[Senate Hearing 108-233]
[From the U.S. Government Publishing Office]
S. Hrg. 108-233
PROPOSED RULE ON OVERTIME PAY
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HEARING
before a
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
SPECIAL HEARING
JULY 31, 2003--WASHINGTON, DC
__________
Printed for the use of the Committee on Appropriations
Available via the World Wide Web: http://www.access.gpo.gov/congress/
senate
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COMMITTEE ON APPROPRIATIONS
TED STEVENS, Alaska, Chairman
THAD COCHRAN, Mississippi ROBERT C. BYRD, West Virginia
ARLEN SPECTER, Pennsylvania DANIEL K. INOUYE, Hawaii
PETE V. DOMENICI, New Mexico ERNEST F. HOLLINGS, South Carolina
CHRISTOPHER S. BOND, Missouri PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky TOM HARKIN, Iowa
CONRAD BURNS, Montana BARBARA A. MIKULSKI, Maryland
RICHARD C. SHELBY, Alabama HARRY REID, Nevada
JUDD GREGG, New Hampshire HERB KOHL, Wisconsin
ROBERT F. BENNETT, Utah PATTY MURRAY, Washington
BEN NIGHTHORSE CAMPBELL, Colorado BYRON L. DORGAN, North Dakota
LARRY CRAIG, Idaho DIANNE FEINSTEIN, California
KAY BAILEY HUTCHISON, Texas RICHARD J. DURBIN, Illinois
MIKE DeWINE, Ohio TIM JOHNSON, South Dakota
SAM BROWNBACK, Kansas MARY L. LANDRIEU, Louisiana
James W. Morhard, Staff Director
Lisa Sutherland, Deputy Staff Director
Terrence E. Sauvain, Minority Staff Director
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Subcommittee on Departments of Labor, Health and Human Services, and
Education, and Related Agencies
ARLEN SPECTER, Pennsylvania, Chairman
THAD COCHRAN, Mississippi TOM HARKIN, Iowa
JUDD GREGG, New Hampshire ERNEST F. HOLLINGS, South Carolina
LARRY CRAIG, Idaho DANIEL K. INOUYE, Hawaii
KAY BAILEY HUTCHISON, Texas HARRY REID, Nevada
TED STEVENS, Alaska HERB KOHL, Wisconsin
MIKE DeWINE, Ohio PATTY MURRAY, Washington
RICHARD C. SHELBY, Alabama MARY L. LANDRIEU, Louisiana
Professional Staff
Bettilou Taylor
Jim Sourwine
Mark Laisch
Sudip Shrikant Parikh
Candice Rogers
Ellen Murray (Minority)
Erik Fatemi (Minority)
Adrienne Hallett (Minority)
Administrative Support
Carole Geagley
C O N T E N T S
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Page
Opening statement of Senator Arlen Specter....................... 1
Opening statement of Senator Tom Harkin.......................... 1
Statement of Tammy D. McCutchen, Administrator, Wage and Hour
Division, Employment Standards Administration, Department of
Labor.......................................................... 2
Prepared statement........................................... 4
Statement of Christine L. Owens, director, Public Policy, AFL-CIO 7
Prepared statement........................................... 9
Statement of Lawrence Z. Lorber, partner, Proskauer Rose LLP..... 10
Prepared statement........................................... 12
Statement of Ross Eisenbrey, vice president and policy director,
Economic Policy Institute...................................... 16
Prepared statement........................................... 18
Prepared statement of Senator Patty Murray....................... 25
PROPOSED RULE ON OVERTIME PAY
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THURSDAY, JULY 31, 2003
U.S. Senate,
Subcommittee on Labor, Health and Human
Services, and Education, and Related Agencies,
Committee on Appropriations,
Washington, DC.
The subcommittee met at 3:02 p.m., in room SD-192, Dirksen
Senate Office Building, Hon. Arlen Specter (chairman)
presiding.
Present: Senators Specter, Craig, Harkin, and Murray.
OPENING STATEMENT OF SENATOR ARLEN SPECTER
Senator Specter. We now move to our panel on overtime, and
our first witness will be Ms. Tammy McCutchen, Administrator of
the Wage and Hour Division of the Employment Standards
Administration. Ms. McCutchen has a law degree from
Northwestern and a bachelor's degree in English literature also
from Northwestern.
Ms. McCutchen, thank you for joining us today. We are going
to be sticking very close to the time limits because we are
under time constraints to conclude both this hearing and
another segment on union financial reporting by 4:45.
I now turn to my distinguished colleague, Senator Harkin.
OPENING STATEMENT OF SENATOR TOM HARKIN
Senator Harkin. Thank you very much, Mr. Chairman, for
having this hearing on such an important issue as overtime pay.
You are to be commended for having this hearing. I thank you.
I want to thank Ms. McCutchen and Mr. Eisenbrey for joining
us today to discuss this issue.
I just have a brief statement I would like to make. I will
shorten it as much as I can.
Mr. Chairman, we had a similar discussion at our
authorizing committee meeting earlier this week on the
nomination for the new Labor Solicitor. I was disturbed that he
believed that Congress gave the Labor Secretary authority to
broadly define the terms of the Federal Labor Standards Act and
the overtime protections within that law. I do not believe that
is the case. All we have to do is look at history and what
Congress intended.
Congress passed time-and-a-half pay for overtime to
increase jobs, and it included narrow exceptions as to who
would fall outside the overtime pay protections. So what I hope
we can find out at today's hearing is does this updated
regulation reflect the intent of Congress that overtime
protection and the 40-hour work week applies to all American
workers with very few narrow exceptions.
At this point I have my doubts. From everything I have read
and reviewed, the proposal goes much further than that. It
makes the duties test so vague that employers can easily
reclassify workers and take away their overtime protection even
when it is obvious these workers are not managers and they are
not in charge.
Now, I know the FLSA is an old law. It needs updating and
that is fine. I do not mind that. We can increase the salary
threshold. That is, I know, in the proposal. And that is good.
But do not take away the protections that workers currently
have. These workers include nurses, paralegals, secretaries,
police officers, health technicians, many, many more, and a lot
of times this overtime can be 25 percent of their entire
paycheck.
So again, I just want to close by saying that in 1999 a GAO
report found that employees who do not have overtime protection
are twice as likely to work overtime than those who are
covered. I repeat. The GAO found that employees who do not have
overtime protection are twice as likely to work overtime than
those who are covered. So why would we want to encourage that
kind of activity?
Last, I asked the Labor Solicitor, the person who just got
confirmed by us this week--Mr. Radzely I believe his name is--
how many comments they had received on this, and I guess it is
over 80,000.
Ms. McCutchen. Just about 80,000.
Senator Harkin. About 80,000 comments have been received on
this from all over the country, obviously indicating a strong
interest in this proposal. My point is this is a proposal that
has broad-reaching effects. It affects a lot of people in this
country, and not one public hearing was ever held on it. To me
that is the kind of proposed rule that should not go into
effect until they have heard from the public and they get out
in the public and hear from them on this.
So with that, I thank you again, Mr. Chairman, for holding
this hearing.
Senator Specter. Thank you, Senator Harkin.
Ms. McCutchen, 5 minutes, and we look forward to your
testimony.
STATEMENT OF TAMMY D. McCUTCHEN, ADMINISTRATOR, WAGE
AND HOUR DIVISION, EMPLOYMENT STANDARDS
ADMINISTRATION, DEPARTMENT OF LABOR
Ms. McCutchen. Thank you, Mr. Chairman and members of the
committee. I am pleased to appear before you today to correct
some of the confusion and misinformation that has been
circulating regarding the Department of Labor's proposed
revision to the white collar regulations. The Department and
the administration began this difficult project because we care
about working Americans. The minimum wage and overtime
requirements of the Fair Labor Standards Act are among the
Nation's most important worker protections, but these
protections have been severely eroded because the Department
has not been able to update the white collar regulations in
over 50 years. Through its proposal, the Department is seeking
to restore the overtime protections intended by the Fair Labor
Standards Act, especially to low wage and vulnerable workers
who have very little bargaining power with their employers,
while at the same time minimizing, to the extent possible, the
economic impacts of any changes.
I have submitted a written statement for the record
describing the Department's proposal in more detail. In the few
minutes I have today, I would like to briefly summarize the
proposal and discuss its likely impact.
To qualify as an exempt white collar worker under the
existing regulations, the employee must be guaranteed a minimum
weekly salary and perform certain job duties. The minimum
salary level was last updated in 1975, over 28 years ago, and
is now only $155 per week. Thus, under existing regulations an
employee earning only $8,060 a year may be classified as an
exempt executive and be denied overtime pay. By comparison, a
minimum wage employee earns about $10,700 per year.
Our proposal would increase this minimum salary level to
$425 per week, or $22,100 per year. This is a $270 per week
increase and the largest increase in the 65-year history of the
FLSA. The largest prior increase was only $50 per week. With
this change, all employees earning less than $22,100 per year
will be automatically entitled to overtime no matter what job
duties they perform. An outside independent economist has
concluded that this change will result in 1.3 million
additional workers sharing up to $895 million in additional
wages every year. This change is necessary to restore overtime
protections to the most vulnerable of workers in America today.
Of the 1.3 million workers who gain this guaranteed overtime
protection, 55 percent are women, 41 percent are minorities,
and 69 percent have a high school education or less.
Changes to the duties test are also necessary to restore
overtime protections to the workers in America today. The
existing regulations are so confusing that often employment
lawyers and even wage and hour investigators have difficulty
determining whether employees qualify for the exemption. The
regulations are nearly impossible for the average worker to
understand. This confusion is made worse because the job duty
requirements in the regulations have not been changed since
1949 when Harry Truman was President and a computer filled an
entire room. The regulations are hopelessly outdated,
discussing jobs such as keypunch operators, leg men and gang
leaders that we do not believe exist today, while providing
little guidance for jobs of the 21st century. Confusing,
complex and outdated regulations allow unscrupulous employers
to play games and to manipulate the rules. More and more,
employees must resort to lengthy court battles to receive their
overtime pay.
Thus, the Department has attempted to clarify and simplify
the existing regulations while minimizing the impact on workers
to the greatest extent possible. The Department proposes to add
a requirement to the executive duties test used today to test
most employees for exemption, thus making it more difficult to
qualify as an exempt executive. The basic requirements of the
professional exemption will remain the same and the Department
has sought comments on how to improve the confusing
requirements for the administrative exemption and seeks to find
a common sense test that average workers can understand. We
have no intent to expand the exemptions.
