L-x.'T. JO - '//•>/ /f3 / O^c ft 47 (INTERPRETATIVE BULLETIN) General Statement as to the Effect of the Portal-to-Portal Act of 1947 on the Fair Labor Standards Act of 1938 Title 29, Chapter V, Code of Federal Regulations Part 790 NOVEMBER 1947' DEPO»ITO«Y UNITED STATES DEPARTMENT OF LABOR WAGE AND HOUR DIVISION OFFICE OF THE ADMINISTRATOR ^Published in the Federal Register November 18, 1947. UNITED STATES DEPARTMENT OF LABOR WAGE AND HOUR DIVISION WASHINGTON, D. C. GENERAL STATEMENT AS TO THE EFFECT OF THE PORTAL-TO-PORTAL ACT OF 1947 ON THE FAIR LABOR STANDARDS ACT OF 1938* TABLE OF CONTENTS General: Page Sec. 790.1. Introductory statement 1 Sec. 790.2. Interrelationship of the two acts 2 Provisions Relating to Certain Activities Engaged in by Employees ON OR After May 14, 1947: Sec. 790.3 Provisions of the statute 4 Sec. 790.4. Liability of employer; effect of contract, custom, or pract ice 4 Sec. 790.5. Effect of Portal Act on determination of hours worked. _ 6 Sec. 790.6. Periods within the "workday" unaffected 7 Sec. 790.7. "Preliminary" and "postliminary" activities 9 Sec. 790.8 "Principal" activities, 11 Sec. 790.9. "Compensable by an express provision of a written or nonwritten contract" 13 Sec. 790.10. "Compensable * * * by a custom or practice" 14 Sec. 790.11. Contract, custom, or practice in effect "at the time of such activity" 16 Sec. 790.12. "Portion of the day" 10 Defense of Good Faith Reliance on Administrative Regulations, Etc. Sec. 790.13. General nature of defense 17 Sec. 790.14. "In conformitv with" 18 Sec. 790.15. "Good faith" 19 Sec. 790.16. "In reliance on" 21 Sec. 790.17. "Administrative regulation, order, ruling, approval, or interpretation" 21 Sec. 790.18. "Administrative practice or enforcement policy" 24 Sec. 790.19. "Agency of the United States" 26 Restrictions and Limitations on Employee Suits: Sec. 790.20. Right of employees to sue; restrictions on representative actions 28 Sec. 790.21. Time for bringing employee suits 28 Sec. 790.22. Discretion of court as to assessment of liquidated damages 30 Provisions Relating to Certain Activities Engaged in by Employees Before May 14, 1947: Sec. 790.23. Liability of employer; effect of contract, custom, or practice 31 Sec. 790.24. Efl'ect of Portal Act on determination of hours worked prior to May 14, 1947 32 Sec. 790.25. Jurisdiction of courts limited as to wage claims for periods prior to May 14, 1947 33 Sec. 790.26. Prohibition of assignments 34 Sec. 790.27. Compromise of claims existing prior to May 14, 1947 34 Sec. 790.28. Waiver of right to liquidated damages 36 Sec. 790.29. "Area of production" exemption prior to December 20, 1946 37 ♦Part 790 of Titlo 29, Chapter V, Subchapter B, Code of Federal Rofjister. Pulili! OHtliminajry'''' activities, performed 'before or after the ejiiployee^ '"''frvncipal actii^ities''' for the workday ^^ must be included or excluded in computing time workecl.^^ If time spent in f« See sees. 790.4-790.6 of this bulletin. ** Conference Report, pp. 12, 13. *" See Confereiicp Report, p. i;{ ; sees. 700.4 (c) and 790.5 (b) of tb.is bulletin. The scope of sec. 4 (c) is narrower in this respect than that of sec. 2 (b), which is couched in idt'ntical lanKuage. Cf. Conference Report, pp. 9, 10 ; i)p. 12, 13. See also sec. 790.23 of this bulletin. EFFECT OF PORTAL-TO-PORTAL ACT, 19 47 17 DEFENSE OF GOOD FAITH RELIANCE ON ADMINISTRA- TIVE REGULATIONS, ETC. Section 790.13. General Nature of Defense (a) Under the provisions of sections 9 and 10 of the Portal Act, an employer has a defense against liability or punishment in any action or proceedinf^ brought against him for failure to comply with the minin\um wage and overtime provisions of the Fair Labor Standards Act, Avhere the employer pleads and proves that "Lhe act or omission complained of was in good faith in conformity with and in reliance on an}^ administrative regulation, order, ruling, approval, or interpre- tation" or "any administrative practice or enforcement policy * * * with respect to the class of emploj'ers to which he belonged." In order to provide a defense with respect to acts or omissions occurring on or after May 14, 1947 (the effective date of the Portal Act), the regulation, order, ruling, approval, interpretation, administrative practice or enforcement policy relied upon and conformed with must be that of the "Administrator of the Wage and Hour Division of the Department of Labor," and a regulation, order, ruling, approval, or interpretation of the x\.dministrator may be relied on only if it is in w^riting.**** But where the acts or omissions complained of occurred before May 14, 1947, the employer may show that they were in good faith in conformity with and iii reliance on "any" (written or non- iciittcn) administrative regulation, order, rvding, or interpretation of "any agency of the United States," or any administrative practice or enforcement policy of "any such agency" with respect to the class of emploj^ers to which he belonged.^^ In all cases, however, the act or omission complained of must be both "in conformity with" ^° and "in reliance on" ^^ the administrative regulation, order, ruling, approval, interpretation, practice, or enforcement policy, as the case may he, and such conformance and reliance and such act or omission must be "in good faith," ^- The relief from liability or punishment provided by sections 9 and 10 of the Portal Act is limited by the statute to employers who both plead and prove all the requirements of the defense.^^ (b) The distinctions mentioned in paragraph (a) , above, depending on whether the acts or omissions complained of occurred before or after May 14, 1947, m^ay be illustrated as follows: Assume that an ®^ Portal Act, sec. 10 ; Conference Report, p. 16 ; statements of Senator Wiley, explain- ing tlie conference agreement to the Senate, 1947 Cong. Rec. 4398 ; statements of Repre- sentatives Gwy>nne and Walter, explaining the conference agreement to the House of Representatives, 1947 Cong. Rec. 4514, 4515. See also sees. 790.17 and 790.19 of this bulletin. ™ Portal Act, see. 10 : Conference Report, p. 16 ; statement of Senator Wiley, explaining the conference agreement to the Senate, 1947 Cong. Rec. 4398 ; statements of Representa- tives Gwvnne and Walter, 1947 Cong. Rec. 4514, 4515. See also sec. 790.19 of this bulletin. ^•> See sec. 790.14, below. >" See sec. 790.16, below. ^ See sec. 790.15, below. '*= Conference Report, pp. 15, 16; statements of Representatives Gwynne and Walter, explaining the conference agreement to the House of Representatives, 1947 Cong. Rec. 4514, 4515 ; statements of Senators Cooper and Donnell, 1947 Cong. Rec. 4502, 4577, 4578. See also the President's message of May 14, 1947, to the Congress on approval or the Act. The requirements of the statute as to pleading and proof emphasize the continuing recognition by Congress of tlie remedial nature of the Fair Labor .Standards Act and of the need for safegiiardine the protection which Concress intended it to afford employeew. See sec. 790.2 of this bulletin: cf. st.