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Review of Situation of Goodwill Industries in connection with Fair Labor Standards Act

1. On October 24, 1938 a Federal Law went into effect which was known as the Fair Labor Standards Act. It provided certain minimum wages and maximum hours for all persons engaged in industry which was in interstate commerce.

2. It did provide certain exemptions, but sheltered workshops and charitable organizations such as Goodwill Industries were not exempted under the Act.

3. The Fair Labor Standards Act is administered by a special division in the Department of Labor, known as the Wage and Hour Division of the United States Department of Labor.

4. It has been the general informal ruling of the counsel of the Wage and Hour Division that Sheltered Workshops as such were not exempted in any way under the Act and that any of their activities that might be construed to be in interstate commerce were subject to the conditions of the Act.

5. A group of executives of Sheltered Workshops, among whom was your executive secretary, directed the attention of the Administrator of the Act to the fact that the application of the requirements of the Fair Labor Standards Act to the Sheltered Workshops would work great hardship upon them and thus upon handicapped persons being served by them, unless there were some special provisions made whereby Sheltered Workshops could observe the requirements of the Act through adjustments being made in the regulations to cover the particular problems and service of Sheltered Workshops which were non-profit organizations and which were interested only in helping people to help themselves.

6. The Administrator of the Wage and Hour Division did later issue a special temporary order which exempted Sheltered Workshops from the wage provisions of the Act, providing they paid handicapped workers in accordance with their ability and in proportion to the minimum wage requirements of the Act. The temporary exemption did not affect the matter of hours. Thus Sheltered Workshops are required to meet the regular provisions of the Act so far as maximum hours are concerned which at the present time are 42 per week and next year will be reduced to 40 per week.

7. The Administrator also appointed a committee to be known as the Sheltered Workshop Advisory Committee to the Wage and Hour Division of the United States Department of Labor. This committee includes six executives of Sheltered Workshops, two union labor representatives-,- two commercial industry representatives, one representing the general public and one representing the Wage and Hour Division.

8. The Sheltered Workshop Advisory Committee did after several months of work, present to the Administrator proposed regulations to govern Sheltered Workshops under the Act. The Administrator, except for necessary minor mechanical changes, issued those regulations as recommended by the Sheltered Workshop Advisory Committee.

9. A copy of those regulations has been sent to all Sheltered Workshops and if any Goodwill Industries has not received then, your executive secretary should be advised at once and he will see that the Wage and Hour Division send them a copy direct from Washington.

10. The Fair Labor Standards Act itself does provide a way through special individual certification, whereby handicapped persons may be employed in commercial industry at a sub-minimum rate of not loss than seventy-five percent of the minimum wage. The request for such certificates to be applied for by both the employer and the employee. Sheltered Workshop members of the Advisory Committee have insisted that while such an arrangement may be advisable in handling the situation in commercial industry, Sheltered Workshops are social service organizations and individual certification should not be required. Throughout all discussion Sheltered Workshop Advisory Committee members have tried to keep before the Wage and Hour Division staff the fact that Sheltered Workshops are interested primarily in helping handicapped people to help themselves.

11. The final regulation issued by the Administrator to cover the situation of the Sheltered Workshops under the Fair Labor Standards Act does appear to accomplish the things requested by the Sheltered Workshop members of the Advisory Committee. It does recognize the fact that Sheltered Workshops are different than commercial industry; it provides for a group Sheltered Workshop certificate rather than an individual certificate for each handicapped person employed in a shop; it does provide for the establishment of a sub-minimum wage rate for types of Sheltered Workshops; for individual Sheltered Workshops and even for types of activities within individual Sheltered Workshops. It also provides that all of the factors in connection with the operation and service of Sheltered Workshops may be taken into consideration when establishing the sub-minimum rate to apply to a particular Sheltered Workshop. It further provides that if there be some seriously handicapped individual to be served by the Sheltered Workshop and who must be paid a wage rate less than even the sub-minimum rate established for that Sheltered Workshop, then a special individual certificate may be secured for that most seriously handicapped person at a rate lower than the shop sub-minimum.

