Minimum Wage in the Territories and Possessions of the United States: Application of the Fair Labor Standards Act

Minimum Wage in the Territories
and Possessions of the United States:
Application of the Fair Labor Standards Act
Updated March 12, 2008
William G. Whittaker
Specialist in Labor Economics
Domestic Social Policy Division

Minimum Wage in the Territories and
Possessions of the United States:
Application of the Fair Labor Standards Act
The minimum wage under the Fair Labor Standards Act (FLSA) is generally
applicable to any state, territory, or possession of the United States such as Puerto
Rico, the Virgin Islands, Guam, American Samoa, and the Commonwealth of the
Northern Mariana Islands (CNMI). Implementation has been gradual, though the
ultimate objective has been, consistently, to raise wages to the highest level that “is
economically feasible without substantially curtailing employment.”
In 1937 and 1938, when Congress crafted the FLSA, there appears to have been
little concern about its impact upon the U.S. territories and possessions. In 1940, the
act was amended to permit Special Industry Committees (SICs) to visit Puerto Rico
and the Virgin Islands to assess their economies and to make recommendations for
a sub-minimum wage in certain industries. In 1956, the same procedure was
instituted for American Samoa. Guam had always been under the act (though it may
not have been implemented). The CNMI, in setting forth the terms of its association
with the United States, had retained control over its own insular minimum wage.
By the 1980s and early 1990s, Puerto Rico and the Virgin Islands had emerged
from the SICs procedures and come fully under the FLSA. Two territories remained
to be accounted for: American Samoa and, in a different context, the CNMI.
It was generally assumed that the mainland minimum wage applied to American
Samoa though it had not been implemented. During the early 1950s, the Department
of the Interior moved to attract a new industry to the island group: namely, tuna
canning. The first company, Van Camp Sea Foods, asked Congress to grant an
exception from the FLSA and, in 1956, the Puerto Rican model was adopted. The
exception remained in place until 2007 when, under the FLSA amendments of that
year, the SIC system was abolished and the federal minimum wage, in steps, would
be applied.
The CNMI was acquired by the United States in the aftermath of World War II.
When, in the mid-1970s, it became a Commonwealth in association with the United
States, the CNMI retained control over its minimum wage and certain aspects of
immigration and trade policy. A decade later, in the 1980s, congressional hearings
uncovered what were alleged to have been “sweatshop” practices involving the
garment and tourism industries. With the 2007 FLSA amendments, the federal
minimum wage will be applied, in steps, to the CNMI.
In the 110th Congress, several bills (H.R. 2, H.R. 976, H.R. 1591, H.R. 2206,
and H.R. 5154) dealt with the minimum wage for Samoa and/or for the CNMI.
This report will be updated as warranted.

In troduction ......................................................1
The Fair Labor Standards Act of 1938..................................2
Puerto Rico.......................................................4
The Virgin Islands.................................................5
Guam ...........................................................6
American Samoa..................................................8
Insular History and Governance...................................8
Tuna and the Roots of Development...............................8th
American Samoa and the 110 Congress...........................10
Commonwealth of the Northern Mariana Islands........................10
The Covenant of Association Is Established........................11
New Industrial Growth and Its Aftermath..........................12
Legislative Redress?..........................................13

Minimum Wage in the Territories and
Possessions of the United States:
Application of the Fair Labor Standards Act
When Congress crafted the Fair Labor Standards Act (FLSA) during 1937 and
1938,1 there appears to have been little concern about how its provisions might affect
the territories and possessions of the United States. Gradually, through various
procedures and over different time periods, the federal minimum wage has come to
be applied in most of these jurisdictions. In Puerto Rico and the Virgin Islands,
implementation was gradual, utilizing special industry committees (SICs). A parallel
SIC was created for American Samoa during the middle 1950s. By the late 1980s or
early 1990s, the SICs for Puerto Rico and the Virgin Islands had been phased out.
For Samoa, the SICs seem to have had little effect in raising wage rates, though the
procedure remained in place, intermittently, until the summer of 2007 when it was
abolished. The FLSA was immediately applicable to Guam, though it was only
enforced about two decades later, in 1959-1960.
The case of the Commonwealth of the Northern Mariana Islands (the CNMI) is
somewhat different. The CNMI was acquired by the United States in the wake of
World War II. With the creation of the United Nations, the island group was
assigned to the United States as part of the Trust Territory of the Pacific Islands. By
the mid-1970s, the islands had entered into a Covenant of Association with the
United States under their current Commonwealth status. In doing so, they retained
responsibility for the insular minimum wage — and exercised control over aspects
of insular immigration policy. As conditions developed, goods produced in the
CNMI were to be marketed as “Made in America.”
Combining the advantages of low wages (lower than those required in most
other U.S. jurisdictions), the availability of alien contract labor from China and
elsewhere, and the right to use a “Made in America” label for marketing purposes,
the relatively small CNMI developed a substantial production industry. This was
especially notable in garments. Over time, the alien labor force came to equal the
natives of the CNMI and allegations of “sweatshop” conditions began to surface. At
the same time, there were affirmations that entrepreneurs of the CNMI had done very
well for themselves — that is to say, a business success story.2

