Warren E. Burger: We’ll hear arguments next in number 71-1598 Hudson against Arnheim. Mr. Frey, you may proceed whenever you are ready.
Mr. Andrew L. Frey: Mr. Chief Justice and may it please the Court. This case is here on writ of certiorari to review a judgment of the United States Court of Appeals for the Third Circuit holding an elevator operators, cleaning ladies, and other operating maintenance and personnel at eight office buildings and one apartment complex in the Pittsburgh area, managed by respondent Arnheim and Neely, are not entitled to the protection of the Fair Labor Standards Act’ minimum wage and overtime provisions. The decision below conflicts with the decision of the Fourth Circuit involving identical issues and holding that the employees were covered. Arnheim is a real estate firm engaged among other activities in the management of office buildings and apartment houses as agents for the owners of such buildings. At the time this suit was brought, it managed a total of nine such buildings for various unrelated owners. Arnheim’s management activities are carried out under basically identical contracts with each of the building owners. Under which Arnheim assumes all of the functions of managing and operating the buildings including the procurement of tenants and negotiation and enforcement of leases, the collection of rents, arrangement for utilities and other services, in short all aspects of the operation of the buildings. Now Arnheim’s business is conducted from its central office and managed by supervisory management personnel operating out of that central office. With respect to each building, Arnheim collects the rents, deposits them in separate bank accounts and uses the funds to pay the operating expenses of the buildings to pay its commissions and to remit the balance to the owners. Now, Arnheim has extensive responsibilities in connection with personnel employed at the various buildings and I am talking about such personnel as elevator operators, cleaning ladies, watchmen, building engineers and so on. Functions and responsibilities of Arnheim with respect to these personnel are spelled out in detail in the stipulation that was filed in the District Court and that’s in the appendix and also at pages 5 and 6 of our brief. Now briefly summarized, these functions involved hiring, promotion, and firing of all personnel; supervision of their performance of their employment, making work assignments and scheduling the time of work, negotiating union contracts, determining rates of pay and benefits, preparing payroll and maintenance of other employee records and payment of salaries. In short, every conceivable incident of the employer-employee relationship is encompassed in Arnheim’s responsibility, although the owners are consulted and enjoy of veto with respect to certain matters such as the rates of pay and promotions.
Speaker: Are these personnel ever shifted from building to building?
Mr. Andrew L. Frey: I don’t believe that in this -- that the record reflects that they are shifted. They are employed for a particular building.
Speaker: Or it’s every conceivable relationship except that an employer and employee, isn’t it?
Mr. Andrew L. Frey: Well, I would say that it is a relationship of employer and employee. Our position is and I think this Court has clearly held certainly in the context of the Fair Labor Standards Act that in determining the employer-employee relationship, you don’t look solely at the common law concepts and you don’t -- and in any event even if you did the right to hire, the right to fire even if it is a shared responsibility with another person gives you a status as an employer.
Speaker: As I understand it, for each building there is a separate bank account?
Mr. Andrew L. Frey: There is a separate bank account.
Speaker: And the employees in that building are paid from that account?
Mr. Andrew L. Frey: That’s correct.
Speaker: And are those checks drawn by --
Mr. Andrew L. Frey: By Arnheim and Neely.
Speaker: But they are both what --
Mr. Andrew L. Frey: Yes, it isn’t Arnheim and Neely account, it would be labeled Arnheim and Neely clock building accounts.
Speaker: Suppose there are insufficient funds at a rent or something to pay the current salary bill, whatever it is, who pays?
Mr. Andrew L. Frey: Well, --
Speaker: That never arises?
Mr. Andrew L. Frey: The record doesn’t indicate that that arises. Our position in such an instance, suppose the building owner went bankrupt and -- I will come this a little later. Our position would be that Arnheim would be responsible for payment of minimum wages then Arnheim is under the act of employer in that sense. And it has every power that an employer has.
Speaker: Well if that so, then if it so happened, not because the building was bankrupt but because it is simply weren’t enough funds to pay the current bills, you say that Arnheim would still be in law, obliged to pay the minimum wage?
Mr. Andrew L. Frey: That would be our position. I don’t think that that’s essential for the disposition of this case.
William H. Rehnquist: Under the Fair Labor Standards Act.
Mr. Andrew L. Frey: Under the Fair Labor Standards Act, their responsibility to pay the light bill would be a matter of state law and of contract between them and the building owner but here we have a special situation which is that they do serve as employers of these people under the Act and if these people are entitled to the acts protection, then the employer is reliable to see that they get it. And as both Arnheim in this case and the building owners and I will expand on this shortly.
Speaker: Mr. Frey, am I correct in my impression the Third Circuit decided the employer issue in the Government’s favor?
Mr. Andrew L. Frey: That’s correct Your Honor.
Speaker: And there is no cross-petition here?
