STATEMENT SUBMITTED BY HON. GEORGE J. BATES OF MASSACHUSETTS
THE BOSTON GLOBE,
Boston 7, Mass., June 12, 1947.

Hon. GEORGE JOSEPH BATES,

House Office Building, Washington, D. C.

MY DEAR CONGRESSMAN BATES: The Globe Newspaper Co. urgently requests your support for the passage of H. R. 3704, an act to exclude vendors of newspapers from certain provisions of the Social Security Act and the Internal Revenue Code, introduced by Representative Bertrand W. Gearhart, of California.

This legislation is presented to correct a situation which has arisen as the result of a decision in California defining newsboys as employees of a newspaper, with the result that the newspapers have to pay newsboys social-security and unemployment compensation, and are compelled to withhold income taxes.

This decision creates an impossible situation. Neither the newspapers nor the newsboys want it, nor could they work under it. In Boston, for example, there are five newspapers sold by newsboys. There is no way for any one paper to know how many of its own papers any particular newsboy sells, nor even the price for which the newsboy purchases the paper or sells the paper. In fact the newspapers do not know and cannot know the names and addresses of any but a small percentage of the boys who sell their papers.

In Boston and elsewhere throughout the Commonwealth the newsboys customarily buy their papers from wholesale distributors and sell them on the various corners, or distribute them on home-delivery routes. The distributors are not employees of the Globe or of the other newspapers. They merely purchase their newspapers wholesale, sometimes directly and sometimes through the medium of a wholesale delivery company.

Remedial legislation should be passed at once.

Yours very truly,

DAVIS TAYLOR, General Manager

Mr. ARNN. I just want to emphasize one particular point: All of the cases of newspaper distribution which I cited in my statement to the committee were taken from: the situation in San Francisco where the decision of the judge was made, applying to the particular case. Mr. KNUTSON. How long has Judge Goodman been on the bench? Mr. ARNN. He has been on the bench about 5 years. Mr. KNUTSON. He evidently has not cut his eye teeth, yet. Mr. GEARHART. You heard these suggestions made by the previous witness that we add the words "magazines and periodicals" did you not? It then would be satisfactory to you?

Mr. ARNN. I have no objection to that and know of none. That simply reinforces the point of who is going to take care of the independent contractor or the one handling newspapers and magazines. Mr. GEARHART. The handling of magazines is the same as shopping guides?

Mr. ARNN. I believe so.

Mr. GEARHART. There is no reason why that should not be done, is there?

Mr. PRICE. There is none at all. It is a wise move to make. Mr. GEARHART. I have a letter here from Mr. Williams, the general manager of the American Newspaper Publishers Association and I would like to have that incorporated in the record.

Mr. KNUTSON. Without objection, it will be placed in the record at this point.

(The letter referred to is as follows:)

AMERICAN NEWSPAPER PUBLISHERS ASSOCIATION,
NEW YORK 17, N. Y., June 11, 1947.

Hon. BERTRAND W. GEARHART,

House of Representatives, Washington, D. C.

DEAR CONGRESSMAN GEARHART: Your bill H. R. 3704 to exempt newspaper vendors from the old age and survivors insurance provisions of the Social Security Act has considerable interest for me.

As a practical proposition this is a problem confronting a considerable number of newspapers but our association has made no effort to compile specific information. As you pointed out recently the individuals who sell neswpapers on the streets especially at permanent stands engage in a variety of other activities by selling various things including periodicals, books, merchandise, etc. In nearly all cases it is my information these individuals depend upon their profit for the difference in the price they pay for the newspapers at wholesale and the price they get at retail by selling the newspapers to individuals.

The administration of a plan which would place the responsibility on the newspaper to check these transactions could grow into a fantastic set-up.

While I am not an authority on the background of the Social Security Act I do not believe it was intended to bring under its provisions this type of businessman. From my knowledge of the newspaper business I would say that the passage of your bill would not harm these vendors but would improve the administration of the social-security laws for those who are intended to be covered.

I hope the bill will become a law. If there is any information you think I can supply please let me know.

With regards, I am

Sincerely yours,

CRANSTON WILLIAMS, General Manager.