1 The Fair Labor Standards Act of 1938, as amended, is the basic federal statute dealing with
minimum wages, overtime pay, child labor, industrial homework, and related issues.
2 See, for example, Clint Bolick, “Marianas Show How Free Markets Can Flourish,” Human

Thus, among U.S. territories and possessions, the minimum wage had remained
unresolved in American Samoa and the CNMI. Various bills were introduced during
recent Congresses that would have increased the general minimum wage and, at the
same time, extended the federal standard to the CNMI. In addition, some have
suggested a modified restructuring of the Covenant of Association with regard to
minimum wage and immigration — and with respect to marketing of CNMI products
as “Made in America.” As a result of the enactment of H.R. 2206 (P.L. 110-28),
procedures have now been added to the FLSA that will bring the insular minimum
wage up to mainland standards.
This report is an introductory sketch of the role of the minimum wage in the
territories and possessions of the United States. Omitted are nuances of policy that
might rightly deserve more extended study.
The Fair Labor Standards Act of 1938
As adopted in 1938, the FLSA (P.L. 75-718) defined state as “any state of the
United States or the District of Columbia or any Territory or possession of the United3
States.” No distinctions were made between the states and the other jurisdictions
where FLSA wage/hour policy was concerned.
The general concept of the FLSA appears to have evolved from experience
under the National Industrial Recovery Act (the NIRA, 1933-1935). The NIRA was
basically voluntary, depending for much of its even limited success upon the
goodwill of the several parties. Though the NIRA encountered problems dealing
with the territories (notably, with Puerto Rico), there was built into the act a4
flexibility which, initially, the FLSA did not seem to enjoy. The NIRA was declared
unconstitutional in 1935 — but, still, it was very much on the minds of the Members
of Congress in 1937 and 1938 and framed much of the context of the wage/hour
debates of that period.
In 1938, the FLSA set a minimum wage of 25 cents per hour for covered
workers, with step increases to 30 cents per hour one year after enactment and to 40
cents per hour seven years after enactment. However, the act also provided for a
system of special industry committees (SICs) “for each industry engaged in

2 (...continued)
Events, April 18, 1997, p. 20; and Juliet Eilperin, Roll Call, January 8, 1998, p. 13. See also
W. John Moore, “American Dream or Pacific Nightmare?” National Journal, December 13,

1997, p. 2522; William Branigin, “U.S. Pacific Paradise Is Hell for Some Foreign Workers,”

The Washington Post, August 29, 1994, p. A1; and Branigin, “Northern Marianas: Not a
Workers’ Paradise,” The Washington Post, October 14, 1997, p. A15.
3 Section 3(c) of P.L. 75-718. As initially proposed, the wage/hour bills of the 75th Congress
that evolved into the FLSA defined “state” as “any state of the United States or the District
of Columbia.” As the legislation moved through Congress, the broader language was
See S. 2475 (Black) and H.R. 7200 (Connery) of the 75 Congress.
4 Concerning the National Industrial Recovery Act, see Bernard Bellush, The Failure of the
NRA. New York, Norton & Company, Inc., 1975.

commerce or in the production of goods for commerce.” The Administrator of the
Wage and Hour Division at the Department of Labor (DOL) was thus permitted to
examine the several covered industries and, “as rapidly as is economically feasible
without substantially curtailing employment,” to increase the federal minimum wage
for particular industries through administrative processes.5 Such administratively set
minima were not to exceed 40 cents per hour — nor were they to fall below the level
fixed by the statute for each statutory step increase. The Administrator could reject
SIC recommendations and/or remand the matter to the committee (or to another
committee). These administratively determined wage rates were to have effect only
through a seven-year period. Thereafter, the 40-cent minimum would become
appl i cabl e. 6
Congress did not seem to anticipate immediate appointment of industry
committees and, indeed, they came into being only gradually. Section 8 mandated
that the Administrator “shall from time to time convene the industry committee for
each such industry, and the industry committee shall from time to time recommend”
the appropriate wage rates — taking into account “economic and competitive
conditions.” It directed that such rates “not give a competitive advantage to any
group in the industry” but, rather, that they should take into account “transportation,
living, and production costs.” Nor was the age of the worker to be a part of the
equation.7 In general, the industry committee was a vehicle for upward movement
of wage rates. Its discretion involved only the interim area between the statutory
floor (25 cents an hour) and an upper level of 40 cents per hour.
Several factors came into play under the special industry committee procedures.
Congress sought to provide for the establishment of the “highest minimum wage
rate” consistent with the statute. However, it was equally determined that institution
of the minimum rate should not “substantially curtail employment. And, finally, it
provided that any committee-established sub-minimum rates would “not give a
competitive advantage to any group in the industry.” Each of these issues was
discussed at some length during the initial debates on the FLSA.8
The provision for industry committees under Section 5 and Section 8 has
provided, through the years, a context for minimum wage treatment of some insular
jurisdictions — though that was not, it appears, initially its purpose.

