author: Mr. Justice Stewart

text:
    BINGLER, DISTRICT DIRECTOR OF INTERNAL REVENUE v. JOHNSON et al.
    No. 473.
    Argued March 3-4, 1969.
    Decided April 23, 1969.

      Harris Weinstein argued the cause for petitioner. With him on the briefs were Solicitor General Griswold, Assistant Attorney General Walters, former Assistant Attorney General Rogovin, Jonathan S. Cohen, and Michael B. Arkin.

      James C. Larrimer argued the cause and filed a brief for respondents.
   Mr. Justice Stewart

delivered the opinion of the Court.

We are called upon in this case to examine for the first time § 117 of the Internal Revenue Code of 1954, which excludes from a taxpayer’s gross income amounts received as “scholarships” and “fellowships.” The question before us concerns the tax treatment of payments received by the respondents from their employer, the Westinghouse Electric Corporation, while they were on “educational leave” from their jobs with Westinghouse.

During the period here in question the respondents held engineering positions at the Bettis Atomic Power Laboratory in Pittsburgh, Pennsylvania, which Westinghouse operates under a “cost-plus” contract with the Atomic Energy Commission. Their employment status enabled them to participate in what is known as the Westinghouse Bettis Fellowship and Doctoral Program. That program, designed both to attract new employees seeking further education and to give advanced training to persons already employed at Bettis, offers a two-phase schedule of subsidized postgraduate study in engineering, physics, or mathematics.

Under the first, or “work-study,” phase, a participating employee holds a regular job with Westinghouse and in addition pursues a course of study at either the University of Pittsburgh or Carnegie-Mellon University. The employee is paid for a 40-hour work week, but may receive up to eight hours of “release time” per week for the purpose of attending classes. “Tuition remuneration,” as well as reimbursement for various incidental academic expenses, is provided by the company.

When an employee has completed all preliminary requirements for his doctorate, he may apply for an educational leave of absence, which constitutes the second phase of the Fellowship Program. He must submit a proposed dissertation topic for approval by Westinghouse and the AEC. Approval is based, inter alia, on a determination that the topic has at least some general relevance to the work done at Bettis. If the leave of absence is secured, the employee devotes his full attention, for a period of at least several months, to fulfilling his dissertation requirement. During this period he receives a “stipend” from Westinghouse, in an amount based on a specified percentage (ranging from 70% to 90%) of his prior salary plus “adders,” depending upon the size of his family. He also retains his seniority status and receives all employee benefits, such as insurance and stock option privileges. In return he not only must submit periodic progress reports, but under the written agreement that all participants in the program must sign, also is obligated to return to the employ of Westinghouse for a period of at least two years following completion of his leave. Upon return he is, according to the agreement, to “assume . . . duties commensurate with his education and experience,” at a salary “commensurate with the duties assigned.”

The respondents all took leaves under the Fellowship Program at varying times during the period 1960-1962, and eventually received their doctoral degrees in engineering. Respondents Johnson and Pomerantz took leaves of nine months and were paid $5,670 each, representing 80% of their prior salaries at Westinghouse. Respondent Wolfe, whose leave lasted for a year, received $9,698.90, or 90% of his previous salary. Each returned to Westinghouse for the required period of time following his educational leave.

Westinghouse, which under its own accounting system listed the amounts paid to the respondents as “indirect labor” expenses, withheld federal income tax from those amounts. The respondents filed claims for refund, contending that the payments they had received were “scholarships,” and hence were excludable from income under § 117 of the Code, which provides in pertinent part:

“(a) General rule.
“In the case of an individual, gross income does not include—
“(1) any amount received—
“(A) as a scholarship at an educational institution (as defined in section 151 (e)(4)), or
“(B) as a fellowship grant . . . .”

When those claims were rejected, the respondents instituted this suit in the District Court for the Western District of Pennsylvania, against the District Director of Internal Revenue. After the basically undisputed evidence regarding the Bettis Program had been presented, the trial judge instructed the jury in accordance with Treas. Reg. on Income Tax (1954 Code) § 1.117-4 (c), 26 CFR § 1.117-4 (c), which provides that amounts representing “compensation for past, present, or future employment services,” and amounts “paid . . . to . . . an individual to enable him to pursue studies or research primarily for the benefit of the grantor,” are not excludable as scholarships. The jury found that the amounts received by the respondents were taxable income. Respondents then sought review in the Court of Appeals for the Third Circuit, and that court reversed, holding that the Regulation referred to was invalid, that the jury instructions were therefore improper, and that on the essentially undisputed facts it was clear as a matter of law that the amounts received by the respondents were “scholarships” excludable under § 117. 396 F. 2d 258.

The holding of the Court of Appeals with respect to Treas. Reg. § 1.117-4 (c) was contrary to the decisions of several other circuits — most notably, that of the Fifth Circuit in Ussery v. United States, 296 F. 2d 582, which explicitly sustained the Regulation against attack and held amounts received under an arrangement quite similar to the Bettis Program to be taxable income. Accordingly, upon the District Director’s petition, we granted certiorari to resolve the conflict and to determine the proper scope of § 117 and Treas. Reg. § 1.117-4 (c) with respect to payments such as those involved here. 393 U. S. 949.

In holding invalid the Regulation that limits the definitions of “scholarship” and “fellowship” so as to exclude amounts received as “compensation,” the Court of Appeals emphasized that the statute itself expressly adverts to certain situations in which funds received by students may be thought of as remuneration. After the basic rule excluding scholarship funds from gross income is set out in § 117 (a), for instance, subsection (b)(1) stipulates:

“In the case of an individual who is a candidate for a degree at an educational institution . . . , subsection (a) shall not apply to that portion of any amount received which represents payment for teaching, research, or other services in the nature of part-time employment required as a condition to receiving the scholarship or the fellowship grant.”

In addition, subsection (b) (2) limits the exclusion from income with regard to nondegree candidates in two respects: first, the grantor must be a governmental agency, an international organization, or an organization exempt from tax under §§ 501 (a), (c) (3) of the Code; and second, the maximum exclusion from income available to a nondegree candidate is $300 per month for not more than 36 months. Since these exceptions are expressly set out in the statute, the Court of Appeals, relying on the canon of construction that expressio unius est exclusio alterius, concluded that no additional restrictions may be put on the basic exclusion from income granted by subsection (a) — a conclusion forcefully pressed upon us by the respondents.

Congress’ express reference to the limitations just referred to concededly lends some support to the respondents’ position. The difficulty with that position, however, lies in its implicit assumption that those limitations are limitations on an exclusion of all funds received by students to support them during the course of their education. Section 117 provides, however, only that amounts received as “scholarships” or “fellowships” shall be excludable. And Congress never defined what it meant by the quoted terms. As the Tax Court has observed:

“[A] proper reading of the statute requires that before the exclusion comes into play there must be a determination that the payment sought to be excluded has the normal characteristics associated with the term ‘scholarship.’ ” Reese v. Commissioner, 45 T. C. 407, 413, aff’d, 373 F. 2d 742.

The regulation here in question represents an effort by the Commissioner to supply the definitions that Congress omitted. And it is fundamental, of course, that as “contemporaneous constructions by those charged with administration of” the Code, the Regulations “must be sustained unless unreasonable and plainly inconsistent with the revenue statutes,” and “should not be overruled except for weighty reasons.” Commissioner v. South Texas Lumber Co., 333 U. S. 496, 501. In this respect our statement last Term in United States v. Correll, 389 U. S. 299, bears emphasis:

“[W]e do not sit as a committee of revision to perfect the administration of the tax laws. Congress has delegated to the Commissioner, not to the courts, the task of prescribing 'all needful rules and regulations for the enforcement’ of the Internal Revenue Code. 26 U. S. C. § 7805 (a). In this area of limitless factual variations, 'it is the province of Congress and the Commissioner, not the courts, to make the appropriate adjustments.’ ” Id., at 306-307.

Here, the definitions supplied by the Regulation clearly are prima facie proper, comporting as they do with the ordinary understanding of “scholarships” and “fellowships” as relatively disinterested, “no-strings” educational grants, with no requirement of any substantial quid pro quo from the recipients.

