Williams v. Jacksonville Terminal Company Pickett/Opinion of the Court
The question presented by both these cases is whether a railroad company operating a terminal subject to the Railway Labor Act, 45 U.S.C.A. § 181 et seq. and the Fair Labor Standards Act of 1938, 29 U.S.C.A. § 201 et seq., is required by those statutes, in the absence of a negotiated agreement respecting wages, to pay 'red caps' a fixed minimum hourly wage irrespective of the tips from passengers received by the red caps, or whether an accounting and guarantee plan which leaves all tips with the red caps and assures them that each will receive at least the minimum wage is valid.

The Fair Labor Standards Act is not intended to do away with tipping. Nor does it appear that Congress intended by the general minimum wage to give the tipping employments an earnings-preference over the non-service vocations. The petitioners do not dispute the railroad's contention that, during the entire period, each red cap received as earnings-cash pay plus tips-a sum equal to the required minimum wage. Nor is there denial of increased pay to the red caps on account of the minimum wage guarantee of the challenged plan as compared with the former tipping system. The guarantee also betters the mischief of irregular income from tips and increases wage security. The desirability of considering tips in setting a minimum wage, that is whether tips from the viewpoint of social welfare should be counted as part of that legal wage, is not for judicial decision.  We deal here only with the petitioners' assertion that the wages Act requires railroads to pay the red caps the minimum wage without regard to their earnings from tips.

The cases have a common background. Prior to October 24, 1938, the effective date of the Fair Labor Standands Act, the red caps at the terminals in question performed their familiar tasks without reward other than the tips of the passengers, and although subject to considerable supervision by the terminals  were not officially considered employees. On September 29, 1938, the Interstate Commerce Commission, acting under § 1 of the Railway Labor Act, 45 U.S.C. § 151, 45 U.S.C.A. § 151, ruled that red caps in cities of over 100,000 population were employees within that Act. 229 I.C.C. 410.

Subsequent to that ruling the parallel series of events culminating in the two controversies now before us, while differing in details, followed the same general pattern. In No. 112 nothing further occurred until the Fair Labor Standards Act became effective. At that time the Jacksonville Terminal, in supposed compliance with the Act, began paying its red caps in cash the amount by which the statutory minimum wage exceeded each red cap's receipts in tips. This system in some form was used at the terminal until July 1, 1940.

In the belief that the Act required payment of the minimum wage wighout deduction of tips, the red caps, by their representative, Williams, brought an action against the terminal in United States District Court for the recovery of unpaid minimum wages between October 24, 1938, and July 1, 1940, and an equal additional amount as liquidated damages. Jurisdiction of the action was conferred by § 24(8) of the Judicial Code, 28 U.S.C. § 41(8), 28 U.S.C.A. § 41(8), and by § 16(b) of the Fair Labor Standards Act, 29 U.S.C. § 216(b), 29 U.S.C.A. § 216(b).  The terminal answered and moved for summary judgment. Upon consideration of the exhibits, depositions, and stipulated facts the trial judge granted the motion, and the circuit court of appeals affirmed. 5 Cir., 118 F.2d 324. Because of the importance of the question whether the tips could be treated as payment of the statutory wage, the petition of the red caps' representative for certiorari was granted. 314 U.S. 590, 62 S.Ct. 64, 86 L.Ed. -.

Section 6 of the Act requires every employer to pay each employee engaged in interstate commerce wages at the prescribed rates per hour.  Violation of that requirement renders the employer liable for the unpaid wages and for liquidated damages recoverable in an action by the employees' designated agent or representative.  Since the terminal admitted by stipulation that Williams was the red caps' authorized representative ad litem, that the red caps were its employees, and that they were engaged in interstate commerce, the sole issue was whether the payment required by § 6 of the Act had been made.

The evidence, taken most favorably to the red caps, discloses the following. About October 24, 1938, the effective date of the Act, the terminal issued a written notice to each red cap:

'Jacksonville, Florida,

'Oct. 24th, 1938.