5 Section 5 of P.L. 75-718, June 25, 1938.
6 Section 8 of P.L. 75-718.
7 Ibid. Apprentices and similarly disposed persons were provided with a special option, but
in the general workforce, a youth sub-minimum wage was not agreed to.
8 Here again, the special committee was to elevate wages above the minimum and,
potentially, to do so by grade of work; but, the minimum wage, per se, was not stratified by
age nor by gender.

Puerto Rico
In the 1938 statute, Puerto Rico was covered under the FLSA in the same
manner as the states of the Union. However, between 1940 and 1996, it was afforded
special treatment through a system of specially industry committees (SICs). Now,
the minimum wage treatment of Puerto Rico is on a par with the several states.
Puerto Rico (with its capital at San Juan) was acquired by the United States as
a result of the Spanish-American War (1898). Although its ultimate status would
remain somewhat ambiguous, the island developed institutions that closely paralleled
those of the states. Just as several states had experimented with minimum wage laws
early in the century, so did the Puerto Rican legislature which adopted such a
requirement in 1919.9 Insular wage rates, however, remained far below those for
most mainland workers through the 1930s. When, with the enactment of the FLSA
in 1938, Puerto Rico was mandated to increase its wage floor, interests on the island
argued that it would be hard pressed to do so without serious economic dislocation.
The upward flexibility permitted through the special industry committee
structure may have been useful for the mainland but, for Puerto Rico, some argued10
that even the 25 cent floor may have been “too high.” During 1939-1940, various
industry groups pressed for “remedial legislation for Puerto Rico on [the] matter of
wages-and-hours law,” claiming that “failure to secure relief means the total collapse
of industries vital to our economic structure and [unemployment for] thousands of11
wage earners dependent thereon.”
In 1940, Congress enacted new legislation designed specifically for Puerto Rico
and the Virgin Islands. It allowed the FLSA minimum wage requirements to be set
aside and replaced with special industry wage floors. These minima, to be developed
by industry committees operating in cooperation with the US-DOL, were intended
to reflect insular economic realities. Deviation from the national minimum wage
under the FLSA was allowable “only for so long as and insofar as such employee is
covered by a wage order issued by the Administrator [of the Wage and Hour Division
within the US-DOL] pursuant to the recommendations of a special industry12
The intent of this special arrangement for Puerto Rico and the Virgin Islands
was to bring the two jurisdictions up to the standards observed by the states as rapidly
as might be economically feasible without substantially curtailing employment. At
the same time, the committees “were prohibited ... from recommending a minimum

9 Dietz, James L. Economic History of Puerto Rico: Institutional Change and Capitalist
Development. Princeton, Princeton University Press, 1986. p. 176. See also Carlos J.
Lastra, The Impact of Minimum Wages on a Labor-Oriented Industry. San Juan: College
of Social Sciences, University of Puerto Rico, 1961.
10 Kantor, Harry S. “Two Decades of the Fair Labor Standards Act,” Monthly Labor
Review, October 1958, p. 1099.
11 See Appendix to the Congressional Record, May 2, 1940, p. 2632-2633.
12 Section 3, Public Resolution No. 88, June 26, 1940.

wage rate that would give any native industry a competitive advantage over its
counterpart in the United States.”13
The process of increasing wage parity with the mainland continued through
more than half-a-century. During consideration of the 1989 FLSA amendments,
Congress revisited the case of Puerto Rico — as it had through the years. It was
found that, in most areas of production, the insular employers were meeting national
standards. The 1989 enactments, thus, eliminated the special industry committee
system for Puerto Rico and mandated, through a series of step increases in the insular
wage structure (under the FLSA), that all covered workers be paid not less than the
applicable federal minimum wage after April 1, 1996.14
The Virgin Islands
Under the FLSA of 1938, the Virgin Islands were covered in the same manner
as the several states. However, during the period 1940 to 1989, there was a time
when wage rates were fixed by special industry committees — as had been the case
with Puerto Rico. Since the mid-1990s, the minimum wage for the Virgin Islands
has been set at the national level.
The Virgin Islands were acquired by the United States in 1917 through purchase
from Denmark. There are about 68 islands in the American Virgin chain, with only
about three actually populated. Collectively, the Islands have a population of slightly
less than 150,000 people.15 Charlotte Amalie is the capital.
The relationship between the Islands and the mainland evolved slowly through
the decades following their acquisition by the United States. Like Puerto Rico, the
Virgin Islands were covered under the original FLSA enactment of 1938; but, if
hearings and floor debates are any indication, their inclusion may have been more
nearly pro forma rather than the result of direct legislative intent.
During consideration of the FLSA in 1937 and 1938, very little attention appears
to have been focused upon either the Virgin Islands or Puerto Rico. However, with
enactment of the wage/hour legislation, industry became concerned about its impact
and, through 1939 and 1940, Puerto Rican interests appealed to Congress for an
amendment to the statute on behalf of the islands. Though the focus of congressional
debate appears to have been upon Puerto Rico, the 1940 FLSA amendment applied
to the Virgin Islands as well.16 Where the federal minimum wage could be met, it
was applied. Where significant unemployment might have resulted from imposition
of mainland wage rates, the minima were set by industry committees with the
approval of the US-DOL Wage and Hour Administrator.