These changes to the duties test should make it easier for
employees to understand their rights and enable the Department
to vigorously enforce the law. It will ensure employers have no
excuse for abuse. The changes to the duties test should also
reduce litigation, thus ensuring that employees receive their
overtime pay now today when they need it to house and feed
their families, not years from now after lengthy litigation.
The exemptions only apply to white collar employees who
work in an office setting. The proposal will not impact blue
collar workers who perform routine or manual labor such as
construction workers, carpenters, electricians, mechanics,
cooks, secretaries, or similar workers. In addition, the
Department has not proposed any changes to the current rules
for nurses or medical technicians, and the proposal will have
no impact on police officers, fire fighters, or other first
responders.
PREPARED STATEMENT
Finally, this rule does not affect obligations under
existing collective bargaining agreements, and thus should not
impact union members covered under union contracts.
I see my time is up. Thank you for allowing me to speak
today.
[The statement follows:]
Prepared Statement of Hon. Tammy D. McCutchen
Mr. Chairman and members of the Subcommittee: I am pleased to
appear before you today to discuss the Department of Labor's proposed
revision of the Fair Labor Standards Act's ``white collar''
regulations, which provide the criteria for determining who is excluded
from the Act's minimum wage and overtime requirements as an executive,
administrative, or professional employee.
Congress included this exemption from the Act's monetary
requirements in the original Fair Labor Standards Act of 1938, in
Section 13(a)(1). The regulations that we are revising appear in Title
29 of the Code of Federal Regulations, Part 541. As provided in the Act
itself, employees working in a bona fide executive, administrative or
professional capacity are not entitled to receive the minimum wage or
overtime pay otherwise required by the Fair Labor Standards Act.
The statute itself does not define the terms executive,
administrative or professional. Rather, the statute delegates to the
Secretary of Labor the administrative discretion, and the duty, to
define and delimit these terms ``from time to time by regulations.''
The existing regulations require three basic tests for each
exemption: (1) a minimum salary level, now set at $155 per week for
executive and administrative employees and $170 per week for
professionals under the basic ``long'' duties tests for exemption,
whereas a higher salary level of $250 per week triggers a shorter
duties test in each category; (2) a salary basis test, requiring
payment of a fixed, predetermined salary amount that is not subject to
reduction because of variations in the quality or quantity of work
performed; and (3) a duties test, specifying the particular types of
job duties that qualify for each exemption.
The criteria in the existing regulations defining who is exempt
have not been changed in decades. The job duties tests were last
revised in 1949. The salary basis test was set in 1954. The minimum
salary levels were last updated in 1975, over 28 years ago. Under those
salary rates that are still in effect today, an employee earning only
$8,060 a year may qualify as an exempt ``executive.'' By comparison, an
employee paid the current minimum wage of $5.15 an hour and working 40
hours per week earns about $10,700 a year.
The Congress recently asked the U.S. General Accounting Office
(GAO) to review these ``white collar'' exemption regulations under the
Fair Labor Standards Act. In a report issued by the GAO in September
1999,\1\ GAO chronicled the background and history to the exemptions,
estimated the number of workers who might be included within the scope
of the exemptions, identified the major concerns of employers and
employees regarding the exemptions, and suggested possible solutions to
the issues of concern raised by the affected interests. In its
September 1999 report, the GAO said ``We recommend that the Secretary
of Labor comprehensively review the regulations for the white-collar
exemptions and make necessary changes to better meet the needs of both
employers and employees in the modern work place. Some key areas of
review are (1) the salary levels used to trigger the regulatory tests,
and (2) the categories of employees covered by the exemptions.''
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\1\ Fair Labor Standards Act: White Collar Exemptions in the Modern
Work Place (GAO/HEHS-99-164, September 30, 1999).
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For the past year and a half, the Department has been working on
proposed reforms to update and clarify these exemptions, published as a
regulatory proposal in the Federal Register on March 31st this year (61
FR 15560). Last spring, we invited both business associations and
worker advocates to meet with the Department so we could listen to
their views and concerns about the existing regulations. We invited
nearly 80 different stakeholder groups, including those who commented
on previous proposed rules on this issue, including 16 employee unions,
and heard from over 40 of them. We also reviewed comments that were
filed with the Department during rulemaking efforts in the 1980s, and
studied the entire regulatory history from 1938 to the present.
The existing regulations are complex. Complex rules are difficult
to apply and particularly difficult to enforce. In many instances, even
lawyers and experienced Department of Labor investigators have had
difficulty interpreting and applying the current regulations. When
rules are not clear, the confusion becomes a breeding ground for
litigation. In 2001, for the fist time ever, private collective actions
filed in federal court for violations of the Fair Labor Standards Act
outnumbered discrimination class actions. This lack of clarity benefits
no one and is particularly harmful to employees. Many misclassified
employees may be forced to wait years to receive overtime pay that they
need today as the legal process winds its way through the court system.
Other misclassified employees, who never bring a lawsuit or complain to
the Department, may never receive the wages they are due under federal
law.
Under the leadership of Secretary of Labor Elaine Chao, the
Department of Labor has issued a proposed rule to modernize and
simplify the regulations. Reforms are needed to make the regulations
easier to apply and enforce. Reforms are also necessary to strengthen
overtime protections for low-wage workers. Bringing the rules into the
21st century and clarifying outdated regulatory language will help
employees better understand their rights and ensure they receive their
overtime pay when due. Employers will be better able to understand
their obligations and comply with the law. Reducing administrative and
litigation costs will free up resources that may be devoted to
stimulating economic growth. And clearer rules will better equip the
Department of Labor to vigorously enforce the law.
I would like to spend a few moments discussing our proposal and how
we believe it will impact workers, but let me first discuss the workers
who will not be impacted. First, because these exemptions are limited
to certain defined classes of ``white collar'' workers, only those
employees who perform office or non-manual work meeting the specified
duties tests can be classified as exempt from receiving overtime pay.
This rule does not impact employees who perform routine or manual work.
Thus, for example, the proposal will not impact construction workers,
carpenters, electricians, mechanics, plumbers, teamsters, cooks,
secretaries and similar workers because none of these workers would
qualify as ``white collar'' workers meeting the duties tests contained
in the regulations. In addition, the Department has not proposed any
changes to the current regulation regarding overtime pay for nurses or
medical technicians and the proposal would have virtually no impact on
police officers or firefighters. Finally, this rule does not affect
obligations under existing collective bargaining agreements so if such
an agreement provides that certain categories of workers will receive
overtime premium pay, employers must continue to abide by those
agreements without regard to these regulations.
Our proposal would increase the minimum salary level required for
exemption as a ``white collar'' employee to $425 per week, or $22,100
per year. This is a $270 a week increase, and the largest increase
since the Congress passed the Fair Labor Standards Act in 1938. (The
largest prior increase was $50 per week.) With this change, all
employees earning less than $22,100 a year would be automatically
entitled to the overtime protections of the Fair Labor Standards Act.
Under the current rules, even a worker earning minimum wage would not
be automatically entitled to overtime protections. We estimate that
this change will result in 1.3 million additional workers, eligible for
overtime pay for the first time, sharing up to $895 million in
additional wages every year.
As in the current regulations, the Department's proposal also
includes a streamlined test for higher compensated ``white collar''
employees. To qualify for exemption under this aspect of the proposed
rule, an employee must: (1) be guaranteed total annual compensation of
at least $65,000, regardless of the quality or quantity of worked
performed; (2) perform office or non-manual work, and (3) meet at least
one or more of the exempt duties or responsibilities specified for an
executive, administrative, or professional employee. This is the same
concept found in the current rules for the ``Special Proviso for High
Salaried Executives'' known as the ``short test.''
The Department's proposal will also update, simplify and clarify
the duties tests. The current regulations provide two sets of duties
tests for each of the three exemption categories--that is, there is
both a short duties test and a long duties test for each of the
executive, administrative and professional exemptions. The current long
duties tests only apply to employees earning between $8,000 and $13,000
a year, and thus, has been basically inoperative for a decade. Thus,
our proposal would rely on the existing ``primary duty'' approach found
in the current short tests. To be exempt, an employee must receive the
required minimum salary amount and have a primary duty of performing
the duties specified for an executive, administrative or professional
employee.
For the executive exemption, the proposal would maintain the two
requirements from the current short test and add a third requirement
from the current long test. Thus, under the proposal, an exempt
executive must (1) have a primary duty of managing the entire
enterprise or a customarily recognized department or subdivision
thereof, (2) direct the work of two or more other workers, and (3) have
authority to hire or fire other employees or have recommendations as to
hiring and firing be given particular weight. By adding this third
requirement from the inoperative long test, the proposal would make it
more difficult to qualify as an exempt executive. In other words, fewer
workers would qualify as exempt executives under the proposal than
qualify for the exemption today.
The Department has not proposed substantial changes for the
professional exemption. The current duties test for professional
employees requires a primary duty of ``work requiring knowledge of an
advance type in a field of science or learning customarily acquired by
a prolonged course of specialized intellectual instruction and study.''
The proposal would add a phrase clarifying that the required advanced
knowledge can also be gained through an equivalent combination of
intellectual study and work experience. But, this is not a change from
the current rule. As explained in the current regulations at section
541.301, and in case law, the term ``customarily'' restricts the
exemption to those professions where an advanced, specialized degree is
a standard prerequisite for entry into the profession, but also makes
the exemption available for ``the occasional lawyer who has not gone to
law school, or the occasional chemist who is not a possessor of a
degree in chemistry.'' The proposed change merely clarifies that the
chemist without a chemistry degree cannot qualify for exemption unless
he possesses knowledge and skills equivalent to a chemist with the
advanced degree, and that such equivalent knowledge may be gained
through combinations of military training, community college or
technical school courses or specialized on-the-job training.
The major change to the duties test for the administrative
exemption is the proposal to replace the ``discretion and independent
judgment'' requirement, which has been a source of much confusion and
litigation, with a new standard that exempt administrative employees
must hold a ``position of responsibility with the employer.'' To meet
this requirement, an employee must either customarily and regularly
perform work of substantial importance or perform work requiring a high
level of skill or training. This change seeks to clarify the standards
for determining eligibility for administrative workers. In our proposal
the Department specifically sought comment about replacing the
``discretion and independent judgment'' test. Under both the current
rule and the proposal, the exemption applies only to those employees
who meet the administrative employee primary duty test of performing
office or non-manual work related to management policies or general
business operations.
