12/1/89 - 11/30/89) $16,672,987
FY 1990 (12/1/90 - 11/30/90) $18,251,630
(EX 2)[1]
SMF Management, Inc. , owns and operates the following stores:
SMF Food Rite No. 12
3561 Park Avenue
Memphis, TN 38111
SMF Food Rite No. 5
480 East Commerce St.
Hernando, MS 38632
SMF Food Rite No. 9
112 Highway 72 East
Collierville, TN 38017 (closed June 1992)
Food Rite No. 10
5760 Stage Rd.
Bartlett, TN 38134
Food Rite No. 11
3151 South Mendenhall
Memphis, TN 38115
Food Rite No. 14
3384 North Thomas St.
Memphis, TN 38127
In the year ending November 1992, SMF Management, Inc., had an operating loss of
$559,135, sustaining a net loss of $362,425. Food Rite Store No. 9 ceased operations in June
1992. From the period December 1, 1991, to June 1992, Food Rite Store No. 9 sustained a
loss in the amount of $253,323. Additional anticipated losses due to the closure of Food Rite
Store No. 9 are anticipated by management to exceed $100,000.
For the year ending November 1992, net income (loss) from supermarket operations
[PAGE 5]
were as follows:
Food Rite No. 5 $ 65,991
Food Rite No. 9 $(253,232)
Food Rite No. 10 $ (28,372)
Food Rite No. 11 $ 52,696
Food Rite No. 12 $ 2,125
Food Rite No. 14 $ 75,930
(Appendix 64)
Respondent's net loss for that year was $362,425 (Appendix 64)
The violations of the Fair Labor Standards Act on which the assessment of civil
money penalties are based and which are an issue have been established for the purposes of
this proceeding (EX 2).
SMF Management, Inc., prior to instant proceeding had never been assessed civil
money penalties for violation of the Child Labor Provisions of the Fair Labor Standards Act
(Appendix 60).
The compliance office of the Wage and Hour Division conducted an investigation of
six of Respondent's grocery stores in the Memphis, Tennessee, area to determine compliance
with the Child Labor Provisions of the Fair Labor Standards Act. The investigation covered
the period April 4, 1989, to April 2, 1991 (Appendix 1).
At each of the above named stores, the defendant had one or more power driven
scrap-paper balers which were used, for the most part, to crush and bind cardboard. The
cardboard items placed into the machines were usually empty cardboard boxes. Once these
items were crushed and bound by the machine, the bound items were removed from the
machine, stored and ultimately picked up by a truck for interstate transportation of recycling
to paper mills where they were used in making paper goods. (Appendix 1, page 3). The
scrap paper balers, operated by SMF , are subject to the provisions of 29 C.F.R.
§570.63.
The violations documented by the investigation involve Regulation 3 (29 C.F.R.
§570.35) governing the hours which minors may work and Hazardous Order 12 (HO
12, 29 C.F.R. §570.63). The HO 12 violations involved operations of the scrap paper
balers located in each Respondent's stores. (Appendix 1, page 4).
The following summary of violations found in the case of the Store No. 5 and
resultant penalty assessments are typical of the violations found in Respondent's remaining
five stores:
Child Labor Age at Start
Violation Name of violation
Assessment
HO 12 Stephen Baker 17 ,000
HO 12 Michael Betts 17 ,000
[PAGE 6]
HO 12 Jermayne Brown 16 ,000
HO 12 Kevin Floyd 16 ,000
HO 12 Josh May 16 ,000
HO 12 Frankie Rexroade 17 ,000
HO 12 Chad Seagraves 17 ,000
HO 12 James K. Starkey 16 ,000
Reg. 3 Michelle Ford 15
400TOTAL $8,400
(Appendix 1)
The Regulation 3 violation resulted in total assessment of ,000 in civil penalties.
Respondent's Regulation 3 violations involved three minors. Michelle Ford, age 15, ($400
assessed for violation of the hours and time requirements). Quinton Strong, age 15, L($300
assessed for violation of hours ant time standards). Gregory Marshal, age 15, ($300 assessed
for violation of hours ant time standards).