13 Kantor, op. cit., p. 1099.
14 See P.L. 101-157, Section 4.
15 Populations figures, throughout this paper, are estimates, though they will probably vary
little from actual census figures.
16 Section 3, Public Resolution No. 88, June 26, 1940.

As in Puerto Rico, FLSA coverage was gradually expanded for the Virgin
Islands, together with the rest of the nation. In 1989, the Government of the Virgin
Islands indicated that for all the covered industries, wage rates had been raised to
meet the national standard. Therefore, the FLSA was again altered to eliminate any
special treatment for the Virgin Islands.17
The FLSA has applied to Guam since 1938, just as it has applied to the states
of the Union. However, it has only been enforced there since about 1959-1960.
Guam, like Puerto Rico, was acquired by the United States in 1898 as a result
of the Spanish-American War. For 50 years, it remained under the jurisdiction of the
United States Navy. Then, in 1949, President Truman transferred administration of
the island to the Department of the Interior. In 1950, Congress established a system
of civil government for the island of, perhaps, slightly less than 200,000 people. Its
capital is Agana. In 1968, the island was allowed to elect its own governor; in 1972,
to elect a non-voting delegate to the U.S. Congress.18
Prior to World War II, socio-economic and cultural conditions in Guam were19
quite different from those of the United States or other industrialized countries.
Through the years, the insular labor force and wage structure appear to have
remained multi-tiered with separate rates for alien workers imported from the
Philippines, for native Guamanians, for Americans recruited on Guam, and for20
American workers recruited from the states.
When the civil government was established (1950), colonial administration
appears to have been somewhat chaotic. One observer stated, for example: “...
existing laws represented a hodge-podge of rules, regulations, laws, naval
expressions of policy, and letters and other documents having the force and effect of21
law.” As a “Territory or possession” of the United States, Guam was covered under
the original FLSA; but, it seems that the statute was not enforced there. Thus, for
these several reasons, Guamanian employers do not appear to have been involved in
discussions during 1939 and 1940 which led Congress to alter the act with respect to
Puerto Rico and the Virgin Islands. Guam, of that period, was simply too far
removed from Washington to be really at issue.

17 See P.L. 101-157, Section 4.
18 For general accounts of Guam, see Paul Carano and Pedro C. Sanchez, A Complete
History of Guam. Rutland, Vermont: Charles E. Tuttle Company, 1964; and Russell L.
Stevens, Guam, U.S.A.: Birth of a Territory. Honolulu: Tongg Publishing Co., LTD, 1953.
19 The Annual Report of the Governor of Guam, by James T. Alexander, Governor of Guam
and Commandant, Naval Station, 1939. p. 2.
20 Leibowitz, Arnold H. “The Applicability of Federal Law to Guam,” Virginia Journal of
International Law, Fall 1975. p. 50.
21 Stevens, Guam, U.S.A.: Birth of a Territory, op. cit., pp. 75-76.

With the war in the Pacific, Guam became immediately of interest. The island
was occupied by the Japanese from late 1941 until 1944. When the United States
reclaimed the island, much of its infrastructure appears to have been devastated.
Much of the economy fell under government control and regulation. There was a
significantly expanded post-war military population that was not native to the island
— plus a major population of Filipinos brought into the island by American
The case for enforcement of federal minimum wage standards in Guam was
strengthened with the 1948 decision of the U.S. Supreme Court in Vermilya-Brown
Co., Inc., et al. v. Connell et al. [335 U.S. 377 (1948)]. Although at issue was the
application of the FLSA to employees of American contractors engaged in the
construction of a military facility for the United States in Bermuda (part of Great
Britain), there were clear implications for Guam. The Court identified a “possession”
covered under the act as including “Puerto Rico, Guam, the guano islands, Samoa
and the Virgin Islands.”23 In dissent in Vermilya-Brown, further, Justice Jackson
suggested that the situation of a U.S. facility in Bermuda was of a character different
from that of “our possessions” as enumerated by the Court’s majority.24
In addition, with adoption of an Organic Act for Guam in 1950, a commission
established to review the application of federal laws to the island found that FLSA
applicability to Guam was “indisputable, particularly in view of the recent decision”
in Vermilya-Brown. But, the commission noted: “The Wage and Hour Division
[US-DOL] has no field office convenient for serving that area.”25 Again, in 1953,
Chief Judge McLaughlin of the U.S. District Court for Hawaii, pointed out, in part
based on the Vermilya-Brown decision, that the FLSA was applicable to “Guam,
Johnston Island, American Samoa, and so forth.”26
By the late 1950s, as potential problems began to mount with regard to labor
standards for aliens employed in the construction of overseas bases, Congress
revisited the issue of offshore application of the FLSA. Through the course of
hearings in 1957, it was clear that the FLSA applied to Guam — though there was
some question about coverage for the Filipino workers. Following from the hearings,
the 85th Congress adopted amendments to the FLSA under which Guam, American
Samoa and certain other jurisdictions were specifically written into the act.27 In

