DATE: January 18, 1995
CASE NOS. 92-CLA-5; 92-CLA-83
IN THE MATTER OF
MARIA ECHAVESTE, [1]
ADMINISTRATOR, WAGE AND HOUR
DIVISION,
PLAINTIFF,
v.
CIRCULATION PROMOTERS, INC.,
and DAN HASELEY,
RESPONDENTS.
BEFORE: THE SECRETARY OF LABOR
FINAL DECISION AND ORDER
These cases are before me for review pursuant to the
oppressive child labor provisions (Sections 12 and 16) of the
Fair Labor Standards Act of 1938, as amended (FLSA), 29 U.S.C.
§§ 212 and 216(e) (1988), and the implementing
regulations at
29 C.F.R. Parts 570, 579 and 580 (1993). The cases were
consolidated pursuant to the Administrative Law Judge's (ALJ)
order of June 19, 1992, and a hearing on the merits was held on
September 9 and 10, 1992. The ALJ's Decision and Order (D. and
O.) issued on November 17, 1993, affirmed the Wage and Hour
Division's assessment of $34,625.00 in civil money penalties,
which the Respondents timely appealed. An Order establishing a
Briefing Schedule was issued on March 10, 1994.
BACKGROUND
Respondent Haseley owned Respondent Circulation Promoters,
Inc. (CPI) before, during and subsequent to the time that the
[PAGE 2]
alleged violations of the child labor provisions of the FLSA
occurred. [2] CPI was in the business of promoting
subscriptions for the home delivery of newspapers in various
states in the Mid-Atlantic and Midwest regions. Along with other
marketing techniques to promote home delivery subscription
offers, CPI used crews of school age children to canvass homes
door-to-door in targeted areas to induce homeowners to subscribe
to a client newspaper.
A crew of school age children was headed by an adult crew
leader who was responsible for the logistics of the operation.
The crew leader recruited children as crew members; provided
transportation for the crew members to and from designated target
areas; coached the children in a prescribed sales pitch; [3] and
provided sample newspapers for the children to distribute to
potential subscribers as well as subscription forms to document
successful efforts.
Crew leaders were in regular daily contact with CPI,
routinely forwarding information about the new subscribers.
Tr. at 131. After the subscription acceptances were verified,
the crew leaders received weekly commission checks from CPI along
with commission distribution information which advised the crew
leaders of the amount due each child, as well as their own
earnings. Tr. at 124-25. A crew leader paid each child in his
crew in cash for the prior week's work. Tr. at 199, 213.
CPI retained a modest reserve fund against each child's
commissions to offset subscribers canceling their subscriptions.
The reserve was paid to the child at the termination of his
service with the crew. Crew leaders used a parental permission
form on CPI's letterhead to document a parent's permission for
his or her child to participate in the promotion program. The
permission form specifically required the parent or the child to
write to CPI at its Medina, Ohio office after the child
terminated his work in the program to receive the retained
reserve funds. [4]
Wage and Hour Division investigators uncovered child labor
violations in CPI's promotional operations in Columbus and Lima,
Ohio from 1987 through 1989. P.X. 1 and 11. The nature of the
violations included the employment of underage children and
excessive hours of employment. Id.; D. and O. at 6-12.
The established civil money penalties were increased by a
multiplier factor because of CPI's history regarding child labor
irregularities, therefore the violations were considered to be
"recurring child labor violations". [5]
In the instant case the ALJ found that CPI and Haseley had
employed 21 children in oppressive child labor in their Columbus
and Lima operations in willful violation of the FLSA, and that
the sum of the civil money penalty assessed by the Wage and Hour
[PAGE 3]
Division was appropriate. D. and O. at 7-9.
DISCUSSION
The Respondents do not dispute the ALJ's factual findings
that the working conditions of the children who solicited
newspaper subscriptions door-to-door in the Columbus and Lima
areas violated the FLSA and the implementing regulations.
Respondents contend that the crew leaders who hired the children
were independent contractors rather than employees of CPI; that
the penalties assessed were inappropriate; and that a distinction
should be made between CPI and Haseley. Respondents' Response,
Statement of the Case. As I discuss below, none of these
contentions have merit.
The ALJ used the "economic realities" test to determine
whether the crew leaders were employees of CPI or independent
contractors. The economic realities test was derived from the
Supreme Court's decision in United States v. Silk, 331
U.S. 704 (1947), which set forth a series of factors to be
considered to define the limits of the employer-employee
relationship in the context of the Social Security Act. 331 U.S.
at 716. These factors included: degree of control, opportunities
for profit or loss, investment in facilities, permanency of
relationship and skill required in the operation of the job as
important considerations for such a determination. Id.
In Rutherford Food Corp. v. McComb, 331 U.S. 722
(1947), an FLSA case, the Court followed its reasoning in
Silk, and added a factor concerning the integral nature of
the work to the employer's production to define the employer-
employee relationship in the context of the FLSA. 331 U.S. at
729-30. As recently as 1992, the Supreme Court generally
expressed approval of the economic realities test in FLSA cases.
