Court Opinion

ID: 3000664
Source: CourtListenerOpinion
Date Created: 2015-09-24 20:07:36.214866+00
Date Added: 2024-06-11T15:02:58.947035
License: Public Domain

In the
 United States Court of Appeals
              For the Seventh Circuit
                        ____________

No. 05-1628
DANIEL REYES, et al.,
                                       Plaintiffs-Appellants,
                             v.

REMINGTON HYBRID SEED COMPANY, INC., et al.,
                                       Defendants-Appellees.
                        ____________
          Appeal from the United States District Court
               for the Central District of Illinois.
     No. 02-CV-2239—Michael P. McCuskey, Chief Judge.
                        ____________
  ARGUED SEPTEMBER 26, 2005—DECIDED JULY 20, 2007
                  ____________

 Before EASTERBROOK, Chief Judge, and RIPPLE and
ROVNER, Circuit Judges.
  EASTERBROOK, Chief Judge. Braulio Zarate, Jr., re-
cruited members of the Reyes and Garcia families to
detassel and rogue corn plants in fields under the con-
trol of Remington Hybrid Seed Company. Hybrids can be
grown only if the plant’s tassel is removed so that it may
be fertilized by a different variety. Detasseling must be
done several times per season, and though machines have
been developed for this task Remington prefers hand
detasseling when that is feasible. Removing unwanted
plants (rogueing) to improve the average quality of a plot
also is best done by hand. Zarate told the Reyeses and
2                                              No. 05-1628

Garcias that they could expect to work between six and
eight weeks in Remington’s fields (for between 72 and 84
hours a week), followed by work in Remington’s plant
sheds; he promised free housing in Indiana during that
time. The families accepted the offer and traveled from
Texas to Indiana.
  Zarate furnished only dilapidated and overcrowded
housing, however, and about 20 hours’ work per week for
five weeks. He did not fully compensate everyone for
even that limited time and failed to make appropriate
payments to the Social Security system for their work.
Disappointed, the Reyeses and Garcias (collectively the
workers) filed this suit under the Fair Labor Standards
Act (FLSA), 29 U.S.C. §§ 201-19, and the Migrant and
Seasonal Agricultural Workers Protection Act (AWPA), 29
U.S.C. §§ 1801-72. Zarate defaulted; a judgment against
him for more than $100,000 has been entered. But the
workers never expected to collect much from Zarate. Their
main target is Remington, which they call a joint employer
with Zarate. The district court, however, concluded that
Zarate was the workers’ only employer. Summary judg-
ment was entered in favor of Remington and its two
senior managers, who the workers propose to hold deriva-
tively liable under 29 U.S.C. §§ 203(d), 216(b). To simplify
the exposition we disregard the managers and discuss
only the claims against Remington.
  Remington hired Zarate to provide detasseling and
rogueing services; he engaged and paid the workers. The
agreement between Remington and Zarate is a standard
form for creating an independent-contractor relation.
Zarate had no business independent of his work for
Remington and apparently lacked liquid assets. Remington
advanced the money that Zarate needed to secure workers’
compensation insurance, and several times during the
season Remington advanced funds so that Zarate could pay
his crew. Zarate did not supply any tools; even the portable
No. 05-1628                                                3

