The Fair Labor Standards Act: A Historical Sketch of the Overtime Pay Requirements of Section 13(a)(1)
The Fair Labor Standards Act:
A Historical Sketch of the Overtime
Pay Requirements of Section 13(a)(1)
Updated August 28, 2007
William G. Whittaker
Specialist in Labor Economics
Domestic Social Policy Division
The Fair Labor Standards Act: A Historical Sketch of
the Overtime Pay Requirements of Section 13(a)(1)
Summary
Section 13(a)(1) of the Fair Labor Standards Act permits exemption of
employers of bona fide executive, administrative and professional employees from
the minimum wage and overtime pay requirements of the act; that is, from the basic
wage and hour provisions of the statute. What constitutes a bona fide executive,
administrative, or professional employee has been left by Congress for the Secretary
of Labor to define and delimit. That process, begun in 1938, lapsed after 1975 and
was renewed by the Bush Administration in 2003 (see 29 CFR 541).
The first Section 13(a)(1) regulation appeared in 1938. Inter alia, it imposed
two classification tests. First. To qualify as bona fide, a worker had to be paid at a
rate befitting an executive or administrator. Second. The worker had to perform the
actual work (duties) of an executive or administrator. A salary threshold was set at
$30 a week. Initially, professionals were subject only to a duties test. In 1940, an
earnings threshold ($50 a week) was set for professionals.
Definitions were modified periodically (both the earnings and duties tests) so
that they could serve, credibly, as indicators of who might be deemed an executive,
administrator or professional for Section 13(a)(1) purposes. Updates were always
contentious. With lower thresholds, greater numbers of workers would find
themselves unprotected by the terms of the FLSA. Thus, it was in the interests of
employers to keep the thresholds low — and the duties tests as broad as possible.
Workers, in turn, sought a higher threshold and a narrow definition of duties.
The last general revision occurred in 1975, but the effort encountered significant
objections from employers. In 1978, a further update was proposed; but, in 1981, it
was withdrawn by the new Reagan Administration. It never reappeared. The
thresholds remain at 1975 levels: $155 per week for executives and administrators
and $170 for professionals — with slightly lower levels for Puerto Rico, the Virgin
Islands and American Samoa. The duties tests have evolved, slowly, since 1938 but
remain heavily anchored in regulations from the act’s early history.
On March 31, 2003, Wage/Hour Administrator Tammy McCutchen published
in the Federal Register a proposed update of the Section 13(a)(1) regulation. The
proposal sparked an intense public and legislative debate. (See, inter alia, H.R.
Congress.) On April 23, 2004, DOL issued the rule in final form (Federal Register,
April 23, 2004, pp. 22122-22274) to take effect the last week of August 2004. The
new provisions have now been placed in effect. It seems unlikely that any further
revisions can be expected to take place for the foreseeable future.
This report sketches the evolution of the Section 13(a)(1) regulation and
explores the arguments, pro and con, that it has encountered.
Contents
In troduction ......................................................1
SECTION I......................................................2
Initial Implementation of the “EAP” Exemption..........................2
Establishing a Standard (1938)...................................2
Creating a Structure and Process..............................2
Defining Concepts.........................................3
Hearings and Administrative Review..........................5
A New Regulation Promulgated (1940).............................7
Administrative Initiative....................................7
A Foundation Established...................................9
Hearings and Regulatory Modification (1949)..........................11
A More Systematic Development of Policy (1950s)......................12
Paid on A Salary Basis.........................................12
The Motion Picture Exemption..............................13
Salary Basis Applied More Broadly...........................13
To Raise the Earnings Threshold.................................14
Updating and Reconsideration (1960s)................................16
Adjusting the Earnings Thresholds...............................16
Treatment of the Service and Retail Industries......................16
Refining the Process (late 1960s and 1970s)............................18
Adjusting the Earnings Thresholds...............................18
Expansion and Tinkering.......................................19
Adding Equal Pay Protections...................................21
Readjusting the Earnings Thresholds..............................22
The Salary Thresholds Fall into Disuse................................24
The Carter Administration......................................24
The Reagan and Bush Administrations............................26
Reconsidering the Threshold Issue...........................26
Pay Docking and Local Governmental Employees...............27
The Clinton Administration.....................................28
SECTION II.....................................................30
A New Initiative from the Bush Administration (2003-2004)...............30
A New Rule Proposed.........................................30
Congressional Reaction........................................31
An Early Alert?..........................................31
The Appropriations Process.................................32
House Consideration of the Conference Report.................33
Senate Consideration of the Conference Report.................34
Alternative Attempts at Accommodation..........................36
Freestanding Legislation...................................36
A Hearing in the Senate: Round One.........................37
The Study Commission Proposal.............................37
A Hearing in the Senate: Round Two.........................38
A Continuing Focus of Dispute..................................39
Exempting Veterans?......................................40
A Dialogue with the Department of Labor.....................42
Amending the JOBS Act (S. 1637): Phase I........................44
Debate Recommences in the Senate..........................44
Prelude to Cloture........................................46
Cloture Denied, the Senate Moves On.........................47
A Second Cloture Attempt..................................49
SECTION III....................................................52
Promulgation of the Final Rule: April 23, 2004.........................52
Substance or Illusion?.........................................52