The implication of the respondents’ expressio unius reasoning is that any amount paid for the purpose of supporting one pursuing a program of study or scholarly research should be excludable from gross income as a “scholarship” so long as it does not fall within the specific limitations of § 117 (b). Pay received by a $30,000 per year engineer or executive on a leave of absence would, according to that reasoning, be excludable as long as the leave was granted so that the individual could perform work required for a doctoral degree. This result presumably would not be altered by the fact that the employee might be performing, in satisfaction of his degree requirements, precisely the same work which he was doing for his employer prior to his leave and which he would be doing after his return to “employment” — or by the fact that the fruits of that work were made directly available to and exploited by the employer. Such a result would be anomalous indeed, especially in view of the fact that under § 117 the comparatively modest sums received by part-time teaching assistants are clearly subject to taxation. Particularly in light of the principle that exemptions from taxation are to be construed narrowly, we decline to assume that Congress intended to sanction — indeed, as the respondents would have it, to compel — such an inequitable situation.

The legislative history underlying § 117 is, as the Court of Appeals recognized, “far from clear.” We do not believe, however, that it precludes, as “plainly inconsistent” with the statute, a definition of “scholarship” that excludes from the reach of that term amounts received as compensation for services performed. The 1939 Internal Revenue Code, like predecessor Codes, contained no specific provision dealing with scholarship grants. Whether such grants were includable in gross income depended simply upon whether they fell within the broad provision excluding from income amounts received as “gifts.” Thus case-by-case determinations regarding grantors’ motives were necessary. The cases decided under this approach prior to 1954 generally involved two types of financial assistance: grants to research or teaching assistants — graduate students who perform research or teaching services in return for their stipends — and foundation grants to post-doctoral researchers. In cases decided shortly before the 1954 Code was enacted, the Tax Court, relying on the “gift” approach to scholarships and fellowships, held that amounts received by a research assistant were taxable income, but reached divergent results in situations involving grants to post-doctoral researchers.

In enacting § 117 of the 1954 Code, Congress indicated that it wished to eliminate the necessity for reliance on “case-by-case” determinations with respect to whether “scholarships” and “fellowships” were excludable as “gifts.” Upon this premise the respondents hinge their argument that Congress laid down a standard under which all case-by-case determinations — such as those that may be made under Treas. Reg. § 1.117-4 (c) — are unnecessary and improper. We have already indicated, however, our reluctance to believe that § 117 was designed to exclude from taxation all amounts, no matter how large or from what source, that are given for the support of one who happens to be a student. The sounder inference is that Congress was merely “recogni[zing] that scholarships and fellowships are sufficiently unique . . . to merit [tax] treatment separate from that accorded gifts,” and attempting to provide that grants falling within those categories should be treated consistently— as in some instances, under the generic provisions of the 1939 Code, they arguably had not been. Delineation of the precise contours of those categories was left to the Commissioner.

Furthermore, a congressional intention that not all grants received by students were necessarily to be “scholarships” may reasonably be inferred from the legislative history. In explaining the basis for its version of § 117 (b)(2), the House Ways and Means Committee stated that its purpose was to “tax those grants which are in effect merely payments of a salary during a period while the recipient is on leave from his regular job.” This comment related, it is true, to a specific exception to the exclusion from income set out in subsection (a). But, in view of the fact that the statute left open the definitions of “scholarship” and “fellowship,” it is not unreasonable to conclude that in adding subsection (b) to the statute Congress was merely dealing explicitly with those problems that had come explicitly to its attention — viz., those involving research and teaching assistantships and post-doctoral research grants — without intending to forbid application to similar situations of the general principle underlying its treatment of those problems. One may justifiably suppose that the Congress that taxed funds received by “part-time” teaching assistants, presumably on the ground that the amounts received by such persons really represented compensation for services performed, would also deem proper a definition of “scholarship” under which comparable sorts of compensation- — -which often, as in the present case, are significantly greater in amount- — are likewise taxable. In providing such a definition, the Commissioner has permissibly implemented an underlying congressional concern. We cannot say that the provision of Treas. Reg. § 1.117-4 (c) that taxes amounts received as “compensation” is “unreasonable or plainly inconsistent with the . . . statut[e].”

Under that provision, as set out in the trial court’s instructions, the jury here properly found that the amounts received by the respondents were taxable “compensation” rather than excludable “scholarships.” The employer-employee relationship involved is immediately suggestive, of course, as is the close relation between the respondents’ prior salaries and the amount of their “stipends.” In addition, employee benefits were continued. Topics were required to relate at least generally to the work of the Bettis Laboratory. Periodic work reports were to be submitted. And, most importantly, Westinghouse unquestionably extracted a quid pro quo. The respondents not only were required to hold positions with Westinghouse throughout the “work-study” phase of the program, but also were obligated to return to Westinghouse’s employ for a substantial period of time after completion of their leave. The thrust of the provision dealing with compensation is that bargained-for payments, given only as a “quo” in return for the quid of services rendered — whether past, present, or future — should not be excludable from income as “scholarship” funds. That provision clearly covers this case.

Accordingly, the judgment of the Court of Appeals is reversed, and that of the District Court reinstated.

It is so ordered.

Mr. Justice Douglas would affirm the judgment for the reasons stated by the Court of Appeals in 396 F. 2d 258.

         We refer only to respondents Richard E. Johnson, Richard A. Wolfe, and Martin L. Pomerantz; their wives are parties to this action solely because joint tax returns were filed for the years in question.

       Formerly Carnegie Institute of Technology.

       A maximum of 156 hours of release time per year is allowed.

       The Fellowship Program is funded jointly by Westinghouse and the AEC, but the amounts paid to participating employees are channeled through the company’s payroll office.

       The ordinary leave period is nine months.

       Maximum monthly limits are placed on the amounts paid.

       Respondent Wolfe began his leave at a time when Westinghouse did not require agreement in writing to the two-year “return” commitment. He was formally advised before he went on leave, however, that he was “expected” to return to Westinghouse for a period of time equal to the duration of his leave, and he in fact honored that obligation.

       Respondent Wolfe was on leave from March 1, 1960, to February 28,1961; respondent Johnson from October 1,1960, to June 30, 1961; and respondent Pomerantz from November 1, 1961, to July 31, 1962.

       Tuition and incidental fees were also paid by Westinghouse, but no withholding was made from those payments, and their tax status is not at issue in this case. Although conceptually includable in income, such sums presumably would be offset by educational expense deductions. See Treas. Reg. on Income Tax (1954 Code) § 1.162-5, 26 CFR § 1.162-5.

       The entire section reads as follows:
      “§ 117. Scholarships and fellowship grants.
      “(a) General rule.
      “In the case of an individual, gross income does not include—
      “(1) any amount received—
      “(A) as a scholarship at an educational institution (as defined in section 151 (e)(4)), or
      “(B) as a fellowship grant, including the value of contributed services and accommodations; and
      “(2) any amount received to cover expenses for—
      “(A) travel,
      “(B) research,
      “(C) clerical help, or “(D) equipment,
      “which are incident to such a scholarship or to a fellowship grant, but only to the extent that the amount is so expended by the recipient.
      “(b) Limitations.
      “(1) Individuals who are candidates for degrees.
      “In the case of an individual who is a candidate for a degree at an educational institution (as defined in section 151 (e)(4)), subsection (a) shall not apply to that portion of any amount received which represents payment for teaching, research, or other services in the nature of part-time employment required as a condition to receiving the scholarship or the fellowship grant. If teaching, research, or other services are required of all candidates (whether or not recipients of scholarships or fellowship grants) for a particular degree as a condition to receiving such degree, such teaching, research, or other services shall not be regarded as part-time employment within the meaning of this paragraph.
      “(2) Individuals who are not candidates for degrees.
      “In the case of an individual who is not a candidate for a degree at an educational institution (as defined in section 151(e)(4)), subsection (a) shall apply only if the condition in subparagraph (A) is satisfied and then only within the limitations provided in subparagraph (B).
      “(A) Conditions for exclusion.
      “The grantor of the scholarship or fellowship grant is—
      “(i) an organization described in section 501(c)(3) which is exempt from tax under section 501 (a),
      “(ii) a foreign government,
      “(iii) an international organization, or a binational or multinational education and cultural foundation or commission created or continued pursuant to the Mutual Educational and Cultural Exchange Act of 1961, or
      “(iv) the United States, or an instrumentality or agency thereof, or a State, a territory, or a possession of the United States, or any political subdivision thereof, or the District of Columbia.
      “(B) Extent of exclusion.
      “The amount of the scholarship or fellowship grant excluded under subsection (a) (1) in any taxable year shall be limited to an amount equal to $300 times the number of months for which the recipient received amounts under the scholarship or fellowship grant during such taxable year, except that no exclusion shall be allowed under subsection (a) after the recipient has been entitled to exclude under this section for a period of 36 months (whether or not consecutive) amounts received as a scholarship or fellowship grant while not a candidate for a degree at an educational institution (as defined in section 151 (e) (4)).”