22 See Laura Thompson, Guam and Its People, Princeton: Princeton University Press, 1974;
and, Roy E. James, “Miltiary Government: Guam”, Far Eastern Survey, v. 15, no. 18
23 Vermilya-Brown Co., Inc., et al. v. Connell et al., 335 U.S. 388 (1948).
24 Ibid., 391-392.
25 Resource Material Used in the Preparation of the Report of the Commission on
Application of Federal Laws to Guam. U.S. House of Representatives, Committee onstnd
Interior and Insular Affairs, 81 Cong., 2 Sess., Committee Print, 1952, p. 170.
26 Daves et al. v. Hawaiian Dredging Co., Ltd., et al, 114 F. Supp. 647.
27 U.S. Congress. House. Committee on Education and Labor. Subcommittee on Labor
Standards, Fair Labor Standards Act. June 24, 1957. See P.L. 85-231. Future coverage for

January 1959, the first compliance officer appears to have been dispatched to Guam
by the US-DOL Wage and Hour Division.28
American Samoa
The FLSA has applied to American Samoa since 1938, just as it has to the
states. However, it appears not to have been enforced there until the late 1950s —
and, then, through a special industry committee structure. The special industry
committee arrangement was repealed with the 2007 FLSA amendments (H.R. 2206:
P.L. 110-28). Under P.L. 110-28, changes in the insular rate were to proceed,
incrementally, until it became coequal with the federal rate. It would then increase
in tandem under the provisions of the federal statute.
Insular History and Governance
The Samoan Islands are divided into two segments: Western Samoa, formerly
British and now independent; and American Samoa, a cluster of seven islands,
governed from the insular capital of Pago Pago. There had been an American
presence in Samoa through the latter 19th century, but with the Spanish-American
War, there developed a series of treaties and leases between the insular officials and
the United States. In 1900, President William McKinley “directed the Navy to
assume responsibility for Eastern (thereafter, American) Samoa.”
McKinley’s directive remained in effect until 1951 when, with the Samoan
naval station closed, authority fell to the Department of the Interior.29 During the
middle 1950s, an insular constitutional government developed and, in 1960, a
constitution was approved. Like Guam, American Samoa appears to have been
covered by the FLSA since enactment of the law in 1938. However, the act does not
appear to have been enforced there until the late 1950s.
Tuna and the Roots of Development
In 1953, development of a tuna canning operation commenced in American
Samoa — an industry that quickly became the island’s primary private sector
employer. With the Supreme Court decision in 1948 in Vermilya-Brown (discussed
above), Samoan industry became increasingly aware of the likely enforcement of
minimum wage and other FLSA standards. It was with Vermilya-Brown in mind that
representatives of Van Camp Sea Food Co., Inc., appeared before the Senate
Committee on Labor and Public Welfare in May 1956 to seek amendment of the act.

27 (...continued)
alien workers was also confirmed by legislation.
28 Conversation with US-DOL staff, June 1980.
29 Van Cleve, Ruth G. The Office of Territorial Affairs. New York, Praeger Publishers,

1974. p. 60-65.

The company urged the creation of a special arrangement under which the
American Secretary of Labor would promulgate wages for insular industries and, in
effect, would institute a sub-minimum wage commensurate with insular economic
conditions.30 In the absence of such an amendment, the full weight of the federal
minimum wage would have applied. Thus, employer spokespersons readily accepted
an industry committee structure (an SIC), similar to those then in operation for Puerto
Rico and the Virgin Islands, which could provide a rate less than the rate in effect
nationally.31 As in other offshore jurisdictions, the industry committee structure for
American Samoa was intended to be an interim measure while the insular economy
moved toward mainland standards.
Thirty years later, the special industry committee structure was still in place. In
1986, SIC No. 17, following routine hearings and investigation into the condition of
the various segments of the insular economy, concluded that the minimum wage for
Samoa could be raised to the mainland level without risk that it would “substantially
curtail employment in the industries” of the island. Thus, following a period of
adjustment until April 1988, the Samoan minimum wage would have become the
same as that for the mainland.32 As a result, the special industry committee system
would have been disbanded, with Samoa achieving the same status in wage/hour
matters as Guam — that is, equality with the states.
Before the recommendations of the committee were given effect, DOL
explained, “several interested groups” commenced litigation to have the rates set
aside so that insular employers might continue to pay wage rates below the national
minimum.33 Concern was voiced that the tuna industry would “substantially shift its
operations to foreign locations.” That judicial process was cut short when Congress
added language to the pending “Insular Areas Regulation Act” (99th Congress)
specifically overturning the findings of Special Industry Committee No. 17, retaining
the lower wage rates already in effect, and directing that a new committee be
appointed that would recommend minimum wage rates less threatening to the insular
economic structure.34
Two legislative initiatives followed. The 101st Congress approved legislation,
proposed by Senator James McClure of Idaho, that reduced the evidentiary burden