(The following decision of the United States District Court for the Northern District of California, Southern Division, is included in the record at the request of Congressman Gearhart of California:)

IN THE SOUTHERN DIVISION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA

No. 25228, No. 25229

HEARST PUBLICATIONS, INC., A CORPORATION, PLAINTIFF, vs. UNITED STATES OF AMERICA, DEFENDANT

No. 25230, No. 25231

THE CHRONICLE PUBLISHING CO., A CORPORATION, PLAINTIFF, vs. UNITED STATES OF AMERICA, DEFENDANT

Fink & Keyston, 1018 Hearst Building, San Francisco, Calif., attorneys for plaintiff.

Frank J. Hennessy, United States attorney; William E. Licking, assistant United States attorney, San Francisco, Calif.; Douglas W. McGregor, Assistant Attorney General; Andrew D. Sharpe and Arthur L. Jacobs, special assistants to the Attorney General, Washington, D. C., attorneys for defendant.

S. A. Ladar, 111 Sutter Street, San Francisco, Calif., attorney for Newspaper and Periodical Vendors and Distributors Union, No. 468, amicus curiae.

GOODMAN, district judge.

OPINION

By these four actions, consolidated for trial, plaintiff newspaper publishers seek refund of insurance contributions and unemployment taxes collected from them, for taxable periods within the years 1937-40, upon the compensation received by vendors of their publications on the streets of the city of San Francisco who, it is claimed by plaintiffs, were not their employees. The single issue to be here determined is the status of these vendors during that period. If their relationship to plaintiffs was one of employment within the purport of the applicable statutes (Social Security Act, title VIII and title IX, 42 U. S. C. A., secs. 1001-1100; Federal Insurance Contributions Act, 26 U. S. C. A., Internal Revenue Code, secs.

1400-1432; Federal Unemployment Tax Act, 26 U. S. C. A., Internal Revenue Code, secs. 1600-1611) the taxes were properly imposed; otherwise not.

THE FACTS

Plaintiffs are owners and publishers of daily newspapers circulated primarily in San Francisco; a substantial portion of this circulation is effected through street sales by the news vendors whose status is here in issue. During all of the period here involved (1937-40) except from April 1937, to August 1937, plaintiff publishers and their vendors were governed in their relationship by successive written contracts between the San Francisco Newspaper Publishers' Association, as the publishers' representatives, and the Newspaper and Periodical Vendors' and Distributors' Union, No. 468, representing the vendors. (The latter is a labor union chartered by the American Federation of Labor.) Three such written contracts were negotiated during the pertinent taxable period, in 1937, 1939, and 1940. However, all the contracts are admittedly similar in such of their terms as are here material. And although there was no written agreement between publishers and vendors from April 1937 to August 1937, their relationship was akin to that established by the succeeding written contracts, except for the exercise of a greater degree of control by the publishers over activities of the vendors in matters which were thereafter settled by the terms of the negotiated contracts.

The facts bearing on the relationship between publishers and vendors as fixed by contract and as appearing from their actual operations during the period here involved are these:

The vendors were engaged by the publishers to sell newspapers at particular street locations. Prior to 1939, such vendors would apply directly to the publishers for assignment to any vacant street corner. After 1939, the union contracts required that vendors be selected by the publishers from a list of available vendors furnished them on request by the vendors' union. The street sales locations were situated at corners characterized as full-time corners, part-time corners, special-wrapped-edition corners, and special-event corners. (There were also roving vendors called bootjackers who sell papers at large.) Such locations were designated, limited, changed, discontinued, or reestablished entirely at the publishers' discretion and in order to coincide with changing public demand. Prior to the first contract of August 1937, the services of a vendor were terminable at the will of the publisher. Thereafter, a vendor once engaged to sell at a particular location, was entitled by each of the successive contracts, to man that location so long as it was maintained by the publisher, unless there should arise just cause for the discontinuance of further deliveries of papers to him (e. g. drunkenness, failure to appear for work, etc.) or for his transfer from one location to another, in which event the publisher was entitled to effect such discontinuance or transfer. If a vendor felt that his contract to sell at a particular location had been unjustly discontinued by the publisher-that is, without cause-he could have the matter submitted to and determined by arbitration.

The publishers fixed the so-called retail price at which the papers were to be sold publicly as well as the so-called wholesale price, which was the amount charged the vendors for papers delivered them for sale. Once fixed, these prices remained constant for the duration of the union contract then in force. The difference between the wholesale and retail price established by the publishers was the vendor's profit. But in addition thereto, he was guaranteed by contract a minimum weekly profit. The papers which he did not sell, he was privileged to return to the publisher and received credit therefor.