Under the Department's proposal, all employees who earn less than
$22,100 per year would be automatically entitled to the overtime
protections of the law. Outside economists estimate that this change
would guarantee overtime pay to an additional 1.3 million low-wage
workers. Overtime protections will be strengthened for another 10.7
million hourly workers who currently perform both exempt and non-exempt
duties and are paid overtime; the proposed changes to the duties tests
will make entitlement to overtime pay more certain for these employees.
Thus, under our proposal, overtime protections will be guaranteed or
strengthened for 12 million workers. Our economists have estimated that
there are about 640,000 hourly workers earning an average of $50,000 a
year, all with college degrees, that employers might be able to
reclassify as exempt. Of the 1.3 million additional workers who will be
guaranteed overtime protection under our proposal, all earn under
$22,100 per year; almost 55 percent are women; over 40 percent are
minorities, and almost 25 percent are Hispanic; and almost 70 percent
have only a high school education or less. Thus, consistent with the
original purposes behind the enactment of the Fair Labor Standards Act
in 1938, our regulatory proposal focuses additional overtime
protections on some of our country's most vulnerable low-wage workers.
The Department's Notice of Proposed Rulemaking invited public
comments for 90 days. During that comment period, which closed on June
30, we received almost 80,000 submissions, some of which are duplicates
(for example, multiple copies of identical comments were received by e-
mail, facsimile, and regular mail or delivery/courier service). We are
continuing to sort through these comments to identify such duplications
among the many comments received. The Department will review all
comments received and give careful consideration to all of the views
that have been submitted. I would be happy to answer any questions any
Members of the Subcommittee may have, but note for the record that the
Department is in the midst of rulemaking and will carefully consider
the full record before deciding on the next step.
This concludes my prepared statement in this matter.
Senator Specter. Thank you very much, Ms. McCutchen.
We are going to proceed with the panel 2, so if you would
step back. We find the process works best when we have heard
both sides and then can have an exchange during the question
and answer session.
STATEMENT OF CHRISTINE L. OWENS, DIRECTOR, PUBLIC
POLICY, AFL-CIO
Senator Specter. Our next witness is Ms. Christine Owens,
director of the AFL-CIO Public Policy Department, a law degree
from the University of Virginia, bachelor's from the College of
William and Mary. Thank you for joining us, Ms. Owens, and the
floor is yours.
Ms. Owens. Thank you, Senator Specter and Senator Harkin,
members of the committee. I appreciate the opportunity to
appear here today on behalf of the AFL-CIO to discuss our
concerns about the proposed changes to the overtime
regulations.
In our view there is no justification whatsoever for any
regulatory change that would disqualify more workers from the
overtime protections of the Fair Labor Standards Act. This is
for reasons that are every bit as vital and valid today as they
were in 1938.
First, the purposes of the FLSA's overtime rules have not
changed. They are designed to encourage employers to hire more
workers by discouraging them from assigning excessive hours to
their current employees and to ensure that when workers put in
overtime hours, they receive a fair wage for doing so.
Second, as the Supreme Court has held and this Congress has
recognized, coverage under the FLSA is broad and exemptions are
to be narrowly construed. No institution other than this
Congress has the authority to make changes that deviate from
these purposes and basic rules of construction.
With the steady escalation in Americans' work hours in
recent years, workers need the protections of the FLSA overtime
requirements as much now as ever, and in an economy that is
experiencing the greatest job loss in a decade and in which
wages are flat, American workers need more and better jobs, not
fewer. For these reasons, changes in the overtime regulations
must enhance rather than reduce overtime protections and extend
them to more workers not fewer.
Regrettably, we believe that the Department's proposals
take us in the opposite direction. There has been considerable
debate over the number of workers who will be affected, and
Ross Eisenbrey from EPI will speak to that. But let me just say
that to our knowledge, the only study that even attempts to
estimate the number of workers who will lose overtime
protection is the EPI study, and that study concludes that more
than 8 million workers are at risk of losing their overtime
protection.
The Department has argued that its proposals are necessary
to update the overtime rules for the new economy of the 21st
century, but what is it about today's economy that makes it
less critical that licensed practical nurses, medical
technicians, paralegals, bookkeepers, some secretaries, and
low-level supervisors have protections against excessive work
hours and have the capacity to control their work hours and to
earn overtime pay? Many of these workers need that pay to send
their kids to college, to pay bills, and many of these workers
need these protections to have time with their families.
But more is at stake than just these workers. Also at stake
is the future of the 40-hour work week and its vulnerability to
repeal by regulation. If DOL can expand the exceptions to the
rule every time it regulates, then it will repeal the Fair
Labor Standards Act through regulatory action alone.
I want to point out that on Tuesday--and Senator Harkin
referenced this--when acting DOL Solicitor Howard Radzely
testified, he took the position that the Secretary of Labor has
the authority to define the overtime exemptions broadly, and
that is precisely what he said. She can define the exemptions
broadly. He went on to say that consistent with that authority,
the Secretary could, under proper circumstances, exempt as many
as 90 percent of all workers who earn above the proposed
minimum salary threshold of $22,100. If this rule were the
case, the Fair Labor Standards Act would no longer exist for
most American workers.
We believe the Department's proposals are inconsistent with
the intent of the FLSA and the scope of the Department's own
authority. Congress intended for the FLSA overtime protections
to apply to the vast majority of workers and for the exemptions
to cover a limited few. Congress plainly did not intend, nor
did it empower the Department of Labor to repeal the 40-hour
work week for most American workers through regulation. I am
not suggesting that is what the Department is doing right now,
but we do believe that these regulations move us in that
direction and create a dangerous precedent for further
broadening of the exemptions by regulation.
PREPARED STATEMENT
The 40-hour work week enshrined in the Fair Labor Standards
Act of 1938 is a bedrock labor protection that American workers
and their families depend on. DOL's proposal threatens the
protections of the overtime rules and sets an alarming
precedent for the future that will hurt workers and hurt the
economy.
Thank you very much.
[The statement follows:]
Prepared Statement of Christine L. Owens
Mr. Chairman, members of the Committee, thank you for inviting me
to testify on behalf of the AFL-CIO about the Department of Labor's
(DOL) proposed revisions to the Part 541 regulations governing overtime
eligibility.
Let me begin by saying there is no justification for disqualifying
more workers from the overtime protections of the Fair Labor Standards
Act (FLSA). This is for two reasons every bit as vital and valid today
as when the FLSA was passed in 1938.
First, the purposes of the FLSA's overtime rules--to encourage
employers to hire more workers by discouraging them from assigning
excessive hours to their current employees and to ensure that workers
who do put in overtime hours receive a fair wage for doing so--are
unchanged. And second, as the Supreme Court and Congress have
repeatedly recognized, coverage under the FLSA must be broadly
construed and exemptions from the Act must be narrowly interpreted. In
these respects, the law has not changed since 1938--and no institution
other than Congress has the authority to make changes that are
inconsistent with the FLSA's abiding purposes and precepts.
With the steady escalation in work hours Americans have experienced
over the last two decades, workers today need the protections of the
40-hour workweek now more than ever. There can be no question that the
FLSA works to help workers control their hours: the GAO has found that
44 percent of workers without overtime protection work more than 40
hours per week, compared with only 20 percent of workers protected by
the FLSA. Unfortunately, as the GAO has also documented, a declining
percentage of American workers are protected by the FLSA, as more and
more of them fall into the statutory exemptions for ``executive,''
``administrative,'' and ``professional'' employees.
If we are serious about addressing the problem of excessive work
hours, we must extend the overtime protections of the FLSA to more
workers, not fewer.
Regrettably, DOL's proposed changes to the overtime regulations
take us in the opposite direction. There has been considerable debate
over the precise number of workers who could lose overtime protection
under the proposed regulations. To my knowledge, the only study that
even attempts to estimate this figure is a report by the Economic
Policy Institute (EPI), which concludes that over eight (8) million
workers could lose their overtime protection. DOL's deeply flawed
regulatory analysis, by contrast, only attempts to estimate the number
of workers currently earning overtime pay who would lose overtime
protection under the proposed regulations. The number of workers
currently earning overtime pay is only about one-seventh the total
number of workers who enjoy overtime protection under the FLSA.
DOL argues that its proposed changes in the regulations are
necessary to ``update'' the overtime rules for the ``new economy'' of
the 21st century. This is curious, given that DOL issued a report only
two years ago concluding that changes in the new economy neither negate
the need for overtime protections nor warrant broadening of the
overtime exemptions. DOL has failed to explain, nor can it explain, why
the 40-hour workweek is obsolete for the eight million workers who
would lose overtime protection under the proposed regulations. What is
it about the 21st century economy that makes the 40-hour workweek
obsolete for police, firefighters, licensed practical nurses,
paramedics, secretaries, paralegals, bookkeepers, and low-level
supervisors? Just as they did in 1938, these workers need more control
over their time, and they need protection against excessive work hours.
Many of them need overtime pay to send their children to college and
pay their bills, just as they did in 1938.
Yet much more is at stake here than just the work schedules and
household budgets of eight million workers, as important as these may
be. Also at stake is the future of the 40-hour workweek, and its
vulnerability to repeal by regulation. If DOL has the authority to
expand the exceptions to the 40-hour workweek, at some point those
exceptions will swallow the rule. Broadening the overtime exemptions
amounts to the same thing as rolling back the 40-hour workweek. On
Tuesday, acting DOL solicitor Howard M. Radzely took the position that
the Secretary of Labor has authority to define the overtime exemptions
``broadly.'' Mr. Radzely testified that under certain circumstances,
the Secretary may even have authority to disqualify from overtime
protection 90 percent of all workers earning more than $22,100.
The direction DOL is headed is a radical departure from both its
past practice and from the intent of the FLSA. Every single change DOL
proposes to the ``duties'' tests--the tests used to determine whether
the nature of individuals' work warrants stripping them of overtime
eligibility--would make it easier for employers to deny their workers
overtime protection. DOL trumpets the fact that its proposal would
raise the minimum salary threshold--the salary level below which
workers are automatically guaranteed overtime protection--and there is
no question that an increase in the salary threshold is long overdue.
However, on at least six occasions in the past, DOL has adjusted the
minimum salary threshold for inflation, without ever once hiding behind
one of these periodic inflation adjustments in order to weaken the
``duties'' tests and restrict overtime eligibility for workers above
the threshold. If DOL weakened the ``duties'' tests every time it
adjusted the minimum salary threshold, it would eventually gut the
overtime protections of the FLSA entirely and effectively repeal the
40-hour workweek by regulation. DOL does not have that authority.
