[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]




    THE DEPARTMENT OF LABOR'S OVERTIME REGULATIONS EFFECT ON SMALL 
                               BUSINESS

=======================================================================

                                HEARING

                               before the

      SUBCOMMITTEE ON WORKFORCE, EMPOWERMENT & GOVERNMENT PROGRAMS

                                 of the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                      WASHINGTON, DC, MAY 20, 2004

                               __________

                           Serial No. 108-67

                               __________

         Printed for the use of the Committee on Small Business


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
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                      COMMITTEE ON SMALL BUSINESS

                 DONALD A. MANZULLO, Illinois, Chairman

ROSCOE BARTLETT, Maryland, Vice      NYDIA VELAZQUEZ, New York
Chairman                             JUANITA MILLENDER-McDONALD,
SUE KELLY, New York                    California
STEVE CHABOT, Ohio                   TOM UDALL, New Mexico
PATRICK J. TOOMEY, Pennsylvania      FRANK BALLANCE, North Carolina
JIM DeMINT, South Carolina           ENI FALEOMAVAEGA, American Samoa
SAM GRAVES, Missouri                 DONNA CHRISTENSEN, Virgin Islands
EDWARD SCHROCK, Virginia             DANNY DAVIS, Illinois
TODD AKIN, Missouri                  GRACE NAPOLITANO, California
SHELLEY MOORE CAPITO, West Virginia  ANIBAL ACEVEDO-VILA, Puerto Rico
BILL SHUSTER, Pennsylvania           ED CASE, Hawaii
MARILYN MUSGRAVE, Colorado           MADELEINE BORDALLO, Guam
TRENT FRANKS, Arizona                DENISE MAJETTE, Georgia
JIM GERLACH, Pennsylvania            JIM MARSHALL, Georgia
JEB BRADLEY, New Hampshire           MICHAEL MICHAUD, Maine
BOB BEAUPREZ, Colorado               LINDA SANCHEZ, California
CHRIS CHOCOLA, Indiana               BRAD MILLER, North Carolina
STEVE KING, Iowa                     [VACANCY]
THADDEUS McCOTTER, Michigan

                  J. Matthew Szymanski, Chief of Staff

                     Phil Eskeland, Policy Director

                  Michael Day, Minority Staff Director

     SUBCOMMITTEE ON WORKFORCE, EMPOWERMENT AND GOVERNMENT PROGRAMS

TODD AKIN, Missouri, Chairman        TOM UDALL, New Mexico
JIM DeMINT, South Carolina           DANNY DAVIS, Illinois
SHELLEY MOORE CAPITO, West Virginia  GRACE NAPOLITANO, California
JEB BRADLEY, New Hampshire           ED CASE, Hawaii
CHRIS CHOCOLA, Indiana               MADELEINE BORDALLO, Guam
STEVE KING, Iowa                     [VACANCY]
THADDEUS McCOTTER, Michigan

                     Joe Hartz, Professional Staff

                                  (ii)


                            C O N T E N T S

                              ----------                              

                               Witnesses

                                                                   Page
Robinson, Mr. Alfred, Deputy Administrator, Wage and Hour 
  Division, U.S. Department of Labor.............................     3
Fendly, Mr. Neill, Certified Mortgage Consultant, President/CEO, 
  Mortgage Defense, Inc..........................................    11
Fitch, Mr. John, Senior V.P. for Advocacy, National Funerals 
  Directors Association..........................................    13
Bird, Mr. Ronald, Chief Economist, Employment Policy Foundation..    14
Eisenbrey, Mr. Ross, V.P. & Policy Director, Economic Policy 
  Institute......................................................    16

                                Appendix

Opening statements:
    Akin, Hon. W. Todd...........................................    18
Prepared statements:
    Robinson, Mr. Alfred, Deputy Administrator, Wage and Hour 
      Division, U.S. Department of Labor.........................    21
    Fendly, Mr. Neill, Certified Mortgage Consultant, President/
      CEO, Mortgage Defense, Inc.................................    36
    Fitch, Mr. John, Senior V.P. for Advocacy, National Funerals 
      Directors Association......................................    41
    Bird, Mr. Ronald, Chief Economist, Employment Policy 
      Foundation.................................................    48
    Eisenbrey, Mr. Ross, V.P. & Policy Director, Economic Policy 
      Institute..................................................    56

                                 (iii)
      


 
THE DEPARTMENT OF LABOR'S OVERTIME REGULATIONS EFFECT ON SMALL BUSINESS

                              ----------                              


                         THURSDAY, MAY 20, 2004

                  House of Representatives,
        Subcommittee on Workforce, Empowerment and 
                                Government Programs
                                Committee on Small Business
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 2:18 p.m. in 
Room 311, Cannon House Office Building, Hon. W. Todd Akin, 
presiding.
    Present: Representatives Akin, Udall, and Sanchez.