       “§ 1.117-4. Items not considered as scholarships or fellowship grants.
      “The following payments or allowances shall not be considered to be amounts received as a scholarship or a fellowship grant for the purpose of section 117:

      “(e) Amounts paid as compensation for services or primarily for the benefit of the grantor. (1) Except as provided in paragraph (a) of § 1.117-2, any amount paid or allowed to, or on behalf of, an individual to enable him to pursue studies or research, if such amount represents either compensation for past, present, or future employment services or represents payment for services which are subject to the direction or supervision of the grantor.
      “ (2) Any amount paid or allowed to, or on behalf of, an individual to enable him to pursue studies or research primarily for the benefit of the grantor.
      “However, amounts paid or allowed to, or on behalf of, an individual to enable him to pursue studies or research are considered to be amounts received as a scholarship or fellowship grant for the purpose of section 117 if the primary purpose of the studies or research is to further the education and training of the recipient in his individual capacity and the amount provided by the grantor for such purpose does not represent compensation or payment for the services described in subparagraph (1) of this paragraph. Neither the fact that the recipient is required to furnish reports of his progress to the grantor, nor the fact that the results of his studies or research may be of some incidental benefit to the grantor shall, of itself, be considered to destroy the essential character of such amount as a scholarship or fellowship grant.”

       Generally in accord with Ussery are Reese v. Commissioner, 373 F. 2d 742 (C. A. 4th Cir.); Stewart v. United States, 363 F. 2d 355 (C. A. 6th Cir.); and Woddail v. Commissioner, 321 F. 2d 721 (C. A. 10th Cir.). See also Reiffen v. United States, 180 Ct. Cl. 296, 376 F. 2d 883.

       Subsection (b) goes on to except from that limitation situations in which “teaching, research, or other services are required of all candidates (whether or not recipients of scholarships or fellowship grants) for a particular degree as a condition to receiving such degree ...” In those situations, scholarship or fellowship funds received for such services are nontaxable. See n. 10, supra.

       See also Treas. Reg. on Income Tax (1954 Code) §§ 1.117-3 (a), (c), 26 CFR §§ 1.117-3 (a), (c), which set out the “normal characteristics” associated with scholarships and fellowships:
      “§ 1.117-Definitions.

        “ (a) Scholarship. A scholarship generally means an amount paid or allowed to, or for the benefit of, a student, whether an undergraduate or a graduate, to aid such individual in pursuing his studies. The term includes the value of contributed services and accommodations (see paragraph (d) of this section) and the amount of tuition, matriculation, and other fees which are furnished or remitted to a student to aid him in pursuing his studies. The term also includes any amount received in the nature of a family allowance as a part of a scholarship. However, the term does not include any amount provided by an individual to aid a relative, friend, or other individual in pursuing his studies where the grantor is motivated by family or philanthropic considerations. If an educational institution maintains or participates in a plan whereby the tuition of a child of a faculty member of such institution is remitted by any other participating educational institution attended by such child, the amount of the tuition so remitted shall be considered to be an amount received as a scholarship.

      “(c) Fellowship grant. A fellowship grant generally means an amount paid or allowed to, or for the benefit of, an individual to aid him in the pursuit of study or research. The term includes the value of contributed services and accommodations (see paragraph (d) of this section) and the amount of tuition, matriculation, and other fees which are furnished or remitted to an individual to aid him in the pursuit of study or research. The term also includes any amount received in the nature of a family allowance as a part of a fellowship grant. However, the term does not include any amount provided by an individual to aid a relative, friend, or other individual in the pursuit of study or research where the grantor is motivated by family or philanthropic considerations.”
      We are not concerned in this case with distinctions between the terms “scholarship” and “fellowship.”

       Cf. 1 J. Mertens, Law of Federal Income Taxation § 7.42, p. 110 (P. Zimet & W. Oliver rev. ed. 1962).

       See Commissioner v. Jacobson, 336 U. S. 28, 48-49; Helvering v. Northwest Steel Rolling Mills, Inc., 311 U. S. 46, 49.

       The opinion of the Court of Appeals reiterates that the stipends received by the respondents were “reasonable.” Those payments approximated, of course, the respondents’ previous engineering salaries. In any event, given the court’s expressio unius reasoning, the source of a limitation based on the “reasonableness” of amounts granted to bona fide students is difficult to identify.

       396 F. 2d, at 263.

       Int. Rev. Code of 1939, c. 1, §22 (b)(3), 53 Stat. 10; see Int. Rev. Code of 1954, § 102.

       See, e. g., Banks v. Commissioner, 17 T. C. 1386.

       Compare Ti Li Loo v. Commissioner, 22 T. C. 220 (university grant for National Health Service research held taxable), with Stone v. Commissioner, 23 T. C. 254 (foundation grant held nontaxable).

       Gordon, Scholarship and Fellowship Grants as Income: A Search for Treasury Policy, 1960 Wash. U. L. Q. 144, 151.

       That version provided for the exclusion only of grants that, together with compensation received from the recipient’s former employer, were less than 75% of his salary for the preceding year. Noting that the House bill would have taxed many modest grants simply because the recipient had no substantial earned income in the previous year, the Senate rejected that formulation and substituted the present $300 per month, 36-month provision of §117 (b)(2). See H. R. Rep. No. 1337, 83d Cong., 2d Sess., 17; S. Rep. No. 1622, 83d Cong., 2d Sess., 18.

       H. R. Rep. No. 1337, supra, n. 23, at 17.

       The House version of § 117 (b) (1) taxed only amounts received as payment for teaching and research services. The Senate amended the provision, however, to include payments for “other services” as well. See S. Rep. No. 1622, supra, n. 23, at 18.

       In connection with the question of what Congress may have intended to denote by the terms “scholarship” and “fellowship,” it is noteworthy that the House Report stated, “Such grants generally are of small amount and are usually received by individuals who would have little or no tax liability in any case.” H. R. Rep. No. 1337, supra, n. 23, at 17.

       The Court of Appeals viewed the “primary purpose” of § 117 as the “encourage [ment of] financial aid to education through tax relief.” 396 F. 2d, at 262. But while some desire to aid scholarship students no doubt underlay enactment of the statute, that desire must be reconciled with an apparent congressional intent — manifested in the limitations set out in subsection (b) — to tax amounts that represent compensation for services performed. As the text makes clear, we cannot view the Commissioner’s attempt to achieve that reconciliation as improper.

       The Court of Appeals seems to have recognized that in some circumstances the Commissioner’s approach is justified. Its opinion stated:
      “A significant commitment by the student in return for a grant would, of course, place that grant outside the category 'scholarship,’ at least to the extent of the value of that commitment. For if the grantee had to barter for his stipend, giving full value for it, this arrangement would hardly serve the primary purpose of the § 117 exclusion: to encourage financial aid to education through tax relief.” 396 F. 2d, at 262.
      It is not clear how this position can be squared with the Court of Appeals’ holding that Treas. Reg. § 1.117-4 (c) is invalid. In any event, as we suggest infra, we cannot agree with the conclusion of the Court of Appeals that the grants received by the respondents were not “bartered for.”