30 U.S. Congress. Senate. Committee on Labor and Public Welfare. Amending the Fair
Labor Standards at of 1938. Hearings, 84th Cong., 2d Sess., May 8, 1956 ff. Washington,
U.S. Govt. Print. Off., 1956. p. 392.
31 See P.L. 84-1023, August 8, 1956. Although it was conceded that the minimum wage
applied to Samoa, industry sought (and was successful) in securing an amnesty for past
practice (i.e., for not having paid the minimum wage).
32 U.S. Department of Labor. Employment Standards Administration. Wage and Hour
Division. Report, Special Industry Committee No. 17 (1986), p. 15.
33 U.S. Department of Labor. Employment Standards Administration. Wage and Hour
Division. Various Industries in American Samoa: An Economic Report, 1987. March

1987. p. 53-54.

34 Federal Register, June 20, 1986, p. 22517-22518; and Congressional Record, August 1,

1986, p. 18612, 18617-18618, 18624, and August 9, 1986, p. 20392-20397.

upon employers in Samoa who seek to demonstrate an inability to pay at least the
minimum wage.35 In the 102nd Congress, Representative Austin Murphy of
Pennsylvania introduced legislation (H.R. 4011) that would have phased out the
industry committee system for American Samoa through a three-year period. The
insular minimum would have gone to 75% of the national minimum after the first
year, to 90% after the second year, and to the full national minimum after the third
year. The Murphy bill died at the close of the 102nd Congress. Thus, American
Samoa, though covered under the minimum wage provisions of the FLSA, continued
to remain under the special industry committee structure.
American Samoa and the 110th Congress
In 2007, a provision was inserted into the U.S. Troop Readiness, Veterans’
Care, Katrina Recovery, and Iraq Accountability Appropriations Act (H.R. 2206: P.L.
110-28) that repealed the special industry committee provisions of the FLSA and
would, over time, impose the full federal minimum wage upon employers in
American Samoa. The rate, with “each industry and classification” treated
separately, would increase by 50 cents an hour, beginning on the 60th day after
enactment of H.R. 2206, and would be increased by 50 cents an hour each year until
the federal rate had been reached.36
Commonwealth of the Northern Mariana Islands
The Commonwealth of the Northern Mariana Islands (CNMI), associated with
the United States since the mid-1970s, had not been covered by the minimum wage
provisions of the FLSA: rather, it was governed by its own insular minimum —
lower than the FLSA standard. In the 2007 amendments to the FLSA (P.L. 110-28),
the federal minimum wage was extended, in steps, to include the CNMI.

35 Section 8(b) of the FLSA had provided that the special industry committee would
recommend payment of at least the national minimum “unless there is substantial
documentary evidence, including pertinent unabridged profit and loss statements and
balance sheets for a representative period of years or in the case of employees of public
agencies other appropriate information, in the record which establishes that the industry, or
a predominant portion thereof, is unable to pay that wage.” In effect, there was a means test
for an employer seeking exemption from the regular minimum wage on grounds of inability
to pay and still to compete. The McClure bill (S. 2930, P.L. 101-583) reduced this
evidentiary requirement by deleting this qualifying language and inserting in lieu thereof:
“unless there is evidence in the record which establishes that the industry, or a predominant
portion thereof, is unable to pay that wage due to such economic and competitive
36 CRS Report RL33754, “Minimum Wage in the 110th Congress,” by William G. Whittaker.
Under P.L. 110-28, the federal minimum wage would increase, over time, to $7.25 per hour.
The new Act states that the insular minimum will be whatever rate may ultimately be set as
the national standard. Concerning the functioning of the SIC structure and the implications
of the new wage rates for the islands, see CRS Report RL34013, “The Federal Minimum
Wage and American Samoa,” by William G. Whittaker.