SeeNationwide Mutual Insurance Company v. Darden,
112 S. Ct. 1344, 1346 (1992)(Court distinguished pension-fund
obligations to an employee as defined under ERISA in
Darden, as compared to its broad interpretation of
"employee" under FLSA). The Court also made clear that no one
factor was to be considered dispositive, rather all aspects of
the employment relationship were to be weighed in reaching a
determination whether a worker was an employee or an independent
contractor. Rutherford, 331 U.S.
at 730.
Given the remedial purpose of the FLSA, Federal courts have
adapted an expansive interpretation of the definition relating to
employment status that goes beyond traditional common law
applications. Dole v. Elliott Travel and Tours, Inc., 942
F.2d 962, 966 (6th Cir. 1991)(to be deemed an employer, a party
need not have exclusive control of the day-to-day functions but
need only have "operational control of significant
aspects" of such functions)(emphasis in the original).
[PAGE 4]
I have reviewed the case record before me and agree with the
ALJ's factual findings in consideration with each factor of the
economic realities test. I therefore affirm his legal
conclusions, as drawn from those facts, with regard to the crew
leaders' status as employees rather than independent contractors.
With regard to the first factor concerning
control, the ALJ's determination regarding CPI's control was
based primarily on the evidence and testimony adduced during the
hearing. Although the specific canvassing operations were
seemingly left to the discretion of the crew leaders, the
actuality of the situation permitted little latitude as to how
the operation could be conducted. Tr. at 120, 130. Although the
underlying agreement between CPI and the crew leader states that
actual number of hours to be worked was to be determined entirely
by the crew leader, designated as the "Dealer" in the agreement,
P.X. 16, ¶5, the Sales Crew Leaders Manual, P.X. 10, page
19, required that a crew leader keep his crew canvassing four
hours a day, six days a week.
During the school year, this left only late afternoon and
Saturdays to canvass the target areas. James R. Maple, a former
crew leader, testified that the children's work day during the
school year usually did not begin until after 4:00 p.m. and
lasted until after 8:00 p.m., the children being returned home by
approximately 9:00 p.m. Tr. at 119-20, 131. It should be noted
that this requirement for hours to be worked is violative on its
face of Federal regulations limiting allowable working conditions
when school is in session to a maximum total number of hours of
18 per week, [6] to no more than three hours per day, [7] and
no later than 7:00 p.m. [8]
Respondent's response brief discusses the control factor by
focusing on the parties' intention as represented in the
underlying agreement that the crew leaders were independent
contractors, [9] and that there was little face-to-face contact
between the individual crew leaders and Haseley. That argument
is not persuasive. Mr. Haseley's testimony at the hearing
indicates that after the first case that involved CPI with the
Labor Department concerning child labor violations, he "worked,
which I think as best as I could, to make sure that everybody
worked as an independent contractor basis. And I just tried to
make sure that nobody hired young kids." Tr. at 518.
Although CPI's Employment Contract [10] designated a crew
leader as a "Dealer" and an "independent contractor," the use of
this terminology is not dispositive as to the actual business
relationship between CPI and the crew leaders. Dole v.
Snell, 875 F.2d 802, 804, 812 (10th Cir. 1989)(courts are not
limited by any contractual terminology used by the parties or by
the traditional common law concepts of "employee" or "independent
[PAGE 5]
contractor"; citing McLaughlin v. Seafood, Inc., 867 F.2d
875 (5th Cir. 1989)).
CPI's use of Form 1099 to report the total amount paid to a
crew leader to the Internal Revenue Service, in lieu of Form W-2
to report a crew leader's net income, is likewise not persuasive.
Tr. at 18. A crew leader would merely deduct the amounts he paid
to the children to determine his earnings for income tax
purposes. Tr. at 182, 184 and 185-86. The hearing testimony and
the exhibits admitted into evidence are indicative of a crew
leader's complete economic dependence upon the company,
supporting the ALJ's determination that a crew leader was in
reality an employee of CPI, regardless of contract terminology.
This relationship is underscored by the crew leaders'
daily contact with CPI, Tr. at 131, and their dependence on the
commission distribution information from CPI to pay the children.
Tr. at 124-25.
The second factor concerns the worker's opportunity for
profit or loss. A crew leader's income was solely dependent upon
the production of his crew, and apart from his share of the
commissions earned, he had no opportunity to share in the profits
of CPI or any potential losses. It is possible that a crew
leader might not cover his costs if his crew did not sign up
enough new subscriptions but that is no different than any other
commission based or piecework employment, and is not sufficient
in itself to change the character of the relationship between CPI
and the crew leaders. Dole v. Snell, 875 F.2d at 810.
The third factor pertains to a crew leader's investment in
the job. Although a crew leader had to provide suitable
transportation for the crew members, there is no indication that
these vehicles could not be used for personal purposes as well as
on the job. The purchase of a vehicle is not so job specific as
to merit treatment as an investment. Thomas v. Brock, 617
F. Supp. 526, 535(W.D. N.C. 1985)(the purchase of a van by a
"distributor" who used schoolage children to sell candy house-to-
house did not meet the threshold required to be deemed an
investment). Further, apart from the nominal purchase of canvas
bags that the boys used to carry the newspapers, a crew leader
had no significant out-of-pocket expense. CompareDole
v. Amerilink, 729 F. Supp. 73, 75(E.D. Mo. 1990)(cable
television installers who purchased trucks and specialized
equipment and hired work crews to work on specific job
assignments which were bid on separately and in competition with
other installers were found to be independent contractors).
