One Step Forward, Two Steps Backward

On March 27, the Department of Labor (DOL) announced its long-awaited proposal to change the Fair Labor Standards Act, the federal wage and hour law, which purports to overhaul outdated overtime standards. (See DOL Proposal Summary.) That is a laudable goal, to be sure–there’s more or less universal consensus that the overtime laws are the product of an outdated era, and need to be brought in line with the realities of the modern workforce. (See Christian Science Monitor article.) However, the proposal as it now stands needlessly sacrifices one group of workers to benefit another group–a move clearly designed to thwart opposition to the proposal. While an estimated 1.3 million low-wage earners will gain overtime protection, according to the Labor Department, at the same time, about 640,000 people will lose overtime eligibility. The Labor Department calls it a “fair tradeoff,” given that low-income workers are the primary beneficiary of the changes, while middle-income workers stand to lose the most under the proposal. But was a tradeoff really necessary? And how does the proposal square with claims that the proposal is “family-friendly?”

There are three major changes in the Labor Department’s proposal with which workers should be concerned: 1) The proposal excludes previously protected workers by reclassifying them as managers, administrative or professional employees who are not eligible for overtime pay; and 2) It eliminates certain middle-income workers from overtime protections by adding an income limit, above which workers no longer qualify for overtime. The third change, the one most beneficial to some workers, involves an increase in the minimum salary threshhold for overtime eligibility, so that more workers at lower income levels benefit. Here’s how the proposals will affect workers:

The first change in the proposal affects the “duty test” that determines who falls into the three exempt categories — administrative, professional or executive. Those who fall into the three exempt categories are not eligible for overtime, regardless of their salary level. But because of proposed changes to the three categories, some employees currently eligible for overtime would no longer be able to get it. Currently, exempt workers must earn at least $250 a week and exercise “discretion and judgment” in their jobs to be declared exempt. Administrative employees, to be exempt, must also perform work “directly related to management policies or general business operations.” Professionals, such as engineers, must perform advanced work that typically requires a four-year college degree or higher. (See Hartford Courant article.)

Under the new rules, the “discretion and judgment” test would be out. Instead, employers could declare exempt any administrative employees who “perform work of substantial importance” or “work requiring a high level of skill and training.” In the professionals category, for instance, the duties have been broadened to include employees who gain certain skills through job experience, military training and technical school. In that case, some employees who were hourly could fall into the exempt professionals category. Kathy Roeder, spokeswoman for the AFL-CIO in Washington, D.C., said as many as 1 million employees nationally would no longer be eligible for overtime under the new duties test. (See Detroit News article.) Lawyer Greg McGillivary, who sits on the American Bar Association’s federal labor standards legislation committee, said the proposed rules would “dumb down” the standards for what a “learned professional” exempt from overtime would be. McGillivary notes that “[l]earned professions historically were limited to professions that required specialized degrees, like lawyers, doctors, accountants. But because they include in their new definition something called prolonged course of instruction and include community colleges and technical schools in that definition, we’re afraid that the department is trying to dumb down what a learned professional is.” One example cited by McGillivary is that of cooks who happen to have studied the culinary arts at a community college, who could be reclassified as a “learned professional” and have their titles changed to “executive chef.” (See San Antonio Express-News article.)

The second change in the proposal which targets middle-income white collar workers is a new provision that exempts all employees who make $65,000 a year from overtime if they perform any of a list of certain job duties, such as directing the work of two or more employees. (See East Bay Business Times article.) Under current law, there is no maximum income limit, so it is unclear why the change is necessary if not solely to appease business interests. This change, coupled with the first, will have the effect of removing from overtime protection large numbers of workers in aerospace, defense, health care, high tech and other industries. McGillivary notes that paramedics, police detectives, newspaper reporters, fire sergeants, manufacturing plant foremen, secretaries, loan processors and others could be denied overtime, depending on how employers interpret the rules.

The third significant change, the one that is the most worker-friendly, increases the minimum salary threshhold for exempt status. Under current rules, an employee earning only $155 a week can qualify as a “white collar” employee not entitled to overtime pay. The Department’s proposal would raise this minimum salary to $425 a week—an increase of $270 a week and the largest increase since the Fair Labor Standards Act was passed by Congress in 1938. However, even this change has been subject to some criticism. The AFL-CIO’s Roeder said the minimum salary level does not keep up with inflation. The $155 a week was set in 1975. “If they would have adjusted it for inflation, it should be $27,000 (instead of $22,100),” she said. “The proposed rules will put workers further behind than in 1975.” (See Detroit News article.)

The Labor Department calls this proposal a compromise proposal that meets the needs of both workers and business. According to DOL’s Wage and Hour Administrator Tammy McCutchen,

The unions have been requesting a change to the salary levels for more than 20 years, and during the Carter administration there were attempts to do that. But because it did not address the duties test, the Reagan administration threw it out. You need compromise. You have to have a moderate and measured proposal that has something in it for everyone, or else we’ll have nothing.

Labor lawyer McGillivary disputes that this proposal was ever a compromise, stating that

The problem is that everything they did, every change they made, every example they give in their analysis is pro-employer and pro-exemption. It makes me think they’re the department of small business and not the Department of Labor.

The proposal must also be read in conjunction with a second proposal affecting overtime pay, the Family Time Flexibility Act, reported on in further detail here in the April 10, 03 posting. If the proposed regulations and the Family Time Flexibility Act both pass this year, here is what is likely to happen: a large number of middle-income workers who currently rely on income to support their families will no longer be eligible for overtime, and will be forced to work much longer hours with no additional pay. Those lower-income workers who currently do not receive overtime will be newly eligible, but will be forced to take comp time instead of receiving the additional overtime pay promised by the pending regulatory changes. So very few workers are likely to see additional overtime pay, but employers are able to work their employees harder and harder with no additional financial costs added by doing so. As noted by columnist Molly Ivins, “Everybody gets screwed on this one, except the bosses…the proposed rules changes and the Republican bills provide a strong financial incentive for employers to lengthen the workweek, on top of an already staggering load.”

The overtime laws do not merely exist to compensate certain employees who work over 40 hours per week, but also operate to minimize the number of employees forced to work additional hours over 40 by providing a financial disincentive for employers to require additional work. The middle-income workers most likely to have family responsibilities are the most affected by this proposal, which will cause them to earn less money and work more hours away from their families, while lower-income workers, many of which are teenagers and college students and other young workers in entry-level jobs who are not under the same pressure to simultaneously support and spend time with their families.

If you currently receive overtime and count on it as a component of our overall compensation, and are likely to be affected by this bill, you have a chance to speak out. The proposed rules are open to a 90-day public comment period, ending June 30, 2003. After reviewing the comments, the Wage and Hour Division will make changes deemed necessary; if approved, the proposal will take effect late this year or in early 2004. Comments may be submitted to: Tammy D. McCutchen, Administrator, Wage and Hour Division, Employment Standards Administration, U.S. Department of Labor, Room S-3502, 200 Constitution Ave. N.W., Washington, DC 20210. You can also fax your comments (20 pages or less) to (202) 693-1432 or e-mail the Wage and Hour Division. Coming soon to the WF site will be the ability to make comments through our Action Center, so check back here for additional information and comments on the proposal. Only through an outcry larger and louder than business groups are likely to make in support of the proposal can we hope to defeat the most onerous and family-unfriendly provisions of the Department of Labor’s proposal.

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Madeline Messa

Madeline Messa is a 3L at Syracuse University College of Law. She graduated from Penn State with a degree in journalism. With her legal research and writing for Workplace Fairness, she strives to equip people with the information they need to be their own best advocate.