    Chairman Akin. The meeting of the Subcommittee will come to 
order. Forgive me for begin a little late. Too many meetings 
and too little time here, but I appreciate your interest in 
this issue, and we will go ahead and proceed. I believe we will 
be able to get things done in a timely manner.
    I would like thank you all for joining us here today as we 
examine the proposed changes in the Department of Labor's 
overtime regulations and their effect on small businesses and 
their employees. I would especially like to thank our witnesses 
who have agreed to testify before this Committee.
    On April 23, 2004, the Department of Labor issued final 
regulations under the Fair Labor Standards Act implementing the 
exemption from overtime pay for executive, administrative, 
professional, outside sales, and computer employees. These 
exemptions are often referred to as the ``white collar'' 
exemptions.
    To be considered exempt, employees must meet certain 
minimum tests related to their primary job duties, and in most 
cases must be paid on a salary basis at not less than minimum 
amounts as specified in the applicable sections of these 
regulations. These regulations will become final on August 23, 
2004.
    As many of you know, this is the first significant update 
of the rules governing the white collar exemption to the Fair 
Labor Standards Act in nearly 50 years. Given these rules are 
among the most convoluted and ambiguous federal regulations, 
this long overdue update is welcome news for business owners 
and for their employees.
    The current regulations have caused a great deal of 
confusion for both employers and their workforce. Employers 
today are more likely to be sued for alleged violations of the 
Fair Labor Standards Act than any other labor statute. In fact, 
the number of class action lawsuits under the Fair Labor 
Standards Act has more than doubled since 1997. Costly 
litigation is counterproductive, takes valuable time and drains 
resources away from businesses, resources that should be used 
to improve employee benefits, make American companies more 
competitive, and create new jobs.
    During the 108th Congress this Committee has held hearings 
on a diverse field of topics, including health savings 
accounts, union salting abuse, assistance programs offered by 
the Small Business Administration most recently, the federal 
minimum wage.
    Despite the diversity, each is focused on answering a 
central question: What can we do to lower the cost of doing 
business in the United States?
    Answering this question with good policy is fundamental to 
maintaining a healthy, vibrant economy where businesses can 
flourish and produce jobs for the American people. We must 
continue to make it easier to do business in America in order 
to facilitate stronger and longer term growth. The revised 
overtime regulations do just that by cutting bureaucratic red 
tape, reducing the need for costly litigation.
    I look forward to hearing the testimony presented today, 
but before we get to testimony I would like to turn to our 
distinguished ranking member, Mr. Udall, for any opening 
statement he would like to offer.
    [Chairman Akin's statement may be found in the appendix.]
    Mr. Udall. Thank you, Chairman Akin. It is a pleasure to be 
here with you today.
    Today's hearing will look at the Department of Labor 
overtime regulations and the impact it will have on our 
nation's working families and small business owners. This 
proposal will raise the threshold for earnings and will revise 
the types of jobs that enable individuals to qualify for 
overtime.
    I am very concerned about the effect that this regulation 
will have on many hard working individuals and on our nation's 
small businesses. By the department's own admission, this 
regulation would strip overtime pay from hundreds of thousands 
of hard working Americans. These regulations will also create a 
pay cut for middle class families, most of whom already feel a 
pinch from the economic policies of this administration.
    Middle class workers are finding themselves facing 
shrinking wages and climbing health care costs. These new 
overtime regulations are only going to worsen their economic 
situation and strip them of their right to overtime pay.
    The administration may claim that these overtime 
regulations are flexible and will help with payroll costs, but 
in reality these new rules will only add to the exploding 
volume of paperwork that already create problems for small 
businesses.
    This new rule will ultimately create much confusion for our 
nation's small firms. The overtime regulations are lengthy and 
very complicated. Because much of the terminology used in the 
new rule has changed, it will create confusion for small 
businesses which do not have the time or manpower to weed 
through all 530 pages. The complex regulation will dramatically 
increase the amount of paperwork and create litigation problems 
for small enterprises for failing to comply with the rule they 
may not even understand.
    Further exacerbating this issue is the fact that the new 
overtime regulations could go into effect as early as August 
23rd. This is not nearly enough time to make an accurate 
analysis of what type of impact this will have on our economy 
and our nation's small businesses.
    What is clear at this point is that these regulations will 
deprive a significant number of hard working employees of their 
overtime pay and will create confusion for small businesses who 
may find themselves faced with new litigation problems due to 
the complexity of the rule.
    Mr. Chairman, although I made my concerns known, I 
nevertheless very much look forward to hearing the testimony of 
the distinguished witnesses on the panel and thank them for 
coming today. I yield back.
    Chairman Akin. Thank you. Because of the fact we have got 
some votes coming up, I am going to go ahead. We also have two 
panels of witnesses, which is a little unusual for our 
Committee, I am going to go ahead to try to move things along 
and hear from our panel.
    Our first panelist is Alfred Robinson who is the Deputy 
Administrator of the Wage and Hour Division of the United 
States Department of Labor. And Alfred, we just appreciate your 
coming in. You have got five minutes, and with no objection you 
can submit any other additional written comments for the 
record.
    Proceed. Thank you.