-xtcments of Senator Wiley, 1947 Cong. Rec. 4.'^08 ; R""ntor Donnell, 1947 Cong. Rec. 4578, and Representative Walter, 1047 Cong. Rec. 4514. 4515. 18 EFFECT OF PORTAL-TO-PORTAL ACT, 1947 employer, on commencing performance of a contract with X Federal agency extending from January 1, 1947, to January 1, 1948, received an opinion from the agency that emploj-ees working under the con- tract were not covered by the Fair Labor Standards Act. Assume further that the employer may be said to have relied in good faith upon this opinion, and therefore did not compensate such employees during the period of the contract in accordance with the provisions of the act. After completion of the contract on January 1, 1948, the employees, who have learned that they are probably covered by the act, bring suit against their employer for unpaid overtime compensa- tion which they claim is due them. If the court finds that the em- ployees were performing work subject to the act, they can recover for the period commencing May 14, 1947, even though the em])loyer pleads and proves that his failure to pay overtime was in good faith in con- formity with and in reliance on the opinion of X agency, because for that period the defense would, under section 10 of the Portal Act, have to be based upon a written administrative regidation, order, ruling, approval, or interpretation, or an administrative practice or enforce- ment polic}^ of the Administrator of the Wage and Hour Division. The defense would, however, be good for the period from January 1, 1947, to May 14, 1947, and the employer would be freed from liability for that period under the provisions of section 9 of the statute. Section 790.14. "In Conformity With" (a) The "good faith" defense is not available to an employer unless the acts or omissions complained of were "in conformity with" the regulation, order, ruling, approval, interpretation, administrative practice, or enforcement policy upon which he relied.^* This is true even though the employer erroneously believes he conformed with it and in good faith relied upon it ; actual conformity is necessary. (b) An example of an employer not acting "in conformity with" an administrative regulation, order, ruling, approval, practice, or enforce- ment policy is a situation where an employer receives a letter from the Administrator of the Wage and Hour Division, stating that if certain specified circumstances and facts regarding the work performed by the employer's employees exist, the employees are, in his opinion, exempt from provisions of the Fair Labor Standards Act, One of these hypothetical circumstances upon which the opinion was based does not exist regarding these employees, but the employer, errone- ously assuming that this circumstance is irrelevant, relics upon the Administrator s ruling and fails to com])en8ate the employees in a'^- cordance with the act. Since he did not act "in conformity" with that opinion, he has no defense under section 9 or 10 of the Portal Act. (c) As a further example of the requirement of conformity, refer- ence is made to the illustration given in section 790.13 (b) above, where an employer, who had a contract with the X Federal agency covering the period from January 1, 1947, to January 1, 1948, received an opinion from the agency that employees working on the contract were not covered by the Fair Labor Standards Act. Assume (1) that "^ Statcinfiit of Senator Coopor, 1947 Cong. Rec. 4577 ; message of the President to Congress on approral of the act, May 14, 1047. EFFECT OF PORTAL-TO-PORTAL ACT, 194 7 19 the X agency's opinion was confined solely and exclusively to activi- ties performed under the particular contract held by the emplo3''er with the afjency and made no general statement regarding the status under the act of the employer's employees while perforn)ing other woi-k; and (2) that the employer, erroneously believing the reasoning used in the agency's opinion also applied to other and different work per- formed by his employees, did not compensate them for such different work, relying upon that opinion. As previously pointed out, the opinion from the X agency, if relied on and conformed with in good faith by the employer, would form the basis of a "good faith" defense for the period prior tc; May 14, 1947, insofar as the work performed by the employees on this particular contract with that agency was con- cerned. The opinion would not, however, fiirnish the employer a defense regarding any other activities of a different nature performed b}^ his employees, because it was not an oi)inion concerning such activities, and insofar as those activities are concerned, the employer could not act "in conformity" with it. Section 790.15. "Good Faith" (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 m 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 circum- stances.^^ "Good faith" requires that the employer have honesty of intention and no knowledge of circumstances which ought to put him upon inquiry.^*^ (b) Some situations illustrating the application of the principles stated in paragraph (a) may be mentioned. Assume that a ruling from the Administrator, stating positively that the Fair Labor Stand- ards 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 employ- ment. It is clear that the employer's employment of such employees in such duties and under such circumstances in reliance on the Ad- ministrator's ruling, w^itliout compensating them in accordance with the act, would be in good faith so long as the ruling remained un- revoked and the employer had no notice of any facts or circumstances wdiich would lead a reasonably prudent man to make further inquiry as to whether the employees came within the act's provisions. As- sume, however, that the Administrator's ruling was expressly based »= Colloquy bet-neen Representatives Reeves and Devitt, 1947 Cong. Rec. 1620; colloquy between Senators Ferguson and Donnell, 1947 Cong. Rec. 4578. *8 See statement of Senator McGrath, 1947 Cong. Rec. 2380 : statement of Representative Keating, 1947 Cong. Rec. 4517 ; statement of Representative Walter, 1947 Cong. Rec. 4515. 