       The instructions included, inter alia, the following passage:
      “You are . . . instructed that, one, any amount of money paid to an individual to enable him to pursue studies or research, if such amount represents either compensation for past, present or future employment services, or represents payment for services which are subject to the direction or supervision of the grantor, ... is not a scholarship or fellowship under the tax laws.
      “Two, any amount of money paid to an individual to enable him to pursue studies or research which studies or research are primarily for the benefit of the grantor is not a scholarship under the tax laws.”

       We thus endorse the decisions of the Fifth and Sixth Circuits in Ussery v. United States, 296 F. 2d 582, and Stewart v. United States, 363 F. 2d 355. In Ussery, the Court of Appeals for the Fifth Circuit specifically upheld Treas. Reg. § 1.117-4 (c) and held taxable monthly payments received by an employee of the Mississippi Department of Public Welfare who had been given leave to secure a master’s degree in social work. The taxpayer there received employee benefits while on leave, and was obligated to return to the department following completion of his studies. Stewart involved a similar arrangement under which an employee of the Tennessee Department of Public Welfare received monthly stipends and other benefits during an educational leave of absence but was required to return thereafter to her previous position. See Reese v. Commissioner, 373 F. 2d 742 (C. A. 4th Cir.), affirming 45 T. C. 407 (student-teacher); Woddail v. Commissioner, 321 F. 2d 721 (C. A. 10th Cir.) (resident physician; obligated to remain following part-time participation in training program); cf. Reiffen v. United States, 180 Ct. Cl. 296, 376 F. 2d 883 (relying solely on characterization of payments as “primarily for benefit of grantor”). Several Tax Court decisions point in the same direction, although treatment of various factual situations under § 117 has not been marked by a great deal of consistency. See generally Tabac, Scholarships and Fellowship Grants: An Administrative Merry-Go-Round, 46 Taxes 485 (1968).
      The Commissioner has acquiesced in Evans v. Commissioner, 34 T. C. 720 (see 1965-1 Cum. Bull. 4), which allowed exclusion where, although the taxpayer was obligated to work for the grantor following completion of her studies, there had been no previous employment relationship. See Rev. Rul. 65-146, 1965-1 Cum. Bull. 66. We are informed by the Solicitor General, however, that the Evans acquiescence will be modified. See also Broniwitz v. Com

        missioner, P-H 1968 TC Mem. Dec. ¶68,221 (Sept. 30, 1968) (requirement of summer employment with grantor; held excludable).

       The contract’s provision that employees who avail themselves of educational leave will be assigned duties “commensurate with [their] education and experience,” and compensated at rates “commensurate with” those duties, is hardly sufficient to avoid the clear inference that their grants are fully bargained for and in the nature of compensation. The program is featured in Westinghouse’s recruiting efforts as a benefit attractive to many potential employees. Moreover, as suggested in the text, participation in the program undeniably means giving up the right to take more remunerative employment elsewhere for a considerable period of time. Had the company modified its program so that the amounts of the “fellowship” grants were spread over the years preceding and following the educational leave — as increments to the respondents’ salary, set aside in a company-administered “educational fund”' — there could be little doubt that those amounts would have represented compensation. We see no persuasive reason why a different tax result should be reached under Treas. Reg. § 1.117-4 (e) on the actual facts involved here. There is no merit in the respondents’ oblique suggestion that payment for present services is somehow different, with respect to the question before us, from deferred or anticipatory payments.

       We accept the suggestion in the Government’s brief that the second paragraph of Treas. Reg. § 1.117-4 (c) — which excepts from the definition of “scholarship” any payments that are paid to an individual “to enable him to pursue studies or research primarily for the benefit of the grantor” — is merely an adjunct to the initial “compensation” provision:
      “By this paragraph, the Treasury has supplemented the first in order to impose tax on bargained-for arrangements that do not create an employer-employee relation, as, for example, in the case of an independent contractor. But the general idea is the same: ‘scholarship’ or ‘fellowship’ does not include arrangements where the recipient receives money and in return provides a quid pro quo.” Brief for Petitioner 22.
      The respondents point out that the Internal Revenue Service is considering possible revisions of the Regulations under § 117. The Solicitor General informs us, however, that although revisions might “conform the Regulations to the results reached” in such cases as Wells v. Commissioner, 40 T. C. 40, no changes are contemplated with respect to situations such as that involved here. Reply Brief for Petitioner in support of certiorari 3, n. 2; see Rev. Rul. 65-59, 1965-1 Cum. Bull. 67.


source: Caselaw Access Project

author: Mr. Justice Fortas Mr. Justice Black, MR. Justice Douglas, Mr. Justice Harlan,

license: Public Domain

text:
    NATIONAL LABOR RELATIONS BOARD v. WYMAN-GORDON CO.
    No. 463.
    Argued March 3, 1969.
    Decided April 23, 1969.

      Solicitor General Griswold argued the cause for petitioner. With him on the brief were Francis X.

      Beytagh, Jr., Arnold Ordman, Dominick L. Manoli, and Norton J. Come.

      Quentin 0. Young argued the cause and filed a brief for respondent.

      J. Albert Woll, Laurence Gold, and Thomas E. Harris filed a brief for the American Federation of Labor and Congress of Industrial Organizations as amicus curiae urging reversal.
   Mr. Justice Fortas

announced the judgment of the Court and delivered an opinion in which The Chief Justice, Mr. Justice Stewart, and Mr. Justice White join.

On the petition of the International Brotherhood of Boilermakers and pursuant to its powers under § 9 of the National Labor Relations Act, 49 Stat. 453, 29 U. S. C. § 159, the National Labor Relations Board ordered an election among the production and maintenance employees of the respondent company. At the election, the employees were to select one of two labor unions as their exclusive bargaining representative, or to choose not to be represented by a union at all. In connection with the election, the Board ordered the respondent to furnish a list of the names and addresses of its employees who could vote in the election, so that the unions could use the list for election purposes, The respondent refused to comply with the order, and the election was held without the list. Both unions were defeated in the election.

The Board upheld the unions’ objections to the election because the respondent had not furnished the list, and the Board ordered a new election. The respondent again refused to obey a Board order to supply a list of employees, and the Board issued a subpoena ordering the respondent to provide the list or else produce its personnel and payroll records showing the employees’ names and addresses. The Board filed an action in the United States District Court for the District of Massachusetts seeking to have its subpoena enforced or to have a mandatory injunction issued to compel the respondent to comply with its order.

The District Court held the Board’s order valid and directed the respondent to comply. 270 F. Supp. 280 (1967). The United States Court of Appeals for the First Circuit reversed. 397 F. 2d 394 (1968). The Court of Appeals thought that the order in this case was invalid because it was based on a rule laid down in an earlier decision by the Board, Excelsior Underwear Inc., 156 N. L. R. B. 1236 (1966), and the Excelsior rule had not been promulgated in accordance with the requirements that the Administrative Procedure Act prescribes for rule making, 5 U. S. C. § 553. We granted certiorari to resolve a conflict among the circuits concerning the validity and effect of the Excelsior rule. 393 U. S, 932 (1968).

I.

The Excelsior case involved union objections to the certification of the results of elections that the unions had lost at two companies. The companies had denied the unions a list of the names and addresses of employees eligible to vote. In the course of the proceedings, the Board “invited certain interested parties” to file briefs and to participate in oral argument of the issue whether the Board should require the employer to furnish lists of employees. 156 N. L. R. B., at 1238. Various employer groups and trade unions did so, as amici curiae. After these proceedings, the Board issued its decision in Excelsior. It purported to establish the general rule that such a list must be provided, but it declined to apply its new rule to the companies involved in the Excelsior case. Instead, it held that the rule would apply “only in those elections that are directed, or consented to, subsequent to 30 days from the date of [the] Decision.” Id., at 1240, n. 5.