DOL appears to fundamentally misunderstand the intent of the FLSA
and the scope of its own authority. Congress intended the protections
of the 40-hour workweek to apply to the vast majority of workers, with
the exception of only a narrowly limited class of employees. Few would
dispute--and we certainly do not--that low wage workers should never be
exempt from the FLSA and should always enjoy its absolute protection.
But it is quite another thing altogether to contend, as DOL does now,
that Congress's purpose in legislating the 40-hour workweek was
exclusively or even primarily to protect only low-income workers.
Congress most definitely did not intend such a cramped reading of the
FLSA or a correspondingly expansive reading of the exemptions. And
Congress plainly did not intend nor did it empower DOL to repeal the
40-hour workweek for the vast majority of American workers through
regulation. DOL's position is inconsistent with the purposes and
history of the FLSA and with how the courts and this Congress have
viewed the law and its exemptions. While this view is of obvious
benefit to employers, it hurts rather than helps American workers and
the American economy.
Although we believe DOL's proposed changes to the duties tests are
unjustified, there are other steps DOL could take to ``clarify'' the
overtime rules and discourage litigation. The single most important
step in this regard is for DOL to adequately adjust the minimum salary
threshold. If DOL applied the methodology it most recently used in the
past (and incorrectly claims to be using now), the salary threshold for
the stricter ``long'' duties test would be $31,720. There would be no
confusion over whether workers earning less than this amount are
entitled to overtime protection, and there would be no litigation over
their overtime rights. DOL has chosen not to make this clarification,
or any one of a number of other clarifications that would guarantee
overtime protection for more workers. The real issue is not whether the
overtime rules should be clarified, but whether any clarification of
the overtime rules should protect more or fewer workers.
The 40-hour workweek enshrined in the Fair Labor Standards Act of
1938 is a bedrock labor protection that American workers have depended
on for decades and still value as a fundamental workplace right. It is
also a benchmark by which we measure social progress in America and
around the world. DOL's proposal not only threatens this core
protection for eight million workers, but also sets an alarming
precedent for further restriction of overtime eligibility and for
regulatory repeal of the 40-hour workweek.
STATEMENT OF LAWRENCE Z. LORBER, PARTNER, PROSKAUER
ROSE LLP
Senator Specter. Thank you, Ms. Owens. We turn next to Mr.
Lawrence Lorber, partner in the law firm of Proskauer Rose, a
member of the U.S. Chamber of Commerce, law degree from the
University of Maryland, undergraduate degree from Brooklyn
College.
Would Mr. Ross Eisenbrey also come forward at this time?
Thank you for joining us, Mr. Lorber, and the floor is
yours.
Mr. Lorber. Thank you, Mr. Chairman. My name is Lawrence
Lorber. I am a partner in the law firm of Proskauer Rose. I am
testifying today on behalf of the U.S. Chamber of Commerce. The
Chamber is the world's largest business federation.
The Fair Labor Standards Act is one of our oldest
employment laws. It was passed in 1938, a very different time
when the American work place bore little resemblance to the
work place of the 21st century. The Congress was clear in 1938,
and the law remains so today that the FLSA was not intended to
be universal law prescribing with finite detail the working
conditions, including the compensable hours of employment of
every employee. Rather in 1938 and today the FLSA recognizes
that its reach is constrained and that a significant number of
employees falling into the statutorily identified categories of
executive, administrative, and professional would remain
outside its purview. And it was never intended that the
boundaries of these white collar exemptions would remain
static.
Throughout the past 65 years, there have been efforts to
review the FLSA and its regulatory structure so that it would
accurately reflect work place conditions. In 1999, the General
Accounting Office found that the Department of Labor should
``amend the regulations to better suit the modern work place.
This report,'' the GAO report, ``recommends that the Secretary
of Labor comprehensively review current regulations and
restructure white collar exemptions to better accommodate
today's work place and anticipate future work place trends.''
It certainly cannot be argued that the GAO is a partisan
agency. And it is illuminating to note that in response to the
GAO recommendation, the Department of Labor, then in the
administration of President Clinton, stated that, ``the white
collar exemption regulations were on its agenda to be reviewed
in the future.'' And former Wage and Hour Administrator Kerr,
who testified at House hearings on the GAO report, said that
while the GAO recommendations could not be accomplished in the
short run, the extensive process of consultation with all
stakeholders and regulatory analysis could well lead to the
implementation of ``comprehensive 541 changes.'' So it should
come as absolutely no surprise to this committee, the Congress,
or the public that the Department of Labor, after conducting
extensive stakeholder meetings, has begun the process of
modernizing the regulations governing which white collar
employees are eligible for overtime.
I would note that in his seminal book, ``The Work of
Nations,'' former Secretary of Labor Robert Reich described the
dramatic change in the designations of work in America. He
noted that even beginning 1870 the Census Bureau categorized
jobs into executive or managerial, sales or administrative or
production functions. However, Secretary Reich goes on to say,
however: ``But these categories have little bearing upon the
competitive positions of Americans worldwide, now that
America's core corporations are transforming into finely spun
global webs. Someone whose job falls officially into a
`technical' or `sales' subcategory may, in fact, be among the
best paid and influential people in such a web. To understand
the real competitive positions of Americans in the global
economy, it is necessary to devise new categories.''
Secretary Reich's prescient analysis of the evolution of
the American work place was right in 1991 and it is certainly
right today. And the Department's proposal adapts the
regulatory scheme to the modern realities so that the statute
continues to have meaning and vitality, but even more
importantly, the proposal attempts to simplify the
categorization of exempt and non-exempt work.
I would add, as an attorney, it seems to me it makes no
sense for employers, large or small, to hire expensive lawyers,
consultants, and job analysts to answer what should be a
relatively simple question of who is to be paid premium
overtime for work over 40 hours in a week. Yet, under the
current regulatory scheme, that is precisely what has happened.
I would note as well that in 1995 I was appointed to the
first board of directors of the Office of Compliance which
enforced the Congressional Accountability Act which this
committee knows applied 11 labor laws, including the FLSA, to
the Congress. The FLSA on the Hill and the Congress as an
employer impacted a small number of jobs involving highly
skilled individuals. Yet, the fluctuating work weeks, the
uncertain nature of authority, and the non-hierarchical office
structures made compliance an extremely difficult process here.
Think then of the impact on new businesses which do not have
the benefits or resources available to Congress.
I note in my testimony a case which I think exemplifies the
problems in the current regulations, the case called Hashop v.
Rockwell Space Operations where the trainers of the NASA Space
Shuttle ground personnel who relied on manuals were deemed to
be non-exempt because they relied on manuals and worked in
groups. Astronauts would come under that same criteria as non-
exempt workers.
prepared statement
I see that my time has concluded. Again, we simply hope
that this committee will understand that the proposal is an
ongoing process and will allow that process to continue. Thank
you.
[The statement follows:]
Prepared Statement of Lawrence Z. Lorber
Mr. Chairman, Members of the Committee. My name is Lawrence Lorber
and I am a partner in the law firm of Proskauer Rose LLP. I am
testifying today on behalf of the United States Chamber of Commerce.
The Chamber is the world's largest business federation, representing
more than three million businesses and organizations of every size,
industry sector and geographical region. Proskauer Rose LLP is a member
of the Chamber's Labor Relations Committee and I serve on the Steering
Committee of that Committee. While I am here today on behalf of the
Chamber, my testimony also reflects my experience as a practicing labor
and employment lawyer for over thirty years as well as my previous
experience at the Labor Department in various administrative and
advisory positions. Thus, I am someone who has been charged with the
responsibility to interpret and enforce employment regulations from the
perspective of the enforcement agency and someone who has counseled
employers with respect to their obligations under the regulations and
represented employers facing enforcement actions. In addition, from the
period 1995 through 1998, I had the unique experience of serving on the
first Board of Directors of the Office of Compliance, the agency of
Congress established by the Congressional Accountability Act to apply
and enforce eleven labor and employment laws, including the Fair Labor
Standards Act to the Congress and Congressional entities in your role
as an employer. I will briefly discuss that experience in the context
of the proposed regulatory revision in this testimony.
The Fair Labor Standards Act is one of our oldest employment laws.
It was passed in 1938, a very different time, when the American
workplace bore little resemblance to the workplace of the 21st Century.
Yet its basic thrust is still timely--to ensure that employees are
treated fairly and that ``the unprotected, unorganized and lowest paid
of the nation's working population . . . secure for themselves a
minimum subsistence wage.'' Brooklyn Savings Bank v. O'Neil, 324 U.S.
697 (1944). However, the Congress was clear in 1938, and the law
remains so today, that the FLSA was not intended to be a universal law
prescribing with finite detail the working conditions, including the
compensable hours of employment, of every employee. Rather, in 1938,
and today, the FLSA recognizes that its reach is constrained, and that
a significant number of employees falling into the statutorily
identified categories of executive, administrative, and professional
would remain outside of its purview. However, it was never intended
that the boundaries of these ``white collar'' exemptions would remain
static. Indeed, the Congress in 1938 recognized that the Secretary of
Labor would review the reach of the exemptions periodically and, in
order to remain a vital part of our employment system, the regulations
would need to be adjusted to reflect the dynamic changes in the
workplace and workplace relationships between employees. Indeed, the
statute specifically charges the Labor Department with the
responsibility to define and delimit the regulations from time to time.
Unfortunately, they have not been significantly adjusted in over half a
century, despite urging to the contrary.
Throughout the past 65 years, there have been efforts to review the
FLSA and its regulatory structure so that it would accurately reflect
workplace conditions. In 1999, the General Accounting Office reported
to Congress the following:
``In the last 45 years, the DoL has adjusted the FLSA regulations
only in a piecemeal fashion to meet the needs of particular types of
employers and employees. Given the economic and work place changes over
this period, a more comprehensive look at these regulations is
necessary to determine whether a consensus could be achieved on how to
amend the regulations to better suit the modern work place. This report
recommends that the Secretary of Labor comprehensively review current
regulations and restructure white-collar exemptions to better
accommodate today's work place and anticipate future work place
trends.'' (Emphasis added)----Report of the GAO-Fair Labor Standards
Act--White Collar Exemptions in the Modern Place, September 1999.
