CALIFORNIA EMPLOYMENT COMMISSION v. BUTTE COUNTY RICE GROWERS ASS (1944)

The controversy presented by this appeal is whether or not the services performed for defendant by its employees constituted agricultural labor and hence were exempt from the contributions provided for under the California Unemployment Insurance Act. Stats., 1935, p. 1226, as amended, Deering's Gen. Laws, 1937, Act 8780d.

In this action plaintiff, California Employment Commission, authorized to administer the act, was unsuccessful in the trial court in its attempt to recover such contributions with interest and penalties alleged to be due from defendant under the act for a portion of the years 1937 and 1939 and all of 1938, it being determined that the services so performed were exempt from such contributions.

Defendant is a cooperative association incorporated in 1914 under the laws providing for the organization of cooperative agricultural associations, not created to make a profit for themselves or their members as such but only for their members as producers. Civ.Code, secs. 653m–653s, added by Stats. 1909, p. 16; now in Agricultural Code, secs. 1191–1221. Under the above cited provisions, persons who are producers may form such a corporation, Agricultural Code, sec. 1193, and may admit as members only persons engaged in the production of products ‘to be handled by or through the association, including the lessees and tenants of land used for the production of such products and any lessors and landlords who receive as rent all or part of the crop raised on the leased premises.’ Agricultural Code, sec. 1195. Defendant limited its membership to owners or tenants of a minimum quantity of land in Butte County, and all of its members are producers of agricultural products. Its membership certificates are valued at $300 each, there being 48 outstanding at the time in question. There are 25 applicants for membership who have each paid $10 on account.

Defendant owns and operates a warehouse in which it stores grain and rice for its members, including the applicant members, but not others, except sometimes the assignees of members. It does not process or sell rice, grain or other products. At the beginning of the season it fixes a storage charge and makes rebates at the end thereof if the charge is more than the amount necessary to meet the cost of operation. No rebate is made to the applicant members unless they pay the balance dud on their membership. Defendant purchased, usually upon order of its members, and sold to its members, merchandise commonly used in farming but made no profit thereon. It made a few sales of merchandise to one of its employees, not one of its members. It is licensed by the State Department of Agriculture to conduct a general warehouse business and authorized to issue negotiable warehouse receipts, Agricultural Code, Secs. 1231–1258, which are sometimes assigned by the members and the assignee pays the storage charges. The storage rates have been fixed by defendant's directors but not by the Railroad Commission. It did not solicit business from nonmembers or permit the public to use the warehouse. However, by reason of having secured a license as a warehouseman from the Department of Agriculture it assumed the following legal duty:

‘Every warehouseman conducting a licensed warehouse shall receive for storage therein, so far as its capacity permits, any product of the kind customarily stored therein by him which may be tendered to him in a suitable condition for warehousing in the usual manner in the ordinary and usual course of business, without making any discrimination between persons desiring to avail themselves of warehouse facilities.’ Agricultural Code, sec. 1242.

Defendant's employees consist of seasonal labores employed when grain or rice is received or is leaving the warehouse, except for a warehouseman and bookkeeper who are employed annually. Defendant carries Workmen's Compensation Insurance on its employees.

Plaintiff commission contends that under the provisions of section 90 of the California Unemployment Insurance Act it adopted certain rules; that its rule 7.1 defining agricultural labor is valid; that under this rule the service performed by defendant's employees did not constitute agricultural labor; and that it any event they were not such under the statute. Defendant takes the contrary view upon all of those questions.

The Unemployment Insurance Act was adopted in 1935. It provides for the payment of contributions to alleviate conditions of unemployment in industry generally, but exceptions from its operation are provided for therein. Section 7(a) reads in part: ‘The term ‘employment’ does not include: (a) Agricultural labor; * * *.' No definition of that term is given in the act. Plaintiff, California Unemployment Commission is created by the act, sec. 75, and to it is entrusted the enforcement of the act. It is authorized, and it is its duty, to ‘adopt and enforce rules and regulations which to it seem necessary and suitable to carry out the provisions of this act.’ Sec. 90(a). Its first rule, and an amplification thereof defining the term ‘agricultural labor,’ were effective in 1935. It generally embraced anyone engaged in the art or service of cultivating the ground, the harvesting, or the packing and preparation for market of products where the commodity does not change its original state. The amplification dealt with horticultural products. A rule effective in January, 1936, also exempted from the operation of the act services performed in the packing and preparation for market by growers and nonprofit cooperative marketing associations, where the commodity did not change its original state, and such services were performed exclusively for members and no profit was made.