'To Red Cap ...,

'Jacksonville Terminal Company:

'In view of the requirements of the Fair Labor Standards Act, effective October 24, 1938, and in consideration of your hereafter engaging in the handling of hand beggage and traveling effects of passengers or otherwise assisting them at or about stations or destinations, it will be necessary that you report daily to the undersigned the amounts received by you as tips or remuneration for such services.

'The carrier hereby guarantees to each person continuing such service after October 24, 1938 compensation which, together with and including the sums of money received as above provided, which will not be less than the minimum wage provided by law.

'You are privileged to retain subject to their being credited on such guarantee all such tips or remuneration received by you except such portion thereof as may be required of you by the undersigned for taxes of any character imposed upon you by law and collectible by the undersigned.

'All the matters above referred to are subject to the right of the carrier to determine from time to time the number and identity of persons to be permitted to engage in said work and the hours to be devoted thereto, to establish rules and regulations relating to the manner, method and place of rendition of such service, and the accounting required.

'Jacksonville Terminal Company.

'By J. L. Wilkes,

'President-General Manager.' On November 3rd L. L. Wooten, the General Chairman of the Brotherhood of Railway and Steamship Clerks, received the red caps' designation of the Brotherhood as their bargaining representative. November 4th he saw a copy of the terminal's notice. In the meantime he had written Wilkes on October 25th that in view of the I.C.C. decision he considered the red caps covered by the collective labor agreement of February 1, 1937, between the Brotherhood and the terminal, and within the union's jurisdiction. After the designation the Brotherhood, continually protesting the invalidity of the existing accounting and guarantee system,  attempted negotiations with the Terminal for a red cap contract. Eventually, June 16, 1939, a contract limited to hours of service and working conditions was signed. Meanwhile the red caps continued their accustomed activities, made the reports, kept the tips, and accepted the sums proffered them by the terminal. At first no receipts for wage payments were required at Jacksonville; later receipts were introduced expressly reserving the red caps' right to sue for additional amounts under the Act.  On July 1, 1940, the terminal inaugurated a new system of charging passengers ten cents per parcel for red cap service, and paying the red caps an hourly wage. An agreement with the Brotherhood reducing this arrangement to writing and ending the controversial accounting and guarantee system was signed August 9th.

No. 1023 is a similar proceeding brought against the Union Terminal Company by Pickett, the agent of forty-five red caps working in the Dallas terminal. At the trial the evidence, consisting of an agreed statement of facts, some exhibits, and some uncontradicted testimony, indicated, and the trial judge found, that the red caps were employees of the terminal and were engaged in interstate commerce. He further found that prior to the Fair Labor Standards Act the red caps were paid by the tips of the public, that no other contract was made on or since October 22, 1938, and that the question of tips as wages was still an open one. On the ground that tips of the public were not wages paid by the employer, he gave judgment in favor of the red caps. The circuit court of appeals reversed, 5 Cir., 118 F.2d 328, and certiorari was denied. 313 U.S. 591, 61 S.Ct. 1115, 85 .l.Ed. 1546. Because of the importance of the issues presented, on petition for rehearing certiorari was granted. 314 U.S. 704, 62 S.Ct. 55, 86 L.Ed. --.

Since the basic elements of Pickett's case are no longer in dispute, the crucial issue again is whether the minimum wages were paid. It was shown that after the I.C.C. ruling that red caps were employees, the red caps notified the Dallas terminal on October 11, 1938, that the Board of Adjustment of the Brotherhood of Railway and Steamship Clerks was their authorized representative under the Railway Labor Act, and Pickett, as General Chairman of the Board, asked for a conference in order to negotiate an agreement. On October 22d, the terminal delivered to each red cap a letter, signed by Buckner, the terminal's vice-president and general manager, in the same terms as the notice used at the Jacksonville terminal.

Two days later on October 24th, the effective date of the wage law, Pickett, on behalf of the red caps and at their request, protested this proposal in a letter to Buckner,  concluding:

'This letter is formal notice to the carrier, made for and on behalf of each employee concerned as a protest against the method proposed by the carrier to meet its obligation under the said law, and since it appears that the carrier has acted in the premise without authority of law or upon order of the Administrator, we are accordingly filing this notice of protest, for the reasons set forth herein.'

