Testimony on Proposed Changes on Overtime Classifications
Testimony Before the Subcommittee on Labor, Health and Human Services, Education of the Commitee on Appropriations of the United States Senate, on Behalf of the United States Chamber of Commerce, on Department of Labor Proposed Rulemaking on Overtime Classifications by Lawrence Z. Lorber
July 31, 2003
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 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. Reich 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 filed 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.