Building the Case for Reform?..................................53
A Mixed Reaction............................................55
Oversight and Legislation..........................................57
Hearing: Education and the Workforce, April 28, 2004...............57
Setting the Tone for Debate?................................57
The Department Weighs In.................................58
Interpreting the Rules......................................58
Hearing: Senate Appropriations Subcommittee, May 4, 2004..........62
Views from the Department of Labor.........................63
A Voice in Support of the Final Rule.........................64
Doubts and Concerns......................................65
Amending the JOBS Act (S. 1637): Phase II.......................69
Gregg Amendment Presented...............................69
Debate Resumes..........................................71
Proceeding to a Vote......................................73
The Miller Motions to Instruct: May 2004.........................74
Motion of May 12, 2004...................................74
Motion of May 18, 2004...................................74
Hearing: House Small Business Subcommittee, May 20, 2004.........74
Testimony from the Department of Labor......................75
Comment from Other Witnesses.............................76
Summer and Fall of 2004...........................................78
Amending the JOBS Act (S. 1637, H.R. 4520): Phase III.............79
Appropriations for the Department of Labor: FY2005................81
Floor Fight in the House (September 2004): H.R. 5006...........82
A New Proposal in the Senate: S. 2810.......................83
The Move to an Omnibus Bill: H.R. 4818.....................84
SECTION IV....................................................86
A Mixed Reaction................................................86
New Initiatives of the 109th Congress.................................87
In Summary.....................................................88
List of Tables
Table 1. Weekly Earnings Thresholds Applicable to Executive,
Administrative, and Professional Employees Under
Section 13(a)(1) of the Fair Labor Standards Act....................89
The Fair Labor Standards Act:
A Historical Sketch of the Overtime Pay
Requirements of Section 13(a)(1)
Introduction
The Fair Labor Standards Act (FLSA) is the primary federal statute dealing with
minimum wages, overtime pay, and related issues. Under Section 13(a)(1) of the act,
employers of persons employed “in a bona fide executive, administrative, or
professional capacity” (EAP employees) are freed from the act’s otherwise applicable
minimum wage and overtime pay requirements. Employees classified as executive,
administrative or professional are not protected by the act’s regular wage and hour
provisions.
The Section 13(a)(1) exemption was written into the initial version of the FLSA
in 1938 and, in one form or another, has continued to be a part of the statute. On
March 31, 2003, the Wage and Hour Division, United States Department of Labor
(DOL), proposed revision of the regulations (29 CFR 541) that define the terms
executive, administrative and professional and govern implementation of the FLSA
exemption. When the opportunity for public comment closed on June 30, 2003, the
Department had received in excess of 75,000 communications and the issue had
become a focus of intense debate, both with the public and in Congress.1 When a
final rule was issued on April 23, 2004, debate continued.2 Within the weeks that
followed, the new regulation was the subject of various congressional hearings and
had been subject to floor action both in the Senate and in the House of
R epresent at i ves.
In late August 2004, the new rule was implemented. Public debate would
continue throughout the fall, but without avail.
This report sketches the evolution of the Section 13(a)(1) since 1938, noting the
occasions on which the regulations governing the exemption (29 CFR 541) were
modified. It identifies entries in the Federal Register (with other related sources) to
which one might refer for the precise language of the evolving regulation. It does not
trace each nuance of change as each modification to the definitions of executive,
administrative and professional was added.
1 Bureau of National Affairs, Daily Labor Report, September 11, 2003, p. AA1. (Hereafter
cited as DLR.)
2 For the final rule, see Federal Register, April 23, 2004, pp. 22122-22274.
SECTION I
Initial Implementation of the “EAP” Exemption
Following a year of hearings and debate, Congress approved the federal wage
and hour law (the Fair Labor Standards Act) in June 1938. The act provided, inter
alia, for minimum wages (Section 6) and overtime pay (Section 7) for covered
workers. Neither then nor now were all workers covered under the protections of the
statute; but, in Section 13, Congress wrote into the act certain specific exemptions.
Among them was the following:
The provisions of sections 6 and 7 shall not apply with respect to (1) any
employee employed in a bona fide executive, administrative, professional ...
capacity ... (as such terms are defined and delimited by regulations of the
Admi nistrator....)
The act went on to create within the Department of Labor a sub-unit — the Wage and
Hour Division — to be presided over by an Administrator to be “appointed by the
President with the advice and consent of the Senate.”3
Establishing a Standard (1938)
The act was to become effective October 24, 1938, which allowed four months
in which to establish an administrative structure, prepare interpretive materials, and
be ready to enforce compliance with the new federal wage/hour standards — of
which the EAP exemption was only one small portion. As Administrator, President
Franklin Roosevelt selected Elmer F. Andrews, Industrial Commissioner for the state
of New York. By mid-August of 1938, Andrews was on duty at the Department and
had begun to assemble his staff.
Creating a Structure and Process. Beyond the statutory language (that
bona fide executive, administrative and professional employees were to be exempt),
Congress provided the new Administrator with little guidance. The concepts — bona
fide executive, administrative and professional — were not defined. No reference
was made, in the statute, to salaried as opposed to hourly paid workers; nor was any
distinction made between manual and non-manual work. While Andrews could draw
from the experience of the National Recovery Administration (1933-1935) in which
more highly paid workers appear to have been excluded from wage and hour4
standards, he was under no obligation to do so. He was free to structure the
3 See Sections 4, 6, 7, and 13 of P.L. 75-718. The exemption also deals with persons
working in outside sale and, now, in certain educational fields.
