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January 30, 1948

SIOMKIN et al.

The opinion of the court was delivered by: BYERS

This is a defendant's motion under Rule 12(b) of the Federal Rules of Civil Procedure, 28 U.S.C.A.following section 723c, to dismiss the complaint for failure to state a claim upon which relief can be granted (in fewer words, it is a demurrer).

The action is to recover a minimum sum of $ 250,000.00 and attorneys' fees for alleged violation of the Fair Labor Standards Act of 1938, 29 U.S.C.A. § 201 et seq., in that the defendant is alleged to have failed to pay for overtime in accordance with the requirements of the statute.

The defendant manufactures aerial cameras, sextants, range finders, gun fire control instruments, radio compasses, etc., and it is not difficult to infer who its largest customer was during the years 1941-1945, inclusive, although the challenged pleading is silent on that particular subject.

 The material allegations of the complaint are concerned with the operation of a bonus system inaugurated April 10, 1940, as of January 1 of that year according to the terms of a prospectus entitled "Employee Participation' Plan'. It states that it is not to be considered as a substitute for wages or salaries, 'but is to be paid in recognition of the value to the company of trained, steady, cooperative employees, and the added effective thought and effort they may put forth to bring additional profits to the Company'.

 That is a candid statement.

 After defining participants and non-participants, as to which no issue is presented, the document reads:

 'Method of Calculating the 'Employee Participation'

 'The payment is to be a percentage rate, to be determined by the Board of Directors, figured on one-half of the total wages or salary received during the last period of continuous employment within the five calendar years immediately preceding the date of payment of the 'Employee Participation'.

 'For example, if an employee has been in the continuous employ of the Company for the calendar years 1936, 1937, 1938, 1939 and 1940, and his earnings during that period have totalled $ 8,000, and assuming the 'Employee Participation' rate were set at 3%, he would on May 1, 1941, receive a check for $ 120 representing a 3% return for one year on $ 4,000 being one-half of his total earnings for the five year period.

 'As another example, if the same employee had been in the company only during the last three years, and his total earnings during that period amounted to $ 4,800 he would receive a check for 3% of $ 2,400 or $ 72.00.

 'It is obvious that length of service up to five years will automatically increase the amount of 'Employee Participation' to be received by any individual.'

 'Date of Payment

 'Payments will be made on May first of each year beginning with May 1, 1941 or as soon thereafter as the final figures are available. No earlier date can be safely set due to the necessity of awaiting the certified figures of the auditors covering the earnings of the previous calendar year.'

 'General Method of Fixing the 'Employee Participation' Percentage

 'It is first assumed that the actual investor in the Company has the prior right to a reasonable return on his investment, and that such return should be on a basis of not less than 6%.

 'It is further assumed that inasmuch as this 'Employee Participation' is not intended as a substitute for wages or salaries which are to be paid for at prevailing rates, but as an extra inducement for improving the profit of the business, the amount to be distributed shall be a part of those earnings over and above the amount of the reasonable return referred to.

 'After this reasonable return is paid, or set aside for stockholders, it is assumed that a portion of any earnings in excess of such reasonable return shall be considered as extra earnings due in part at least to savings, suggestions, improvements and extra thought and effort on the part of employees and that such employees should benefit in proportion to length and continuity of service.

 'A careful study of past records indicates that after giving effect to the various changes occurring since the date of organization of the company in 1927, the actual cash investment of stockholders amounts to an average of approximately $ 14.00 per share on the present outstanding 337,032 shares, or $ 4,718,448.00.

 'It is the present intention of the Directors to declare a rate of 'Employee Participation' which will represent an approximate percentage return in excess of 6% after taking into consideration any additional capital invested in the business either from new ...

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