No action was ever taken to recall or revoke the letter of protest and the individual red caps never told the company that they accepted the terms of its letter of October 24th.

On December 26th, 1938, Pickett submitted to Buckner a proposed general agreement covering the hours of service and working conditions of the red caps, but not their wages. After protracted consideration of the matter by both the terminal and the union, Buckner wrote Pickett on December 6, 1939, as follows:

'As I told you and as you know, this case as to whether or not the railroads will be allowed credit for tips received up to $2.40 per day, is in the Court and as soon as same is decided we will be glad to negotiate an agreement with the Clerks Union, of which you are the General Chairman for this Company.'

On January 1, 1940, although the wage dispute was not yet settled, a working agreement of the limited type Pickett had proposed was signed. On March 6, 1940, the accounting and guarantee system was abandoned by the terminal, presumably for the ten cent per parcel charge, and the following day this action was commenced. Throughout the entire preceding period the red caps had performed their usual duties, had filed slips showing the hours worked and, except for a brief period, the tips received, had kept the tips, and had accepted the money paid by the terminal pursuant to its guarantee. Never, however, was the demand for additional pay abandoned, and no red caps were discharged for refusing to expressly consent to the terminal's action.

Effect of Terminals' Notice. The terminal companies instituted the accounting and guarantee system by the written notice, quoted above, to each red cap as the Act became effective. It is accepted here by all parties that, both prior and subsequent to the notice, the red caps were employees of the railroads  engaged in a service 'so closely related to physical transportation' in interstate commerce as to come under section 6(1) of the Interstate Commerce Act, 49 U.S.C.A. § 6(1). Stopher v. Cincinnati Union Terminal, 246 I.C.C. 41, 45. As such employees, before the notice they were permitted by agreement to come upon the terminal property, render supervised service to the companies' customers and receive pay for performing this portion of the terminals' transportation business by retaining all tips received. This employment of the red caps was at will and subject to the employers' conclusions as to the desirability of continuing their employment. In businesses where tipping is customary, the tips, in the absence of an explicit contrary understanding, belong to the recipient. Polites v. Barlin, 149 Ky. 376, 149 S.W. 828, 41 L.R.A.,N.S., 1217; Zappas v. Roumeliote, 156 Iowa 709, 137 N.W. 935; Manubens v. Leon, (1919) 1 K.B. 208. Where, however, an arrangement is made by which the employee agrees to turn over the tips to the employer, in the absence of statutory interference, no reason is perceived for its invalidity.  The employer furnishes the facilities, supervises the work and may take the compensation paid by travelers for the service, whether paid as a fixed charge or as a tip. A tip to a red cap is compensation for service. It is customarily given and always expected when such service is rendered.

With the effective date of the Act the employers became bound to pay a minimum wage to their employees, the red caps. Accordingly the latter were notified that future earnings from tips must be accounted for and considered as wages. Although continuously protesting the authority of the railroads to take over the tips, the red caps remained at work subject to the requirement. Such protests were unavailing against the employers. Although the new plan was not satisfactory to the red caps, the notice transferred to the railroads' credit so much of the tips as it affected. By continuing to work, a new contract was created. This result follows because the employer, after notice, may keep all earnings arising from the business. Labatt, Master & Servant, (2d ed.) Vol. 5, § 2037; Restatement, Agency, § 388. If the red cap did not accept the terms offered he would be a volunteer and not an employee. As a volunteer he could probably keep his tips, but would not be entitled to a contractual wage. Restatement, Contracts, § 55. No such gift of services to the terminals is here claimed.

Railway Labor Act. Petitioners assert that whatever may be the authority to issue orders for the accounting and guarantee plan these railroads could not validly exercise the power because of the Railway Labor Act. 48 Stat. 1185. The applicable provisions are quoted in the note below. 

