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1090 A meeting of the Board of Governors of the Federal Reserve System and the Presidents of the Federal Reserve Banks was held in Washington on Tuesday, October 25, 1938, at 2:30 p.m. PRESIVT: Mr. Eccles, Chairman Szymczak Mr. McKee Mr. Davis Mr. Draper Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Thurston, Special Assistant to the Chairman Mr. Wyatt, General Counsel Mr. Smead, Chief of the Division of Bank Operations Mr. Goldenweiser, Director of the Division of Research and Statistics Mr.. Parry, Chief of the Division of Security Loans Mr. Dreibelbis, Assistant General Counsel Mr. Leonard, Assistant Chief of the Division of Examinations Mr. Owens, Assistant Counsel Messrs. Young, Harrison, Sinclair, Fleming, Leach, Newton, Schaller, Martin, Peyton, Hamilton, McKinney and Day, Presidents of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco, respectively. Mr. Williams, Vice President of the Federal Reserve Bank of New York Mr. Kimball, Actina. Secretary of the Presidents' Conference Mr. Buss, Managing Director of the Detroit Branch of the Federal Reserve Bank of Chicago - 10/25/38 -2- Mr. Harrison stated that the Presidents' Conference,which had been in session during the last two days, had given consideration, arr1°126 other matters, to the question of charges to be made by the Federal reserve banks for services rendered in connection with holding in safekeeping collateral deposited by banks as security for bankruptcy t4nas pursuant to Section 61 of the Bankruptcy Act and that it had been agreed that the service should be rendered without charge to mem- ber banks and that the charge to nonmember banks should be at the rate Of one-fortieth of one percent of the amount involved, with a minimum of $2.50 and a maximum of $250. He stated that this rate of charge was about the sane as charges made by commercial banks for comparable custodies and that it was believed that the Federal reserve banks were amply justified in making such charges. Mr. Harrison also stated that further discussion was had, by the Presidents, in the light of the Board's letter of October 7 to .1 ..-L1 Federal reserve barks, with respect to the practice of some Member banks of depositing unsorted currency in the afternoon and withdrawing sorted currency the following morning, and stated that, while the p residents were very much aware of the problem, they still felt that, as stated in the minutes of the meeting of the Presidents' Con- ference on September 20, 1938, the matter should be left to the individual Federal reserve banks to solicit the cooperation of their member banks in eliminating or modifying such practices as result in 1092 10/25/38 -3- unreasonable demands upon, or unwarranted expense to, the Federal reserve banks. During the discussion of this matter Mr. Harrison stated that studies at the Federal Reserve Bank of New York had indicated that the economies effected by the employment by the Federal reserve bnnk of twenty-five or thirty people for the purpose of sorting currency clearly justified such an arrangement when compared to the aggregate cost of doing such work by the member banks in New York City. He also stated that he felt that this service was a justified service to member banks in Federal reserve bank and branch cities which do not have the benefit of the large amount of free service rendered to other member banks. During the discussion which followed the suggestion was made that this matter should be considered very carefully by the Federal reserve banks from the standpoint of the question of the advisability incurring expense of this kind for the benefit of a few member banks in the cities where the Federal reserve banks and their branches are located as well as from the standpoint of the general desirability f b reducing expenses of the Federal reserve banks as much as possible ecause of reduced earnings. Reference was made to the success achieved by the Detroit Branch of the Federal Reserve Bank of Chicago in having member banks e°11fine fit currency deposits to currency not needed by the banks in 1093 10/25/38 -4- their current operations and, upon inouiry, Mr. Buss stated that he thc.ught it would be extremely difficult, if not impossible, to continue this arrangement if similar arrangements were not effected in other Federal reserve bank and branch cities and particularly in Chicago where it has not been possible to obtain the same degree of cooperation on the part of member banks. Mr. Harrison stated that the Federal reserve banks were working on the matter and that progress was being made in the elimination of abuses. Chairman Eccles stated that as soon as the information received from the Federal reserve banks in response to the Board's letter of October ,, 1938, had been tabulated the Board would give farther con- s ideration to the matter. Further discussion developed a difference of opinion on the Part of some of the Presidents as to whether or not the sorting of fit currency could be done more cheaply by the Federal reserve banks than by member banks in Federal reserve bank or branch cities, some of the Presidents feeling that the member banks could do the work at a smaller eddi tional cost by the utilization of idle time of tellers. In connection with this matter, President Harrison stated that he felt it would be advisable to have a survey made of the free serVicee