 STATEMENT OF ALFRED B. ROBINSON, WAGE AND HOUR DIVISION, U.S. 
                      DEPARTMENT OF LABOR

    Mr. Robinson. Thank you, Mr. Chairman, and distinguished 
members of the Subcommittee.
    I appreciate this opportunity to discuss with you the 
department's final Part 541 or white collar regulations, and to 
emphasize the new rules' positive impact upon small businesses 
and employees.
    As you know, the department published its final rule last 
month. The department is very proud of the final rule for a 
number of reasons. Under the new regulations workers earning 
less than $23,660 per year or $455 per week are guaranteed 
overtime protection. This new minimum salary level for 
exemption almost triples the current minimum salary of only 
$8,060 per year, and strengthens overtime rights for 6.7 
million American workers.
    Of these 6.7 million workers, 1.3 million are low wage 
salaried, white collar workers who are not entitled to overtime 
pay under the old regulation, and they will gain up to $375 
million in additional earnings every year. Other provisions 
strengthen overtime protection for licensed practical nurses, 
police officers, fire fighters, paramedics, and similar public 
safety employees, and blue collar workers, such as construction 
workers, manual laborers, and employees on factory lines. Such 
employees will not be affected by the new regulation.
    As for workers earning between $23,660 and $100,000 per 
year, the final rule provides equal or greater overtime 
protection and ensures that employees can better understand 
their rights, employers better understand their legal 
obligation, and wage and hour investigators have the necessary 
tools to vigorously enforce the law.
    The old regulations are very difficult for employment 
lawyers and human resource professionals to understand, and 
much more so for average workers or small business owners. They 
have created so much confusion over these exemptions that it 
has resulted in an explosion of class action litigation and has 
failed sufficiently to protect worker rights.
    The department issued a final rule that is responsible and 
responsive to the public. For the past year, we listened to 
thousands of comments from employees, labor organizations, 
business associations, and employers, and designed new 
regulations that are clear, straightforward, and fair. We 
worked hard to get it right. The importance of small businesses 
to our economy made it critical that the department get it 
right.
    These entities are the engine of job creation in this 
country. The department estimates that there are 39 million 
employees working at some 5.2 million small business 
establishments that are covered by the FLSA.
    During the rulemaking process the department carefully 
weighed the concerns expressed by the many commenters. Because 
of their size, small businesses noted that they are 
disproportionately impacted by unclear overtime rules and 
concomitant risks of possible litigation. The department's 
final rule is sensitive to the unique challenges of small 
businesses.
    Also, we have already embarked upon an aggressive 
compliance assistance program to help small enterprises 
understand and comply with the new rule. The department's 
website is dedicated to promoting compliance with the new white 
collar regulations. Small businesses, as well as employees, may 
obtain a wide array of compliance assistance materials such as 
facts sheets, video, and other helpful aides. Also, the 
department distributes printed versions of the material for 
employers and employees who do not have access to the internet.
    The department is working with the Small Business 
Administration to educate small business owners and employees 
about Part 541 as part of our ongoing participation in the SBA 
Expo Reg Fair hearings. We have other programs in Texas, New 
Jersey, and in California where we do compliance assistance 
with small businesses.
    Small businesses expressed concern during the comment 
period that because of regional differences in salary and 
industry characteristics they might face disproportionate 
burden from the increased salary level. Accordingly, the 
department's methodology specifically considered salary levels 
actually being paid by small businesses, and in low wage 
regions. The department's approach was designed specifically to 
achieve a careful and delicate balance, mitigating the adverse 
impacts of raising the salary threshold on small businesses 
covered by the law by staying consistent with the objective and 
the statute to clearly define and to delimit which workers 
qualify for the exemptions. Our overriding goal has been to 
prevent the misclassification of exempt employees.
    Mr. Chairman, my time is about to expire, and I want to 
thank you and members of the Subcommittee, and I would be happy 
to answer any questions that you may have.
    [Mr. Robinson's statement may be found in the appendix.]
    Chairman Akin. Thank you, Administrator. Let me just--what 
was kind of interesting from our opening statements it seems 
like a couple of ships passing in the night, and so I want to 
see if I can't go over a few things.
    What I think I heard you say, first of all, that many 
additional new people qualify for overtime; is that correct?
    Mr. Robinson. That is correct, Mr. Chairman. 6.7 million 
employees' overtime rights will be strengthened.
    Chairman Akin. But let us talk about the new ones that do 
not quality that will qualify under this.
    Mr. Robinson. And of those there are 1.3 million who will 
qualify, and they will share in approximately $375 million in 
additional------.
    Chairman Akin. Okay, now, it is possible that what both of 
us said at the same time is true, because you are saying 1.3 
million additional people will qualify for overtime that do not 
qualify currently; is that correct?
    Mr. Robinson. That is correct.
    Chairman Akin. Now, it is also possible that you may have 
some people who currently qualify who in the future will not. 
So I guess the question I have is how many of those are there, 
and when you put the two together which one is more?
    Mr. Robinson. Okay. Of that 6.7, you are correct, 1.3 will. 
5.4, there will be no question because of the new salary level 
that they will qualify.
    Chairman Akin. So there were 5 point something that were 
questionable are sort of in the gray zone.
    Mr. Robinson. That is right because they were subject to 
the duties test. But with raising the salary level from $155 to 
$455, they are guaranteed overtime protection so there will not 
be any question for those 5.4.
    Our estimates as to people who could lose overtime is that 
there are approximately 107,000 employees or workers who could 
be converted to exempt salary status as a result of when we 
test for highly compensated employees.
    Chairman Akin. So if you did not like what you were doing, 
what you could say is there is over 100,000 people who are 
going to lose their ability to get overtime, but on the other 
hand if you liked it you could say there are 1.3 million who do 
not qualify who will qualify, so the net total is there is 
still a huge amount more that do not qualify for overtime that 
with the new regulations will qualify; is that correct?
    Mr. Robinson. That is correct and----
    Chairman Akin. So the net total is pretty close to 1.2 
million in total and will qualify, more than what will not.
    Mr. Robinson [continuing] That is correct, and I would also 
caution that about 107,000, based on our economic analysis, 
they could lose. Some of them may already not be receiving 
overtime, but it is because of the economic models, and the 
thinness, if you will, of data it is very hard to predict at 
that level of exactly how many of 107,000------.
    Chairman Akin. You are saying 107,000 is----
    Mr. Robinson. It is a max.
    Chairman Akin [continuing] It is a maximum and it is an 
estimate?
    Mr. Robinson. Yes, sir.
    Chairman Akin. Okay. So first of all, we are raising the 
earning ceiling also significantly.
    Mr. Robinson. That is correct.
    Chairman Akin. And that is part of the reason why you are 
getting so many more people who qualify for overtime.
    Mr. Robinson. That is correct.
    Chairman Akin. So the net result is that a whole lot more 
people are going to qualify for overtime with the change in the 