4 See Federal Register, March 31, 2003, pp.15560-15561; Leon C. Marshall, Hours and
Wages Provisions in NRA Codes (Washington: The Brookings Institution, 1935), p. 16; and
Margaret H. Schoenfeld, “Analysis of the Labor Provisions of the N.R.A. Codes,” Monthly
Labor Review, March 1935, p. 583. Schoenfeld states: “In contrast with the code wage
provisions, which cover for the most part only the unskilled classes of labor, [NRA]
restrictions upon working time affect all but a small group of administrative employees and
(continued...)
exemption as he chose; but, given the numerous other tasks before him, he may not
have been under any immediate pressure to deal with the EAP exemption.5
Defining Concepts. During a presentation before the Southern States
Industrial Council in Birmingham, Alabama, September 29, 1938, Andrews was
asked if he had taken any action with respect to Section 13(a)(1), to which he
responded: “No. I have had that in mind more than anything else, and we will have
that for you within the next week or two.” He discussed his experience with the issue
in New York state — pointing out how some employers had attempted to circumvent
the state law by too broadly defining their workforce as executive or administrative
or professional. “... [I]t is very difficult to say ... where a worker leaves off and a
professional or executive begins.”6
During the fall of 1938, Andrews, with a draft in hand, “called a conference of
representatives of industry and labor to ascertain their views” on the definition of the
several terms.7 On October 19, 1938, five days before the act was to go into effect,
the Department announced that the Administrator, “in consultation with the legal
branch of the division,” had reached a determination.8 The terms executive and
administrative would have a single definition. Among other elements, they were to
have the “primary duty” of “management of the establishment” and do “no
substantial amount of work of the same nature as that performed by nonexempt
employees of the employer.” The concept of professional was to be characterized by
work that was “predominantly intellectual and varied in character as opposed to
routine mental, manual, mechanical or physical work” and was to involve “discretion
and judgment both as to the manner and time of performance, as opposed to work
subject to active direction and supervision.” The education of a professional was to
be based upon “a specially organized body of knowledge as distinguished from a
general academic education and from an apprenticeship” or other routine training.
He (or she) was not to do any “substantial amount of work of the same nature as that
performed by non-exempt employees of the employer.”9
4 (...continued)
executives falling in the higher earnings brackets ....”
5 It would not be until the spring of 1940 that pressure began to mount for the Administrator
to take more specific action with respect to the EAP exemption (though earlier regulations
had been promulgated). See U.S. Department of Labor, Wage and Hour Division, Press
Releases, March 18, 1940. (The collected set, running to at least 11 bound volumes, is
hereafter cited as DOL/WH/R-Series.)
6 DOL/WH/R-Series, transcript of question and answer session, Birmingham, Alabama,
September 29, 1938, pp. 3-4.
7 U.S. Department of Labor, Wage and Hour Division, Executive, Administrative,
Professional ... Outside Salesman” Redefined: Report and Recommendations of the
Presiding Officer at Hearings Preliminary to Redefinition (Washington: U.S. Govt. Print.
Off., 1940), p. 1. (Hereafter cited as The Stein Report.)
8 DOL/WH/R-Series, Press Release of October 19, 1938, p. 1.
9 Federal Register, October 20, 1938, p. 2518. (Italics added.)
The entire regulation, including introductory comments by Andrews, took up
two columns in the Federal Register. But, much of the language, at least in skeletal
form, would remain central to the EAP regulation and to the proposed rule of March
31, 2003. Whatever the understanding may have been, the concept of salaried was
not specified — other than that an executive or administrator would need to earn “not
less than $30” for a work week. No earnings threshold was set for a professional.
In setting forth the Section 13(a)(1) regulations, Andrews had affirmed that the
machinery, within the Department, was in place for contesting any aspect of the
definitions that were deemed flawed, inviting citizen input.10 But, apparently protests
were not forthcoming except, possibly, with respect to the concept of professional.11
Addressing the Associated Industries of New York meeting at Syracuse in late 1938,
Rufus Poole, Assistant General Counsel for the Wage and Hour Division, asked:
Have you ever tried to define a professional? That is hard enough, but engaged
in a “bona fide professional capacity” is even harder. The dictionaries do not
give us the answer. They indicate that sometimes the word “professional” is
used to mean a person engaged in one of the learned professions — that is
medicine, law and the ministry. Then, the dictionaries talk about education and
skill and even about one who engages in sports for money. We had to define this
term so that employers and employees could use it....
The concept of professional, he stated, was the “only one that has been seriously
questioned to date” and, even here, DOL found that critics were not able to suggest
“a better definition.” Poole added: “There is a statutory duty on the Administrator12
to promulgate a definition. So we put out the best definition we could.”
Gradually, employers would voice concern with the Section 13(a)(1) structure:
particularly with respect to “certain high-salaried employees.” “As the statute now
stands,” Andrews stated, “these persons are covered unless they fall within the
definition of employees engaged in an executive, administrative, or professional
capacity.” Some employers had argued, Andrews reported, “that certain employees
who do not fall within these categories ... are, nevertheless, paid rather high salaries
and are engaged steadily in work which is of a very responsible nature.” But: “The
number of such employees is not know[n] nor is the extent to which the provisions
of Section 7 of the act may impose changes in the personnel policies and the
administrative practices of business enterprises.” Andrews concluded: “... any line
of demarcation placing these high-salaried employees into a separate category for
special treatment would have to be very carefully drawn....”13
10 DOL/WH/R-Series, Press Release of October 19, 1938, p. 2.
11 See U.S. Department of Labor, Annual Report of the Secretary, June 30, 1939
(Washington: U.S. Govt. Print. Off., 1939), pp. 5 and 203.