Within certain limits prescribed by contract, the publisher fixed the various types of corner, the days and hours of sale, which were established to conicide with news releases, the public's reading habits and its concentration at particular locations at particular periods.

As each edition left the press, the papers were delivered to the vendors at their corners by employees of the publishers called wholesalers. The quantity delivered did not rest in the vendor's discretion, but depended on what it was estimated the vendor, during the selling period, could dispose of at his location. Any disagreement as to the number of papers the vendor should take appeared to be a matter for settlement between the publisher and the union.

Prior to August 1937, the wholesaler gave orders to the vendors in matters connected with the performance of their duties and disciplined them for failure to comply. But after August 1937, the wholesalers exercised little direct control over the vendors, although they did make suggestions, observed the conduct of the vendors, and reported misfeasances to the publisher. Their chief function

was to deliver papers to the vendors at each edition time, survey their particular district between editions to see if more papers were needed at a particular sales location, or if surplus papers should be transferred from one to another such location. However, in case a wholesaler observed conduct of a vendor warranting dismissal, the evidence shows that the wholesaler would check-in the vendor before the end of the say's selling period. But any disciplining of news vendors, short of discontinuance of sales to them, was affected by union representatives. In their sales to the public, the vendors were required to sell complete newspapers only, with sections in such order as was designated by the publishers. They were free to offer the papers for sale as they saw fit, except that they were expected to be at their corners at press release time, to stay there during the sales period, to be able to sell papers, and to take an interest in selling papers.

The vendors had no expenses to bear and assumed no business risks except the risk of loss of papers delivered to them for sale and charged against them. They provided their own transportation to and from their sales locations. Some employed substitutes. They were not prohibited from selling noncompetitive publications and other articles along with their newspaper sales, and some so did. (In 1937-40 about one-sixth of the approximate 650 vendors were selling other articles and noncompetitive publications.)

The vendors were not required to submit any form of report. There were no conferences or sales meetings which they were obliged to attend, nor was it necessary that they report to the publishers' premises for any purpose.

All advertising placards and display stands or racks were provided by the publishers and the vendors were forbidden to place anything on such stands or racks except newspapers.

In all of the contracts there was contained a clause declaring it to be the intent of the parties to maintain the relationship of seller and buyer between publisher and vendor and not an employer-employee relationship. The clause was inserted at the insistance of the publishers, the vendors agreeing because their primary concern was their economic betterment. They were disinterested in the designation of their status. They were also of the belief that in any event, their relationship with the publisher would not legally be regarded as that of employeremployee.

DISCUSSION

The Federal social-security statutes 1 do not themselves define the terms "employment," "employer, or "employee" beyond stating generally that the term "employment" means any service performed by an "employee" for his "employer." The interpretive regulations of the Treasury Department 2 adopt as their criteria the indicia of the employment relationship established by the common law. The regulations do not-no more than does the common lawadopt any test factor or factors as complete proof of the presence or absence of the employment relationship.3 They and the common law which they follow, have left ample room within the pattern they have set, for extensive or restrictive development through the judicial interpretive process, to meet changing and varying circumstances. This seems clear to me, because it is evident from a study of the decisions interpreting the term "employment" in social-security legislation, that, by and large, many courts essentially adhere to common-law doctrines in reaching a desired result, while at the same time they ostensibly repudiate these doctrines in favor of newer and yet incompletely defined precepts. The plaintiffs, pointing to the Treasury Department's interpretative regulations and to language used in Federal and State court decisions, insist that common law tests control; wherefore, they argue, there is no employment relationship here present. In substantiation they point to factors in each case which, under common law principles, are "indicia" (but indicia, alone) of an independent contract relationship.

The United States contends that common law tests are not controlling, developed as they were in connection with the imposition of vicarious liability in tort and for other unrelated purposes. It advances the doctrine that in view of the broad humanitarian objectives of the national social-security laws, the term "employment" as there used must be interpreted to refer to any service relationship not incidental to the pursuit of an independent calling.

Social Security- Act, 42 U. S. C. 1107, 1011; Federal Insurance Contributions Act, 26 U. S. C. 1426 (b); Federal Unemployment Tax Act, 26 U. S. C. 1607 (c).