Specifically, Michelle Ford worked more than 18 hours in a school week and more
than 3 hours on six separate school days (Appendix 1, page 4). Gregory Marshall worked
after 9:00 p.m. 28 times and after 7:00 p.m. on three occasions. He also worked more than 3
hours when school was in session on 5 days (Appendix 1, pp. 6-7). Quinton Strong worked
more than 18 hours when school was in session in 7 separate weeks; was employed more than
3 hours on 23 separate days when school was in session, and was employed after 8:00 p.m. in
8 work weeks (Appendix 1, pp. 7-8).
Seventy-eight minor employees of SMF were involved in Hazardous Order 12
violations (Appendix 1). Minors employed by Respondent at all six stores in the relevant
period routinely operated the baling machines. Generally, these minors were 16 or 17 years
old at the time of the violation. The store managers in all six stores knew that their minor
employees were operating this machinery. In many instances, they instructed such minors on
how to operate the baling machines (Appendix 2-59). The evidence also shows that many
minor employees, in addition to starting and stopping the machinery, tied the bales in the
machines. For example, "to do this, I pushed a wire though the slots in the machine and
pulled it out the other side and tied the bale together ..." (Appendix 24). Tying the bales in
this manner was evidently routine for many of the child employees (e.g. Appendix 25).
Discussion
SMF Management, Inc., (Respondent) owned and operated six supermarkets in the
Memphis, Tennessee, area in the relevant period April 4, 1989, to April 2, 1991.
Investigation by a compliance officer of the Wage and Hour Division of the U.S. Department
of Labor documented violations of the Child Labor Provisions of the Fair Labor Standards
Act in that period. Specifically, the record shows that SMF violated the Regulation 3
provisions of 29 C.F.R. §570.35, regarding permissible hours in the case of three
minors.
[PAGE 7]
Hazardous Order 12 provisions were violated in the case of 78 minors who operated scrap
paper balers.
Penalties in the amount of $65,150 were assessed based on those violations.
Respondent concedes that the violations occurred but urges that the penalties assessed were
excessive. Respondent contends that a review of the penalties in light of the criteria set forth
in 29 C.F.R. §579.5 mandates a reduction of the penalties. The penalties, it should be
noted, were assessed on the basis of the age of the minor employees after November 5, 1990.
Moreover, the regulation provided that for violations occurring prior to November 5, 1990, the
penalty cannot exceed ,000 for each violation. After that date, the regulations specify that
the penalty cannot exceed $10,000 for each employee who is a subject of a violation. In this
case, the penalties including those applicable to the period prior to November 5, 1990, were
not assessed individually for each separate violation involving an employee.
29 C.F.R. §579.5 provides that the following factors are to be considered in
assessing penalties: the size of the business charged with the violation and the gravity of the
violation taking into consideration such factors as the history of past violations, willfulness,
failure to take reasonable precautions to avoid violations, the age of the minors involved in
the violation, exposure of minors to hazards, resultant injuries, if any, and the duration of the
illegal employment. In the case of Regulation 3 violations, the following factors are to be
considered: hours of the day when the violations occurred and whether such employment was
during or outside school hours.
Considering Respondent's gross sales of $18 million in fiscal year 1990, the $65,150
penalties assessment does not appear unreasonable notwithstanding a net loss of $362,425 for
the year ending November 1992. Respondent's size does not mandate a reduction of the
penalties in question.
The penalty of ,000 for the Regulation 3 violations by three minors is reasonable
considering the number of violations in the case of each child employee and the fact that such
violations came within the regulatory definition of oppressive child labor. Moreover, on a per
violation basis, the penalties for the Regulation 3 violations could clearly have been higher.
The Hazardous Order 12 violations are serious in that they conform to the definition of
oppressive child labor. Moreover, such oppressive child labor was routine in the case of
minors employed at Respondent's stores. The 78 minors involved in the Hazardous Order
12 violations is a clearly significant number also compelling the finding that the violations
under consideration here are serious and substantial. The record further shows that in the case
of each of the stores, management knew that minors were operating the hazardous machinery.