12 DOL/WH/R-Series, address of Rufus Poole before the Associated Industries of New York,
Syracuse, November 18, 1938, p. 11.
13 U.S. Department of Labor, Wage and Hour Division. Interim Report of the Administrator
for the Period August 15 to December 31, 1938, p. IV-8. See also DOL/WH/R-Series,
Andrews address before the Cleveland City Club, February 18, 1939, pp. 7-8; and Andrews
(continued...)
Meanwhile, legislation was introduced that would variously have modified
Section 13(a)(1) especially with respect to treatment of professionals or higher wage
employees or both, though this does not appear to have been a high priority, neither
with DOL nor with Congress.14 Andrews indicated his support for “certain clarifying
amendments” to the FLSA but opposed the measure reported from the House Labor
Committee (H.R. 5435 of the 76th Congress) as “A Bill to Lower Wages and
Establish Longer Hours of Work.”15 The legislation was not adopted.16
Hearings and Administrative Review. During the fall of 1939, Andrews
left the Department and was succeeded as Administrator by Colonel Philip B.17
Fleming, formerly of the Army Corps of Engineers. Other changes in personnel of
the Wage and Hour Division followed — as would shifts in administrative policy.
In mid-March 1940 (when the regulation governing the EAP exemption, 29
CFR 541, was just under 18 months old), Fleming announced a hearing on proposed
changes to the regulation. Apparently anticipating a relatively low-key review (since
the EAP exemption appears to have sparked little controversy), the hearing was
projected as a one-day affair (April 10) with the Division’s Harold Stein designated18
to preside. In an accompanying press statement, the Division stated:
Until recently the Wage and Hour Division had not received any formal
application for such exemptions and hearing. The hearing now ordered is in
response to the first petitions that were presented. They were granted promptly,
which disposes of all pending petitions, and [were] the only ones which have
been sent to the Division requesting amendment and hearing in connection with
Section 13(a)(1) of the Act.
The Division further advised that the hearing “is confined to the wholesale
distributive trades because those are the only interests which have petitioned for
amendments and hearing on the definitions in question.”19
13 (...continued)
before the American Newspaper Guild, San Francisco, July 31, 1939, pp. 8-12.
14 U.S. Department of Labor, First Annual Report of the Administrator of the Wage and
Hour Division, 1939 (Washington: U.S. Gov. Print. Office, 1940), p. 129.
15 DOL/WH/R-Series, Press Release of June 7, 1939.
16 Congressional Record, June 5, 1939, pp. 6620-6622. H.R. 5435, an umbrella measure,
would have changed a number of requirements of the FLSA: inter alia, that “any employee
employed at a guaranteed monthly salary of $200 or more shall be entirely exempt” from
the wage and hour standards of the act. See U.S. Congress, House Committee on Labor,th
Amendments to the Fair Labor Standards Act of 1938, report to accompany H.R. 5435, 76st
Cong., 1 sess., H.Rept. 76-522 (Washington, GPO, 1939), pp. 3 and 8-9.
17 George Martin, Madam Secretary, Frances Perkins (Boston: Houghton Mifflin Company,
18 DOL/WH/R-Series, hearing announcement, March 18, 1940, pp. 2-3.
19 DOL/WH/R-Series, press release, March 18, 1940, pp. 1-2. Petitioning for a hearing were
the Council of National Wholesale Associations, the American Retail Federation, and the
(continued...)
As Fleming would later observe, “the power to define is the power to exclude.”20
The scope of the exemption (or of wage/hour protection) would rest on the manner
in which the basic concepts surrounding the Section 13(a)(1) exemption were
defined: not just the pivotal words executive, administrative or professional, but also
the terms of the explanatory language associated with the regulation.
When that reality was understood by the public, there was a move for more
comprehensive hearings. Abraham Isserman, Counsel for the American Newspaper
Guild, wrote to Fleming urging caution.
From the way this hearing was announced, first impression was gained that
persons employed in these categories in the newspaper industry would not be
affected by this hearing.
On reflection, however, it becomes apparent that if these categories are re-
defined for the wholesale distributive trades, a precedent undoubtedly will be
established which will have a tremendous weight in the other industries covered
by the Fair Labor Standards Act of 1938.
Isserman suggested that the hearing could result, whatever its intent, in “a fait
accompli in the way of changed definitions in respect to which they would have had
no opportunity for study and comment.” He suggested a somewhat broader agenda
than the announcement had stated and urged the Division to make clear to all
interested parties the potential implications of the April 10 hearing.
Fleming, in response, indicated that he had considered and rejected concerns
such as those of Isserman prior to announcing the hearing.
There is such a wide variation in the work and functions performed by executive,
administrative and professional employees ... especially in the administrative and
professional classes, that it appeared more practicable to hold separate industry
hearings. It follows that a definition for one of these classifications in one
industry is not necessarily to be treated as a precedent in others.
Fleming invited Isserman and representatives of other worker interests to attend the
hearing as observers or to submit oral or written comments. But, he also held out the
possibility that hearings dealing with other industries might be conducted.21 Fleming
extended the comment period with respect to the April 10 hearing and released the
text of the changes proposed by the various industry groups.22
19 (...continued)
Southern States Industrial Council.
20 Annual Report of the Secretary, 1940, p. 236.
21 DOL/WH/R-Series, press release of April 2, 1940, concerning the April 10 hearing.
Attached was Isserman’s letter to Fleming, March 22, 1940, and Fleming’s reply to
Isserman, March 28, 1940.