Mr. Andrew L. Frey: That’s correct Your Honor. Again later on, I think I will indicate that there is an argument that’s made that this is somehow still relevant to the enterprise question which is really before the Court today but we think that argument is fallacious. Now, the Secretary of Labor brought suit in the District Court for the Western District of Pennsylvania to compel Arnheim and Neely, to comply with the minimum wage, the overtime and the record-keeping provisions of the Act. Arnheim raised basically four defenses. First, it contended that it was not the employer of these employees that the building owner was. The District Court rejected that contention, it looks both that the relationship in Arnheim actually had to these employees and to the definition in the Act on how that it was an employer. Secondly, Arnheim contended that that in determining whether the dollar volume requirements of the Act are met, the Court should consider only Arnheim’s commissions and not the gross rents from the buildings. This argument too was rejected by the District Court. Thirdly and this is the key issue in this case today, Arnheim contended that its business was not an enterprise under the Act but rather that the employees at these buildings were employed and its many different enterprises as there were separate building owners. Finally, an issue that is not raised by either side here, there was an issue regarding the nexus to interstate commerce and the District Court held that prior to February 1, 1967, the necessary nexus did not exist and dismissed the secretary suit as to that prior period subsequent to February 1, 1967 when the statute was amended. The Court held that the necessary nexus did exist and we don’t understand that issue to be contested. On appeal, the Third Circuit held an agreement with the Government’s position on the District Court that Arnheim is an employer of these employees under the act. It secondly held also an agreement with the Government and with the District Court that the proper measure of gross revenues for purposes of determining coverage under Section 3 (s) of the Act is rents and not merely Arnheim’s commissions. However, they agreed with Arnheim that it was not conducting a single enterprise but rather as many different enterprises as they were different building owners. Accordingly, it remanded the case to the District Court for a hearing whether each of these, whether any of these separate enterprises met the dollar volume requirements of the Act to create an enterprise in which the employees would be covered. Our petition for certiorari raised solely the issue of the correctness of the Court of Appeals definition of Arnheim’s enterprise. No cross-petition was filed with respect to the issues won by the Government below nor were they raise in the brief in our position to the certiorari petition. Turning to the merits, the Government’s theory is that these employees are employed in Arnheim and Neely’s Enterprise, the management of office and apartment buildings for others and that the activities that all the buildings Arnheim manages are part of a single enterprise. Question presented to this Court is fundamentally one of interpretation of the provisions of the Fair Labor Standards Act. We submit these provisions are acceptable of only one interpretation and that interpretation provides coverage for these employees. Let’s take John Doe, an elevator operator of one of the buildings that Arnheim manages, in order to determine whether he is protected by the minimum wage provisions which it contained in Section 6 of the Act would begin by looking at Section 6 which says every employer shall pay to each of his employees and I am skipping to the relevant part, employed in an enterprise engaged in commerce or in the production of goods for commerce wages at certain rates. Now the phrase “engaged in the --employed in an enterprise engaged in commerce or the production of goods for commerce” is defined in Section 3 (s). Its there defined as an enterprise whose annual gross volume of sales made or business done is not less than $500,000 if we are talking about the period from February 1967 to January 1969. So the question is, is John Doe employed in an enterprise which has the necessary dollar volumes? Now “enterprise” as defined in Section 3 (r) and here we are the crux of the case. The relevant portion says that an enterprise means “the related activities performed either through unified operation or common control by any person or persons for a common business purpose, and includes all such activities whether performed in one or more establishments or by one or more corporate or other organizational units.” Now Arnheim’s activities as a manager of office and apartment buildings for others clearly constitute a single enterprise under this definition. There are three elements that need to be met. Are they related activities? And Congress has not defined related activities per se but the legislative history makes it clear that consider related activities to be those that are the same or similar. Looking in Arnheim’s activities that each of the office buildings and apartment buildings that have manages, it does the same thing under basically the same agreement with the building owner clearly related activities we submit. The second requirement is, are these activities performed through a unified operation or common control? Now, the common control requirement is satisfied if they’re performed by a single company. Arnheim and Neely incorporated runs the business of Arnheim and Neely, Incorporated and that’s what we are talking about here. The common control requirement is met. In addition, although it’s not necessary to meet both, Arnheim’s business of managing buildings is run through unified operations. That is out of its central Arnheim and Neely office where its management and supervisory personnel and clerical personnel work. Finally, these related activities must be engaged in, for a common business purpose. Again, we think it’s clear that the requirement is met. The emphasis of Congress was on the word “business” to distinguish between business and charitable. Here, the activities that each of the nine buildings are undertaken by Arnheim for its business purpose of managing buildings and making a profit from that activity. How then did the Court of Appeals reach a different conclusion? It did so by completely ignoring Arnheim’s enterprise and by looking instead at Arnheim’s clients the building owners. It found that the building owners did not share common business purpose that they have nine distinct enterprises. This finding was absolutely correct. We have no problem with it, whatsoever. But it’s irrelevant as applied to this case because it’s Arnheim’s enterprise in which we contend that these individuals are employed. Now, there is a fact which is perhaps overlooked by the Court of Appeals and by the respondents herein which is that under the Fair Labor Standards Act, it’s possible to be employed in more than one enterprise at the same time. And indeed that’s exactly what appears to have happened here. These persons are employed in the building owners enterprise which is to own real estate. They are employed in Arnheim and Neely’s enterprise which is to manage real estate. They are involved in both of those businesses. Now, where they are employed by more than one enterprise, if one of the enterprises comes within the coverage requirements of Section 3 (s) then the employee is protected regardless of whether the other enterprise by which he may also be employed comes within Section 3 (s) or not. Now, I think the example that we gave in our reply brief of the warehouses retaining the protective agency will illustrate the fallacy of the reasoning of the Court of Appeals. Supposed you have nine separate warehouses, each completely independent business having no connection with one another. They all require security services, night watchmen, they all retain the same protection agency and the issue is, are these night watchmen entitled to the protection of the Act? Now of course if you look at the enterprises of the warehouses in which they may be employed, their station let us say at the same warehouse every night that they were. You might say “well, the warehouse doesn’t have an enterprise that fits the statutory requirement, therefore they are not covered. But of course they are also employed in the protection agencies enterprise which is to provide night watchmen and various warehouses and other business as there in the city.
William H. Rehnquist: Of course your typical protection agency contracts for the services of the people it hires and pays them. The warehousemen isn’t necessarily responsible for their wages and the protection agencies generally, primarily responsible.
Mr. Andrew L. Frey: Well, the structure of the Act makes it quite clear that coverage does not turn on who is responsible for your wages. The question is “are you employed in an enterprise?” which comes within the definition. Now, how could one say that these elevator operators are not employed in Arnheim’s enterprise? Arnheim’s enterprise is to operate buildings and these -- without the elevator operators, Arnheim couldn’t conduct its business in managing these buildings. And therefore these men are employed in Arnheim’s enterprise and it doesn’t matter whose employees they are. It doesn’t matter who pays them. Now, the redcap cases which we cited in our brief are an illustration of a situation in which the Court has held that even though the railway company is not paying the redcaps their salary, they are totally dependent upon tips from the passengers that it isn’t payment of salary who bears the ultimate salary burden. That’s the critical issue. The issue is, who has control over the day to day conduct of these employees? Are they involved in the aircraft?
William H. Rehnquist: Would you say a plant manager was himself an employer because he has control over the day to day conduct of the employees as well as the owner who hires the plant manager?