2 Treasury Regulation 91, art. 3; Treasury Regulation 90, art. 205; Treasury Regulation 106, sec. 402.204; Treasury Regulation 107, sec. 403 204. 3 Restatement of the Law of Agency C.7, sec. 220.

The United States relies upon the theme developed in the case of National Labor Relations Board v. Hearst Publications, Inc. (322 U. S. 111). There, a finding of employment, in the case of newspaper vendors, by the National Labor Relations Board, within the meaning of National Labor Relations Act, entitling the vendors to collective bargaining rights, was not disturbed because it had "warrant in the record" and a "reasonable basis in law." In the course of its opinion, however, the Supreme Court, in tacit approval of such finding, declared that in remedial Federal legislation of the character there under consideration, the term "employment" covered a wider field than would be the case if common-law principles were strictly adhered to; but that, nevertheless, it did not embrace within itself all "persons who may perform services for another or to ignore entirely legal classifications made for other purposes"; and that, interpreting the term in the light of the statutory objectives, "it cannot be irrelevant that the particular workers in these cases are subject, as a matter of economic fact, to the evils the statute was designed to eradicate and that the remedies it affords are appropriate for preventing them or curing their harmful effects in the special situation.' This language, apparently, strikes the keynote of the Government's position that all persons performing services for others not in the pursuit of an independent calling are employees within the remedial legislation. It is obviously assumed that all such workers are peculiarly subject to the hazards of unemployment and old-age indigency. (It is significant that, while propounding this legal doctrine, the Government also finds comfort in the contention that such persons really were employees even under common-law standards.)

The language of the Supreme Court does not, in my opinion, demonstrate the broad principle contended for by the Government. Undoubtedly it is true that the intent of Congress was to provide for the general welfare through the establishment, in advance, of a provident fund for the needy worker by a system of taxation. Whether or not the general welfare, however, will be advanced, retarded or perhaps defeated by the Government-contended construction of the comparatively unabstruse term "employment" so as to include persons who heretofore have always been regarded as independent contractors, is primarily a political, social, and economic question for lawmaking rather than law interpreting. And until Congress has spoken expressly to include such persons, it seems more consonant with established principles of judicial statutory construction to hold that the term "employment" should properly be interpreted in a realistically practical sense, according to established common-law doctrines; in favor, however, of the employment relationship in doubtful cases, because of the remedial nature of the statutory objectives. This seems to be the real, underlying motif of all the Federal and State decisions-including that of the Supreme Court-which have so far dealt with the problem of cataloging particular factual situations either within or without the employment relationship.

From these various decisions there evolves at least one principle-determinative of this cause in favor of the employment status-entirely reconcilable with established common-law doctrines as developed and grown to meet new situations, and with the remedial objectives of social-security legislation, and which is, at the same time realistically practical. That is, that any person is an employee within the meaning of social-security legislation who is engaged as a means of livelihood in regularly performing personal services which (1) constitute an integral part of the business operations of another; (2) are not incidental to the pursuit of a separately established trade, business, or profession-involving in their performance capital investment and the assumption of substantial financial risk, or the offering of similar services to the public at large; and (3) are subject to a reasonable measure of general control over the manner and means of their performance. (Matcovich v. Anglim, 134 F. 2d 834 (9th Cir. 1943); General Wa Vayne Inn v. Rothensises, 47 Fed. Supp. 391 (D. C. Penn. 1942); Stone v. U. S. (D. C. Penn, 1943) 55 Fed. Supp. 230; United States v. Vogue, Inc. (4th Cir. 1944) 145 F. 2d 609; Lakie, Inc. v. U. S. A. (D. C. Mich. Feb. 2, 1946); United States v. The Wholesale Oil Co., 154 Fed. 2d 745 (1946 10th Cir.); California Emp. etc. Comm. v. Morris, 72 A. C. A. 802 (January 1946); Twentieth Century, Lites Inc. v. California Department of Employment (April 1946), 28 A. C. 67; Deecy Products Co. v. Welch (1st Cir. 1941) 124 F. 2d 592; Jones v. Goodson (10th Cir. 1941) 121 F. 2d 176.)

Whether, absent any of the foregoing factors, the employment status may still be found, is not germane to the case here under consideration (since it will

It could be argued that the general welfare as well as that of the aged and unemployed would be hampered if, by too broad classification, the burden of taxation upon the employer class would reach beyond its capacity to absorb the load or pass it on.