No. 79-51 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1980 

STATE OF MONTANA, DEPARTMENT OF LABOR 

AND INDUSTRY, LABOR STANDARDS DIVISION, 

Complainant and Respondent, 

VS . 

ALFRED J. and JULIE F. WILSON, d/b/a 

YELLOW CAB COMPANY, 

Petitioner and Appellant. 

Appeal from: District Court of the Eighth Judicial District, 

In and For the County of Cascade. 

Honorable John M. McCarvel, Judge presiding. 

Counsel of Record : 

For Appellant: 

C. L. Overfelt argued, Great Falls, Montana 

For Respondent: 

James Gardner, Dept. of Labor, argued, Helena, Montana 

Submitted: April 16, 1980 

Decided: JUL 3 3 1980 

Clerk 
Mr. Justice John C. Sheehy delivered the Opinion of the 

Court. 

Alfred J. Wilson and Julie F. Wilson, defendants and 

appellants, were found to be in violation of the Montana 

Minimum Wage and Overtime Compensation Law, section 39-3-401, 

et seq., MCA, in an administrative hearing before the Labor 

Standards Division, Department of Labor and Industry. 

Defendants sought judicial review in the Eighth Judicial 

District Court, which granted the Department's motion for 

summary judgment. The Wilsons bring this appeal from the 

summary judgment in favor of the Department. 

The Wilsons operated the Yellow Cab Company of Great 

Falls since January 1976. On December 5, 1977, the Department 

of Labor and Industry initiated a field inspection of the 

Wilsons' payroll records. The inspection revealed that fortysix persons employed by Yellow Cab Company at various times 

during the years 1976 and 1977 were owed $18,020.70 in 

additional wages. This information was communicated to the 

Wilsons in a February 9, 1978 letter from Mike Stump, the 

Department's hearing officer, who had conducted the field 

inspection. The Wilsons, through their attorney, requested 

an administrative hearing. 

An administrative hearing was held March 20, 1978. The 

hearings officer found that $15,639.20 in wages and $11,612.86 

in penalties for failing to timely pay the wages were due. 

The additional wages were owed for the period between January 

1, 1976 and January 1, 1978, and the penalties were assessed 

for an eighteen-month period from July 1, 1976'to January 1, 

1978. Although there appears to be a conflict of evidence 

as to whether the employer-employee compensation agreement 
was for a straight 43 percent commission on the fares they 

collected or for the greater of the minimum wage and overtime or 43 percent, the hearings officer found that the 

Yellow Cab Company paid its employees on a straight commission basis without regard to the minimum wage and overtime 

provisions. There is substantial evidence in the record of 

the administrative hearing to support the administrative 

finding and the District Court's finding that appellants' 

employees were paid on the basis of a straight 43 percent 

commission of their gross receipts. The additional wages 

found to be due were based on defendants' failure to pay the 

minimum wages and overtime required under sections 39-3-404 

and 39-3-405, MCA. The hearings officer did not consider 

tips in calculating the gross earnings of employees. 

The Wilsons brought an appeal in the District Court 

under the Montana Administrative Procedures Act provisions 

for judicial review. Upon judicial review, the District 

Court accepted the findings of the hearing officer and 

granted summary judgment ordering the defendants to pay the 

Department of Labor and Industry $27,252.06 for unpaid wages 

and penalties. 

The issues presented by this appeal are: 

1. Does the Labor Standards Division have authority to 

bring this action? 

2. Are the statutory penalty provisions applicable? 

3. Was the method used by the Labor Standards Division 

to calculate the amount of wages due to the employees lawful? 

Appellants' threshold argument is that the Department 

of Labor and Industry does not have authority to bring this 

action because there never was an employee complaint or wage 

claim which appellants contend is essential to maintain this 

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action under the statutes as well as under the Department's 

own regulations. Contrary to this contention, the Labor 

Standards Division is authorized by statute to bring this 

action even though no complaint was filed by any of the wage 

earners, such employee complaint being unnecessary. 

Section 39-3-407, MCA, allows the Commissioner of Labor 

and Industry to enforce the minimum wage and overtime compensation law without the necessity of a wage assignment and 

it authorizes enforcement to be treated as a wage claim 

action, indicating that the Department may act on its own 

initiative without an employee complaint: 

"Enforcement. Enforcement of this part shall 

be treated as a wage claim action and shall 

be pursued in accordance with part 2 of this 

chapter, as amended. . . The commissioner may 

enforce this part without the necessity of a 

wage assignment." 