rules and regs than currently do?
    Mr. Robinson. That is correct.
    Chairman Akin. Okay.
    Mr. Robinson. Yes.
    Chairman Akin. The second point is, is that I think there 
was criticism that there was a haziness or fuzziness or hard to 
follow the new regulations. Now, my understanding is that the 
only reason we are doing this is because we have 50-year-old 
rules and regs, and nobody really--I mean, it is a big struggle 
and that is why we have this huge increase in litigation. 
Obviously your objective was to make it more straightforward 
and simple; is that not right?
    Mr. Robinson. That is correct.
    Chairman Akin. And to make sure that both employees and 
employers know exactly where they stand?
    Mr. Robinson. That is correct, Mr. Chairman.
    Chairman Akin. So you would disagree with the fact that we 
have made it more complicated, but you would say we have 
simplified it?
    Mr. Robinson. I would say that we clarified the rule.
    Chairman Akin. Yes.
    Mr. Robinson. We simplified, it, yes, Mr. Chairman, and if 
I may give you an example. We have reduced the regulatory 
burden. The current regulation has over 33,000 words in it. The 
final regulation that we propose has a little over 15,000 words 
in it, so we have been able to clarify, streamline, simplify at 
the same time without compromising employee overtime 
protection, and in fact strengthening employee overtime 
protection.
    Chairman Akin. One of the other questions might be that the 
economic rule that accompanies the final rule, it states in the 
rule that it will eventually cost businesses a significant 
amount of money. I am just wondering, why are businesses and 
trade associations so supportive of the rule if it is going to 
end up costing them money? Is it simply the red tape reduction 
and the fact that the new rule is easier to understand, and 
therefore reduces the chances of cost of litigation?
    Mr. Robinson. Mr. Chairman, I think that you have 
accurately explained part of that. We are updating the rules, 
clearer, simpler, easier for employees to know their rights, 
easier for the--excuse me--for employees to know their rights, 
employers to know their obligations, and easier for Wage and 
Hour, Department of Labor to enforce.
    And so yes, bringing these rules into the twenty-first 
century brings clarity and clearer rules that------.
    Chairman Akin. Administrator, my nickel has run out here, 
and I need to now recognize the minority.
    Mr. Udall. Thank you, Mr. Chairman.
    First, on this issue of the numbers and the disagreement. I 
think what the real issue is here, and we could probably go on 
and on about it, but I just want to state this for the record 
is that your regulation has so many vague terms in it that 
could be used to reclassify, and you can make an argument that 
the number is small, and others, I think, can make the argument 
that the numbers are very large, but clearly the terms are very 
vague. They can be interpreted very, very differently. So I 
think the numbers comparison really is not a fair one.
    But the thing that I am interested in in terms of small 
business people is this whole litigation issue. I mean, these 
are massive in terms of the numbers of pages. I mean, we are 
talking about 530 pages of regulations.
    You are creating whole new terms, and as all of us know 
that it followed this kind of litigation. When you put out a 
new regulation, when you create new terms, it takes years and 
years to define the terms in the regulation through the court 
system, and we have had the Fair Labor Standards Act on the 
books since the 1930s, I think 1938. Many of the key phrases 
have been interpreted by the courts. As soon as you get these 
interpretations over the years what happens is you have a lot 
less litigation, and lawyers working with small business people 
can give them good, solid advice.
    What we are talking about doing here is something sweeping. 
I mean, in 50 years you are sweeping aside and creating a whole 
new set of terms which are going to require litigation, which 
are going to require small business people to consult attorneys 
to figure out what these terms mean, and they are not going to 
be able to figure out what they mean.
    The attorneys are going to say, well, this is what I think 
it means, but we do not know what a court is going to say, and 
then you are going to go into court. And so I do not see how 
you can walk in here, sir, and say that this is not going to 
create litigation problems.
    I mean, I guess my question to you is, is it not a fact 
that whenever you get a new regulation or a new statute it 
takes a long time before you really sort out a lot of the 
problems that come from not having clear court rulings on the 
new phrases and key issues that are in the regulation?
    Mr. Robinson. Congressman, if I can reply. What we have 
done here is condensed, if you will, the regulations that are 
currently on the books. We have streamlined and reorganized 
them. As I have mentioned, we have reduced just the word count 
itself, and we have relied on case precedent to explain in this 
preamble to the rule the rationale for the test as articulated 
in the regulation.
    The test for duties component of the exemptions is based 
very closely on the existing short duties test of the rule that 
currently exists. For example, the executive test, it is the 
short test with a new component from a long test in the current 
regulation for hiring and firing or authority of hiring and 
firing.
    So we think we have been consistent with trying to use 
terminology that is in the current rule without opening up this 
rule to the charge that it will result in litigation by using 
concepts that are in the current regulation, defining them, 
relying on case law. Discretion and independent judgment is 
currently in the regulation. Today, you will find that concept 
in the proposed final regulation that we issued last month.
    So we have tried to be consistent and take into account the 
precedent that you have mentioned so that there will be 
consistency, and there will be certainty, and this would 
consequently reduce litigation.
    Mr. Udall. Well, I do not see how when you move from one 
set of clear tests, I mean, the old rules have very clear tests 
that are there and the tests use specific phrases and they have 
been litigated over the years, and really in this new rule you 
substitute case-by-case determinations.
    I mean, the recurring theme to me looking at these 
regulation is over and over again you have this case-by-case 
determinations. I mean, let us take an example here.
    The department suggests that it will no longer require that 
executives actually manage the enterprise or a department or a 
subdivision thereof, it may be enough to be in charge of a team 
or grouping, but a case-by-case analysis is required.
    I mean, as soon as you start throwing this out of a clear 
test, which has been defined in the courts, to a case-by-case 
analysis, I think you are just inviting litigation. I think you 
are inviting a significant amount of litigation. And just to 
give one final example, I know I have run out of my times, but 
I think this is very important, Mr. Chairman, is here we have a 
new creative professional exemption for chefs. And what we say 
about it, it is so vague that it ``must be applied,'' this is 
quoting from the rule, it is on chefs. ``It must be applied on 
a case-by-case basis with particular focus on the creative 
duties and abilities of the particular chef at issue.'' That is 
the end of the quote right there.
    So here we are talking about case-by-case particular 
duties. I mean, I just think you are opening yourself wide open 
to litigation.
    I appreciate the courtesy, Mr. Chairman, and I yield.
    Chairman Akin. I thank the gentleman. And next questioning 
we go to Ms. Sanchez, and five minutes.
    Ms. Sanchez. Thank you, Mr. Chairman.
    America's businesses need clear, concise laws to provide 
their workers with decent jobs that provide fair pay and 
benefits, and in my view that is not asking a lot. If I am a 
small business owner, and I will state for the record my 
husband is actually a small business owner, what they want is a 
clear rule with a clear answer, and what I am hearing is that 
the rules do little to clarify the overtime regulations, and to 
