Appeals from an order of the United States Court for the Southern District of New York (Tenney, J.) granting migrant workers summary judgment on the ground that the cost of on-site housing furnished by farm owners was not part of the workers' wages, and from an order awarding the workers back pay, liquidated damages, and attorneys' fees. Reversed and Remanded.
Oakes and Winter, Circuit Judges, and Zampano, District Judge.*fn*
The central issue raised on these appeals is whether the district court erred in setting aside as arbitrary and capricious the determination by the Department of Labor's Wage and Hour Administrator ("Administrator") that certain housing facilities furnished to migrant farm workers primarily benefited the workers and, therefore, could qualify in part as "wages" under § 3(m) of the Fair Labor Standards Act of 1983 ("FLSA"), as amended, 29 U.S.C. § 203(m) (hereinafter referred to as § 3(m)).*fn1
We conclude that the district court exceeded the scope of its review authority under the Administrative Procedure Act, 5 U.S.C. § 551 et seq. ("APA"), that the Administrator's decision was not arbitrary and capricious, and that the case must be remanded to the district court for further proceedings.*fn2
From 1978 to 1984, the appellees were migrant farmworkers ("workers") who were employed, along with year-round laborers, to harvest crops grown on farms owned by six appellants in Orange County, New York. During the main growing season from May to September, the growers offered housing to those workers who preferred to live on the farms rather than seeking accommodations in nearby areas.
Prior to 1978, the resident housing was provided to workers without charge. However, after Congress amended the FLSA to extend the minimum wage provisions to include agricultural workers in 1978, the growers met with state and federal labor officials who concluded that it would be permissible under certain conditions to deduct the reasonable value of the housing facilities from the cash wages of each worker from whom lodging was provided. The growers thereafter generally deducted $.25 per hour from each on-site worker's pay.
In June 1978, the workers complained to the Department of Labor ("DOL") that the charges were unfair and, in July 1978, petitioned the Administrator to determine the fair value of the housing. Compliance officers from the Department commenced an investigation of the workers' claims*fn3 and, on July 25, 1980, the Administrator announced that an administrative hearing would be conducted to assess the appropriate amount for the housing deductions. In the meantime, the workers instituted suit in December 1978 in federal court challenging the validity of the housing charges, which action was stayed pending the outcome of the administrative proceedings. See 477 F. Supp. 102 (S.D.N.Y. 1979).
B. THE ADMINISTRATIVE PROCEEDINGS
Between September 8, 1980 and October 6, 1981, at the request of the Administrator, an Administrative Law Judge ("ALJ") held twenty-nine days of hearings on the housing deduction issue. At the hearings, all the parties were represented by counsel, twenty-six witnesses, including real estate experts, gave over 6500 pages of testimony, and 200 exhibits were introduced. In a comprehensive fifty-five page memorandum, the ALJ concluded, inter alia, that: 1) the lodging primarily benefited the workers; 2) no deductions would be allowed for periods in which the growers were not in compliance with sanitary regulations applicable to migrant housing; and 3) the fair rental value for the various housing in question ranged between $7.00 and $22.00 per week, per unit.
The Administrator's subsequent decision, filed on February 9, 1983, adopted most of the ALJ's findings,*fn4 concurred with the ALJ that substantial evidence supported the determination that the housing was furnished primarily for the benefit of the workers, and that, for reasons not relevant to these appeals, the range of fair rental values should be adjusted to $2.37 and $24.79 per week, per unit.
C. THE DISTRICT COURT'S DECISION
Both the workers and the growers sought district court review of the Administrator's decision under the APA. While recognizing that the "scope of judicial review (under the APA) is narrow, and the court should not substitute its judgment for that of the agency," 615 F. Supp. at 740-41, the district court nevertheless concluded that the Administrator's decision should be set aside as "arbitrary and capricious" and "because the decision is not in accordance with the law." Id. at 741.
The district court supported summary judgment for the workers on both legal and factual grounds. First, it rejected the principle advanced by the Administrator that, under § 3(m) of the FLSA, a presumption exists that housing facilities, like meals, are a basic necessity for human existence and ordinarily should be included in an employee's regular rate of pay. An exception to this presumption, according to the Administrator, would be in special circumstances where the facilities "are found by the Administrator to be primarily for the benefit or convenience of the employer," under 29 C.F.R. § 531.3(d)(1). The district court characterized the administrator's position as "not consistent with the policy underlying the FLSA," 615 F. Supp. at 742 n.13, and held that the controlling Regulation, 29 C.F.R. 531.3(d)(1), required that a balancing test be applied in all cases to determine whether the housing ...