Mr. Andrew L. Frey: Well, one of the cases cited by the respondents or perhaps by the amicus, I think it’s the Royal Crown case involves the situation where the president of a company was held personally liable under the Act because of the extent of his involvement. But here, I don’t think that’s the point. The plant manager would not be considered to have an enterprise. We are talking about whose enterprise to these people working. Are they working in an enterprise which is covered under the Act? Now, it would be possible that they could work in an enterprise and the operator of that enterprise would not be liable for their wages and the example of that would be the beauty salon operating as leasing space in a department store. Now, the employees of that beauty salon, if the department store’s enterprise qualified under the Act, the revenues of the beauty salon would be included within the department stores enterprise to determine whether it was subject to the Act and the employees in the beauty salon would be entitled to the protection of the at even though the department store exercise, no control whatsoever over them. The department store might have no liability to pay the minimum wages. The beauty salon operator who does not have an enterprise with $500,000 would be liable to pay because these persons are employed in an enterprise which meets the Acts requirements. And this is a very important point that that is overlooked in the briefs of the respondents in the amicus. Now, I think I was just getting to this point actually and I think perhaps I’ve adequately covered it. So, in closing, let me say this, it seems clear that the underpinnings of the Third Circuits decision was a concern for the impact of the minimum wage laws on the business of the building owners. Now, it is of course an inevitable feature of such laws that they raise the cost of certain goods and services and thereby adversely affect the consumers of those goods and services, many of whom maybe small businesses. This is never in the past in anyway discouraged Congress from adopting and from expending the coverage of the Fair Labor Standards Act. Any event, the concern of the Court of Appeals for these building owners seems to us misplaced in this instance. It’s by retaining a firm such as Arnheim and Neely to manage its buildings but the building owners realize important benefits of an economic nature for themselves. These benefits derive from the skill of Arnheim’s operation from the fact that it manages many buildings that it is able to hire for instance experienced top management personnel to manage office buildings which wouldn’t be justified if only a single office building were being managed so that substantial benefits are being conferred upon the building owners when they retain Arnheim and this notion that if they have to pay the minimum wages, they will all stop retaining Real Estate Management firms is totally without foundation in the record and we believe contrary to normal experience.
Warren E. Burger: Mr. Frey, let me go back to that bank account a moment. The bank account is separate for each building you indicated. Does the record show who is the owner of that bank account?
Mr. Andrew L. Frey: I’m not certain who was the owner. I believe that it’s in Arnheim’s name, I assume that it is a trust at least that is in our --
Warren E. Burger: What goes into that bank account is the property of the building owner, is it not?
Mr. Andrew L. Frey: Yes, that’s right.
Warren E. Burger: And Arnheim and whatever form that account takes is holding it to -- in trust and in agency?
Mr. Andrew L. Frey: That’s right but that has nothing to do with the statutory issue with which --
Warren E. Burger: But perhaps not, it’s probably all the bits and pieces of these things that answer that question.
Mr. Andrew L. Frey: Well, I think that if you look at the structure of the statute, it’s quite clear that the question is, are they employed in an enterprise and looking at Arnheim and Neely. What is Arnheim and Neely’s are their activities at each of these nine buildings, part of one single enterprise?
Warren E. Burger: What about the workmen’s compensation liability? Where does that rest?
Mr. Andrew L. Frey: I am not certain Your Honor where that would rest.
Speaker: Well, I know that stipulation makes reference to payment of all insurance. I was looking for the same thing with the Chief Justice. I do not see any express reference to workman’s compensation. There is here, a reference to the payment out of those accounts of all insurance premiums etcetera, for each building.
Mr. Andrew L. Frey: Well, I think that the question of the workman’s compensation law would be governed in part by the state law. We are talking here about the Fair Labor Standards Act and the question is, what does that Act mean? And --
Warren E. Burger: But to determine what that Act means, we have to analyze, great many elements, do we not? Of the relationship, you have analyzed some of them yourself.
Mr. Andrew L. Frey: Well, I -- but I believe that it’s possible to totally ignore the relationship between the building owners and Arnheim. The relationship with which we are concerned is between Arnheim and the business that Arnheim is conducting and secondly between Arnheim and this personnel.
Warren E. Burger: But you were drawing an analogy of someone like Burns Detective Agency that would furnish security service for 15 or 28 buildings or warehouses or what not?
Mr. Andrew L. Frey: Yes, that’s right.
Warren E. Burger: Where Burns would hire them all? They would be on the payroll of Burns. They would be interchangeable. The workman’s compensation would be Burns, the public liability which they undoubtedly would carry since these men are armed, that sort of thing. That’s -- isn’t that quite a different situation from this one?
Mr. Andrew L. Frey: I don’t mean to suggest that in the Burns illustration, I didn’t mean necessarily that the protective agency would hire these people. They could be joint employers and I think it’s very important that in this case, the agreement between Arnheim and the building owner could be setup in such a way that Arnheim would not be liable under the Act. Arnheim can simply get out of the business of running these buildings with these personnel and leave that to the building owner. It could stick to collection of rents and procurement of tenants and handling the bank account for the building let’s say. If it did that, then these employees would no longer be employed in Arnheim’s enterprise and we would not be seeking to establish Arnheim’s liability. By that same token, the building owners can get out of liability under the Act by withdrawing any of their employment control. That is, they could leave it up to Arnheim to pay whatever salary Arnheim wants and just reimburse Arnheim on a cost plus basis for doing that. And such a case which would be irrelatively minor change in the existing agreement, the building owners would be off to hook as far as liability for payment of minimum wages and for making sure that the necessary records are kept and so on, that would all be Arnheim. In this case, they have chosen to setup their relationship in a manner that makes them both liable because they are both -- because these persons are employed in both of their enterprises and they are both employers under the definition of the Act which both courts below have held. Now, I think when we are talking about the policy that informs and underlies the Fair Labor Standards Act, there are numerous references in the legislative history to this policy and I want to refer to one in the House Report in connection with the 1966 Amendments to the Act. The Committee said, in keeping with the broad statutory definitions of the “coverage” phrase is used. The courts have repeatedly expressed and adhere to the principle that the coverage phrases should receive a liberal interpretation consonant with the definitions with the purposes of the Act and with its character as remedial and humanitarian legislation. However, despite the Acts broad coverage terms and the court’s liberal interpretations regarding coverage and restrictive interpretations regarding exemptions, there is great need for extending the present coverage of the Act to large groups of workers whose earnings today are unjustifiably and disproportionably low. Now, it’s that policy and not any concern for small business man that as a basic policy that underlies the Fair Labor Standards Act and given that policy, there is no reason to ignore or distort the clear statutory language for the purpose of preventing these employees from obtaining the benefits of the Act. If there are not further questions I would like to reserve the balance of my time for rebuttal.
Warren E. Burger: Very well, Mr. Frey. Mr. Strassburger.
