[Congressional Record Volume 142, Number 137 (Saturday, September 28, 1996)]
[Extensions of Remarks]
[Pages E1789-E1790]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                        WHITE COLLAR REFORM ACT

                                 ______
                                 

                          HON. THOMAS E. PETRI

                              of wisconsin

                    in the house of representatives

                       Friday, September 27, 1996

  Mr. PETRI. Mr. Speaker, today I am introducing a bill to clarify and 
modernize the white collar exemption in the Fair Labor Standards Act. I 
hope this bill will receive close attention in the next Congress.
  The Fair Labor Standards Act enjoys a unique status among Federal 
labor laws. The rights it creates, including the minimum wage and the 
40-hour workweek, have become as ingrained as constitutional 
guarantees. Any attempt to tinker with the FLSA is immediately 
perceived as an attack on these basic rights or at least is so 
portrayed by political opponents.
  It is now becoming increasingly apparent, however, that more than a 
half century of hands-off politics has left a law that is seriously out 
of step with the times. No one is suggesting that the FLSA's 
fundamental precepts should be rethought in any way. Rather, it is the 
way the law achieves these ends that needs improvement.
  Two relatively recent developments have brought the issue to a head. 
First, disgruntled employees have begun to use the FLSA's salary basis 
test as a tool--not for logically distinguishing exempt from non-exempt 
employees--but rather for seeking revenge. The problem would not be so 
bad if it were limited to a few individual overtime awards; but it is 
not. Instead, seizing upon a single two-word phrase in the regulations, 
employees have argued that everyone theoretically ``subject to a 
technically flawed payroll policy is entitled to the same windfall--
regardless of whether the flaw affected any particular employee's pay. 
Employers, of course, rarely issue separate payroll policies for 
different groups of exempt employees; thus, every employee, up to the 
top levels of the corporate boardroom, becomes an equally viable 
candidate for unexpected largesse. The potential overtime liability is 
as enormous as it is irrational.
  Second, and just as disturbing, is the increasing arbitrariness of 
FLSA duties tests. Concepts such as discretion and independent judgment 
have always been difficult to define, but these problems seemed 
manageable in the era of assembly lines and hierarchical management 
structures. Today, however, technology has diversified job duties, 
service-based employment has proliferated, and even old-line 
manufacturing operations have moved to team management concepts. In 
this environment, employers can no longer rely on cookie-cutter 
paradigms in making duties judgments. Employers often have to guess--
and too many are guessing wrong. Even the courts struggle to achieve 
consistency, reaching irreconcilable results in cases involving the 
growing ranks of quasi-professionals such as accountants, engineers, 
insurance professionals, and journalists.
  The legislation I am introducing addresses these problems in three 
separate ways. First, my proposal will restore original understandings 
of the salary basis test by requiring the Department of Labor, and the 
courts, to focus on actual pay reductions rather than speculation as to 
potential deductions under some nebulous policy. The FLSA still will 
protect exempt employees from inappropriate practices, since regulatory 
provisions denying exempt status for actual salary deductions would 
remain unchanged. My legislation, however, will prevent employees from 
using a policy's theoretical application to extort huge overtime 
windfalls for company-wide classes of highly-paid employees who never 
could have imagined themselves as non-exempt laborers.
  Second, my proposal will address perhaps the most confusing and 
indefensible requirement among the FLSA's duties tests: the attempted 
distinction between production and management workers. Under current 
regulations, for example, an administrative assistant might meet 
exemption standards simply by opening a management executive's mail and 
deciding who should handle it, because such a job is directly related 
to management policies or general business operations of (the) employer 
or (the) employer's customers. On

[[Page E1790]]

the other hand, employees with far more sophisticated, challenging, and 
lucrative jobs may be nonexempt simply because they work on production 
tasks. The regulations reasonably expect an administrative employee to 
exercise a certain level of discretion and independent judgment, and my 
legislation would not alter that requirement. There is no reason to 
think, however, that a production or management label on the object of 
an employee's discretion or judgment has anything to do with that 
employee's professionalism, or the need for FLSA protections. 
Therefore, my bill eliminates the requirement that the employee's 
exercise of discretion and judgment be directly related to management 
policies or general business operations of (the) employer or (the) 
employer's customers.