avoid litigation, which is the primary objective in the first 
place of amending the rules.
    I have to add that I am not alone in the belief that it 
creates more confusion than it clarifies. Senator Spector said 
last week, and I quote, ``There is no indication that this new 
regulation is going to clarify anything at all. On the current 
state of the record I am opposed to the regulation.''
    I want to thank you, Mr. Robinson, for being here. I am 
hoping you might be able to help me shed some light to these 
new and what I consider complex rules. I have a limited amount 
of time, so I am going to run through my questions quickly, and 
I will allow you to address them one on one at your leisure, 
and I will remind you of them if you should have questions.
    But I want to pose some scenarios to you. Let us say that I 
am a small business owner and I have quality teams. I need to 
know whether I can stop paying overtime to my team leaders, and 
whether I will be sued if I do.
    The new Section 541.203 provides, and I am quoting, that 
``an employee who leads a team of other employees assigned to 
complete major projects for the employer generally meets the 
duties requirement for the administrative exemption.''
    The term ``team leader'' is a very familiar one in American 
industry. I want to know what is the definition of team leader, 
and will that not have to be litigated? What is the definition 
of major project, and will that not have to be litigated? And 
can I stop paying overtime to team leaders on major projects if 
most of their work is production work, but they perform some 
minimal office or non-manual work in their capacity as team 
leaders?
    Scenario number two: Let us say I am an owner of a medium-
sized business with a unionized workforce. Will my employees be 
affected by this regulation? The new Section 541.4 says that 
nothing in the regulation ``relieves employers from their 
contractual obligations under collective bargaining 
agreements.''
    But what if my contract with my workers simply refers to 
applicable law for overtime eligibility, and would not this 
regulation change the applicable law on overtime eligibility?
    I am wondering if you can tell us what percentage of union 
contracts have their own eligibility terms as opposed to 
referencing applicable law, and I want you to consider the 
union contracts that do not have their own eligibility terms. 
Is it not true that to the extent this regulation has any 
effect on workers' overtime eligibility union members would 
still have to negotiate at the bargaining table for what is now 
currently guaranteed by law?
    Last question: There are potentially millions of workers 
who perform supervisory work or other management work or 
administrative work related to management or professional work 
less than 50 percent of the time. Without a 50 percent rule of 
thumb is not overtime eligibility of these workers in jeopardy? 
Without a 50 percent rule of thumb is it not true that workers 
are more likely to consider these kinds of duties to be their 
employees' primary duty even though the employee spends a small 
amount of each time on them?
    And if you need me to repeat, I will be more than happy to, 
Mr. Robinson.
    Mr. Robinson. Let me try to address your first set of 
questions dealing with quality teams. The regulation as you 
noted has a provision in there that is more protective of 
overtime pay for individuals who perform work as you used the 
term ``team leaders'' than in the current regulations. They 
must lead a team of other employees assigned to complete major 
projects.
    We define major projects in the regulation as purchasing or 
selling all or part of a business, negotiating a real estate 
transaction, negotiating a collective bargaining agreement. 
Those are major projects, and that is some guidance provided in 
the regulation as well.
    So we are talking about buying, selling, closing part of 
factories, not buying or selling office supplies, so we have 
tried to give guidance as to what qualifies as major projects.
    Ms. Sanchez. But that term would be subject to 
interpretation, and potentially litigation, would it not?
    Mr. Robinson. Well, we think it is more restrictive than 
what is in the current regulation which uses the terms ``a wide 
variety of persons carrying out major assignments,'' and it has 
a broad list of what is considered to be major assignments. So 
we feel like this rule that we have promulgated is more 
protective and gives better guidance than the current 
regulation.
    Ms. Sanchez. But would not case law from the old regulation 
provide the type of guidance needed to assess the old 
regulation?
    Mr. Robinson. Yes, ma'am, and I would have to check. I 
would be glad to get back with you on this. What we have also 
tried to do is rely on existing case law to justify our 
regulation that you have before you.
    So to the extent there is some precedent in this area, and 
I do not have it here, I can look it up after we are through if 
you would like, but we have tried to rely wherever there is 
precedent out there to justify the rationale and the 
explanation of our rules.
    Chairman Akin. Mr. Administrator.
    Mr. Robinson. Yes.
    Chairman Akin. We are out of time, and so I would recommend 
perhaps for Ms. Sanchez, you might be able to respond----
    Ms. Sanchez. In writing.
    Chairman Akin [continuing] Independently or in writing.
    Mr. Robinson. We can do it either way, yes.
    Chairman Akin. Whichever you would prefer.
    Ms. Sanchez. I thank you and I thank the Chairman. that 
would be wonderful.
    Chairman Akin. All right. One quick thing that you did 
bring up which raises a question before we move to the next 
panel. My understanding was that these regulations really do 
not apply to people who are in unions, because I thought they 
had their own separate agreements; is that not correct?
    Chairman Akin. So all of what we are talking about deals 
with non-union people.
    Mr. Robinson. Union employees will be protected by their 
collective bargaining agreement.
    Chairman Akin. Whatever that agreement is that they 
negotiate.
    Ms. Sanchez. Excuse me, Mr. Chairman, if I could clarify. 
Many of the new contracts reference applicable law or 
applicable regulations in determining whether employees are 
eligible for overtime law. So to the extent that you are 
changing the regulation or the definition, you are also 
changing then the collective bargaining agreements; is that 
correct?
    Chairman Akin. I will go ahead and ask that question for 
you. Is it true that there are some agreements that go back to 
the new set of standards?
    Mr. Robinson. That go back to the current standards?
    Chairman Akin. Yes, or I guess they really could not go 
back to the current because they do not exist, but is it true 
that in some cases agreements between employees and employers 
reference applicable law?
    Mr. Robinson. I am sure that there are agreements out there 
that reference applicable law, yes, sir. This provision, 
though, does not deny union members who are currently receiving 
overtime under the provisions of collective bargaining 
agreements, it does not change their eligibility.
    Chairman Akin. I know what you are saying. So in other 
words, it does not change anybody that is getting overtime, but 
if in certain particular agreements that was not specified then 
they would fall back.
    Mr. Robinson. And some people that are not making $455 per 
week, they might be making $300, will be guaranteed overtime 
protection because------.
    Chairman Akin. It cuts both ways.
    Mr. Robinson. Yes.
    Chairman Akin. Yes. Thank you for clarifying.
    I think it is time now for us to go to our second set of 
panelists, so if they could come forward as quickly as 
possible. I do have the sense of an impending vote here. So 
thank you.
    Thank you again for joining us today, and our first 
panelist is Mr. Neill Fendly. He is a certified mortgage 
consultant, President/CEO of Mortgage Defense, Incorporated in 
Scottsdale, Arizona, and so that says to me you have come a 
long way, and I want to just thank you for making the trip and 
appearing before us today. You have five minutes to give an 
oral presentation, and then without objection if you would like 
to submit anything else for the record, you will be free to do 
that.
    Proceed. Thank you.