The Covenant of Association Is Established
The Northern Mariana Islands (controlled sequentially by Spain, Germany and
Japan) passed to the United States by conquest at the close of World War II. In 1947,
following establishment of the United Nations, the Marianas were placed under U.S.
control as part of the Trust Territory of the Pacific Islands. During the mid-1970s,
a movement for expanded self-determination commenced. This led, ultimately, to
the creation and ratification of the Covenant of Association between the Mariana
Islands and the United States, establishing the current Commonwealth status.
Like Guam and American Samoa, the Northern Mariana Islands are lightly
populated (probably, depending upon the criteria, less than 100,000 people),
culturally different from the United States, and geographically distant. Most of the
population resides on Saipan, but with several other islands (notably, Tinian and
Rota) sharing in density. As a Trust Territory, unlike Guam or Samoa, the Mariana
Islands were not initially thought of as part of the United States, per se. Rather, they
seem to have been regarded as in temporary association with the United States.
Thus, imposition of precise U.S. standards upon the local population — which, in
turn, may have meant some substantial disruption of traditional relationships — may
not have been a high priority.
Western style jobs had barely begun to develop when the United States came
into control of the islands.37 In 1947, shortly after the close of World War II, the
American government stated that the Northern Marianas were still undergoing a
transition to a cash economy and lacked both trade unions and traditional wage
standards.38 Again, in 1976, the Department of State reported that “[t]here is no
minimum wage law for the Trust Territory” and that “wage rate determination is very
much up to each employer.”39
With the adoption of the covenant (1975-1976), responsibility for labor
standards was divided between the CNMI and the United States. The United States
assumed responsibility for overtime pay, child labor regulation, control of industrial
homework, and related matters; the CNMI (Saipan) took responsibility for alien labor
immigration and the minimum wage. It was also agreed that goods produced in the
CNMI would move in commerce under a Made in America label.

37 U.S. Navy Department. Office of the Chief of Naval Operations. Handbook on the Trust
Territory of the Pacific Islands. Washington, U.S. Govt. Print Off., 1948. pp. 174 and 178.
38 U.S. Department of State. 27th Annual Report to the United Nations. Trust Territory of
the Pacific Islands, l974. Washington, U.S. Govt. Print. Off., 1974. pp. 57-58. During
recent years, it seems, American trade unions have begun to organize in the CNMI.
39 U.S. Department of State. 29th Annual Report to the United Nations. Trust Territory of
the Pacific Islands, 1976. Washington, U.S. Govt. Print. Off., 1976. p. 72. The
institutional evolution of labor standards regulation, if any, in the islands during the
American period seems obscure. The Department of the Interior advises that any records
for the period prior to the adoption of the covenant (i.e., 1945-1976) have been retired to the
National Archives. That any system of labor standards was developed for the islands during
the Trust period is not immediately apparent.

The US-DOL does not appear to have moved swiftly to implement its
responsibilities. The regional office of US-DOL’s Wage and Hour Division in San
Francisco had jurisdiction over the Pacific areas. But, there appears to have been no
regular US-DOL presence in the CNMI prior to 1986-1987, at which point, the
Department commenced an investigation of overtime pay compliance in insular
industry — an aspect of labor standards protections over which the US-DOL had
continuing jurisdiction.
New Industrial Growth and Its Aftermath
By the 1980s, a garment industry had developed in the CNMI, based largely, it
appears, upon three factors: (1) an initial minimum wage then about $2.15 per hour,
substantially below that required by the FLSA, though it may not have extended to
many workers; (2) importation of alien non-immigrant contract workers, many from
China, who came to be employed in the insular garment factories; and (3) the
capacity to move CNMI production in commerce, for tariff purposes, as Made in
America. Quickly, the insular population grew, with non-citizen alien workers a
significant proportion of the total.
The system overall, some suggested, seems to have led to abuse of workers
while raising the image of “sweatshop” conditions. Because of concerns about labor
practices (with other matters), extensive hearings were conducted by a subcommittee
of the Committee on Interior and Insular Affairs in 1992 and again in 1995.40
The information developed through the several hearings was contentious.
Representative Ron de Lugo of the Virgin Islands,. chairman of the House
Subcommittee on Insular and International Affairs, estimated that half of the 45,000
people in the CNMI in 1992 were “temporary alien workers.” He stated that the
insular garment industry had grown from “a $5 million volume in 1985 to over $250
million in 1991.” Gradually, the US-DOL had become involved. In 1991-1992, de
Lugo stated, the US-DOL had levied a series of fines against CNMI garment
manufacturers: “$500,000 to settle criminal charges related to the alleged forced
kickbacks” of wages, “$560,000 in fines” against employers “for what an official
called ‘appalling living and working conditions,’” and “$9 million to settle the
underpayment of wages”charge.41
In 1998, the focus shifted to the Senate where hearings were conducted by the
Committee on Energy and Natural Resources. Once again, concerns were voiced
about unfair and abusive labor practices in the CNMI. Chaired jointly by Senators
Frank Murkowski of Alaska and Daniel Akaka of Hawaii, the hearing took up

40 See U.S. Congress. House. Committee on Interior and Insular Affairs. Subcommittee on
Insular and International Affairs, Northern Mariana Islands’ Garment Industry. 102ndnd
Cong., 2 Sess., July 30, 1992. Washington, U.S. Govt. Print Office, 1992 (cited, hereafter,
as U.S. House, Insular Affairs, 1992); and U.S. Congress. House. Committee on Resources.
Subcommittee on Native American and Insular Affairs, Impact of Contract with Americathst
on the Territories. Hearings on H.R. 602, 104 Cong., 1 Sess., January 31, 1995.
Washington, U.S. Govt. Print. Off., 1995.
41 U.S. House, Insular Affairs, 1992, pp. 4-7.