Surely it cannot be argued that the GAO adopted a partisan report
designed to dismember the system of labor and employment laws we
presently have. And it is illuminating to note that in response to the
GAO recommendation, the Department of Labor, then in the administration
of President Clinton, stated that ``the white-collar exemption
regulations [were] on its agenda to be reviewed in the future.'' Former
Wage and Hour Administrator Kerr, testifying in hearings before the
House Committee on Education and the Workforce in 2000 pursuant to the
GAO Report, stated that while the scope of the GAO recommendations
could not be accomplished in the short run, an extensive process of
consultation with all stakeholders and regulatory analysis could well
lead to the implementation of ``comprehensive 541 changes.'' So, it
should come as absolutely no surprise to this Committee, the Congress
or the public that the DoL, after conducting extensive stake holder
meetings, has begun the process of modernizing the regulations
governing which white collar employees are eligible for overtime--known
as the ``white collar'' or ``541'' regulations.
The Current Proposal.--The Labor Department has conducted an
extensive process of consultation and review to design the proposals
issued on March 30. While Administrator McCutchen can elaborate more
fully on that process, the U.S. Chamber participated as did other
interested parties. The regulations published for comment thus
represent the distillation of a long process of review and
consultation, indeed a process that began even before the current
Administration took office, as evidenced by the 1999 GAO Report and
even earlier when the Labor Department requested comments on the issue
as a result of an Advance Notice of Proposed Rulemaking in 1985. The
question being asked therefore should not be why this rulemaking
process is being undertaken, but rather is the proposal a valid
response to the GAO Report and the obvious changes in the workplace.
In his seminal book, ``The Work of Nations,'' former Secretary of
Labor Robert Reich described the dramatic change in the designations of
work in America. He noted that beginning in 1870, the Census Bureau
began categorizing jobs into executive or managerial functions, sales
and administrative support functions and basic production or laborer
functions. Reiph goes on to say however:
``This set of classifications made sense when the economy was
focused on high-volume, standardized production, in which almost every
job fit into, or around, the core American corporation, and when status
and income depended on one's ranking in the standard corporate
bureaucracy. But these categories have little bearing upon the
competitive positions of Americans worldwide, now that America's core
corporations are transforming into finely spun global webs. Someone
whose job falls officially into a ``technical'' or ``sales''
subcategory may, in fact be among the best-paid and influential people
in such a web. To understand the real competitive positions of
Americans in the global economy, it is necessary to devise new
categories.''----Robert B. Reich, ``The Work of Nations,'' 173-74
(1991).
Secretary Reich's prescient analysis of the evolution of the
American workplace is particularly relevant to the proposed revisions
to the white-collar regulations. The proposal takes as its starting
point the basic structure of the statute in recognizing that there are
broad classes of positions that are exempt from the overtime
requirements. It then adapts the regulatory scheme to the modern
realities so that the statute continues to have meaning and vitality.
But perhaps even more importantly, the proposal also attempts to
simplify the categorization of exempt and non-exempt work.
It makes no sense to require the services of attorneys,
consultants, and job analysts to answer what should be the relatively
simple question of who is to be paid premium overtime for work over 40
hours in a week. Yet, under the current regulatory regime, with
hundreds of pages of interpretations, thousands of opinions issued by
Wage and Hour Administrators, and hundreds of court cases analyzing
this weighty mass of precedent, that is precisely what is required.
Too, the fact that regulators and the courts, as well as the employers
and employees are forced to ``pour new wine into old bottles,'' and fit
new jobs into old and antiquated definitions, makes no sense. And
particularly for the small and medium sized employers, who not only
represent job growth but the new innovations needed in our economy, and
who make up a large portion of the U.S. Chamber membership, such an
exercise is entirely non-productive. Nor does such an exercise afford
the protection to the lower paid workers the FLSA was enacted to
provide.
I am reminded here of the time in 1995 and 1996 when Congress was
required to comply for the first time with the FLSA due to the passage
of the Congressional Accountability Act. As I noted, I was appointed to
the original Board of Directors by the joint leadership and remember
well the confusion and consternation when Congressional offices, which
have a small number of different jobs, were forced to wade through the
obtuse requirements of determining who exercised discretion, or who had
hiring and firing authority, and which staff member exercised
discretion, when in fact only the Member exercised discretion. As
applied to Congress, the FLSA impacted a small number of jobs involving
highly skilled individuals. Yet the fluctuating work weeks, the
uncertain nature of authority and the non-hierarchical office
structures made compliance an extremely difficult process. Think then
of the impact on new businesses which don't have the benefits or the
resources available to Congress.
So too, it should be a major warning sign that one of the growth
areas in class action litigation is the explosion of FLSA
classification cases. It is obvious that a law as old as the FLSA
should not now be the source of such litigation activity if the
requirements are clear and well understood. In fact, it is precisely
because the old definitions have lost much of their meaning that we are
witnessing this new phenomenon. An examination of some of the reasons
for this highlights the reason the new regulations are so sorely
needed.
The current regulations require that in order to qualify as an
exempt professional, an employee must perform work requiring the
consistent exercise of discretion and judgment. However, as interpreted
by the Wage and Hour Division, and applied by the courts, this
requirement led to the strange case of Hasop v. Rockwell Space
Operations Company, 867 F. Supp. 1287 (S.D. Texas 1994) where the court
interpreted the current regulations to mean that employees responsible
for training NASA Space Shuttle ground personnel were not exempt
because they relied on technical manuals and made decisions in a group.
Indeed, under this analysis, the astronauts themselves could be deemed
non-exempt. The proverbial rocket scientists are thus classified as if
they are common laborers. And so would the advanced computer
technicians who work in help desks and other technically challenging
positions. Do we really want them to guess as to the reason for a
systems failure or would we prefer that they refer to and interpret
software manuals? So too, the requirement that professionals must have
college degrees. As we well know, and as the proposed regulations
recognize, advanced learning can be obtained by training and
experience. Would the law deny to Bill Gates or Steve Jobs the exempt
status simply because they do not have college degrees?
The purpose of this testimony however, is not to summarize or
comment on all of the proposed changes. For that I commend to the
attention of the Committee the detailed and extensive comments fled by
the Chamber on June 30. Those comments were the result of an intense
and inclusive process whereby the members brought their comments and
concerns to the Chamber's Fair Labor Standards Committee and a special
task force that analyzed the proposal and the members concerns. This
was a serious process that resulted in a uniquely analytical set of
comments. Nor are these comments simply a resounding endorsement of all
of the proposals. Far from it. It would hardly take 81 pages to say
``amen.'' Rather, there are still serious concerns that the Chamber
hopes that the Labor Department will carefully consider. While the
proposal simplifies the regulations, it still leaves areas of
uncertainty. For example, the Chamber believes that just as the
regulations recognize a realistic bright line test to determine which
jobs should be deemed non-exempt because the salary is less than $425
per week regardless of function, so should there be a bright line test
to distinguish the highly compensated, so that a salary above a certain
level would be considered per se exempt for white collar employees.
It is also important to briefly comment upon some of the criticism
of the proposed regulations. As I noted, the Chamber of Commerce took
the proposal seriously and its obligation to provide reasoned input
into the regulatory process. It did not attempt to overwhelm the
regulatory process with volumes of comments or sound bite criticisms.
Indeed, it would be helpful if the same requirements that govern the
introduction of scientific fact into court proceedings would apply as
well to regulatory comments. If the Daubert standard applied, then the
unsupported allegation that 8 million jobs would be reclassified if
these proposals are adopted would be rejected as the great example of
junk science. Unfortunately, there are no such limitations on public
comment and the regulators must spend the time to analyze these as well
as the serious comments.
However, let me take a few moments to comment upon some of the more
outrageous criticisms that have been levied. Some critics have claimed
that somehow the Department's proposal would impact first responders,
police and fire department personnel, manual laborers, nurses, and
other health care workers. However, these claims do not withstand
scrutiny.
For example, some have claimed that because the Department has
proposed modifications to the so-called ``production dichotomy,'' a
part of the administrative exemption, that law enforcement officers
will now be exempt. But this ignores the threshold question that in
order to qualify as an exempt administrative employee, the employee
must perform office or non-manual work. Employees such as first
responders who are required to run, climb, lift and carry people or
heavy objects, or who may be required to be skilled in self-defense and
the use of firearms, simply cannot be said to perform office or non-
manual work.
Indeed, under the Department's proposal no employee could qualify
as exempt under the highly compensated employee test or the standard
test for administrative or professional employees unless he or she
performed office or non-manual work. The only other way a law
enforcement employee could be exempt under the Department's proposal
would be under the standard test for executives, the threshold question
of which is whether the employee's primary duty is the management of
the enterprise or a customarily recognized subdivision in which he or
she is employed. This does not mean that an officer with only a few
supervisory duties can be exempt from overtime. The Department has
specifically included language stating that supervisors whose primary
duty is performing the same kind of work as their subordinates are
simply not going to be exempt.
This analysis applies equally to any other type of manual labor.
What these critics leave out is that these regulations only apply to
white collar employees--not to those who principally perform manual
work.
The status of nurses and other health care workers is also the
subject of a significant amount of baseless rhetoric. Indeed, under the
current regulations, registered nurses are already recognized as exempt
professionals. Nevertheless, in practice, most are paid hourly and
receive overtime. Why? Because hourly pay and overtime are simply a
part of the market. Nothing in the Department's proposal changes the
status of these nurses, nor, for that matter, physician's assistants
and medical technologists who usually meet the requirements of the
current test for exempt professionals because they have advanced
knowledge customarily acquired through a prolonged course of
specialized intellectual study.
In conclusion, the Chamber of Commerce believes that the
recognition of the dramatic changes in the American workplace is long
overdue and requires the revision or regeneration of the encrusted and
obsolete regulatory structure of the current white collar regulations.
We commend the efforts of the Labor Department to undertake this effort
and believe that the March 30 proposal represents a major step forward
in the rationalization of this bedrock employment law. While we hope
that the Labor Department addresses the issues highlighted in our
comments, we believe that regardless of the ultimate result of
regulatory review process, and the compromises that must be made, we
strongly believe that the Department should be encouraged to finish
this job. It serves neither the economy, nor the employees or
employers, to leave in place an obsolete and almost inoperable
regulatory scheme. Nor should the basic purpose of the Fair Labor
Standards Act be ignored. This was a law designed to assist and protect
the unprotected and least paid in the workforce. We would therefore
hope that the regulatory process be allowed to continue to completion.