20 EFFECT OF PORTAL-TO-PORTAL ACT, 194 7 on certain court decisions holding that employees so engaged were not engaged in commerce or in the production of goods for com- merce, 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 learn- ing of this, made no further inquiry but continued to pay the em- ployees without regard to the requirements of the act in reliance on the Administrator's earlier ruling. In such a situation, if the em- ployees 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 proved his good faith in relying upon the Administrator's ruling after receiving this advice. (c) In order to illustrate further this test of "good faith," sup- pose that the X Federal agency published a general bulletin re- garding manufacturing, which contained the erroneous statement that all foremen are exempt under the Fair Labor Standards Act as em- ployed 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 execu- tive 1= * * capacity" in that act, nevertheless relied upon, the above bulletin without inquiring further and, in conformity with this advice, failed to compensate his nonexempt foremen in accord- ance with the overtime provisions of the Fair Labor Standards Act for work subject to that act, performed before May 1 i, 1947. If the em.ployer 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.^^ (d) Insofar as the period prior to May 14, 1947, is concerned, the employer maj^ have received an interpretation from an agencj^ 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 rely upon the interpretation of the other agency, which interpreta- tion worked to his advantage, considerable weiglit 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.^® ®' See statement of Rein-escntative Ovv-ynne, 1047 Cong. Rec. 1020, and colloquj- between Senators ConnalLy and DonnoU, 19-17 Co'ijr. Roc. 4579. i** This view wa.s e.xpres.spd several times diii'iut: the debates. See statements of Repre- sentative Kentins, 1947 Cong. Rec. 1 5f)6 and 4517; coUoqn.v between Representatives Keating and Devitt, 1947 Con'r. Rec. IH^'O: statement of Representative Walter, 1947 C'^ng. Rec. 4514-15; statement of Re^iresentalive MncKinnon, 1947 Cong. Rec. 4510; statement of Representative Gw.vrne, 1947 Cong. Rec. lOCO : statement ■•f .Senator Ci^onpr, 1947 C""". Rec. 4577 and 4578 ; colloquy between Senators Connally nnd Donnell, 1947 Cong. Rec. 4579. EFFECT OF PORTAL-TO-rORTAL ACT, 194 7 21 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." "'' This problem will not arise in regard to any acts or omissions by the em- ployer occurring on or after May 14, 1947, because section 10 provides that the employer, insofar as the Fair Labor Standards Act is con- cerned, may rely only upon regulations, orders, rulings, approvals, interpretations, administrative practices and enforcement policies of the Administrator of the Wage and Hour Division.^ Section 790.16. "In Reliance On" (a) In addition to acting (or omitting to act) in good faith and in conformity with an administrative regulation, order, ruling, approval, interpretation, enforcement policy, or practice, the employer must also prove that he actually relied upon it.^ (b) Assume, for example, that an employer failed to pay his em- ployees in accordance with the overtime provisions of the Fair Labor Standards Act. After an employee suit has been brought against him. another employer calls his attention to a letter that had. been written by the Administrator of the Wage and Hour Division, in which the opinion w^as expressed that employees of the type employed by the defendant were exempt from the overtime provisions of the Fair Labor Standards Act. The defendant had no previous knowledge of this letter. In the pending employee suit, the court may decide that the opinion of the Administrator was erroneous and that the plaintiffs should have been paid in accordance with the overtime provisions of the Fair Labor Standards Act. Since the employer had no knowledge of the Administrator's interpretation at the time of his violations, his failure to comply with the overtime provisions could not have been "in reliance on" that interpretation; consequently, he lias no defense under section 9 or section 10 of the Portal Act. Section 790.17. "Administrati^^e Regulation, Order, Ruling, Approval, or Interpretation" (a) Administrative regulations, orders, rulings, approvals, and interpretations are all grouped together in sections 9 and 10, with no ^ statement of Senator Cooper, 1947 Cong. Rec, 4577. Representative Walter, a member of the Conference Committee, made the following explanatory statement to the House of Representatives (1947 Cong. Rec. 453 5) : "Tlie defense of good faith is intended to apply only where an employer innocently and to his detriment, followed the law as it wtis 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 Gwvnne made a similar statement (1947 Cong. Rec. 1620). 1 statement of Senator Wiley explaining conference agreement to the Senate, 1947 Cong. Rec. 4.j98 : statement of Representative Walter, 1947 Cong. Rec. 4515. - In a colloquy between Senators Thye and Cooper (1947 Cong. Rec. 4577), Senator Cooper pointed out that the purpose of sec. 9 'VAas to proviedure in Govern- ment Agencies, pp. 26-29: 1 Vom Baur, Federal Administrative Law (1942), p. 474. As to requirement that practice or policy be one with respect to a "class of employers," see par. (g) of this section. '* Pursuant to sec. 3 of the Administrative Procedure Act. statements of general policy formulated and adoi)ted by the agency for the guidance of the public are published in the Federal Register. An example is the statement of the Secretarv of Labor and the Admin- istrator of the Wage and Hour Division, dated June 16, 1947, published in 12 F. R. 3915. EFFECT OF PORTAL-TO-PORTAL ACT, 194 7 25 pretation of the law. For example, suppose the Administrator an- nounces that as a result of court decisions he has cluin Sponsors of the legislation stated that the time limitations prescribed therein apply only to the statutory actions, brought under the special authority contained in sec. 16 (b), in which li(iuidated damages may be recovered, and do not purport to affect the usual application of State statutes of limitation to other actions brought by employees to recover wages due them under contract, at common law, or under State statutes. Statements of Representative Gwynne, 1947 Cong. Rec. 1545, 1614 ; colloquy between Representatives Robsion and Celler, 1947 Cong. Rec. 1549. EFFECT OF PORT AL-TO- PORTAL ACT, 194 7 29 (1) Actions to enforce causes of action accruing on or after May 14, 1947 : 2 years. (2) Actions to enforce causes of action accruing hefore iMay 14. 1947:^^ 2 years, or period prescribed by applicable State statute of limitations, whichever u shorter. These are maximum periods for bringing such actions, measured from the time the einplo5^ee's cause of action accrues to the time his action is coinmenced.