The object of the Act is to avoid interruption to commerce through the promotion of free association among employees for the purpose of settling disputes between them and the carriers. Sec. 2. To assure continued operations, changes by the carriers in agreements reached through collective bargaining, pending negotiations, are prohibited. Independent individual contracts are not affected by the Act. It is to be noted that section 2, First to Sixth, inclusive, relied upon by petitioners is largely concerned with the organization of employees, freedom from carrier interference in such organization, the choice of representatives for collective bargaining and the manner of entering into and carrying on such negotiations. Section 2, Seventh, note 11, supra, forbids changes of pay or working conditions of employees 'as a class as embodied in agreements' except as provided in section 6, note 11 supra. The crucial section 6 is phrased so as to leave no doubt that only agreements, reached after collective bargaining were covered. Section 2, Seventh, first appeared in the 1934 amendments to the Railway Labor Act and section 6 was likewise then amended by adding 'in agreements' to that section's former requirement of notice of 'an intended change affecting rates of pay, rules, or working conditions.' Compare Sec. 6, 44 Stat. 582, with Sec. 6, 48 Stat. 1197. These additions point squarely to limiting the bargaining provisions of the Railway Labor Act to collective action. 

In No. 112, the Jacksonville case, petitioners find such an agreement in the contract of February 1, 1937, the 'Revised Agreement Between the Jacksonville Terminal Company and Employees Herein Named Represented by the Brotherhood of Railway and Steamship Clerks, Freight Handlers, Express and Station Employees.' The scope of that agreement is limited to the hours of service and working conditions of certain groups of employees in none of which do red caps appear.  Wages are not covered. When the contract was negotiated, the red caps were not thought of as employees engaged in transportation service.  Evidently the red caps only authorized the contracting Brotherhood to represent them after the notice.  Neither party to the agreement took any steps in regard to the red caps under the 1937 agreement until after the disputed plan was instituted. Thereafter, when the Brotherhood first claimed that the red caps were covered by the 1937 Clerks' contract, the suggestion was promptly repudiated in writing by the terminal company. Finally, after the authorization, the Brotherhood did immediately begin negotiations for the red caps and ultimately secured a collective contract, June 16, 1939, which covered hours of service and working conditions and which embodied much that was in the Clerks' contract. Subsequently a wage agreement of August 9, 1940, became a part of this earlier working agreement. While no finding as to its coverage appears in the record, we are clear from the 1937 contract, its practical application by the parties and the new arrangements ultimately concluded that the red caps were not within its terms.

A different approach to this particular problem is made by petitioner in No. 1023, the Union Terminal case. The Dallas red caps do not rest their argument upon any collective agreement. Their contention is that since the Brotherhood of Clerks, their then accredited representative for the purposes of the Railway Labor Act, had asked the terminal on October 11, 1938, for a conference to negotiate an agreement for working conditions and other related subjects, the subsequent act of the terminal in establishing the accounting and guarantee plan violated the Railway Labor Act and was therefore ineffective to change the existing arrangements by which the red caps retained the tips as their own. This, it is urged, would result in a recovery of the minimum wage without credit to the carrier for the tips. Petitioner relies upon the first six paragraphs of section 2 of the Railway Labor Act, 48 Stat. 1186, 1187, and particularly section 2, First, note 11, supra, placing the duty on the carrier to 'make * * * agreements * * * in order to avoid any interruption * * * to the operation of any carrier.'

The Brotherhood and the terminal did negotiate and finally concluded, effective January 1, 1940, their first collective working agreement covering the red caps. Because the carrier was, by the act, placed under the duty to exert every effort to make collective agreements, it does not follow that pending those negotiations, where no collective bargaining agreements are or have been in effect, the carrier cannot exercise its authority to arrange its business relations with its employees in the manner shown in this record. As we have stated in discussing the Jacksonville case, the Railway Labor Act dealt with collective bargaining agreements only and not with the employment of individuals. This conclusion is pertinent in considering the effect of the Dallas request for collective bargaining.