22 DOL/WH/R-Series, press release of April 3, 1940, concerning the April 10 hearing.
The hearing commenced as scheduled, but it extended intermittently through
several months.23 “In addition to the oral testimony, approximately 180 briefs,
written statements and memoranda were received.”24 Some proposals were sweeping
in concept. The Division estimated that “some 1,500,000 clerical or ‘white collar’
workers employed by all establishments in all industries” were covered by the act and
could be rendered exempt (i.e., ineligible for minimum wage and overtime pay
protection), depending upon the manner in which the basic concepts were defined.25
Some argued for a series of regional differentials or earnings/coverage thresholds
based upon the population of the communities in which the firms operated. How
should on-the-job training be treated for overtime pay purposes? Or, “the efforts of
ambitious young men to improve their status by studying their employer’s business
after working hours?” Other issues were also raised, some of which would reappear
frequently through the next several decades.26
In his review of the evidence, Stein took pains to distinguish between the terms
“defined” and “delimited” as they appear in Section 13(a)(1). Thus the Administrator
is charged, he suggests, with determining “which employees are entitled to the
exemption,” but also with “drawing the line beyond which the exemption is not
applicable.” He concluded: “The general rule in a statute of this nature, that
coverage should be broadly interpreted and exemptions narrowly interpreted, is so
well known as to need little elaboration here.”27
A New Regulation Promulgated (1940)
On October 14, 1940, Colonel Fleming made public a new regulation governing
the EAP exemption. It would take effect on October 24, 1940, the second
anniversary of implementation of the FLSA — and the date on which the standard
work week, under the act, was to be phased down to 40 hours.
Administrative Initiative. In announcing the 1940 EAP regulation, DOL
stated that the Administrator “has broad powers, not only to define but to delimit the
23 See DOL/WH/R-Series, press releases of May 11and 12, 1940, June 21, 1940, and July
25, 1940. A comprehensive analysis of the information gathered through the hearings (The
Stein Report) was subsequently published by the Department of Labor.
24 The Stein Report, p. 2.
25 DOL/WH/R-Series, press release of April 10, 1940. The Southern States Industrial
Council would have redefined administrative to include “clerical employees such as
bookkeepers, payroll clerks, auditors, cost accountants, statisticians, and all other office help
regularly employed on a straight salary basis and given vacations and sick leave with pay.”
26 The Stein Report, pp. 5-7.
27 Ibid., p. 2. Stein added, p. 6-7 “... if Congress had meant to exempt all white collar
workers, it would have adopted far more general terms than those actually found in Section
13(a)(1) of the act. The theory of general exemption is further negated by the grant of
power to the Administrator to define and delimit those terms.” In another context, but in the
same spirit, DOL has observed that “Exemptions provided in the Act ‘are to be narrowly
construed against the employer seeking to assert them’ and their application limited to those
who come ‘plainly and unmistakably within their terms and spirit.’” See 29 CFR 780.2.
extent of these exemptions under Section 13(a)(1).”28 It is important to recall that the
act, itself, provided only that “sections 6 and 7 shall not apply with respect to (1) any
employee employed in a bona fide executive, administrative, [or] professional ...
capacity.” Technical distinctions with respect to qualifications and tests for
exemption were the constructs of the Wage and Hour Division in defining and
delimiting the brief mandate from Congress. And, even then, it was the product of
a young agency exploring its mandate and working with the benefit of relatively few
precedents from which to draw guidance.
The 1938 regulation set down by Administrator Andrews, however useful, was
an administrative device — which Andrews, himself, recognized when inviting post
facto comment. But, once in place, the 1938 regulation became the standard upon
which future regulations would rest. Fleming had before him some 2,000 pages of
testimony collected during the Stein hearings from representatives of employers and
organized labor. But, those hearings had operated within the context (and under the
assumptions) set down in the Andrews regulation. Thus, the Fleming regulation
(1940), a modification of the Andrews regulation (1938), would begin some 60 years
of parsing regulatory language leading to the proposed rule of March 31, 2003.29
The 1940 regulation, including covering statement, ran just over one page in the
Federal Register: still a reasonably simple statement of policy.30 Where the 1938
regulation had combined executive and administrative as a single category, the 1940
regulation separated them into two classifications.31
An executive, the regulation stated, is one “whose primary duty” consists of
management: that is, “who customarily and regularly directs the work of other
employees,” “who has the authority to hire or fire other employees,” “who
customarily and regularly exercises discretionary powers,” and whose time spent
engaged in work comparable to that of nonexempt employees does not exceed 20%
of his (the executive’s) work hours. The regulation added that the 20% restriction
“shall not apply in the case of an employee who is in sole charge of an independent
establishment or a physically separated branch establishment.”32 An exempt
executive must be paid a salary of at least $30 per week.
28 DOL/WH/R-Series, press release of October 14, 1940, p. 4.
29 This report, a historical sketch, will not follow the variations, proposed and adopted, with
respect to each regulatory initiative. In DOL/WH/R-Series, press release of October 14,
1940, there is a somewhat detailed, 10-page analysis of the variations accepted by the
Division in 1940. See also The Stein Report, cited above. Among industries testifying was
the motion picture industry. See discussion below.
30 The language defining executive, administrative and professional is drawn from the
regulation as published in the Federal Register, October 15, 1940, pp. 4077-4078. The
actual regulation includes additional detail and qualifications for exemption.
31 DOL/WH/R-Series, press release of October 14, 1940, p. 1.
32 The Division, in DOL/WH/R-Series, press release of October 14, 1940, p. 3, stated that
the aspect of the original definition of executive “which caused more questions than any
other was the requirement that an executive do no substantial amount of the work done by
his subordinate.” Thus, a percentage restriction was added in 1940.