Part 2, section 39-3-209, MCA, gives the commissioner 

of labor authority to bring a wage claim action and, in 

fact, makes it his duty to institute actions for the collection of unpaid wages and for penalties where necessary to 

enforce the law without any requirement that there be an 

employee complaint or wage claim. Section 39-3-209, MCA, 

provides : 

"Commissioner of labor to investigate violations and institute actions for unpaid wages. 

It shall be the duty of the commissioner of 

labor to inquire diligently for any violations 

of this part and to institute actions for the 

collection of unpaid wages and for the penalties provided for herein in such cases as he 

may deem proper and to enforce generally the 

provisions of this part." 

Prior to its amendment by Section 1, Chapter 40, Laws 

of 1967, section 39-3-209, MCA, provided that it was the 

duty of the commissioner of labor ". . . to institute . . . 

actions for penalties provided for herein, in such cases as 

he may deem proper, and to enforce generally the provisions 
of this act." The 1967 amendment extended this duty to 

include initiating actions "for -- the collection of - unpaid 

wages --- and for the penalties provided for herein. . ." 

Thus, it is apparent that the legislature intended to give 

the commissioner of labor authority to bring actions for 

unpaid wages without imposing any additional requirement 

that there be an employee complaint or wage claim. Likewise, 

section 39-3-211, MCA, provides that the commissioner ". . . 

may maintain any proceeding appropriate to enforce the 

claim. . ." 

Appellants contend that the Department has violated its 

own regulations by proceeding against appellants without an 

employee complaint, citing ARM S24-3.14BII(26)-S14250. 

While subsection (1) provides: 

"Starting ---- a wage hour case--the - complaint. The 

employee complaint and routine inspection are considered the basis of the enforcement structure of 

the law.. . ." 

subsection (3) states : 

"Checking -- for non compliance. Inspections do not 

necessarily occur only when a complaint is filed 

against an employer. Routine investigations--on a 

spot check basis--are used to insure adequate 

compliance . . ." 

Thus, it is apparent that the Department did not act in 

violation of its own regulations. 

Appellants next argue that the statutory penalty provisions of section 39-3-206, MCA, were improperly applied. 

We note again that no complaint by the employee is necessary 

to enforce penalties under section 39-3-407, MCA, which 

authorizes the Department to pursue all remedies provided in 

Part 2, Chapter 3 of Title 39, MCA. This includes the 

provision for penalties, section 39-3-206, MCA, which provides: 
"Penalty for failure -- 

to pay wages -- at times specified 

- law. Any employer, as such employer is defined in this 

part, who fails to pay any of his employees as provided 

in this part or violates any other provision of this 

part shall be guilty of a misdemeanor. A penalty shall 

also be assessed against and paid by such employer and 

become due such employee as follows: a sum equivalent 

to the fixed amount of 5% of the wages due and unpaid 

shall be assessed for each day, except Sundays and 

legal holidays, upon which such failure continues after 

the day upon which such wages were due, except that 

such failure shall not be deemed to continue more than 

20 days after the date such wages were due." 

Appellants' first argument is that penalties were 

improperly assessed for a period longer than the eighteen 

months allowed under section 39-3-207, MCA, which provides: 

"Period within which employee may recover penalties. Any employee may recover all such penalties 

as are provided for the violation of 39-3-306 

which have accrued to him at any time within 18 

months succeeding such default or delay in the 

payment of such wages." 

This argument is not persuasive. The statute providing 

for the eighteen-month period of limitations within which 

the penalty may be recovered, section 39-3-207, MCA, has 

been interpreted in Pope v. Keefer (19791, - Mont . - I 

591 P.2d 206, 36 St.Rep. 366, to mean that the penalty shall 

be assessed for the entire period of -- time that wages remain 

unpaid, except Sundays and legal holidays, so long as the 

complaint is filed within eighteen months following the 

accrual of the action. Pope involved a private civil suit 

by an employee against his employer for unpaid minimum wages 

and overtime, the statutory penalty, and attorney fees. 

After quoting section 39-3-207, MCA, we said: 

"The statute is hardly a model of clarity, and 

its interpretation is subject to debate. Defendant argues that 'the 18 month figure must be 

computed from the filing of the complaint, July 

22, 1976, and any claimed penalty for wages prior 

to that period of time are [sic] lost by virtue 

of said statute.' Plaintiff agrees that the 

date of the filing of the complaint should be 

used but contends that penalties are properly 

awarded because the date of filing is within 
the eighteen month period following the date of 

the accrual of the action, May 4, 1975. We believe that plaintiff's interpretation is correct 

and look to language appearing in section 41- 

1302, R.C.M. 1947, now section 39-3-206 MCA, 

which states that a penalty 'shall be assessed 

for each day, except Sundays and legal holidays, 

upon which such failure continues after the day 

upon which such wages were due . . ." 591 P.2d 

at 213, 36 St-Rep. at 374. 

