[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]


 
                     THE FAIR LABOR STANDARDS ACT:
                     IS IT MEETING THE NEEDS OF THE
                    TWENTY-FIRST CENTURY WORKPLACE?

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

                                HEARING

                               before the

                 SUBCOMMITTEE ON WORKFORCE PROTECTIONS

                         COMMITTEE ON EDUCATION
                           AND THE WORKFORCE

                     U.S. House of Representatives

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

             HEARING HELD IN WASHINGTON, DC, JULY 14, 2011

                               __________

                           Serial No. 112-33

                               __________

  Printed for the use of the Committee on Education and the Workforce


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                COMMITTEE ON EDUCATION AND THE WORKFORCE

                    JOHN KLINE, Minnesota, Chairman

Thomas E. Petri, Wisconsin           George Miller, California,
Howard P. ``Buck'' McKeon,             Senior Democratic Member
    California                       Dale E. Kildee, Michigan
Judy Biggert, Illinois               Donald M. Payne, New Jersey
Todd Russell Platts, Pennsylvania    Robert E. Andrews, New Jersey
Joe Wilson, South Carolina           Robert C. ``Bobby'' Scott, 
Virginia Foxx, North Carolina            Virginia
Bob Goodlatte, Virginia              Lynn C. Woolsey, California
Duncan Hunter, California            Ruben Hinojosa, Texas
David P. Roe, Tennessee              Carolyn McCarthy, New York
Glenn Thompson, Pennsylvania         John F. Tierney, Massachusetts
Tim Walberg, Michigan                Dennis J. Kucinich, Ohio
Scott DesJarlais, Tennessee          David Wu, Oregon
Richard L. Hanna, New York           Rush D. Holt, New Jersey
Todd Rokita, Indiana                 Susan A. Davis, California
Larry Bucshon, Indiana               Raul M. Grijalva, Arizona
Trey Gowdy, South Carolina           Timothy H. Bishop, New York
Lou Barletta, Pennsylvania           David Loebsack, Iowa
Kristi L. Noem, South Dakota         Mazie K. Hirono, Hawaii
Martha Roby, Alabama
Joseph J. Heck, Nevada
Dennis A. Ross, Florida
Mike Kelly, Pennsylvania

                      Barrett Karr, Staff Director
                 Jody Calemine, Minority Staff Director
                                 ------                                

                 SUBCOMMITTEE ON WORKFORCE PROTECTIONS

                    TIM WALBERG, Michigan, Chairman

John Kline, Minnesota                Lynn C. Woolsey, California, 
Bob Goodlatte, Virginia                  Ranking
Todd Rokita, Indiana                 Donald M. Payne, New Jersey
Larry Bucshon, Indiana               Dennis J. Kucinich, Ohio
Trey Gowdy, South Carolina           Timothy H. Bishop, New York
Kristi L. Noem, South Dakota         Mazie K. Hirono, Hawaii
Dennis A. Ross, Florida              George Miller, California
Mike Kelly, Pennsylvania


                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on July 14, 2011....................................     1

Statement of Members:
    Walberg, Hon. Tim, Chairman, Subcommittee on Workforce 
      Protections................................................     1
        Prepared statement of....................................     3
    Woolsey, Hon. Lynn C., ranking minority member, Subcommittee 
      on Workforce Protections...................................     4
        Prepared statement of....................................     5

Statement of Witnesses:
    Alfred, Richard L., Esq., Seyfarth Shaw LLP..................    21
        Prepared statement of....................................    23
    Conti, Judith M., federal advocacy coordinator, National 
      Employment Law Project.....................................    30
        Prepared statement of....................................    32
    Hara, Nobumichi, senior vice president, human capital, 
      Goodwill Industries of Central Arizona.....................    41
        Prepared statement of....................................    42
    MacDonald, J. Randall, senior vice president, human 
      resources, IBM.............................................     8
        Prepared statement of....................................    10

Additional Submissions:
    Ms. Conti:
        Appendix: ``Snapshot of Current and Recent Wage and Hour 
          Suits Brought on Behalf of Workers''...................    39
        Prepared statement, dated March 6, 2002, before the 
          Subcommittee on Workforce Protections, Committee on 
          Education and the Workforce............................    64
        Policy paper, ``Flexible Workplace Solutions for Low-Wage 
          Hourly Workers: A Framework for a National 
          Conversation,'' Internet address to....................    83
        Policy paper, ``Improving Work-Life Fit in Hourly Jobs: 
          An Underutilized Cost-Cutting Strategy in a Globalized 
          World,'' Internet address to...........................    83
    Mr. Hara:
        Appendix: ``Principles for a 21st Century Workplace 
          Flexibility Policy''...................................    47
    Mr. MacDonald:
        Letter, dated August 9, 2011, to Chairman Kline..........    84
    Ms. Woolsey:
        Ness, Debra L., president, National Partnership for Women 
          & Families, prepared statement of......................    61


                     THE FAIR LABOR STANDARDS ACT:
                     IS IT MEETING THE NEEDS OF THE
                    TWENTY-FIRST CENTURY WORKPLACE?

                              ----------                              


                        Thursday, July 14, 2011

                     U.S. House of Representatives

                 Subcommittee on Workforce Protections

                Committee on Education and the Workforce

                             Washington, DC

                              ----------                              

    The subcommittee met, pursuant to call, at 10:00 a.m., in 
room 2175, Rayburn House Office Building, Hon. Tim Walberg 
[chairman of the subcommittee] presiding.
    Present: Representatives Walberg, Kline, Bucshon, Woolsey, 
Payne, Kucinich, and Hirono.
    Staff Present: Katherine Bathgate, Press Assistant/New 
Media Coordinator; Casey Buboltz, Coalitions and Member 
Services Coordinator; Ed Gilroy, Director of Workforce Policy; 
Benjamin Hoog, Legislative Assistant; Ryan Kearney, Legislative 
Assistant; Donald McIntosh, Professional Staff Member; Brian 
Newell, Deputy Communications Director; Krisann Pearce, General 
Counsel; Molly McLaughlin Salmi, Deputy Director of Workforce 
Policy; Linda Stevens, Chief Clerk/Assistant to the General 
Counsel; Alissa Strawcutter, Deputy Clerk; Loren Sweatt, Senior 
Policy Advisor; Aaron Albright, Minority Communications 
Director for Labor; Tylease Alli, Minority Clerk; John D'Elia, 
Minority Staff Assistant; Livia Lam, Minority Senior Labor 
Policy Advisor; Brian Levin, Minority New Media Press 
Assistant; Celine McNicholas, Minority Counsel; Megan O'Reilly, 
Minority General Counsel; Meredith Regine, Minority Labor 
Policy Associate; and Michele Varnhagen, Minority Chief Policy 
Advisor/Labor Policy Director.
    Chairman Walberg. Good morning. A quorum being present, the 
subcommittee will come to order.
    I would like to extend a warm welcome to our guests and 
express appreciation to the witnesses for being with us this 
morning.
    Since the start of the 112th Congress, the Education and 
Workforce Committee has actively examined Federal laws, rules, 
and regulations within our jurisdiction. The intent of our 
oversight has been to take a close look at Federal policies and 
their impact on the economy, job creation, and taxpayers, not 
the least of which are a great concern to us.
    Just yesterday we advanced bipartisan legislation to 
modernize the Federal Worker's Compensation program, updating 
assistance for beneficiaries and promoting better use of 
taxpayer dollars. I hope this hearing will build upon the 
success of yesterday's bipartisan initiative, and I certainly 
extend appreciation to my ranking member for her involvement in 
that success yesterday.
    We all agree that the Fair Labor Standards Act affects the 
lives of millions of workers. In fact, according to the 
Department of Labor, the Act governs the employment of more 
than 130 million workers. The law was a significant expansion 
of the government's authority when it was created in the midst 
of the Great Depression, and it wields considerable influence 
over the workplaces of today's modern economy as well.
    The law sets forth rules and regulations concerning minimum 
wage, the maximum number of hours worked in a week, and 
overtime pay. The law reflects our shared desire to see 
individuals receive fair compensation for their work. We all 
want, as the saying goes, to see a worker complete an honest 
day's work for an honest day's pay. The goal remains to this 
day, and it must be advanced in a manner that encourages 
economic growth and job creation.
    However, as we have learned time and time again with 
Federal policies, good intentions can often lead to unintended 
consequences. It is hard to imagine a law intended for the 
workforce known to Henry Ford can serve the needs of a 
workplace shaped by the innovations of Bill Gates. 
Unfortunately, it is becoming increasingly clear that the 
current Federal labor standards have fallen short of the times.
    In recent years, the law has caused a number of challenges 
for employers. A long history of regulations and judicial 
rulings has created ambiguity and uncertainty for employers who 
attempt to follow its every detail. This burden falls 
especially hard on small business owners who typically lack the 
expertise needed to understand the full scope of the law. As a 
result, an employer's good intentions could leave him or her 
susceptible to costly legal challenges.
    That is why the explosion in wage and hour litigation is so 
disturbing. Private lawsuits filed under the Fair Labor 
Standards Act have skyrocketed over the past two decades, 
rising from roughly 1,500 in the early 1990s to nearly 7,000 
last year. At a time when every employer should be focused on 
creating jobs and hiring new workers, this is unacceptable.
    The law's unintended consequences also affect workers. As 
anyone who carries a smartphone knows, the advantages of modern 
technology have blurred the line between work and home. This 
has invited the opportunity for greater flexibility in the 
workplace and can encourage more family friendly work 
environments as well.
    Unfortunately, the law can often stand in the way of this 
progress, creating more unknowns than opportunities for 
workplace flexibility and growth. As employers grapple with 
these complicated questions, they often institute defensive 
employment policies in order to better ensure full compliance 
with the law. As a result, workers are often kept to strict 40-
hour work week requirements, even though they may welcome more 
work in exchange for additional income or a more flexible work 
schedule. Bonus payments and opportunities for after-hour job 
training can be limited. Employers may also curtail the use of 
certain technology that provides the very kind of flexible work 
schedules employees increasingly desire.
    Last week, we learned unemployment continues to hover 
around 9 percent and more than 14 million are unemployed. Smart 
policies that encourage growth and worker freedom are 
desperately needed in today's economy. I look forward to 
today's discussion and to considering positive solutions that 
will encourage greater flexibility and certainty in the 
workplace.
    I would now like to recognize the senior Democrat member of 
the subcommittee, Ms. Woolsey, our ranking member, for her 
opening remarks.
    [The statement of Mr. Walberg follows:]

           Prepared Statement of Hon. Tim Walberg, Chairman,
                 Subcommittee on Workforce Protections

    Good morning. I would like to extend a warm welcome to our guests 
and express my appreciation to the witnesses for being with us today.
    Since the start of the 112th Congress, the Education and the 
Workforce Committee has actively examined federal laws, rules, and 
regulations within our jurisdiction. The intent of our oversight has 
been to take a close look at federal policies and their impact on the 
economy, job creation, and taxpayers. As a result of these efforts, 
just yesterday we advanced bipartisan legislation to modernize the 
federal workers' compensation program, updating assistance for 
beneficiaries and promoting better use of taxpayer dollars. I hope this 
hearing will build upon the success of yesterday's bipartisan 
initiative.
    We all agree that the Fair Labor Standards Act affects the lives of 
millions of workers. In fact, according to the Department of Labor, the 
act governs the employment of more than 130 million workers. The law 
was a significant expansion of the government's authority when it was 
created in the midst of the Great Depression, and it wields 
considerable influence over the workplaces of today's modern economy.
    The law sets forth rules and regulations concerning minimum wage, 
the maximum number of hours worked in a week, and overtime pay. The law 
reflects our shared desire to see individuals receive fair compensation 
for their work. We all want, as the saying goes, to see a worker 
complete an honest day's work for an honest day's pay. That goal 
remains to this day, and it must be advanced in a manner that 
encourages economic growth and job creation.
    However, as we have learned time and again with federal policies, 
good intentions can often lead to unintended consequences. It is hard 
to imagine a law intended for the workforce known to Henry Ford can 
serve the needs of a workplace shaped by the innovations of Bill Gates. 
Unfortunately, it is becoming increasingly clear that current federal 
labor standards have fallen short of the times.
    In recent years, the law has caused a number of challenges for 
employers. A long history of regulations and judicial rulings has 
created ambiguity and uncertainty for employers who attempt to follow 
its every detail. This burden falls especially hard on small business 
owners, who typically lack the expertise needed to understand the full 
scope of the law. As a result, an employer's good intentions could 
leave him susceptible to costly legal challenges.
    That is why the explosion in wage and hour litigation is so 
disturbing. Private lawsuits filed under the Fair Labor Standards Act 
have skyrocketed over the last two decades, rising from roughly 1,500 
in the early 1990s to nearly 7,000 last year. At a time when every 
employer should be focused on creating jobs and hiring new workers, 
this is unacceptable.
    The law's unintended consequences also affect workers. As anyone 
who carries a smartphone knows, the advantages of modern technology 
have blurred the line between work and home. This has invited the 
opportunity for greater flexibility in the workplace, and can encourage 
more family-friendly work environments. Unfortunately, the law can 
often stand in the way of this progress, creating more unknowns than 
opportunities for workplace flexibility and growth.
    As employers grapple with these complicated questions, they often 
institute defensive employment policies in order to better ensure full 
compliance with the law. As a result, workers are often kept to strict 
40-hour work week requirements, even though they may welcome more work 
in exchange for additional income or a more flexible work schedule. 
Bonus payments and opportunities for after-hour job training can be 
limited. Employers may also curtail the use of certain technology that 
provides the very kind of flexible work schedules employees 
increasingly desire.
    Last week, we learned unemployment continues to hover around 9 
percent and more than 14 million are unemployed. Smart policies that 
encourage growth and worker freedom are desperately needed in today's 
economy. I look forward to today's discussion, and to considering 
positive solutions that will encourage greater flexibility and 
certainty in the workplace.
    I would now like to recognize the senior Democrat member of the 
subcommittee, Ms. Woolsey, for her opening remarks.
                                 ______
                                 
    Ms. Woolsey. Thank you, Mr. Chairman.
    Nearly 80 years ago, Franklin Roosevelt declared, and I 
quote, our Nation is so richly endowed that we should be able 
to devise ways and means of ensuring to all able-bodied working 
men and women a fair day's pay for a fair day's work.
    Well, after that, the Fair Labor Standards Act, FLSA, was 
born of this guiding principle. The Act is our Nation's 
governing law covering wages and hours of work. Prior to its 
passage, there were no limits on how many hours an employer 
could require its employees to work or how little it paid them. 
The Fair Labor Standards Act gave us a minimum wage and the 
weekend, fundamental rights that have improved our standard of 
living. Today, more than 130 million American workers are 
covered by FLSA.
    It is true that the modern workplace has changed from when 
the law was enacted. Today, for many, the workplace is driven 
by technology, allowing jobs to be performed from remote 
locations, actually. Still, the occupations predicted to 
experience the greatest growth over the next decade include 
primarily service-sector jobs--cashiers, maintenance workers, 
nursing aides, and office clerks--workers for whom the 
protections provided by FLSA are fundamental.
    It is also true that there is nothing in the law that 
prevents employers from instituting family friendly scheduling 
changes that would lead to greater flexibility for workers. And 
they can do that without incurring overtime liability. We know 
that. It is being done all over this country and has been for 
the last 20 years.
    For example, under the current law, an employer could allow 
an employee to shift hours to those that accommodate personal 
needs like arriving at work early in order to leave early to 
pick up or to do whatever is necessary in their life--go to 
school, pick up children, whatever.
    In addition, an employer could allow for employees to work 
a compressed 4/10 schedule, 40 hours over 4 days, in order to 
manage family responsibilities or go to school or whatever 
their needs are. All of this is currently permitted under the 
law with no overtime liability.
    The Fair Labor Standards Act litigation we see today, for 
the most part, is not the result of well-meaning employers 
attempting to offer greater flexibility to workers and 
violating the law in the process. Instead, many cases involve 
the incorrect classification of a worker as exempt from 
overtime, when, in fact, they do not meet the tests established 
in the regulations, tests that were updated under the Bush 
administration as recently as 2004. Responsible employers who 
comply with minimum wage and overtime laws are placed at a 
disadvantage when we allow their lawbreaking competitors to 
undercut them on labor costs.
    In addition, there is another abuse of the FLSA where 
workers are improperly classified as independent contractors 
instead of employees, exempting them from not only FLSA 
protections but also exempting them from Workers Compensation, 
Family and Medical Leave, and the right to organize and bargain 
collectively.
    In the year 2005, a Bureau of Labor Statistics survey found 
that over 10 million U.S. workers, 7.4 percent of the 
workforce, had been misclassified as independent contractors, 
which cheats workers, cheats taxpayers, and employers who 
follow the law. According to a 2009 report by the Government 
Accountability Office, this classification has diminished 
Federal revenues by $2.72 billion, $2.72 billion just in the 
year 2006 alone.
    As a result, I introduced the Employee Misclassification 
Prevention Act in last Congress which would make it a violation 
of the recordkeeping provisions of FLSA to make an inaccurate 
classification. It would also ensure workers have protections 
and benefits that they are entitled to. I am prepared to 
introduce this bill again later this session.
    Lastly, I would like to remind the committee how important 
FLSA has been in promoting employment and helping the economy. 
The law provides a sound structure for the employment 
relationship and incentivizes the hiring of new workers by 
prohibiting others from being overworked. It provides the 
appropriate balance between the need of the business community 
to make profits and the basic rights that a worker deserves in 
an enlightened democracy. We must guard against any proposal 
that would undermine this carefully crafted balance.
    I thank you, Mr. Chairman. I look forward to this hearing 
and the testimony of today's witnesses.
    [The statement of Ms. Woolsey follows:]

 Prepared Statement of Hon. Lynn C. Woolsey, Ranking Minority Member, 
                 Subcommittee on Workforce Protections

    Nearly 80 years ago, Franklin Roosevelt declared, ``Our nation so 
richly endowed * * * (that we) should be able to devise ways and means 
of insuring to all able-bodied working men and women a fair day's pay 
for a fair day's w work.''
    The Fair Labor Standards Act (F FLSA) was born of this guiding 
principle. The A Act is our nation's governing law covering wages and 
hours of work. Prior to its passage, there were no limits on how many 
hours an employer could require its employees to work or how little it 
paid o them. The FLSA gave us a minimum wage and the weekend--
fundamental rights that have improved our standard of living. Today 
more than 130 million American workers are covered by the Fair Labor 
Standards Act.
    It is true that the modern workplace has changed from when the law 
was enacted d. For many workers, the workplace is technology driven, 
allowing them to perform their job b from remote locations. Still, the 
occupations predicted to experience growth over the next decade include 
primarily service sector jobs--cashiers, maintenance workers, nursing 
aids, and office clerks--workers for whom the protection ns provided by 
the FLSA are fundamental.
    It is also true that there is nothing g in the law that prevents 
employers from instituting scheduling changes that would lead to 
greater flexibility for workers without incurring overtime liability.
    For example, under the current la aw an employer could allow an 
employee to shift her hours to those that accommodate her personal 
needs like arriving at work early in order to o leave early and pick up 
children. In addition, an employer could allow for employees to work a 
compressed schedule--40 hours over 4 days in order to manage family 
responsibilities.
    All of this is currently permitted under the law with no overtime 
liability.
    The Fair Labor Standards Act litigation we see today, for the most 
part, is not the result of well meaning employers attempting to offer 
greater flexibility to workers and violating the law in the process. 
Instead, many cases involve the incorrect classification of a worker as 
exempt when in fact they do not meet the tests established in the 
regulations--tests that were ``updated'' under the Bush Administration 
as recently as 2004.
    Responsible employers who comply with minimum wage and overtime 
laws are placed at a disadvantage when we allow their law breaking 
competitors to undercut them on labor costs.
    In addition, there is another abuse outside of the reach of FLSA 
where even more workers are improperly classified as independent 
contractors instead of employees--exempting them from not only FLSA 
protections, but also workers' compensation, family and medical leave, 
and the right to organize and bargain collectively.
    In 2005, a Bureau of Labor Statistics survey found that over 10 
million U.S. workers--7.4 percent of the workforce--had been 
misclassified, rightly or wrongly, as independent contractors. 
Misclassification cheats workers and taxpayers. According to a 2009 
report by the Government Accountability Office, misclassification cost 
federal revenues $2.72 billion in 2006.
    As a result, I introduced the Employee Misclassification Prevention 
Act in the last Congress, which would make it a violation of the 
recordkeeping provisions of the Fair Labor Standards Act to make an 
inaccurate classification.
    It would also ensure workers have the protections and benefits that 
they are entitled. I am preparing to introduce this bill again later 
this session.
    Lastly, I'd like to remind the committee how important the FLSA has 
been in promoting employment and helping the economy. The law provides 
a sound structure for the employment relationship and incentivizes the 
hiring of new workers by prohibiting others from being overworked. It 
provides the appropriate balance between the need of the business 
community to make profits and the basic rights that a worker deserves 
in an enlightened democracy. We should guard against any proposal that 
would undermine this carefully crafted balance.
    Thank you and I look forward to hearing testimony from today's 
witnesses.
                                 ______
                                 
    Chairman Walberg. I thank the gentlelady.
    Pursuant to committee rule 7(c), all members will be 
permitted to submit written statements to be included in the 
permanent hearing record; and, without objection, the hearing 
record will remain open for 14 days to allow questions for the 
record, statements, and extraneous material referenced during 
the hearing to be submitted to the official hearing record.
    It is now my pleasure to introduce our distinguished panel 
of witnesses.
    Randy MacDonald is a Senior Vice President of Human 
Resources for IBM. Mr. MacDonald has been with IBM since 2000. 
His capacity with IBM includes a number of things. He is 
responsible for global human resource practices, policies, and 
operations.
    Prior to joining IBM, Mr. MacDonald was the Executive Vice 
President of Human Resources and Administration for GTE, now 
Verizon Communications. Mr. MacDonald received his Bachelor's 
Degree in political science and a Master's Degree in industrial 
relations from St. Francis University. Mr. MacDonald is 
testifying on behalf of the H.R. Policy Association, for whom 
he serves as chairman of the board.
    Welcome.
    Richard Alfred is partner with Seyfart Shaw, LLP. Mr. 
Alfred's practice is focused on employment litigation, with a 
particular emphasis on wage and hour collective and class 
actions, complex litigation, high stakes discrimination, and 
wrongful termination cases and noncompetition matters.
    Mr. Alfred is the chair of Seyfarth Shaw's National Wage 
and Hour Litigation Practice Group and the firm's Boston Office 
Labor and Employment Group. Mr. Alfred received his B.A. from 
Harvard College and his J.D. from the Harvard School of Law.
    Welcome.
    Judy Conti is the Federal Advocacy Coordinator with the 
National Employment Law Project, NELP. With NELP, Ms. Conti 
advocates on issues related to unemployment insurance, 
enforcement of workplace standards, and civil rights.
    Prior to joining NELP, Ms. Conti was the co-founder and 
executive director of the D.C. Employment Justice Center, a non 
profit organization promoting workplace justice in the D.C. 
metropolitan area. Ms. Conti has served as adjunct professor at 
William and Mary Law School, George Washington University Law 
School, and Catholic University Law School. Ms. Conti is a 1991 
graduate of Williams College and a 1994 graduate of the 
Marshall Wythe School of Law at the
    College of William and Mary.
    Welcome.
    Nobumichi Hara--did I come close?
    Mr. Hara. Yes, you did.
    Chairman Walberg. Thank you for being kind about that--is 
Senior Vice President of Human Capital with Goodwill of Central 
Arizona. Mr. Hara has been with Goodwill of Central Arizona for 
4 years and has 20 years of experience as the head of human 
resources in various industries.
    Mr. Hara also serves as President of the Senior Human 
Resources Executive Council and Vice President of the Arizona 
Total Rewards Association. Mr. Hara's previous nonprofit board 
memberships include the United Way and Physician Hospital 
Community Organization. He received both his undergraduate and 
graduate degrees from California State University, Long Beach, 
and he holds a Senior Professional Human Resources designation. 
Mr. Hara is testifying on behalf of the Society for Human 
Resource Managers.
    I welcome you as well.
    Before I recognize each of you to provide your testimony, 
let me briefly explain our lighting system, which is not 
complicated.
    You will each have 5 minutes to present your testimony. 
When you begin, the light in front of you will turn green. When 
1 minute is left, the light will turn yellow. And when your 
time has expired the light will turn red, at which point I ask 
you to wrap up your remarks as best you are able, as quickly as 
you are able as well.
    After everyone has testified, members will each have 5 
minutes to ask questions of the panel; and I will attempt to 
keep the same process of 5 minutes there as well.
    I recognize myself for 5 minutes of questioning, and I 
would like to again thank the witnesses for being here.
    I am jumping ahead. I have got the questions. You need to 
give the statements.
    Mr. MacDonald, let's begin with you.