Specifically, the Board purported to establish “a requirement that will be applied in all election cases. That is, within 7 days after the Regional Director has approved a consent-election agreement entered into by the parties ... , or after the Regional Director or the Board has directed an election . . . , the employer must file with the Regional Director an election eligibility list, containing the names and addresses of all the eligible voters. The Regional Director, in turn, shall make this information available to all parties in the case. Failure to comply with this requirement shall be grounds for setting aside the election whenever proper objections are filed.” Id., at 1239-1240.

Section 6 of the National Labor Relations Act empowers the Board “to make ... , in the manner prescribed by the Administrative Procedure Act, such rules and regulations as may be necessary to carry out the provisions of this Act.” 29 U. S. C. § 156. The Administrative Procedure Act contains specific provisions governing agency rule making, which it defines as “an agency statement of general or particular applicability and future effect,” 5 U. S. C. § 551 (4). The Act requires, among other things, publication in the Federal Register of notice of proposed rule making and of hearing; opportunity to be heard; a statement in the rule of its basis and purposes; and publication in the Federal Register of the rule as adopted. See 5 U. S. C. § 553. The Board asks us to hold that it has discretion to promulgate new rules in adjudicatory proceedings, without complying with the requirements of the Administrative Procedure Act.

The rule-making provisions of that Act, which the Board would avoid, were designed to assure fairness and mature consideration of rules of general application. See H. R. Rep. No. 1980, 79th Cong., 2d Sess., 21-26 (1946); S. Rep. No. 752, 79th Cong., 1st Sess., 13-16 (1945). They may not be avoided by the process of making rules in the course of adjudicatory proceedings. There is no warrant in law for the Board to replace the statutory scheme with a rule-making procedure of its own invention. Apart from the fact that the device fashioned by the Board does not comply with statutory command, it obviously falls short of the substance of the requirements of the Administrative Procedure Act. The “rule” created in Excelsior was not published in the Federal Register, which is the statutory and accepted means of giving notice of a rule as adopted; only selected organizations were given notice of the “hearing,” whereas notice in the Federal Register would have been general in character; under the Administrative Procedure Act, the terms or substance of the rule would have to be stated in the notice of hearing, and all interested parties would have an opportunity to participate in the rule making.

The Solicitor General does not deny that the Board ignored the rule-making provisions of the Administrative Procedure Act. But he appears to argue that Excelsior’s command is a valid substantive regulation, binding upon this respondent as such, because the Board promulgated it in the Excelsior proceeding, in which the requirements for valid adjudication had been met. This argument misses the point. There is no question that, in an adjudicatory hearing, the Board could validly decide the issue whether the employer must furnish a list of employees to the union. But that is not what the Board did in Excelsior. The Board did not even apply the rule it made to the parties in the adjudicatory proceeding, the only entities that could properly be subject to the order in that case. Instead, the Board purported to make a rule: i. e., to exercise its quasi-legislative power.

Adjudicated cases may and do, of course, serve as vehicles for the formulation of agency policies, which are applied and announced therein. See H. Friendly, The Federal Administrative Agencies 36-52 (1962). They generally provide a guide to action that the agency may be expected to take in future cases. Subject to the qualified role of stare decisis in the administrative process, they may serve as precedents. But this is far from saying, as the Solicitor General suggests, that commands, decisions, or policies announced in adjudication are “rules” in the sense that they must, without more, be obeyed by the affected public.

In the present case, however, the respondent itself was specifically directed by the Board to submit a list of the names and addresses of its employees for use by the unions in connection with the election. This direction, which was part of the order directing that an election be held, is unquestionably valid. See, e. g., NLRB v. Waterman S. S. Co., 309 U. S. 206, 226 (1940). Even though the direction to furnish the list was followed by citation to “Excelsior Underwear Inc., 156 NLRB No. 111,” it is an order in the present case that the respondent was required to obey. Absent this direction by the Board, the respondent was under no compulsion to furnish the list because no statute and no validly adopted rule required it to do so.

Because the Board in an adjudicatory proceeding directed the respondent itself to furnish the list, the decision of the Court of Appeals for the First Circuit must be reversed.

II.

The respondent also argues that it need not obey the Board’s order because the requirement of disclosure of employees’ names and addresses is substantively invalid. This argument lacks merit. The objections that the respondent raises to the requirement of disclosure were clearly and correctly answered by the Board in its Excelsior decision. All of the United States Courts of Appeals that have passed on the question have upheld the substantive validity of the disclosure requirement, and the court below strongly intimated a view that the requirement was substantively a proper one, 397 F. 2d, at 396.

We have held in a number of cases that Congress granted the Board a wide discretion to ensure the fair and free choice of bargaining representatives. See, e. g., NLRB v. Waterman S. S. Co., supra, at 226; NLRB v. A. J. Tower Co., 329 U. S. 324, 330 (1946). The disclosure requirement furthers this objective by encouraging an informed employee electorate and by allowing unions the right of access to employees that management already possesses. It is for the Board and not for this Court to weigh against this interest the asserted interest of employees in avoiding the problems that union solicitation may present.

III.

The respondent contends that even if the disclosure requirement is valid, the Board lacks power to enforce it by subpoena. Section 11 (1) of the National Labor Relations Act provides that the Board shall have access to “any evidence of any person being investigated or proceeded against that relates to any matter under investigation or in question,” and empowers the Board to issue subpoenas “requiring the attendance and testimony of witnesses or the production of any evidence in such proceeding or investigation.” Section 11 (2) gives the district courts jurisdiction, upon application by the Board, to issue an order requiring a person who has refused to obey the Board's subpoena “to appear before the Board . . . there to produce evidence if so ordered, or there to give testimony touching the matter under investigation or in question . . . .” 29 U. S. C. §§ 161 (1), (2).

The respondent takes the position that these statutory provisions do not give the Board authority to subpoena the lists here in question because they are not “evidence” within the meaning of the statutory language. The District Court held, however, that “in the context of § 11 of the Act, 'evidence' means not only proof at a hearing but also books and records and other papers which will be of assistance to the Board in conducting a particular investigation.” The courts of appeals that have passed on the question have construed the term “evidence” in a similar manner. NLRB v. Hanes Hosiery Division, 384 F. 2d 188, 191-192 (C. A. 4th Cir. 1967). See NLRB v. Rohlen, 385 F. 2d 52, 55-58 (C. A. 7th Cir. 1967); NLRB v. Beech-Nut Life Savers, Inc., 406 F. 2d 253, 259 (C. A. 2d Cir. 1968); British Auto Parts, Inc. v. NLRB, 405 F. 2d 1182, 1184 (C. A. 9th Cir. 1968); NLRB v. Q-T Shoe Mfg. Co., 409 F. 2d 1247 (C. A. 3d Cir. 1969). We agree that the list here in issue is within the scope of § 11 so that the Board’s subpoena power may be validly exercised.

The judgment of the Court of Appeals is reversed, and the case is remanded to the District Court with directions to reinstate its judgment.

It is so ordered.

Mr. Justice Black,

with whom Mr. Justice Brennan and Mr. Justice Marshall join,

concurring in the result.

I agree with Parts II and III of the prevailing opinion of Mr. Justice Fortas, holding that the Excelsior requirement that an employer supply the union with the names and addresses of its employees prior to an election is valid on its merits and can be enforced by a subpoena. But I cannot subscribe to the criticism in that opinion of the procedure followed by the Board in adopting that requirement in the Excelsior case, 156 N. L. R. B. 1236 (1966). Nor can I accept the novel theory by which the opinion manages to uphold enforcement of the Excelsior practice in spite of what it considers to be statutory violations present in the procedure by which the requirement was adopted. Although the opinion is apparently intended to rebuke the Board and encourage it to follow the plurality’s conception of proper administrative practice, the result instead is to free the Board from all judicial control whatsoever regarding compliance with procedures specifically required by applicable federal statutes such as the National Labor Relations Act, 29 U. S. C. § 151 et seq., and the Administrative Procedure Act, 5 U. S. C. § 551 et seq. Apparently, under the prevailing opinion, courts must enforce any requirement announced in a purported “adjudication” even if it clearly was not adopted as an incident to the decision of a case before the agency, and must enforce “rules” adopted in a purported “rule making” even if the agency materially violated the specific requirements that Congress has directed for such proceedings in the Administrative Procedure Act. I for one would not give judicial sanction to any such illegal agency action.