^'^ (b) The courts have held that a cause of action under the Fair Labor Standards Act for unpaid minimum wages or unpaid overtime com- pensation and for liquidated damages "accrues" Avhen the employer fails to pay the required compensation for any workweek at the regu- lar pay day for the period in which the workweek ends.^^ The Portal Act ^ provides that an action to enforce such a cause of action shall be considered to be "commenced" : 1) In individual actions, on the date the complaint is filed; [2) In collective or class actions, as to an individual claimant, (i) On the date the complaint is filed, if he is specifically named therein as a party plaintiff and his written consent to become such is filed with the court on that date, or (ii) On the subsequent date when his written consent to be- come a party plaintiff is filed in the court, if it was not so filed when the complaint was filed or if he was not then named therein as a party plaintiff.^^ (c) The statute of limitations in the Portal Act is silent as to whether or not the running of the 2-year period of limitations may be suspended for any cause.^ In this connection attention is directed to section 205 of the Soldiers' and Sailors' Civil Relief Act of 1940," as amended, which provides that the period of military service shall 2^ This refers to actions commenced after September 11, 1947. Such actions commenced on or between May 14, 1947, and September 11, 3 947, were left subject to State statutes of limitations. As to collective and representative actions commenced before May 14, 1947, sec. 8 of the Portal Act makes the period of limitations stated in the text applicable to the filing, by certain individual claimants, of written consents to become parties plain- tiff. See Conference Report, p. 15 ; sec. 790.20 of this bulletin. ^ Conference Report, pp. 1.3-15. M Reid V. Holar Corp., 6 W. H. Cases 508 : Mid-Continent Petroleum Corp. v. Keen, 157 F. (2d) 310, 316 (C. C. A. 8). See also Brooklyn Savings Bank v. UNeil, 324 U. S. 697; Rigopoulos V. Kervan, 140 F. (2d) 506 (C. C. A. 2). In some instances an employee may receive, as a part of his compensation, extra pay- ments under incentive or bonus plans, based on factors which do not permit computation and payment of the sums due for a particular workweek or pay period until some time afrer the pay day for that period. In such cases it would seem that an employee's cause of action, insofar as it may be based on such payment, would not accrue until the time v.hen such payment should be made. Cf. Walli7ig v. Harnischfeger Corp., 325 U. S. 427. 3' Sec. 7. See also Conference Report, p. 14. ^ This is also the rule under sec. 8 of the I'ortal Act as to individual claimants, in collec- tive or representative actions commenced before May 14, 1947, who were not specifically named as parties plaintiff on or liefore September 11, 1947. '^ A limiti'd suspension provision was contained in sec. 2 (d) of the House bill, but was eliminated by tlie Senate. Neither the Senate debates, the Senate committee report, nor the conference committee report indicate the reason for this. While the courts have held tliat in a proper case a statute of limitations may he suspended by causes not mentioned in the statute itself {Braiin v. Sauenrcin, 10 Wall. 218. 223. See also Richards v. Mnnjlnnd Ins. Co.. 8 Cranch 84, 92: Bausennan v. Blunt, 147 U. S. 647), they have also held that when the statute has once commenced to run, its operation is not suspended by a subse- quent disability to sue, and that the bar of the statute cannot be postponed by the failure of the creditor (employee) to avail himself of any means within his power to prosecute or to preserve his claim. Bauserman v. Blunt, 147 U. S. 647, 657 ; Smith v. Continental Oil Co.. 59 F. Supp. 91, 94. "Act of October 17. 1940. ch. 8S8. 54 Stat. 1178. as amended by the act of October 6, 1942i ch. 581, 56 Stat. 769 (50 U. S. C. A. App. sec. 525). 30 EFFECT OF PORTAL-TO-PORTAL ACT, 194 7 not be included in the period limited by law for the bringing of an action or proceeding, whether the cause of action shall have accrued prior to or during the period of such service. Section 790.22. Discretion of Court as to Assessment of Liquidated Damages (a) Section 11 of the Portal Act provides that in any action brought under the Fair Labor Standards Act to recover unpaid minimum wages, unpaid overtime compensation, or liquidated damages, the court may, subject to prescribed conditions, in its sound discretion award no liquidated damages or award any amount of such damages not to exceed the amount specified in section 16 (b) of the Fair Labor Standards Act.^^ (b) The conditions prescribed as prerequisites to such an exercise of discretion by the court are two: (1) The employer must show to the satisfaction of the court that the act or omission giving rise to such action was in good faith ; and (2) he must show also, to the satis- faction of the court, that he had reasonable gi'ounds for believing that his act or omission was not a violation of the Fair Labor Standards Act. If these conditions are met by the employer against whom the suit is brought, the court is permitted, but not required, in its sound discretion to reduce or eliminate the liquidated damages which would otherwise be required in any judgment against the employer. This may be done in any action brought under section 16 (b) of the Fair Labor Standards Act, regardless of whether the action was instituted prior to or on or after May 14, 1947, and regardless of when the em- ployee activities on which it is based were engaged in. If, however, the employer does not show to the satisfaction of the court that he has met the two conditions mentioned above, the court is given no dis- cretion by the statute, and it continues to be the duty of the court to award liquidated damages.^^ (c) What constitutes good faith on the part of an employer, and whether he had reasonable grounds for believing that his act or omis- sion was not a violation of the Fair Labor Standards Act are mixed questions of fact and law, which should be determined by objective tests.