Thank you for your time and attention to this matter. I would be
happy to answer any questions that you might have.
STATEMENT OF ROSS EISENBREY, VICE PRESIDENT AND POLICY
DIRECTOR, ECONOMIC POLICY INSTITUTE
Senator Specter. Thank you, Mr. Lorber. Our next witness is
Mr. Ross Eisenbrey, vice president of the Economic Policy
Institute, former Commissioner of the U.S. Occupational Safety
and Health Review Commission, a law degree from Michigan, and
undergrad from Middlebury College. Thank you for coming in
today, Mr. Eisenbrey, and we look forward to your testimony.
Mr. Eisenbrey. Thank you very much, Mr. Chairman. It is an
honor to be here and an honor to testify before the
subcommittee.
When the Department of Labor issued its notice of proposed
rulemaking back at the end of March, we read it and tried to
understand how it could conclude that so few workers--they
concluded 644,000 employees would lose their right to overtime
pay. The proposal makes sweeping changes in the law and they
are not reflected in the Department's analysis.
So we called the Department and we asked them to explain
things and could not get answers from them. So we conducted our
own analysis, with the help of a team of experts, and estimated
only 78 out of 257 possible occupational categories, what the
effects of the rule would be.
Our conclusions were very different from the Department's.
We estimate that in those 78 occupations, over 8 million
workers will lose the right to overtime pay. In Pennsylvania
alone, we estimate that about 318,000 workers will lose the
right.
Why is this? Why are our numbers so different? Well, we
think that there are three major flaws in the Department's
analysis.
The first is that it failed to analyze the effect of most
of the key changes in the regulations. They do not calculate
how many employees will lose overtime protection for the
following changes, which are a handful among scores of changes.
The proposal eliminates the requirement that professionals and
administrators consistently exercise independent judgment and
discretion. That is a change that appears over and over in
Department opinion letters, many court cases, including the
Hashop case that Mr. Lorber just mentioned. It is a fundamental
part of the current law and it is being removed. It is not
reflected anywhere in the Department's analysis how many
employees will lose their right when that requirement for the
exemption is eliminated. In cases it has affected trucking
company dispatchers, entry level architects and engineers,
trainers in police academies at Rockwell, among many others,
mortgage loan officers, engineering firm designers, a very
broad category.
The proposal eliminates the provision that distinguishes
between staff jobs and line or production jobs. That has been
essential for fire fighters, paralegals, parole officers, and
importantly news producers in determining that they were non-
exempt and had the right to overtime protection. Without that
factor in the law, the Department does not analyze what the
difference will be.
The proposal undermines the educational requirements in
substantial ways. These are a key part of the professional
exemption. Generally, employees now are required to have an
advanced degree in the area of their profession. It is not
enough even to have a college degree that is a general degree.
The Department turns the exception in the rule on its head and
now says that any or all of the educational requirement can be
substituted with work experience. That is an enormous change.
They do not really analyze that, although there is a note in
the preliminary regulatory impact analysis suggesting that 44
out of every 100 non-degreed professionals will lose their
right to overtime pay because of that.
The primary duty test is changed, and there is no analysis
of changing it so that instead of having to determine what the
employee's single primary duty is, now if a primary duty is an
exempt duty, the employee will be exempt.
Finally, the highly compensated test will deny overtime pay
to employees who do not meet the current or even the proposed
rules for administrative professional or executive exemption,
but only meet a part of those tests if they make $65,000 a
year. There is not a full or adequate analysis.
The second thing the Department failed to do is estimate
how many people lose protection. They only estimated how many
people will actually lose pay, but only a small percentage of
workers at any given time, as reflected in the current
population survey, are actually receiving overtime pay. What is
important is do they have the protection. If they do not have
it, it is more likely that they will be assigned overtime
because now the premium is a break on employers. Nobody denies
that employers are less likely to assign overtime to people who
have the right to time-and-a-half pay. Once they do not have
the right, they will be assigned overtime and a lot of it.
The Department did not, finally, apply the changes in the
rule on an occupation-by-occupation basis, which the Department
did for GAO in 1999 and again in 2001 in the intervening
report, that Mr. Lorber did not mention, when the Department
reviewed these rules and determined that there was no need to
update them, that they did apply to the 21st century work force
and that the kind of changes in this proposed rule were not
necessary.
The Department has suggested and Ms. McCutchen suggested
just now again that nurses will not be affected, but the rule
on its face shows that they will. Nurses are required to have a
4-year degree under current law. Under the proposal, any or all
of their educational requirement can be substituted with work
experience so that a 2-year R.N. now will be treated as an
exempt professional with some additional work experience.
PREPARED STATEMENT
Police sergeants, secretaries, the other categories that
she mentioned will be affected by the changes in the law
because the rule does not apply to broad categories. It
requires a look at individual employees and what the
individual's duties are. The rules have changed. Every
employee's duties will be reexamined and I submit that it is
very likely that secretaries, many police officers, and many of
the other occupations she mentioned will be affected.
Thank you very much.
[The statement follows:]
Prepared Statement of Ross Eisenbrey
Mr. Chairman, thank you for inviting me to testify today. It's an
honor for me and for the Economic Policy Institute to present our views
to you and the subcommittee.
When the Department of Labor issued its Notice of Proposed-
Rulemaking at the end of March, we tried to understand how it could
conclude that only 644,000 employees would lose their right to overtime
pay. The proposal makes radical changes in the law, but the regulatory
analysis does not reflect them. We asked the Department and its
contractor for explanations, but could not get answers to our
questions.
So we analyzed the changes ourselves, with the help of a team of
experts, and prepared an estimate for the effect of the proposed rule
on a subset of the working population, employees in 78 occupational
categories out of a total of 257 categories identified by the
Department of Labor as having substantial numbers of white collar
(office or non-manual) employees.
Our conclusions are very different from those of the Department. We
estimate that in those 78 occupations, over 8 million workers will lose
the right to overtime pay. In Pennsylvania alone, we estimate that
about 318,000 workers will lose their overtime protection.
Why do our numbers differ so greatly from what the Department of
Labor has reported? Briefly, we think the Department's analysis has
three major flaws:
1. It fails to analyze the effect of most of the key changes in the
regulations. DOL does not calculate how many employees will lose
overtime protection because of the following changes, among many
others:
--The proposal eliminates the requirement that professionals and
administrators consistently exercise independent judgment and
discretion. DOL opinion letters and many court cases identify
this as a key test in determining whether workers are the kind
of professional or top administrator who should be exempt or
have less authority and--however highly skilled or well trained
they might be--should have the right to overtime pay. See, for
example, Hashop v. Rockwell Space Operations Co., 867 F. Supp.
1287 (S.D. Tex. 1994), involving space shuttle ground control
instructors, and cases involving trucking company dispatchers
and entry-level architects and engineers listed at page 24 of
GAO's September 1999 report, Fair Labor Standards Act: White
Collar Exemptions in the Modern Workplace. Based on this
requirement, DOL opinion letters have denied employers'
requests to exempt employees in a wide range of occupations,
from executive secretaries and mortgage loan officers to
engineering firm designers and human resource generalists.
--The proposal eliminates the provision in current law that
distinguishes between ``staff' jobs that are exempt and
``line'' or ``production'' jobs that have overtime protection.
Numerous DOL opinion letters and cases involving employees
ranging from police and firefighters to paralegals and parole
officers have denied employer attempts to exempt employees
because the employees were non-exempt line or production
workers. See, for example, Dalheim v. KDFW-TV, 918 F.2d 1220
(5th Cir. 1990), where the court found that producers and other
employees in the departments responsible for the production of
newscasts were non-exempt.
--The proposal undermines the educational requirements that are a key
part of the professional exemption. Whereas current law has, in
rare instances, permitted employers to deny overtime protection
to a highly skilled and experienced employee who does not have
the advanced degree generally required to qualify as a learned
professional, the proposal allows employers to substitute work
experience ``for all or part of the educational requirement.''
Rather than exempting what the Department has termed the
``occasional chemist,'' the proposal allows every employee
working in a professional field (and the number of such fields
is constantly expanding) to be deemed a professional and denied
overtime pay if they have enough work experience. DOL assumes
in its regulatory analysis that six years of job tenure is the
equivalent of a college degree and estimates that 44 out of 100
non-degreed employees working in the learned professions will
be exempt. DOL neglects to calculate how many such employees
there are or which professions are affected and to what extent.
--The primary duty test, which applies to each of the three
exemptions, is rewritten to make it easier for employers to
exempt their workers. Under the proposal, exempt executives,
for example, must have only ``a'' primary duty that is
executive. Current law contemplates that executive tasks must
be ``the'' primary duty of the exempt employee.
--The new ``highly compensated'' test will allow employers to deny
overtime pay to employees whose primary duty is not
administrative, professional or executive. Rather, employees
who perform any ``office or non-manual work'' and are
guaranteed ``total compensation'' (not necessarily a salary) of
at least $65,000 a year, will be exempt if the employee
performs any exempt duty or responsibility. Thus, any ``highly
compensated'' employee who does ``work in areas such as tax,
finance, accounting, auditing, insurance, quality control,
purchasing, procurement, advertising, marketing, research,
safety and health, personnel management, human resources,
employee benefits, labor relations, public relations,
government relations and similar activities'' will be
automatically exempt.
2. The Department does not estimate how many employees will lose
overtime protection; rather it only estimates how many employees who
are currently receiving overtime pay will lose it. While approximately
80 or 90 million workers have overtime protection, only about 12
million at any one time are actually working overtime and being paid
for it. Because the overtime premium works as it was designed to, and
discourages employers from assigning overtime to non-exempt workers,
removing overtime protection will result in many employees working
overtime who don't work overtime now. Congress and the public should be
concerned about the loss of overtime protection, not just the loss of
overtime pay.
3. The Department did not apply the changes in the rule on an
occupation-by-occupation basis, using the methodology established by
the Department and GAO in 1999. No attempt was made to estimate the
effect of the rule changes on social workers, paralegals, respiratory
therapists, reporters and news announcers, bank loan officers, or any
of the other scores of occupations DOL examined in detail in the past.
In the weeks since the comment period closed, the Department has
said a number of things about the effects of the proposed rule that
downplay the extent to which the proposal will weaken or eliminate
overtime protections but which are at odds with its text and with the
regulatory analysis.
Most notably, the Department has argued that the proposed rule
makes no changes in the professional exemption that will affect nurses
and other health technicians, no changes that will affect police
officers, no changes that will affect cooks, and none that will affect
secretaries. Each of these claims is wrong.