In the present case, however, I am convinced that the Excelsior practice was adopted by the Board as a legitimate incident to the adjudication of a specific case before it, and for that reason I would hold that the Board properly followed the procedures applicable to “adjudication” rather than “rule making.” Since my reasons for joining in reversal of the Court of Appeals differ so substantially from those set forth in the prevailing opinion, I will spell them out at some length.

Most administrative agencies, like the Labor Board here, are granted two functions by the legislation creating them: (1) the power under certain conditions to make rules having the effect of laws, that is, generally speaking, quasi-legislative power; and (2) the power to hear and adjudicate particular controversies, that is quasi-judicial power. The line between these two functions is not always a clear one and in fact the two functions merge at many points. For example, in exercising its quasi-judicial function an agency must frequently decide controversies on the basis of new doctrines, not theretofore applied to a specific problem, though drawn to be sure from broader principles reflecting the purposes of the statutes involved and from the rules invoked in dealing with related problems. If the agency decision reached under the adjudicatory power becomes a precedent, it guides future conduct in much the same way as though it were a new rule promulgated under the rule-making power, and both an adjudicatory order and a formal “rule” are alike subject to judicial review. Congress gave the Labor Board both of these separate but almost inseparably related powers. No language in the National Labor Relations Act requires that the grant or the exercise of one power was intended to exclude the Board’s use of the other.

Nor does any language in the Administrative Procedure Act require such a conclusion. The Act does specify the procedure by which the rule-making power is to be exercised, requiring publication of notice for the benefit of interested parties and provision of an opportunity for them to be heard, and, after establishment of a rule as provided in the Act, it is then to be published in the Federal Register. Congress had a laudable purpose in prescribing these requirements, and it was evidently contemplated that administrative agencies like the Labor Board would follow them when setting out to announce a new rule of law to govern parties in the future. In this same statute, however, Congress also conferred on the affected administrative agencies the power to proceed by adjudication, and Congress specified a distinct procedure by which this adjudicatory power is to be exercised. The Act defines “adjudication” as “agency process for the formulation of an order,” and “order” is defined as “the whole or a part of a final disposition, whether affirmative, negative, injunctive, or declaratory in form, of an agency in a matter other than rule making but including licensing.” 5 U. S. C. §§551 (7), (6). Thus, although it is true that the adjudicatory approach frees an administrative agency from the procedural requirements specified for rule making, the Act permits this to be done whenever the action involved can satisfy the definition of “adjudication” and then imposes separate procedural requirements that must be met in adjudication. Under these circumstances, so long as the matter involved can be dealt with in a way satisfying the definition of either “rule making” or “adjudication” under the Administrative Procedure Act, that Act, along with the Labor Relations Act, should be read as conferring upon the Board the authority to decide, within its informed discretion, whether to proceed by rule making or adjudication. Our decision in SEC v. Chenery Corp., 332 U. S. 194 (1947), though it did not involve the Labor Board or the Administrative Procedure Act, is nonetheless equally applicable here. As we explained in that case, “the choice made between proceeding by general rule or by individual, ad hoc litigation is one that lies primarily in the informed discretion of the administrative agency.” Id., at 203.

In the present case there is no dispute that all the procedural safeguards required for “adjudication” were fully satisfied in connection with the Board’s Excelsior decision, and it seems plain to me that that decision did constitute “adjudication” within the meaning of the Administrative Procedure Act, even though the requirement was to be prospectively applied. See Great Northern R. Co. v. Sunburst Co., 287 U. S. 358 (1932). The Board did not abstractly decide out of the blue to announce a brand new rule of law to govern labor activities in the future, but rather established the procedure as a direct consequence of the proper exercise of its adjudicatory powers. Sections 9(c)(1) and (2) of the Labor Relations Act empower the Board to conduct investigations, hold hearings, and supervise elections to determine the exclusive bargaining representative that the employees wish to represent them. This is a key provision of the plan Congress adopted to settle labor quarrels that might interrupt the free flow of commerce. A controversy arose between the Excelsior Company and its employees as to the bargaining agent the employees desired to act for them. The Board’s power to provide the procedures for the election was invoked, an election was held, and the losing unions sought to have that election set aside. Undoubtedly the Board proceeding for determination of whether to confirm or set aside that election was “agency process for the formulation of an order” and thus was “adjudication” within the meaning of the Administrative Procedure Act.

The prevailing opinion seems to hold that the Excelsior requirement cannot be considered the result of adjudication because the Board did not apply it to the parties in the Excelsior case itself, but rather announced that it would be applied only to elections called 30 days after the date of the Excelsior decision. But the Excelsior order was nonetheless an inseparable part of the adjudicatory process. The principal issue before the Board in the Excelsior case was whether the election should be set aside on the ground, urged by the unions, that the employer had refused to make the employee lists available to them. See 156 N. L. R. B., at 1236-1238. The Board decided that the election involved there should not be set aside and thus rejected the contention of the unions. In doing so, the Board chose to explain the reasons for its rejection of their claim, and it is this explanation, the Board’s written opinion, which is the source of the Excelsior requirement. The Board’s opinion should not be regarded as any less an appropriate part of the adjudicatory process merely because the reason it gave for rejecting the unions’ position was not that the Board disagreed with them as to the merits of the disclosure procedure but rather, see 156 N. L. R. B., at 1239, 1240, n. 5, that while fully agreeing that disclosure should be required, the Board did not feel that it should upset the Excelsior Company’s justified reliance on previous refusals to compel disclosure by setting aside this particular election.

Apart from the fact that the decisions whether to accept a “new” requirement urged by one party and, if so, whether to apply it retroactively to the other party are inherent parts of the adjudicatory process, I think the opposing theory accepted by the Court of Appeals and by the prevailing opinion today is a highly impractical one. In effect, it would require an agency like the Labor Board to proceed by adjudication only when it could decide, prior to adjudicating a particular case, that any new practice to be adopted would be applied retroactively. Obviously, this decision cannot properly be made until all the issues relevant to adoption of the practice are fully considered in connection with the final decision of that case. If the Board were to decide, after careful evaluation of all the arguments presented to it in the adjudicatory proceeding, that it might be fairer to apply the practice only prospectively, it would be faced with the unpleasant choice of either starting all over again to evaluate the merits of the question, this time in a “rule-making” proceeding, or overriding the considerations of fairness and applying its order retroactively anyway, in order to preserve the validity of the new practice and avoid duplication of effort. I see no good reason to impose any such inflexible requirement on the administrative agencies.

For all of the foregoing reasons I would hold that the Board acted well within its discretion in choosing to proceed as it did, and I would reverse the judgment of the Court of Appeals on this basis.

MR. Justice Douglas,

dissenting.

The Administrative Procedure Act, 5 U. S. C. § 553 (b) provides that general notice “of proposed rule making” shall be published in the Federal Register. Public participation — in essence a hearing — is provided, § 553 (c). And “interested” persons are given the right to petition for the issuance, amendment, or repeal of a rule, § 553 (c).

In Excelsior Underwear Inc., 156 N. L. R. B. 1236, the Board in 1966 decided (1) that an employer would be required to furnish the Regional Director, prior to the conducting of a representation election, the names and addresses of the eligible voters, which list would then be made available to all contestants in the election, but (2) that this requirement would apply only prospectively, to all elections directed or consented to subsequent to 30 days after the date of its decision there.

The notice and hearing procedure prescribed by § 553 (b) was not followed; and in this case, an election was directed seven months after the Excelsior decision, the Board applying the Excelsior rule.

I am willing to assume that, if the Board decided to treat each case on its special facts and perform its adjudicatory function in the conventional way, we should have no difficulty in affirming its action. The difficulty is that it chose a different course in the Excelsior case and, having done so, it should be bound to follow the procedures prescribed in the Act as my Brother Harlan has outlined them. When we hold otherwise, we let the Board “have its cake and eat it too.”