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12. In order to make this possible the regulation further provides for special methods of reporting and indicates the type of information that must be kept available in Sheltered Workshops.

13. The special certificate issued to Sheltered Workshops to permit them to employ handicapped persons at sub-minimum rates does not apply to persons that are not handicapped, nor does it apply to vocationally able and otherwise competent handicapped persons. It likewise does not contain any special exemption in connection with maximum hours. The maximum hours indicated by the Act must be observed by the Sheltered Workshops. Incidentally your executive secretary has been constantly directing attention of the Administration to the fact that the Goodwill Industries so far as their transportation departments are concerned are definitely a seasonal activity and while an average of the maximum of 42 hours per week could be observed very well by Goodwill Industries it will be extremely difficult to observe the maximum hours in the peak house cleaning season. It is hoped that some special arrangement to cover this situation may be worked out, but at the present time there is none and Goodwill Industries must observe the maximum hours in connection with activities that may be interpreted to be in interstate commerce.

14. The question has been raised by a number of Goodwill executives as to whether Goodwill Industries were in interstate commerce. For the most part materials are collected within the state, are processed in the state, and are sold direct to the consumer within the state. If such be the case then activities of this nature would appear not to be in interstate commerce, but all Goodwill Industries do handle salvage materials, rags, paper, metal, etc. Thus the handling of this material would appear to be interpreted as being in interstate commerce and all persons from the truck driver and helper through the sorting and handling, to the baling and shipping of such materials might be interpreted to be in interstate commerce.

The general ruling in connection with defining interstate commerce has been that if the persons or firms handling the articles have reason to believe that they may eventually find their way into interstate commerce then they are in interstate commerce. In the instance of salvage, even though it is sold to a broker within the state, who in turn sells it to a mill within the state which manufactures products and sells them to others within the state, then if by chance the latter may possibly ship the products out of the state, then those products manufactured from Goodwill salvage and thus the material handled in Goodwill Industries might be ruled to be inter-state commerce. Thus it will be observed that there may be in every Goodwill Industries some activities that might be interpreted to be in interstate commerce.

15. The question has also been raised by Goodwill Industries leaders as to the definition of handicapped persons. This has been covered in the regulation. A handicapped client is "an individual whose earning capacity is impaired by age or physical or mental deficiency or injury and who is being served in accordance with the recognized rehabilitation program of a Sheltered Workshop." Discussion in the Sheltered Workshop Advisory Committee has indicated that the staff of the Wage and Hour Administration will give consideration to all of the conditions that may impair a persons earning capacity and that while there is no exemption for so called social or moral handicaps, yet if the earning capacity of clients in Sheltered Workshops is impaired by conditions which may have been rather loosely defined as social or moral handicaps, it is possible that such so called social or moral handicaps may have had an effect on mental attitudes and through that effect on mental attitudes have impaired the individuals earning capacity. Thus it will be seen that while not every person who might be defined as handicapped by the Goodwill Industries would be also defined as handicapped by the Wage and Hour Division, yet there is the possibility of having persons whose earning capacity may be definitely limited because of some apparent handicapping condition, given recognition as a client and thus not excluded from service. Unemployment as such, or definite economic handicap is not recognized as a handicap under the Act. Broken morale because of long unemployment may possibly be interpreted as a handicap until such morale has been recovered and the individuals earning capacity restored.

16. Your executive secretary has constantly reminded the Wage and Hour Division that Goodwill Industries do not have control over the kind, quality or quantity of materials donated to the organization. Likewise that they have very little control over the sale price or the income to be secured from the sale of the material. Therefore, Goodwill Industries face some difficulties not faced by other Sheltered Workshops in that their possible resources with which to serve handicapped persons and pay wages is limited by some situations which are in a very real sense beyond their control. This may also be given consideration when establishing the sub-minimum rates to cover Goodwill Industries, but it is perfectly evident that the Administration will also take into consideration management practice when giving consideration to such items as those. The Administration will not permit poor management to be an excuse for lower income which in turn makes it impossible to pay recognized sub-minimum wages.