Eugene B. Strassburger, Jr.: Mr. Chief Justice, may it please the Court. I first would like to answer the Court’s question respect to who owns the bank accounts involved in this case. On the bottom of page 23 of the stipulation, it says specifically the funds deposited in these accounts for the property of the owner and not of Arnheim and Neely. And Arnheim and Neely is not liable in the event of bankruptcy or failure of the depositor. There’s no question, Your Honors, that these are agency accounts and that Arnheim and Neely would not be liable for any of the wages personally if these buildings could not meet the payroll itself. Now, this history of this case started in 1965. At which time, one of the Labor Department representatives came in to Arnheim and Neely’s quarters to examine the operation, decided that Arnheim and Neely was an enterprise and we have been on the road ever since. When we reach the litigation stage in 1967, we knew that we were guinea pig and that we were the first to be hit with the suit by an agent who had no ownership in any of the buildings which it managed. Because of the importance to the industry, the instituted Real Estate Management asked to leave to intervene as a party defendant and was given that permission. We lost the first trial in the Federal Court in Pennsylvania. Shortly after our case came down, a similar case was started by the Federal Government in the District Court of Virginia. And despite the holding against us, the District Court of Virginia decided in favor of the real estate managing. In that case, they made a threshold question as to whether or not the measure should be gross receipts or gross commissions and they held it should be gross commissions because the real estate manager didn’t own any of the gross receipts themselves. So we went into the Circuit Court in the Third Circuit feeling pretty good that the -- at least we had one case in our favor namely the Virginia case.
Potter Stewart: And that was -- that was the District Court?
Eugene B. Strassburger, Jr.: That was the District Court. Right. Prior to the argument in the Third Circuit, the Fourth Circuit got ahead of use and decided and reversed the lower court in Virginia. So then the Government came in to the argument and said we got a pretty good case also. Despite the Fourth Circuit case and the lower court case in its own district, the Third Circuit decided that Arnheim and Neely was not an enterprise. In a very well-reasoned opinion, concise, logical and I may be a little prejudice but I still say it’s that. I don’t have to go in to detail as to the nature of Arnheim and Neely’s activities, it’s already been discussed. There are many unusual type of activities than usual type of management activities. But there is one point, Your Honors that I have to make clear and emphasize. Arnheim and Neely does not own any of the buildings in which it manages. They are just no ownership present, that’s all. Every case of enterprise must have some type of ownership going with it. And they don’t have any ownership here. Also in discussing --
Potter Stewart: Theory, is that literally true? Do you have -- you could be a service organization and clearly be an enterprise, couldn’t you?
Eugene B. Strassburger, Jr.: Well I’m coming to that Your Honor, as to whether or not --
Potter Stewart: I mean it’s not literally true that in order to be an enterprise you have to own something.
Eugene B. Strassburger, Jr.: I think almost it is Your Honor. I really think that in order to show an enterprise that you have to show some ownership.
Thurgood Marshall: How about the security guards?
Eugene B. Strassburger, Jr.: Sir?
Thurgood Marshall: How about the security guards?
Eugene B. Strassburger, Jr.: The security guards may or may not be an enterprise depending on whom they work for.
Thurgood Marshall: Or do they have to own something?
Eugene B. Strassburger, Jr.: Not the security guards Your Honor. Of course --
Thurgood Marshall: Well what is the difference? You said they had to own something to be an enterprise.
Eugene B. Strassburger, Jr.: Well, I may have been misunderstood but I say that the enterprise doctrine itself must show some and I think I will be able to point to that Your Honors little more clearly that the enterprise doctrine must contain some type of ownership in order to --
Potter Stewart: Well your own paper and pencils and typewriters and what not. You mean you have your own -- -- real estate?
Eugene B. Strassburger, Jr.: I am talking about title to the receipts which they receive for example, the gross rentals that they receive. Well, let me continue and I think I will be able to explain it. This Court decided back in 1945, the case of 10 East 40th Street building versus Callus. That case involved a local building operation and because of that decision, the Court held that the employees were not within the interstate commerce rule and it was a part -- simply a local operation. Now, we have here nine separate buildings, all of which can be considered to be Callus cases. The Government says, well since that case, we have gone into the enterprise doctrine and therefore that case doesn’t hold right. Of course the case is still being cited everyday for the proposition for which it stands and the crux of the real issue here is, does the enterprise doctrine nullified the holding of the Callus case. So we are back again to the definition situation as to what is an enterprise. And Mr. Justice Douglas and Mr. Justice Stewart deplored the exercise in semantics in the Maryland versus Wirtz case. We are going to have to do a little exercise in semantics, nevertheless. The definition states related activities performed either through unified operation or common control by any person or persons for a common business purpose. The word “common” appears in this definition twice in three lines. So, I must assume that the word is rather important. But let’s take each of the definition words as it goes down. First, it says related. What are related activities? Well, the Government would have us believe that they are the internal activities of Arnheim and Neely which are related. Well, of course any building has internal activities which are related to each other. This is not what the Congress meant Your Honors. The related activities are those which concern more than one business. Not just Arnheim and Neely business but more than one business with common ownership. Lacking the common ownership, there can be no related activity, unified operation or common control. Well, I could only refer to those activities where there is more than one business. Naturally, a single business has unified operation in common control and not as the Government contends to a single operation. As a matter of fact, common control may not even be enough. A recent case in the Tenth Circuit decided since out case called University Club Tower case involved a situation where one corporation controlled both an apartment building and a hotel. And the Court said, well the business purpose of a hotel is not the same as the business purpose of a apartment building, therefore, no enterprise. So, I submit to you Honors, if a hotel and an apartment building which are commonly owned and controlled are not an enterprise, how can there be an enterprise where you have a number of unrelated buildings merely because they have a common agent. The use of the work “common” as I said before is a very important phrase -- word. When you talk about “common,” you talk about more than one. Even the definition of common in the dictionary says, belonging to, or equally shared by two or more individuals. Well now, I know that Learned Hand once said, “We are not going to make forth recite a dictionary and I’m not saying that we should in this case.” But nevertheless, this Court had talking to Mr. Justice Vinson once said, “We have consistently refused to pervert the process of interpretation by mechanically applying definitions in unattended context refused to pervert.” Those are strong words in those days but they have a different connotations today and I am not going to accuse the Government of any type of perversion but they are certainly are distorting the words of this definition of enterprise. “Common,” if I use my driveway with my wife and family, if I created a common driveway? Of course not. But if I use my driveway with somebody on the other side who has got a property on the other side, then I have created something in common. The Government, however says because Arnheim and Neely is operating more than one building, it is in common. It’s operating with itself and I say that this thus doesn’t mean anything as far as definition at large is concern. Now, I’ve taken the definition apart. Let’s put it back together again. What is an enterprise? Well, I think an enterprise is demonstrated mainly by the so-called bank and insurance cases. The bank owns an office building. It uses part of the office building itself and it rents out to the general public the balance of the building. Prior to the institution of the enterprise doctrine, the bank guard was subject to the Act and the office building guard, he worked along side with him was not subject to the Act. And to correct that, Congress said, if you are in an enterprise then this is where both people should be under the same Act and I quite agree. But that’s not the situation with we have. In that case again, the ownership was the bank who own the office building and that I said Your Honors is what a true enterprise really is. Now, there was some discussion when the Honorable Solicitor was talking about some of the economic reality and situation and this Court has said that when we are dealing with social legislation such as this, we must look at the economic realities. Now, what are the economic realities with respect to the employees of these separate buildings? First place, the employees go with the building. They don’t go with Arnheim and Neely. Since the case has been instituted, Arnheim and Neely has lost the management of some of these buildings that are mentioned here. They gained other ones and there is a continual shifting over because some buildings are sold, some buildings are tired of the manager, they want a new manager for one reason or another that buildings are no longer managed by Arnheim and Neely. The employees stay with the building, they don’t go with Arnheim and Neely. The rates are paid, the fringe benefits, other wage and salary matters all are subject to the approval of the owner without exception.