rendered by the Federal reserve banks to their country member banks e-nd to the member banks in Federal reserve bank and branch cities t°eether with an estimate of the cost of the services rendered to the 094 10/25/38 -5- banks in the two groups respectively and he requested that the Committee on Free Services of the Presidents' Conference undertake such a study. Mr. Harrison then said that the Presidents' Conference considered the report submitted by the Standing Committee on Collections under date of September 20, 1938, as well as the memorandum prepared by*. R. B. Hays, Assistant Vice President of the Federal Reserve Beak of Cleveland and a member of the Standing Committee, under date of September 29, 1938, relating to changes in the check collection services of the Federal reserve banks, and approved in principle certain alternative recommendations of the committee but had decided that before action was taken the matter should be resubmitted to the committee for a further study of the expense to the Federal reserve banks which would be involved in putting the recommendations into effect and the increased volume of business that might result from the changes that would be made, as well as a consideration of certain Other questions such as the effect of the use of airmail and disre- garding district lines in determining collection schedules. As soon as the report is ready, President Harrison said, another meeting of the P residents' Conference will be called to consider the report. He added that the committee had been requested to invite representatives f all Federal reserve banks not now represented on the committee to Meat with the committee for the consideration of these matters. 1095 10/25/38 During President Harrison's statement Mr.. Buss left the roam. President Harrison stated further that advice of all of the actions taken at the meeting of the Presidents' Conference would be contained in the minutes of the conference meeting which would be sent to the Board in due course. Chairman Eccles reviewed for the information of the Presidents the c onsideration which had been given by the members of the Board and it staff to the question whether the Fair Labor Standards Act of 1938 ePPlias to the Federal reserve banks and certain questions relating to the Provisions of the Act which had been presented by counsel for the various Federal reserve banks. He stated that after giving careful Study to the entire matter a draft of a letter to all Federal reserve banks had been prepared by the staff which he desired to have read for the purpose of obtaining the views of the Presidents. At Chairman Eccles' request Mr. Owens discussed briefly the Principal problems considered by the Board's legal division and Pointed out that the draft of letter referred to by Chairman Eccles arloressed no opinion on the question whether the Federal reserve banks were subject to the provisions of the Fair Labor Standards Act of 1938 ' Mr. Snead stated that a rough estimate of the increased cost to the Federal reserve banks of conforming to the standards established by the Act campiled from information submitted by the banks in response to a recent request indicated that the increased expense would be apPr°xtmately t90,000 per Rnnum for building maintenance and service 10/25/38 -7- emPloyees and 4436,000 per annum for other employees on the basis of the forty-four hour work week, end approximately $280,000 per annum for building maintenance and service employees and 025,000 per annum for other employees on the basis of the forty hour work week which under +1, provisions of the Act will became effective after a period Of two years. He also stated that in practically all cases the cam- Pensation paid by the Federal reserve banks exceeds the minimum rates °f Pay prescribed by the Act. The draft of letter prepared by the Board's legal division was read, discussed and changed to read as follows, with the understanding that it would be dispatched to the Federal reserve banks tmm ediately: "The Board understands that, at their meeting in September, the Presidents of the twelve Federal Reserve banks expressed the view that, as a matter of policy, all of the Federal Reserve banks, for the time being at least, should conform to the standards established by the Fair Labor Standards Act of 1938, regardless of whether or not the provisions of the act may later be held to be inapplicable to the Federal Reserve banks. The Board concurs in the view that this is a desirable and proper policy for the Federal Reserve banks to pursue at this time. "The considerations which led to the adoption of this Policy support the view that the Federal Reserve banks Should apply the standards established by the act to all Classes of employees except classes specifically exempted by the act and that, whenever any doubt exists as to the applicability of the act to a particular employee or class Of employees, the doubt should be resolved in favor of its applicability, at least until the situation is clarified by administrative rulings or otherwise. Practical considerations as well as considerations of policy support 10/25/38 "this view. The act is drawn in very broad and sweeping terms; many doubts exist as to its correct interpretation as applied to particular situations; violations of the act are punishable by fine or imprisonment; and, under the Provisions of section 16(b) of the act, any employer who