Congressional Regulation of Production and Industrial Relations: Antidepression Legislation

Congressional Regulation of Production and Industrial Relations: Antidepression Legislation

In the words of Chief Justice Hughes, spoken in a case decided a few days after President Franklin D. Roosevelt’s first inauguration, the problem then confronting the new Administration was clearly set forth. “When industry is grievously hurt, when producing concerns fail, when unemployment mounts and communities dependent upon profitable production are prostrated, the wells of commerce go dry.”772

National Industrial Recovery Act.—The initial effort of Congress to deal with this situation was embodied in the National Industrial Recovery Act of June 16, 1933.773 The opening section of the Act asserted the existence of “a national emergency productive of widespread unemployment and disorganization of industry which” burdened “interstate and foreign commerce,” affected “the public welfare,” and undermined “the standards of living of the American people.” To affect the removal of these conditions the President was authorized, upon the application of industrial or trade groups, to approve “codes of fair competition,” or to prescribe the same in cases where such applications were not duly forthcoming. Among other things such codes, of which eventually more than 700 were promulgated, were required to lay down rules of fair dealing with customers and to furnish labor certain guarantees respecting hours, wages and collective bargaining. For the time being, business and industry were to be cartelized on a national scale.

In A.L.A. Schechter Poultry Corp. v. United States,774 one of these codes, the Live Poultry Code, was pronounced unconstitutional. Although it was conceded that practically all poultry handled by the Schechters came from outside the State, and hence via interstate commerce, the Court held, nevertheless, that once the chickens came to rest in the Schechter’s wholesale market, interstate commerce in them ceased. The act, however, also purported to govern business activities which “affected” interstate commerce. This, Chief Justice Hughes held, must be taken to mean “directly” affect such commerce: “the distinction between direct and indirect effects of intrastate transactions upon interstate commerce must be recognized as a fundamental one, essential to the maintenance of our constitutional system. Otherwise, . . . there would be virtually no limit to the federal power and for all practical purposes we should have a completely centralized government.”775 In short, the case was governed by the ideology of the Sugar Trust case, which was not mentioned in the Court’s opinion.776

772 Appalachian Coals, Inc. v. United States, 288 U.S. 344, 372 (1933).

773 48 Stat. 195.

774 295 U.S. 495 (1935).

Agricultural Adjustment Act.—Congress’ second attempt to combat the Depression comprised the Agricultural Adjustment Act of 1933.777 As is pointed out elsewhere, the measure was set aside as an attempt to regulate production, a subject held to be “prohibited” to the United States by the Tenth Amendment.778

Bituminous Coal Conservation Act.—The third measure to be disallowed was the Guffey-Snyder Bituminous Coal Conservation Act of 1935.779 The statute created machinery for the regulation of the price of soft coal, both that sold in interstate commerce and that sold “locally,” and other machinery for the regulation of hours of labor and wages in the mines. The clauses of the act dealing with these two different matters were declared by the act itself to be separable so that the invalidity of the one set would not affect the validity of the other, but this strategy was ineffectual. A majority of the Court, speaking by Justice Sutherland, held that the act constituted one connected scheme of regulation, which, inasmuch as it invaded the reserved powers of the States over conditions of employment in productive industry, was violative of the Constitution.780 Justice Sutherland’s opinion set out from Chief Justice Hughes’ assertion in the Schechter case of the “fundamental” character of the distinction between “direct” and “indirect” effects, that is to say, from the doctrine of the Sugar Trust case. It then proceeded: “Much stress is put upon the evils which come from the struggle between employers and employees over the matter of wages, working conditions, the right of collective bargaining, etc., and the resulting strikes, curtailment and irregularity of production and effect on prices; and it is insisted that interstate commerce is greatly affected thereby. But . . . the conclusive answer is that the evils are all local evils over which the Federal Government has no legislative control. The relation of employer and employee is a local relation. At common law, it is one of the domestic relations. The wages are paid for the doing of local work. Working conditions are obviously local conditions. The employees are not engaged in or about commerce, but exclusively in producing a commodity. And the controversies and evils, which it is the object of the act to regulate and minimize, are local controversies and evils affecting local work undertaken to accomplish that local result. Such effect as they may have upon commerce, however extensive it may be, is secondary and indirect. An increase in the greatness of the effect adds to its importance. It does not alter its character.”781

775 295 U.S. at 548. See also id. at 546.