Warren E. Burger: I didn’t find the workmen’s compensation for example specifically sent forth in the stipulation.
Eugene B. Strassburger, Jr.: I don’t think it’s in the stipulation Your Honor, probably this wasn’t thought about with respect to talking about the minimum wage, we are talking about workmen’s compensation but I think there is enough in the stipulation itself to show especially at the bottom of page 23 that the funds deposited in these accounts are the property of the owner and that the owner himself would have to stand all those -- well, as a matter of actual fact and actual practice, I know as my own knowledge that each account is kept separate. There is the end of a question with workmen’s compensation came up, it would be paid out of that particular account and no other.
Speaker: What about the stipulation at page 24 that expenses and including a number of things, one of which is insurance?
Eugene B. Strassburger, Jr.: Well, it paid out of the account, that’s right Your Honor.
Speaker: Well, would that mean with insurance could workmen’s compensation?
Eugene B. Strassburger, Jr.: That could be workmen’s compensation, any type of insurance. That’s right.
Warren E. Burger: I suppose you don’t --
Eugene B. Strassburger, Jr.: All paid by the owner.
Warren E. Burger: -- public liability also?
Eugene B. Strassburger, Jr.: Absolutely.
Warren E. Burger: You think it’s clear from this record as a whole that if an employee is injured on the job, he is injured on the account of the building owner and not of Arnheim?
Eugene B. Strassburger, Jr.: I think it’s perfectly clear, Your Honor. Quite clear.
Warren E. Burger: If an elevator operator, it’s in to a quarrel with one passenger and there is a lawsuit, they sue Arnheim in your view or --
Eugene B. Strassburger, Jr.: They sue the owner, there is no question.
Warren E. Burger: As the employee of the owner.
Eugene B. Strassburger, Jr.: That’s correct Your Honor. Any economic law suffered on the part of any of the buildings is suffered by the owner and not by Arnheim and Neely. Arnheim and Neely is compensated through its commissions.
Speaker: You wouldn’t suggest that the -- Arnheim wouldn’t be a proper defendant negligent, so as you?
Eugene B. Strassburger, Jr.: No, I would not. And that brings me to a point of as to who it is --
Thurgood Marshall: If all of this is so true, why do you have them? Because I gather what you say, they don’t do anything.
Eugene B. Strassburger, Jr.: But the question is, they don’t do anything Your Honor. They do --
Thurgood Marshall: Well, am I correct as to this day, do you said they don’t do anything.
Eugene B. Strassburger, Jr.: Who doesn’t do anything -- they don’t do -- Arnheim and Neely doesn’t do anything?
Thurgood Marshall: That’s right.
Eugene B. Strassburger, Jr.: Oh! No, I don’t. If I said that, I certainly didn’t mean this thing.
Thurgood Marshall: No, you didn’t say it but you -- you say that the real -- I mean that the owners of the building do everything.
Eugene B. Strassburger, Jr.: The owners of the building do everything with the respect to paying the freight, let’s put it that way. The owners of the building pay the wages, they pay the salaries, the overtime, everything is paid, the expenses. The real estate taxes, everything else.
Thurgood Marshall: Well on your idea, what is an enterprise? Will it conglomerate to be an enterprise?
Eugene B. Strassburger, Jr.: Not if they don’t have a common business purpose but if they do, it could be an enterprise because a conglomerate would be a common ownership type of situation.
Thurgood Marshall: That’s right, would that be an enterprise?
Eugene B. Strassburger, Jr.: Yes, sir. I believe that’s right.
Thurgood Marshall: A conglomerate, it dealt in everything from two (Inaudible).
Eugene B. Strassburger, Jr.: Well, I say it unless there is a common business --
Thurgood Marshall: Well, that would be an enterprise.
Eugene B. Strassburger, Jr.: That would be an enterprise.
Thurgood Marshall: You admit that.
Eugene B. Strassburger, Jr.: If it has a common business purpose, that’s correct Your Honor.
Thurgood Marshall: And that don’t give any trouble with this case?
Eugene B. Strassburger, Jr.: That doesn’t give me any trouble in this case.
Speaker: It would make any difference to you if Arnheim’s commission exceeded the statutory amount.
Eugene B. Strassburger, Jr.: If Arnheim’s commissions exceeded the statutory amount, you mean for coverage? Arnheim and Neely’s real employees might be covered. Arnheim and Neely has no --
Speaker: So your point, at your point -- well so your answer is no, it wouldn’t make any difference because these employees are not Arnheim’ employees.