STATEMENT OF J. RANDALL MACDONALD, SENIOR VICE PRESIDENT, HUMAN 
     RESOURCES, IBM, ON BEHALF OF THE HR POLICY ASSOCIATION

    Mr. MacDonald. I panicked for a second.
    Good morning, Chairman Walberg, Ranking Member Woolsey, and 
members of the committee. My name is Randy MacDonald. I am 
Senior Vice President of Human Resources for the IBM 
Corporation.
    I am also here as Chairman of the H.R. Policy Association, 
representing 325 chief human resource officers of the largest 
corporations doing best in the United States and around the 
world. We represent almost 10 million people in the United 
States.
    The Association recently published a blueprint for jobs in 
the 21st century. The report gives a clear business view on how 
to restore growth and competitiveness within the United States. 
In direct contrast to the law at issue today, the report 
recommends workplace regulation premised on fair and equitable 
treatment in a contemporary workplace. The report's 
recommendations inform my testimony.
    In my mind, the Fair Labor Standards Act is failing 
America. It is not employer friendly. It is not employee 
friendly. It yields advantages to global competitors without 
commensurate payback to the U.S. worker. It has become a break 
on employers' line to incent to hire, the use of technology, on 
employers' flexibility, and on employees' opportunity for good 
jobs.
    In our mind, an entirely new model exists for how, where, 
and when work needs to be completed. In that context, 
professional employees who are being dramatically affected by 
the Fair Labor Standards Act have quite different expectations 
of how they should be treated. Simply put, the FLSA must be 
modernized and clarified or else jobs will not return and, even 
more terribly, new jobs will not materialize in the United 
States.
    The Fair Labor Standards Act was enacted when Ford Motor 
Company, as somebody suggested previous to this, was making 
model A's on its production line with no substantial technology 
and when IBM created a room-sized calculator, which is now as 
small as the one I hold in my hand right now.
    Meanwhile, there, in my mind, has been no meaningful change 
in the FLSA to contemporize its principles. Let me give you 
just a few examples.
    Five years ago, we voluntarily reclassified 7,000 of our 
highly educated computer employees to nonexempt, because we 
could not be certain whether they met the 1990 criteria for the 
computer employee exemption. These workers had salaries 
averaging $77,000 per annum, some up to $150,000. We lowered 
their base salaries by 15 percent to account for the potential 
overtime and to maintain market-based competition with similar 
nonexempt jobs. Not surprisingly, half of them--nearly half of 
them contested their reclassification system within our appeal 
process.
    Another example is one major retailer requires its delivery 
drivers to pick up and drop off their PDAs at the store every 
day for fear that they can't track or prevent them from using 
those after hours. So these employees, in my mind, waste time 
in traffic, burn energy, create pollution, and get to spend 
less time at home.
    An aerospace company must limit the amount of discretion 
exercised by a highly educated entry level engineer due to 
security content of their jobs. Because discretion is the 
largest litmus test for the Act, they must be classified as 
nonexempt, totally at odds with their training and their 
compensation.
    In a recent HR Policy Association survey, 56 percent of the 
companies said they impose restrictions on the use of PDAs 
outside the workplace, 44 percent impose limits on flexible 
work hours, and 32 percent restrict telecommuting by their 
nonexempt employees. Why these impositions? We believe it is 
because of the Fair Labor Standards Act.
    This law even muddies our ability to accurately cost our 
U.S. labor. We can't cost with confidence, because we can't 
price with confidence. It becomes, if you will, a lottery.
    How does this law give us a serious business person in the 
confidence of hiring a U.S. worker? It is a dilemma for all of 
us, and it gets worse.
    Employers have experienced an explosion in litigation as 
plaintiffs' attorneys literally troll for companies to sue, 
taking advantage of, in my mind, outdated and nebulous 
provisions in an attempt to extort tens, if not hundreds of 
millions of dollars from dependents. Even the Department of 
Labor has been sued for Fair Labor Standard Act violations in 
their own house. If they can't get it right, who can?
    These actions on this committee and the Congress can take 
to fix some of these problems. I respectfully request that the 
committee Act promptly on the five recommendations that we have 
put into our paper that are included in my written testimony.
    Plain and simple, the U.S. leads in innovation. The U.S. 
leads through companies like IBM in the work practices. 
However, the U.S. doesn't lead in contemporary work rules. The 
Fair Labor Standards Act binds our business and our workers in 
a European-style regulatory knot that restrains growth, 
innovation, jobs, and work life flexibility. We aren't Europe. 
America fixes its problems, and we must fix this one.
    Thank you, sir.
    [The statement of Mr. MacDonald follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
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    Chairman Walberg. Thank you.
    Mr. Alfred, I recognize you for your testimony.

            STATEMENT OF RICHARD L. ALFRED, PARTNER,
                       SEYFARTH SHAW, LLP

    Mr. Alfred. Good morning, Chairman Walberg, Ranking Member 
Woolsey, and members of the subcommittee. My name is Richard 
Alfred, and I am a partner at the national law firm of Seyfarth 
Shaw. I am pleased to provide this testimony today to address 
the substantial problems faced by employers in attempting to 
apply the Fair Labor Standards Act to the 21st century.
    The Fair Labor Standards Act is an anachronism in today's 
economy. This has led to an explosion of litigation over the 
past decade that has imposed enormous--in some cases 
catastrophic--burdens on employers. The uncertainty and 
instability resulting from this increased litigation have 
harmful impact on employers' ability to maintain and create 
jobs and on economic growth.
    Let me illustrate these points through two exhibits that 
are attached to my written testimony.
    Exhibit 1 illustrates that between 2000 and 2010 the number 
of FLSA lawsuits filed in Federal courts throughout the country 
has increased by more than 300 percent. Approximately 40 
percent of those lawsuits are collective and class actions 
involving claims by hundreds, thousands, and, in some 
instances, tens of thousands of employees.
    Exhibit 2 lists the largest wage and hour collected in 
class-action settlements in the country since 2004, which range 
up to $135 million; and some employers are hit twice or more. 
The amounts shown on this chart for settlements are in lawsuits 
in which the worst-case exposure was many times these amounts. 
These megacases affect employers in many different industries, 
including insurance, financial services, retail, hospitality, 
technology, and employees in the public sector. This list does 
not include the many thousands of additional settlements and 
verdicts in smaller amounts.
    To be sure, an employer that engages in unscrupulous 
practices or intentionally violates the law should be held 
accountable. However, in my experience defending and overseeing 
the defense of hundreds of wage and hour lawsuits, the 
overwhelming majority of employers make a good-faith effort to 
comply with the law.
    Virtually all wage and hour cases today arise in the 
context of ambiguities and inconsistencies in the FLSA. Many 
involve statutory terms that have never been defined or have 
been interpreted in conflicting ways. Chief among these is the 
most fundamental of all of the FLSA's concepts, the term 
``work'' itself.
    Compounding those problems are the efforts of well-
intentioned employers that are forced to shoehorn issues of 
today's workplace into a statutory framework designed to meet 
the needs of the vastly different Depression-era economy. As 
but one example, the key regulation that defines the workday 
describes it as encompassing roughly the period from whistle to 
whistle. Often, these cases concern practices that have 
previously been endorsed by the Department of Labor, or at 
least have never been challenged.
    The absurdity of the litigation-festering atmosphere is 
exemplified in the currently ongoing legal battle over the 
classification of pharmaceutical sales representatives, who 
have, since the FLSA became law in 1938, been treated by the 
entire industry and by the Department of Labor, until very 
recently, as exempt. However, decisions in the more than 70 
lawsuits brought against virtually every pharmaceutical company 
in the country by enterprising plaintiffs' lawyers challenging 
these employees' exempt status, while seeking millions of 
dollars in legal fees, in the past 5 years have reached 
dramatically different conclusions. As a result, a 
pharmaceutical company today must treat its sales 
representatives in New York as nonexempt under Second Circuit 
law, while that same company may treat its sales 
representatives just 10 miles away, across the Hudson River in 
New Jersey, as exempt under Third Circuit law.
    If our Federal courts can't agree on the correct 
interpretation of the FLSA, how can well-meaning employers be 
expected to do better?
    Legal absurdities such as this--and there are many--hinder 
economic growth. Employers faced with payroll uncertainty and 
the inevitable risk of litigation are likely to hire 
conservatively. Even six figure exposure, relatively small 
compared to many FLSA collective actions, may be insufficient 
to drive small companies out of business entirely, adding to 
unemployment.
    In addition to promoting job growth, greater clarity in the 
law would help employees as well. Employees would benefit from 
pay and classification decisions that are more clearly 
consistent with the law. This would reduce the need for 
litigation with its long delays and substantial attorneys' 
fees.
    In addition, many employees, especially those with young 
children, want alternative work schedules. Technological 
advances have made telecommuting from home easier than ever. 
But the FLSA has not kept pace with these developments.
    It is long past time for the FLSA to be updated to reflect 
our modern workplace, and these much-needed reforms would 
benefit the economy by providing additional clarity to 
employers and additional flexibility for employees.
    I thank the subcommittee again for providing me this 
opportunity to testify, and I look forward to answering any 
questions you may have.
    [The statement of Mr. Alfred follows:]

    Prepared Statement of Richard L. Alfred, Esq., Seyfarth Shaw LLP

    Good morning Chairman Walberg, Ranking Member Woolsey, and 
distinguished members of the subcommittee. My name is Richard Alfred, 
and I am pleased to provide this testimony to address the substantial 
problems faced by employers in attempting to apply the Fair Labor 
Standards Act to the twenty-first century workplace. I am a Partner 
with Seyfarth Shaw LLP, a national law firm with ten offices nationwide 
and one of the largest labor and employment practices in the United 
States. Nationwide, over 350 Seyfarth Shaw attorneys provide advice, 
counsel, and litigation defense representation in connection with wage 
and hour claims, as well as other labor and employment matters 
affecting both employers and employees in their workplaces.\1\

I. Executive Summary
    This testimony addresses the explosion of litigation under the Fair 
Labor Standards Act (``FLSA'') in recent years and the manner in which 
that litigation demonstrates the need for reform. First enacted in 
1938, the FLSA has become an anachronism in today's workplace. The 
statute has not been comprehensively revised in more than sixty years. 
Likewise, the key regulations interpreting that statute maintain, for 
the most part, the same structure and content as they did when they 
were drafted more than half a century ago. Ambiguities that have 
existed in the statute since its inception, coupled with the fact that 
the statute has not kept pace with changes in the American workforce, 
have lead to inconsistent judicial and regulatory interpretations, 
increased litigation and unfairly exposed employers to potentially 
catastrophic results. Examples include litigation concerning what 
activities are included in compensable time, and application of the 
``white collar'' exemptions from overtime to positions in virtually all 
industries and business sectors. Examples considered here include 
retail store managers, pharmaceutical sales representatives and 
mortgage loan officers. Clarification of employers' obligations is 
needed to increase compliance and decrease the burdensome litigation 
that currently plagues even well intentioned employers. Employees would 
also benefit greatly from clarity in the law as a result of easier and 
more certain employer compliance in its pay practices and 
classification decisions, a reduction in prolonged and expensive 
litigation, and the ability to maintain flexible work schedules through 
alternative work schedules and locations.

II. Introduction
    I am the Chairperson of Seyfarth Shaw's Labor and Employment 
Department's National Wage & Hour Litigation Practice Group consisting 
of about 70 of our lawyers from the firm's ten domestic offices. I have 
practiced in the areas of employment counseling and litigation defense 
for more than 32 years in Boston, Massachusetts. I am a member of both 
the Massachusetts and New York bars. Members of Seyfarth Shaw have 
written a number of treatises on employment laws, including a 
forthcoming first-of-its-kind treatise dedicated entirely to the 
defense of wage and hour collective and class action litigation to be 
published by Law Journal Press., a division of ALM Media, Inc.; 
defended many hundreds of wage and hour individual, collective and 
class actions under the FLSA and analogous state laws; and advised 
thousands of employers on wage and hour compliance issues. We have also 
conducted a great many workplace pay practices and exempt job 
classification assessments for our clients.
    My personal practice for almost a decade has focused on the defense 
of wage and hour collective and class actions under federal and state 
laws. I have represented U.S. businesses--some as large as Fortune 50 
companies and others much smaller--in dozens of wage and hour lawsuits 
primarily in federal courts in many jurisdictions throughout the 
country. I am a frequent lecturer and have published numerous articles 
on wage and hour topics.

III. The Fair Labor Standards Act
    Enacted in 1938, the Fair Labor Standards Act generally requires 
covered employers to pay their nonexempt employees at least the federal 
minimum wage, currently set at $7.25, for all hours worked, and 
overtime premium pay of one-and-a-half times the employee's regular 
rate for hours worked in excess of forty in any workweek. The main 
substantive provisions of the Act have remained largely unchanged since 
they were enacted more than seventy years ago. In fact, recent 
Congressional action has been infrequent and has addressed such 
marginal (albeit important in certain circumstances) issues as whether 
stock options are included in the regular rate, or whether receiving 
food from a food kitchen might create an employment relationship.
    The FLSA's most significant revision occurred in 1947, following a 
surge of litigation arising from the Supreme Court's decision in 
Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680 (1946), which held 
that the time spent by pottery factory workers traveling from the 
entrance of the plant to their work stations was compensable work time. 
The 1947 amendments, known as the ``Portal-to-Portal Act,'' limited the 
Act's retroactive application; redefined its statute of limitations; 
substituted a ``collective'' action procedure for allowing ``similarly 
situated'' individuals to join a lawsuit as ``parties plaintiffs'' in 
place of a class action mechanism; and excluded ``preliminary and 
postliminary activities'' from compensable time, all in an effort to 
reduce the rising litigation under the statute.
    In its findings in connection with the adoption of the 1947 
statutory amendments, Congress stated: ``[T]he Fair Labor Standards Act 
* * * has been interpreted judicially in disregard of long-established 
customs, practices, and contracts between employers and employees, 
thereby creating wholly unexpected liabilities, immense in amount and 
retroactive in operation * * *.'' 29 U.S.C. Sec.  251(a).

IV. An Anachronistic Law Applied to Today's Workplace
    As they did in 1947, employers once again face immense, unexpected 
liability under the FLSA. The workplace of the twenty-first century has 
little resemblance to the manufacturing predominant workplace of 
decades ago. The FLSA and its lengthy regulations, always difficult to 
interpret because of the many ambiguities and technicalities built into 
the law, are almost impossible for employers to apply with any 
certainty in the context of today's very different workplace. 
Compounding this problem are the inconsistent and often conflicting 
court decisions that attempt to deal with this anachronistic legal 
framework. The result has been an explosion of lawsuits, with the 
resulting risks, expense, and potentially catastrophic exposure 
challenging well-intentioned decisions of businesses attempting in good 
faith to apply a pre-World War II statute in the context of a fast-
paced technological world.
    From 2000 through 2010, the number of FLSA lawsuits filed in the 
federal courts has increased by more than 300%. Last year, more than 
6,000 lawsuits, affecting virtually all industries and business 
sectors, were filed in the federal courts claiming violations of the 
Act.\2\ This number excludes the thousands of additional wage and hour 
lawsuits filed in state courts under analogous state laws. See Exhibit 
1, showing the growth in federal court wage and hour case filings since 
2000.
    About 40% of these federal wage and hour lawsuits are brought as 
collective actions, in which one or a few employees seek certification 
of a group of hundreds, thousands, or even tens of thousands of current 
and former ``similarly situated'' employees. Since 2004, reported 
verdicts and settlements in collective and class actions against 
businesses operating in the United States for alleged violations of the 
FLSA have reached as high as $210,000,000. While this staggering amount 
may be an outlier, there have been others in the nine figures, many in 
the eight figures and countless others in the seven and high six 
figures. See Attachment 2, listing the largest wage and hour 
collective/class settlements between 2004 and 2010.\3\
    Of course, if an employer intentionally violates the law, cheats 
its employees out of pay or otherwise engages in unscrupulous practices 
aimed at exploiting employees or depriving them of earned compensation, 
one might conclude that it deserves the risk presented by a collective 
action. However, in my many years defending these lawsuits and 
monitoring the defense of hundreds of such lawsuits defended by other 
Seyfarth Shaw lawyers and colleagues at other law firms, I can testify 
that this is rarely the case. In fact, I can state without hesitation 
that, in my career, I have seen only a small handful of truly 
intentional wage and hour violations.
    Virtually all of these cases involve ambiguous or technical 
requirements. In the private sector, they fall generally into four 
types: (1) those that challenge the exempt classification of a group of 
employees such as computer technicians, store managers, analysts, and 
sales representatives; (2) those that challenge a company's pay 
practices such as those that treat certain activities as noncompensable 
pre- and postliminary activities; (3) those that arise from company 
policies and practices that may run afoul of the strict salary basis 
requirement for exempt employees such as deductions from weekly pay 
because of employee absences; and (4) those that challenge the 
employer's computation of the ``regular rate'' used in calculating 
overtime pay. I will focus on the first two types--misclassification 
and ``off-the-clock'' claims.
    Greater clarity in the law that gives rise to litigation under both 
of these types of claims would also be helpful to employees. First, 
through consistent and more predictable employer compliance, employees 
would benefit at the outset from pay and classifications decisions that 
are more clearly consistent with the law. Second, such consistency 
would reduce prolonged and expensive litigation that delays benefits to 
employees and requires them to pay a large portion of whatever recovery 
they may obtain in attorneys' fees and costs. Finally, employees, 
especially women with young children, want and seek alternative work 
schedules and locations that are possible today through arrangements 
such as telecommuting from home and working schedules that fit well 
with homecare obligations. Uncertainty in wage and hour obligations 
provides disincentives to employers to allow such practices. Federal 
law reform, on the other hand, could be a vehicle for providing an 
incentive to employers, without fear of litigation contesting off-the-
clock and exempt misclassification claims, to adopt and expand flexible 
work programs.