      STATEMENT OF NEILL E. FENDLY, MORTGAGE DEFENSE, INC.

    Mr. Fendly. Mr. Chairman, Congresswoman Sanchez, I am Neill 
Fendly, government affairs chair, and past president of the 
National Association of Mortgage Brokers. I appreciate the 
opportunity to discuss issues of vital importance to the small 
business community, and specifically, mortgage brokers.
    The AMB is the nation's largest organization exclusively 
representing the interests of the mortgage brokerage industry 
and has more than 24,000 members and 48 state affiliates 
nationwide. Mortgage brokers are typically small businesses who 
operate in the communities in which they live and consist of 
one office and several employees.
    The AMB commends the U.S. Department of Labor for updating 
and clarifying its regulations regarding overtime pay for 
American workers. The new regulations go a long way towards 
recognizing the vast changes that have occurred in the American 
economy over the years. The final changes will help to clarify 
the Fair Labor Standards Act, and to make it more workable in 
the modern economy, and hopefully reduce litigation for small 
business.
    Wage and hour litigation has become the leading source of 
costly employment litigation for small business, particularly 
for mortgage brokers and lenders regarding the status of loan 
officers and overtime pay. We believe the Department of Labor 
revisions will change this trend for small business owners.
    For the mortgage industry, the new rules help clarify the 
status of loan officers and make the rules regarding overtime 
pay more consistent with actual industry practice.
    A loan officer or a mortgage broker must make certain 
judgments when assisting consumers in financing the most 
important purchase of their lives. The mortgage loan officer 
positions require a high degree of skill and judgment. The old 
regulations did not take these facts into account.
    In the financial services industry employees will be 
included in the administrative exemption if their duties 
include: collecting and analyzing information regarding the 
customers' income, assets, investments or debts; determining 
which financial products best meets the customer needs and 
financial circumstances; advising the customer regarding the 
advantages and disadvantages of different financial products; 
and marketing service or promoting the employer's financial 
products.
    These duties are highly analogous to other financial 
services occupations such as stockbrokers that have always been 
exempt under the previous Department of Labor overtime rules.
    The new rules ensure that similarly situated occupations 
are treated the same, a fairness objective that should be part 
of any administrative rule taking. The proposed regulations 
recognize that business practices and employment relations 
today are vastly different than those that existed at the time 
the original regulations were implemented.
    In just the past 15 years, there has been a rapid radical 
evolution of the home mortgage market. An entire new industry, 
mortgage brokers, has evolved to serve as the intermediaries 
between the lenders and the consumer. The number and complexity 
of mortgage loan products as expanded dramatically. The advent 
of risk-based pricing, the development of sub prime mortgage 
market has added a vast array of new products and underwriting 
considerations that must be evaluated by loan officers.
    As a consequence of these changes and others, the role of 
the loan officer today, whether at a bank, savings and loan 
association, mortgage company, or mortgage broker, is radically 
different from the role of the loan officer even 20 years ago. 
Thus there is no standard template mortgage that applies to all 
customers. This role requires a high degree of skill and 
judgment, bringing together the needs of the consumer with the 
products offered by the lenders.
    In closing AMB applauds the substantial effort of the 
Department of Labor in overhauling these regulations. Thank you 
again for providing me the opportunity to testify on the 
Department of Labor final overtime rule, and I would be happy 
to answer any questions that any of the members may have.
    [Mr. Fendly's statement may be found in the appendix.]
    Chairman Akin. Thank you very much and bringing it in on 
time, Neill. I have been informed that we have got a vote 
coming up pretty quickly so I am just going to go ahead and run 
down, let everyone get your five minutes out, and then if we 
have time we will do some questioning. Thank you.
    Our next panelist is going to be Mr. John Fitch. He is the 
Senior Vice President for Advocacy, National Funeral Directors 
Association.
    And John, whereabouts do you hail from?
    Mr. Fitch. I was born and raised here in Washington, D.C., 
sir.
    Chairman Akin. Okay, good. Well, we do not have you from 
Scottsdale, Arizona anyway John, please proceed. You have five 
minutes.