Eugene B. Strassburger, Jr.: That’s correct. The Government equates who is an employer with coverage as oppose to enforcement. It’s possible that Arnheim and Neely as an employer because it perhaps have right to hire and fire is responsible for the enforcement of the Act. The same as it would be possible for Arnheim and Neely to be subject to the zoning laws, governing that particular building and also the safety regulations of the building. But to say that Arnheim and Neely is subject to the enforcement provision of the Act is not the same as saying that they are covered under the Act. I don’t think that they are the same things. And that’s what the Third Circuit was saying when it said we are going to look at each individual building and that the vicarious responsibility as cited in the Third Circuit is what they are referring to there.
Speaker: Are you in a position to argue here that these people were not employees of Arnheim? The Court of Appeals held that they were, didn’t it?
Eugene B. Strassburger, Jr.: The Court of Appeals -- you mean in my -- in the position --
Speaker: And you didn’t petition for certiorari? And the Court of Appeals simply -- it held that they were employees and that simply its order remanded the case to the District Court to the sole purpose of finding out whether each buildings grow straddles during relevant years exceeded the statutory exemption.
Eugene B. Strassburger, Jr.: Well, we’re not asking the Court to expand on that at all. Therefore, we are not asking the Court to expand on the order of Third Circuit. I think we have a right to argue anything which might be --
Speaker: Well no, that would expand on the order of the Third Circuit, they are not employees, there is no point remanding the case to find out anything.
Eugene B. Strassburger, Jr.: Well, they can be employees, I say Your Honor. If they are not -- if we are not employer, you are saying that there is no sense of going on any further with the case?
Speaker: Correct and you are not in the position therefore to make that argument because you are asking that that would lead to us revising the judgment of Court of Appeals.
Eugene B. Strassburger, Jr.: Well, Your Honor --
Speaker: You are asking us, I though to affirm the judgment of the Court of Appeals.
Eugene B. Strassburger, Jr.: We are, that’s correct Your Honor and because we were satisfied.
Speaker: And since you didn’t petition for certiorari, you can’t -- but you revised it, didn’t you?
Eugene B. Strassburger, Jr.: Since we were satisfied with what Third Circuit said, we didn’t feel it was incumbent upon us to file a cross-petition in order to protect something which may or may not be important after it gets back to the local Court. After it gets back to the local Court, the local Court can then again take up the question of whether or not we are an employer for purposes of --
Speaker: Well can it? Can it? Isn’t that now been decided? That’s -- that’s the law of the case, isn’t it?
Eugene B. Strassburger, Jr.: Well, the Third Circuit really --
Speaker: And you did not cross-petition for certiorari.
Eugene B. Strassburger, Jr.: That’s true Your Honor but the --
Speaker: Had you prevailed on the issue, would you not be entitled to an upright reversal? Exactly, just --
Eugene B. Strassburger, Jr.: That’s correct Your Honor but I say -- I submit that it’s possible that if you take a question of who is an employer with respect to coverage as oppose to enforcement that there might be a difference and the Third Circuit doesn’t make this distinction, they just said it was the employer.
Warren E. Burger: Well, that’s because the contrary finding would have been dispositive of the case. Finding of a no employer but can’t you support the argument, the position of the Court of Appeals on any ground up here. You started to say something about that.
Eugene B. Strassburger, Jr.: I submit Your Honor that the most important part of the case is the enterprise doctrine and the Third Circuit said, it can’t be an enterprise, it have to look to each individual building separately. An anomaly would be created if Arnheim and Neely were to be considered a -- an enterprise.
Speaker: The Chief Justice is suggesting that you as a respondent are entitled to support the judgment of the Court of Appeals on any ground that will support the judgment even if the point you are urging here will decide to the contrary by the Court of Appeals.
Eugene B. Strassburger, Jr.: Well, that’s essentially correct, that’s I didn’t understand the Chief Justice remark but I thought he wanted me to give other reasons for sustaining the --
Potter Stewart: Judgment.
Eugene B. Strassburger, Jr.: Sustaining the judgment.
Potter Stewart: But the lack of an employee relationship would not sustain the judgment of the Court of Appeals.
Eugene B. Strassburger, Jr.: I understand that Your Honor, yes.
Potter Stewart: It would go further.
Eugene B. Strassburger, Jr.: It would go further than that, that’s right. But I repeat that we still don’t know what kind -- whether we are talking about employer for coverage or employer for purposes of enforcement. The Third Circuit has pointed out the anomaly that is created if the Arnheim and Neely business is considered an enterprise. It would be anomalous said the Court to treat the owners of commercial buildings as proprietors of individual businesses when they manage the buildings themselves and as participate in a common business purpose with other building owners merely because they hire a rental agent who manages other buildings. Now, Your Honor I can point this up with an illustration from Arnheim and Neely’s own situation. At the time this suit was instituted, Arnheim and Neely manage the building called University Square number one, a ten-storey apartment building. Next to what is University Square number two not managed by Arnheim and Neely, a similar ten-storey building separated only by a party wall. If the Government’s theory is correct, the janitor in University Square number one is covered by the Act and the janitor in University Square number two is not covered by the Act. Now this is a situation where the Government is creating a disparity between employees coverage whereas, the Congress was trying to avoid this when they pressed the enterprise doctrine where two employees side by side where not covered by the same act. Now, the Government comes in and says we’re going to cover some of these and not cover others. And the very question of the coverage of each of these employees depends on who the management agent might be. So, I say Your Honors that if Arnheim and Neely is an agent which it is and if Arnheim and Neely manages buildings which it does, and if Arnheim and Neely manages buildings which are all local in character which they are, how can the agent rise higher than his principle? How can the Government do indirectly what it can’t do directly because of the Callus case? Congress never intended such a result, Your Honors. The law doesn’t provide for it and the logic and reasoning had shown in the Third Circuit opinion should be sustained. Thank you.
Warren E. Burger: Thank you, Mr. Strassburger. Mr. Seamans.