There is a clear indication in those rules that it was intended that the term ‘agricultural labor’ should embrace more than employment in the mere cultivation and harvesting of products. Packing and preparation for market were also included when done by a nonprofit association, which may imply that services rendered in connection therewith need not be performed upon the land where the commodities were produced or for the actual producer. In the instant case the storage may have been an incident of the harvesting, packing and preparation of the products for market. The rule (rule 7.1) effective on February 14, 1937, which was in force during the time here involved, stated that:

‘The term ‘Agricultural Labor’ includes all services performed: (1) By an employee on a farm, in connection with the cultivation of the soil, the raising and harvesting of crops, the raising feeding, management of live stock, poultry, and bees; which includes, among others, the spraying, pruning, fumigating, fertilizing, irrigating, and heating which may be necessary and incident thereto; (2) By an employee in connection with the drying, processing, packing, packaging, transportation, and marketing of materials which are produced on the farm or articles produced from such materials, providing such drying, processing, packing, packaging, transporting, or marketing is carried on as an incident to ordinary farming operations as distinguished from manufacturing or commercial operations.

‘The services hereinabove set forth do not constitute agricultural labor unless they are performed by an employee of the owner of tenant of the farm on which the materials in their raw or natural state were produced. Such services, however, do not constitute agricultural labor if they are carried on as an incident to manufacturing or commercial operations.

‘As used herein the term ‘farm’ includes, among others, stock, dairy, poultry, fruit, and truck farms, plantations, ranches, oranges, orchards and vineyards.

‘Forestry and lumbering are not included within the exemption of agricultural labor.’

The rule adopted in April, 1940, added nothing material to the above-quoted rule 7.1, insofar as the facts in the instant case are concerned.

Defendant contends that rule 7.1 is void and its adoption constituted a usurpation of power on the part of the commission and an unlawful attempt to bring under the jurisdiction of the commission a large number of agricultural laborers that are excluded from the operation of the act under its express terms. In support of the validity of the rule plaintiff contends that it has been ratified by the Legislature, and under settled rules of statutory construction it must be held that the Legislature has approved the definition of agricultural labor contained therein.

During the first session of the Legislature following the adoption of the act (1937), rule 7.1 became effective. At that session section 7 of the act was twice amended, Stats. 1937, pp. 2052, 2057, but the term ‘agricultural labor’ remained the same as it had theretofore existed without amplification. Likewise, in 1939, section 7 was amended but no definition of what constituted agricultural labor was given. Stats. 1939, ch. 628, p. 2048; ch. 1039, p. 2850. At the 1939 session section 90(b) of the act dealing with the authority of the commission to adopt rules and regulations was amended by adding thereto the sentence: ‘Rules or regulations heretofore adopted shall continue in effect until amended or rescinded in accordance with the procedure prescribed by this section.’ Stats. 1939, ch. 1083, p. 3006. Also during the 1939 session of the Legislature, amendments to the Federal Social Security Act dealing with unemployment insurance were being considered and such amendments were adopted by Congress on August 10, 1939; they defined agricultural labor in detail and broadly, the term having theretofore been undefined by Congress. It read in part: ‘The term ‘agricultural labor’ includes all service performed—(1) On a farm, in the employ of any person, in connection with cultivating the soil, or in connection with raising or harvesting any agricultural or horticultural commodity, including the raising, shearing, feeding, caring for, training, and management of livestock, bees, poultry, and fur-bearing animals and wildlife. * * * (4) In handling, planting, drying, packing, packaging, processing, freezing, grading, storing, or delivering to storage or to market or to a carrier for transportation to market, any agricultural or horticultural commodity; but only if such service is performed as an incident to ordinary farming operations or, in the case of fruits and vegetables, as an incident to the preparation of such fruits or vegetables for market. The provisions of this paragraph shall not be deemed to be applicable with respect to service performed in connection with commercial canning or commercial freezing or in connection with any agricultural or horticultural commodity after its delivery to a terminal market for distribution for consumption.' 26 U.S.C.A., Int.Rev.Code, § 1607. A bill introduced in the Legislature providing for the adoption of the federal definition of the term, whatever it might be did not pass. However, the 1939 amendment to section 7 of the California Unemployment Insurance Act did add many of the other amendments made by Congress in 1939. At the extra session of the Legislature in 1940, a resolution directing the commission to adopt the definition given to the term by Congress in 1939 did not pass. In 1941, the Legislature again amended several sections of the act but did not amend section 7. A bill was introduced to amend section 7 so as to define the term practically the same as was done by Congress in 1939, but on recommendation of the committee to which it was assigned, the amendment was stricken. In 1943, the Legislature passed a bill amending section 7, giving the definition of the term used by Congress in the 1939 federal statute; it was vetoed by the Governor.