V. What is Work?
    Some of the most litigated ambiguities in the FLSA result from key 
terms that have never been defined. This has left the courts and the 
Department of Labor to decide to whom the Act's overtime provisions 
apply and the types of activities for which those employees must be 
compensated. Exacerbating this problem, the statute's provisions have 
never been comprehensively updated to conform with the requirements of 
today's technological workplace. The resulting patchwork of judicial 
and regulatory guidance is replete with inconsistencies and, in many 
instances, is badly out-of-date. For example, neither the statute nor 
the DOL regulations define the most basic term that is at the heart of 
the FLSA's requirements--``work.'' \4\
    While leaving the definition of work unresolved, the DOL and courts 
apply what is known as the ``continuous workday'' to determine whether 
an employee's activities are compensable.\5\ Under this principle, all 
time spent by an employee between the first and last ``principal 
activity'' of the day, other than actual break times of at least thirty 
minutes, is presumptively ``work.'' While this doctrine may have made 
sense when the DOL devised it in 1947, it is anachronistic in a world 
where employees have 24-hour access to email through their blackberries 
and iPhones and can access their employer's computer systems from 
anywhere in the world, including their homes, via Citrix or VPN 
connections. The very language chosen by the DOL to describe the 
``workday''--``roughly * * * the period from `whistle to whistle,' ''--
underscores the degree to which this concept is out of touch with the 
electronic workplace of this century.\6\ 29 C.F.R. Sec.  790.6(a).
    It is easy to imagine the challenges that can arise in applying 
this framework to modern working conditions. If an administrative 
assistant spends five minutes each night and another five minutes each 
morning checking her smart phone for email before going to bed and 
after waking up, must she be paid for this time? If so, how does an 
employer track this time to determine how much she should be paid? Must 
a call center operator be paid for the time he spends drinking his 
coffee while waiting for his computer to boot in the morning? \7\ The 
dramatically inconsistent case law bears out these difficulties in 
application.
    For example, the Ninth Circuit Court of Appeals recently addressed 
a case involving technicians in California who install and repair car 
alarm systems at customers' locations. The court determined that these 
employees were not entitled to compensation for their time spent 
traveling to their first job site of the day, even though they first 
spent time at home retrieving assignments from a handheld computer, 
prioritizing jobs, and completing paperwork, because those activities 
are so minor as to be ``de minimis.'' Rutti v. LoJack Corp., 596 F. 3d 
1046 (9th Cir. 2010). This result seems sensible, but unfortunately it 
is at odds with decisions of courts in other jurisdictions. A court in 
Massachusetts, for example, decided that very similar activities to 
those at issue in Rutti performed by insurance adjusters--checking 
email and voicemail and preparing their computers for use during the 
day--were significant and triggered the beginning of the continuous 
workday, making their subsequent commute time compensable time. Dooley 
v Liberty Mutual Ins. Co., 307 F. Supp. 2d 234 (D. Mass. 2004). Thus, 
in the states of the Ninth Circuit--Alaska, Arizona, California, 
Hawaii, Idaho, Montana, Nevada and Oregon--checking your email before 
you drive to work probably will not make your commuting time 
compensable, but in Massachusetts it might. Other seemingly arbitrary 
distinctions also have come to have great significance in determining 
what is work time under the FLSA and what is not. For example, whether 
a commute to a job site in a company van is compensable work time may 
depend on whether the employees ``must'' or ``may'' take the company's 
van to the work site, and, thus, compensability may turn on the 
happenstance of the words used rather than on the substance of the 
policy, itself.\8\
    Even the manufacturing industry, which features workplaces that are 
more similar to those envisioned by Congress in 1938, has been plagued 
by litigation concerning the meaning of ``work.'' One particularly 
intense area of litigation has concerned the ``donning and doffing'' of 
protective clothing. In one case, for example, the Third Circuit Court 
of Appeals found that employees of a poultry processing plant in 
Pennsylvania must be paid for the time they spend putting on hair nets, 
beard nets, smocks, and safety glasses. DeAsencio v. Tyson Foods, Inc., 
500 F.3d 361 (3d Cir. 2007). The Tenth Circuit Court of Appeals, on the 
other hand, found that employees at a meat-packing plant in Kansas do 
not need to be compensated for the time they spend changing into 
virtually identical gear. Reich v. IBC, Inc., 38 F.3d 1123 (10th Cir. 
1994). The same company, Tyson Foods, Inc., owned both the Kansas and 
the Pennsylvania plants at issue in these cases, demonstrating the 
degree to which employers may face conflicting legal obligations based 
solely on geography. Such dilemmas are acute for companies that operate 
nationwide.

VI. Exempt Classifications
    Similarly intense confusion surrounds the question of which 
employees are entitled to overtime under the FLSA. The Act exempts from 
overtime any ``employee employed in a bona fide executive, 
administrative, or professional capacity * * * or in the capacity of 
outside salesman,'' but does not define those terms. 29 U.S.C. 
213(a)(1). The Department of Labor's exempt status regulations, 29 
C.F.R. Sec.  541, which are intended to fill that void, were amended 
marginally in 2004. The 2004 revisions, for example, added a new 
regulation exempting ``Computer Employees,'' but defined it so narrowly 
that, by its terms, it applies only to employees involved in system or 
software design, and does not apply to most information technology 
jobs. See 29 C.F.R. Sec.  541.400(b).\9\ The more commonly utilized 
``white collar'' exemptions maintain the same basic structure that has 
been in effect for over half a century. This framework is complex, 
difficult to interpret, and hard to apply, leading to conflicting 
judicial interpretations of its provisions.
    Retailers, for example, have faced a dramatic rise in litigation 
over the exempt status of store managers, positions that traditionally 
have been classified as exempt under the executive exemption.\10\ 
Plaintiffs in these lawsuits challenge this classification and seek 
overtime pay for the many hours worked by these managers above 40 per 
week. Even where it is not disputed that the manager is ``in charge'' 
of the store and supervises all of its employees, some courts have 
found that insufficient to prove the applicability of the exemption. 
Rather, whether the manager is exempt turns on whether his ``primary 
duty'' is that management, which as a practical matter is often, but 
erroneously, equated by courts to the amount of time he spends day-to-
day assisting the employees he supervises with ``non-exempt'' 
tasks.\11\ Seemingly similar job positions have gone in opposite ways 
in this inquiry. The Sixth Circuit affirmed an Ohio court's ruling that 
gas station/convenience store managers were exempt. Thomas v. Speedway 
Superamerica, LLC, 506 F.3d 496 (6th Cir. 2006). The Eleventh Circuit 
held that managers of a dollar store with a comparable level of 
responsibility to those of the store managers at issue in the Sixth 
Circuit case are not exempt. Morgan v. Family Dollar Stores, Inc., 551 
F.3d 1233 (11th Cir. 2008).
    Another highly publicized example of inconsistent guidance on an 
exempt classification issue involves the pharmaceutical industry. 
Pharmaceutical companies typically employ ``sales representatives'' or 
``detailers'' whose job it is to visit prescribing physicians, educate 
them on the benefits of the company's products, and encourage them to 
prescribe those pharmaceuticals. They are paid handsomely for this 
work--it is not unusual for pharmaceutical sales representatives to 
earn in excess of $100,00 per year in salary, incentive payments, and 
benefits.\12\ The pharmaceutical industry has long considered these 
individuals to be exempt from overtime under the administrative and 
outside sales exemptions, and the DOL has long acquiesced in this 
practice. As early as 1945, the Department of Labor issued an opinion 
letter stating that ``medical detailists'' whose job was ``aimed at 
increasing the use of the [employer's] product in hospitals and through 
physicians' recommendations'' met the requirements of the 
administrative exemption. Likewise, since 1940 the DOL had defined the 
outside sales exemption in a broad, non-technical manner that easily 
encompassed the work performed by pharmaceutical sales representatives, 
explaining that a ``salesman [must] in some sense make a sale.'' Dep't 
of Labor, Executive, Administrative, Professional, Outside Salesman 
Redefined (Oct. 10, 1940) at 45-46 (emphasis added).
    The application of these exemptions in the pharmaceutical industry, 
however, is now in a state of flux. More than seventy sales 
representative lawsuits against more than a dozen different 
pharmaceutical and life sciences companies have been filed in the past 
five years, each alleging an entitlement to overtime. These lawsuits 
have met with dramatically different and conflicting results. The 
Department of Labor weighed in on the issue in a case against Novartis 
Pharmaceuticals in the Second Circuit Court of Appeals, filing a 
friend-of-the-court brief arguing that sales representatives are not 
exempt. Amicus Brief of Secretary of Labor, In re Novartis Wage & Hour 
Litig., 611 F.3d 141, 149 (2d Cir. 2010). In so doing, the DOL not only 
reversed its sixty year-old position on sales representatives and 
advocated for a substantive change in the manner in which the 
administrative exemption is interpreted generally, but it did so in the 
context of a judicial briefing and not through actual rule-making.
    The administrative exemption regulations include three 
requirements: the exempt employee must (1) meet certain salary 
requirements, (2) have a primary duty consisting office or non-manual 
work directly related to management or general business operations of 
the employer or the employer's customers, and (3) exercise discretion 
and independent judgment with respect to matters of significance. 29 
C.F.R. Sec.  541.200. Traditionally, this third requirement has been an 
either/or proposition--either an employee exercises discretion and 
independent judgment or she does not. The DOL, however, took the 
position that it is a quantitative requirement, and that an employee 
must exercise a sufficient level of independent judgment and 
discretion. The Second Circuit deferred to the DOL and ruled that 
Novartis's sales representatives must be paid overtime. The court also 
adopted the DOL's position that sales representatives are not exempt 
outside salespersons because FDA regulations prohibit them from 
directly selling pharmaceutical products to patients.
    Other courts of appeals have ruled differently on these issues. In 
February of this year, the Ninth Circuit decided that pharmaceutical 
sales representatives for GlaxoSmithKline qualify for the outside sales 
exemption, rejecting the DOL's position in part because it conflicted 
with the Department's long-standing views. Christopher v. SmithKline 
Beecham Corp., 635 F.3d 383 (9th Cir. 2011). The Third Circuit ruled 
last year that sales representatives for Johnson & Johnson are 
administratively exempt. Smith v. Johnson & Johnson, 593 F.3d 280 (3d 
Cir. 2010). Thus, a sales representative assigned to a territory in New 
York, which is part of the Second Circuit, must receive overtime, but a 
sales representative for the same company assigned to a territory in 
New Jersey--a short commuter train ride away--is exempt. District 
courts in Illinois and Indiana have also reached opposite conclusions 
on this same issue.\13\ For a nationwide employer, complying with these 
conflicting standards is fraught with the possibility of an inadvertent 
misclassification. There are hazards for the employees as well. As one 
pharmaceutical industry group has pointed out, many pharmaceutical 
sales representatives are attracted to the position because of its 
flexibility, and that flexibility is likely to diminish if sales 
representatives must punch a clock or otherwise log their time so that 
their overtime pay may be calculated accurately. See Amicus Brief of 
Pharmaceutical Research and Manufacturers of America in Support of 
Petition for Certiorari, Novartis Pharmaceuticals Corp. v. Lopes, No. 
10-460 (Nov. 5, 2010).
    A similar pattern of shifting regulatory guidance emerges with 
respect to mortgage loan officers (``MLOs''). These individuals, who 
work for banks and mortgage companies and are responsible for guiding 
homebuyers through the mortgage application process, are often 
classified as administratively exempt. MLOs commonly receive incentive 
compensation based on the number of loans they close, and with these 
incentives may earn total annual compensation well within the six-
figure range.\14\ In 2006, the DOL issued an opinion letter stating 
that MLOs' typical job duties, including responding to customer 
inquiries and leads, collecting and analyzing financial information, 
and advising customers about the risks and benefits of various loan 
alternatives, meet the requirements of the administrative 
exemption.\15\ Less than four years later, the DOL withdrew that 
guidance, issuing an ``Interpretive Guidance,'' a newly created form of 
generalized administrative guidance, stating that loan officers are not 
exempt because their primary duty is not ``directly related to the 
management or general business operations'' of their employers or their 
employers' customers.\16\ According to the DOL, MLOs' primary duty is 
sales, which makes them more like production workers than 
administrators.\17\ Numerous class action lawsuits on behalf of loan 
officers seeking to capitalize on the DOL's sudden about-face are 
currently pending in the federal courts.\18\
    Lawsuits by securities brokers or ``registered representatives'' 
claiming to be overtime-eligible have also become increasingly common. 
Like MLOs, these employees claim to be salespersons, rather than true 
administrative employees. In addition, at least one Minnesota court has 
determined that the fact that these employees must have passed a Series 
7 securities representative examination is not sufficient to make them 
exempt professionals. In re RBC Dain Rauscher Overtime Litig., 703 F. 
Supp. 2d 910, 926 (D. Minn. 2010). Citigroup and UBS have settled 
lawsuits by their brokers for huge amounts--$98 million and $89 
million, respectively.\19\
    These results are incongruous with the purpose of the white collar 
exemptions: ``the section 13(a)(1) exemptions were premised on the 
belief that the workers exempted typically earned salaries well above 
the minimum wage, and they were presumed to enjoy other compensatory 
privileges such as above average fringe benefits and better 
opportunities for advancement, setting them apart from the nonexempt 
workers entitled to overtime pay.'' Preamble to Exempt Status 
Regulations, 69 Fed. Reg. 22122, 22123-24 (Apr. 23, 2004). The 
positions held by pharmaceutical sales representatives, mortgage loan 
officers, and stockbrokers are what most of us would think of as ``good 
jobs.'' For the most part, they are highly paid, prestigious, and 
receive good benefits. If a mortgage loan officer earning $200,000 a 
year must receive time-and-a-half for his overtime hours, while a 
public school teacher scraping by on $20,000 a year is unquestionably 
exempt, we have strayed far from the FLSA's original intent.

VII. Conclusion
    The current state of the FLSA has left employers in a quandary. 
Determination of the number of compensable hours worked, application of 
the white collar exemptions, and other important concepts in the 
statute have never been straightforward due to the statute's 
definitional gaps. Because the statue has never comprehensively been 
updated or clarified, employers now also must contend with the fact 
that the statute was designed to apply to a very different kind of 
workplace than exists for most American workers today. Unable to avoid 
liability in these highly technical lawsuits merely by paying their 
employees generously--many of the largest judgments and settlements 
under the statute have benefited highly paid employees--they are forced 
to wade through conflicting judicial decisions and rapidly shifting 
regulatory guidance to determine the contours of their obligations. 
Employers need a clear, comprehensible framework to allow them more 
easily to determine how their employees must be paid. Employees, 
likewise, would benefit from the consistency and increased compliance 
associated with clear rules, especially as litigation of an FLSA claim 
may take years to resolve.
    Chairman Walberg, Ranking Member Woolsey, I thank you again for 
inviting me to testify. I am happy to answer any questions you may 
have.



                                ENDNOTES

    \1\ I would like to acknowledge Seyfarth Shaw attorney Jessica 
Schauer for her invaluable assistance in the preparation of this 
testimony.
    \2\ Federal Judicial Caseload Statistics (2000--2010).
    \3\ The settlements listed in Attachment 2 include some settlements 
of state law wage and hour cases, as well as several cases in which 
state and federal law claims were asserted simultaneously.
    \4\ Although the Supreme Court attempted in a 1944 case, Tennessee 
Coal, Iron & Co. v. Muscoda Local No. 123, 321 U.S. 590 (1944), to put 
a gloss on the statute by defining work in terms of ``physical or 
mental exertion,'' later cases have seemed to abandon that definition 
but have failed to provide a substitute. De Asencio v. Tyson Foods, 
Inc. 500 F.3d 361, 371
    \5\ The DOL's continuous workday regulations may be found at 29 
C.F.R. Sec.  790.6. The Supreme Court adopted the DOL's ``continuous 
workday'' approach in IBP, Inc. v. Alvarez, 546 U.S. 21, 34 (2005).
    \6\ These regulations in Part 790, themselves, were written in 
1947, and they have not been updated since 1970.
    \7\ Examples of lawsuits concerning this question include Gandhi v. 
Dell Inc., No. 08-248 (W.D. Tex.); Heaps v. Safelite Solutions LLC, No. 
10-729 (S.D. Ohio); Antoine v. KPMG Corp., No. 08-6415 (D.N.J.); 
Thigpen v. Illinois Bell Telephone Co., No. 10-5589 (N.D. Ill.).
    \8\ Compare Johnson v. RGIS Inventory Specialists, 554 F. Supp. 2d 
693 (E.D. Tex. 2007) (time spent on optional shuttle to worksite not 
compensable) with Gilmer v. Alamed-Contra Costa Transit District, 2010 
WL 289299 (N.D. Cal. 2010) (required travel from end of bus route to 
starting location at conclusion of shift compensable).
    \9\ See also DOL Opinion Letter, FLSA2006-42 (October 26, 2006), 
(applying exemption to information technology support specialist 
position), available at http://www.dol.gov/whd/opinion/FLSA/2006/2006--
10--26--42--FLSA.htm.
    \10\ The executive exemption requires that an employee (1) is 
compensated on a salary basis at a rate of not less than $455 per week; 
(2) has a primary duty of ``management of the enterprise in which the 
employee is employed or of a customarily recognized department or 
subdivision thereof;'' (3) ``customarily and regularly directs the work 
of two or more other employees;'' and (4) has the authority to hire or 
fire other employees or make recommendations for such personnel actions 
that are ``given particular weight.'' 29 C.F.R. Sec.  541.100.
    \11\ While 29 C.F.R.Sec.  541.700(a) states that an employee's 
``primary duty'' is to be determined based on ``all the facts in a 
particular case,'' and the amount of time spent performing exempt work 
is but one factor, some courts have given that factor particular 
weight. See Morgan v. Family Dollar Stores, Inc., 551 F.3d 1233 (11th 
Cir. 2008).
    \12\ In re Novartis Wage & Hour Litig., 611 F.3d 141, 148 (2d Cir. 
2010) (average salary for Novartis sales representatives is $91,500, 
and the company pays more than half a billion dollars a year in total 
compensation to its representatives); Amendola v. Brystol-Myers Squibb 
Co., 558 F. Supp. 2d 459, 465 (S.D.N.Y. 2008) (remarking that each of 
the sales representatives who had submitted affidavits on Brystol-Myers 
Squibb's behalf earned in excess of $100,000 per year); Schafer-LaRose 
v. Eli Lilly & Co., 663 F. Supp. 2d 674 (S.D. Ind. 2009) (plaintiff 
sales representative earned $103,392 in 2005).
    \13\ Schaefer-LaRose v. Eli Lilly & Co., 663 F. Supp. 2d 674 (S.D. 
Ind. 2009) (pharmaceutical sales representatives qualify for both 
outside sales and administrative exemptions); Jirak v. Abbott 
Laboratories, Inc., 716 F. Supp. 2d 740 (N.D. Ill. 2010) 
(pharmaceutical sales representatives do not qualify for outside sales 
or administrative exemptions).
    \14\ In one pending case against Bank of America, some plaintiffs 
earned as much as $384,000 and $650,000 per year. See Brief in 
Opposition to Conditional Certification, Kelly v. Bank of America, 
N.A., No. 10-cv-05332 (N.D. Ill.).
    \15\ DOL Wage & Hour Division Opinion Letter FLSA 2006-31 (Sept. 8, 
2006), available at http://www.dol.gov/whd/opinion/FLSA/2006/2006--09--
08--31--FLSA.htm.
    \16\ Administrator's Interpretation 2010-1 (Mar. 24, 2010) 
available at http://www.dol.gov/whd/opinion/adminIntrprtn/FLSA/2010/
FLSAAI2010--1.htm.
    \17\ Although MLOs provide guidance and advice to their customers, 
the DOL takes the position that such duties are irrelevant to the 
administrative exemption criteria because MLOs' customers are generally 
individuals rather than organizations, and thus they do not have 
``business operations'' for the MLO to help them manage.
    \18\ See, e.g., Greenberg v. The Money Source, Inc., No. 10-01493 
(E.D.N.Y); Kelly v. Bank of America, N.A., No. 10-05332 (N.D. Ill.); 
Sliger v. Prospect Mortg., LLC, No. 11-465 (E.D. Cal.); McCauley v. 
First Option Mortg., LLC, No. 10-980 (E.D. Mo.); Garcia v. Freedom 
Mortg. Corp.,----F. Supp. 2d----, 2011 WL 2311870 (D.N.J.) (denying 
employer's motion for summary judgment on plaintiffs' overtime claims).
    \19\ Motion for Preliminary Approval of Class Action Settlement, 
Bahramipour v. Citigroup Global Markets Inc., No. 04-04440 (N.D. Cal. 
Feb. 16, 2007).
                                 ______
                                 
    Chairman Walberg. Thank you.
    I recognize Ms. Conti.

