[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:]
------
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\
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\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\
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\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.
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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
---------------------------------------------------------------------------
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.]