Frank L. Seamans: Mr. Chief Justice and if the Court please. I think it’s apparent why the institute of Real Estate Management is concerned about this case, your permission now. I just make one brief argument concerning the construction of the statute, and that is that we don’t believe the Congress intended the result that the Government position would achieve in this case. We’ve been arguing about what is an enterprise and what is an employer and what is an employee. But we believe when the statute doesn’t define itself and you apply it to a set of facts. If you are convinced that Congress didn’t intend to that result that that should bear on your interpretation. Now, I based that on two premises. It’s my understanding that it is acknowledged that Congress didn’t go as far as they might go under the Interstate Commerce Act with the Fair Labor Standards Act, something has held back and Congress itself adopted the monetary limit, a financial limit in its application so I argue that there is a Congressional intent that there are still to be some local buildings that do not have to meet the minimum wage, the overtime requirements. It’s purely economic. I argue that Congress intended that somebody is still left up whether they should be or not, I suggest that that’s what Congress intended. The consequence here is, in the opinion of the clients that I represent and there are some 2,500, pardon me, these realtors in the institute represent some 2,500 small office buildings and some 5,000 small apartment buildings across the country and that’s why the District Court permitted the intervention. It is our concern that if this rule applies and the building owner considers the employment of a rental agent, he would be well advised to ask that rental agent two questions. First, are you Mr. rental agent in interstate commerce? Secondly, do you have any other client who is? Because if the answer is yes to either of those questions and automatically I go in and automatically my elevator operator, my maintenance people are paid time and a half. I can’t afford it will effect my maintenance. Pardon me, my financial operation. This as we see it is coverage by association with whom do you associate yourself and not who are you and what do you do. So that is the position if Your Honors please of the institute that we can get lost in a morass of semantics in using manufactured words and statutory words like enterprise and employer and employee and we find our selves chasing our tail. But if we are convinced that Congress never intended the result that this would achieve, we submit that that is the place to fire and the answer for the pure construction of this statute. And we’re quite convinced and I think if Your Honor will reflect on it, the idea that you get coverage by association and not by your own status or activity would lead to conclusion that however you do it, whether why an interpretation of enterprise whether by an interpretation of the employer. The achievement here of a result not intended by Congress should not be sustained. Thank you, Your Honors.
Warren E. Burger: Thank you Mr. Seaman. Mr. Frey, you have about four minutes left.
Mr. Andrew L. Frey: Yes sir. First with respect to Mr. Seamans’ comments, I think he misses a fundamental point. It’s not the building owners that are subject to the Act or covered by the Act. It’s the employees that are covered by the Act. The issue is, are these employees in an enterprise? Not are these building owners covered by the Act? Well, I --
Warren E. Burger: Well, he assumed his argument was directed at the proposition of the small apartment owner who economically couldn’t meet the standards and who by the very exclusion of the small category by Congress was not intended to be covered.
Mr. Andrew L. Frey: Well, Congress intended that employees who were employed in an enterprise -- who are not employed in an enterprise of a certain size would not be covered.
Warren E. Burger: And they might be a long side, a large building where the person during the same work would be covered is that not true?
Mr. Andrew L. Frey: Oh, it’s entirely possible that you could have two buildings, one small and independently operated where the only enterprise is under $500,000 and one along side that’s larger where the enterprise were either the office building itself has enough revenues to come within there.
Warren E. Burger: So that all discrimination, all disparity could not be eliminated under the Act. Isn’t that true?
Mr. Andrew L. Frey: Well, I think no matter how you structured it unless you just made it applicable across the board to all employees, there would be some discrimination.
Potter Stewart: But Congress made that discrimination.
Mr. Andrew L. Frey: Yes, Congress.
Warren E. Burger: Now isn’t that partly a matter -- a practical matter of enforcement, is that at least one of the considerations?
Mr. Andrew L. Frey: Well, I think that Congress felt that in -- where you were dealing with what say the Mom and Pop grocery store. That the impact on commerce was relatively limited from such an enterprise and that Congress would give them a break, these vary small business. Now, Arnheim and Neely is not such a business. This is not a Mom and Pop store. And of course they keep trying to talk about the building owners as the one Arnheim and Neely had no business. For instance, they say an enterprise must have an ownership. Well, there is ownership here. Arnheim and Neely owns Arnheim and Neely. And it conducts the enterprise of Arnheim and Neely. That’s the sense, the only sense in which ownership is required.
Speaker: And that was held that these employees are their employees?
Mr. Andrew L. Frey: And it was held that these are their employees. That’s correct.
Speaker: Mr. Frey, what about Mr. Seaman’s argument as I understood is that if a real estate agent represented one office building that would come within the Interstate Commerce Clause and say had the representation of a hundred other various small buildings, some of which were office buildings, others were small apartments. And none of which independently would perhaps meet the standards of interstate commerce. Would you regard that that agent had a single enterprise embracing the 101 people whom he represented?
Mr. Andrew L. Frey: Well, we would not make any distinction on the basis of whether any particular ones of the buildings that were managed happened to meet the dollar limit. What we would say is, is he conducting an enterprise? If his enterprise may for instance the doctor-patient example used in the respondent’s brief. I think highlights this point clearly. They say, well the patients, each come to the doctor and the patient are unrelated to one another. The patients are not engaging in related activities. They have no common health purpose when they come to the doctor, therefore, how could you say that there would be an enterprise. Well, the doctor is engaged in a common business purpose.
Speaker: You said occasioned in the example output is engaged in a common enterprise.
Mr. Andrew L. Frey: I would look at the way in which -- I would look at the activities that he undertakes and I would look to see whether they are related activities. Whether they are conducted through unified operation and common control and whether they are conducted for common business purpose. If I found all those things then I would say yes. He is an enterprise under the Act regardless whether the individual pieces of his business. The individual customers of the grocery store, the department store have any connection.
Thurgood Marshall: That’s what where it means.
Speaker: And the employees of this hundred various small operations said a part-time janitor which might be the only employee would be brought under the Act in the example output.
Mr. Andrew L. Frey: Because under the Act, they are not merely the employee of these small businesses.
Speaker: I understand but --
Mr. Andrew L. Frey: Yes.
Speaker: -- the answer to my question is yes?
Mr. Andrew L. Frey: Yes that the Act --
Speaker: And they pay it not by the agent but by the owner of these two apartment building or these four office buildings.
Mr. Andrew L. Frey: Even if we were to agree arguendo that Arnheim was not the employer. The Act does not speak about being employed by an enterprise. It says being employed in an enterprise. Now Arnheim has an enterprise. I don’t see how anybody can deny that Arnheim has a business which is managing office and apartment buildings for others. I don’t see how anybody can deny that these persons are employed in Arnheim’s business.
Thurgood Marshall: Do you have to go this far as saying that if Arnheim had the management on review were of trademark of two buildings in New York, and one Mom and Pop Grocery store?
Mr. Andrew L. Frey: That’s right.
Thurgood Marshall: (Inaudible)
Mr. Andrew L. Frey: It would be possible.
Thurgood Marshall: Do you have to go that far?