An administrative employee “... is compensated for his services on a salary or
fee basis at a rate of not less than $200 per month.” He must “regularly and directly”
assist another “bona fide executive or administrative” employee “where such
assistance is nonmanual in nature and requires the exercise of discretion and
independent judgment.” Further, it provides, an administrative employee is one:
... who performs under only general supervision, responsible nonmanual office
or field work, directly related to management policies or general business
operations, along specialized or technical lines requiring special training,
experience, or knowledge, and which requires the exercise of discretion and
independent judgment; or
... whose work involves the execution under only general supervision of special
nonmanual assignments and tasks directly related to management policies or
general business operations involving the exercise of discretion and independent33
judgment.
Administrative employees were more broadly defined in the new regulations “to
include those whose duties, while important and associated with management, are
functional rather than supervisory.”34
A professional is one whose work is “predominantly intellectual and varied in
character as opposed to routine mental, manual, mechanical, or physical work.” It
is work that requires “the consistent exercise of discretion and judgment,” the output
of which cannot “be standardized in relation to a given period of time,” that does not
exceed 20% of the type of work performed by nonexempt employees, that requires
“knowledge of an advanced type in a field of science or learning customarily
acquired by a prolonged course of specialized intellectual instruction and study, as
distinguished from a general academic education and from apprenticeship, and from
training in the performance of routine mental, manual, or physical processes,” and
that is “predominantly original and creative in character.” A professional employee
must be paid not less than $200 per month (roughly $50 per week).35
A Foundation Established. The 1940 regulation followed closely the
pattern (and the language) of the 1938 regulation. With the former in place, a long-
term foundation was established for implementation of the EAP exemption.
33 The Stein Report, pp. 4-5, is less rigid. “While the usage of the two terms is so vague and
so overlapping that there is no generally recognized and precise line of demarcation between
them, it does no violence to the common understanding of the words to apply ‘executive’
to the person who is a boss over men and apply ‘administrative’ to the person who
establishes or affects or carries out policy but who has little or no authority over the specific
actions of other individuals.”
34 DOL/WH/R-Series, press release of October 14, 1940, p. 1.
35 The earnings test would not apply with respect to “an employee who is the holder of a
valid license or certificate permitting the practice of law or medicine or any of their
branches and who is actually engaged in the practice thereof.” The license or certificate
would be taken as a substitute in specific instances.
Some accounts of the new regulation “were confusing,” DOL acknowledged,
and Colonel Fleming, in a letter to Joseph Curran, president, Greater New York
Industrial Union Council, offered certain clarifications. He commenced by affirming
the individual character of the EAP exemption. “Of course,” he explained, “the
exemption or non-exemption of any individual employee under these definitions is
a question for individual factual determination ....” Thus, the Division would need
to proceed on a case-by-case basis where any controversy existed.36
The pattern of requirements fell gradually into place. Some thought the $30
earnings threshold for exemption as an executive was “too high.” Fleming, reflecting
the authority of the Administrator, explained: “... it was my belief that there would
be a basic error in describing as an ‘executive’ any person who is paid less than $30
a week.” He added: “... heretofore the exemption was applicable to hourly paid
employees if their hourly pay was sufficiently high to produce $30 a week. This
proviso has been changed and no hourly paid employee can qualify for the
exemption.” Thus, the salary basis test was set in place.37
Similarly, other qualifying elements came to be established. The work of an
administrative employee, for example, would need to be “non-manual.” Limitation
on the amount of time devoted to non-EAP duties must be no more than 20%.
Technical or “routine work” would not qualify a worker for exemption.38 Further,
professionals, to be exempt, would have to meet a series of tests which Fleming
enunciated and which would remain, by and large, a part of the regulatory structure.
Again, the regulatory language (the qualifying elements for Section 13(a)(1)
exemption) was the creation of the various Wage and Hour Administrators.
Increasingly, that language became precise and detailed. Once in place, it seemed to
take on an authority and weight almost equivalent to the statutory language.
36 DOL/WH/R-Series, letter from Fleming to Joseph Curran, October 24, 1940, p. 1.
Enforcement would not be easy, Fleming said. It “requires the Division representative to
visit the establishment, interview the employer, examine his pay roll and time records, and
talk to a representative number of his employees. Where records indicate violations or
falsifications,” he stated, “... they are transcribed in whole or in part and checked against the
statements of the employees.” Annual Report of the Secretary, 1941, p. 147.
37 DOL/WH/R-Series, letter from Fleming to Joseph Curran, October 24, 1940, p. 2. There
was a sense that the title executive carried with it “a certain prestige, status, and importance”
and that such persons enjoyed “compensatory privileges.” These might include such things
as “authority over people, a privilege generally considered desirable to possess,” along with
“opportunities for promotion,” possibly “paid vacation and sick leave” and “greater security
of tenure.” The Stein Report, pp. 19-22.
38 DOL/WH/R-Series, letter from Fleming to Joseph Curran, October 24, 1940, pp. 2-5.
Other conditions, affecting coverage, were also explained.
Hearings and Regulatory Modification (1949)
Through the next several years, various proposals surfaced that urged39
modification of the EAP regulation. However, given the exigencies of World War
II, public policy concerns seem to have been deflected into other areas.