toilets came from Remington. Although the workers do
not contend that these facts spoil the independent-con-
tractor classification as a matter of Indiana law, they
may be significant as a matter of federal law, for reasons
we discuss later. The workers’ principal contention is
that it just doesn’t matter whether Zarate was an inde-
pendent contractor, because under the FLSA the term
“ ‘[e]mploy’ includes to suffer or permit to work.” 29 U.S.C.
§203(g). Remington permitted Zarate’s crew to work on its
crops and that, plaintiffs maintain, is that. The AWPA uses
the FLSA’s definition of “employ,” see 29 U.S.C. §1802(5), so
victory on this issue under either statute carries over to
the other.
  Before any of the workers arrived in Indiana, however,
and thus before the statutory definition could come into
play, they had dealings with Zarate in Texas. Plaintiffs
maintain that Remington should be liable for Zarate’s
failure to supply 70 hours’ work weekly for six to eight
weeks and to provide decent housing. This argument can’t
rest on §203(g) unless it creates liability that runs back-
ward in time, and there is no reason to read it in that
fashion. Whether Remington is bound by Zarate’s prom-
ises is wholly a matter of state law (whether of Indiana
or Texas is a subject the parties do not discuss). This is
so even if Zarate was Remington’s agent. The FLSA doesn’t
guarantee minimum hours; it provides only a floor under
the hourly rate of pay for hours actually worked. The AWPA
likewise is silent about guarantees of work. Thus the
workers’ claim rests on common law. Zarate’s contract
with Remington establishes that he lacked actual author-
ity to promise on Remington’s behalf that the workers
would receive either housing or any fixed quantity of work.
So did he have apparent authority to bind Remington? The
district judge thought not, observing that apparent
authority depends on a manifestation by the principal
and cannot be created by an agent’s own words. See
Restatement (Third) of Agency §2.03 & comment c (2006).
4                                             No. 05-1628

  Plaintiffs do not contend that the AWPA displaces these
common-law norms. It does oblige recruiters to disclose
in writing a list of things, including the hourly wage
and whether the workers will receive fringe benefits
such as housing, 29 U.S.C. §1821(a), but does not provide
that a recruiter may impose liability on the principal by
making unauthorized promises; a misbehaving agent is
on his own. Remington did not do or say anything that
would have led the workers to believe that Zarate could
make binding commitments on its behalf with respect to
housing or hours of work; until arriving in Indiana they
relied entirely on Zarate’s unilateral statements. An agent
doubtless has implied authority to make those ancillary
arrangements that are normal for implementing the task
at hand. See Opp v. Wheaton Van Lines, Inc., 231 F.3d
1060, 1064 (7th Cir. 2000). Yet plaintiffs do not assert
that free housing was necessary (Remington itself thought
not; its contract denies Zarate any power to make that
promise) or that a guaranteed number of hours is essential
or even common in recruiting agricultural workers. The
AWPA requires disclosure of the hourly wage but not a
minimum quantity of work. So Remington’s liability
depends on what it did (or permitted) after the workers
arrived at fields under its control.
  Although plaintiffs invite us to read §203(g) so broadly
that all or almost all employees of independent contractors
would become “employees” of every firm whose premises
they enter, the Supreme Court has not taken such a
perspective. True, it has read the statute broadly. See
Roland Electrical Co. v. Walling, 326 U.S. 657 (1946); cf.
United States v. Silk, 331 U.S. 704, 712 (1947) (Social
Security Act). But instead of holding that employees of
independent contractors automatically become joint
employees of the firms for which these independent
contractors supply labor, the Court has held that further
inquiry is essential. See Rutherford Food Corp. v.
No. 05-1628                                               5