The Committee reports make plain that the Act “provides quite different procedures for the 'legislative' and ‘judicial’ functions of administrative agencies.” S. Rep. No. 752, 79th Cong., 1st Sess., 7; H. R. Rep. No. 1980, 79th Cong., 2d Sess., 17.

Section 553 (b)(3) provides in part:

“Except when notice or hearing is required by statute, this subsection does not apply—
“(A) to interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice.”

We need not stop to inquire what the word “procedure” in that context embraces. For § 553 (d) provides, with exceptions not material here that:

“The required publication or service of a substantive rule shall be made not less than 30 days before its effective date . . . .”

The Board apparently decided the Excelsior case with § 553 (d) in mind, for it made the proposed new rule effective after 30 days. The House report states that § 553 (d) (which was § 4 (c) in its draft) “does not provide procedures alternative to notice and other public proceedings required by the prior sections.” Id., at 25. And that report added, “It will afford persons affected a reasonable time to prepare for the effective date of a rule or rules or to take any other action which the issuance of rules may prompt.” Ibid. And see S. Rep., supra, at 15.

The “substantive” rules described by § 553 (d) may possibly cover “adjudications,” even though they represent performance of the “judicial” function. But it is no answer to say that the order under review was “adjudicatory.” For as my Brother Harlan says, an agency is not adjudicating when it is making a rule to fit future cases. A rule like the one in Excelsior is designed to fit all cases at all times. It is not particularized to special facts. It is a statement of far-reaching policy covering all future representation elections.

It should therefore have been put down for the public hearing prescribed by the Act.

The rule-making procedure performs important functions. It gives notice to an entire segment of society of those controls or regimentation that is forthcoming. It gives an opportunity for persons affected to be heard. Recently the proposed Rules of the Federal Highway Administration governing the location and design of freeways, 33 Fed. Reg. 15663, were put down for a hearing; and the Governor of every State appeared or sent an emissary. The result was a revision of the Rules before they were promulgated. 34 Fed. Reg. 727.

That is not an uncommon experience. Agencies discover that they are not always repositories of ultimate wisdom; they learn from the suggestions of outsiders and often benefit from that advice. See H. Friendly, The Federal Administrative Agencies 45 (1962).

This is a healthy process that helps make a society viable. The multiplication of agencies and their growing power make them more and more remote from the people affected by what they do and make more likely the arbitrary exercise of their powers. Public airing of problems through rule making makes the bureaucracy more responsive to public needs and is an important brake on the growth of absolutism in the regime that now governs all of us.

Many federal agencies touch on numerous aspects of the lives of the poor. Rule making for this group is discussed in Bonfield, Representation for the Poor in Federal Rulemaking, 67 Mich. L. Rev. 511, 512 (1969):

“An agency promulgating rules affecting the poor cannot assume that it automatically knows what is best for such people. Government administrators are usually persons with middle-class backgrounds, experiences, and associations; therefore, they tend to have middle-class viewpoints, orientations, and understandings. This means that the personnel of federal agencies may be expected to reflect more accurately the interests of the affluent than those of the economically underprivileged. Consequently, there is a special reason for concern when, as is now the case, the interests of poor people are inadequately represented in the rulemaking process.”

While that suggestion may not be relevant to the present labor-management area and the sophisticated opponents with which this case is concerned, it does illustrate that when we are lax and allow federal agencies to play fast and loose with rule making, we set a precedent with dangerous repercussions.

It has been stated that “the survival of a questionable rule seems somewhat more likely when it is submerged in the facts of a given case” than when rule making is used. See Shapiro, The Choice of Rulemaking or Adjudication in the Development of Administrative Policy, 78 Harv. L. Rev. 921, 946-947 (1965). Moreover, “agencies appear to be freer to disregard their own prior decisions than they are to depart from their regulations.” Id., at 947. Failure to make full use of rule-making power is attributable at least in part “to administrative inertia and reluctance to take a clear stand.” Id., at 972.

Rule making is no cure-all; but it does force important issues into full public display and in that sense makes for more responsible administrative action.

I would hold the agencies governed by the rule-making procedure strictly to its requirements and not allow them to play fast and loose as the National Labor Relations Board apparently likes to do.

As stated by the Court of Appeals, the procedure used in the Excelsior case plainly flouted the Act:

“Recognizing the problem to be one affecting more than just the parties before it, the Board chose to solicit the assistance of selected amici curiae, and, ultimately, to establish a rule which not only did not apply to the parties before it, but did not take effect for thirty days. In so doing we consider that the Board, to put it bluntly, designed its own rule-making procedure, adopting such part of the Congressional mandate as it chose, and rejecting the rest.” 397 F. 2d 394, 396-397.

I would affirm the judgment.

Mr. Justice Harlan,

dissenting.

The language of the Administrative Procedure Act does not support the Government’s claim that an agency is “adjudicating” when it announces a rule which it refuses to apply in the dispute before it. The Act makes it clear that an agency “adjudicates” only when its procedures result in the “formulation of an order” 5 U. S. C. §551 (7). (Emphasis supplied.) An “order” is defined to include “the whole or a part of a final disposition ... of an agency in a matter other than rule making . . . .” 5 U. S. C. § 551 (6). (Emphasis supplied.) This definition makes it apparent that an agency is not adjudicating when it is making a rule, which the Act defines as “an agency statement of general or particular applicability and future effect . . . .” 5 U. S. C. §551(4). (Emphasis supplied.) Since the Labor Board’s Excelsior rule was to be effective only 30 days after its promulgation, it clearly falls within the rule-making requirements of the Act.

Nor can I agree that the natural interpretation of the statute should be rejected because it requires the agency to choose between giving its rules immediate effect or initiating a separate rule-making proceeding. An agency chooses to apply a rule prospectively only because it represents such a departure from pre-existing understandings that it would be unfair to impose the rule upon the parties in pending matters. But it is precisely in these situations, in which established patterns of conduct are revolutionized, that rule-making procedures perform the vital functions that my Brother Douglas describes so well in a dissenting opinion with which I basically agree.

Given the fact that the Labor Board has promulgated a rule in violation of the governing statute, I believe that there is no alternative but to affirm the judgment of the Court of Appeals in this case. If, as the plurality opinion suggests, the NLRB may properly enforce an invalid rule in subsequent adjudications, the rule-making provisions of the Administrative Procedure Act are completely trivialized. Under today’s prevailing approach, the agency may evade the commands of the Act whenever it desires and yet coerce the regulated industry into compliance. It is no answer to say that “respondent was under no compulsion to furnish the list because no statute and no validly adopted rule required it to do so,” ante, at 766, when the Labor Board was threatening to issue a subpoena which the courts would enforce. In what other way would the administrative agency compel obedience to its invalid rule?

One cannot always have the best of both worlds. Either the rule-making provisions are to be enforced or they are not. Before the Board may be permitted to adopt a rule that so significantly alters pre-existing labor-management understandings, it must be required to conduct a satisfactory rule-making proceeding, so that it will have the benefit of wide-ranging argument before it enacts its proposed solution to an important problem.

In refusing to adopt this position, the prevailing opinion not only undermines the Administrative Procedure Act, but also compromises the most basic principles governing judicial review of agency action established in our past decisions. This Court’s landmark opinion in SEC v. Chenery Corp., 318 U. S. 80, 94 (1943), makes it clear that we are obliged to remand a case if the agency has relied upon an improper reason to justify its action:

“If the action rests upon an administrative determination — an exercise of judgment in an area which Congress has entrusted to the agency — of course it must not be set aside because the reviewing court might have made a different determination were it empowered to do so. But if the action is based upon a determination of law as to which the reviewing authority of the courts does come into play, an order may not stand if the agency has misconceived the law. In either event the orderly functioning of the process of review requires that the grounds upon which the administrative agency acted be clearly disclosed and adequately sustained.”