The interpretation given to the terms of a statute by the administrative agency entrusted with its administration and authorized to adopt rules and regulations to facilitate such administration, followed by amendments to and reenactments of the statute by the Legislature without changing the terms used, is a factor that may be considered in determining the meaning of the terms intended by the Legislature. See Federal C. Comm. v. Columbia Broadcasting System, 311 U.S. 132, 61 S.Ct. 152, 85 L.Ed. 87; Helvering v. Hallock, 309 U.S. 106, 60 S.Ct. 444, 84 L.Ed. 604, 125 A.L.R. 1368; McGoldrick v. Gulf Oil Corp., 309 U.S. 414, 60 S.Ct. 664, 84 L.Ed. 840; People v. Southern Pacific Co., 209 Cal. 578, 290 P. 25; Colonial Mutual Compensation Ins. Co., Ltd., v. Mitchell, 140 Cal.App. 651, 36 P.2d 127; Godward v. Board of Trustees, 94 Cal. App. 160, 270 P. 725; Taft v. Commissioner of Internal Rev., 304 U.S. 351, 58 S.Ct. 891, 82 L.Ed. 1393, 116 A.L.R. 346; 54 Harv. L. Rev. 1311; 27 Cal. L. Rev. 578; Sutherland Statutory Construction, 3d Ed., secs. 5109, 6709. In the instant case the persuasiveness of that rule is somewhat weakened by reason of the relatively short period of time the administrative construction embodied in rule 7.1 had prevailed and the fact that different rules existed prior thereto. Still the rule was in effect during the 1939 and part of the 1939 legislative session and when the Legislature amended section 7 of the act without altering or amplifying the term ‘agricultural labor.’ Moreover, a bill failed of passage in 1939 which would have adopted the congressional definition of 1939, and at the same session section 90(b) of the act was amended by adding a sentence expressly recognizing the existing rules and regulations of the commission. There followed as heretofore mentioned, the failure of the resolution at the special session in 1940, and at the regular session in 1941, the failure of a bill to adopt the congressional definition of the term although the act was otherwise amended at that session. In 1943, a bill was passed by the Legislature adopting that definition. It was vetoed, but its passage by the Legislature evinces some indication that it believed such an amendment to section 7 was necessary in order to nullify the existing rule 7.1. It must therefore be concluded that there is persuasive indication from the legislative action and nonaction after rule 7.1 became effective that the Legislature intended to have the term so defined and was satisfied with that definition.