McComb, 331 U.S. 722 (1947); see also Secretary of Labor
v. Lauritzen, 835 F.2d 1529 (7th Cir. 1987). One reason
for this is 29 U.S.C. §203(r), which defines the “enter-
prise” subject to the Act’s obligations in a way that ex-
cludes “the related activities performed for such enterprise
by an independent contractor.” See Tony & Susan Alamo
Foundation v. Secretary of Labor, 471 U.S. 290 (1985).
  What, then, distinguishes the situations covered by
§203(g) from those excluded by §203(r)? The Secretary of
Labor has promulgated a regulation providing, among
other things, that “[i]n determining if the farm labor
contractor or worker is an employee or an independent
contractor, the ultimate question is the economic reality of
the relationship—whether there is economic dependence
upon the agricultural employer/association or farm labor
contractor, as appropriate.” 29 C.F.R. §500.20(h)(4).
  A reference to “economic reality” tells the court to
disregard economic fantasy but does not say which aspects
of “reality” have what legal consequences. “ ‘[R]eality’
encompasses millions of facts, and unless we have a legal
rule with which to sift the material from the immaterial,
we might as well examine these facts through a kaleido-
scope.” Lauritzen, 835 F.2d at 1539 (concurring opinion).
The reference to “economic dependence” is scarcely more
helpful. Thousands of employers compete for the services
of agricultural workers; when deciding whether to accept
Zarate’s offer rather than someone else’s, these workers
were not “dependent” on Remington. Once they arrived
in Indiana they were “dependent” in the sense that they
relied on Zarate (and perhaps on Remington) to fulfil the
deal (as both the travel and the work precede payment).
They had sunk costs that may have led them to accept
substandard housing and toilet facilities rather than
endure transitional unemployment during a search for
other work. This difference between the ex ante and ex post
situations is true of all labor, however; how can it help us
6                                              No. 05-1628

to determine whether to disregard a given independent
contractor?
  The regulation lists eight considerations such as
“[w]hether the agricultural employer/association has the
power, either alone or through control of the farm labor
contractor to direct, control, or supervise the worker(s) or
the work performed (such control may be either direct or
indirect, taking into account the nature of the work
performed and a reasonable degree of contract perfor-
mance oversight and coordination with third parties)”. 29
C.F.R. §500.20(h)(5)(iv)(A). Another of the factors is “the
degree of permanency and duration of the relationship
at issue”. Id. at (iv)(C).
  The district court turned to these factors, concluded that
three favor the workers and five favor Remington, and
granted judgment for Remington. A score of 5 to 3 decides
a baseball game, but this regulation does not work that
way. It declares: “The factors set forth in paragraphs
(h)(5)(iv)(A) through (G) of this section are illustrative
only and are not intended to be exhaustive; other factors
may be significant and, if so, should be considered, depend-
ing upon the specific circumstances of the relationship
among the parties. How the factors are weighed depends
upon all of the facts and circumstances.” 29 C.F.R.
§500.20(h)(5)(iv). What makes other factors “significant”?
The regulation does not say. How are “all of the facts and
circumstances” to be reconciled when they conflict, as they
always do? The regulation does not say.
  This is understandable in light of the regulation’s goal,
which appears to be offering a means to understand the
extent to which the main employer’s operation, and those
of the purported independent contractor, are under
“common control,” which will defeat independent-contrac-
tor status. These factors are drawn from judicial opinions,
including Rutherford Food and Lauritzen (conveniently
No. 05-1628                                                7

cited in the regulation) and repeated without evaluation
or preference. Such a regulation does nothing more than
provide a frame of reference, reducing counsel’s need to
conduct research without resolving any concrete dispute.
This regulation cannot be violated; as it lacks a rule that
one may contravene, it also lacks a rule that one may
follow. It offers a way to think about the subject and not
an algorithm. That’s why toting up a score is not enough.
  Let us go back to the statute, which says that “ ‘[e]mploy’
includes to suffer or permit to work.” This is “the broadest
definition . . . ever included in any one act.” United States
v. Rosenwasser, 323 U.S. 360, 363 n.3 (1945), quoting from
Sen. Hugo Black, the Act’s sponsor, 81 Cong. Rec. 7657
(1937). See also Nationwide Mutual Insurance Co. v.
Darden, 503 U.S. 318, 326 (1992) (the FLSA “stretches
the meaning of ‘employee’ to cover some parties who
might not qualify as such under . . . traditional agency law
principles.”).
  Rutherford Food goes into more depth about this lan-
guage than any other decision of the Supreme Court before
or since. Kaiser Packing operated a slaughterhouse. The
de-boning operation was conducted by an experienced
boner and a crew in his employ. Boning was conducted in
one room of the plant; meat arrived at the boning opera-
tion on an overhead rail. Kaiser paid Reed, the boner, by
the weight of the meat processed by his crew; Reed then
decided how much to pay the workers. (Apparently mem-
bers of the crew shared equally in these proceeds, without
regard to hours worked.) Reed did not keep time records
to show whether each worker received the minimum
wage plus any required premium pay for overtime. The
Court held that Kaiser no less than Reed was the crew’s
employer, because (a) the operation was conducted on
Kaiser’s premises; (b) boning was integral to the meat-
packing plant, which the Court viewed as one economic
8                                              No. 05-1628