STATEMENT OF JUDY CONTI, FEDERAL ADVOCACY COORDINATOR, NATIONAL 
                     EMPLOYMENT LAW PROJECT

    Ms. Conti. Thank you for inviting me and the National 
Employment Law Project here to testify today. We are a 
nonprofit organization that advocates for low-wage and 
unemployed workers. And, quite simply, we are big fans of the 
FLSA and its promise of a fair day's wage for a full day's 
work.
    My varied experiences with the FLSA, counseling both large 
and small employers and workers, being an employer for 7 years, 
and now as a policy advocate, leads me to one conclusion. The 
FLSA is a statute that is elegant in its simplicity and the 
basic guarantees of minimum wage, overtime protection, equal 
pay for equal work, and a prohibition on child labor.
    Yes, the nature of work has changed since its passage, but 
people haven't. They still need decent wages. They still need 
protection from overwork. And make no mistake about it, the 
modern day sweatshop does exist and thrives. We still need to 
create conditions that spread jobs among appropriate numbers of 
people and, if not, we fuel a race to the bottom that hurts 
employer and employee alike.
    My fellow witnesses have spoken about the workers they 
don't think should be covered by the FLSA. But let me tell you 
about the tens of millions that are and need much more vigorous 
enforcement.
    In 2008, NELP and two other important national allies 
conducted an extensive survey of over 4,000 low-wage workers in 
New York City, L.A., and Chicago. The results spanned virtually 
all industries and occupations, and the results were shocking.
    Sixty-eight percent of workers experienced some sort of 
wage and hour violation in the prior week. Twenty-six were not 
paid minimum wage, and 60 percent of them were underpaid by $1 
or more, so it is not a small amount. Seventy-six percent of 
those who worked more than 40 hours were not paid overtime--76 
percent. This translated to workers losing an average of $51 
per week, over $2,600 a year, 15 percent of their yearly 
earnings.
    Extrapolating further, in these three cities alone, workers 
lost over $56 million in 1 week in wages they were legally 
entitled to receive. Were we to get serious about wage theft 
and really crack down on it, that could be some of the best 
economic stimulus our recovery could hope for.
    The other witnesses decry the rise of litigation and blame 
it on complexities and ambiguities in the FLSA and unscrupulous 
lawyers, but they ignore a few very simple facts.
    First of all, with the exception of recession years, the 
number of workers and employers has been steadily growing, and 
it only stands to reason that FLSA violations will grow as 
well. And, additionally, over the past few decades, both 
Federal and State resources directed at wage and hour 
enforcement have continually declined in opposition to the 
growth of the workforce.
    A series of GAO reports issued in 2009 talked about the 
atrocities of enforcement that were going on in the Department 
of Labor and how impossible it was, in most circumstances, to 
even get a case adequately investigated. This means two things. 
Low-road employers take advantage of declining enforcement and 
push the boundary's exemptions, misclassification, and flat-out 
refusal to pay wages as far as they can go. And absent 
effective public employment of the FLSA, of course we see more 
litigation, because the private bar steps in and acts as the 
private attorneys general that the FLSA explicitly 
contemplates.
    Finally, the recession itself has driven more and more 
employers to the low road. The worst of the bunch simply cheat 
workers out of wages, knowing that the workers have few other 
options. And, desperate to compete, other normally compliant 
employers become more likely to succumb to wage theft just to 
stay in business. And the rise in complaints made to DOL over 
the last few years amply demonstrates these trends.
    So what do we do? We don't spend our time trying to exclude 
more and more workers. Instead, we get serious about 
enforcement. We pass laws to crack down on independent 
contractor misclassification. We eliminate outdated exemptions 
for home health care workers that keep this largely female and 
largely minority workforce trapped in poverty. We give the DOL 
the resources it needs to fight the wage theft that is so 
rampant across this country, and we increase penalties for 
those who willfully break the FLSA so to increase the 
disincentive for doing so.
    I would like to add a final note on flexibility. It is true 
that the FLSA puts some very important and necessary 
prescriptions on comp time for private-sector workers. But the 
other rigidities described honestly seem more to me of 
employers' own creation, perhaps out of a misguided fear of 
litigation or maybe distrust of their own workers, not out of 
any legitimate interpretation of the FLSA.
    As much as my fellow witnesses talk about the modern 
technology that allows such flexibility, they don't seem to 
allow their workforces to make much use of it. There is no 
reason why people can't track hours when they telecommute. 
Lawyers do it all the time. If someone spends 10 to 15 minutes 
a day or more checking smartphones at home, reduce the hours 
they spend in the office. Odds are if they are checking their 
phones that much there is probably unspoken or spoken pressure 
to do so. Involve more workers in their own scheduling and 
trust them to help the employer find the best arrangement.
    In my 7 years as an employer, I was routinely faced with 
the same kind of challenges; and when the employee and I sat 
down, we always came up with a solution that worked for both of 
us and complied with the law.
    In summary, as much as the workforce may have changed, the 
fact is people haven't. Workers still need to be protected 
against base instincts of low-road employers and work needs to 
be spread out among a reasonable number of people, especially 
in times like now when job creation is so important. Employers 
need to have some protection against the low-road employers 
that would compete and drive them out of business as well. The 
FLSA provides these protections in a way that is every bit as 
relevant and vital now as it was on the day of its enactment.
    Thank you.
    [The statement of Ms. Conti follows:]

 Prepared Statement of Judith M. Conti, Federal Advocacy Coordinator, 
                    National Employment Law Project

    Good morning Chairman Walberg, Representative Woolsey, and members 
of the Subcommittee on Workforce Protections. My name is Judith M. 
Conti, and I'm the Federal Advocacy Coordinator for the National 
Employment Law Project (NELP). NELP is grateful for the opportunity to 
address the Subcommittee today and share our views of how vitally 
important the Fair Labor Standards Act (FLSA) and its vigorous 
enforcement is to today's workforce, particularly for low-wage workers.
    NELP is a non-profit organization that for over 40 years has fought 
for the rights and needs of low-income and unemployed workers. We seek 
to ensure that work is an anchor of economic security and a ladder of 
economic opportunity for all working families. In partnership with 
state, local and national allies, we promote policies and programs that 
create good jobs, strengthen upward mobility, enforce hard-won worker 
rights, and help unemployed workers regain their economic footing.
    One of NELP's priority issues is enforcement of the protections of 
the FLSA. As a nation that strives to create fair and moral conditions 
in workplaces, under which both workers and employers can mutually 
thrive and succeed, there is no more basic underpinning to the social 
contract of employment than ``a fair day's pay for a full day's work.'' 
If we cannot enact and enforce basic wage and hour protections, we can 
never hope to remedy the other abuses such as discrimination and unsafe 
working conditions that go on in far too many workplaces. So the heart 
and center of worker protections is the FLSA and its promises of 
minimum wages, proper hourly payment, overtime premiums, and 
prohibitions against child labor. And as anyone who has ever 
represented low-wage workers can tell you, when employers don't respect 
the basic mandates of the FLSA, other violations of labor and 
employment laws are virtually guaranteed to follow.
    My experience with the FLSA is deep and varied. I analyzed it as a 
law clerk to a judge in the United States Court of Appeals for the 
Seventh Circuit. While in private practice, I counseled large and small 
employers on how to comply with its mandates as well as litigated on 
behalf of many workers, both individually and in collective actions, 
who were denied their rights under the FLSA. I spent seven years as an 
employer and was tasked with applying and enforcing the FLSA with 
regard to my organization's workforce. During that same period of time, 
I supervised hundreds of staff and volunteer attorneys who prosecuted 
FLSA violations. Most recently, as a policy advocate with NELP, I have 
worked with our allies throughout the country to ensure the vigorous 
enforcement and defense of the FLSA.
    All of those experiences and perspectives lead me to two 
conclusions about the FLSA: 1) it's vital for the protection of hourly 
workers in this country; and 2) it's a relatively simple and 
straightforward statute and regulatory scheme to administer. So much of 
law is very gray in its application, yet the FLSA offers the closest to 
black-and-white that exists, at least with respect to labor and 
employment law.
    At the start, I also wish to make clear that I am not here to 
suggest that a majority or even a substantial minority of employers do 
not follow the FLSA. Indeed, given the clarity of the law, numerous 
employers quite willingly comply, and where there are judgment calls to 
be made, they do their best to make the right judgment. There is a 
thriving management-side bar that ably advises employers and human 
resources professionals across the country as to compliance with the 
FLSA and by and large they do a very good job.
    But we cannot ignore the fact that there are low-road employers, 
both big and small, who to varying degrees push the boundaries of the 
FLSA beyond reason, who misclassify workers as independent contractors 
in order to avoid their legal responsibilities under the FLSA, who 
wrongfully classify workers as exempt from coverage of the FLSA, and 
who flat-out do not pay their workers minimum wage and/or overtime. It 
is these employers, and their employees, for whom the vigorous 
enforcement of the FLSA is most important, for not only do they cheat 
workers out of their wages, but they gain an unfair competitive edge 
over honest employers. Neither outcome should be tolerated.
    You will likely hear the other witnesses speak today about the 
great lengths to which they go to comply with the FLSA; how much time 
and money it takes them to do so and how they could better spend those 
resources on other things that could lead to more hiring, for example. 
I suggest that compliance with the FLSA is not nearly so time consuming 
or expensive. More importantly, given the realities I will discuss 
below about how wide-spread violations of the most basic provisions of 
this law are, now is not the time to think about weakening the FLSA in 
a misguided notion of lessening employer burdens, but rather, to 
redouble our efforts to enforce this vital law.
    Thus, as we discuss whether the FLSA is suitable for the 21st 
century, we must all remember that the employers you have invited here 
today do NOT represent all employers out there. Rather, low-road 
employers who do not even follow the very clearest mandates of the FLSA 
exist in more than sufficient number. In order to eradicate their 
behavior, our task must be to look for ways to increase vigorous 
enforcement of the wage and hour laws that are already on the books, 
and to craft better solutions to the common schemes of wage theft that 
are so rampant in this country. If we do those things, we not only make 
conditions better for workers in this country, but we simultaneously 
level the playing field for high-road employers who strive to do the 
right thing by their workforces.

Enactment and Purpose of the FLSA
    At its core, the FLSA was aimed at eliminating subpar jobs, 
sweatshops and the subcontracting (including independent contractor 
abuses) that were going on in the US economy in the early 1900's. And 
sadly, many of those structures and persistent low-wage jobs are still 
in existence today, making the statute as relevant and important now as 
it was when enacted in 1938.
    As a society, we agree that there should be a wage floor, below 
which employers cannot go,\1\ and overtime premiums for those who work 
more than 40 hours per week.\2\ These baseline laws ensure not just 
that we prevent people from being unfairly overworked, but that we 
spread out employment among workers. Indeed, as Justice Reed noted in 
1941, job creation was at the core of the enactment of the overtime 
premium, a goal as important and laudable in the Great Depression as it 
is now in the Great Recession and its aftermath:
    By this requirement although overtime was not flatly prohibited, 
financial pressure was applied to spread employment to avoid the extra 
wage and workers were assured additional pay to compensate them for the 
burden of a workweek beyond the hours of the act. In a period of 
widespread unemployment and small profits, the economy inherent in 
avoiding extra pay was expected to have an appreciable effect in the 
distribution of extra work.\3\
    Finally, the FLSA included essential child labor prohibitions to 
eliminate the particular evil of child labor in the days when young 
children lost their youth to long hours and horrific conditions in the 
garment and other industries.\4\
    The FLSA is a statute that is intended to protect workers and to 
dissuade unfair competition by unscrupulous employers who flout its 
rules to the disadvantage of those employers who do play by the 
rules.\5\ As the Supreme Court stated:
    This Act seeks to eliminate substandard labor conditions, including 
child labor, on a wide scale throughout the nation. The purpose is to 
raise living standards. This purpose will fail of realization unless 
the Act has sufficiently broad coverage to eliminate in large measure 
from interstate commerce the competitive advantage accruing from 
savings in costs based upon substandard labor conditions. Otherwise the 
Act will be ineffective, and will penalize those who practice fair 
labor standards as against those who do not.\6\
    Thus, as with all remedial statutes, the FLSA should be read 
broadly, and doubts about coverage should be construed in favor of 
coverage, not exemption.

Current Conditions for Hourly Workers
    For the last few decades, anecdotal evidence indicated that with 
changing workforce demographics and sectoral shifts within the economy, 
there had been a persistent rise in the incidence of wage theft, 
particularly among low-wage workers, though they are by no means the 
exclusive victims of this practice.\7\ While the Department of Labor 
and its state counterparts kept records of complaints and 
investigations, and lawsuits alleging wage theft are matters of public 
record, there was no rigorous, methodical study documenting just how 
wide-spread this practice was.
    That changed in 2008 when researchers specializing in the low-wage 
workforce joined together to conduct the first-ever comprehensive 
survey of low paid hourly workers to get a precise measure of the 
nature and incidence of the problem. Together with researchers from the 
Center for Urban Economic Development at the University of Illinois at 
Chicago and the UCLA Institute for Research on Labor and Employment, 
NELP surveyed more than 4000 hourly workers in low-wage industries in 
Chicago, Los Angeles and New York City. Using findings generated by a 
detailed and structured questionnaire that was carefully administered 
and analyzed by surveyors, the survey produced the first valid snapshot 
into the nature of exploitation by unscrupulous employers, and just how 
widespread abuses are. The results of the survey, published in the 2009 
report Broken Laws: Unprotected Workers, included the following key 
findings:
     An astounding 68% of those surveyed experienced at least 
one pay-related violation in the work week preceding the survey.
     More than one-fourth (26%) of workers were paid less than 
the legally required minimum wage in the previous work week, and 60% of 
these workers were underpaid by more than $1 per hour.
     Among those working overtime (more than 40 hours in the 
previous work week), a whopping 76% were not paid the legally required 
overtime rate by their employers.
     Nearly a quarter of workers came in early or stayed late 
on the job, and 70% of these workers received no compensation for this 
``off the clock'' work.
     Three-in-ten tipped workers surveyed were not paid the 
tipped worker minimum wage, and 12% of tipped workers experienced tip 
stealing by their employer or supervisor.
     The majority of workers never complained about any of 
these violations for fear that they would experience retaliation, and 
indeed, of those who did complain, 43% did experience illegal employer 
retaliation.
     The cost of wage theft is enormous: The typical worker 
experiencing wage theft lost $51 per week out of average weekly 
earnings of $339. On a full-time year-round basis, this translates into 
lost annual earnings of $2,634 (15% of total earnings of $17,616).\8\
    Extrapolating from these findings, the research team estimated that 
in these three cities alone, low-wage workers lose more than $56.4 
million per week as a result of employment and labor law violations. At 
a moment when our economy continues to suffer from lack of demand 
(consumer purchasing), these findings suggest that one important key to 
economic recovery is more vigorous enforcement of wage and hour 
protections--so workers are paid what they earn, and can pump money 
back into their local economics. It goes without saying that wage theft 
of this magnitude also contributes to the phenomenon of working 
poverty.
    The 2008 survey was broad, encompassing twelve different 
industries: apparel and textile manufacturing; personal and repair 
services; private households; retail and drug stores; grocery stores; 
security, building and grounds services; food and furniture 
manufacturing, transportation and warehousing; restaurants and hotels; 
residential construction; home health care; social assistance and 
education; and other industries such as finance and other health care. 
Workers from employers of all sizes were part of the survey, and while 
employers with less than 100 employees had markedly higher rates of 
violations of basic wage and hour laws, employers with more than 100 
employees still had shockingly high rates of violations.\9\
    A few other important findings are worth noting:
     Women are more likely to be victims of wage theft than men 
are.\10\
     Minimum wage violations are most common in three 
industries: apparel and textile manufacturing; personal and repair 
services; and private households.\11\
     In each of the following occupations, more than 50% of the 
workers surveyed experienced overtime violations:\12\
     Child care workers (90.2%)
     Stock/office clerks & cashiers (86%)
     Home health care workers (82.7%)
     Beauty/dry cleaning & general repair workers (81.9%)
     Car wash workers/ parking attendants & drivers (77.9%)
     Waiters/cafeteria workers/ bartenders (77.9%)
     Retail salespersons and tellers (76.2%)
     Building services & grounds workers (71.2%)
     Sewing & garment workers (69.9%)
     Cooks, dishwashers & food preparers (67.8%)
     General construction (66.1%)
     Cashiers (58.8%)
    As this brief overview makes clear, the most basic and bright-line 
rules of the FLSA are being routinely ignored with impunity. These 
violations are not occurring because of complex determinations of 
whether or not someone is an exempt professional or a legitimate 
independent contractor. Rather, they are flagrant abuses of very 
straight-forward and relevant provisions of our basic federal and state 
wage and hour laws.
    These findings highlight just how important the FLSA still is and 
how we need to dramatically increase our enforcement of wage and hour 
laws throughout the country, across every industry and occupation.\13\

Decline of Enforcement of the FLSA and State Wage and Hour Laws
    Over the same period that worker advocates have sounded alarms over 
the rise of wage theft, employers and their advocates have decried an 
increase in the rise of lawsuits claiming FLSA violations. The sheer 
increase in the number of employers and workers is obviously 
responsible for some of each of these trends, but declining enforcement 
by the Department of Labor and its state counterparts also is a 
significant factor in both trends. In the face of such decline, the 
private bar increasingly stepped into the enforcement void, where the 
low-hanging fruit of such basic violations of law was too obvious to 
ignore. And they've had their work cut out for them in recent years as 
the financial pressures of the recession that have driven low-road 
employers to engage in even more wage theft, and have pressured other 
employers who are barely hanging on to conform to those illegal 
practices simply to survive.
    Indeed, USDOL has seen a recent uptick in complaints and 
investigations, which they have been better able to handle because of 
recent increases to Wage and Hour Division (WHD) staff to get it closer 
to pre-2001 staffing levels.\14\ In FY 2010, WHD registered 31,824 
complaints and closed 26,486 cases. As the economy has worsened, the 
number of complaints registered with WHD has continued to rise:
     FY 2008--23,845
     FY 2009--26,311
     FY 2010--31,824
    Of particular concern is the rise in the number minimum wage 
complaints where violations were found. For example, in FY 2009, WHD 
found violations in 9,176 minimum wage cases. In comparison, in FY 
2010, that number increased to 10,529.\15\
    USDOL's WHD has a very full plate. It has responsibility not just 
for enforcing the FLSA, but also the Family and Medical Leave Act 
(FMLA), the Migrant and Seasonal Agricultural Worker Protection Act 
(AWPA or MSPA), the Service Contract Act, and the Davis-Bacon Act, 
among others. Between FY 1975 to FY 2004, the number of WHD 
investigators declined from 921 to 788 in spite of the fact that the 
Division was given responsibility for the FMLA during the same time, 
the covered US workforce grew by 55% and the number of covered 
employers grew by 112%. These 788 investigators were responsible for 
protecting the rights of over 135 million workers in over 7.3 million 
establishments, a staggering average of 245,000 workers for each 
investigator.\16\
    Statistics from the Solicitor's Office from FY 1992 to FY 2008 
paint a similar picture. During that time, the total staff of the 
Solicitor's Office (attorneys, paralegals, secretaries, etc.) declined 
by 25% from 786 to 590.\17\ During this same period of declining staff, 
the Solicitor's Office gained responsibility for litigation under both 
the FMLA, and under substantial amendments to the Mine Safety and 
Health Act (known as the Mine Improvement and New Emergency Response 
Act, or MINER Act) in 2006.\18\ As recently as FY 1987, the Solicitor's 
Office filed 705 FLSA lawsuits, representing 48% of all FLSA lawsuits 
filed.\19\ In FY 2007, the Solicitor's office filed only 151 FLSA 
lawsuits, representing only 2% of all FLSA lawsuits filed.\20\
    A current snapshot of Wage and Hour offices throughout the country 
is similarly bleak. According to a 2010 survey conducted by Policy 
Matters Ohio, 43 states and the District of Columbia also have wage and 
hour investigatory staff--a total of 659.5 investigators across the 
country, responsible to ensure compliance on behalf of 96.9 million 
workers covered by state wage and hour laws. This means there is 
approximately one investigator for every 146,000 workers, but it should 
be noted that these investigators have responsibility for many laws 
other than basic wage and hour laws, and that distribution of these 
staff within and across states is neither equal nor proportionate. Some 
states like New York and California have relatively robust cadres of 
investigators, while others devote paltry to non-existent resources 
wage and hour enforcement. For example, Florida has no staff whatsoever 
to enforce its wage and hour laws. Indiana has only one investigator 
for the entire state.\21\ Virginia has four investigators and a grand 
total of one attorney who prosecutes wage and hour violations in the 
state. None of this is meant to criticize any of these state agencies; 
rather, it points to how important it is to maintain a strong federal 
statute with an agency that's adequately resourced to enforce it.

Flexibility for the Modern Workforce
    Some employers complain that they feel restricted by the FLSA--that 
the law hampers them in providing the flexibility that the modern 
workforce and worker demand. This is a fallacy. The fact is that the 
FLSA provides ample opportunity for flexibility on terms that both 
benefit and protect workers as well as employers.
    A frequent complaint is that under the FLSA, employers are not 
allowed to offer workers compensatory time in lieu of overtime pay. 
This is an overstatement of the law that ignores the existing ability 
to give compensatory time off within the same workweek as overtime was 
performed. Moreover, it neglects to take into account the very 
important reasons that the ability to offer compensatory time is 
appropriately circumscribed in the private sector. I testified before 
this Subcommittee about this very issue on March 6, 2002, and the 
substance of my comments remains unchanged. I ask that my previous 
testimony be resubmitted for the record.\22\
    The issue of workplace flexibility has become a very pressing and 
well-discussed issue in recent years. Recent publications have focused 
on all the ways in which modern technology allows employers to be 
increasingly flexible with their workforces, even low-wage workforces. 
It is a fact that there are certain jobs that require precise hours at 
a precise location, such as a receptionist, and there's little if 
anything that can be done to alter those realities. It is equally true 
that sometimes, jobs demand unscheduled overtime and employees must 
comply, and employers must pay the premium. But there are increasing 
options and opportunities for creativity that employers can take 
advantage of for the mutual benefit of themselves and their employees. 
The full reports that contain these suggestions are cited below,\23\ 
and I submit them as part of the official record. A brief summary of 
ideas follows:
     For workforces that have variable scheduling from week to 
week, or month to month, employers can use scheduling software that 
allows them to ensure that their needs are covered, and allows workers 
to have meaningful input into what hours and shifts they will work;
     Allow telecommuting to the maximum extent possible;
     Allow work-sharing among teams of employees;
     Allow workers to shift their hours to those that 
accommodate their personal needs (such as child-care pick up) whenever 
possible;
     Allow workers to opt for compressed work-weeks whenever 
possible;
     Allow workers to swap shifts with ease as long as the 
employer needs are met;
     Allow a reasonable amount of paid sick leave;
     Implement leave banks at the workplace to accommodate 
emergency needs of workers;
     Assign overtime work on a voluntary basis to the maximum 
extent possible;
     Cross train employees to do different jobs so that there's 
more choice in accepting overtime and accommodating workers' needs for 
time off.
    None of these practices is prohibited by the FLSA. Of course, they 
require employers to engage and trust their workers, but in my seven 
years of experience as an employer, I learned one lesson loud and 
clear--the more you trust your employees and allow them to balance 
their personal and professional needs, the harder they work for you and 
the more trustworthy they become. There may be a few along the way who 
abuse the trust, and they should be dealt with appropriately. But the 
many should not suffer because of the scant few, and the goodwill and 
hard work that flows from such a relationship is rewarding for both the 
employer and the employees.