The institution of negotiations for collective bargaining does not change the authority of the carrier. The prohibitions of section 6 against change of wages or conditions pending bargaining and those of section 2, Seventh, are aimed at preventing changes in conditions previously fixed by collective bargaining agreements. Arrangements made after collective bargaining obviously are entitled to a higher degree of permanency and continuity than those made by the carrier for its own convenience and purpose.

Minimum Wages. We stated in the discussion of the notice given by the terminals to their employees that its effect was to transfer the tips covered by the notice to the credit of the terminals. But this terminal credit in the hands of the red caps, assert petitioners in both cases, cannot be utilized as cash paid to the employee by the employer.  It is urged that the terminals have worked out a scheme to largely relieve themselves of wage payments to red caps and to let travelers pay 'amounts which the law requires should be paid by the employer itself' and that the accounting difficulties make the plan not only undesirable but contrary to the policy of the statute as likely to foster false reports of tips by red caps in order to reach the minimum and save the terminals from any guarantee payments.

Section 6, 29 U.S.C.A. § 206, prescribed that 'Every employer shall pay to each of his employees * * * wages at the following rates * * *.' Wages are defined only by the direction to include in that word the 'reasonable cost * * * to the employer of furnishing such employee with board, lodging, or other facilities * * *.' What the word 'wages' connotes in addition to the items specified, we must deduce from other provisions of the act in the light of its legislative purpose. Obviously 'pay-wages' ordinarily means for the employer to hand over money or orders convertible into money at face. The absence of the word 'tip' from the statutory extension of the ordinary meaning of wages makes it quite clear that not every gratuity given a worker by his employer's customer is a part of his wages. If Congress had had it in mind to include in wages all tips, the words were readily available for expressing the thought. Such a conclusion, however, does not foreclose a decision that in certain specific situations the so-called tips may be in reality the employee's compensation for his services and therefore wages.

The diverse interests of employers and employees have variously influenced legislators to include, exclude, or ignore tips in the specification of wage items in enactments where the wage base was important. For example, the Longshoremen's and Harbor Workers' Compensation Act,  which also applies to employment in the District of Columbia,  specifically includes tips for computation of compensation. Workmen's compensation acts are usually construed as including tips in wages or remuneration, with a tendency to make the inclusion of tips as wages turn upon the contemplation of the parties, express or implied, in wage contracts.  State minimum wage acts are generally silent as to tips.  Under the N.R.A. the inclusion of tips in wages on a plan similar to the accounting and guarantee plan, here involved, was proposed.  In the approved codes tips were not expressly credited toward wages, but the relatively lower minimums for those customarily receiving tips may indicate that tips were given weight although not expressly mentioned.  The federal social security laws define wages for old age benefits  and social security taxes  as 'all remuneration for employment, including the cash value of all remuneration paid in any medium other than cash.' The regulations of the Social Security Board state, 'The following are excluded from the computation of 'wages': * * * Tips or gratuities paid directly to an employee by a customer of an employer, and not in any way accounted for by the employee to the employer.'  The Railroad Retirement Act, § 1(h),  and the Railroad Unemployment Insurance Act, § 1(i)  exclude tips from 'compensation' within the meaning of their provisions. The Railroad Retirement Board has determined that all earnings of the red caps, accounted for to the carriers under the plan here in question, are 'money remuneration' and therefore 'compensation' under the acts and not forbidden 'tips'.  We can therefore examine the Fair Labor Standards Act with the safe assumption that the word 'wages' has no fixed meaning either including or excluding gratuities.

To interpret 'pay-wages' as limited to money passing from the terminal to the red cap would let construction of an important statute turn on a narrow technicality. It, of course, can make no practical difference whether the red caps first turn in their tips and then receive their minimum wage or are charged with the tips received up to the minimum wage per hour. 

Congress approached the problem of improving labor conditions by the establishment of a minimum wage in certain industries. It required that workers in these industries receive a compensation at least as great as that fixed by the Act. Except for that requirement the employer was left free, in so far as the Act was concerned, to work out the compensation problem in his own way. Other courts are in accord with our view. Harrison v. Kansas City Terminal Ry. Co., D.C., 36 F.Supp. 434; Harrison v. Terminal R.R. Ass'n of St. Louis, 8 Cir., 126 F.2d 421; Ryan v. Denver Union Terminal Co., 10 Cir., 126 F.2d 782.