To be exempt, nurses, like all professionals, have had to meet
strict educational requirements under current law. Under the proposed
rule, as both the text of the rule and the regulatory analysis make
plain, work experience may be substituted ``for all or part of the
educational requirements'' for any learned profession, including
nursing. Once an employer determines that an R.N. with only a two-year
degree has substantially the same knowledge as an R.N. with a four-year
degree, it will be free under the proposed rule to exempt him or her
and refuse to pay overtime.
It will also be much easier to establish that ``a'' primary duty of
a nurse is administrative or executive. An otherwise non-exempt nurse
who spends 90 percent of her time performing patient care could still
be found to have a primary duty that is administrative or executive,
especially since the administrative duty tests have been substantially
weakened.
Police sergeants and other low-level police supervisors are likely
to be exempted as executives under the proposed rule. The ``staff vs.
line'' dichotomy that helped establish the overtime rights of police
officers has been eliminated. Overtime exemptions under section
13(a)(1) of the FLSA are not based on job titles or broad occupational
class; rather, they depend on the tasks and functions each individual
employee performs. Each officer's duties will be reexamined if the
proposed rule becomes law, and if a primary duty is determined to be
supervisory or administrative, the officer will lose overtime
protection. Thus, the fact that a sergeant performs non-manual work
like walking the beat during 90 percent of his work hours will not
matter if he has a primary duty of supervising two other officers or
performing non-exempt administrative work. Under the proposal, highly
compensated police officers will not even have to have a primary duty
of performing exempt work. If they perform any ``office or non-manual
work'' and perform any one exempt duty of an executive, administrator
or professional no matter how little of their time is spent doing it--
they will lose the right to overtime pay.
Police departments have sometimes tried to exempt officers who
teach in police academies, but have been prevented because the
instructors did not exercise sufficient independent judgment and
discretion in how they taught their courses. Because the proposed rule
eliminates the requirement for independent judgment and discretion,
those officers will lose their right to overtime pay under the proposed
rule. The Department claims that under the proposal, ``only chefs with
a college degree in culinary arts qualify as professionals.'' But the
rule clearly states--and the regulatory analysis supports--that work
experience or training that comes from non-college sources can be
substituted for all or part of the educational requirements.
Likewise, the proposal encourages employers to treat all of the
various medical technicians, from respiratory therapists and physical
therapists to physician assistants and radiology technicians as exempt
professionals even if they do not have four-year college degrees in
their professional field. The proposed rule explicitly allows physician
assistants with 2,000 hours of patient care experience and one year of
professional course work to be exempted as professionals.
Finally, the Department has claimed that even highly compensated
``teamsters,'' autoworkers, plumbers, carpenters, and various other
construction workers ``will maintain their entitlement to overtime''
because their work is not office or non-manual work. Some members of
these trades and occupations do, however, perform office or nonmanual
work during at least part of their workday or workweek. A tool and die
maker who designs and draws up plans for a new tool, for example,
performs non-manual work. The proposal does not set any minimum
percentage of time that must be spent doing non-manual work to be
subject to exemption and loss of overtime pay under the highly
compensated test.
Because the Department's analysis suffers from each of the flaws I
have described, there is little, if any, credibility in its numbers.
EPI's study demonstrates that the paychecks of millions of workers are
at stake in this rulemaking. If the Department intends to preserve the
current law's overtime protections, then it will have to withdraw this
rule and rewrite it. The Department should eliminate loopholes and
clarify the rules in ways that preserve or expand overtime protection,
rather than weaken it. There is no reason for workers to sacrifice
their right to one of this country's bedrock entitlements.
Senator Specter. Thank you, Mr. Eisenbrey.
Would Ms. McCutchen and Ms. Owens please come back to the
table? We are going to have 5-minute rounds for members.
Ms. McCutchen, the Federal Register says, ``Estimated costs
are presented as ranges because data limitations prevent the
Department from identifying exactly which workers are exempt
and not exempt based on the current and proposed duties test.''
That being so, if the Department cannot estimate how many
employees will be denied overtime as a result of the proposed
regulation, on what basis can you assert that workers' overtime
rights will be strengthened?
Ms. McCutchen. The strengthening of overtime rights and our
estimate of 1.3 million workers sharing almost $1 billion a
year in additional income comes from BLS data on the number of
hours employees work, what their duties are, and what their job
titles are, and what they are currently being paid. The 1.3
million and the $895 million figure represents the difference
in wage increases or additional overtime pay that employers
will have to give to employees who are currently making between
the current minimum of $8,000 a year and the proposed minimum
of $22,100 a year. Employers who are paying employees less than
that $22,100, will have two choices. They will either need to
raise salaries to maintain the exemption or start paying these
employees overtime pay.
Senator Specter. Mr. Eisenbrey, in your paper you state
that the proposed rule is rife with ambiguity and new terms
such as ``position of responsibility'' will spawn new
litigation. We would be interested in the specifics that you
may be able to answer now, but supplement, as to how you would
craft regulations which would protect the overtime rights of
workers while bringing greater clarity regarding overtime
eligibility for employers and employees. There is general
agreement that there is great ambiguity in the current rules
and these new rules seek to change that. How can you satisfy
the requirement of protecting workers from losing overtime but
at the same time eliminate what everybody agrees are
ambiguities and vagaries that are very difficult to follow?
Mr. Eisenbrey. I would be happy to provide the subcommittee
with some ideas. Some things are obvious. To go from a rule
that says you have to have an advanced degree in your field of
specialty to a rule that says we do not know how much work
experience you need, but you can substitute work experience for
the educational requirements throws open a whole new area of
ambiguity that the law does not have.
Senator Specter. Mr. Lorber, your comments are that there
should be a simple test to determine an employee's exempt
status. In fact, it is obviously a complex one. What would you
suggest on proposed regulations which would provide greater
certainty with regard to overtime eligibility and reduce what
has been characterized as ``needless, exploitive litigation''?
Mr. Lorber. Well, just as the Department has proposed a
bright line test at $22,100 for the minimum level under which
everybody would get overtime, they do create a category of
highly compensated, and the Chamber believes, we believe that
there should be similar bright line tests at that level as well
so that anybody over a certain level of income would not have
to meet the various tests that are still and will still be
present regardless of the simplification at the Department.
Senator Specter. Ms. Owens, you say that this regulation
would be moving in the direction of covering fewer workers, but
as I understood your testimony, it is not there on its face.
What is the basis for your saying that although not there now,
it is moving in that direction?
Ms. Owens. Well, Senator Specter, we believe that if these
regulations take effect that as many as 8 million workers are
at risk of losing overtime protection, but just as significant,
we think that by broadening the exemptions, that more workers
in the future are at risk of losing overtime protection. This
is more than the $8 million that EPI has estimated looking only
at the work force today.
Senator Specter. Let the record show that the red light was
not on when I finished my question.
I am not commenting about your answer. I just want
everybody to know that we are observing the 5-minute rule
because after this panel, we have another hearing.
Senator Harkin.
Senator Harkin. Thank you very much, Mr. Chairman.
I would like to get a little bit to the bottom, whether it
is 644,000 workers or 8 million. Ms. McCutchen, I understand
the Department of Labor has said that 644,000 workers would
lose overtime protection. Is that not just an estimate of
workers currently earning overtime?
Ms. McCutchen. That is the regulatory analysis that we are
required to do when we propose a regulation and it is required
to be in our notice of proposed rulemaking. So that is correct,
yes.
Senator Harkin. It is.
Ms. Owens, what you are saying is that basically it is more
important to determine the number of workers that would lose
the protection, and those that would lose the protection would
be closer to 8 million.
Ms. Owens. That is right, Senator.
Senator Harkin. I just wanted to get that cleared up.
Ms. McCutchen, do you agree that Congress did not intend to
the 40-hour work week to apply only to low income workers, but
rather that Congress intended the 40-hour work week to apply to
the vast majority of all workers? In fact, did not Congress
specifically reject a salary ceiling at that time?
Ms. McCutchen. I am not aware that it specifically
addressed the salary ceiling. That could be the case.
I think Congress intended to cover everyone who was not in
the 30 separate listed exemptions in the Fair Labor Standards
Act itself from overtime and minimum wage requirements.
Senator Harkin. So, again, since we rejected a salary
ceiling, why is there a separate test for highly compensated
workers in this proposed rule?
Ms. McCutchen. There has actually been a separate test now
called the special proviso for highly compensated employees in
the proposed regulations since the 1950's. There has always
been a two-tier structure, and based on the regulatory history,
this two-tier structure exists because the Department believes
that salary is the best single indicator of exempt status.
Our proposal is not a salary cap. In fact, we rejected the
stakeholder suggestions that we have a salary only rule at the
top end.
Senator Harkin. Excuse me. I have a chart here. Under
current law, there is no test for highly compensated employees'
exemption. Am I wrong on that?
Ms. McCutchen. You are and let me refer you to the section.
The section in the current regulations for executive exemption
is called 541.119, special proviso for high salaried executive;
541.214, special proviso for highly salaried administrative
employees; and----
Senator Harkin. But does it list a salary?
Ms. McCutchen. Yes, $250 a week.
Senator Harkin. That is listed there.
Ms. McCutchen. Yes, in the regulations. The minimum is $155
for most employees, and then there is a special proviso with
fewer duties tests for highly compensated employees, which,
since this regulation has not been updated since 1975, is very
low, $250 a week, or $13,000 a year. This is one of the
complexities of the rules that we are trying to address.
Senator Harkin. I have got to get a copy of that too.
Ms. McCutchen. Certainly.
Senator Harkin. Now, I have read the changes you have
proposed to the duties test, and I tried to apply it. I have
heard this talk that we are going from something that is
complex to something that is easier, but you apply those tests
to particular workers, it is not easy. For example, again, on
my chart here--maybe this one is wrong, since the first one was
wrong--it says under the administrative exemptions, current law
says customarily and regularly exercises discretion and
independent judgment. That is current law. The proposed
regulation says, holds a position of responsibility with the
employer defined as either, one, performing work of substantial
importance, or two, performing a work requiring a high level
skill or training. Well, I guess I do not understand how the
proposed regulation is any clearer or any easier than current
law. It seems to me it is more convoluted. What does it mean to
perform work of substantial importance? I happen to think all
work is important.