unit; and (c) Reed did not have any other business. The
opinion sums up (331 U.S. at 730):
    the workers did a specialty job on the production
    line. . . . The premises and equipment of Kaiser
    were used for the work. The group had no business
    organization that could or did shift as a unit from
    one slaughterhouse to another. The managing
    official of the plant kept close touch on the opera-
    tion. While profits to the boners depended upon
    the efficiency of their work, it was more like
    piecework than an enterprise that actually de-
    pended for success upon the initiative, judgment or
    foresight of the typical independent contractor.
  Everything the Court said about boning at Kaiser is true
about detasseling and rogueing at Remington. Detasseling
is a specialty job in an agricultural operation that in-
cludes additional steps to produce hybrid corn. Zarate
had no business organization that he could shift from one
place to another; he put together a crew for Remington
alone. Zarate’s workers took instruction from him but
followed work rules that Remington laid down. They
started at Remington’s headquarters with a briefing about
pesticide safety. Remington supplied the tools (and the
outhouses). Remington posted supervisors in the fields to
inspect the work and tell the crew when the job had to be
re-done. Just as in Rutherford Food, a firm hired a single
person to supply a labor force rather than a defined
product (such as a working elevator or a legal brief). And
the result, as in Rutherford Food, was a single operation
under “common control” (§203(s)) rather than a distinct
activity—for example, plumbing repairs—conducted by
an independent contractor who appears, does a discrete
job, and leaves again.
  Every employer—Zarate no less than Remington—has
the same duties under the FLSA and AWPA. The rule of
No. 05-1628                                               9

liability won’t matter when the number of parties is small
and no one is judgment-proof. See R.H. Coase, The Prob-
lem of Social Cost, 3 J.L. & Econ. 1 (1960). If an independ-
ent contractor is a solvent business, then the workers are
protected by that contractor’s incentive to follow the law
(for violations could cripple the business) and his ability
to pay damages if he does not. The firm that hires the
contractor pays up front for the costs of compliance. If
Zarate had been solvent, Remington would have had to
offer him enough that he could pay all of the workers’
wages (including the minimum wage and any overtime
premium), cover the costs of fringe benefits such as
housing, and still be able to make a profit. But when a
contractor has no business or personal wealth at risk, he
may be tempted to stiff the workers (as Zarate did), and
then treating the principal firm as a separate employer is
essential to ensure that the workers’ rights are honored.
(This is not to say that §203(d) and the regulation are
limited to situations in which the “independent contractor”
is thinly capitalized; our point, rather, is that this is
when they matter most.)
  If everyone abides by the law, treating a firm such as
Remington as a joint employer will not increase its costs.
Recall that it must pay any labor contractor enough to
cover the workers’ legal entitlements. Only when it hires
a fly-by-night operator, such as Zarate, or one who
plans to spurn the FLSA (as Zarate may have thought he
could do), is Remington exposed to the risk of liability on
top of the amount it has agreed to pay the contractor. And
there are ways to avoid this risk: either deal only with
other substantial businesses or hold back enough on the
contract to ensure that workers have been paid in full.
  Holdbacks are standard in the construction business. A
general contractor (or project owner) that hires a small,
thinly capitalized subcontractor to do a specialized job
such as electrical work or plumbing will not make the
10                                              No. 05-1628