776 In United States v. Sullivan, 332 U.S. 689 (1948), the Court interpreted the Federal Food, Drug, and Cosmetic Act of 1938 as applying to the sale by a retailer of drugs purchased from his wholesaler within the State nine months after their interstate shipment had been completed. The Court, speaking by Justice Black, cited United States v. Walsh, 331 U.S. 432 (1947); Wickard v. Filburn, 317 U.S. 111 (1942); United States v. Wrightwood Dairy Co., 315 U.S. 110 (1942); United States v. Darby, 312 U.S. 100 (1941). Justice Frankfurter dissented on the basis of FTC v. Bunte Bros., 312 U.S. 349 (1941). It is apparent that the Schechter case has been thoroughly repudiated so far as the distinction between “direct” and “indirect” effects is concerned. Cf. Perez v. United States, 402 U.S. 146 (1971). See also McDermott v. Wisconsin, 228 U.S. 115 (1913), which preceded the Schechter decision by more than two decades.

The NIRA, however, was found to have several other constitutional infirmities besides its disregard, as illustrated by the Live Poultry Code, of the “fundamental” distinction between “direct” and “indirect” effects, namely, the delegation of standardless legislative power, the absence of any administrative procedural safeguards, the absence of judicial review, and the dominant role played by private groups in the general scheme of regulation.

777 48 Stat. 31 (1933).

778 United States v. Butler, 297 U.S. 1, 63–64, 68 (1936).

779 49 Stat. 991 (1935).

780 Carter v. Carter Coal Co., 298 U.S. 238 (1936).

781 298 U.S. at 308–09.

Railroad Retirement Act.—Still pursuing the idea of protecting commerce and the labor engaged in it concurrently, Congress, by the Railroad Retirement Act of June 27, 1934,782 ordered the compulsory retirement of superannuated employees of interstate carriers, and provided that they be paid pensions out of a fund comprising compulsory contributions from the carriers and their present and future employees. In Railroad Retirement Board v. Alton R.R.,783 however, a closely divided Court held this legislation to be in excess of Congress’ power to regulate commerce and contrary to the due process clause of the Fifth Amendment. Said Justice Roberts for the majority: “We feel bound to hold that a pension plan thus imposed is in no proper sense a regulation of the activity of interstate transportation. It is an attempt for social ends to impose by sheer fiat noncontractual incidents upon the relation of employer and employee, not as a rule or regulation of commerce and transportation between the States, but as a means of assuring a particular class of employees against old age dependency. This is neither a necessary nor an appropriate rule or regulation affecting the due fulfillment of the railroads’ duty to serve the public in interstate transportation.”784

782 48 Stat. 1283 (1934).

783 295 U.S. 330 (1935).

784 295 U.S. at 374.

Chief Justice Hughes, speaking for the dissenters, contended, on the contrary, that “the morale of the employees [had] an important bearing upon the efficiency of the transportation service.” He added: “The fundamental consideration which supports this type of legislation is that industry should take care of its human wastage, whether that is due to accident or age. That view cannot be dismissed as arbitrary or capricious. It is a reasoned conviction based upon abundant experience. The expression of that conviction in law is regulation. When expressed in the government of interstate carriers, with respect to their employees likewise engaged in interstate commerce, it is a regulation of that commerce. As such, so far as the subject matter is concerned, the commerce clause should be held applicable.”785 Under subsequent legislation, an excise is levied on interstate carriers and their employees, while by separate but parallel legislation a fund is created in the Treasury out of which pensions are paid along the lines of the original plan. The constitutionality of this scheme appears to be taken for granted in Railroad Retirement Board v. Duquesne Warehouse Co.786

National Labor Relations Act.—The case in which the Court reduced the distinction between “direct” and “indirect” effects to the vanishing point and thereby placed Congress in the position to regulate productive industry and labor relations in these industries was NLRB v. Jones & Laughlin Steel Corp.787 Here the statute involved was the National Labor Relations Act of 1935,788 which declared the right of workers to organize, forbade unlawful employer interference with this right, established procedures by which workers could choose exclusive bargaining representatives with which employers were required to bargain, and created a board to oversee all these processes.789

785 295 U.S. at 379, 384.