The other arguments of petitioner have been considered but we find only two that require mention.

First. It is said that if the carriers take credit for the tips as compensation for red cap service, it would be in effect a charge by the terminals for a transportation service, and therefore, since the terminals have filed no covering tariff, a violation of § 6(7) of the Interstate Commerce Act, 34 Stat. 587, 49 U.S.C. § 6(7), 49 U.S.C.A. § 6(7).  Furthermore, petitioners assert section 2 of the same act, prohibiting special rates, is violated because by the carrier's regulations the indigent receive the red cap service without charge. Neither contention, if true, would avail petitioners. Sections 8, 9 and 10 of the Interstate Commerce Act 49 U.S.C.A. §§ 8-10, provide for damages to persons injured by unlawful acts and punishment of the carrier or its agents. There is nothing in the sections to indicate that petitioners would have a right of action. 

Second. It is urged in the Dallas case that the terminal from March 1, 1939, to October 15, 1939, voluntarily abandoned the accounting and guarantee system in favor of the old system of non-accountability for tips. We find nothing in the modified accounting practice during that period to support such a conclusion. Rather the terminal seems only to have simplified its bookkeeping and partially relieved the red caps of clerical duties. Prior to March 1, 1939, and after October 15th, the red caps had to make a daily report of both hours worked and tips received, regardless of amount, on a printed time slip furnished by the terminal for the purpose. Between March 1st and October 15th, the time slips furnished by the company contained no provision for reporting tips, but only for reporting hours.  But the red caps were instructed that should any of them during any work period receive in tips less than 25 cents per hour, the statutory minimum hourly wage, he should report it to the terminal and the terminal would pay the difference between the tips received and the minimum wage. Thus the only effect of the change was to eliminate the superfluous reporting of tips equalling or exceeding the minimum wage-a step toward more efficient administration, not elimination, of the accounting and guarantee system.

Affirmed.

Mr. Justice ROBERTS took no part in the consideration or decision of this case.

Mr. Justice BLACK, dissenting, with whom Mr. Justice DOUGLAS and Mr. Justice MURPHY concur.

I think the judgments should be reversed. It appears to me that the question in these cases is: Upon whom does the statute impose the duty of paying a minimum wage, the employer or someone else? There is no ambiguity in the congressional mandate that 'Every employer shall pay to each of his employees * * * wages * * * not less than 30 cents an hour.' I am unable to agree that tips given to red caps by travellers are 'wages' paid to the red caps by the railroad.

The employers here could have openly charged a fee for the services performed by red caps. It appears that they have now adopted such a system. It is said that there is no practical difference between a system under which the railroads openly impose a charge on the public and one under which the red caps accept from travellers so-called tips, treated by the railroad as a part of the red caps' wages. Generally, the traveller who pays a railroad charge knows he is paying it to the railroad. One who gives a red cap a tip does not necessarily know that he is thereby helping the railroad to discharge its statutory duty of paying a minimum wage to its employees. The tip paying public is entitled to know whom it tips, the red cap or the railroad. A plan like that before us, which covertly diverts tips from employees for whom the giver intended them to employers for whom the giver did not intend them and to whom any kind of tip doubtless would not have been voluntarily given, seems to me to contain an element of deception. And I think that an interpretation of the F.L.S.A. which permits employers to benefit from such a plan does not accord with the meaning of the language used by Congress. 

Notes

'We next offer in evidence Plaintiff's Exhibit 'C', which is also a time slip but a little different from the one just read, and it reads:

"The Union Terminal Company. Date ... Hours on duty from ... M. to ... M., showing four of those lines.'

'And then says: 'Total hours worked' ..., and then a blank line to be signed by the Red Cap and right under it the words, 'Red Cap.'

'I call attention to the fact that on this slip there is no provision for reporting the tips.'