violates the provisions of sections 6 or 7 is liable to the employee or employees affected in double the amount of their unpaid minimum wages or their unpaid overtime compensation, as the case may be, and such liability may be enforced in suits brought by individual employees. "The Board understands that, while the policy of complying with the standards established by the act may entail some minor changes, the Federal Reserve banks have generally maintained working conditions more favorable to their employees than the minimum standards required by the act and that the adoption or this policy will not involve any major changes, either in hours of employment or in salaries paid. "In this connection, attention is invited to the provision of section 18 of the act to the effect that, 'No provision of this act shall justify any employer in reducing a wage paid by him which is in excess of the applicable minimum wage of this act or justify any employer in increasing hours of employment maintained by him which are Shorter than the maximum hours applicable under this act'. "On the other hand, it is believed that every reasonable effort should be made through careful management to avoid increasing the expenses of the Federal Reserve banks any more than is reasonably necessary in order to comply With the standards established by the act. To this end, it is expected that the Federal Reserve banks will carefully canvass the extent to which overtime work may be avoided and the taking on of more employees may be kept to a minimum, by lending employees between departments, by reducing the number of hours worked on one or more days of a week as an offset to overtime worked on other days in the same week, and by making other operating and administrative adjustments. "Inasmuch as it would seem desirable for all of the Federal Reserve banks to pursue uniform policies in conforming to the standards established by the act, the Board has considered questions raised by various Federal Reserve banks and its views as to the manner in which certain of these questions should he answered are set forth in a memorandum inclosed herewith. However, it Should be understood that no expression of the Board's views would 1098 10/25/38 -9- "afford the Reserve banks any legal defense in any criminal Proceeding for a violation of the act or in any suit brought bY an employee to recover double the amount of any overtime compensation alleged to be due him under the act, if it Should be held that the Federal Reserve banks were subject to the act. "It is not believed to be desirable at the present time for the Federal Reserve banks or the Board acting on their behalf to attempt to obtain any rulings or determinations from the Administrator. However, it is anticipated that from time to time the Administrator will issue regulations and will make determinations and rulings at the request of others, which will aid in deciding how best to conform to the standards prescribed by the act; and every effort will be made to obtain copies of such regulations, rulings and determinations, and to forward them to the Federal Reserve banks as promptly as possible." The memorandum referred to in the above letter read as follows: ncazums RELATIVE TO THE FAIR LABOR STANDARDS ACT OF 1938 "(The following statements are for the information of the Federal Reserve banks and do not represent final legal conclusions. All of such statements are, of course, subject to the possibility that different positions may be taken by the Administrator or by the courts.) "Maximum Hours of Work. "The Act does not forbid requiring employees to work more than the maximum number of hours specified in the statute if they are paid for work in excess of such maximum hours at a rate not less than one and one-half times the regular hourly rate of compensation. for the purposes of the Act the controlling factor is the total number of hours actually worked during any one workweek, regardless of any leave taken during such week. nWust Workweek be Same as Calendar Week? "The regulations of the Wage and Hour Division apParently contemplate that the workweek of an employee may be different from the calendar week and different from the Workweek of other employees of the same employer, provided that the workweek is not changed for the purpose of evasion 1099 10/25/38 -10- of provisions of the Act or any regulations prescribed pursuant thereto. "Maximum Hours in Workweek during Which Holiday Occurs. "Where an employee does not work on a holiday, there appears to be nothing in the Act to prevent him being required to work a maximum of forty-four hours during the other days of •the workweek in which the holiday occurs without any portion of such time being classed as overtime. "Allowance of Compensating Time in Lieu of Paying Overtime. "-Payment for overtime work may be minimized by reducing time worked on one or more days to offset overtime worked on other days of the same workweek. "Luncheon Periods. "Periods allowed for meals during any particular workweek should not be counted in determining the number of hours actually worked during such week. Worked do not exceed Overtime Fort -four Hours er Workweek. "The Act apparently does not require payment of time and one-half for overtime above the established number of hours in the bank's workweek but merely requires payment of time and one-half for overtime when the hours worked during any one