final payment until the subcontractor demonstrates that
it has fully compensated its own workers. That practice
grew up in part because construction workers may ob-
tain a lien on the project; Zarate’s crew did not have a lien
on the hybrid corn. But holdbacks, sometimes accom-
panied by bonds that put reliable insurers behind the
family-owned electrical subcontractors, are equally
available to firms outside the construction business. We
asked at oral argument why Remington had not retained
enough to ensure that Zarate’s workers were paid and all
federal taxes withheld and remitted. The answer might
have been that Remington knew that Zarate was illiquid,
so holdbacks would have rendered him bankrupt (that’s
why Remington was advancing money rather than using
retainages). But the actual answer was that Remington’s
lawyer had never heard of holdbacks and performance
bonds. Remington may have received bad legal advice, but
as between Remington and the workers Remington is in
much the superior position to ensure Zarate’s compliance
with the FLSA and AWPA.
  Rutherford Food requires judgment in the workers’
favor under the FLSA. None of the (few) factual disputes is
material; everything we have mentioned in this opinion
is uncontested and is enough to resolve the main
issues—though questions about damages remain to be
decided on remand. It is unclear how much what Zarate
paid the plaintiff fell short of the minimum wage due
under the FLSA.
  Because the AWPA and FLSA use the same definition of
“employ,” Remington must be deemed the workers’ em-
ployer for events that occurred in the fields under its
management or in its offices. The workers contend that
Remington exposed them to pesticides without proper
training or equipment, failed to post required notices,
supplied substandard housing, and failed to provide
sanitary facilities that met minimum standards. Claims
No. 05-1628                                              11

relating to pesticides, notices, and sanitation arise from
events on the premises and thus are covered by the
statutory definition. See also 29 U.S.C. §1821(d) (obliga-
tion to keep records of hours worked), §1822(a) (obligation
to pay all wages owed by contract), §1822(c) (obligation to
keep other promises); §1855(a) (obligation not to retali-
ate against those who assert their rights under the AWPA).
  Plaintiffs’ AWPA claim relating to housing was properly
dismissed by the district court, however. Remington did
not provide the workers’ housing, all of which was well off
its premises—and, as we have already mentioned, it
obtained from Zarate a promise that he would not pro-
vide housing either. (Zarate’s state certification as an
agricultural labor contractor was limited; he lacked legal
authority to supply the crew with dwelling quarters.)
  Although the workers say that Remington had to have
appreciated that Zarate exceeded his authority, because
Remington provided a bus that (at least for the first week)
picked the workers up and transported them to the fields,
this shows only that Remington knew that the workers
had housing. Remington’s deal with Zarate was that he
would pay the crew enough that the workers could rent
their own rooms. To observe that the workers were living
indoors rather than on the streets is not to observe that
Zarate rather than the workers themselves had dealt
with landlords to secure space. None of the plaintiffs
contends that he told Remington that Zarate had engaged
and paid for the housing; there is therefore no dispute on
that score requiring a trial.
  As for the notices required by the AWPA: again there is no
material dispute. Remington’s witnesses testified (by
deposition or affidavit in discovery) that it had posted
everything the law requires, and more. Several plaintiffs
conceded in discovery that they had seen these notices. A
few plaintiffs said in their depositions that they could not
12                                              No. 05-1628

recall seeing the notices. Scattered claims of “I can’t recall
whether X occurred” do not create a material dispute,
when everyone who can recall agrees that X did occur.
  So what remain for decision are the damages for any
violations of the FLSA (some workers may have been fully
paid; the shortfall for others must be calculated) and
further proceedings to determine whether the pesticide
protocols and sanitation were deficient—and, if so, the
damages to which the plaintiffs are entitled under these
and the other portions of the AWPA that we have identified
as requiring additional inquiry. The judgment of the
district court is vacated, and the case is remanded for
further proceedings on these subjects; otherwise the
judgment is affirmed.

A true Copy:
      Teste:

                        ________________________________
                        Clerk of the United States Court of
                          Appeals for the Seventh Circuit

                   USCA-02-C-0072—7-20-07