Appellants' second argument is that the penalty provisions of section 39-3-206, MCA, do not apply because no 

action was ever commenced by the filing of an employee 

complaint to toll the eighteen-month period of limitations 

under section 39-3-207, MCA. 

Thus, the crucial question is whether or not an action 

has been properly commenced "within 18 months succeeding 

such default or delay in the payment of such wages." Section 

39-3-207, MCA. We have held that section 39-3-205, MCA, 

requiring the payment of unpaid wages within three days 

after an employee is separated from employment, fixes the 

employer's default and the accrual of the employee's cause 

of action at a time three days after the employment is 

terminated. Pope v. Keefer, supra, 591 P.2d at 212. 

Therefore, as to each of appellants' former employees, the 

cause of action arose three days after the employment was 

terminated, and an action to recover the statutory penalties 

must be properly commenced within eighteen months following 

that date. 

The question remains: Is the statute of limitations 

tolled by the commencement of formal administrative proceedings, 

or must an action be commenced by the Department's filing a 

complaint with the District Court? In Pope, we interpreted 

section 39-3-207, MCA, as requiring the filing of a complaint 

within eighteen months to toll the statute of limitations in 

a situation where an employee brought a private civil suit 
for a violation of the minimum wage and hours act. This 

case presents a different situation: administrative enforcement of the law by the Department of Labor and Industry. 

Because of our conclusion that the filing of an employee 

complaint with the Department of Labor and Industry is not 

necessary for the Department to enforce the minimum wage and 

hours law, the action should be deemed to have been commenced February 9, 1978, when the Department informed appellants by letter that various employees were owed additional 

wages. In an administrative setting, where the agency acts 

to enforce the law on its own initiative, this action is the 

equivalent of the filing of a civil complaint. The Department's February 9, 1978 letter fulfilled the purposes of a 

complaint by giving appellants notice of the claim being 

made against them. 

Therefore, the assessment of the statutory penalty is 

valid as to any employee of the appellants who was separated 

from his or her employment on or after August 6, 1976. We 

arrive at that date by taking February 9, 1978, as the date 

this action commenced and then by going back to claims which 

accrued eighteen months prior to that time; that is, on or 

before August 9, 1976. Since payment of wages is due three 

days after the employment is ended under section 39-3-205, 

MCA, and the action for penalties accrues at that time, 

employees whose employment terminated on or after August 6, 

1976, are entitled to receive any penalties found to be due. 

Penalties on behalf of employees terminated from employment 

before August 6, 1976, are barred by the statute of limitations. 

Section 39-3-207, MCA. See Pope v. Keefer, supra. 

The final issue to be considered is whether or not the 

method used by the Labor Standards Division to calculate the 

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amount of wages due to the employees under the minimum wage 

and overtime compensation act is lawful. 

Montana's minimum wage law provides for both a minimum 

wage, section 39-3-404, MCA, and for overtime compensation 

at not less than one and one-half times the employee's 

hourly wage rate for hours worked in excess of forty in a 

week: 

"Overtime compensation. (1) No employer shall 

employ any of his employees for a workweek longer 

than 40 hours unless such employee receives compensation for his employment in excess of 40 hours 

in a workweek at a rate of not less than 1 1/2 

times the hourly wage rate at which he is employed." 

Section 39-3-405 (1) , MCA. 

The dispute here involves the validity of the Department's 

calculation of the employee's hourly wage rate for purposes 

of determining the overtime rate required under section 39- 

3-405(1), MCA, which must be at least one and one-half times 

the regular rate. 

Our statutes authorize the commissioner of labor to 

make administrative regulations to carry out the purpose of 

the minimum wage and overtime compensation law. Section 39- 

3-403, MCA. Pursuant to this authority, the Department of 

Labor and Industry has adopted regulation 524-3.14BII(38)- 

S14340 in Title 24, Chapter 14, of the Administrative Rules 

of Montana, which provides: 

"24-3.14BII (38) -S14340. THE REGULAR RATE (1) The 

'regular rate' of pay cannot be left to a declaration by the parties as to what is to be treated 

as the regular rate for an employee; it must be 

drawn from what happens under the employment contract. The U.S. Supreme Court has described it 

as the hourly rate actually paid the employee for 

the normal, nonovertime workweek for which he is 

employed - an 'actual fact'. The 'regular rate' 

may be more than the minimum wage; it cannot be 

less. An employee's regular rate includes all 

payments made by the employer to or on behalf of 

that employee. 'Once the parties have decided 

upon the amount of wages and the mode of payment 

the determination of the regular rate becomes a 

matter of mathematical computation, the result 
of which is unaffected by any designation of a 

contrary "regular rate" in the wage contracts.' 