Ms. McCutchen. Both of those standards are actually in the
regulations now as interpretive guidelines, and there is
actually case law defining what those two things mean that we
are going to be looking at closely. The administrative
exemption is the most difficult exemption to define and to
apply and we have asked for broad comments on how we can
improve our proposal. We do not claim it is perfect or it has
no ambiguities. That is why we need to continue the rulemaking
process so we can read the comments.
Senator Harkin. Ms. McCutchen, is this true? The Chicago
Tribune quoted you as saying: ``The Labor Department's
McCutchen predicts a deluge of lawsuits as employees and
employers press for clarifications once the new rules go into
effect.'' Did you say that?
Ms. McCutchen. I would not say deluge. I think anytime you
have a new law or a new statute----
Senator Harkin. If you did not say deluge, what did you
say?
Ms. McCutchen. That you would see probably an immediate
increase in lawsuits followed by a decrease in lawsuits as
people, as with any new statute, need to go to the court to try
to define its boundaries.
Senator Harkin. Let the record show I quit with 10 seconds
yet to go.
Senator Specter. See what a good example will do.
Senator Craig.
Senator Craig. I have no questions. Thank you, Mr.
Chairman.
Senator Specter. Thank you, Senator Craig.
Senator Murray.
Senator Murray. Mr. Chairman, thank you very much and I
appreciate the witnesses being here. I really appreciate your
having this hearing.
I have to tell you at home in Washington State, I am
hearing a great deal of concern about this proposed rule coming
down. In my home State of Washington, we have literally lost
thousands of jobs in the last several years. Boeing has laid
off 35,000 people and everybody is saying to me why are you
trying to cut the pay of the people who are still at work. It
is pretty disheartening to see this coming through a stroke of
the pen at the Department of Labor.
Mr. Chairman, I would like to submit for the record a
letter to Secretary Chao signed by, I believe, 43 U.S. Senators
urging the Secretary not to go forward with any regulation that
denies overtime protections.
Senator Specter. It will be admitted as part of the record.
[The letter follows:]
U.S. Senate,
Washington, DC, June 30, 2003.
Dear Secretary Chao: We write to express our serious concerns about
the Department's proposed regulation on white collar exemptions to the
Fair Labor Standards Act. These sweeping changes could eliminate
overtime pay protections for millions of American workers.
We urge you not to implement this new regulation that will end
overtime protections for those currently eligible. Under current law,
the FLSA discourages employers from scheduling overtime by making
overtime more expensive. According to a GAO study, employees exempt
from overtime pay are twice as likely to work overtime as those covered
by the protections. Our citizens are working longer hours than ever
before--longer than in any other industrial nation. At least one in
five employees now has a workweek that exceeds 50 hours. Protecting the
40-hour work week is vital to balancing work responsibilities and
family needs. It is certainly not family friendly to require employees
to work more hours for less pay.
Overtime protections clearly make an immense difference in
preserving the 40-hour work week. Millions of employees depend on
overtime pay to make ends meet and pay their bills for housing, food,
and health care. Overtime pay often constitutes 20-25 percent of their
wages. These workers will face an unfair reduction in their take-home
pay if they can no longer receive their overtime pay.
We urge you not to go forward with any regulation that denies
overtime pay protections to any of America's currently eligible hard-
working men and women.
Sincerely,
Edward M. Kennedy, Tom Daschle, Patty Murray, Mary
L. Landrieu, Byron L. Dorgan, Tom Harkin,
Bill Nelson, Jack Reed, John D.
Rockefeller, IV, Barbara A. Mikulski, Jon
S. Corzine, Frank Lautenberg, Debbie
Stabenow, Herb Kohl, Paul S. Sarbanes,
Joseph R. Biden, Jr., John F. Kerry, Mark
Dayton, Christopher J. Dodd, Patrick J.
Leahy, John Edwards, Maria Cantwell, Joseph
L. Liberman, Russell D. Feingold, Max
Baucus, Robert C. Byrd, Harry Reid, Charles
E. Schumer, Daniel K. Akaka, Barbara Boxer,
Tim Johnson, Jeff Bingaman, Richard J.
Durbin, Kent Conrad, Mark Pryor, Hillary
Rodham Clinton, Evan Bayh, Carl Levin, Bob
Graham, Ron Wyden, Tomas R. Carper, and
Blanche L. Lincoln.
Senator Murray. Let me just start with Ms. Owens, and thank
you for being here as well. I think there is a lot of confusion
about how this law is going to affect people. Could you just
describe for this committee what a typical worker would be that
would be affected right now by the rule?
Ms. Owens. Certainly. As we read the rule, because of the
proposed changes in the duties test, which involve going from a
two-prong test, long duties and short duties, to a single test,
which we believe relax the duties requirements for classifying
workers as executives or administrative or professional
employees, we think, for example, that certain kinds of
technical workers who might work side by side with a
professional, like a medical technician who works with a
medical professional of some sort, or an engineering tech who
works with an engineer, because of the substitution, the
permission for substituting experience for education--we think
those workers who do now get overtime pay and are protected are
at risk of losing those protections. And certainly a number of
people who work in the industries in your State, Senator
Murray, would be those types of workers.
Senator Murray. Right, and that is why I am hearing that
concern.
Ms. McCutchen, I have to tell you as a former educator and
as a former school board member, it appears to me these
regulations are really an attempt to lower the education
requirement for professional employees. Under current law,
dental hygienists fall within the professional exemption to the
40-hour work week, but only if they have completed 4 years of
professional study. And is it not true that under the proposed
rule, dental hygienists with only 2 years of academic training
and work experience would now fall into that exemption? So it
seems to me that if employers decide that their employee's work
experience in a field that customarily requires a degree--it
could be biology or nursing or engineering, culinary arts,
accounting--if they have the same knowledge as workers with
degrees, will employers not now be free to deny those workers
overtime?
Ms. McCutchen. No, they will not, Senator Murray.
Senator Murray. How can you say that?
Ms. McCutchen. Thank you for the opportunity to correct the
record. We are not changing the rule, the basic rule, that only
people who work in professions that customarily require a
prolonged course of intellectual study are eligible for the
exemption. The current rule says, for example, that customarily
means the occasional chemist who is not in the possession of a
chemistry degree or the occasional lawyer who does not have a
law degree is not barred from the exemption as long as the
profession itself is one that generally requires an advanced
specialized degree for entry. And we have not changed that
rule.
Senator Murray. Well, I would assume, Ms. Owens, that you
would read that differently. Can you explain to me how you----
Ms. Owens. Well, I think your example--and Mr. Eisenbrey
may want to comment on this as well--of the dental hygienist as
a profession that customarily would require that kind of degree
but perhaps now more and more people who go into the field have
work experience and a 2-year degree from a technical school or
a community college, for example, we believe are subject to
being classified as exempt under these rules. And if that is
not the case, then I do not think the regulations, as written,
are clear.
Senator Murray. Mr. Eisenbrey, could you comment?
Mr. Eisenbrey. I think it is important to realize that if
you wanted to keep the law the same, you would not change it.
They have changed the professional exemption and put in a
particular new provision that says that you can substitute work
experience or other things other than the normal academic
training, experience from the military for the 4 years that are
currently required. Their regulatory analysis--and I will
quote--says: ``The proposed rule allows work experience to be
substituted for all or part of the educational requirement for
exemption of learned professionals.'' There is no legitimate
doubt about the effect of that.
Senator Murray. Well, Mr. Chairman, I would have to agree.
That is certainly how I read it and it certainly would go to
Senator Harkin's question to Ms. McCutchen that this is going
to increase litigation should this proposed rule move forward,
it sounds to me from listening to this. My understanding was
the rules were proposed just to clarify the overtime rules and
to reduce litigation. So I think we have a real problem moving
forward here.
Senator Specter. Thank you very much, Senator Murray.
Well, thank you very much, ladies and gentlemen. This is
obviously a complex question. It has been very helpful.
Senator Murray. Mr. Chairman, if I could just ask to have
my opening statement submitted for the record.
Senator Specter. Senator Murray's opening statement will be
made a part of the record.
[The statement follows:]
Prepared Statement of Senator Patty Murray
Mr. Chairman, thank you for calling these important hearings today
on the proposed regulatory changes the Department of Labor has put
forth regarding overtime pay and labor union reporting.
I believe these hearings will provide critical information to the
Members of this Committee to help them decide whether the rulemaking
process at the United States Department of Labor (USDOL) is driven by
fact and reason or an anti-worker political agenda.
The shoddy rule-making process employed by the USDOL in the
development of their draft regulations on overtime pay and labor union
reporting leads this Senator to wonder what's the rush.
Congress has held no hearings, yet the Secretary of Labor--with a
few strokes of her rule-making pen--is about to adversely affect the
quality of life for millions of hard working Americans.
It is inconceivable to me that as families struggle in this tough
economy, the Bush Administration wants to cut the pay of millions of
workers who depend on their overtime to help make ends meet.
We know that overtime often makes up 25 percent of an eligible
worker's wages.
Haven't working Americans been punished enough by this President's
economic policies? Not only have we seen millions lose their pensions,
but we've also seen massive tax cuts for the few while everyone else
struggles just to get by.
Billion dollar corporate scandals continue to unfold on a regular
basis, robbing millions of their economic security in their retirement
years.
The answer from this Department of Labor is a rule that will
require thousands of small local unions to comply with a new set of
costly and unwarranted reporting requirements. These draft rules are
more cumbersome than the reporting requirements for public corporations
found in the recently enacted Sarbanes-Oxley legislation.
And of course we know that multi-billion dollar privately held
corporations do not have any reporting requirements.
Unfortunately, these new labor union reporting rules are unlikely
to ``weed out corruption.'' Nor will they help to establish the
transparency in labor union reporting the Secretary said was needed
when she appeared before this Subcommittee to discuss her fiscal year
2004 budget request in April.
Millions of details on thousands of forms will not help assure
labor unions are spending their money properly. Independently certified
audits certainly remain a better approach, along with the diligence of
the thousands of local, national and international union officials who
care deeply about the fiscal integrity of their operations.
Again, I commend and thank the Chairman for calling these hearings.
I look forward to working with him as we develop bipartisan approaches
to critical policies that affect workers who are struggling to pay
their mortgages and feed their families.
CONCLUSION OF HEARING
Senator Specter. Thank you all very much for being here.
That concludes our hearing.
[Whereupon, at 3:47 p.m., Thursday, July 31, the hearing
was concluded, and the subcommittee was recessed, to reconvene
subject to the call of the Chair.]