Facts
- Congress amended the Fair Labor Standards Act (FLSA) in 1961 to expand coverage using an “enterprise” concept rather than an employee-by-employee test.
- In 1966, Congress further amended the FLSA to cover enterprises operating hospitals and educational institutions, expressly including public as well as private institutions.
- Congress simultaneously revised the FLSA definition of “employer” to remove the prior exemption for States and their political subdivisions with respect to employees of the covered institutions.
- Maryland, later joined by 27 other States and one school district, sought to block federal enforcement of the FLSA’s wage and overtime requirements against state-operated schools and hospitals.
- A three-judge federal district court declined to issue declaratory or injunctive relief, holding that the enterprise concept and its extension to state institutions did not facially exceed Congress’s commerce power, and did not reach certain additional constitutional and statutory arguments.
- The States appealed directly to the Supreme Court.
Issues
- Whether Congress’s adoption of the FLSA “enterprise” concept of coverage is within Congress’s power under the Commerce Clause.
- Whether applying the FLSA’s minimum wage and overtime requirements to state-operated schools and hospitals is a valid exercise of Commerce Clause power or an impermissible intrusion on state sovereignty.
Decision
- The Supreme Court affirmed in a 6–2 decision authored by Justice Harlan.
- The Court held the FLSA’s enterprise concept of coverage is within Congress’s Commerce Clause power.
- The Court held Congress may apply the FLSA’s wage and overtime requirements to employees of state-operated schools and hospitals.
- The Court did not definitively resolve the States’ Eleventh Amendment objections in this decision.
Legal Principles
- Congress may regulate wages and hours under the Commerce Clause when labor conditions substantially affect interstate commerce.
- Congress may define coverage through an “enterprise” approach where it has a rational basis to conclude that wage and hour conditions across the enterprise affect commerce, including through competitive effects and the prevention of labor disputes that could burden commerce.
- A State’s status as a sovereign does not categorically exempt it from generally applicable federal labor standards when the regulated state activity affects interstate commerce.
- Federal wage-and-hour regulation of state institutions is permissible when it does not dictate the substantive performance of state educational or medical functions but instead regulates the State as an employer on the same terms as other covered employers.
Conclusion
The Court sustained Congress’s use of enterprise-based FLSA coverage and upheld application of federal minimum wage and overtime requirements to state-operated schools and hospitals because their employment practices could rationally be found to affect interstate commerce.