Necessary Modernizations to the FLSA and its Implementing Regulations
    Although the FLSA's current protections should remain untouched and 
vigorously enforced, it is true that there are some improvements that 
could be made, which would make the statutory scheme more sensible, aid 
in enforcement, and respond to popular ways to evade the FLSA's 
mandates, as well as other mandates of federal and state labor, 
employment and tax law.
    First, NELP enthusiastically supports The Employee 
Misclassification Act (EMPA) that was introduced in Congress last term 
by Congresswoman Woolsey and Senator Sherrod Brown. This bill would 
amend the FLSA to require employers to keep records of independent 
contractors engaged to work, provide notice to those workers of their 
status as an ``employee'' or ``independent contractor,'' require the 
USDOL to create an ``employee rights website,'' and impose a penalty 
for employer misclassification of employees.
    If enacted, EMPA would be an important step toward greater 
transparency in employment relationships. If workers know about their 
employment classification and the impacts of that status, they will be 
better prepared to report any violations. USDOL will be better equipped 
to determine whether there is compliance if the employers maintain the 
basic records of their contractors. Indeed, doing so would certainly be 
a ``best practice'' for a smart business, so that it could keep track 
of payments and the labor or services that were the basis for those 
payments. Equally important, these practices would also help law-
abiding employers that play by the rules but that are undercut by 
misclassifying firms. They would likewise provide the information 
needed to recover much-needed tax and payroll revenues lost when 
workers are misclassified as independent contractors. Finally, should 
an employer be subjected to investigation or litigation, it will be 
more readily able to defend and justify its practices, or minimize time 
spent assessing damages in the case of erroneous classification, if 
these records are kept.\24\
    Second, in its last two budgets, the Administration sought $25 
million for the USDOL's misclassification initiative to target 
misclassification with additional enforcement personnel and competitive 
grants to state unemployment insurance programs to address independent 
contractor misclassification. These efforts, which would ultimately 
yield much needed revenue to state and federal treasuries, not to 
mention much needed dollars to workers' pockets, should be supported.
    Third, if we wanted to get serious about wage theft, we could also 
consider amending the FLSA to increase the penalties against employers 
who steal wages from their employees. Presently, the FLSA allows 
workers to collect double back wages for two years, three years in the 
case of ``willful'' violations. Many states have mandated treble 
damages and longer statutes of limitations, which are very effective 
strategies to reduce wage theft, made it much less profitable for 
employers to engage in these practice, and have proven a successful 
tool in speeding settlement in cases where violations are clear-cut.
    Fourth, the USDOL also should update the regulations governing the 
so-called ``white collar'' exemptions. Specifically, the salary 
threshold for exemption is only $455 per week, which translates into a 
full-time salary of $23,660 per year, an unreasonably low figure today. 
The salary threshold should be set at a sufficiently high level that it 
realistically reflects expected earnings of a professional and it 
should be indexed to inflation on a yearly basis. In addition, as 
written, the current regulations allow workers to be considered exempt 
professionals when, in fact, they spend only extremely small amounts of 
their time doing job tasks that truly qualify as exempt work. A worker 
should not be considered an exempt professional unless the majority of 
his or her time is spent on tasks that require independent judgment and 
discretion.\25\
    Finally, Congress should pass the Direct Care Job Quality 
Improvement Act of 2011 (H.R. 2341), introduced last month by 
Representative Linda T. Sanchez. This bill would remedy a serious flaw 
in current DOL regulations, that harken back to a time when home care 
workers were usually friends or relatives of an ailing adult, who spent 
but a few hours a day helping them with menial tasks around the house. 
As the population has aged and the home care industry has grown, the 
role of home care aides has also changed significantly. Home health 
care workers today are trained and devoted professionals, who deliver 
skilled health care to many of our nations' seniors and ailing adults 
in a highly professional manner. They work long hours, often performing 
back-breaking work, and are invested with significant responsibility. 
Whatever the merits of their original exclusion from minimum wage and 
overtime protections, this archaic exemption has failed to keep up with 
the evolution of the industry and the workers who have built. It is 
long past time for Congress to remedy this inequity by extending 
minimum wage and overtime protections to home health care workers. The 
USDOL can also remedy this injustice with appropriate regulations. It 
is on the Department's Regulatory Agenda and NELP urges swift issuance 
of proposed regulations.

Conclusion
    The FLSA is a vitally important law, designed to protect hourly 
workers from substandard wages, unduly long hours, and child labor 
abuses. It promotes an equitable distribution of work among workers, 
and it protects employers from being under-cut by low-road employers 
who seek unfair competitive advantages. While some applications of 
exemptions require a nuanced analysis, by and large, the protections 
accorded by the FLSA are clear and simple to understand and administer. 
Improvements should be made to protect against growing abuses of low-
wage workers and those misclassified as independent contractors, but 
current protections should not and must not be diluted nor enforcement 
weakened. To do so might seem at first blush to be beneficial to our 
nation's employers, but in fact, that harm it will do to workers and 
high-road employers is something we cannot and should not tolerate.

                                ENDNOTES

    \1\ 29 U.S.C. Sec. 206.
    \2\ Id. at Sec. 207.
    \3\ Overnight Motor Transport. V. Missel, 316 U.S. 527, 577-78 
(1941).
    \4\ 29 U.S.C. Sec. 212.
    \5\ Citicorp Indus. Credit, Inc. v. Brock, 483 U.S. 27, 36 (1987); 
see also Tony & Susan Alamo Found. v. Secretary of Labor, 471 U.S. 290, 
299 (1985) (``*P+ayment of substandard wages would undoubtedly give 
petitioners and similar organizations an advantage over their 
competitors. It is exactly this kind of `unfair method of competition' 
that the Act was intended to prevent.'' (citation omitted)); Gilbreath 
v. Cutter Biological, Inc., 931 F.2d 1320, 1332, 1334 (9th Cir.1991) 
(Nelson, J., dissenting) (discussing the FLSA's effort to protect law-
abiding employers against unfair competition from businesses paying 
substandard wages).
    \6\ Roland Elec. Co. v. Walling, 326 U.S. 657, 669-70 (1946).
    \7\ ``Wage theft'' refers to a range of practices that reflect 
employers' failure to pay workers the wages they have earned. These 
include the failure or refusal to pay some or all of wages promised, 
requiring workers to put in unpaid time off the clock, denial of 
minimum wage and overtime pay, and misclassification of employees as 
independent contractors.
    \8\ Annette Bernhardt, et al. Broken Laws, Unprotected Workers: 
Violations of Employment and Labor Laws in America's Cities (2009), 
http://www.nelp.org/page/-/Justice/
BrokenLawsPresentation2010.pdf?nocdn=1.
    \9\ For those workers who were employed by a company with more than 
100 employees, 15.2% experienced minimum wage violations, 52.8% were 
victims of overtime violations, 64.9% were made to work off the clock, 
and 63.8% had a meal break violation. Those who worked for smaller 
companies experienced minimum wage violations at a rate of 28.5%, 
overtime violations at a rate of 82.4%, off the clock work at 73.6%, 
and meal break violations at a rate of 73.5%. Id. at 30.
    \10\ Id. at 42.
    \11\ Id. at 31.
    \12\ Id. at 34.
    \13\ For an excellent summary of the abuses rampant in agricultural 
labor, please see ``Weeding Out Abuses: Recommendations by Farmworker 
Justice and Oxfam America.: http://www.farmworkerjustice.org/files/
immigration-labor/weeding-out-abuses.pdf.
    \14\ See http://www.dol.gov/wecanhelp/presentation/1.htm (slide 3 
of the presentation). WHD began hiring new investigators in the summer 
of 2009, and, by the end of FY 2010, WHD had hired over 300 new 
investigators, taking the agency to a total of 1,035 investigators.
    \15\ http://ogesdw.dol.gov/.
    \16\ Brennan Center for Justice, Economic Policy Brief, No. 3, 
September 2005, available on-line at www.brennancenter.org/dynamic/
subpages/download--file--8423.pdf. The 788 investigators in FY 2004 
were only part of Wage-Hour's total staff, which numbered 1,442 
employees; the other staff included supervisors, analysts, technicians, 
and administrative employees. (Department of Labor FY 2009 Performance 
Budget, www.dol.gov/dol/budget/2009/PDF/CBJ-2009-V2-03.pdf, pp. ESA-35 
and ESA-36.)
    \17\ U.S. Department of Labor Budget Submission to Congress for 
Fiscal Year 1993; ``Legal Services'' in volume 3 of the U.S. Department 
of Labor's FY 2008 Detailed Budget Documentation, pp. DM-26 to DM-28, 
available at www.dol.gov/dol/budget/2008/PDF/CRJ-V3-02.pdf. Although 
the Solicitor's office had 590 employees in January 2007, it had 
funding to pay for only 551 employees. Id. at DM-28.
    \18\ The Solicitor's Office litigation responsibilities encompass 
not just FLSA cases, but many other laws as well, such as the 
Occupational Safety and Health Act (OSH Act), the Mine Safety and 
Health Act (MSH Act), the Employee Retirement Income Security Act 
(ERISA), and the Black Lung Benefits Act (BLBA).
    \19\ Administrative Office of the United States Courts, Judicial 
Business of the United States Courts, 1987 Annual Report, Table C-2 
(Washington, D.C., 1987). The FLSA authorizes lawsuits not only by DOL 
handled by Solicitor's Office attorneys, but also by aggrieved 
employees represented by private attorneys. Until 1987, nearly 50 
percent, and in most years far more, of all FLSA lawsuits were handled 
by DOL attorneys, but more recently employee lawsuits have represented 
a much higher percentage of all FLSA cases.
    \20\ Administrative Office of the United States Courts, Judicial 
Business of the United States Courts, 2007 Annual Report, Table C-2 
(Washington, D.C., 2007), available at http://www.uscourts.gov/
judbus2007/appendices/c2.pdf.
    \21\ Investigating Wage Theft: A Survey of the States. A Report 
from Policy Matters Ohio. Zach Schiller and Sarah DeCarlo, November 
2010. http://www.policymattersohio.org/pdf/
InvestigatingWageTheft2010.pdf.
    \22\ http://www.dcejc.org/app/docs/Judy--Testimony%5B1%5D.pdf.
    \23\ http://www.worklifelaw.org/pubs/ImprovingWork-LifeFit.pdf; 
http://workplaceflexibility2010.org/images/uploads/whatsnew/
Flexible%20Workplace%20Solutions%20for%20Low-
Wage%20Hourly%20Workers.pdf.
    \24\ A complementary bill, the Taxpayer Responsibility, 
Accountability and Consistency Act of 2009 (s. 2882) was introduced by 
Senator Kerry. This bill would amend the Internal Revenue Code's safe 
harbor exemption for employers who misclassify employees as independent 
contractors, which currently allows workers to pretty much misclassify 
with near impunity with no consequences. See 26 U.S.C. 7436, It would 
also, in appropriate cases, allow the IRS to issue guidance on the 
subject and collect unpaid taxes owed the government. These reforms are 
vital to combatting misclassification abuses.
    \25\ http://nelp.3cdn.net/112fc23c9ce271ff77--ppm6bnkya.pdf.

                                APPENDIX

           Snapshot of Current and Recent Wage and Hour Suits
                      Brought on Behalf of Workers

    The following is by no means an exhaustive or methodical survey of 
current wage and hour lawsuits, but it is a representative sampling of 
what attorneys throughout the United States are litigating or have 
litigated. These examples come from the Just Pay group that NELP 
convenes. This ``virtual table'' of wage and hour practitioners and 
worker advocates includes attorneys in private practice, legal services 
organizations, government agencies, and policy organizations across the 
country, all devoted to the fair and vigorous enforcement of the 
nation's and states' wage and hour laws.
    1. A large national employer makes its employees incur most of its 
business expenses as a condition of employment. The business expenses 
regularly result in the employees being paid less than the minimum 
wage. (There is no claim that the workers are independent contractors.) 
In addition to the expense shifting, branches were shaving time records 
to reduce overtime liability. The corporate offices knew it was 
happening, but decided not to audit the offices unless a complaint was 
raised and pressed by employees. The case was recently certified as a 
national collective action and a class action in 14 states that allow 
for wage and hour class actions.
    2. Workers were regularly required to work more than 100 hours a 
week and paid under the fluctuating workweek rule. The inspectors were 
actually paid a declining hourly wage, i.e., the more they worked, the 
lower their hourly pay, a result directly contrary to the policy of the 
FLSA. Due to litigation in federal court, the industry has changed its 
practices.
    3. A fish market/restaurant in a major metropolitan area that 
employs 30-40 workers requires many employees to work 15 hours a day, 
five days a week. It pays straight time for all hours worked. In order 
to appear as if it is complying with the law, the employer issued 
paychecks that have a lower hourly rate than the employees are actually 
paid, and a few ``overtime'' hours at 1.5 times the incorrect rate. The 
remainder of the pay is in cash, which also means that the employer is 
avoiding paying social security/medicare taxes, and is evading most of 
its obligation to the state and federal unemployment funds.
    4. An individual was employed to take care of disabled people who 
need 24-hour care. She would start at 3 pm at the home where the 
disabled clients lived, and was required to care for them until 8 am 
the next morning. The company for which she worked advertised on its 
website that it provided ``round-the-clock, 24-hour care'' to its 
clients, and received state and federal funds to pay for their care. 
However, the employee was only paid for the 3 pm to 9 pm and 6 am to 8 
am hours, even though she was on-duty the entire time, had to take care 
of people during the night and did not have separate sleeping quarters.
    5. At the start of the day, before they are ``on the clock'' and 
being paid, call center workers who are employed by a national IT 
company are required to boot up their computers, initialize programs, 
and read internal emails regarding services/client offers and other 
business so that they are ready to take calls at ``the start of the 
shift,'' when they begin being paid. This practice means that employees 
usually lose 15+ minutes of pay each work day.
    6. A group of construction workers are required to report to the 
company's warehouse/yard at the start of each day. They pick up orders 
and then load trucks with equipment and supplies they will need when 
they drive out into the field to work. The company does not pay them 
for that time, for the time that it takes to drive the truck and 
materials to the worksite in the morning, for the time to drive the 
truck back to the yard in the afternoon. As a result, the workers are 
performing work ``off the clock'' for up to two hours per day.
    7. One employer, when the minimum wage increased, would pay its 
employees the higher wage and then require the workers to repay the 
difference between the higher rate and the previous rate.
    8. A restaurant made its workers sign a ``VOLUNTARY AGREEMENT'' to 
work only for tips and pledge that they never expected nor would they 
accept a penny from the employer as compensation. The agreement also 
had the workers waive all rights to any legal recourse.
    9. A large group of construction/home repair workers with limited 
English proficiency were paid with checks that had the word ``VOID'' 
written in the subject line on the bottom.
    10. Over 100 men who worked as ``chicken catchers'' for Perdue 
Farms on the Eastern Shore of Maryland, Virginia and Delaware. These 
men, using equipment provided solely by Perdue Farms, and transported 
in Perdue Farms vehicles, travel from chicken farm to chicken farm, 
scooping up full grown chickens in their bare hands, and loading them 
into Perdue cages and trucks so they can be transported to processing 
plants for slaughter. In the early 1990's, Perdue, and other major 
chicken processors, decided to misclassify these workers as independent 
contractors, all so that they could increase their profits at the 
expense of the workers, who had previously received overtime, health 
and retirement benefits, and the protections of workers' compensation 
and unemployment compensation laws. A federal judge ruled that this 
scheme was willfully illegal and ordered millions of dollars in back-
pay to these workers, who thanks to intervention from the Federal 
Department of Labor, are now all, on a nationwide basis, properly 
classified as employees and receive all the pay and protections to 
which they are entitled. Perdue never appealed the case and settled for 
the full measure of damages, as established by plaintiffs' expert 
witness.
    11. Restaurant workers who earn tips, particularly delivery 
workers, are required to work 6 days per week, between 10 and 12 hours 
per day without breaks. They are paid a monthly salary of $300-$600, 
which equates to an hourly salary of between $1.30 and $2.00 per hour. 
Although they earn tips, they are sometimes required to give a portion 
of their tips to non-tipped workers. They also must spend a portion of 
their day doing non-tipped work (e.g., cleaning bathrooms, stocking 
supplies). The delivery workers also must buy and repair their own 
bikes, which further reduces their take home earnings.
    12. Restaurant and Grocery baggers who are not paid any wage at 
all, but are required to work for tips only. In the case of grocery 
baggers, tip income may be $2.00 per hour.
    13. Low-road employers often pay employees under two names so that 
they can avoid paying overtime. Some create false records of work hours 
to show the DOL in case of an investigation. Others pay workers partly 
in cash and partly by check, with checks showing an hourly rate that is 
more than the workers actually get paid (e.g., showing that someone 
worked 20 hours and got paid $5.00 even though the employee worked 60).
                                 ______
                                 
    Chairman Walberg. Thank you.
    Mr. Hara, I recognize you for your testimony.

   STATEMENT OF NOBUMICHI HARA, SENIOR VICE PRESIDENT, HUMAN 
CAPITAL, GOODWILL OF CENTRAL ARIZONA, ON BEHALF OF THE SOCIETY 
                 FOR HUMAN RESOURCE MANAGEMENT

    Mr. Hara. Good morning, Chairman Walberg, Ranking Member 
Woolsey, and distinguished members. My name is Nobu Hara, 
Senior Vice President of Human Capital for Goodwill Industries 
of Central Arizona, one of 165 autonomous Goodwills. I appear 
before you today on behalf of the Society for Human Resource 
Management, or SHRM.
    Thank you for the opportunity to appear before the 
subcommittee to discuss the relevance of the Fair Labor 
Standards Act to the 21st century workplace. We believe the 
FLSA prevents employers from providing the workplace 
flexibility that nonexempt employees want and need.
    In 2010, Goodwill of Central Arizona served over 30,000 
individuals with barriers to employment by assisting job 
seekers through 10 career centers, job fairs, and by providing 
workforce development of jobs skills training, work experience, 
and case-managed assistance through a variety of programs. In 
the same year, we placed 9,200 of those we served into jobs.
    To be sure, the FLSA has been a cornerstone of employment 
and labor law since 1938. The FLSA was enacted to ensure an 
adequate standard of living for working Americans, and it 
covers virtually all recognizable businesses. But the FLSA 
reflects the realities of the industrial workplace of the '30s, 
not the workplace of 2011. It has remained relatively unchanged 
in the more than 70 years since its enactment, despite the 
dramatic changes that have occurred in the workplace. Most 
notably, advances in information technology have transformed 
how businesses operate, communicate, and make decisions.
    The outmoded FLSA presents challenges for organizations 
wanting to implement flexible work arrangements for their 
employees. Flexible work arrangements can alter the time and 
place that work is conducted to better meet the work life 
balance needs of workers.
    For example, I was recently approached by a group of 
Goodwill employees who wanted to work a biweekly, compressed 
work week. Under the FLSA, employers are permitted to allow a 
nonexempt employee to work four 10-hour days for a total of 40 
hours in a week without the employer incurring any overtime 
obligations. Our employees proposed working five 9-hour days on 
the first week, for a total of 45 hours, and 35 hours the 
second week, having alternate Fridays off. Working 10 hours in 
1 day was too physically difficult for them and did not comport 
to their work family obligations. Since they are nonexempt 
employees, however, their proposed schedule would require 
Goodwill to pay overtime for the additional hours over 40 hours 
in the first week.
    Another example involves requests received by nonexempt 
employees to make up time and pay for missed work because of 
family obligations, illnesses, and other reasons. Most of the 
time the make-up work involves a second week to provide enough 
latitude to complete the work. That again involves working more 
than 40 hours in a week and thus incurring overtime pay. As you 
might imagine, Mr. Chairman, we operate on a tight budget and 
could not grant the request.
    Keep in mind that several case have overtime requirements 
for work beyond an 8-hour day, which further complicates 
employer attempts at flexible work arrangements.
    To promote workplace flexibility under current law, SHRM 
has formed a multiyear partnership with the Families and Work 
Institute. The primary goal of this partnership is to educate 
HR professionals about the importance of effective and flexible 
workplaces and facilitate employers adopting flexible work 
arrangements for their employees.
    Mr. Chairman, one component of the partnership is called 
When Work Works to promote effective workplace policies. This 
initiative is a Statewide initiative in Michigan, where the 
Michigan Council of the Society for Human Resource Management 
and the Detroit Regional Chamber serve as our community 
partners.
    As part of the initiative, Motawi Tileworks, Incorporated, 
based in Ann Arbor, in your congressional District, was awarded 
a Sloan Award for Business Excellence in Workplace Flexibility. 
Motawi won the Sloan Award for giving their employees great 
freedom in determining their schedules.
    Many employers would like to provide the workplace 
flexibility that both employees and employers desire in current 
and future work environments. SHRM believes the FLSA hinders 
the ability of employers to provide such flexibility to their 
nonexempt employees and, in its current form, decreases morale, 
work engagement, and work life balance.
    We look forward to working with you to modernize the 
outmoded FLSA in a manner that balances the essence of the law 
with the changing needs of the workforce.
    Thank you very much.
    [The statement of Mr. Hara follows:]

  Prepared Statement of Nobumichi Hara, Senior Vice President, Human 
   Capital, Goodwill Industries of Central Arizona, on Behalf of the 
                 Society for Human Resource Management

    Chairman Walberg, Ranking Member Woolsey, and distinguished members 
of the Subcommittee, my name is Nobumichi Hara, Senior Vice President 
of Human Capital for Goodwill Industries of Central Arizona. I appear 
before you today on behalf of the Society for Human Resource Management 
(SHRM), of which I am a member. On behalf of our approximately 260,000 
members in over 140 countries, I thank you for this opportunity to 
appear before the Committee to discuss the relevance of the Fair Labor 
Standards Act (FLSA) to the 21st century workplace.
    SHRM is the world's largest association devoted to human resource 
management. The Society serves the needs of HR professionals and 
advances the interests of the HR profession. Founded in 1948, SHRM has 
more than 575 affiliated chapters within the United States and 
subsidiary offices in China and India.
    Goodwill Industries of Central Arizona is one of 163 autonomous 
Goodwills served by a member services organization, Goodwill Industries 
International. In 2010, Goodwill of Central Arizona provided career 
services to over 30,000 individuals by assisting job seekers through 
career centers, job fairs, and by providing job skills training, work 
experience, and case managed programs in vocational rehabilitation. 
Those programs were administered under the Work Incentives Improvement 
Act, Senior Community Service Employment Program, Summer Youth Work 
Experience Program, and other government grants and contracts.
    In essence, our mission is about workforce development. Last year, 
we placed 9,200 people in jobs in the greater Phoenix, Yuma and 
Prescott communities. In carrying out our mission we employ nearly 
2,000 employees; the majority of whom are people with barriers to 
employment. We offer a competitive pay and compensation package to our 
employees and offer flexible work options, including flexible 
scheduling, telecommuting, and compressed work programs. Our employees 
work very hard with one goal in mind: putting people to work.
    In my testimony, I will explain the key issues posed by the FLSA to 
our nation's employers and employees; demonstrate how the FLSA 
prohibits employers from providing workplace flexibility that today's 
employees want; and share SHRM's efforts to promote these benefits to 
employees.