786 326 U.S. 446 (1946). Indeed, in a case decided in June, 1948, Justice Rutledge, speaking for a majority of the Court, listed the Alton case as one “foredoomed to reversal,” though the formal reversal has never taken place. See Mandeville Island Farms v. American Crystal Sugar Co., 334 U.S. 219, 230 (1948). Cf. Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 19 (1976).

787 301 U.S. 1 (1937). A major political event had intervened between this decision and those described in the preceding pages. President Roosevelt, angered at the Court’s invalidation of much of his depression program, proposed a “reorganization” of the Court by which he would have been enabled to name one new Justice for each Justice on the Court who was more than 70 years old, in the name of “judicial efficiency.” The plan was defeated in the Senate, in part, perhaps, because in such cases as Jones & Laughlin a Court majority began to demonstrate sufficient “judicial efficiency.” See Leuchtenberg, The Origins of Franklin D. Roosevelt’s ‘Court-Packing’ Plan, 1966 SUP. CT. REV. 347 (P. Kurland ed.); Mason, Harlan Fiske Stone and FDR’s Court Plan, 61 YALE L. J. 791 (1952); 2 M. PUSEY, CHARLES EVANS HUGHES 759–765 (1951).

788 49 Stat. 449, as amended, 29 U.S.C. § 151 et seq.

789 The NLRA was enacted not only against the backdrop of depression, although obviously it went far beyond being a mere antidepression measure, but Congress could as well look to its experience in railway labor legislation. In 1898, Congress passed the Erdman Act, 30 Stat. 424, which attempted to influence the unionization of railroad workers and facilitate negotiations with employers through mediation. The statute fell largely into disuse because the railroads refused to mediate. Additionally, in Adair v. United States, 208 U.S. 161 (1908), the Court struck down a section of the law outlawing “yellow-dog contracts,” by which employers exacted promises of workers to quit or not to join unions as a condition of employment. The Court held the section not to be a regulation of commerce, there being no connection between an employee’s membership in a union and the carrying on of interstate commerce. Cf. Coppage v. Kansas, 236 U.S. 1 (1915).

The Court did uphold in Wilson v. New, 243 U.S. 332 (1917), a congressional settlement of a threatened rail strike through the enactment of an eight-hour day and a time-and-a-half for overtime for all interstate railway employees. The national emergency confronting the Nation was cited by the Court but with the implication that the power existed in more normal times, suggesting that Congress’ powers were not as limited as some judicial decisions had indicated.

Congress’ enactment of the Railway Labor Act in 1926, 44 Stat. 577, as amended, 45 U.S.C. § 151 et seq., was sustained by a Court decision admitting the connection between interstate commerce and union membership as a substantial one. Texas & N.L.R. Co. v. Brotherhood of Railway Clerks, 281 U.S. 548 (1930). A subsequent decision sustained the application of the Act to “back shop” employees of an interstate carrier who engaged in making heavy repairs on locomotives and cars withdrawn from service for long periods, the Court finding that the activities of these employees were related to interstate commerce. Virginian Ry. v. System Federation No. 40, 300 U.S. 515 (1937).

The Court, speaking through Chief Justice Hughes, upheld the Act and found the corporation to be subject to the Act. “The close and intimate effect,” he said, “which brings the subject within the reach of federal power may be due to activities in relation to productive industry although the industry when separately viewed is local.” Nor will it do to say that such effect is “indirect.” Considering defendant’s “far-flung activities,” the effect of strife between it and its employees “would be immediate and [it] might be catastrophic. We are asked to shut our eyes to the plainest facts of our national life and to deal with the question of direct and indirect effects in an intellectual vacuum.... When industries organize themselves on a national scale, making their relation to interstate commerce the dominant factor in their activities, how can it be maintained that their industrial labor relations constitute a forbidden field into which Congress may not enter when it is necessary to protect interstate commerce from the paralyzing consequences of industrial war? We have often said that interstate commerce itself is a practical conception. It is equally true that interferences with that commerce must be appraised by a judgment that does not ignore actual experience.”790