workweek exceed forty-four hours and in &Lich case requires the payment of time and one-half only for the overtime hours in excess of forty-four. "Overtime Work Resulting. from Examinations, Audits, or Causes Buond the Bank's Control. "There is no Provision in the Act excluding overtime resulting from causes beyond the control of the employer. Therefore, it is believed that the fact that overtime results from audits or examinations of the bank or from causes beyond the control of the bank does not justify noncompliance with the terms of the Act. Ii9d of Computing Hourly Wage of Employees Receiving Mallilly_pr Yearly Salary. "The method of computing an employee's hourly wage ded in the regulations of the Administrator of Wage and Hour Division regarding records to be kept Pr°vi by employers pursuant to section 11(c) of the Fair Labor Standards Act. Copies of these regulations were forwarded to Counsel for the Federal Reserve banks on October 22, 1938. It is believed that, in making any division of annual or monthly salaries for the purpose of arriving at an hourly rate of pay, no deduction should be made for time itL 1100 10/25/38 -11- "allowed for annual leave or sick leave. For instance, in dividing the annual salary by a number of weeks, it Should be divided by fifty-two and not by fifty-two minus tne number of weeks allowed as annual leave or sick leave. Where the previously established workweek of an employee ls less than forty-four hours a week, it is not believed advisable arbitrarily to divide his weekly salary by fortyfour in order to determine his hourly wage, especially in view of the provisions of the last sentence of section 18 of the Act. "Buildinc Maintenance Employees. "The question has been raised as to whether the wage and hour provisions of the Act apply to building maintenance emPloYees, such as janitors, elevator operators, restaurant employees, watchmen, and guards. Although there are strong grounds for the view that the Act should not be construed as applying to such employees of Federal Reserve banks, it is understood that the Wage and Hour Division of the Department of Labor regards this as a very close question and has not reached a decision thereon. Accordingly, until this point is clarified, it is believed that it would be advisable for the Federal Reserve banks to apply the minimum wage and maximum hour provisions of the Act to building maintenance employees as well as to all other classes Of employees not specifically exempted from the Act. T.ISElions of Executive Administrative, and Professional "Regulations defining executive, administrative, and professional employees were issued by the Administrator on October 19, 1938, and copies were sent to Counsel for each Federal Reserve bank under date of October 20. It will be Observed that, under the terms of the regulation, the question whether a particular employee is exempted depends Upon the facts in each individual case. Each Federal Reserve bank should determine which of its employees fell Within these exemptions in the light of the regulations of the Administrator. Alklates of the Fiscal Agency Departments. "Eftoloyees in the fiscal agency departments of the Federal Reserve bsnks are not employees of the United States and, therefore, are not exempted under the provisions of section 3(d) of the Act. "h22.1122.1121ilty of Child Labor Provisions. "In view of the provisions of the Act on this subject, it is believed that no Federal Reserve bank should employ 1101 10/25/38 -12- “or continue in its employ any person under sixteen years Of age. "Time Spent in Traveling. "There is nothing in the Act or in any of the administrative rulings to furnish any guide as to the proper treatment of time spent by a nonexempted employee in traveling on the business of his employer in determining the number of hours worked during a workweek. Therefore, the Board is not in a position to express any opinion on this subject. It is suggested, however, that a careful record be kept of the total time spent by nonexempted employees While in a travel status and of the portion of such time spent actually working (excluding the time spent solely in traveling) and other pertinent data, in order that appropriate adjustments may be made when the solution of this problem has been determined. "Records. "The Act requires an employer to keep such records as the Administrator shall prescribe by regulation or order. Regulations on this subject were published in the Federal Register for October 22, 1938, copies of which were sent to Counsel for the Federal Reserve banks on that date.” In connection with the questions referred to in the above memo' l ancluill Mr. Owens stated that it had not been possible to reach a satisfac t°/7 conclusion relating to the treatment of time spent by non-exempted ernPloyees in traveling or on the question whether examiners should be regarded as executive, administrative or professional employees but that it was believed that there were grounds for regarding them as Professional employees, at least until a determination of the matter had been made by the Administrator of the Wage and Hour Division of the Department of Labor. As a result of a discussion of these points it wEls agreed that for the time being employees engaged in examining banks should be regarded as professional employees. Thereupon the meeting adjourned.
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