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17. Your executive secretary has also reminded the Administration that Goodwill Industries are very definitely retail establishments and might be exempted under the retail stores exemption in the Fair Labor Standards Act itself, but here again, the Administration suggested that Goodwill Industries, while they might be engaged in retail trade, yet they did possess material after collecting and before selling it direct to the consumer, and this might exclude them from exemption as retail stores, except for the sales activities of the stores.

18. It appears to your executive secretary that it will be extremely wise for every Goodwill Industries to make application for a Sheltered Workshop Certificate in order that any activities within the Goodwill Industries that may finally be interpreted as being in interstate commerce may have such "protection" as is given by a Sheltered Workshop certificate. It is further suggested that even though some Goodwill Industries may at the present time be meeting the 30cts minimum wage and the 42 hour maximum week (and there are several that are), even such Goodwill Industries should make application for a Sheltered Workshop certificate, for eventually the minimum wage rate does go to 40cts and maximum hours are reduced to 40 per week, it is possible that even those Goodwill Industries may now be able to pay the minimum rate, conditions at the time the higher minimum rate goes into effect may be such that the Industries would be unable to pay the higher rate. If such should be the case then those Goodwill Industries should have the benefit of a Sheltered Workshop certificate. Still further reason for securing a Sheltered Workshop certificate, even though only a small part of the activities may actually be in interstate commerce, is the fact that eventually there will undoubtedly be Fair Labor Standards Acts in many states and then all activities of Goodwill Industries in those particular states would be governed by minimum wages and maximum hours. It will be to the advantage of the local Goodwill Industries to have a Federal Sheltered Workshop certificate if and when such situation occurs.

19. Finally we would again review the steps through which Goodwill Industries should go in securing a special Sheltered Workshop certificate:

a. A temporary certificate of exemption for handicapped individuals employed by Sheltered Workshop issued several months ago definitely expires March 1, 1940.

b. All Sheltered Workshops which have filed with the Wage and Hour Division a form known as "Notice of Intention to file Formal Application for Shelter Workshop Certificate", do have that temporary exemption continued until thirty days after they have received the regular application form upon which to make application for a Sheltered Workshop certificate, or until such time after they have made formal application for a Sheltered Workshop Certificate as they have received their Sheltered Workshop Certificate or been notified that they have been denied a Sheltered Workshop Certificate.

c. Immediately upon receipt of the formal application form upon which to make application for a Sheltered Workshop certificate. Goodwill Industries should fill in the application and return it to the Wage and Hour division, providing they are going to make application for a Sheltered Workshop certificate. Should they, by chance, decide not to make application for a Sheltered Workshop certificate the responsibility will be upon the local Goodwill Industries for such action and should it be found that any of their activities are in interstate commerce and they have violated provisions of the Fair Labor Standards Act, they would be liable in the same way that any commercial organization that had violated any of the provisions. Further, should any Goodwill Industries determine not to make application for a Sheltered Workshop certificate, the temporary exemption covering them as a Sheltered Workshop automatically expires thirty days after they have received the formal application blank upon which to apply for the Sheltered Workshop certificate.

20. It is the understanding of your executive secretary that the general policies which will determine the sub-minimum rates for each type of Sheltered Workshops will be discussed and recommended by the Sheltered Workshop Advisory Committee and further the individual advisory committee member, who is most familiar with any particular type of Sheltered Workshop will be designated by the committee to be the special representative of the committee in connection with activities concerning that type of Workshop. Should this be the case it would appear that your executive secretary would be the clearance of the Sheltered Workshop committee through which they and the Administration would seek to learn anything essential upon which to base the special requirements covering Goodwill Industries. Likewise in cases of violation, misunderstandings, etc., your executive secretary would be notified as well as the local Goodwill Industries involved.