There is an additional indication of the legislative intent as to the scope of the term ‘agricultural labor.’ Reference has heretofore been made to the adoption by the federal government of the Social Security Act, which was being considered by Congress in 1935 at the same time that our act was before our Legislature. The federal act dealing with relief of unemployment was passed on August 14, 1935. 42 U.S.C.A. § 1101–1110. That act exempted ‘agricultural labor’ by use of that term alone without definition. 42 U.S.C.A. § 1107; transferred in 1939 to Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code § 1607. Pursuant to authority to adopt rules and regulations, 42 U.S.C.A. § 1108, the Commissioner of Internal Revenue with the approval of the Secretary of the Treasury adopted in February, 1936, the following definition of the term which, it may be seen, is substantially the same as plaintiff's rule 7.1: ‘The term ‘agricultural labor’ includes all services performed—(a) By an employee, on a farm, in connection with the cultivation of the soil, the harvesting of crops, or the raising, feeding or management of live stock, bees, and poultry; or (b) By an employee in connection with the processing of articles from materials which were produced on a farm; also the packing, packaging, transportation, or marketing of those materials or articles. Such services do not constitute ‘agricultural labor’, however, unless they are performed by an employee of the owner or tenant of the farm on which the materials in their raw or natural state were produced, and unless such processing, packing, packaging, transportation, or marketing is carried on as an incident to ordinary farming operations as distinguished from manufacturing or commercial operations.' The state act was adopted in the light of contemplated conformity to the federal act. Because of the inter-relation of the acts, the obligations imposed by them, and the necessity for the adoption of an approved state act in order that benefits under the federal act may be enjoyed, there is a strong justification for the policy that they operate uniformly and harmoniously. See Industrial Commission v. Woodlawn Cemetery Ass'n, 232 Wis. 527, 287 N.W. 750; Woods Bros. Const. Co. v. Iowa U. Compensation Comm., 229 Iowa 1171, 296 N.W. 345; Matcovich v. Anglim, 9 Cir., 134 F.2d 834; Buckstaff Bath House Co. v. McKinley, 308 U.S. 358, 60 S.Ct. 279, 84 L.Ed. 322. That policy is evinced by the state act. Section 2, St.1939, p. 1968, provides in part: ‘This act is enacted as a part of a national plan of unemployment reserves and social security, and for the purpose of assisting in the stabilization of unemployment conditions. The imposition of the tax herein imposed upon California industry alone, without a corresponding tax being imposed upon all industry in the United States, would, by the corresponding penalty upon California industry, defeat the very purposes of this act set forth in section 1. Therefore this act shall take effect only if and when there is enacted legislation by the United States Government providing for a tax upon the payment of wages by employers in this State, against which all or any part of the contributions required by this act may be credited.’ Hence, some significance and weight should be given to the federal agency's definition in construing the state act. See, also, H. Duys & Co. v. Tone, 125 Conn. 300, 5 A.2d 23; Woods Bros. Const. Co. v. Iowa U. Compensation Comm., supra; Industrial Commission v. Woodlawn Cemetery Ass'n, supra; Unemployment Comp. Comm. v. Wachovia Bank & T. Co., 215 N.C. 491, 2 S.E.2d 592.

The cases of Stuart v. Kleck, 9 Cir., 129 F.2d 400, and Chester C. Fosgate Co. v. United States, 5 Cir., 125 F.2d 775, do not repudiate the treasury definition. They held that in its orthodox sense the services performed where a corporation supplied labor to cultivate the soil and do other things on the land for the owners thereof, constituted agricultural labor within paragraph (a) of the treasury regulation, and that the second sentence in paragraph (b) was not intended to qualify paragraph (a). Indeed they applied the regulation.

It cannot be said that the definition of agricultural labor stated in rule 7.1 of the California Employment Commission heretofore quoted is unreasonable and beyond the power of the commission granted by the act. It is true that ‘an administrative agency may not, under the guise of its rule making power, abridge or enlarge its authority or exceed the powers given to it by the statute, the source of its power.’ California Drive-In Restaurant Ass'n, v. Clark, 22 Cal.2d 287, 302, 140 P.2d 657, 665, 147 A.L.R. 1028. Nevertheless a regulation must be definitely in excess of the scope of authority before it may be declared void. There are several factors pertinent in considering whether that authority was exceeded. As we have seen there is a clear indication that the definition was that intended by the Legislature, the United States Treasury regulation is the same, the endeavor to adopt a different definition, or the 1939 congressional definition, was unsuccessful, and the term itself is uncertain and does not have an unequivocal and positive meaning. In line with Stuart v. Kleck, supra, and Chester C. Fosgate Co. v. United States, supra (see, also, California Employment Comm. v. Bowden, 52 Cal.App.2d Supp. 841, 126 P.2d 972), under the first paragraph of the rule the services may be agricultural labor where the employees are not employed by the owner or tenant of a farm when, however, the services performed are of the character which are clearly acts of farming. When it comes to packing, processing, transporting and storing in a warehouse off the farm we find activities which are in many respects a part of farming operations, and it may be that they are also frequently commercial enterprises. It is not unreasonable to limit such services to those performed by employees of an owner or tenant of the farm on which the products are produced, hence, tying those activities to the farm.