The Fair Labor Standards Act
    The Fair Labor Standards Act of 1938 (FLSA) has been a cornerstone 
of employment and labor law since 1938. The FLSA establishes minimum 
wage, overtime pay, recordkeeping, and youth employment standards 
affecting full-time and part-time workers in the private sector and in 
federal, state, and local governments. The FLSA was enacted to ensure 
an adequate standard of living for all Americans by guaranteeing the 
payment of a minimum wage and overtime for hours worked in excess of 40 
in a workweek.
    The U.S. Department of Labor's Wage and Hour Division (WHD) 
administers and enforces the FLSA with respect to private employers and 
state and local government employers. Special rules apply to state and 
local government employment involving fire protection and law 
enforcement activities, volunteer services, and compensatory time off 
instead of pay in overtime situations.
    Virtually all organizations are subject to the FLSA. A covered 
enterprise under the FLSA is any organization that ``has employees 
engaged in commerce or in the production of goods for commerce, or that 
has employees handling, selling, or otherwise working on goods or 
materials that have been moved in or produced for commerce by any 
person; and has $500,000 in annual gross volume of sales; or engaged in 
the operation of a hospital, a preschool, an elementary or secondary 
school, or an institution of higher education.'' \1\
---------------------------------------------------------------------------
    \1\ 29 U.S.C. 203(s)(1)(A)
---------------------------------------------------------------------------
    Employees of firms that are not covered enterprises under the FLSA 
still may be subject to its minimum wage, overtime pay, recordkeeping, 
or child labor provisions if they are individually engaged in 
interstate commerce or in the production of goods for interstate 
commerce.
Employee Classification Determinations under the FLSA
    The FLSA provides exemptions from both the overtime pay and minimum 
wage provisions of the Act. Employers and HR professionals use 
discretion and independent judgment to determine whether employees 
should be classified as exempt or non-exempt and, thus, whether they 
qualify for the overtime pay provisions or the minimum wage provisions 
of the FLSA. Generally speaking, classification of employees as either 
exempt or non-exempt is made on whether the employee is paid on a 
salary basis with a fixed rate of pay, and their duties and 
responsibilities.
    The FLSA provides exemptions from both the overtime pay and minimum 
wage provisions for:
    1. Executive, administrative, and professional employees (including 
teachers and academic administrative personnel in elementary and 
secondary schools), outside sales employees, and employees in certain 
computer-related occupations (as defined in Department of Labor 
regulations) known as the ``White Collar'' provisions.
    2. Employees of certain seasonal amusement or recreational 
establishments, employees of certain small newspapers, seamen employed 
on foreign vessels, employees engaged in fishing operations, and 
employees engaged in newspaper delivery.
    3. Farm workers employed by anyone who used no more than 500 ``man-
days'' of farm labor in any calendar quarter of the preceding calendar 
year.
    4. Casual babysitters and persons employed as companions to the 
elderly or infirm.
    In addition, the FLSA provides additional exemptions from only its 
overtime pay provisions for the following positions:
    1. Certain commissioned employees of retail or service 
establishments; auto, truck, trailer, farm implement, boat, or aircraft 
sales-workers, or parts-clerks and mechanics servicing autos, trucks, 
or farm implements, who are employed by non-manufacturing 
establishments primarily engaged in selling these items to ultimate 
purchasers.
    2. Employees of railroads and air carriers, taxi drivers, certain 
employees of motor carriers, seamen on American vessels, and local 
delivery employees paid on approved trip rate plans.
    3. Announcers, news editors, and chief engineers of certain non-
metropolitan broadcasting stations.
    4. Domestic service workers living in the employer's residence.
    5. Employees of motion picture theaters.
    6. Farm workers.
    The FLSA also provides partial exemptions from only overtime pay in 
the following instances:
    1. For employees engaged in certain operations involving 
agricultural commodities and to employees of certain bulk petroleum 
distributors.
    2. Hospitals and residential care establishments may adopt, by 
agreement with their employees, a 14-day work period instead of the 
usual seven-day workweek, if the employees are paid at least time-and-
one-half their regular rates for hours worked over eight in a day or 80 
in a 14-day work period, whichever is the greater number of overtime 
hours.
    3. For employees who lack a high school diploma, or who have not 
attained the educational level of the 8th grade, who can be required to 
spend up to 10 hours in a workweek engaged in remedial reading or 
training in other basic skills without receiving time-and-one-half 
overtime pay for these hours. However, the employees must receive their 
normal wages for hours spent in such training and the training must not 
be job-specific.
    4. Public fire departments and police departments may establish a 
work period ranging from seven to 28 days in which overtime need only 
be paid after a specified number of hours in each work period.\2\
---------------------------------------------------------------------------
    \2\ Society for Human Resource Management (2008). Fair Labor 
Standards Act (FLSA) of 1938.
---------------------------------------------------------------------------
    As shown by the above descriptions of the various types of FLSA 
exemptions, classification decisions for many positions are not black-
and-white. It can be easy for an employer to mistakenly misclassify 
employees as exempt who, in reality, should be non-exempt, or vice-
versa.
    Despite the ambiguity of many employment situations, the stakes in 
``improperly'' classifying employees are high. The U.S. Department of 
Labor (DOL) frequently audits employers and penalizes those that 
misclassify employees, awarding up to three years of back pay for 
overtime for those employees, plus attorneys' fees, if applicable. 
Predictably, audit judgments can be subjective, since two reasonable 
people can disagree on a position's proper classification. Employers 
also face the threat of class-action lawsuits challenging their 
classification decisions.

FLSA--a 20th Century Statute
    The FLSA was enacted toward the end of the Great Depression and 
reflects the realities of the industrial workplace of the 1930s, not 
the workplace of the 21st century. The Act itself and its implementing 
regulations have remained relatively unchanged in the more than 70 
years since its enactment, despite the dramatic changes that have 
occurred in where, when and how work is done. Information technology 
and advances in communication have clearly transformed how businesses 
operate, communicate and make decisions. Cell phones, tablets, 
BlackBerries, and other technology allow many employees to perform job 
duties when and where they choose.
    As a result, minimum wage policies and overtime exemption 
requirements which may have been appropriate in the 1930s are out of 
step with current knowledge and a technology-based economy, creating 
unnecessary regulatory burdens for employers and restricting employers' 
ability to be flexible and address contemporary employee needs.
    We believe the FLSA makes it difficult if not impossible in many 
instances for employers to provide workplace flexibility to millions of 
non-exempt employees. While non-exempt employees can receive time-and-
a-half pay, they cannot be afforded the same workplace flexibility 
benefits as exempt employees.

Workplace Flexibility and the Fair Labor Standards Act
    The increased diversity and complexity within the American 
workforce--combined with global competition in a 24/7 economy--suggests 
the need for more ``workplace flexibility.'' C-suite executives, for 
example, say the biggest threat to their organizations' success is 
attracting and retaining top talent.\3\ Human resource professionals 
believe the best way to attract and retain the best people is to 
provide workplace flexibility.\4\ Moreover, a large majority of 
employees--87 percent--report that flexibility in their jobs would be 
``extremely'' or ``very'' important in deciding whether to take a new 
job.\5\
---------------------------------------------------------------------------
    \3\ Company of the Future Survey (2010). Society for Human Resource 
Management and the Economist Intelligence Unit.
    \4\ Challenges Facing Organizations and HR in the Next 10 Years 
(2010). Society for Human Resource Management.
    \5\ National Study of the Changing Workforce (2008). Families and 
Work Institute.
---------------------------------------------------------------------------
    To be clear, workplace flexibility is defined as giving employees 
some level of control over how, when and where work gets done. Altering 
how, when and where work gets done in today's modern workplace, 
however, also raises compliance concerns with the FLSA.
    Although both employers and employees identify the need for greater 
flexibility, the outdated FLSA presents challenges for organizations 
wanting to implement flexible work arrangements (FWAs). Flexible work 
arrangements alter the time and/or place that work is conducted on a 
regular basis; must work for both the employer and employee; and must 
be voluntary for employees. Employers, however, encounter challenges 
under the FLSA in offering some FWAs.
    For example, I was recently approached by a group of Goodwill 
employees in Central Arizona who wanted to work a bi-weekly compressed 
workweek. Under the FLSA, employers are permitted to allow a non-exempt 
employee to work four, 10-hour days Monday through Thursday for a total 
of 40 hours in a week, and take every Friday off without the employer 
incurring any overtime obligations. However, our employees proposed 
working a nine-hour day Monday through Friday of the first week for a 
total of 45 hours, and work three, nine-hour days and one eight-hour in 
the second week and take Friday off, because working 10 hours was 
physically too difficult for them and did not comport to their work-
family obligations. This schedule, however, would require the employer 
to pay overtime for the additional hours over 40 hours in the first 
week. In addition, several states have daily overtime requirements for 
more than an eight-hour day, further complicating employer efforts to 
provide this type of flexible work arrangement.
    Another example of a FWA that raises compliance concerns under the 
FLSA is a Results-Oriented Work Environment or (ROWE). Very simply a 
ROWE allows employees to set their own schedules to produce required 
results. Providing this type of flexible option to non-exempt employees 
may put the employer at risk of overtime obligations under the FLSA and 
also raises unfair labor practice concerns under the National Labor 
Relations Act.
    The statute also prohibits private sector employers from offering 
non-exempt employees time off in lieu of compensation, even though all 
public sector employees are offered this type of flexibility. We have 
non-exempt employees who request make-up time when they miss work to 
deal with illness, family matters, or personal matters. Newer employees 
and employees who have used up their sick and/or vacation benefits 
cannot receive pay for missed time. However, if they cannot make-up 
their missed time reasonably within the same work week, we are unable 
to meet their requested need. If we allow employees to make-up their 
time into their following week, we will incur overtime pay as the time 
they work in that second week would be in addition to their normal 40-
hour work. As a non-profit organization, we have to control our 
expenses in order to maximize value derived from donated goods to pay 
for programs and growth.
    I have also faced a challenge under the FLSA with individuals 
classified as non-exempt inside sales employees in our call center. 
Formerly, these employees were classified as outside sales employees 
who were exempt from the FLSA's overtime requirements and frequently 
were on the road making sales calls to customers. Because of the 
advances in technology, these employees are hardly ever required to 
visit a customer in person and do most of their sales work through e-
mail, web-based demonstrations, the phone and other electronic mediums.
    At INVESTools Inc., an investor education products and services 
company, these employees' compensation is based on an hourly rate of 
pay and a commission that is designed to give them an incentive for 
closing sales of sophisticated products and services ranging from 
$5,000 to $30,000 in price. These employees often want to work long 
hours to earn these commissions, some bringing home over $100,000 per 
year. However, we were required to pay overtime based on the weighted 
average of their hourly pay and commissions, which would significantly 
increase their hourly rate, making their overtime pay fiscally 
unaffordable to my organization. As a result, we have had to limit 
their working time or pay overtime. That curtailed their motivation, 
increased expenses and decreased profitability, and limited our ability 
to remain successful.
    These are a few examples of how the Fair Labor Standards Act fails 
to recognize the changing characteristics of the workforce.

A 21st Century Workplace Flexibility Policy
    As noted above, a growing number of employers recognize the 
benefits of workplace flexibility and are implementing effective and 
flexible workplace practices as a key business strategy. At the same 
time, complex, and sometimes overlapping federal, state and local laws 
do little to support employer creativity and innovation in responding 
to the flexibility needs of the 21st century workforce. That is why 
SHRM has advocated a comprehensive workplace flexibility policy that, 
for the first time, responds to the diverse needs of employees and 
employers and reflects different work environments, union 
representation, industries and organizational size.
    SHRM released a set of ``Principles for a 21st Century Workplace 
Flexibility Policy'' in 2009 to help guide policymakers in the 
development of public policy that meets the needs of both employees and 
employers. I have included a copy of these principles at the end of my 
written statement (Appendix A).

Workplace Flexibility Educational Efforts
    In addition to advocating for a new approach to workplace 
flexibility public policy, SHRM has also engaged in a significant 
effort to educate HR professionals and their organizations about the 
importance of effective and flexible workplaces. On February 1, 2011, 
SHRM formed a multi-year partnership with the Families and Work 
Institute (FWI), the preeminent work-family think-tank known for 
rigorous research on workplace flexibility issues.
    The primary goal of this partnership is to transform the way 
employers view and adopt workplace flexibility by combining the 
research and expertise of a widely respected organization specializing 
in workplace effectiveness with the influence and reach of the world's 
largest association devoted to human resource management. By 
highlighting strategies that enable people to do their best work, the 
partnership promotes practical, research-based knowledge that helps 
employers create effective and flexible workplaces that fit the 21st 
century workforce and ensures a new competitive advantage for 
organizations.
    Although FWI is an independent non-advocacy organization that does 
not take positions on these matters, and the position of SHRM should 
not be considered reflective of any position or opinion of FWI, I'd 
like to briefly mention one of the key elements of the SHRM/FWI 
partnership, the When Work Works program, because it seeks to educate 
and showcase employers who are meeting the needs of our 21st century 
workforce. When Work Works is a nationwide initiative to bring research 
on workplace effectiveness and flexibility into community and business 
practice. Since its inception in 2005, When Work Works has partnered 
with an ever-expanding cohort of communities from around the country 
to:
    1. Share rigorous research and employer best practices on workplace 
effectiveness and flexibility.
    2. Recognize exemplary employers through the Alfred P. Sloan Awards 
for Business Excellence in Workplace Flexibility,
    3. Inspire positive change so that increasing numbers of employers 
understand how flexibility can benefit both business and employees, and 
use it as a tool to create more effective workplaces.
    As a proud resident of Arizona, I am particularly pleased that When 
Work Works is a statewide initiative in my state under the direction of 
the Chandler Chamber of Commerce. In fact, 40 Arizona employers are 
highlighted in the SHRM/FWI publication, ``2011 Guide to Bold New 
Ideas.'' as recipients of the coveted Sloan Award.
    Mr. Chairman, I would also note that When Work Works is a statewide 
initiative in Michigan, where the Michigan Council of the Society for 
Human Resource Management and the Detroit Regional Chamber serve as our 
community partners. In fact, Sloan Award winner Motawi Tileworks, Inc. 
(www.motawi.com) is located in Michigan's 7th Congressional District. 
The 22 employees that are hand-crafting tiles from this Ann Arbor shop 
have great freedom in determining their schedules. No one cares when 
they start, stop or schedule their breaks, and overtime is forbidden. 
This is just one example of innovative workplace strategies we are 
uncovering through the When Work Works initiative.

Conclusion
    The Fair Labor Standards Act is a cornerstone among America's 
workplace statutes. SHRM educates its membership and their 
organizations about all wage and hour issues under the FLSA. But the 
FLSA was crafted in a bygone era, and it should be re-evaluated to 
ensure it still encourages employers to hire, grow, and better meet the 
needs of their employees.
    We believe the FLSA hinders employer's ability to provide the 
flexibility that millions of non-exempt employees want. SHRM and its 
members, who are located in every congressional district in the nation, 
are committed to working with this subcommittee and other members of 
Congress to modernize the outmoded FLSA in a manner that balances the 
needs of both employees and employers and does not produce unnecessary 
and counterproductive requirements.
    Now more than ever, there is a compelling need for workplace 
flexibility that benefits both employers and employees. Going forward, 
SHRM will continue to highlight workplace flexibility as a key business 
imperative, conduct and share research with HR professionals on how 
effective and flexible workplaces can benefit the bottom-line, and 
provide information and resources that will help employers successfully 
implement workplace strategies that enable employees to manage their 
work-life fit.
    Thank you. I welcome your questions.

                               APPENDIX A

       Principles for a 21st Century Workplace Flexibility Policy

    The Society for Human Resource Management (SHRM) believes the 
United States must have a 21st century workplace flexibility policy 
that meets the needs of both employees and employers. It should enable 
employees to balance their work and personal needs while providing 
predictability and stability to employers. Most importantly, any policy 
must encourage--not discourage--the creation of quality new jobs.
    Rather than a one-size-fits-all government approach, where federal 
and state laws often conflict and compliance is determined under 
regulatory silos, SHRM advocates a comprehensive workplace flexibility 
policy that, for the first time, responds to the diverse needs of 
employees and employers and reflects different work environments, union 
representation, industries and organizational size.
    For a 21st century workplace flexibility policy to be effective, 
SHRM believes that all employers should be encouraged to provide paid 
leave for illness, vacation, and personal days to accommodate the needs 
of employees and their family members. In return, employers who choose 
to provide paid leave would be considered to have satisfied federal, 
state and local leave requirements. In addition, the policy must meet 
the following principles:
    Shared Needs--Workplace flexibility policies must meet the needs of 
both employees and employers. Rather than an inflexible government-
imposed mandate, policies governing employee leave should be designed 
to encourage employers to offer a paid leave program (i.e., illness, 
vacation, personal days or a ``paid time off'' bank) that meets 
baseline standards to qualify for a statutorily defined ``safe 
harbor.'' For example, SHRM envisions a ``safe harbor'' standard where 
employers voluntarily provide a specified number of paid leave days for 
employees to use for any purpose, consistent with the employer's 
policies or collective bargaining agreements. In exchange for providing 
paid leave, employers would satisfy current and future federal, state 
and local leave requirements. A federal policy should:
     Provide certainty, predictability and accountability for 
employees and employers.
     Encourage employers to offer paid leave under a uniform 
and coordinated set of rules that would replace and simplify the 
confusing--and often conflicting--existing patchwork of regulations.
     Create administrative and compliance incentives for 
employers who offer paid leave by offering them a safe harbor standard 
that would facilitate compliance and save on administrative costs.
     Allow for different work environments, union 
representation, industries and organizational size.
     Permit employers that voluntarily meet safe harbor leave 
standards to satisfy federal, state and local leave requirements.
    Employee Leave--Employers should be encouraged to voluntarily 
provide paid leave to help employees meet work and personal life 
obligations through the safe harbor leave standard. A federal policy 
should:
     Encourage employers to offer employees with some level of 
paid leave that meets minimum eligibility requirements as allowed under 
the employer's safe harbor plan.
     Allow the employee to use the leave for illness, vacation, 
personal and family needs.
     Require employers to create a plan document, made 
available to all eligible employees, that fulfills the requirements of 
the safe harbor.
     Require the employer to attest to the U.S. Department of 
Labor that the plan meets the safe harbor requirements.
    Flexibility--A federal workplace leave policy should encourage 
maximum flexibility for both employees and employers. A federal policy 
should:
     Permit the leave requirement to be satisfied by following 
the policies and parameters of an employer plan or collective 
bargaining agreement, where applicable, consistent with the safe harbor 
provisions.
     Provide employers with predictability and stability in 
workforce operations.
     Provide employees with the predictability and stability 
necessary to meet personal needs.
    Scalability--A federal workplace leave policy must avoid a mandated 
one-size-fits-all approach and instead recognize that paid leave 
offerings should accommodate the increasing diversity in workforce 
needs and environments. A federal policy should:
     Allow leave benefits to be scaled to the number of 
employees at an organization; the organization's type of operations; 
talent and staffing availability; market and competitive forces; and 
collective bargaining arrangements.
     Provide pro-rated leave benefits to full- and part-time 
employees as applicable under the employer plan, which is tailored to 
the specific workforce needs and consistent with the safe harbor.
    Flexible Work Options--Employees and employers can benefit from a 
public policy that meets the diverse needs of the workplace in 
supporting and encouraging flexible work options such as telecommuting, 
flexible work arrangements, job sharing, and compressed or reduced 
schedules. Federal statutes that impede these offerings should be 
updated to provide employers and employees with maximum flexibility to 
balance work and personal needs. A federal policy should:
     Amend federal law to allow employees to balance work and 
family needs through flexible work options such as telecommuting, 
flextime, part-time, job sharing and compressed or reduced schedules.
     Permit employees to choose either earning compensatory 
time off for work hours beyond the established workweek, or overtime 
wages.
     Clarify federal law to strengthen existing leave statutes 
to ensure they work for both employees and employers.
                                 ______
                                 