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21. Warning! All information relative to Wages and Hours and the relation of Goodwill Industries under the Fair Labor Standards Act heretofore issued by your executive secretary and included in this Bulletin are simply the interpretation and observation of your executive secretary and have been given in order that Goodwill leaders may have the benefit of the discussion both in the Sheltered Workshop Advisory Committee and informal discussion outside of the committee with members of the Wage and Hour staff. None of the information issued by your executive secretary thus far is to be interpreted as a ruling of the Wage and Hour Division. The only definite matters that have been issued by the Division have been the special temporary exemption order under which we have operated for many months and the new regulation, copies of which have been put into the mail to all Goodwill Industries executives. As soon as the applications for Sheltered Workshop certificates have been received by the Wage and Hour Administration the Sheltered Workshop Advisory Committee meets to work out the policies along with the Administration upon which Sheltered Workshop certificates shall be issued, then definite rulings will be issued by the Wage and Hour Administration and your executive secretary will interpret those regulations and rulings as he understands them in relation to Sheltered Workshops in general and Goodwill Industries in particular.

22. Incidentally an investigator or field worker from the Wage and Hour Administration, working under the direction of the Division staff member in charge of Sheltered Workshops, has already visited a number of Sheltered Workshops and a number of Goodwill Industries to actually see at first hand the work that is being done by Goodwill Industries, and to learn personally some of the problems involved in the operation of our organizations.

SPECIAL NOTE

Just as the Bulletin is being completed and the last stencil cut, a letter has been received from Col. John M. Smith, Jr., Chairman of our Sheltered Workshop Advisory Committee, suggesting that all Sheltered Workshops be advised of one additional matter of record in the Sheltered Workshop Advisory Committee minutes concerning the relation of Sheltered Workshops to the Wage and Hour Act. It may possibly come to you later in the form of a letter, but the substance of the matter is quoted hereto. It is further evidence of the stand your committee is taking in order to be certain that all rights of the individual Sheltered Workshops are being protected. The quotation follows:

"This committee (Sheltered Workshop Advisory Committee) met and considered the matters presented to it over an extended period with the result that at a meeting on January 19, 1940, a recommendation was made to the Administrator. In the formal minutes of this meeting, there was included a statement of the position of the members of the Committee from the Charitable institutions, as follows:

"I think for the purpose of the record it is pertinent to state the position of such of the members of the Advisory Committee on Sheltered Workshops as represent the charitable organizations and institutions, and of such organizations and institutions themselves.

"Our position is that the charitable institutions and organizations do not fall within the purview of the Fair Labor Standards Act, and that in the formulation of any regulations or any other action which may be taken by ourselves or themselves in regard to such regulations or otherwise, we reserve to ourselves and for them the right to raise the question at any time as to whether such institutions or organizations fall within the purview of the Act, and to take any action that may be deemed advisable in furtherance of such position.

"Our action in the matter is to be construed as one of cooperation with the Administrator in carrying out the purposes of the Act."

To this statement, the representative of the Administrator made the following reply:

"We are not unfamiliar with the reservation of rights, and we understand the attitude of the Sheltered Workshop group in this regard, that they feel they are not covered by the Act and that they are here in the spirit of cooperation.

"It perhaps is advisable for me to say that the General Counsel of the Wage and Hour Division has considered this matter carefully and frequently, and it is his considered opinion that workers in Sheltered Workshops who are engaged in commerce, or in the production of goods for commerce, are entitled to the benefits of the act, and, with that expression of friendly disagreement, I think we can go ahead."

It will be seen from the above that the position of the institutions was made clear and that notwithstanding any action they may take with regard to the regulations in any respect, has reserved for them the right to raise the question at any time as to whether they fall within the purview of the Fair Labor Standards Act, and they may take any action they may deem advisable in furtherance of that reservation. Furthermore, any action they may take now or in the future in regard to the regulations, is to be construed solely as a desire to cooperation with the Administrator in carrying out the purposes of the Act.

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The members of the Committee from the charitable institutions thought it advisable that you be informed of this action and understanding so that you may know that in signing or transmitting the "Notice of Intention to File Formal Application for a Sheltered Workshop Certificate": or any other action you may take, you do so with the reservations above stated and solely in the spirit of cooperation.

The members of the Committee from the charitable institutions were unanimous in their belief that the institutions should cooperate in every way possible in bringing about and maintaining fair labor standards and further that the Wage and Hour Administrator appreciated the charitable nature of the Institutions and their special problems. We hope you will find it possible to cooperate."

Oliver A. Friedman
Executive Secretary
National Association
Goodwill Industries