*" Where an employer makes the required showing, it is for the court to determine in its sound discretion what would be just accord- ing to the law on the facts shown. ■(d) Section 11 of the Portal Act does not change the provisions of section 16 (b) of the Fair Labor Standards Act under which attor- ns Sec. 16 (b) of the Fair Labor Standards Act provides that an employer who violates the minimum-wage or overtime jjrovisions of th? act shall be liable to the affected employees not only for the amount of the unpaid minimum wages or unpaid overtime compensation, as the case may be, but also for an additional equal amount as liquidated damages. The courts have held that this provision is "not penal in its nature" l)ut rather that such damages "constitute compensation for the retention of a workmen's pay" where the required wages are not paid "on time." Under this provision of the law, the courts have held that the liability of an employer for liquidated damages in an amount equal to his underpayments of required wages becomes fixed at the time he fails to pay such wages when due and the courts were given no discretion, prior to the enactment of the Portal-to-I'ortal Act, to relieve him of any portion of this liability. See Brookhin Savings Bank v. O'Neil, 324 U. S. 697 ; Overni(jht Motor Transp. Co. v. Missel, 316 U. S. 572. ^o See Conference Report, p. 17 ; remarks of Representative Walter, 1047 Cong. Rec. 1550 ; President's message of May 14, 1947, to the Congress on approval of the Portal Act « Cf. sees. 790.13-790.16 of this bulletin. EFFECT OF PORTAL-TO-PORTAL ACT, 194 7 31 ney's fees and court costs are recoverable when judgment is awarded to the plaintiff. PROVISIONS RELATING TO CERTAIN ACTIVITIES ENGAGED IN BY EMPLOYEES BEFORE MAY 14, 1947 Section 790.23. Liability of Employer; Effect of Contract, Custom, ok Practice (a) Section 2 of the Portal Act, which relates to activities engaged in by employees prior to the effective date of the act, was designed to meet the problem which Congress found had arisen as a result of existing "portal-to-portal" claims." Subsections (a) and (b) of this section provide as follows : (a) No employer shall be subject to any liability or punishment under the Fair Labor Standards Act of 1938, as amended, * * * (in any action or proceeding commenced prior to or on or after the date of the enactment of this Act), on account of the failure of such employer to pay an employee minimum wages, or to pay an employee overtime compensation, for or on account of any activity of an employee engaged in prior to the date of the enactment of this Act. except an activity which was compensable by either — (1) an express provision of a written or nonwritten contract in effect, at the time of such activity, between such employee, his agent, or collective- bargaining representative and his employer ; or (2) a custom or practice in effect, at the time of such activity, at the establishment or other place where such employee was employed, covering such activity, not inconsistent with a written or nonwritten contract, in effect at the time of such activity, between such employee, his agent, or collective-bargaining representative and his employer. (b) For the purpose of subsection (a), an activity shall be considered as compensable under such contract provision or such custom or practice only when it was engaged in during the portion of the day with respect to which it was so made compensable. It will be noted that the above language contains certain words and phrases which are similarly used in section 4 of the act, relating to future claims. Reference is made to the discussion of that section for comments as to the meaning and effect of such terms."*^ The dis- cussion of these provisions which follows is confined to certain general comments. (b) Like section 4 of the act, previously discussed, section 2 affords relief to employers from liability or punishment to which they might otherwise be subject because they did not pay their employees in ac- cordance with the Fair Labor Standards Act for or on account of certain activities which were, at the time of performance, not com- pensable either by contract or by a custom or practice as described in the statute. A major difference is that section 2 refers only to activi- ^ties performed tefore May 14, 1947 (the effective date of the act) while section 4 is concemecl only with activities performed on or after that date. Although the same criteria of contract, custom, and prac- " See Portal Act, sec. 1 ; Conference Report, pp. 9, 10 ; House Report, pp. 1-6 ; Senate Report, pp. 1-45 ; statement of Representative Gwynne, 1947 Cong. Rec. 4513 ; statements of Senator Wiley, 1947 Cong. Rec. 2151-2156, 4397 ; statements of Senator Donnell, 1947 Cong. Rec. 2196, 2197. « See sees. 790.4, 790.9-790.12 of this buUetin. 32 EFFECT OF PORTAL-TO-PORTAL ACT, 1947 tice are used to determine compensability,*^ the provisions of section 2 (a), (b) of the Portal Act differ from the corresponding provisions of section 4, relating to future chiims, in that their scope is not con- fined to activities engaged in outside the workday proper, but extends to such activities engaged in at any time during the 24 hours of the day.** However, it is apparent from the statutory language and the legislative history that the quoted provisions were intended to carry out the policy expressed in section 1 of the act and were not intended to relieve an employer from liability or punishment for failing to pay compensation as required by the Fair Labor Standards Act for or on account of any activities of his employees w^hich were compensable in any amount under a contract, custom, or practice of the kind de- scribed in subsection (a),*^ even though such activities were so-called "portal-to-portal" activities.**' (c) It will be noted that the relief afforded employers by the provi- sions quoted in paragraph (a) above is relief from liability or punish- ment "in any action or proceeding." *^ Whether the relief thus pro- vided is available to a particular emploj^er in a given fact situation would, therefore, seem to be a matter for determination in such an action or proceeding on the basis of the proof made therein. The language "any action or proceeding" indicates that, with respect to activities performed before May 14, 1947, these provisions apply in accordance with their terms in any action or proceeding to enforce lia- bility or impose punishment on the employer, whether commenced before or on or after such date.*^ Section 790.24. Effect or Portal Act on Determination or Hours Worked Prior to May 14, 1947 (a) Section 2 (c) of the Portal Act provides as follows: (c) In the application of the minimum wage and overtime compensation pro- visions of the Fair Labor Standards Act of 1938, as amended, * * * Iq determining the time for which an employer employed an employee there shall be counted all that time, but only that time, during which the employee engaged in activities which were compensable within the meaning of subsections (a) and (b) of this section. [Italics supplied.] *^ This provision relates to the determination of hours worked prior to May 14, 1947. The effect of the Portal Act on the determination of hours worked under the Fair Labor Standards Act after that date is discussed at another point in this bulletin.