Applying rule 7.1 to the facts in the instant case, it clearly appears that the services performed by defendant's employees constituted agricultural labor as therein defined. True, the employees were not engaged by the farmers or tenants in person, but the activities engaged in by defendant were concerned either with storage of the products of farms owned or operated by its members, or the procurement and handling of merchandise used by its members in farming operations. The corporation, the association, is nothing more than an instrumentality of the owners and tenants of the farms. None but owners or tenants are accepted as members. The corporation is nonprofit and operates for its members thus indicating its noncommercial character and that it is only an instrumentality of the members. This view finds support by implication in the law under which defendant is organized. Section 1213 of the Agricultural Code provides: ‘* * * any exemptions under any and all existing laws applying to agricultural products in the possession or under the control of the individual producer, shall apply similarly and completely to such products delivered by its farmer members, in the possession or under the control of the association.’ That clause embodies the thought that the association and its members may be treated as one in connection with exemptions in the laws although it refers only to products. Only one instance is shown where a non-member was supplied merchandise. Storage facilities were supplied only to members. The fact that defendant has a license to operate its warehouse and thus has assumed the duty to serve the public is not controlling. More vital is the actual manner in which defendant operates. The services performed are of the character that is common in conducting a farm, and a necessary part thereof, that is, handling and storage of the crops produced and handling and procuring equipment. If a farmer stores his products on his property it would not be doubted that such was a part of his agricultural pursuit. It is not required that such storage be made on his farm. If he or his neighbors form a group to perform the same functions off the farms they are still engaged in agriculture. If it be said that paragraph (1) of rule 7.1 does not embrace the activity here involved because it is not performed on the farm, and that likewise paragraph (2) does not include the activities here involved, then we have an activity which is clearly agricultural in character but which is neither embraced in nor excluded by the rule. However, we believe the storage of materials produced on a farm is included within paragraph (2), and, as we have seen, defendant's employees were in effect the employees of the landowners or tenants, and that the procurement of equipment for use on a farm is a farming activity. There is no commercial aspect to defendant's activity considering the manner in which it is conducted. In arriving at this conclusion we are not disregarding the corporate entity of defendant as that phrase is commonly understood but are merely arriving at a definition of agricultural labor.