Similarly, with regard to the fourth factor, the exhibits
admitted into evidence indicate that the parties contemplated
that their relationship was open-ended. See P.X. 6, 7, 10
and 16. Although there was apparently a high turnover rate
within
[PAGE 6]
crew leader ranks there is nothing to indicate that anything
other than a permanent relationship was contemplated between the
parties.
With regard to the fifth factor, only minimal skills were
required of a crew leader. A former crew leader testified that
his total training was conducted by CPI's account manager within
his first week as a crew leader. Tr. at 141; D. and O. at 14.
It is not disputed that CPI's business in Columbus and Lima
was to obtain new subscriptions for two local newspapers.
Although they may have utilized other methods in that pursuit as
well, the use of school boy crews was integral to that business.
In sum, I agree with the ALJ that after weighing the factors
used in the economic realities test, the inexorable conclusion is
that the crew leaders were employees of CPI, and the Respondents
are responsible for the violations of the child labor provisions
of the FLSA.
Second, the Respondents contend that the civil money
penalty is inappropriate. The Respondents, however, are silent
with regard to any mitigating circumstances. They rely instead
on the fact that the previous civil money penalty levied on CPI
because of its prior child labor law violations had been settled
for half of the amount originally set. As the ALJ correctly
found: the total penalty is approximately two percent of CPI's
gross dollar volume during the years of the violations; [11]
most of the children employed were below the age 14 and many were
under the age of 12 when they began to work as crew members; and
the violations were willful, for Mr. Haseley was aware of the
restrictions on the employment of minors and despite assurances
of present compliance, failed to take any necessary precautions
to prevent similar abuses from recurring. SeeDonovan
v. ECLA of New Hampshire, Inc., 615 F. Supp. 106, 108(D.C.
N.H. 1984)(an employer's responsibility to prevent violations of
the child labor provisions of the FLSA is not satisfied by merely
issuing directives to subordinates).
With regard to the multiplier factor, the Respondents'
awareness of the violations meets the standard of willfulness, in
that the employer either knew or showed reckless disregard as to
whether its conduct was prohibited by the FLSA. SeeMcLaughlin v. Richland Shoe Co., 486 U.S. 128, 133
(1988);Dole v. Elliott Travel and Tours, Inc, 942
F.2d at 967. The ALJ found the civil money penalty, which was
based on the then-current regulations regarding child labor civil
money penalties and the use of the multiplier factor to be
appropriate, and I concur. P.X. 3 and 13.
Finally, there is ample authority under the FLSA to hold a
corporate officer with operational control of a corporation's
covered activity jointly and severally liable as an employer
[PAGE 7]
along with the corporation. SeeDole v. Elliott Travel
and Tours, Inc, 942 F.2d at 965, citing Donovan v.
Agnew, 712 F.2d 1509, 1511 (1st Cir. 1983).
For the foregoing reasons I conclude that the penalties
assessed are appropriate and the ALJ's decision IS AFFIRMED. The
Respondents Circulation Promoters, Inc. and Dan Haseley are
Ordered to pay a penalty of $34,625.00 for violations of the
child labor provisions of the Fair Labor Standards Act, as
amended.
SO ORDERED.
Secretary of Labor
Washington, D.C.
[ENDNOTES]
[1] The case caption is hereby corrected pursuant to 29 C.F.R.
§ 580.10.
[2] Mr. Haseley testified that CPI is no longer in business,
Transcript (Tr.) at 233, 533, and commented on the company's
demise at Respondents' Response, last page, unenumerated. CPI
apparently ceased operations in 1990. D. and O. at 2.
[3] The children told prospective subscribers that they were
trying to win a trip to Washington, D.C. provided they signed up
a sufficient number of new subscriptions. The children were in
fact paid a specific commission for each successful subscription
order produced. Plaintiff Exhibit (P.X.) 8; Tr. at 125-26, 131,
144-46.
[4] P.X. 5.
[5] In 1989, CPI entered into a consent findings stipulation
with the Wage and Hour Division concerning an investigation in
1984 involving soliciting of newspaper subscriptions by minors on
CPI's behalf. The investigation resulted in an initial
assessment of $2,360 in civil money penalties, which was reduced
to ,180.00 and paid by CPI and Haseley pursuant to the
stipulation. D. and O. at 8, P.X. 26 and 27.
[6] 29 C.F.R. § 570.35(a)(3).
[7] 29 C.F.R. § 570.35(a)(5).
[8] 29 C.F.R § 570.35(a)(6).
[9] P.X. 16.
[10] P.X. 16; Tr. at 18.
[11] CPI's gross income during 1987-89 was ,583,286. Tr. at
232.