In October 1947, the Division initiated a new round of hearings on 29 CFR 54140
to commence on December 2, 1947. As in 1940, the hearings led to publication of
a study of the executive, administrative and professional exemption. Prepared by41
Harry Weiss who presided at the hearings, it was published in June 1949. The
hearings “continued for 22 separate days” and heard “more than 100” witnesses. In
addition, briefs were filed “in lieu of personal appearances ... by more than 150
groups and individuals.”42 The proposed regulatory revisions were published on43
September 10, 1949, and a new final rule was published on December 24, 1949,
under authority of William R. McComb, the new Wage and Hour Administrator.44
Among the changes in the regulation was an increase in the earnings threshold:
to be exempt, an executive was to be paid “on a salary basis at a rate of not less than
$55 per week ($30 in Puerto Rico or the Virgin Islands)”; an administrator was to be
paid “on a salary or fee basis at a rate of not less than $75 per week ($200 per month
in Puerto Rico or the Virgin Islands)”; and a professional was to be paid “on a salary
or fee basis at a rate of not less than $75 per week ($200 per month in Puerto Rico
or the Virgin Islands).”45 In each category a worker paid not less than $100 per week
— and meeting certain other specified duties requirements — would be deemed to
qualify for exempt status.46 (See discussion of “salary basis” below.)
On December 28, 1949, the Division published in the Federal Register a lengthy
interpretive bulletin explaining the regulation in detail and defining the terms used
39 See for example, Federal Register, January 17, 1942, p. 332.
40 Federal Register, October 21, 1947, pp. 6863-6864.
41 Department of Labor, Wage and Hour Division, Report and Recommendations on
Proposed Revisions or Regulations, Part 541, Defining the Terms “Executive,”
“Administrative,” “Professional,” “Local Retailing Capacity,” [and] “Outside Salesman”
(Washington: U.S. Govt. Print. Off., 1949), 100 pp. (Hereafter cited as The Weiss Report.)
42 Annual Report of the Secretary, 1948, p. 90.
43 Federal Register, September 10, 1949, pp. 5573-5574.
44 Federal Register, December 24, 1949, p. 7705.
45 Following enactment of the FLSA, certain economic interests in Puerto Rico urged that
the act not apply to the island or that it be applied in modified form. As a result, in 1940,
Congress amended the FLSA to provide that Puerto Rico and the Virgin Islands be afforded
special treatment. See Section 3, Public Resolution 88, June 26, 1940.
46 Federal Register, December 24, 1949, p. 7706.
in the regulation. The interpretive material would be incorporated within 29 CFR
A More Systematic Development of Policy (1950s)
The Weiss Report would continue through a decade to provide a context for
discussion of how executives, administrators, and professionals were to be treated
under the FLSA. Gradually, a more detailed policy would evolve.
Paid on A Salary Basis
During the hearings of the late 1940s, one issue raised by the witnesses had been
the concept of payment on a salary (or fee) basis.48 The Weiss Report explained:
... a number of proposals relating to the “salary basis” requirements in the
regulations were made in the course of the hearing. One of these was that the
requirement of payment “on a salary ... basis” be eliminated and that the “average
compensation” be used instead; another, that employees be permitted to qualify
for exemption even if paid an hourly wage. Some witnesses suggested that the
term “salary basis” be defined to mean payment of a fixed or guaranteed sum.
The evidence at the hearing showed clearly that bona fide executive,
administrative, and professional employees are almost universally paid on a
salary or fee basis. Compensation on a salary basis appears to have been almost
universally recognized as the only method of payment consistent with the status
implied by the term ‘bona fide’ executive. Similarly, pay on a salary (or fee)
basis is one of the recognized attributes of administrative and professional
employment. The proposals to eliminate the requirement and to apply an hourly
rate or average earnings test may therefore be rejected as inconsistent with true49
executive, administrative or professional status.
Although presented as a general requirement in Subpart A of the regulation (29 CFR
By the 1950s, speaking generally, several patterns were already discernable
where the salary tests were concerned. First. The threshold was regarded as the best
determinant of who might legitimately be classified as an executive, administrator
or, in some contexts, a professional. Second. There was some interest in indexation
of the thresholds, though it also drew opposition and seems to have been dismissed
by the Division.51 Third. It was clear that, with inflation, there was some erosion of
the value of the thresholds, but, if undesirable, this was not deemed intolerable.
47 Federal Register, December 28, 1949, pp. 7730-7745.
48 The Weiss Report, p. 24.
49 Ibid.
50 Federal Register, December 28, 1949, p. 7735.
51 Concerning the matter of indexation, see The Weiss Report, pp. 10-11. Comments are
presented in The Weiss Report in aggregate form.
The Motion Picture Exemption. By the early 1940s, the motion picture
industry had argued that FLSA overtime requirements were especially burdensome,
given the special nature of the work of production technicians. After a review,
Harold Stein (1940) observed: “Although the hourly pay of most of these employees
is extremely high in comparison with most other industries, that fact in itself does not
and cannot qualify them for exemption as ‘administrative employees.’”52
In May 1953, the Association of Motion Picture Producers, Inc., protested that
many of its highly paid technical workers ought to have been exempt under Section
13(a)(1) of the FLSA except that they were paid on an hourly basis rather than on a
salary basis. Administrator McComb explained that “[t]hose portions of the
regulations which define and delimit the terms ‘executive,’ ‘administrative,’ and
‘professional’ include in each case the requirement that the employee must be
compensated ‘on a salary basis.’” The requirement had been written into the
regulation in 1940 by Fleming — at his discretion. Now, at the urging of industry,
McComb (exercising his discretionary authority) proposed a further change.53
Following a 30-day comment period (during which no comments were
received), the Division published the following modification of the regulation:
541.5a Special provision for motion picture producing industry. The
requirement ... that the employee be paid “on a salary basis” shall not apply to
an employee in the motion picture producing industry who is compensated at a
base rate of at least $200 a week (exclusive of board, lodging or other54
facilities).