The foregoing reasoning finds support in the case of Industrial Commission v. United Fruit Growers, Ass'n, 106 Colo. 223, 103 P.2d 15, 17, where the court said: ‘Also it is conceded that if an individual farmer member of the association marketed the fruit produced from his orchard, the labor attendant to such marketing operation would enjoy an exempt status under both regulation 6 and statute. The commission contends, however, that a transition from an exempt to a non-exempt position occurs when the association takes over the marketing function, and the labor incident thereto is performed by its employees, and not the farmers. We cannot agree with this contention. If the labor employed by one individual grower in marketing his crop is within the exception of the statute, as unquestionably is the case, it would seem that if two or more farmers pool their crops and cooperate in marketing them, their situation would not be different from that of the individual grower. It is a matter of common knowledge that all fruit growers do no belong to cooperative associations and that such producers individually, with labor employed by them, attend to their own marketing operations. Thus we can perceive no reason for holding that because a number of fruit farmers cause a cooperative association to be organized for the purpose of facilitating the marketing of their farm products, they should be subject to the terms of a regulatory statute which concededly would not apply to the labor employed by them if acting individually, or by other persons engaged in the same activity who are not members of such an association. * * * The basic conception of an agricultural cooperative association is that of a group of farmers who reside in the same vicinity acting together for their mutual benefit in the cultivating, harvesting and marketing of their agricultural products, and the association itself, with the special powers and limitations conferred by statute, is merely a convenient instrumentality in the hands of the farmers for carrying on such activities. As is stated in United States v. Rock Royal Co-op., 307 U.S. 533, 59 S.Ct. 993, 1008, 83 L.Ed. 1446: ‘These agricultural cooperatives are the means by which farmers and stockmen enter into the processing and distribution of their crops and livestock.’ In Mountain States Ass'n v. Monroe, 84 Colo. 300, 269 P. 886, we held that the relation between a cooperative marketing association and its members is that existing between a trustee and his beneficiary or a principal and his agent. Under our cooperative marketing law, such associations are given the power ‘to act as the agent or representative of any member or members in any of the above mentioned activities' (c. 106, § 19(c) '35 C.S.A.), which includes ‘marketing’ (c. 106, § 17, '35 C.S.A.). Section 35 of the Cooperative Marketing Act provides: ‘Any provisions of law which are in conflict with this article shall be construed as not applying to the associations herein provided for. Any exemptions whatsoever under any and all existing laws applying to agricultural products in the possession or under the control of the individual producer, shall apply similarly and completely to such products delivered by its members, in the possession or under the control of the association.’ Accordingly, because of the peculiar relationship between the cooperative association and its members, it would seem evident that such of the purely agricultural activities of the producer members as are incidental to his ordinary farming operations remains so whether they are performed by him on his farm or for him through the medium of his cooperative marketing association.' The cases of Great Western Mushroom Co. v. Industrial Commission, 103 Colo. 39, 82 P.2d 751; H. Duys & Co. v. Tone, 125 Conn. 300, 5 A.2d 23; Park Floral Co. v. Industrial Commission, 104 Colo. 350, 91 P.2d 492; Christgau v. Woodlawn Cemetery Ass'n, Winona, 208 Minn. 263, 293 N.W. 619; Unemployment Comp. Div., etc., v. Valker's Greenhouses, 70 N.D. 515, 296 N.W. 143; Oak Woods Cemetery Ass'n v. Murphy, 383 Ill. 301, 50 N.E.2d 582, were concerned chiefly with the question of industrial as distinguished from farming activity or that the labor be performed on the farm. Those matters have heretofore been discussed. See St. Louis Rose Co. v. Unemployment Comp. Commission, 348 Mo. 1153, 159 S.W.2d 249. The latter factor is not required by the rule.

These views are not contrary to those expressed in Cowiche Growers v. Bates, 10 Wash.2d 585, 117 P.2d 624. There, although reliance was placed upon North Whittier Heights C. Ass'n v. National Labor Relations Board, 9 Cir., 109 F.2d 76, the state statute required that the services be performed on the farm for the owner or tenant. Also, see Appeal of Wenatchee Beebe Orchard Co., 16 Wash.2d 259, 133 P.2d 283. In North Whittier Heights C. Ass'n v. National Labor Relations Board, supra, the activity had been so large and separate and distinct that it was considered industrial. It would serve no useful purpose to review or attempt to rationalize all of the cases which have considered the definition of agricultural labor as used in unemployment insurance acts or other laws. The situation in each case must be treated alone.

Our attention has just been called to the case of Employment Security Comm. v. Arizona Citrus Growers, Ariz., 144 P.2d 682, in which case the Supreme Court of Arizona holds that under a rule of the Arizona Employment Security Commission similar to the rule here involved, services rendered by employees of the Arizona Citrus Growers, a corporation organized under the cooperative marketing laws of Arizona in picking, grading, sorting, cleaning, wrapping and boxing fresh citrus fruit for the purpose of preparing the same for market, did not constitute agricultural labor because such services were performed for a separate corporate entity and not for the owner or tenant of the farm on which the crops were grown. While the last cited case has some distinguishing features from the case now before us, we are not disposed, for the reasons above stated, to predicate our conclusion upon the sole factor that the services here involved were performed for a separate corporate entity regardless of the relation of that entity to the farmers who produced the crops in connection with which the services were performed.

Plaintiff invokes the rule that an exemption from a tax must be strictly construed against the exemption. But assuming that rule to be applicable it is of little value, as we believe it is apparent from the foregoing discussion that it would not alter the conclusion reached. Nor may much help be gleaned from the purported reasons for the exemption of agricultural labor, such as the administrative difficulties in applying the act to farmers, the seasonal character of the labor and the like. The act must be taken as written and to apply the various supposed reasons for the exemption would lead only to confusion.

The judgment is affirmed.

CARTER, Justice.

GIBSON, C. J., and SHENK, CURTIS, EDMONDS, TRAYNOR, and SCHAUER, JJ., concurred.