While the Act was thus held to be within the constitutional powers of Congress in relation to a productive concern because the interruption of its business by strike “might be catastrophic,” the decision was forthwith held to apply also to two minor concerns,791 and in a later case the Court stated specifically that the smallness of the volume of commerce affected in any particular case is not a material consideration.792 Subsequently, the act was declared to be applicable to a local retail auto dealer on the ground that he was an integral part of the manufacturer’s national distribution system,793 to a labor dispute arising during alteration of a county courthouse because one-half of the cost—$225,000—was attributable to materials shipped from out-of-State,794 and to a dispute involving a retail distributor of fuel oil, all of whose sales were local, but who obtained the oil from a wholesaler who imported it from another State.795

Indeed, “[t]his Court has consistently declared that in passing the National Labor Relations Act, Congress intended to and did vest in the Board the fullest jurisdictional breadth constitutionally permissible under the Commerce Clause.”796 Thus, the Board has formulated jurisdictional standards which assume the requisite effect on interstate commerce from a prescribed dollar volume of business and these standards have been implicitly approved by the Court.797

Fair Labor Standards Act.—In 1938, Congress enacted the Fair Labor Standards Act. The measure prohibited not only the shipment in interstate commerce of goods manufactured by employees whose wages are less than the prescribed maximum but also the employment of workmen in the production of goods for such commerce at other than the prescribed wages and hours. Interstate commerce was defined by the act to mean “trade, commerce, transportation, transmission, or communication among the several States or from any State to any place outside thereof.”

790 NLRB v. Jones & Laughlin Steel Corp., 301 U.S. 1, 38, 41–42 (1937).

791 NLRB v. Fruehauf Trailer Co., 301 U.S. 49 (1937); NLRB v. Friedman-Harry Marks Clothing Co., 301 U.S. 58 (1937).

792 NLRB v. Fainblatt, 306 U.S. 601, 606 (1939).

793 Howell Chevrolet Co. v. NLRB, 346 U.S. 482 (1953).

794 Journeymen Plumbers’ Union v. County of Door, 359 U.S. 354 (1959).

795 NLRB v. Reliance Fuel Oil Co., 371 U.S. 224 (1963).

796 371 U.S. at 226. See also Guss v. Utah Labor Board, 353 U.S. 1, 3 (1957); NLRB v. Fainblatt, 306 U.S. 601, 607 (1939).

797 NLRB v. Reliance Fuel Oil Co., 371 U.S. 224, 225 n.2 (1963); Liner v. Jafco, 375 U.S. 301, 303 n. 2 (1964).

It was further provided that “for the purposes of this act an employee shall be deemed to have been engaged in the production of goods [that is, for interstate commerce] if such employee was employed . . . in any process or occupation directly essential to the production thereof in any State.”798 Sustaining an indictment under the act, a unanimous Court, speaking through Chief Justice Stone, said: “The motive and purpose of the present regulation are plainly to make effective the congressional conception of public policy that interstate commerce should not be made the instrument of competition in the distribution of goods produced under substandard labor conditions, which competition is injurious to the commerce and to the States from and to which the commerce flows.”799 In support of the decision the Court invoked Chief Justice Marshall’s reading of the necessary-and-proper clause in McCulloch v. Maryland and his reading of the commerce clause in Gibbons v. Ogden.800 Objections purporting to be based on the Tenth Amendment were met from the same point of view: “Our conclusion is unaffected by the Tenth Amendment which provides: ‘The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.’ The amendment states but a truism that all is retained which has not been surrendered. There is nothing in the history of its adoption to suggest that it was more than declaratory of the relationship between the national and State governments as it had been established by the Constitution before the amendment or that its purpose was other than to allay fears that the new National Government might seek to exercise powers not granted, and that the States might not be able to exercise fully their reserved powers.”801