    Chairman Walberg. Thank you, Mr. Hara; and, on behalf of 
Motawi, thank you and SHRM for recognizing their excellent 
efforts in Ann Arbor.
    Without objection, I will recognize myself for questions if 
that is okay, now that it is the proper time, with fear as 
well. I think I was concerned that I may be called for a 
subpoena vote in another committee down the hall. So let me 
begin questioning here.
    Mr. Alfred, just in reviewing some of what you stated in 
the statistics about FLSA lawsuits and the alarming rise over 
the last decade, you indicated that, from 2000 to 2010, the 
number of lawsuits has risen more than 300 percent, with more 
than 6,000 lawsuits filed last year alone. You indicated in 
your testimony, even more alarming, is that about 40 percent of 
these suits are brought as collective actions, sometimes 
involving tens of thousands of current and former employees. 
What would you indicate to be the root problem behind the 
astonishing growth of this legal action?
    Mr. Alfred. Two things, Chairman Walberg.
    First, the ambiguities and inconsistencies in the statute 
itself and the regulations, the Department of Labor 
regulations. Those ambiguities and inconsistencies provide 
fodder for enterprising plaintiffs' lawyers who seek to bring 
large cases, not necessarily because, unfortunately, of the 
rights that they seek to vindicate of employees but because of 
the financial motive of the settlements that derive from those 
lawsuits.
    And that brings us to the second point. These lawsuits are 
tremendously lucrative. They pose risks, first of all, to 
employers that employers can't assess. As Mr. MacDonald 
testified, employers looking at a risk and a potential exposure 
in large lawsuits when they are brought oftentimes make a 
business determination that, rather than take the risk and 
spend the large sums of money to defend these cases, compounded 
by what is often even more burdensome, which is the internal 
time that has to be spent by companies that are sued, they 
choose to settle these cases for some percentage of the total 
risk or exposure.
    Those settlements result in large windfalls, oftentimes, 
for plaintiffs counsel. That, unfortunately, has fueled and 
been the cause of many of these lawsuits.
    So I think if you take the inconsistencies and ambiguities, 
which, as I also testified, is much worse when applying an old 
law to a new economy, add that to the financial incentives of 
plaintiffs' counsel in those cases, you have a very dangerous 
mix and you see the rise in the litigation that is shown on my 
graph.
    Chairman Walberg. I assume with those incentives the 
precedents are set as well that increase the incentive.
    Mr. Alfred. Well, the precedents of the settlements. The 
court precedents are all over the place; and that, again, is 
part of the inconsistent treatment of these laws.
    Chairman Walberg. Okay. Thank you.
    Mr. MacDonald, in light of the increase in FLSA lawsuits, 
what modernizations do you think could be made to FLSA in order 
to bring them in line with the 21st century--as you indicated, 
it is way out of date--reducing confusion, lawsuits, and also, 
in the process, of empowering employees?
    Mr. MacDonald. Chairman Walberg, I think that it is pretty 
clear that the standards by which overtime pay is supposed to 
be administered are clear, so that is not an issue here. I want 
to try to make that clarification up front.
    The issue that we are looking for is how do you define some 
of the work that is now being done that the law did not 
anticipate 60, 70, even 20 years ago? The ability to use 
technology has dramatically changed the workplace. So, for 
instance, in my industry, the computer exemption piece is clear 
for one role. We think those roles have to be expanded now, so 
that the roles are more clarified, that we can decide where 
that work gets done.
    Secondly, the concept of de minimis. While I don't have a 
silver bullet on a definition of de minimis, we would like to 
work with both sides to figure out how we can define that. De 
minimis work, does it mean that if somebody opens their 
BlackBerry--for argument's sake--to check their assistant's 
calendar or the supervisor's calendar and begin to do some work 
and then start to go to work, is that portal-to-portal 
compensation? Those types of things have not been had.
    Inside versus outside sales. The same person in IBM can be 
selling a software product on the outside and another person 
could be in the inside. One is nonexempt and one is exempt. It 
doesn't make sense. Yet they are selling the same product.
    It is those types of things that a matter of definition of 
clarification will help employers ultimately decide what to do.
    Chairman Walberg. Thank you.
    I see my time has ended. I recognize the ranking member for 
her questions.
    Ms. Woolsey. Well, for the record, I think we all--I need 
to tell everybody that my professional background before I was 
elected to Congress in 1992 was that of being a human resources 
manager for an electronic startup company, very high-tech 
company in the telecommunications industry in Marin County, 
California, where we started with 13 employees. My employee 
number was six, and I was there for 10 years. And when I left, 
we had over 800 employees. So over that 10-year period, you 
know, I hired, set policy, and certainly had to deal with FLSA. 
Well, we never had one suit, ever, on any level, actually, that 
had to do with employer-employee relations.
    And then I started my own HR consulting firm and helped my 
client companies learn how to treat their employees and not 
worry about going around the law but understanding what the law 
is. And we always had flexible schedules. And that was in 1969. 
That was before people even talked about flexible schedules. We 
knew how to do it because we wanted to. If there is a will, 
there is a way. You can take care of your employees without 
taking advantage of them. And we knew the difference between 
exempt and nonexempt, believe me.
    So I am going to ask you a question, Ms. Conti. Mr. Alfred 
uses Walmart as one of his examples of this poor corporation 
that gets picked on in the courts and by their employees. Well, 
Walmart is currently facing more than 80 lawsuits at various 
stages of the legal process. And, after an audit, some of the 
methods that have been cited in the lawsuit used by the Walmart 
managers that Walmart is challenging in the courts is to hold 
down labor costs that would include forcing employees to work 
off the clock, requiring workers to skip lunch and rest breaks, 
and manipulating time and wage records. Just for example.
    And then, of course, they have settled four of their cases 
between 2004 and 2010. So you know they were guilty or they 
never would have settled.
    So could you tell us if you think that that is unfairly 
picking on Walmart and how you see this?
    Ms. Conti. Well, in all candor, there is nobody in the 
workers' rights movement that would ever complain about 
unfairly picking on Walmart. The wage practices are well known. 
They are creative. There have been many court decisions very 
clearly stating that the practices they have engaged in have 
been illegal.
    And in spite of the settlements that they have had to pay, 
in spite of the judgments they have had to pay, they keep 
having record profits year after year. Their CEOs, their high-
ranking officials keep making wonderful salaries that grow each 
year, while their workforce's salaries don't really grow each 
year. So it is nothing that I am going to feel too sorry about 
right now.
    For the handful of multimillion dollar settlements that my 
fellow witness has talked about, he also ignores that the vast, 
vast, vast majority of these cases are for workers that maybe, 
in the case of low-wage workers, are complaining over hundreds 
or maybe mere thousands of dollars and need the remedies of the 
FLSA so that they can eat, they can pay their mortgage, they 
can get medicine for their kids and send them to the doctors 
when they are sick. And we are overlooking that very important 
purpose of the FLSA here.
    Ms. Woolsey. So after almost 80 years of existence, could 
you very quickly tell us what is work so that everybody is not 
confused? What is work?
    Ms. Conti. What is work? Work is the labor that you produce 
for your employer. It is the time you spend doing that which is 
for your employer's benefit.
    Ms. Woolsey. Thank you.
    And, also, how does exempt/nonexempt differ? If you can say 
that quickly.
    Ms. Conti. Sure. Exempt workers are generally people who 
are considered some degree of a white-collar professional, who 
exercise independent judgment and discretion, who don't simply 
follow a well-set guideline of procedures and steps, who have 
additional education and training that means that they are more 
likely to be a professional, and that make a certain 
sufficiently high salary that indicates that they are 
professional as well. There are a host of other exemptions in 
various fields, but the main exemptions that are usually the 
source of much debate are the so-called white-collar 
professional exemptions.
    Ms. Woolsey. Thank you.
    Chairman Walberg. Thank you.
    Recognize chairman of the full committee, the member from 
Minnesota, Mr. Kline.
    Mr. Kline. Thank you, Mr. Chairman.
    Thank the witnesses for their testimony, for being with us 
today, help us to look into to the Fair Labor Standards Act, 
which has been discussed is indeed an old Act. And we are 
exploring its application in, not in 1969, which was a very 
good year, as I recall, the year I graduated college, but in 
2011, '12 and '13, going forward.
    The gentlelady from California, the ranking member, said, 
quote, we know Walmart was guilty or they never would have 
settled, close quote.
    Mr. Alfred, is it your observation that you only settle if 
you are guilty, or are there other factors here that might be 
taken? Can you talk about that? You mentioned that there were 
settlements because it is less costly as a business decision. 
Could you expand on that, please?
    Mr. Alfred. Yes, thank you.
    With all due respect to Ranking Member Woolsey, that 
statement is inaccurate in my experience and in common sense.
    If one were to examine the way a collective action works 
under the Fair Labor Standards Act, one would quickly see that 
the risks to employers may be enormous. That doesn't mean that 
employers did anything wrong. Oftentimes, the analysis is that 
they did not. The problem is, in a collective action, the case 
may be what is called conditionally certified at the very 
beginning of the lawsuit with a very low burden. Almost all 
cases are. That then triggers legal mechanisms that allow the 
hundreds, thousands, and more people to join the case.
    The litigation continues; and as the litigation continues, 
depending on what court you are in, depending on what judge you 
are before who is going to be interpreting the ambiguous terms 
in the statute, such as the administrative exemption, whether 
or not an employee is exercising the degree of discretion and 
independent judgment required to meet the standards of that 
exemption, and also know under what rule book we are playing, 
depending on where the Department of Labor is at the time.
    The Department of Labor has recently changed its view 
through amicus briefs filed in cases on what exactly it thinks 
the proper degree of discretion and independent judgment is. So 
when you look at the threat of these lawsuits and you 
understand the risks of going to trial, decisions are made on a 
business level to make payments that are dramatic compromises 
perhaps, but they do not represent what Ms. Woolsey terms guilt 
or innocence. They are business decisions and hard business 
decisions.
    Mr. Kline. Thank you.
    So, in short, it is cheaper, it is less expensive for the 
business to settle, rather than to carry the case forward and 
take a risk, depending upon the interpretation in a particular 
court or a particular jury. So it is a business decision, not 
necessarily in any way an admission of guilt.
    Ms. Woolsey. Would the gentleman yield?
    Mr. Kline. I would be happy to yield.
    Ms. Woolsey. Thank you, Mr. Chairman.
    I did make a mistake. I don't know that they are guilty. 
You never, as a member, ever supposed to admit you made an 
error. But because the decision is sealed and so there is no 
way for me to know.
    Mr. Kline. Exactly. Reclaiming my time.
    Ms. Woolsey. Okay. But you have to know what the four--what 
they paid: $86 million, $65 million, $55 million, $40 million.
    Mr. Kline. Thank you.
    Reclaiming my time, I saw those numbers as well; and who 
knows how many hundreds of millions might have been at stake.
    I want to--my time is rapidly disappearing here, and I want 
to get at the issue of flexible time. We have had multiple 
testimony on that; and Ms. Conti had testified that, within the 
same work week, there was already flexibility and comp time 
could be provided. But in the public sector, as we know, it is 
greatly prized. Because you can accrue comp time. You can 
choose to work in December and take time in August, for 
example.
    Could you, Mr. MacDonald--my time has expired, but I am 
going to beg the indulgence of the chair because of the little 
colloquy that we had. Could you comment on the difficulty in 
providing compensatory time, flexible time, and the impact that 
has on the workplace today in 2011?
    Mr. MacDonald. If we are recognizing the time issue that 
you have stated, this is exactly what is wrong, for instance, 
in the municipalities and government public sector, is the 
accrual of all of this is liability that sits there forever. 
And, frankly, that is not something that we want to accrue on 
our books. We have no problem paying people. That is not the 
issue. The issue is trying to get to decide where they should 
be classified.
    So creating systems of having to account for all that time 
and when they can get it, we have people who are having 
problems getting their vacation time; and to then talk about 
having further accrual just doesn't make sense in the business 
liability.
    In addition to that, how do you accrue for that? If that 
time is carried over for 2 or 3 years, at what rate is it 
carried to?
    So it is an administrative burden that is cost ineffective.
    Chairman Walberg. I recognize Ms. Hirono for her 
questioning.
    Ms. Hirono. Thank you, Mr. Chairman.
    I note that two of our testifiers really railed against the 
plaintiff's bar, plaintiff's lawyers; and I take it, Mr. 
Alfred, that you are speaking for the defense side of the 
table.
    Mr. Alfred. I am today, although at the beginning of my 
career I was a plaintiff's lawyer as well.
    Ms. Hirono. I am sure that if we had a plaintiff's lawyer 
representing some of these workers in class-action suits we 
probably would have heard a different narrative, and I wish 
that they were present here so that we could hear both sides.
    With regard to the 7,000 lawsuits and the explosion of 
lawsuits, as Ms. Conti mentioned, that many of these are--a lot 
of these are not class-action lawsuits being settled for 
millions and millions of dollars, that they are individual 
claims, are they not, Ms. Conti.
    Ms. Conti. They are.
    Ms. Hirono. I don't know what the average of settlement 
value or----
    Ms. Conti. There are no statistics. I can tell you from my 
15 years as a plaintiff's attorney that the cases that we 
handled, by and large--when I was doing strictly legal services 
on behalf of low-wage workers, the settlements and verdicts 
usually ranged somewhere between $500 to $3,000 or $4,000. 
There were some that were more substantial, but not much more.
    In a collective action that I worked on against Purdue 
Farms that had misclassified its chicken catchers as 
independent contractors, the average plaintiff received 
somewhere between $5,000 and $10,000. There were some that 
received as much as $25,000, but that was because they were 
working over 80 hours a week and not being compensated any 
overtime for it.
    Ms. Hirono. I think, considering the FLSA was really 
intended to provide a support for really the low-wage workers, 
the people who otherwise would be facing a really difficult job 
situation vis-a-vis their employers, I think that we should 
keep in mind that the vast majority of these complaints are 
coming from individual complainants.
    And I should mention as an aside, it is getting a lot 
tougher with this U.S. Supreme Court to pursue class action 
claims. In the most recent decision being the Walmart decision 
wherein they decided that, practically out of the blue, in my 
opinion, that suddenly common questions of law and fact that 
affect the class would be a lot tougher hurdle for the class to 
pursue its claims. So it is really getting a lot tougher.
    And I would like to focus this committee on the fact that 
most of the complaints are coming from individual workers.
    I have a question for Mr. MacDonald. Because you do make 
some recommendations in changing the current FLSA. You call it 
a job killer, and I take it that your changes would really 
allow you to exempt more workers. That would be an accurate 
characterization, wouldn't it?
    Mr. MacDonald. I think what the statement is is that we 
believe that the clarifications would be more reflective of 
their training and their income. My fellow panelists talked 
about white-collar workers earning substantial income.
    Ms. Hirono. Which would mean basically that there would be 
more exempt workers and, therefore, the requirement to pay 
overtime would not apply. So you could have a scenario where, 
if we accept your suggestion, which basically would allow more 
workers to be more exempt, that employers won't have to pay 
overtime, and it therefore could actually be a job killer.
    Mr. MacDonald. What I would give you as a perfect example 
of that is, when we reclassified 7,000 people who were earning 
between $77,000 and $150,000, they took a 15-percent reduction 
in their base to offset the overtime that they might work. 
Thirty-four percent of those people in the next year earned 
less money. So it wasn't a matter of saving money. It is just--
because we would have glady kept the pace as it was as exempt.
    Those persons also when it is argued about----
    Ms. Hirono. Thank you. That is one scenario, and I think we 
can envision other scenarios where we are going to open the 
doors to a lot of workers being exempt and therefore overtime 
not being paid, and it could very well result in a lot of 
employers requiring these exempt workers to work much longer 
hours without hiring more people to do that work. So it could 
actually have a job-killing impact.
    Mr. MacDonald. This is not France and trying to reduce work 
hours to 35 hours.
    Ms. Hirono. We know that the corporations who are making a 
lot of money these days and holding on to literally billions 
and trillions of dollars and they are not creating jobs. That 
is because we don't have demand. I would say that is one of the 
major reasons. And if we are going to start paying people less 
or hiring fewer people because they are exempt, I don't think 
we are really helping our economy.
    And I did want to note that since we don't have--I don't 
feel as though the panel is balanced, except for Ms. Conti, to 
speak up for the underlying reasons for this law. I don't want 
to--it is not as if I am picking on you all, but I really think 
if we are going to do something as dramatic as changing the 
FLSA that we need to keep in mind what the underlying purposes 
of this law is, and we should deal with facts that relate to 
the millions of people who are being impacted by the kind of 
changes that you are proposing.
    I yield back.
    Chairman Walberg. The gentlelady's time has expired.
    I will recognize the fact that the minority always has an 
opportunity to request the witness that they would desire, and 
I am glad that you have chosen well.
    I recognize the gentleman from Ohio, Mr. Kucinich, for his 
questioning.
    Mr. Kucinich. Thank you, Mr. Chairman.
    I would just like to go down the line for a brief question 
to each witness.
    The Federal minimum wage is $7.25 right now, Mr. MacDonald. 
Do you believe it should be decreased, stay the same, or 
raised.
    Mr. MacDonald. I am not quite sure of the nature of the 
question.
    Mr. Kucinich. Okay. Next person. Mr. Alfred.
    Mr. Alfred. I am from the Commonwealth of Massachusetts 
where it is $8.
    Mr. Kucinich. So should the Federal minimum wage be raised?
    Mr. Alfred. I don't mean to be smart about this----
    Mr. Kucinich. Okay. Next question. You don't want to be 
smart. We will take the next question.
    Ms. Conti.
    Ms. Conti. I emphatically believe the minimum wage should 
be higher. If we had it restored to its historical rate in the 
1960s when it was as high as it was relative to inflation and 
wages, it would be between $9.50 and $10 an hour right now. I 
think that is the right place to set it, and it should be 
indexed to inflation after that so it goes up every year.
    Mr. Kucinich. Thank you.
    Mr. Hara.
    Mr. Hara. I don't really have an opinion on that.
    Mr. Kucinich. Okay. Thank you. That is all I wanted to 
know.
    Here is a very clear example here. When you are talking 
about someone who is advocating their cause of economic 
justice, you can be very clear. But we can't get a straight 
answer out of any of the witnesses, who have excellent 
backgrounds, on really a very simple question: What do you 
think the minimum wage should be? That question is as clear as 
anything: What should the minimum wage be?
    Now, let's look at something right here, because this is a 
good opportunity to make an important point. JP Morgan, one of 
the largest financial institutions, just issued a report 
pointing out that corporate profit margins have reached levels 
not seen in decades, that U.S. labor compensation is now at a 
50-year low relative to both company sales and U.S. GDP, that 
reductions in wages and benefits--this is JP Morgan--reduction 
in wages and benefits explain the majority of the net 
improvement in corporate profit margins.
    Why is U.S. labor compensation so low, the report asks. 
Well, the analysts at JP Morgan state that the lingering excess 
labor supply from the recession is one reason, but the 2 
billion people in Asia joining the global labor force over the 
last two decades is another. They talk about wages for 
production workers and emerging markets remain well below U.S. 
levels.
    The information helps to put the subject matter of today's 
hearing in perspective. Because the unemployment rate is not 
just a number. It is not just that 9.2 percent are unemployed. 
It is not just that 14 million or more are unemployed and that 
several million more are underemployed. You have to look at the 
unemployment rates are hitting African Americans 16.2 percent, 
Hispanics 11.8 percent, teenagers 24.5 percent.
    So you have to look at this economic context that we are 
in. The rich are getting richer, and the poor are getting 
poorer, and the middle class is getting destroyed because they 
cannot hold on to a good wage level.
    So you have the representatives here of these big financial 
interests. They are not satisfied. They want more profits, even 
if it means driving down wages or making workers work time and 
a half and not getting paid for it.
    I want to thank the witnesses for being here, because your 
presence here proves what is wrong in this country today and 
that is that you are here advocating for a financial system 
that is manifestly unfair. And I appreciate you being here to 
be able to help clarify that and your unwillingness to be able 
to answer a simple question.
    But it is very clear from these market reports that you 
have wages and benefits going down while profits are going up. 
And there is a direct relationship between that, and we ought 
to start thinking about what that means about our country. When 
you have corporations able to make larger profits because they 
keep knocking down workers' wages and benefits, that is not 
right; and, frankly, it is not even American.
    I yield back.
    Chairman Walberg. I thank the gentleman.
    I recognize the gentleman from Indiana, Mr. Bucshon.
    Mr. Bucshon. I will yield back my time to the chairman of 
the subcommittee, Mr. Walberg.
    Chairman Walberg. Thank you. That is a pleasant surprise.
    Mr. Bucshon. I yield my time.
    Chairman Walberg. I appreciate that.
    Let me return to Mr. MacDonald.
    In Michigan, unemployment has just risen not far, because 
it didn't go far down, but risen to 10.3 percent again this 
month. We haven't seen it below 10 percent for years in 
Michigan. We are not seeing any relief really in sight.
    The finding task of this Congress is to get our country 
back to work, not to establish social policy that destroys jobs 
and destroys incentives and makes it more difficult for 
employers to hire, to make a profit, which ultimately expands 
the opportunity for all of us, as I understand, and I would 
respectfully disagree with my colleague from Ohio.
    The purpose of the private sector is to create an economy, 
and we should make sure that a playing field is in place to do 
that.
    As one of the country's major employers, has FLSA prevented 
you from hiring employees from around the United States.
    Mr. MacDonald. Let me give you a real-life example; and I 
think it would be helpful to my panelists if--Ms. Conti--to 
think about how we could use enforcement even better for the 
Fair Labor Standards Act.
    IBM about 2\1/2\ half years ago announced that we were 
putting an additional 1,000 jobs in Iowa. These were high-
paying jobs. These are significant jobs. They were technology 
jobs. These are people who have bachelor's degrees and great 
training like that. We put those thousand jobs in Iowa, and we 
have been subjected to two audits already with no findings.
    I really have to question, you know, when I think about the 
reality of some of the abuses that were suggested by Ms. Conti. 
I understand those. I am very aware of those myself in smaller 
industries. But here we are creating jobs in the United States, 
and no good deed goes unpunished. Right away, we have to be 
subjected to the audits. And we did it right. But it is 
complicated, and there is a lack of clarification, and we are 
now erring on the side of nonexempt if we--even keeping the 
employment here.
    I mean, this is a global economy. We can talk about the 
fact that other countries are doing other things. The reality 
of it is we didn't have the global economy in 1938 or 1960. We 
have it now. It is a reality. Competitors are coming from 
everywhere. It is just not the U.S. competitors competing 
against each other. It is a global competitor.
    We are going to think about our business in the context of 
labor costs. We are going to make investments where investments 
are appropriate to make.
    We made investments in technology of $5 billion last year. 
That had enormous impact around the world and for this economy. 
But we have to make investments where we can be cost 
competitive.
    Chairman Walberg. Thank you.
    I would turn to Mr. Hara as well. I mean, Goodwill is 
filled with goodwill and the employment that you provide to a 
specific group of employees and the services that come from 
that are unique, special, and important. Has FLSA prevented you 
from hiring employees from around the United States?
    Mr. Hara. Well, we don't hire from throughout the United 
States. We are located in central Arizona.
    However, we are challenged by the current way the FLSA is 
structured. Because one of the issues that we are dealing with, 
especially because our employee base is predominantly 
individuals with barriers to employment, they have special 
needs. We have a lot of single families, we have a lot of 
broken families, we have individuals that have special needs 
that are all hourly employees working for us. We have 
approximately 2,000 employees working for our particular 
Goodwill.
    One of the biggest concerns that we have is that when 
employees come to us asking for special privileges like taking 
time off and then being able to make that up because they can't 
afford not to go without pay, that is when we start running 
into problems with flexibility. I understand that there are 
times where you can make everything work within the 40-hour 
work week and you can work some extra hours 1 day and not the 
next because you are trying to take care of things. But, 
oftentimes, that is not the case, and it runs into the 
following week. And when we run into overtime issues, it really 
taxes our expenses, because we are on a very tight budget.
    So some of the provisions on the Fair Labor Standards Act 
as they relate to flexibility is an area that we really need 
some help on. And, for example, public employees have the 
opportunity to trade time for pay situations. And, right now, 
the private sector, which we are one of, does not have that 
opportunity.
    So those are some of the areas that I think can be worked 
on, without taking away the essence of the Fair Labor Standards 
Act, to improve.
    Chairman Walberg. Thank you, and thank you, Mr. Bucshon, 
for yielding your time.
    I would recognize Mr. Payne for any questions that you 
might have of the witnesses.
    Mr. Payne. Thank you very much.
    My time is not that good right now. However, I would just 
like to say I think that the issue is certainly very important.
    I will not ask any questions at this time, but what I would 
say is that I think that we need to take a look at the 
policies. In many instances, we have to streamline them. Of 
course, we also have to be careful that we don't start to set 
the clock back like we have been hearing in some of our 
hearings. We have made a lot of progress in this country, and I 
hope that we don't start to regress.
    But what I will do at this time is to yield to the ranking 
member, Ms. Woolsey, my time.
    Ms. Woolsey. Thank you very much.
    Mr. MacDonald, I have a question for you about your 
statement of how FLSA has sent jobs overseas. Could you give us 
an example of how IBM--just even only one--or where and how IBM 
has had to send jobs overseas as a result of FLSA regulations.
    Mr. MacDonald. Well, as an enterprise that is managed on a 
global basis, we look at where we are going to make investments 
and we look at where those investments can yield. We represent 
shareholders. That is what the capitalistic system is about. 
And when we look at those labor costs, we think about it in 
terms of how we will be competitive against competitors that do 
not exist on these shores. So our ability to make those 
decisions is driven off of the opportunity to control costs----
    Ms. Woolsey. So it would be okay with you that we move to 
the very lowest rung of the ladder in order to pay our workers, 
because the overseas companies don't pay overtime, don't have 
wage and hour laws, don't have--actually, don't even have 
environmental laws. I mean, so is that okay with you? Is that 
what we want to do here in the United States?
    Mr. MacDonald. That is what you suggested. I said--I never 
said anything to the contrary. IBM has very high standards of 
ethical and moral behavior around the world.
    If you want to paint IBM was a sweatshop----
    Ms. Woolsey. I don't. I am talking to you about why having 
a Fair Labor Standards Act would send jobs overseas.
    Mr. MacDonald. Because I said to you right now I cannot 
have clarification about what people are classified. I need a 
level of definition about making decisions around cost 
competitiveness. That is business reality. That is not theory. 
That is not philosophy. It is how you make decisions in 
business.
    Ms. Woolsey. Okay. I wish I was still an H.R. consultant. I 
would love to work with you. All of my clients knew what it 
was.
    Mr. MacDonald. I would have to know what your rates were.
    Ms. Woolsey. You could afford me. Believe me. I was not 
expensive.
    Mr. MacDonald. I don't know. It is labor cost 
competitiveness.
    Ms. Woolsey. Well, Mr. Hara, aren't there exceptions for 
workers with disabilities so their hours--I mean, for Goodwill? 
Can't you make decisions for your disabled workers?
    Mr. Hara. Well, actually, all of our employees fall under 
the same rules as they relate to the Fair Labor Standards Act. 
And unless you may be talking about a different set of rules 
that is not a part of this discussion, I don't think, but----
    Ms. Woolsey. You are using your employees at Goodwill as 
your example, not just employees in general through the 
association.
    Mr. Hara. I am sorry. Could you repeat that?
    Ms. Woolsey. You were using your Goodwill employees as an 
example.
    Mr. Hara. Yes. Our employees are still bound by the Fair 
Labor Standards Act. If they work overtime, we are required to 
pay overtime.
    Ms. Woolsey. Overtime. But we do make exemptions for 
disabled workers under the Americans for Disability Act.
    Mr. Payne. Can I reclaim my time?
    Ms. Woolsey. Yes, you may.
    Mr. Payne. Mr. MacDonald, in the little time I have left, 
you were saying about competitiveness and we just pay too much. 
What is your prognostication of America 50 years from now? Is 
it that we are going to have a rush to the bottom? How do we 
compete?
    Mr. MacDonald. If we continue, in my opinion--I have been 
in H.R. for 40 years. I graduated in 1970, not 1969. That was a 
good year as well. The reality of it is--you want to know what 
we are looking at in 50 years? I will tell you in 20 years. Go 
look at Europe. That is what we are going to be.
    Mr. Payne. So our salvation is that we should have the rush 
to the bottom. If we are going to compete I guess just on 
wages, as you mentioned as one of the areas, we are never going 
to be able to----
    Mr. MacDonald. Sir, it is not a rush to the bottom. Because 
if you think about all of the things we have done--Look, I am a 
global executive and an American citizen. I am proud of that.
    Mr. Payne. You are talking about the past. I am talking 
about the future. I know what we have done. That is why we are 
number one. A rush to the bottom is not going to keep us number 
one.
    Mr. MacDonald. We have been able to innovate in this 
country, and I am suggesting to you that technology will become 
a major player in thinking about how we think about labor law 
reform and how labor will be done in the United States. 
Technology becomes a big part of how you think about the Fair 
Labor Standards Act going forward.
    Chairman Walberg. The gentleman's time has expired.
    I appreciate the testimonies, the answers as well as the 
questions that have been given. And we never come to the end of 
a discussion on this, and we won't. We will be continuing on. 
But this is a good first step in the process. I am sure we will 
have other opportunities.
    So thank you for being with us today.
    I would recognize the ranking member for any closing 
comments.
    Ms. Woolsey. Thank you, Mr. Chairman. Thank you for holding 
this hearing.
    And I would conclude that the purpose of the private sector 
is to create a U.S. workforce that benefits from the riches and 
the bounty of this amazing country, the United States of 
America, and if it could be shared more equitably than it is 
being shared today. And that has to be one of our goals.
    And I would like you to know that I would very much like to 
work with you on cracking down on this employee 
misclassification. Because I am going to have a bill--I would 
love it if you would support it. Because misclassification 
cheats workers and taxpayers. It incorrectly classifies workers 
as independent contractors. And when that happens, for 
instance, we prevent those workers from enjoying the 
protections most Americans take for granted such as family 
medical leave, workers' compensation, collective bargaining.
    More than 10 million workers are misclassified, and that 
costs taxpayers $2.7 billion annually, and it prevents 
employers from--actually, preventing employers from abusing the 
law and recouping an estimated $27 billion in revenue over the 
next 10 years should be our goal. And I think it should be a 
goal that you and I share in common, and I really want to work 
with you before I introduce this.
    So I see this as part of strengthening the Fair Labor 
Standards Act. It benefits workers. It levels the playing field 
for our employers that follow the law so they aren't paying 
more and competing with those who cheat.
    It is essential that the protections established under the 
Fair Labor Standards Act are extended to every worker that it 
is meant to cover. And if we need some clarification on the 
Fair Labor Standards Act without weakening it, I am sure we can 
do that and do that together.
    Thank you very much.
    Chairman Walberg. I thank the gentlelady, and I certainly 
would concur with your thoughts that we encourage the amazing 
workforce that we have here in the United States.
    The exceptionalism that is America and its people is 
something that I think we can both agree with. We live with 
those people. We have raised those people. I want my sons and 
daughters, now grandchildren, to be amazing workers in an 
amazing country with opportunity to expand, with opportunity to 
be challenged.
    I understand work from a theological background, that there 
is an actually theology of work, that God designed work to be 
wonderful for us. And in fact gave a day of the week--in my 
Judeo Christian ethic gave a day of the week to be set aside so 
we won't overwork because we like to work so much. It 
disappoints me so often to see people that don't enjoy their 
work.
    I am in my sweet spot. Some of my constituents don't think 
I should be in that sweet spot, but that is the way it is. But 
I think we ought to encourage work, but I also think we ought 
to encourage our employers as well. I think we can do that. 
Because, frankly, capitalism is a wonderful thing. It gives us 
the opportunity to expand. It gives us the opportunity to lead 
in the world, which we do. And I think that we should not be 
involved in a race to the bottom, but, rather, we should be 
involved in a race to innovate to the top.
    America's psyche, America's history, America's pattern has 
always been that of innovation, of moving forward, of 
aggressively moving forward, of having cycles, yes, cycles that 
sometimes we expand rapidly and other times where we just plod 
along, but we move forward. And I don't think a time when now 
we are recognizing a global challenge that is unparalleled to 
what we have seen at other times in our history, a global 
challenge of people who are striving to achieve the same thing 
that America has become accustomed to--and I applaud them for 
that, though I may disagree with some of their approaches and 
tactics. Yet that should encourage us in working with our 
employees and FLSA to make sure that there is fairness for 
employees and employer, that there is justice for all in the 
process, but that we come out on top here in America--both our 
industry, our small businesses, and the employees who make it 
all happen.
    So we will continue to work to that direction, 
understanding that the cycles sometimes are frustrated by what 
government does or doesn't do. And my efforts--and I will 
commit to my ranking member and the rest of this subcommittee 
that my efforts will be not to hold back either the employer or 
the employee but to make sure that we have incentives for both 
to achieve with excellence so that this country moves forward.
    Thank you. Now I refrain from preaching.
    I will recognize the fact that there is no further business 
to come before this committee. So, with that, I adjourn the 
committee.
    [Additional submission from Ms. Woolsey follows:]