^" LTnder the terms of the quoted provision, time spent by employees prior to the enactment of the latter act in activities which were not compensable by contract, custom, or practice within the meaning of the Portal Act is to be ex- " See sees. 790.5 (b), 790.10-790.14 above. " See statements of Senator Donnell, 1947 Cong. Rec. 2196, 2255, 2440. "See Conference Report, pp. 9. 10; 1947 Cong. Rec. 1621. 1623, 1629, 2194, 2106, 2197, 2200. 220.S, 2252, 225.S, 2.370, 2371. 2373, 2378, 2383, 2384. See also the President's message on approval of the Portal-to-Portal Act, May 14. 1947. *^ See colloquy between Senators Tydings and Donnell, 1947 Cong. Rec. 2196 ; colloquy between Senators Tvodge, Donnell, and Hawkes, 1947 Cong. Rec. 2252, 2253. *' The quoted language does not appear in the corresponding provisions of sec. 4, relating to future clalm.s. See sec. 790.4 of this bulletin. ■"* See Conference Report, p. 9. <" Subsecs. (a) and (b) are discussed in sec. 790.23 of this bulletin. w See sees. 790.5-790.8 of this bulletin. EFFECT OF PORTAL-TO-PORTAL ACT, 1947 33 eluded in compiitino; worlrtime for purposes of determininj; whetlier the mininiuni wage and overtime requirements of the Fair Labor Standards Act were met.^^ On the other hand, time that constituted hours worked, which was devoted to activities which ivere so com- pensable, is not removed by these provisions from tlie category of time worked, for purposes of the Fair Labor Standards Act; the statute expressly provides that all such time shall be counted in computing hours worked.^^ (b) In determining time worked prior to May 14, 1947, in accord- ance with the provision quoted in paragraph (a) above, regard must be had to the "portion of the day" provisions of section 2 (b) of the Portal-to-Portal Act as well as the more general provisions of section 2 (a). ^3 Section 790.25. Jurisdiction of Courts Limited as to Wage Claims FOR Periods Prior to May 14, 1947 (a) Section 2 (d) of the Portal Act provides that: No court of the United States, of any State, Territory, or possession of the United States, or of the District of Columbia, shall have jurisdiction of any action or proceeding, whether instituted prior to or on or after the date of the enactment of this Act, to enforce liability or impose punishment for or on account of the failure of the employer to pay minimum wages or overtime compensiftion under the Fair Labor Standards Act of 1938, as amended, * * * to the extent that such action or proceeding seeks to enforce any liability or impose any punishment with respect to an activity which was not compensable under subsections (a) and (b) of this section." (b) It will be noted that this provision of the act limits the juris- diction of both Federal and State courts in all such actions or pro- ceedings whether commenced before or after the enactment of the act. It is important to bear in mind that this provision does not affect the jurisdiction of any court in any action or proceeding insofar as it is based on failure to pay minimum wages or overtime compensation for any activities engaged in by employees on or after May 14, 1947. This limitation of jurisdiction affects only those actions or proceedings in which it is sought to enforce liability or impose punishment on an employer for, or on account of, his failure to pay, the required mini- mum wages or overtime compensation for activities engaged in by em- ployees cluring periods prior to May lli.^ 19 Iff ^ and then only to the ex- tent that such activities were not compensable by contract, custom, or practice as provided in subsections 2 (a) and 2 (b) of the Portal Act 55 =' This aspect of the quoted provision is, as explained in the Conference Eep.rt, intended to make clear, as was done in sec. 2 of the Senate amendment to the bill (H. R. 2157) as passed by the House of Representatives (not contained in the bill as finally enacted), that no judicial or administrative interpretation will have the effect 'if includijig as w;];ktime other time which was not made compensable by contract, custom, or practice. Conference Report, p. 'JO. ^- The purpose of this portion of the quTted provision, as explained by the Conference Committee, is to emphasize that employers are not relieved from liability for the payment of minimum wages and overtime compensation for any time during which the employee engaged in activities compensable luider contract, custom, or practice as provided in the statute. Sec. 3 of the Senate amendment, which so provided, was omitted under the con- ference agreement as surplusage, and as fully covered by sec. 2 (c) of the bill as agreed to in conference. Conference Report, p. 10. 53 These provisions are quoted in sec. 790.23 above. See also Conference Report, p. 10, and cf. see. 790.12 of this bulletin. =^ The text of subsecs. (a) and (b) appears above in sec. 790.23 (a) of this bulletin. =5 See in this connection, sees. 790.23 and 790.24 of this bulletin. 34 EFFECT OF PORTAL-TO-PORTAL ACT, 1947 The denial of jurisdiction is "not applicable to actions or proceedings in which judgment has become final prior to the date of the enact- ment" of the act.^^ (c) It appears from the language quoted above that the jurisdiction of the courts with respect to an action or proceeding remains unaffected by this provision to the extent that such an action or proceeding seeks to impose liability or punishment either (1) for failure to pay wages in accordance with the Fair Labor Standards Act for or on account of activities which were compensable by contract, custom, or practice as provided in sections 2 (a), (b) of the Portal Act, or (2) for child labor or other violations of the Fair Labor Standards Act where no liability or punishment is sought to be imposed "for or on account of the failure of the employer to pay minimum wages or overtime compensation." Section 790.26. Prohibition of Assignments Assignees of employees' causes of action for unpaid minimum wages, unpaid overtime compensation, or liquidated damages under the Fair Labor Standards Act have, in the past, been allowed to recover in some cases where such assignments are permitted by local law, on the theory that the act does not expressly or by implication forbid such assign- ments ancl that they do not contravene public policy.^^ Certain such assignments are now prohibited by section 2 (e) of the Portal Act, This section expressly refers only to causes of action which accrued fi^oT to May 14, 1947, and applies only "to the extent that" such a cause of action "is based on an activity which was not compensable" under contract, custom, or practice within the meaning of the pro- visions of section 2(a) and 2 (b) of this act.