imposition of “the federal minimum wage and federal immigration laws” with
respect to the CNMI. Senator Murkowski noted that the Committee had under
consideration the imposition of “a new 50% U.S. labor requirement on textiles and
apparel manufactured in the Marianas for eligibility to use the so-called ‘Made in
America’ label or receive duty-free access into the U.S. customs territory.”42 But,
nothing materialized.
There had, for a small insular jurisdiction, been a significant growth in
population. The Senate Committee reported that from about 15,000 in 1976, the
Marianas population had grown to more than 60,000 in 1998. It estimated the
proportions as follows: a resident population of about 24,000; about 28,000 alien
workers; and, perhaps, about 10,000 illegal aliens.43 At the same time,
unemployment was said to be about 7.1% overall — but with significant differences
between alien workers (a lower rate) and resident islanders, suggesting that jobs were
either too poorly paid to attract local workers or, conversely, that guest workers were
out-bidding natives for the available work. Anticipating reform, some suggested the
need for a ‘special industry committee’ as was utilized in American Samoa to sort
through work opportunities and to assign wage rates.44 The committee’s suggestion
was not followed.
Legislative Redress?
Through the past several Congresses, the issue has resurfaced but without
solution. In the 109th Congress, Representative George Miller of California
introduced general legislation dealing with labeling (use of the concept “Made in
USA”), minimum wages, applicability of immigration law to the CNMI, and
mandating, among other things, certain studies of insular conditions. The bill was
referred to the Committee on Resources and to the Committee on Ways and Means;
but, in neither case was action taken on the referral. Meanwhile, other legislative
proposals, focusing largely upon a minimum wage increase but with CNMI
components, were introduced; but, as with the Miller bill, they were not acted upon.45
In the 110th Congress, George Miller became chair of the Committee on
Education and Labor. Targeted for immediate action was H.R. 2, the Fair Minimum
Wage Act of 2007. The bill (with some 222 cosponsors) had two provisions: (1) to

42 U.S. Congress. Senate. Committee on Energy and Natural Resources. Northern Mariana
Islands. Hearings on S. 1100 and S. 1275, 105th Cong., 2nd Sess., March 31, 1998.
Washington, U.S. Govt. Print. Off., 1998. p. 1. The Committee had conducted an earlierthst
hearing, Insular Development Act of 1995. Hearings on S. 638, 104 Cong., 1 Sess., 1995.
Washington, U.S. Govt. Print Off., 1995.
43 Population figures are estimates, taken from hearings and related sources.
44 U.S. Congress. Senate. Committee on Energy and Natural Resources. Northern Mariana
Islands Covenant Implementation Act. Report together with additional views to Accompanythnd
S. 1275. S.Rept. 105-201, 105 Cong., 2 Sess., Washington, U.S. Govt. Print. Off., 1998.

34 p.

45 See, for example: H.R. 2429 (George Miller), H.R. 3413 (Boehlert), H.R. 5787 (Boehlert),
S. 1062 (Kennedy), and S. 2357 (Kennedy).

raise the federal minimum wage, in steps, to $7.25 per hour, and (2) to render the
federal minimum wage applicable to the CNMI through a series of increases to take
place over several years.
On January 10, 2007, H.R. 2 was called up in the House and, as a clean
minimum wage bill, was adopted on a vote of 315 yeas to 116 nays. The measure
was promptly referred to the Senate where it was adopted (94 yeas to 3 nays). But,
in the Senate, a series of revenue-oriented proposals (which might normally have
come from the House) were added, posing a procedural problem. For the moment,
nothing further happened. Then, two other bills arrived from the House. H.R. 976
had come from the Committee on Ways and Means and, though without a minimum
wage component, did provide revenue measures that could have been added to H.R.
2 had the Senate chosen to do so. A second bill, H.R. 1591, dealt with funding levels
and timetables for the conflict in the Middle East, and with other provisions, some
of them domestic. Though contentious, the bill was promptly approved by Congress,
but the measure was vetoed by the President, and the veto was sustained.
Then, in May of 2007, a provision was inserted into the U.S. Troop Readiness,
Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations Act (H.R.
2206, P.L. 110-28) that would preempt the Covenant of Association by establishing
the federal minimum wage as applicable, over time, to the CNMI. As signed into
law, the new statute mandates an increase in the insular minimum wage by 50 cents
an hour 60 days after enactment, with an additional 50 cents an hour increase each
year until the level of the federal minimum wage has been reached. Thereafter, the
insular and federal rates would be coequal and would rise or fall together.46

46 CRS Report RL33754, Minimum Wage in the 110th Congress, by William G. Whittaker.
In the interim, it appears, the movement of the garment industry into the CNMI has retreated
with various factories closing and some out-migration following. As enacted, H.R. 2206
provides for economic studies of conditions in American Samoa and in the Commonwealth
of the Northern Mariana Islands.