Mr. Andrew L. Frey: No, it would depend --
Potter Stewart: Well in this case you do, I mean don’t you?
Mr. Andrew L. Frey: No, you might find that these were not related activities. The question would be, is there management of the small grocery store or related activity to their management of the World Trade Center and the point in the legislative history, Congress said, suppose you have a one company which is engaged in the retail apparel business and also the lumbering business. Now, Congress said, this is what we mean by activities that are not related. You would not consider the revenues of the lumbering business in determining the enterprise of the apparel business nor would the lumbering business employees be covered. Now, this concept that you have to have more than one owner that the word “common” requires more than one, leads to the result that General Motors is not covered under the Act.
Speaker: What’s the reason here? If you are going to separate Arnheim which you do as the enterprise as the separate company and make it liable for which you are?
Mr. Andrew L. Frey: Yes.
Speaker: Why would you -- what’s the reason for saying that the major coverage is the total receipts of all the buildings, the total rentals of all the buildings rather than Arnheim’s commissions?
Mr. Andrew L. Frey: Well, that we would submit to begin with is clearly an issue that is not before this Court because it would have require to completely different kind of hearing on remand from the kind of the Court of Appeals order but to the extent that this -- that the Court wants to reach it. A situation is not --
Speaker: Well can you reach it? I mean, is that the issue here? No.
Mr. Andrew L. Frey: We don’t believe that the issue is here.
Speaker: Again, no cross-petition on here.
Mr. Andrew L. Frey: There was no cross-petition. In the Mills versus Electric Auto-Light case which I --
Speaker: Was it in the Court of Appeals by your opponents that in any event, the measure should be commissions rather than total rentals?
Mr. Andrew L. Frey: Absolutely it was urged in the court.
Speaker: And it was rejected by the Court of Appeals?
Mr. Andrew L. Frey: It was rejected by the Court of Appeals on the -- and it was rejected by the Fourth Circuit and the --
Speaker: Why can’t without a cross-petition that your opponents urged at that point here?
Mr. Andrew L. Frey: Because it doesn’t support the judgment below which is a remand for a particular type of hearing.
Potter Stewart: The judgment is on page 24 of your certiorari petition and its remand to introduce evidence regarding each building’s gross rentals. That’s the reason it doesn’t.
Speaker: And he asked that the judgment is -- the judgment of the -- the Court of Appeals decided against you?
Mr. Andrew L. Frey: No. The Court of Appeals decided in our favor on this issue.
Speaker: Right.
Mr. Andrew L. Frey: They said you look at gross --
Speaker: Well, not this issue. But yes, but what was it overall to you, you are the petitioner here.
Mr. Andrew L. Frey: Well, the overall result was that they decided in our favor on two of the three issues they considered and against us on the third. Now, the actual effect of that putting it into practice is that many of the employees whom -- for whom we seek to obtain the benefits of the Act would not get that protection.
Speaker: Well, then that would in the Arnheim and Neely?
Mr. Andrew L. Frey: None of them. That would depend upon the revenues of each of the -- under the Third Circuit’s theory, you would go back to the District Court, you would look for year subsequent to 1967 at the revenues of each individual building.
Speaker: Don’t you give the rentals in your --
Mr. Andrew L. Frey: Only for 1964.
Speaker: Mr. Frey, how do you answer Mr. Seamans’ comment about coverage by association? Only by saying this is the way the Act provides?
Mr. Andrew L. Frey: Well, there is an association between these employees and Arnheim and Neely’s enterprise. It is certainly what the Act provides. That is if the building owners chose to run their own buildings and not have the benefit of retaining an expert large Real Estate Management company to do it, then they would possibly not have to the pay the minimum wage. Although the stipulation at page 21 indicates that one of these buildings, the Clark building had $800,000 in rentals in 1964.
Speaker: But it is an unusual situation, isn’t it? Where the basic employer is brought under the Act only because of his hiring a specified rental agent?
Mr. Andrew L. Frey: Well, but that’s not the only context in which that comes up. That is the least department example. If I operate a beauty parlor and I may have a very small business. But if I want to go and put that beauty parlor in Woodward and Lothrop, as part of the Woodward and Lothrop Department Store and lease space for them to do that, I then have to pay my people the minimum wage because they are then employed in Woodward and Lothrop’s enterprise. That just is the way Congress structured this Act and I think there is no way to escape the clear provisions of the Act.
Warren E. Burger: Would you conceive that that’s a much closer and much more intermittent associational basis than buildings spotted all around the different city where they have no contact with each other at all as distinguished from the beauty parlor operator who is mingling constantly with the other employees regarded by the public as same kind of a person.
Mr. Andrew L. Frey: Well, but we -- our case in no way depends on establishing any relationship between the building owners. It said -- they simply -- when they go in Arnheim and Neely and Arnheim and Neely goes out and retains John Doe to operate, it hires John Doe to operate the elevator at the building subject to whatever approval or role the building owner may pay and setting his salary and so on. It’s Arnheim who he comes to. It’s Arnheim who he submits his reference to objects them out. It’s Arnheim with whom he deals on a day to day basis. It’s Arnheim that supervises his work. Now, he’s working in Arnheim’s enterprise and that’s what Congress said was determinative of whether he is entitled to be paid the minimum wage.
Warren E. Burger: When you say he is working in Arnheim’s enterprise, that’s what this case is all about. That’s what we have to decide, isn’t it?
Mr. Andrew L. Frey: Well, perhaps so. But I think that it’s not -- I am not just bootstrapping myself because I think that Arnheim’s enterprise is the management of these buildings. And they can’t manage these buildings without these employees. And it’s for that reason that I say that these employees are necessarily involved in Arnheim’s enterprise.
Harry A. Blackmun: Well you have one fact that the beauty parlor situation that you have and that is that Arnheim hires and fires these employees themselves whereas the beauty parlor operator as I understood it just took the whole staff that she had originally have.
Mr. Andrew L. Frey: No. What I am saying in the beauty parlor example Mr. Justice Blackmun is that the beauty parlor operator may not have an enterprise, yet he -- and Woodward and Lothrop on the other hand may not be the employer of these people who work in the beauty parlor at all. And Woodward and Lothrop may have no liability to pay the minimum wage. But they are protected by the minimum wage laws because they are in Woodward and Lothrop’s enterprise and the beauty parlor operator small business, though it be has to pay them the minimum wage.
Warren E. Burger: Thank you gentleman. The case is submitted.