"(2) The regular --- rate is an hourly rate. The 

'regular rate' under the Law is a rate per hour. 

The Law does not require employers to compensate 

employees on an hourly rate basis; their earnings may be determined on a piece-rate, salary, 

commission, or other basis, but in such case the 

overtime compensation due to employees must be 

computed on the basis of the hourly rate derived 

therefrom and, therefore, it is necessary to compute the regular hourly rate of such employees 

during each workweek. - The regular hourly rate 

of ---- pay of an employee is determined by dividing 

his total remunerationfor employmentin -- any 

workweek by the total number of hours actually 

worked byhimn ---- that workweerfor - which -- - suchcompensation was -- paid . . ." (Emphasis added.) 

In the present case, the Labor Standards Division 

determined the regular rate of pay of the Yellow Cab Company 

employees by dividing the gross weekly earnings of the 

employee, based on the 43 percent commission, by the total 

number of hours actually worked by the employee in that 

workweek. This was a proper method of calculation of the 

regular hourly rate. The Department's regulations are taken 

almost verbatim from the federal regulations issued pursuant 

to the Fair Labor Standards Act, 29 U.S.C. S201 et seq. 

Federal courts interpreting that act and the federal regulations 

have held that where, as here, the employment contract 

(calling for a 43 percent commission) does not satisfy the 

requirements of the minimum wage and overtime law, the 

regular hourly rate actually paid to the employee must be 

calculated to determine whether the employee was paid the 

overtime compensation required by the Fair Labor Standards 

Act. 

Federal cases have upheld the calculation of an employee's 

regular hourly rate on the same basis used here: by dividing 

the employee's weekly gross pay by the total hours worked. 

Bay Ridge Co. v. Aaron (1948), 334 U.S. 446, 464, 68 S.Ct. 

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1186, 92 L.Ed. 1502; Walling v. Helmerich & Payne (19441, 

323 U.S. 37, 65 S.Ct. 11, 89 L.Ed. 29; Masters v. ~aryland 

Management Company (4th Cir. 19741, 493 F.2d 1329, 1333; 

Seneca Coal & Coke Co. v. Lofton (10th Cir. 1943), 136 F.2d 

359; Warren-Bradshaw Drilling Co. v. Hall (5th Cir. 1941), 

124 F.2d 42, aff'd. 317 U.S. 88, 63 S.Ct. 125, 87 L.Ed. 83; 

Fair Labor Standards Act, 29 U.S.C. §207(a); 29 C.F.R. 

5778.108. In summary: 

"It seems well settled that where an employment 

contract is deemed not to satisfy the overtime 

provisions of the act, the 'regular rate' of 

pay at which an employee is employed is to be 

determined by dividing his total compensation 

each week by the total hours worked. (Citation 

omitted.)" Annot., 89 L.Ed. 35, 57-58 (1945). 

Appellants contend that this method of determination of 

the regular rate makes compliance impossible, because under 

a commission arrangement, such as here, the employer will 

always be in default. That is the case, however, only where 

the employment contract fails to satisfy the requirements of 

the minimum wage and overtime compensation law. Therefore, 

an employer must at the inception agree with his employees, 

when they are compensated on a commission basis, to pay the 

stated commission or the minimum wage plus applicable overtime, whichever is greater, to comply with the statutory requirements. To rule otherwise would be to open a loophole 

in our statute that would be impossible to close, on the 

overtime rates required under the forty hour workweek section. 

The employers in this case appear to have been in violation innocently. However, the public policy on which the 

minimum hours and wage law is based, as set out in section 

39-3-401, MCA, requires no exception in case of innocent 

violations. Furthermore, public policy is served by following 

the federal formula so as to develop harmony in the field, 

as the Department has done making its calculations. Cf. 

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Glick v. State, Montana Dept. of Institutions (1973), 162 

Mont. 82, 509 P.2d 1, 4, cert.den. 414 U.S. 856, 94 S.Ct. 

158, 38 L.Ed.2d 106, appeal after remand (1974), 165 Mont. 

307, 528 P.2d 686. 

With regard to appellants' argument that the Department 

failed to take into account the tips received by employees 

of the Yellow Cab Company in calculating their wages, we decline to consider the matter because appellants are attempting 

to raise the issue for the first time on appeal, having 

failed to raise the issue in their petition for review 

before the District Court. 

The case is remanded to the District Court to be modified 

by recalculating the penalties owing under the eighteenmonth statute of limitations in section 39-3-207, MCA, in 

accordance with this opinion. As so modified, the summary 

judgment is affirmed. 

We Concur: 

CJifL ,. - a. Justice w