UNITED STATES OF AMERICA

Section 789.0-INTRODUCTORY

STATEMENT

1

(a) Section 12 (a) and section 15(a)(1) of the Fair Labor Standards Act of 1938 (hereinafter referred to as the act) contain certain prohibitions against putting into interstate or foreign commerce any goods ineligible for shipment (commonly called "hot goods"), in the production of which the child-labor or wagehour standards of the act were not observed. These sections were amended by the Fair Labor Standards Amendments of 19492 to provide, among other things, protection against these "hot goods" prohibitions with respect to purchasers "who acquired such goods for value without notice of such violation" if they did so "in good faith in reliance on" a specified "written assurance."

(b) These amendments to the act relating to purchasers in good faith and written assurances are for the protection of purchasers. The act does not provide that a purchaser must secure such an assurance or that a supplier must give it. The amendments confer no express authority for the Department of Labor to require the use of these assurances or to prescribe their form or content. Whether any particular written assurance affords the statutory protection to a purchaser who acquires his goods in good faith and for value without notice of an applicable violation, is left for determination by the courts. Opinions issued by the Depart

1 Pub. No. 718, 75th Cong., 3d sess. (52 Stat. 1060), as amended by the act June 26, 1940 (Pub. Res. No. 88, 76th Cong., 3d sess, 54 Stat. 616); by Reorganization Plan No. 2 (60 Stat. 1095), effective July 16, 1946; by the Portal-toPortal Act of 1947, approved May 14, 1947 (61 Stat. 84); by the Fair Labor Standards Amendments of 1949, approved October 26, 1949 (Public Law 393, 81st Cong., 1st sess., 63 Stat. 910); by Reorganization Plan No. 6 of 1950 (15 F.R. 3174), effective May 24, 1950; and by the Fair Labor Standards Amendments of 1955, approved August 12, 1955 (Public Law 381, 84th Cong., 1st sess. C. 867, 69 Stat. 711).

2 Pub. Law 393, 81st Cong., 1st sess. (63 Stat. 910).

ment of Labor on this question are advisory only and represent simply the Department's best judgment as to what the courts may hold.

(c) The interpretations contained in this general statement are confined to the statutory protection accorded these purchasers in section 12(a) and section 15 (a) (1) of the act. These interpretations, with respect to this protection of purchasers, indicate the construction of the law which the Secretary of Labor and the Administrator of the Wage and Hour Division 3 believe to be correct and which will guide them in the performance of their administrative duties under the act unless and until they are otherwise directed by authoritative decisions of the courts or conclude, upon re-examination of an interpretation, that it is incorrect.

[15 F.R. 5047, Aug. 5, 1950, as amended at 21 F.R. 1450, Mar. 6, 1956]

Section 789.1-STATUTORY PROVISIONS AND LEGISLATIVE HISTORY

Section 12(a) of the act provides, in part, that no producer, manufacturer or dealer shall ship or deliver for shipment in commerce any goods produced in an establishment situated in the United States in or about which within 30 days prior to the removal of such goods therefrom, any oppressive child labor has been employed. Section 12(a) then provides an exception from this prohibition in the following language:

Provided, That any such shipment or delivery for shipment of such goods by a purchaser who acquired them in good faith in reliance on written assurance from the producer, manufacturer, or dealer that the goods were produced in compliance with the requirements of this section, and who acquired such goods for value without notice of any such violation, shall not be deemed prohibited by this subsection •

3 The functions of the Secretary and the Administrator under the act are delineated in 13 F.R. 2195, 12 F.R. 6971, and 15 F.R. 3290.

Section 15 (a) (1) provides, in part, that it shall be unlawful for any person to transport, offer for transportation, ship, deliver, or sell with knowledge that shipment or delivery or sale thereof in commerce is intended, any goods in the production of which any employee was employed in violation of section 6 or 7 of the act or any regulation or order of the Administrator issued under section 14. Section 15 (a) (1) also provides the following exception with respect to this "hot goods" restriction:

any such transportation, offer, shipment, delivery, or sale of such goods by a purchaser who acquired them in good faith in reliance on written assurance from the producer that the goods were produced in compliance with the requirements of the act, and who acquired such goods for value without notice of any such violation, shall not be deemed unlawful.

The most important portion of the legislative history of those provisions in sections (12) (a) and 15(a) (1) which relate to the protection of purchasers is found in the following discussion of the amendment to section 15 (a) (1), contained in the Statement of the Managers on the part of the House appended to the Conference Report on the Fair Labor Standards Amendments of 1949:*

This provision protects an innocent purchaser from an unwitting violation and also protects him from having goods which he has purchased in good faith ordered to be withheld An from shipment in commerce by a "hot goods" injunction. affirmative duty is imposed upon him to assure himself that the goods in question were produced in compliance with the act, and he must have secured written assurance to that The requirement effect from the producer of the goods.

that he must have made the purchase in good faith is comparable to similar requirements imposed on purchasers in other fields of law, and is to be subjected to the test of what a reasonable, prudent man, acting with due diligence, would have done in the circumstances. [Emphasis supplied.] This discussion would appear to be generally applicable also to the similar provisions of the act contained in section 12(a).

and in section 12 (a) it is one from the "producer, manufacturer or dealer."