  Third, and perhaps most significantly, my legislation would directly 
reverse the recent trend toward questionable overtime awards for highly 
compensated employees by creating an income threshold exempting the 
highest stratum of the workforce from FLSA scrutiny. There is no reason 
that the FLSA, which was passed to protect laborers who toil in factory 
and on farm helpless victims of their own bargaining weakness should 
ever be interpreted to protect workers making high five-figure or six 
figure incomes. Yet, without considering the policy implications, 
courts are reaching such conclusions on an alarmingly frequent basis.
  A worker drawing a large salary must perform some valuable job duty 
for an employer. Why, then, should that employer have to satisfy a 
complex set of artificial and archaie duties tests to prove that the 
employee is valuable? A worker drawing a large salary also must possess 
considerable bargaining leverage. Why then, should employers be forced, 
regardless of the employee's needs or preferences, to calculate 
paychecks only in the inflexible manner dictated by government salary 
basis regulations?
  The FLSA, in nearly six decades, has strayed from its laudable goal 
of protecting the poorest and weakest laborers from workplace abuses. 
The Department of Labor, and the courts, need to refocus their efforts 
in this direction. My proposal would go a long way--both by directly 
exempting highly paid employees and by making long overdue adjustments 
to the salary and duties tests--toward providing this new direction. I 
ask that a copy of the bill be printed in the Record  at this point.


                                 A BILL

       To amend the Fair Labor Standards Act of 1938 to prescribe 
     a salary base for an exemption of an employee from the wage 
     requirements of such Act and for other purposes.
       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE AND REFERENCE.

       (A) Short Title.--This Act may be cited as the ``White 
     Collar Reform Act''.
       (b) Reference.--Whenever in this Act an amendment or repeal 
     is expressed in terms of an amendment to, or repeal of, a 
     section or other provisions, the reference shall be 
     considered to be made to a section or other provision of the 
     Fair Labor Standards Act of 1938.

     SEC. 2. SALARY EXEMPTION.

       (a) Exemption Amendment.--Section 13(a)(1) (29 U.S.C. 
     213(a)(1)) is amended by adding after ``(1)'' the following: 
     ``any employee whose rate of annual compensation is not less 
     than $40,000 or''.
       (b) Definition.--Section 13 (29 U.S.C. 213) is amended by 
     adding at the end the following:
       ``(k) For purposes of subsection (a)(1)--
       ``(1) the term `annual compensation' includes all amounts 
     reportable to the Internal Revenue Service for Federal income 
     tax purposes by an employee's employer;
       ``(2) an employee's rate of annual compensation shall be 
     determined without regard to the number of hours worked by 
     the employee and shall be prorated for any employee who does 
     not work for an employer during an entire calendar year to 
     reflect annual compensation which would have been earned if 
     the employee had been compensated at the same rate for the 
     entire calendar year; and
       ``(3) reasonably anticipated bonuses, commissions, or other 
     elements of annual compensation not paid on an evenly 
     distributed bases throughout the year may be prorated over an 
     entire calendar year or over the portion of the calendar year 
     worked by the employee for the employer in determining the 
     employee's rate of annual compensation.''.

     SEC. 3. ADMINISTRATIVE EXEMPTION EMPLOYEE.

       Section 13 (29 U.S.C. 213), as amended by section 2(b), is 
     amended by adding at the end the following:
       ``(l) The relationship between an employee's job duties and 
     the management policies or general business operations of the 
     employee's employer or employer's customers shall not be 
     considered in determining whether such employee is employed 
     in a bona fide administrative capacity for purposes of 
     subsection (a)(1).''.

     SEC. 4. EFFECT OF CERTAIN SALARY PRACTICES.

       Section 13 (29 U.S.C. 213), as amended by section 3, is 
     amended by adding at the end the following:
       ``(m)(1) The fact that an employee is subject to deductions 
     from pay for absences of less than a full day or of less than 
     a full pay period shall not be considered in determining 
     whether such employee is an exempt employee described in 
     subsection (a)(1) when there has not been an actual reduction 
     in pay. For purposes of this paragraph, the term `actual 
     reduction in pay' does not include any reduction in accrued 
     pay leave or any other practice that does not reduce the 
     amount of the employee's pay for a period.
       ``(2) The payment of overtime compensation or other 
     additions to compensation based on hours worked in excess of 
     a daily or weekly amount shall not be considered in 
     determining if the employee qualifies for the exemption under 
     subsection (a)(1).''.

     SEC. 5. EFFECTIVE DATE.

       The amendments made by this Act shall take effect on the 
     date of the enactment of this Act and shall apply to any 
     civil action involving section 13(a)(1) of the Fair Labor 
     Standards Act of 1938 which has not reached final judgment 
     before such date.

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