            Prepared Statement of Debra L. Ness, President,
               National Partnership for Women & Families

    The National Partnership for Women & Families is a non-profit, non-
partisan advocacy group dedicated to promoting fairness in the 
workplace, access to quality health care and policies that help women 
and men meet the dual demands of work and family.
    The National Partnership strongly urges members of Congress to 
support public policies that help working women and men meet the dual 
demands of work and family while preserving the vital worker 
protections offered by the Fair Labor Standards Act. The Fair Labor 
Standards Act of 1938 (FLSA) provides a baseline of required employee 
protections for more than 130 million workers. The FLSA does not 
prevent employers from implementing flexible workplace policies. The 
types of flexibility consistent with the FLSA's purpose and provisions 
include shift swapping, alternative start and end times, compressed 
workweeks (spanning only one week), team scheduling, part-time work, 
job sharing and scheduling at multiple locations.
    America's workplaces are out of sync with 21st century society. 
Children get sick, parents age and health emergencies arise--but many 
workplaces offer little flexibility to help working women and men care 
for their families and still succeed at their jobs. Workers in this 
country need greater flexibility and control over scheduling, 
alternative schedules and overtime, parity for those working part time, 
more telecommuting opportunities, paid sick days, paid family and 
medical leave, and support to meet after-school, child and elder care 
needs.
    Workers want and need flexibility at work. Over the last year, the 
National Partnership for Women & Families interviewed workers in 
California, New York, Illinois, Wisconsin and Texas. The message they 
sent was clear: All workers, regardless of where they live and what 
jobs they have, need flexibility.\1\ Flexibility is critical for 
workers who are managing child care and elder care responsibilities or 
dealing with their own health problems. Some workers, particularly 
salaried professionals, are likely to have more flexibility, but lower-
wage and hourly workers are often left behind. Workers need and value 
flexible work arrangements that allow them to vary their work hours and 
work locations, as well as the security that comes with being able to 
take paid time away from work without fear of retribution or 
termination. They report feeling resentful and undervalued when 
employers provide flexibility for some workers but not others, and when 
workplace policies are unclear or fail to acknowledge workers' needs.
---------------------------------------------------------------------------
    \1\ National Partnership for Women & Families and Family Values @ 
Work. Dallas Workers Speak: The Employee Case for Flexibility (2010, 
October), Los Angeles Workers Speak: The Employee Case for Flexibility 
in Hourly, Lower-Wage Jobs (2011, February), Midwest Workers Speak: The 
Employee Case for Flexibility in Manufacturing Jobs. (2011, April). New 
York City Workers Speak: The Employee Case for Flexibility among 
Professional Workers (2011, June). Retrieved 22 July 2011, from http://
www.nationalpartnership.org/site/PageServer?pagename=issues--work--
Library--workflex
---------------------------------------------------------------------------
    Hourly, lower-wage workers are much less likely to have workplace 
flexibility. Most of the 38.5 million lower-wage workers in the United 
States do not have access to even the most basic flexibility 
policies.\2\ Many are required to work in shifts that are unpredictable 
and constantly changing. They may be asked to work overtime with little 
notice, and they seldom have leeway to arrive late, leave early, or 
take time mid-day to deal with family or medical emergencies.\3\ These 
workers typically risk workplace discipline or job loss for taking time 
off when they are sick or need to care for a sick child.\4\ Lower-wage 
workers say that any flexibility they have is often at an individual 
supervisor's discretion and provided on an inconsistent basis. Because 
these workers have so little control over their schedules, they say 
they struggle to make quality child care arrangements and meet other 
family commitments.
---------------------------------------------------------------------------
    \2\ This is the number of civilian workers whose wages fell in the 
lowest quartile (less than $11.11 per hour) in 2009. U.S. Department of 
Labor, Bureau of Labor Statistics. (2010, March). National Compensation 
Survey: Employee Benefits in the United States, March 2010 (p. 527). 
Retrieved 26 January 2011, from http://www.bls.gov/ncs/ebs/benefits/
2010/ebbl0046.pdf; and U.S. Census Bureau. Table 584. Civilian 
Population--Employment Status: 1970 to 2009. Retrieved 26 January 2011, 
from http://www.census.gov/compendia/statab/2011/tables/11s0585.pdf
    \3\ Watson, L., & Swanberg, J. (2011, May). Flexible Workplace 
Solutions for Low-Wage Hourly Workers: A Framework for a National 
Conversation. Workplace Flexibility 2010, Georgetown Law Publication. 
Retrieved on 25 July 2011, from http://www.uky.edu/Centers/iwin/
LWPolicyFinal.pdf
    \4\ Galinsky, E., & Bond, J. (2011). Workplace Flexibility and Low-
Wage Employees. Families and Work Institute Publication. Retrieved on 
25 July 2011, from http://www.familiesandwork.org/site/research/
reports/WorkFlexAndLowWageEmployees.pdf
---------------------------------------------------------------------------
    Workplace flexibility has big payoffs for business. Flexible 
workplaces promote greater job satisfaction, stronger job commitment 
and higher rates of worker retention \5\--outcomes that boost 
productivity and profits. The turnover rate among hourly workers is 
notoriously high--80 to 500 percent in some industries \6\--in part 
because their jobs offer little or no flexibility. Replacing workers 
can cost anywhere from 25 to 200 percent of annual compensation.\7\ 
Businesses that don't provide flexibility pay for it when they have to 
pay to hire, train and retain a constantly revolving workforce.
---------------------------------------------------------------------------
    \5\ Bond, J.T., & Galinsky, E. (2006, November). What workplace 
flexibility is available to entry-level, hourly employees? Families and 
Work Institute Publication. Retrieved 26 January 2011, from http://
www.familiesandwork.org/site/research/reports/brief3.pdf
    \6\ Williams, J., & Huang, P. (2011). Improving Work-Life Fit in 
Hourly Jobs. Work Life Law, U.C. Hastings College of Law Publication. 
Retrieved 26 January 2011, from http://www.worklifelaw.org/pubs/
ImprovingWork-LifeFit.pdf
    \7\ Sasha Corporation. (2007, January). Compilation of Turnover 
Cost Studies. Retrieved 13 December 2010, from http://
www.sashacorp.com/turnframe.html
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    Public policies set a standard for all businesses and workers to 
follow, so that no business is put at a disadvantage or penalized in 
the short or long term for doing the right--and ultimately profitable--
thing. Leading employers have already instituted innovative practices 
because they recognize the role that flexibility can play in fostering 
a loyal, productive workplace and improving worker retention. These 
businesses allow hourly workers more control over their schedules and 
their work, and provide the flexibility that workers need to succeed on 
the job. Some of these practices include flexible schedules, self-
scheduling, cross-training workers to fill in when a team member is 
out, and supporting work from home. Even though some employers and 
industries voluntarily adopt flexibility policies for all of their 
workers, only a small fraction of the lower-wage workforce is employed 
in these businesses. That is why public policies are critical to 
changing the culture, leveling the playing field and helping both 
working families and employers.
    Congress took an important step toward improving workplace 
standards for working families last year when it provided millions of 
nursing moms the support and protection they need. The Affordable Care 
Act amended the FLSA to give covered female employees the right to 
reasonable break times and a private location, other than a bathroom, 
to express milk at work. The law is an important step in making sure 
the nation's workplaces meet the needs of working women and their 
families. We hope that Congress will look for other opportunities to 
strengthen our nation's laws to meet the needs of a 21st century 
workforce.
    With public policies that help workers meet the dual demands of 
work and family, both businesses and workers in the United States will 
get the support and protection they need to ensure healthy and 
productive workplaces. Such policies include:
     Paid Sick Days--The Healthy Families Act (H.R. 1876/S. 
984) would complement businesses' existing family friendly practices 
while establishing a minimum paid sick days standard for all employers. 
This standard would level the playing field by making paid sick days a 
universal practice, while also ensuring enough flexibility for 
employers to continue offering more generous benefits. Businesses 
already providing basic paid sick days protections would not need to 
change their practices. The result: healthier workplaces, reduced 
turnover, more satisfied and productive workers, and better bottom 
lines.
     Paid Family and Medical Leave--Paid family and medical 
leave has a big impact at little cost. Yet only 11 percent of workers 
in the United States have access to paid family leave through their 
employers, and less than 40 percent have access to personal medical 
leave through a private temporary disability insurance program provided 
by their employers.\8\ Laws providing paid family and medical leave 
allow workers to continue to earn a portion of their pay while they 
take time away from work to: address a serious health condition 
(including pregnancy); care for a family member with a serious health 
condition; or care for a newborn, newly adopted child or newly placed 
foster child. When provided through a public insurance system, the cost 
of paid family and medical leave programs is shared between employer 
and employee, which allows even the smallest businesses to offer leave 
to all of their employees. In fact, existing paid family and medical 
leave programs in California and New Jersey are funded solely through 
employee contributions with no direct costs to businesses.
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    \8\ U.S. Department of Labor, Bureau of Labor Statistics. (2010, 
March). Employee Benefits in the United States National Compensation 
Survey: Employee Benefits in the United States, March 2010 (p. 120). 
Retrieved 13 December 2010, from http://www.bls.gov/ncs/ebs/benefits/
2010/ebbl0046.pdf
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     FLSA Coverage for Home Care Workers--Millions of home care 
workers are currently denied basic wage and hour protections. These 
workers provide invaluable care that enables people who are sick, 
elderly and disabled to live with dignity and independence in their own 
homes. Yet, without fair pay for their hard work, many of these 
hardworking caregivers and their families struggle to put food on the 
table. This loophole in FLSA coverage reinforces gender and race based 
pay gaps, because more than 90 percent of home care workers are women, 
and more than half are African Americans and Latinas. The Direct Care 
Job Quality Improvement Act (H.R. 2341) would remedy a serious flaw in 
FLSA coverage that excludes home care workers from minimum wage and 
overtime protections.
    The National Partnership for Women & Families strongly urges 
members of Congress to support proposals that give workers paid sick 
days, paid family leave, and greater control over the time, place and 
duration of their work. Model employers have recognized the importance 
of making flexibility available to all workers--including lower-wage 
workers--and they have taken steps to establish fair and flexible 
workplace policies. When all businesses adhere to a standard of basic 
workplace flexibility, including paid sick days and paid family and 
medical leave, the result will be healthier, more reliable and more 
productive workers at every wage level--and employers that reap the 
benefits of more profitable businesses.
                                 ______
                                 
    [Additional submissions from Ms. Conti follow:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    [The policy paper, ``Flexible Workplace Solutions for Low-
Wage Hourly Workers: A Framework for a National Conversation,'' 
may be accessed at the following Internet address:]

           http://www.uky.edu/Centers/iwin/LWPolicyFinal.pdf

    [The policy paper, ``Improving Work-Life Fit in Hourly 
Jobs: An Underutilized Cost-Cutting Strategy in a Globalized 
World,'' may be accessed at the following Internet address:]

       http://www.worklifelaw.org/pubs/ImprovingWork-LifeFit.pdf

                                 ______
                                 
    [Additional submission from Mr. McDonald follows:]

                                                    August 9, 2011.
Chairman John Kline,
Education & the Workforce Committee, U.S. House of Representatives, 
        Washington, D.C. 20515.
    Dear Mr. Chairman: Additional Information for the Record re: July 
14 Hearing, ``The Fair Labor Standards Act: Is It Meeting the Needs of 
the Twenty-First Century Workplace?''
    I am writing to provide additional information to the Committee 
with respect to your question about the difficulty in providing 
flexible work options to today's workforce. I ask that this be added to 
the hearing record.
    The IBM Corporation is committed to creating a supportive and 
flexible work environment for its employees. Giving employees more 
flexibility and control over when and where they do their work is an 
important means by which they achieve greater work/life integration and 
enhanced productivity. This is done in the context of a pay-for-
performance work environment.
    As I noted in my testimony, we believe that work is something one 
does--not a place one goes. However, the universe of IBM's flexible 
work options is more widely available to exempt employees than non-
exempt employees in the U.S. IBM's policy is shaped by several outdated 
and unclear Fair Labor Standards Act (FLSA) provisions that date back 
to the 1938 passage of the law.
    These and other FLSA provisions have not been updated to reflect 
our 21st century economy. They were enacted prior to the prevalence of 
compressed or flexible work weeks, reduced work schedules, job sharing, 
mobile/remote working, part-time work, etc. They also predate 
computers, e-mail, Internet, voicemail and smart phones!
    One example relates to the administrative requirement to track and 
account for all time worked by non-exempt workers, despite the fact 
that the very term ``work'' has never been defined. In an environment 
in which nearly half of all U.S.-based IBM employees work remotely, 
tracking and verifying all time worked by well-paid, highly skilled 
non-exempt employees is challenging.
    The legal risks and liabilities resulting from law suits and claims 
of alleged non-payment for time worked--regardless of whether or not 
management was knowledgeable of or had authorized the time worked--add 
an even greater disincentive for employers. Instead of running the risk 
of expensive litigation, employers often, but reluctantly, elect to 
limit the flexibility given to employees as to when and where they 
work.
    As an employer, it is far easier in practice to offer--without the 
threat of litigation--flexible work options to exempt workers in our 
country. However, if additional clarity were added to the FLSA 
addressing which activities are compensable and which ones are not; if 
the duties of well-paid and well-educated computer employees were 
modernized in the statute; and if the exemption status of well-paid, 
commissioned salespeople were expanded to include more inside 
salespeople, more U.S. workers could enjoy a greater range of flexible 
work options. In turn, these workers could better balance their 
personal and professional needs. With these changes, we can turn a 
lose-lose situation into a win-win situation for employees and 
employers.
            Sincerely,
                                      J. Randall MacDonald,
                            Senior Vice President, Human Resources.
                                 ______
                                 
    [Whereupon, at 11:30 a.m., the subcommittee was adjourned.]