Chenery’s teachings are applicable here. The Regional Office that issued the order under review refused to consider the merits of the arguments against the Excelsior rule which were raised by Wyman-Gordon on the ground that they had been rejected by the Board in the Excelsior case itself:

“[I]t is well known that Excelsior issued only after oral argument and briefs, including amicus curiae briefs by interested parties. The Board has considered arguments such as those made here and nevertheless established the requirement embodied in Excelsior and the undersigned [Acting Regional Director] is bound by it.” Appendix 33.

The Board denied review of this decision on the ground that “it raises no substantial issues warranting review.” Appendix 35.

Since the major reason the Board has given in support of its order is invalid, Chenery requires remand. See also Bell v. United States, 366 U. S. 393, 412-413 (1961) ; Burlington Truck Lines v. United States, 371 U. S. 156, 167-168 (1962); cf. Phelps Dodge Corp. v. NLRB, 313 U. S. 177, 196-197 (1941). The prevailing opinion explains its departure from our leading decisions in this area on the ground that: “There is not the slightest uncertainty as to the outcome of [this] proceeding” on remand. Ante, n. 6, at 767. I can perceive no justification whatever for this assertion. Since the Excelsior rule was invalidly promulgated, it is clear that, at a minimum, the Board is obliged on remand to recanvass all of the competing considerations before it may properly announce its decision in this case. We cannot know what the outcome of such a reappraisal will be. Surely, it cannot be stated with any degree of certainty that the Board will adopt precisely the same solution as the one which was embraced in Excelsior. The plurality simply usurps the function of the National Labor Relations Board when it says otherwise.

I would affirm the judgment of the Court of Appeals.

       When we granted certiorari, the Fifth Circuit had expressly approved the procedure the Board followed in adopting the Excelsior rule. Howell Refining Co. v. NLRB, 400 F. 2d 213 (1968). Two other circuits had approved enforcement of the Excelsior rule without explicitly passing on the correctness of the method by which it was adopted. NLRB v. Hanes Hosiery Division, 384 F. 2d 188 (C. A. 4th Cir. 1967); NLRB v. Rohlen, 385 F. 2d 52 (C. A. 7th Cir. 1967). After our grant of certiorari in the present case; three more courts of appeals explicitly upheld the Excelsior rule and the procedure by which it was adopted, NLRB v. Beech-Nut Life Savers, Inc., 406 F. 2d 253 (C. A. 2d Cir. 1968); British Auto Parts, Inc. v. NLRB, 405 F. 2d 1182 (C. A. 9th Cir. 1968); NLRB v. Q-T Shoe Mfg. Co., 409 F. 2d 1247 (C. A. 3d Cir. 1969); and the Fifth Circuit reaffirmed its earlier holding in Howell Refining Co., Groendyke Transport, Inc. v. Davis, 406 F. 2d 1158 (1969).

       We agree with the opinion of Chief Judge Aldrich below that the Excelsior rule involves matters of substance and that it therefore does not fall within any of the Act’s exceptions. See 5 U. S. C. §553 (b) (A).

       The Board has never utilized the Act’s rule-making procedures. It has been criticized for contravening the Act in this manner. See, e. g., 1 K. Davis, Administrative Law Treatise § 6.13 (Supp. 1965); Peck, The Atrophied Rule-Making Powers of the National Labor Relations Board, 70 Yale L. J. 729 (1961).

       The Solicitor General argues that this Court has previously approved “rules” articulated by the Board in the adjudication of particular cases without questioning the propriety of that procedure. He cites Republic Aviation Corp. v. NLRB, 324 U. S. 793 (1945); NLRB v. A. J. Tower Co., 329 U. S. 324 (1946); NLRB v. Seven-Up Bottling Co., 344 U. S. 344 (1953); and Brooks v. NLRB, 348 U. S. 96 (1954). In none of these cases has this Court ruled upon or sanctioned the exercise of quasi-legislative power—i. e., rule making—without compliance with § 6 of the NLRA and the rule-making provisions of the Administrative Procedure Act.

       In his Decision and Direction of Election, the Regional Director ordered that “[a)n election eligibility list, containing the names and addresses of all the eligible voters, must be filed with the Regional Director within seven (7) days of the date of this Decision and Direction of Election. The Regional Director shall make the list available to all parties to the election. . . .”

       Mr. Justice Harlan’s dissent argues that because the Board improperly relied upon the Excelsior “rule” in issuing its order, we are obliged to remand. He relies on SEC v. Chenery Corp., 318 U. S. 80 (1943). To remand would be an idle and useless formality. Chenery does not require that we convert judicial review of agency action into a ping-pong game. In Chenery, the Commission had applied the wrong standards to the adjudication of a complex factual situation, and the Court held that it would not undertake to decide whether the Commission’s result might have been justified on some other basis. Here, by contrast, the substance of the Board’s command is not seriously contestable. There is not the slightest uncertainty as to the outcome of a proceeding before the Board, whether the Board acted through a rule or an order. It would be meaningless to remand.

       See NLRB v. J. P. Stevens & Co., 409 F. 2d 1207 (C. A. 4th Cir. 1969), and the cases cited in n. 1, supra.

       270 F. Supp., at 285. The Court of Appeals did not reach the issue whether the Board could subpoena the lists in question.

       This requirement first announced in the Excelsior case, 156 N. L. R. B. 1236 (1966), has often been referred to by the Board, the lower courts, and the commentators as “the Excelsior rule.” I understand the use of the word “rule” in this context to imply simply that the requirement is a rule of law such as would be announced in a court opinion and not necessarily that it is the kind of “rule” required to be promulgated in accordance with the “rule-making” procedures of the Administrative Procedure Act. For the sake of clarity, however, I have chosen in this opinion to avoid use of the word “rule” when referring to the procedure required by the Excelsior decision.

       See National Labor Relations Act §§ 6, 9 (c) (1), 10; 29 U. S. C. §§ 156, 159 (c)(1), 160.

       The procedure to be followed in “adjudication,” which includes notice of the issues, an opportunity for responsive pleadings, a hearing, and decision, is specified in 5 U. S. C. §§ 554, 556, and 557. The Administrative Procedure Act expressly exempts proceedings for “the certification of worker representatives” from these requirements, 5 U. S. C. §§554 (a) (6), 556 (a), 557 (a), and these proceedings are therefore governed only by the requirements specified in the National Labor Relations Act, 29 U. S. C. § 151 et seq.

       The rule-making provision does not apply to
      “(1) a military or foreign affairs function of the United States; or
      “(2) a matter relating to agency management or personnel or to public property, loans, grants, benefits, or contracts." 5 U. S. C. § 553 (a).
      These exceptions exclude, inter alia, the National Forest Service, the National Park System, the Bureau of Land Management, and other agencies dealing with “public property” such as the Interior Department and its leases of off-shore oil properties.
      For a compilation of federal agency rules on rule making see J. Pike & H. Fischer, Administrative Law (2d series 1952).

       “The NLRB has never used its rule-making power; it misuses the methods of adjudication for making rules, and it uses press releases not published in the Federal Register, for announcing policies that ought to be embodied in formal rules. It seems to be violating § 3 and § 4 of the Administrative Procedure Act, and the result in some instances is serious injustice.” 1 K. Davis, Administrative Law Treatise §6.13 (Supp. 1965). And see Peck, The Atrophied Rule-Making Powers of the National Labor Relations Board, 70 Yale L. J. 729 (1961).

       For the reasons advanced by Chief Judge Aldrich in his opinion below, 397 F. 2d 394, I think it clear that the Excelsior rule involves matters of substance and not procedure, and so does not fall within the exception created by 5 U. S. C. § 553 (b) (A) of the Act.

       As I have indicated, supra, at 781,1 would go further and require the Board to initiate a new rule-making proceeding where, as here, it has previously recognized that the proposed new rule so departs from prior practices that it cannot fairly be applied retroactively. In the absence of such a proceeding, the administrative agency must be obliged to follow its earlier decisions which did not require employers to furnish Excelsior lists to unions during organizing campaigns.