^° To the extent that such a cause of action is based on such an activity, section 2 (e) provides that neither it nor "any interest in" it "shall hereafter be assignable, in whole or in part." As explained in the Conference Report,"^ this provision will render it impossible for anyone (even though permitted to do so under State law) to buy up existing claims which were not compensable under contract, custom, or practice, with the hope of compromising such claims at a profit under the provisions of section 3 of the act.®^ Section 790.27. Compromise of Claims Existing Prior to May 14, 1947 (a) Section 3 of the Portal Act authorizes compromises of certain claims on causes of action under the Fair Labor Standards Act which accrued before enactment of the Portal Act, as follows : (a) Any cause of action under the Fair Labor Standards Act of 1938, as amended, * * * wliich accrued prior to the date of the enactment of this Act, or any action (whether instituted prior to on or after the date of the enact- ment of this Act) to enforce such a cause of action, may hereafter be compro- 58 59 5" Conference Report, p. 11. " Steiner v. Plcasatttville Constructors, Inc., 9 Labor Cas. (C. C. H.), par. 66,902. Cf. Titus V. WaUick. 306 U. S 282. '» Cf. sec. 5 of the act, discussed in sec. 790.20 of this bulletin. " As to meaning of "accrued," see the discussion in sec. 790.21 (b) of this bulletin. ** These provisions are discussed in sec. 790.23 of this bulletin. •"Conference Report, p. 11. «* See the discussion of sec. 3 in sec. 790.27 of this bulletin. EFFECT OF PORT AL-TO- PORTAL ACT, 194 7 35 mised in whole or in part, if there exists a bona fide dispute as to the amount payable by the employer to his employee; except that no such action or cause of action may be so compromised to the extent that such compromise is based on an hourly wage rate less than the minimum required under such Act, or on a pay- ment for overtime at a rate less than one and one-half times such minimum hourly wage rate. N< * « * * * * (c) Any such compromise * * *, in the absence of fraud or duress, shall, according to the terms thereof, be a complete satisfaction of such cause of action and a complete bar to any action based on such cause of action. (d) The provisions of this section shall also be applicable to any compro- mise * * * heretofore so made or given. (e) As used in this section, the term "compromise" includes "ad.iustment", "settlement", and "release". The foregoing provisions authorize compromise only of those causes of action accruing prior to May 14, 1947, and of actions thereon ; the statute does not change existing law as to compromise of such claims,*^^ with respect to any cause of action accruing °^ after the date of enact- ment of the act.*'^ Subject to the conditions discussed below m para- graph (b), this statutory authorization of compromises extends to the following : (1) All or any part of any cause of action accruing prior to May 14,1947. (2) All or anj part of any action to enforce cause of action in- cluded in ( 1) , above, whether such action was instituted before, on, or after May 14, 1947. (3) Any compromise made prior to May 14, 1947, which comes within the terms of section 3 of the Portal-to-Portal Act. (b) The compromise of existing claims just described is permitted, if, and only if, all of the following conditions are fulfilled in each case: ( 1 ) Existence of a bona fide dispute as to the amount payable by an employer to employee. (2) Absence of fraud and duress. (3) The compromise sum for straight-time hours worked must be based on an hourly wage rate not less than the minimum rate per hour prescribed by the Fair Labor Staadards Act or by a wage order issued thereunder, which is at present 40 cents (except m certain industries in Puerto Rico and the Virgin Islands) . (4) The compromise sum for overtime hours worked must be based on a rate not less than one and one-half times the minimum hourly wage rate prescribed by the Fair Labor Standards Act or b}; a wage order issued thereunder, which at the present means at least 1% by 40, or 60 cents for each overtime hour (except in cer- tain industries in Puerto Rico and the Virgin Islands) . (c) As i^ointed out in paragraph (b) (4) of this section, the sums paid in compromise of overtime claims may be based, as a minimum, ^ Prior to the Portal Act, it was settled that claims of employees for minimum and overtime wages under the Fair Labor Standards Act could not be compromised because of disputes as to coverage of the act. Schulte Co. v. Gangi, 328 V. S. 108. ^ For the meaning of "accruing" see sec. 790.21 (b) of this bulletin. The legislative history indicates that the omission of a provision for compromises or settlement of claims arising after enactment of the statute constitutes a recognition by the Congress of the danger, emphasized by the Supreme Court, that such a provision would lead to a break- down of the labor standards established in the Fair Labor Standards Act. See Senator Donnell's statement, 1947 Cong. Rec. 2192. ^ Conference Report, p. 12. <• 36 EFFECT OF PORTAL-TO-PORTAL ACT, 1947 one one and one-half times the 40-cent minimum hourly wage. Thus, an employee whose regular hourly rate is 50 cents and who, accord- ingly, has a right to overtime at 75 cents per hour may compromise an existing claim, as authorized by section 3, for 60 cents an overtime hour, but not for less.'^*' Permitting compromises of certain existing claims as specified does not, of course, alter the general requirement of section 7 of the Fair Labor Standards Act that overtime compen- sation under the act must be paid at a rate not less than one and one- half times the regular rate at which the employee is actually employed, (d) A "bona fide dispute" which must exist before any compromise can be made, would seem to mean an honest disagreement between employer and employee. It follows that no compromise would be permitted where there is no actual dispute as to the facts or the applicable law, or where the exact amount of an employer's liability under the law is clear. The Portal Act does not permit an employee to merely release his undisputed right to straight-time or overtime wage payments.