Since the acquisition of the goods by the purchaser must be "in reliance" upon such written assurance it is obvious that the act contemplates a written assurance given to the purchaser as a part of the transaction by which the goods are acquired, and on which he can rely at the time of their acquisition. Thus, where the purchaser does not receive a written assurance at the time he acquires particular goods, he cannot be said to have acquired the goods "in reliance on" the specified written assurance merely because the producer later furnishes an assurance that all goods which the purchaser has previously acquired from him were produced in compliance with the Fair Labor Standards Act.

The assurances described in the act are assurances in writing "from" the producer or "from" the producer, manufacturer, or dealer, as the case may be. It is therefore clear that the following procedures will not amount to "written assurance from the producer" within the meaning of the act:

(a) The purchaser stamps his purchase order with the statement that the order is valid only for goods produced in compliance with the requirements of the Fair Labor Standards Act. No written statement concerning the production of the goods is made to the purchaser by the producer. The producer ships the goods which the purchaser has ordered.

(b) The purchaser stamps the above statement on his purchase order and in addition notifies the producer that shipment of the goods so ordered will be construed by the purchaser as a guarantee by the producer that the goods were produced in compliance with the act. The producer ships the goods to the purchaser.

In neither of these situations can the purchase order be deemed to contain a written assurance from the producer to the purchaser. A statement concerning the circumstances under which the order will be valid is sent to the producer, but no written instrument at all is given the purchaser by the producer. Although, in these situations, the shipment of the goods by the producer may establish a contractual relationship between the parties, the conditions of the statute are not satisfied because there is in neither situation any written assurance from the producer to the purchaser that the goods were produced in compliance with applicable provisions of the act referred to in sections 12(a) and 15(a)(1).

Section 789.3-"*
"*** GOODS WERE PRO-
DUCED IN COMPLIANCE WITH" ***
THE REQUIREMENTS REFERRED TO

5

It is apparent from the language of the statute and the statement appended to the Conference Report that the written assurance referred to is one with respect to specific goods in being, assuring the purchaser that the "goods in question were produced in compliance" with the requirements referred to in sections 12(a) and 15(a)(1). A written statement made prior to production of the particular goods is not the type of assurance contemplated by the statute.

A so-called "general and continuing" assurance or "blanket guarantee" stating, for instance, that all goods to be shipped to the purchaser during a twelve-month period following a certain date "will be or were produced" in compliance with applicable provisions of the act would not afford the purchaser the statutory protection with respect to any production of such goods after the assurance is given. This type of assurance attempts to assure the purchaser concerning the future production of goods. With respect to any production of goods after the assurance is given, this "general and continuing" assurance would, at most, be an assurance that the goods will be produced in compliance with the act.

The definitions of the terms "goods" and "produced" in sections 3(i) and 3(j) of the act, respectively, should be considered in interpreting the requirement that the written assurance must relate to goods which were produced in compliance with applicable provi

H. Rept. No. 1453, 81st Cong., 1st sess., p. 31.

• Section 3 (1) defines "goods" to mean "goods (including ships and marine equipment), wares, products, commodities, merchandise, or articles or subjects of commerce of any character, or any art or ingredient thereof, but does not include goods after their delivery into the actual physical possession of the ultimate consumer thereof other than a producer, manufacturer, or processor thereof."

Section 3(j) defines "produced" to mean "produced, manufactured, mined, handled, or in any other manner worked on in any State; and for the purposes of this act an employee shall be deemed to have been engaged in the production of goods if such employee was employed in producing, manufacturing, mining, handling, transporting, or in any other manner working on such goods, or in any closely related process or occupation directly essential to the production thereof, in any State."

sions of the act. These definitions make it apparent, for instance, that the raw materials from which a machine has been made retain their identity as "goods" even though these raw materials have been converted into an entirely different finished product in which the raw materials are merely a part.

Since "goods," as defined in the act, "does not include goods after their delivery into the actual physical possession of the ultimate consumer thereof other than a producer, manufacturer, or processor thereof," the "hot goods" restrictions of section 12(a) and section 15 (a) (1) do not apply to such ultimate consumers. There appears to be no need, therefore, for such consumers to secure these written assurances from their suppliers.

Section 789.4-SCOPE AND CONTENT OF ASSURANCES OF COMPLIANCE

A question frequently asked is whether a single written assurance of compliance will suffice for purposes both of section 12(a), relating to child labor, and section 15 (a) (1), relating to wage and hour standards. A single assurance would appear to be sufficient, provided it is specific enough to meet all the conditions of the two sections. Although it is possible that the courts might find assurances referring generally to compliance "with the requirements of the act" adequate for all purposes, the safer course to pursue would be to phrase the assurance in terms of compliance with the specific sections of the act whose violation would bar the goods from interstate or foreign commerce.

The language of the statute gives support to this view. It will be noted that the written assurance referred to in section 15 (a) (1) is described as one of "compliance with the requirements of the act ***" whereas the written assurance referred to in section 12(a) is described as one of "compliance with this section." In view of the differences in wording of the two sections, a court might conclude that a general assurance of compliance with the act is not sufficient to include a specific assurance of compliance with section 12, on the theory that if Congress had intended an assurance of