    STATEMENT OF JOHN H. FITCH, NATIONAL FUNERAL DIRECTORS 
                          ASSOCIATION

    Mr. Fitch. Thank you, Mr. Chairman. It is a pleasure to be 
here representing the National Funeral Directors Association.
    The NFDA represents more than 13,000 funeral homes and over 
20,000 licensed funeral directors and embalmers in all 50 
states. The average NFDA member is independently owned and 
operated with fewer than 10 employees, and has been in the same 
family for over 60 years. The NFDA is the leading funeral 
service organization in the United States, providing a national 
voice for the profession.
    We have a strong interest in the Fair Labor Standards Act, 
and we have a particular interest in the professional employee 
exemption and its application to funeral directors and 
embalmers.
    Based on their licensing requirements and primary duties, 
NFDA has long believed that licensed funeral directors and 
embalmers should be exempt from the minimum wage and overtime 
requirements of FLSA. The NFDA's position is based on the 
belief that licensed funeral directors and embalmers comply 
with the duties test of the current FLSA implementing 
regulations for professionals. The Department of Labor has 
historically disagreed with NFDA on this issue.
    As a result, we have come to Congress on several occasions 
and introduced legislation to exempt licensed funeral directors 
from the Fair Labor Standards Act.
    However, subsequently the Department of Labor took note of 
the professional requirements and duties of licensed funeral 
directors and embalmers, and the federal court decisions 
related thereto in the final rule published on April 23, 2004.
    With regard to litigation involving funeral directors, 
there have been two landmark court cases, one in the 6th 
Circuit and one in the 7th Circuit Federal District Court cases 
that address the question of whether or not a licensed funeral 
director under the current rules are exempt under the 
professional exemption, and in both circuits the district 
courts and the circuit courts have agreed that licensed funeral 
directors in fact met the current test, and that creates a 
disparity throughout the country because you have other 
jurisdictions that do not have that litigation, so the new 
overtime rules address the litigation problem for funeral 
service.
    The NFDA believes that the duties and responsibilities of 
funeral directors meet the current test for the Fair Labor 
Standards Act, and we have said so in our comments on the 
proposed rules. While the final rule was changed slightly, it 
is the first time the Department of Labor has recognized 
licensed funeral directors and embalmers as professionals, and 
we definitely support that whole area.
    Mr. Chairman, NFDA strongly believes that the changes in 
the overtime rule that was promulgated by the Department of 
Labor are an accurate reflection of the duties and 
responsibilities of today's licensed funeral directors and 
embalmers. We believe that both employers and their valued 
staff benefit tremendously.
    Moreover, it will have a positive competitive advantage in 
that it will hopefully encourage new entrants into the 
profession, and make salaries more competitive. By recognizing 
the professional status of licensed funeral directors and 
embalmers, the Department of Labor has improved the economic 
and family lives of each practitioners whose daily professional 
life is console and attend the needs of families in their 
communities who have lost loved ones. They are highly 
competent, compassionate, and caring individuals who deserve to 
be considered professionals.
    I would be happy to answer any questions.
    [Mr. Fitch's statement may be found in the appendix.]
    Chairman Akin. Thank you again. That was a call for a vote. 
We probably have time to fit in the two more testifies if you 
can kind of keep on the same pattern, and I think you are 
running about four minutes or so if I can get everybody done. I 
am not too sure how many votes there are in a row and I doubt 
we will be able to come back, so we may be able to just take 
your testimony.
    Our next witness would be Ronald Bird, Ph.D., Chief 
Economist for the Employment Policy Foundation. Ronald.