Subsequent decisions of the Court took a very broad view of which employees should be covered by the Act,802 and in 1949 Congress to some degree narrowed the permissible range of coverage and disapproved some of the Court’s decisions.803 But in 1961,804 with extensions in 1966,805 Congress itself expanded by several million persons the coverage of the Act, introducing the “enterprise” concept by which all employees in a business producing anything in commerce or affecting commerce were brought within the protection of the minimum wage-maximum hours standards.806 The “enterprise concept” was sustained by the Court in Maryland v. Wirtz.807 Justice Harlan for a unanimous Court on this issue found the extension entirely proper on the basis of two theories: one, a business’ competitive position in commerce is determined in part by all its significant labor costs, and not just those costs attributable to its employees engaged in production in interstate commerce, and, two, labor peace and thus smooth functioning of interstate commerce was facilitated by the termination of substandard labor conditions affecting all employees and not just those actually engaged in interstate commerce.808

798 52 Stat. 1060, as amended, 63 Stat. 910 (1949). The 1949 amendment substituted the phrase “in any process or occupation directly essential to the production thereof in any State” for the original phrase “in any process or occupation necessary to the production thereof in any State.” In Mitchell v. H. B. Zachry Co., 362 U.S. 310, 317 (1960), the Court noted that the change “manifests the view of Congress that on occasion courts . . . had found activities to be covered, which . . . [Congress now] deemed too remote from commerce or too incidental to it.” The 1961 amendments to the Act, 75 Stat. 65, departed from previous practices of extending coverage to employees individually connected to interstate commerce to cover all employees of any “enterprise” engaged in commerce or production of commerce; thus, there was an expansion of employees covered but not, of course, of employers, 29 U.S.C. § 201 et seq. See 29 U.S.C. §§ 203(r), 203(s), 206(a), 207(a).

799 United States v. Darby, 312 U.S. 100, 115 (1941).

800 312 U.S. at 113, 114, 118.

801 312 U.S. at 123–24.

802 E.g., Kirschbaum v. Walling, 316 U.S. 517 (1942) (operating and maintenance employees of building, part of which was rented to business producing goods for interstate commerce); Walton v. Southern Package Corp., 320 U.S. 540 (1944) (night watchman in a plant the substantial portion of the production of which was shipped in interstate commerce); Armour & Co. v. Wantock, 323 U.S. 126 (1944) (employees on stand-by auxiliary fire-fighting service of an employer engaged in interstate commerce); Borden Co. v. Borella, 325 U.S. 679 (1945) (maintenance employees in building housing company’s central offices where management was located though the production of interstate commerce was elsewhere); Martino v. Michigan Window Cleaning Co., 327 U.S. 173 (1946) (employees of a window-cleaning company the principal business of which was performed on windows of industrial plants producing goods for interstate commerce); Mitchell v. Lublin, McGaughy & Associates, 358 U.S. 207 (1959) (nonprofessional employees of architectural firm working on plans for construction of air bases, bus terminals, and radio facilities).

Agricultural Marketing Agreement Act.—After its initial frustrations, Congress returned to the task of bolstering agriculture by passing the Agricultural Marketing Agreement Act of June 3, 1937,809 authorizing the Secretary of Agriculture to fix the minimum prices of certain agricultural products, when the handling of such products occurs “in the current of interstate or foreign commerce or . . . directly burdens, obstructs or affects interstate or foreign commerce in such commodity or product thereof.” In United States v. Wrightwood Dairy Co.,810 the Court sustained an order of the Secretary of Agriculture fixing the minimum prices to be paid to producers of milk in the Chicago “marketing area.” The dairy company demurred to the regulation on the ground it applied to milk produced and sold intrastate. Sustaining the order, the Court said: “Congress plainly has power to regulate the price of milk distributed through the medium of interstate commerce . . . and it possesses every power needed to make that regulation effective. The commerce power is not confined in its exercise to the regulation of commerce among the States. It extends to those activities intrastate which so affect interstate commerce, or the exertion of the power of Congress over it, as to make regulation of them appropriate means to the attainment of a legitimate end, the effective execution of the granted power to regulate interstate commerce. The power of Congress over interstate commerce is plenary and complete in itself, may be exercised to its utmost extent, and acknowledges no limitations other than are prescribed in the Constitution.... It follows that no form of State activity can constitutionally thwart the regulatory power granted by the commerce clause to Congress. Hence the reach of that power extends to those intrastate activities which in a substantial way interfere with or obstruct the exercise of the granted power.”811

803 Cf. Mitchell v. H. B. Zachry Co., 362 U.S. 310, 317 (1960).

804 75 Stat. 65.