In some cases, the store managers instructed the child employees on how to operate such
machinery. Under the circumstances, the Hazardous Order 12 violations must be considered
willful.[2]
Respondent does not have a prior history of child labor violations and SMF took the
steps necessary to abate the violations documented in this record nor is there any indication
that any of the minor employees were injured as a result of such violations. The scale,
seriousness, and willfulness of the violations, however, outweigh the mitigating factor such as
[PAGE 8]
lack of a prior history of violation and the fact that Respondent took the steps necessary to
abate such violations.
Moreover, the penalties as a practical matter have already been mitigated. The
government could have but did not assess the penalties on the basis of each violation shown
choosing rather to limit the penalties to approximately ,000 per employee in the case of
Hazardous Order 12.[3] Respondent's appeal from the imposition of penalties is denied. However, in
view of SMF's recent operating losses it will be permitted to pay the assessed penalties over
an eighteen month period.
ORDER
SMF Management, Inc., is ordered to pay the $65,150 civil money penalties previously
assessed in eighteen equal installments beginning 30 days from the date of this order..
Theodor P. von Brand
Administrative Law Judge
TPVB/dlh
Newport News, Virginia
SERVICE SHEET
CASE NAME: EDWARD P. MARTHIN v. TAD TECHNICAL SERVICES
CORPORATION AND THE DIAL CORPORATION
CASE NOS.: 94-WPC-1, 94-WPC-2, AND 94-WPC-3
TITLE OF DOCUMENT: ORDER
I hereby certify that on ___________________, a copy of the foregoing document was sent to
the parties and their representatives at their last known addresses listed below.
[PAGE 9]
___________________________
Diana L. Hinton
Legal Technician
CERTIFIED MAIL
Edward P. Marthin
5272 Priory Brook Road
Florissant, MO 63033
TAD Technical Services
Ronald Uliano, Area Vice President
150 Weldon Parkway, Suite 102
St. Louis, MO 63102
Neil J. Maune, Esq.
Walker, Maune & Waters
P. O. Drawer B
Granite City, IL 62040
Gaynell Gallagher, Esq.
Husch & Eppenberger
100 North Broadway
Suite 1300
St. Louis, MO 63102
REGULAR MAIL
Maria Echaveste
Administrator
Wage and Hour Division/ESA
U. S. Department of Labor
Room S-3502
200 Constitution Avenue
Washington, DC 20210
Monica Gallagher
Associated Solicitor for
Fair Labor Standards Division
U.S. Department of Labor
Room N-2716
200 Constitution Avenue, N.W.
Washington, DC 20210
Kenneth M. Kelly
District Director
Wage and Hour Division/ESA
U.S. Department of Labor
Robert A. Young Building
Room 9.102B
1222 Spruce Street
St. Louis, MO 63103
Office of Enforcement and
Compliance Monitoring
Environmental Protection Agency
401 M Street, S.W.
Washington, DC 20460
CERTIFIED MAIL
Director
Office of Administrative Appeals
U.S. Department of Labor
Room S-4309
200 Constitution Avenue
Washington, DC 20210
[PAGE 10]
[ENDNOTES]
[1] The stipulation appears to
suffer from typographical errors.
Presumably FY 1989 ended 11/30/90
and FY 1990 ended 11/30/91.
[2] Although, Gregory Marshall
submitted an inaccurate birth date
showing 16 years of age to
Respondent, this does not mitigate
the violation. His work on the
paper baler would have violated the
Act at either age 15 or 16.
Moreover, SMF failed to take
advantage of the provisions of 29
C.F.R. §570.121 to protect
itself from unwitting violation of
the minimum age standards.
[3] In the case of a significant
number of employees, their routine
operation of the scrap paper balers
over an extended period of time
would have justified assessments up
to the maximum of $10,000 per
employee. A significant number of
the minor employees worked for SMF
for periods in excess of 6 months
or a year (see EX 11). For example,
Shaw Randall who used the paper
baler every day was employed for a
period of a year and seven months
(Appendix 13).