*''' Section 790.28. Waiver of Right to Liquidated Damages (a) The general rule that an employee whose employer has failed to pay him the minimum or overtime wages required by the Fair Labor Standards Act is not permitted to waive his right under section 16 (b) of the Act to liquidated damages for withholding the compensation due,^® is modified by section 3 (b) , (c) , (d) of the Portal Act. Under these provisions, an employee may waive, in whole or in part, his right ^ to liquidated damages with resvect to activities performed he fore May 14, 1947. This permission is extended retrospectively to waivers of liquidated damages made by employees prior to May 14, 1947. Such waivers are made valid unless their invalidity was deter- mined prior to that date by a final court judgment. It is provided that, in the absence of fraud or duress and according to the terms of the waiver, any waiver authorized by section 3 shall be a complete satisfaction of the emploj^ee's cause of action for the liquidated dam- ages so waived and a complete bar to any action based on such cause of action. (b) The general rule stated in paragraph (a) remains in effect in all situations where the liquidated damages are based on underpayments for activities performed on or after May 14, 1947. The Portal Act does not authorize the waiver by an employee of his right to such liquidated damages.^^ (c) It should be noted that an employee is not permitted to waive his right to the statutory minimum wages or to overtime payments at ^ See Conference Report, p. 11 ; statement of Senator Wiley explaining the conference agreement to the Senate, 1947 Cong. Rec. 4397 ; statement of Representative Gwynne, 1947 Cong. Rec. 4.513. "" Representative Walter, explaining the conference agreement to the House of Repre- Bentatlves, 1947 Cong. Rec. 4,515, indicated that the phrase, "dispute as to the amount payable," would Include disagreements as to matters of law such as whether employee's work Is covered by the Fair Labor Standards Act or whether the employer is exempt, as ■well as disagreements as to matters of fact such as the number of hours worked or the wage rates paid. «» See O'J^eil v. Brooklyn Savings Bank, 324 U. S. 697. * See conference Report, p. 12. As to discretion of courts in awarding liquidated dam- ages In such a case, see sec. 790.22 of this bulletin. EFFECT OF PORTAL-TO-PORTAL ACT, 1947 37 one and one-half times his re^jular hourly rate.'° Foi' example, an employee covered by the Fair Labor Standards Act Tvho had been paid only 30 cents per hour for work performed in 1947 to May 14, and who did not work more than 40 hours in any workweek, has a valid claim for 10 cents for each hour worked plus liquidated damajjes in an equal amount.'^ He is permitted to waive only his right to liquidated damages. Similarly, an employee who worked 48 hours a week prior to May 14, 1947 and was paid only 80 cents an hour has a valid claim for an additional 40 cents for each hour worked after 40 in the work- week, which he is not permitted to waive, although he may waive all or part of the equal amount to which he may be entitled as liquidated damages. (d) No waiver by an employee of his right to recover attorney's fees and court costs in an action under section 16 (b) of the Fair Labor Standards Act is authorized by section 3. Section 790.29. "Area of Production" Exemption Prior to December 26, 1946 (a) As explained in the conference report on the bill, section 12 of the Portal Act relieves emploj^ers from liability and punishment for failure to pay employees minimum wages or overtime compensation as prescribed in the Fair Labor Standards Act for or on account of any activity (within the scope of one of the "area of production'' exemp- tions) '- engaged in by their employees prior to December 26, 1946,'^ if such employer can show that he — (1) was relieved from such liability or punishment by reason of a valid defini- tion of "area of production" by the Administrator applicable at the time of the performance of the activity, or (2) would have been so relieved by reason of an invalid definition applicable at the time of the performance if such definition had been valid, or (3) would have been so relieved if the definition finally made by the Administrator on December 18, 1946, and published in the Federal Register on December 25, 1946, had been in force on and after the effective date of the sec- tions of such act of 1938 providing for minimum wages and overtime comi>en- sation."* The conference report points out also that the protection to the em- ployer under the foregoing provisions for acts or omissions up to De- cember 26, 1946, will exist even though hereafter the regulation of December 1946 is held invalid. (b) It should be noted, however, that the provisions of section 12 do not relieve employers from liability or punishment under the Fair Labor Standards Act for acts or omissions with respect to any of the following activities engaged in by their employees : ( 1) Activities engaged in on and after December 26, 1946.'^ "> As to compromise of such claims arising out of activities performed before May 14, 1947, see sec. 790.27 of this bulletin. '"^ The recovery of this amount as liquidated damages is made subject to the sound dis- cretion of the courts under certain conditions. See the discussion of sec. 11 of the Portal Act in sec. 790.22 of this bulletin. "These exemptions are contained in sees. 7 (c) and 13 (a) (10) of the Fair Labor Standards Act. '3 See Addison v. Holly Hill Fruit Products, Inc., 322 U. S. 607. ''^ Conference Report, p. 17. '^ As to activities performed on or after December 26, 1946, and prior to March 1, 1947, see sec. 790.18(f) of this bulletin. 38 EFFECT OF PORTAL-TO-PORTAL ACT^ 1947 (2) Activities engaged in during the period from October 24, 1938, through December 25, 1946, by employees who were not em- ployed within the "area of production" as defined in either (i) any regulation of the Administrator (valid or invalid) which was applicable at the time they were performed, or (ii) the currently effective regulation issued December 25, 1946/^ (3) Activitiesother than those for which section 13 (a) (10) or the relevant portion of section 7 (c) provides an exemption, even though performed by employees employed within the "area of production" as defined in such a regulation." All these latter activities remain subject to the applicable provisions of the Fair Labor Standards Act of 1938, as amended, and to current and subsequent regulations of the Administrator, to the same extent as they would have been had section 12 of the Portal-to-Portal Act not been enacted. Other sections of the Portal-to-Portal Act may, of course, be applicable in appropriate situations. ^« Ft. 536 of Title 29, Ch. V, of the Code of Federal Regulations. " See the Interpretative Bulletin (No. 14) on exemptions applicable to agriculture and operations on products of agriculture .which will be issued iu revised form as pt. 780, subpt. A, of Title 29, Ch. V, of the Code of Federal Regulations. UNIVERSITY OF FIORIDA 3 1262 08858 5483 0. S. eOVERNMEN'T PRINTING OFFICEi 1947