805 80 Stat. 830.

806 29 U.S.C. §§ 203(r), 203(s).

807 392 U.S. 183 (1968).

808 Another aspect of this case was overruled in National League of Cities v. Usery, 426 U.S. 833 (1976), which itself was overruled in Garcia v. San Antonio Metropolitan Transit Auth., 469 U.S. 528 (1985).

809 50 Stat. 246, 7 U.S.C. § 601 et seq.

810 315 U.S. 110 (1942). The Court had previously upheld other legislation that regulated agricultural production through limitations on sales in or affecting interstate commerce. Currin v. Wallace, 306 U.S. 1 (1939); Mulford v. Smith, 307 U.S. 38 (1939).

811 315 U.S. at 118–19.

In Wickard v. Filburn,812 a still deeper penetration by Congress into the field of production was sustained. As amended by the act of 1941, the Agricultural Adjustment Act of 1938813 regulated production even when not intended for commerce but wholly for consumption on the producer’s farm. Sustaining this extension of the act, the Court pointed out that the effect of the statute was to support the market. “It can hardly be denied that a factor of such volume and variability as home-consumed wheat would have a substantial influence on price and market conditions. This may arise because being in marketable condition such wheat overhangs the market and, if induced by rising prices, tends to flow into the market and check price increases. But if we assume that it is never marketed, it supplies a need of the man who grew it which would otherwise be reflected by purchases in the open market. Home-grown wheat in this sense competes with wheat in commerce. The stimulation of commerce is a use of the regulatory function quite as definitely as prohibitions or restrictions thereon. This record leaves us in no doubt that Congress may properly have considered that wheat consumed on the farm grown, if wholly outside the scheme of regulation, would have a substantial effect in defeating and obstructing its purpose to stimulate trade therein at increased prices.”814 And it elsewhere stated: “Questions of the power of Congress are not to be decided by reference to any formula which would give controlling force to nomenclature such as ‘production’ and ‘indirect’ and foreclose consideration of the actual effects of the activity in question upon interstate commerce. ... The Court’s recognition of the relevance of the economic effects in the application of the Commerce Clause . . . has made the mechanical application of legal formulas no longer feasible.”815

812 317 U.S. 111 (1942).

813 52 Stat. 31, 7 U.S.C. §§ 612c, 1281–1282 et seq.

814 317 U.S. at 128–29.

815 317 U.S. at 120–24. In United States v. Rock Royal Co-operative, 307 U.S. 533 (1939), the Court sustained an order under the Agricultural Marketing Agreement Act of 1937, 50 Stat. 246, regulating the price of milk in certain instances. Said Justice Reed for the majority of the Court: “The challenge is to the regulation ‘of the price to be paid upon the sale by a dairy farmer who delivers his milk to some country plant.’ It is urged that the sale, a local transaction, is fully completed before any interstate commerce begins and that the attempt to fix the price or other elements of that incident violates the Tenth Amendment. But where commodities are bought for use beyond State lines, the sale is a part of interstate commerce. We have likewise held that where sales for interstate transportation were commingled with intrastate transactions, the existence of the local activity did not interfere with the federal power to regulate inspection of the whole. Activities conducted within State lines do not by this fact alone escape the sweep of the Commerce Clause. Interstate commerce may be dependent upon them. Power to establish quotas for interstate marketing gives power to name quotas for that which is to be left within the State of production. Where local and foreign milk alike are drawn into a general plan for protecting the interstate commerce in the commodity from the interferences, burdens and obstructions, arising from excessive surplus and the social and sanitary evils of low values, the power of the Congress extends also to the local sales.” Id. at 568–69.

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