     STATEMENT OF RONALD BIRD, EMPLOYMENT POLICY FOUNDATION

    Mr. Bird. Thank you, Mr. Chairman.
    Lost in the debate over the Labor Department's proposed 
revision of the Fair Standards white collar exemption is why 
amending the regulations and revising the regulations is 
necessary in the first place.
    The FLSA was enacted in 1938, and the regulatory structure 
and definitions and categories of duties implementing its pay 
classifications have remained essentially unchanged since 1954.
    In 1938, America was in the midst of a great depression. 
Nearly one in five Americans who wanted a job could not find 
one. Labor supply exceeded demand, and the bargaining position 
of a typical worker was weak.
    Today, the fundamental competitive conditions of the labor 
market are very different. In March 2004, the unemployment 
rates was 5.6 percent, dramatically lower than the 19.1 percent 
in 1938. The peak unemployment rate following the 2001 
recession was the lowest of any recession of the past 30 years, 
and the second lowest in 50 years.
    An ironic indicator of the sweep of change in labor market 
conditions since the passage of the FLSA in 1938 is the fact 
that most of us consider today's 5.6 percent unemployment rate 
to be too high because recently we have enjoyed the benefits of 
it being even lower.
    As an employee, I like the low unemployment rates that have 
become the norm over the past 20 years, and will likely remain 
the norm in the future as an aging population presses the 
economy to produce more goods and services with a relatively 
smaller proportion of the population active in the labor force.
    As an employee, I like the trend of lower unemployment 
rates not just because I am less likely to be unemployed, but 
because the relative scarcity of potential replacements gives 
me power to make demands about wages, hours, and working 
conditions that my grandfather in 1938 never would have dared.
    The occupational structure of work has changed as we have 
moved into an increasing knowledge-based economy. Today, nearly 
one in three employee work in managerial and professional 
category jobs, far different from 50 years ago.
    Under the FLSA job title alone is not sufficient to 
determine coverage or exemption status. The 50-year-old 
regulations make the process of determining status more complex 
and time consuming than is desirable. Changes in occupational 
structure mean that many more jobs today than in the past may 
qualify for exemptions based on the exemptions defined in the 
act. The increase in the number of potentially exempt jobs 
makes it more important today that the regulations implementing 
the exemption concept in the act are clearer and easier to 
apply.
    It is important to recognize that everyone who is eligible 
by duties for exempt status is not automatically paid on a 
salary basis. Qualifying for exemption does not mean that pay 
status or pay amount will change.
    For example, I used to work for a government contractor 
firm. My duties and education qualified me for exemption as a 
professional, and my weekly earnings were in excess of the 
minimums. Nevertheless, my employer and I agreed to an hourly 
pay arrangement.
    In 2001, 7.6 million managerial and professional workers 
who were entitled to overtime because they were paid on an 
hourly basis even though their duties would have allowed them 
to be made exempt, they were not made exempt not because even 
though they could have been, because it was not in their 
interest or their employer's interest to make it otherwise.
    Instead of shaving a few cents off of payroll by trying to 
reclassify an employee, today's employer is much more concerned 
with the tremendous cost of trying to replace an employee who 
might leave to go to work for another employee if he is not 
treated right.
    The complexity and ambiguity of the old rule is also 
enhanced by the disagreement and litigation that it generates. 
Revision of these regulations has been on the agenda for 25 
years, and the revision is long overdue.
    [Mr. Bird's statement may be found in the appendix.]
    Chairman Akin. Thank you very much for your testimony, 
Ronald, and our last witness would be Mr. Ross Eisenbrey, and 
you are the Vice President and Policy Director of the Economic 
Policy Institute; is that correct, Ross?
    Mr. Eisenbrey. That is correct.
    Chairman Akin. Good. We have got probably enough time if 
you can do the same as everybody else, and I think we are just 
going to call an end to the hearing because we have probably 
got about an hour break and I do not want to keep everybody.

     STATEMENT OF ROSS EISENBREY, ECONOMIC POLICY INSTITUTE

    Mr. Eisenbrey. I will be quick, Mr. Chairman, and I would 
like to request that I get a letter of invitation. Could I get 
that from the Committee? I got an oral invitation that we need 
something------.
    Chairman Akin. A letter, I think we can arrange that. Yes, 
thank you.
    Mr. Eisenbrey. I would like to start off by seconding what 
Mr. Udall said, and pointing out that some of the testimony 
that you have heard makes it clear exactly what he said; that 
by changing current law the department cannot possibly be 
keeping current law, which is what they say.
    If you want to keep the law the same, do not change it. If 
you change the language, you are going to change peoples' 
rights. Mortgage brokers say on page 3 of their testimony, 
``The industry understands that this language in the new rule 
was intended to ensure that boiler room employees with little 
skill or knowledge and who offer no meaningful advice to 
consumers should not be exempt administrative employees.''
    Well, that is not the current law. The current law is that 
loan officers, mortgage loan officers are generally non-exempt, 
entitled to overtime because they do not consistently use 
enough independent judgment and discretion in their work to be 
considered exempt administrators.
    The law has changed a little bit thanks to what the 
Department has done, and they are no pushing to change the law 
from where it is now, and this is going to happen across the 
board. Every employer faced with this new language, the team 
leader language that Ms. Sanchez pointed to, will read it and 
say, well, this is new and different, and this is going to 
apply to people, there is nothing like this in current law. The 
team leaders is a great example.
    The provision that the department cites disingenuously has 
nothing to do with deeming employees to have met all the 
duties, which is what the team leader provision does. It is a 
provision that illustrates that it needs to be directly related 
to management.
    Well, that is one prong of the test. This new provision 
says if you are a team leader, you are presumptively--you have 
met the duties test, and you do not get overtime.
    There are 2.3 million team leaders. The question about what 
is a major project is exactly right on. An employer would say 
improving productivity, which is one of the illustrations, is a 
major thing to me, to any employer. Well, there are millions of 
productivity teams, and if they are not in every business, 
there could be after this passes and they will all be exempt.
    I guess finally, I think it is important to realize that 
the department's numbers, three times in their testimony they 
say 1.3 million employees will gain overtime rights. We have 
looked at that. We have taken the current population survey 
data that they use, and the number is really 380,000, 384,000 
people who are currently receiving overtime who make less than 
$455 a week who will gain rights. The numbers, you should ask 
for a National Science Foundation peer review or a GAO look at 
this. Their numbers are wrong, and they are provably wrong.
    [Mr. Eisenbrey's statement may be found in the appendix.]
    Chairman Akin. Thank you all of the panelists for keeping 
your comments right in line. We are just about within walking 
distance of getting to the board, so I am going to call an end 
to the hearing, but thank you all for participating, and for 
your perspective.
    The hearing is now adjourned.
    [Whereupon, at 3:10 p.m., the Subcommittee was adjourned.]

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