The special provision for the motion picture industry remains in the regulation; the
earnings threshold would remain at $200 per week until 1975 when it was raised to55
$250 per week on an interim basis by Administrator Betty Southard Murphy.
Salary Basis Applied More Broadly. In the Federal Register of March 9,
1954, McComb proposed amendment to 541.118 of Subpart B: the segment dealing
with payment on a salary basis. Among other changes in the wording of the section,
he added language dealing with deductions from pay and the impact they could have
for a worker’s status as exempt.56
Following a comment period, McComb issued a final rule. The Division now
disallowed deductions from salary as a penalty for disciplinary infractions. It did,
52 The Stein Report, p. 29.
53 Federal Register, May 10, 1953, p. 2881.
54 Federal Register, July 7, 1953, p. 3931. The earnings threshold, assuming full-time
employment (which may not be a valid assumption), would be $10,400 a year.
55 Federal Register, February 19, 1975, p. 7094.
56 Federal Register, March 9, 1954, pp. 1321-1322.
however, agree to allow deductions from salary as a penalty for violations of safety
rules “of major significance.”57 (See discussion of “pay docking” below.)
To Raise the Earnings Threshold
Given inflationary pressures (“particularly the widespread increases in wage and
salary levels”), Administrator Newell Brown proposed (late 1955) that the earnings
thresholds for Section 13(a)(1) exemption be raised. He scheduled a December 12
hearing on the issue — leaving recommendations for the level of such increases to
the witnesses.58 In January 1956, Brown noted that the base rates (for EAP
exemption) had not been raised for Puerto Rico and the Virgin Islands since 1940 and
called for a review of conditions in those areas.59
During hearings conducted by Assistant Administrator Harry Kantor, the salary
issue was discussed at length. Some urged “that the salary tests be eliminated.” It
was argued that they were unnecessary and that exemption “should be based solely
on the employee’s duties.” Kantor disagreed, dismissing the suggestions.
The terms bona fide executive, administrative and professional imply a certain
prestige, status and importance, and the employee’s salary serves as one mark of
his status in management or the professions. It is an index of the status that sets
off the bona fide executive from the working squad-leader, and distinguishes the
clerk or sub-professional from one who is performing administrative or
professional work. Generally speaking, salary is a good indicator of the degree
of importance attached to a particular employee’s job.
Maintaining the salary tests was discretionary with the Administrator; but there was
a practical consideration. They “simplify enforcement” by “screening out the
obviously nonexempt employees. Employees who do not meet the salary test,” he
stated, “are generally also found not to meet the other requirements....”60
Proposals varied. There was apparent consensus that an increase was warranted
— but industry suggested a lower wage structure, whereas labor argued for a higher
range. Kantor, in assessing the issue, may inadvertently have exposed what some
may view as the arbitrary character of the process. The “primary objective of the
salary test,” he said, is drawing a line between groups of workers. That line, he
stated, “... cannot be drawn with great precision, and can at best be only
57 Federal Register, July 17, 1954, pp. 4405-4406.
58 Federal Register, November 1955, pp. 8388-8389.
59 Federal Register, January 17, 1956, pp. 323-324. Administrator Brown noted that a report
on “Salaries in Puerto Rico and the Virgin Islands” was being prepared by Wage/Hour.
60 Department of Labor, Wage and Hour Division, Report and Recommendations on
Proposed Revisions or Regulations, Part 541, Defining the Terms “Executive,”
“Administrative,” “Professional,” “Local Retailing Capacity,” [and] “Outside Salesman”
(Washington: U.S. Govt. Print. Off., 1958), 12 pp. (Hereafter cited as The Kantor Report.)
It was also proposed that exemption be based on occupational status — licenced engineers
or certified public accountants — but that, too, was disallowed as imprecise. See pp. 3-4.
approximate,” and “has been recognized in previous revisions of the regulations.”
He added:
The salary tests have thus been set for the country as a whole ..., with appropriate
consideration given to the fact that the same salary cannot operate with equal
effect as a test in high-wage and low-wage industries and regions, and in
metropolitan and rural areas, in an economy as complex and diversified as that
of the United States.
Having raised, obliquely, the issue of regional differentials, he did not pursue it.
However, if the tests were to be used, Kantor opined, they should be set “at points
near the lower end of the current range of salaries for each of the categories.”61
Like Stein, Kantor had concerns about the entire process. “Available
information indicates clearly that there is considerable overlapping between salaries
paid non-exempt employees and the salaries currently paid employees for whom
exemption may be claimed ....” And, again: “It has been the Divisions’ experience
that there is a tendency on the part of employers to misclassify employees,
particularly in the administrative and professional categories, when the salary levels
become outdated by a marked upward movement of wages and salaries.”62
A proposed rule, raising the salary thresholds, was issued on April 5, 1958.63
Although some urged that any increase in the thresholds be deferred “because of
unfavorable economic conditions,” Administrator Clarence Lundquist resolved to
proceed — and issued a final rule to take effect on February 2, 1959. The threshold
for executives was to be “not less than $80 per week ($55 ... in Puerto Rico or the
Virgin Islands).” For administrators, it would be “not less than $95 per week ($70
... in Puerto Rico or the Virgin Islands).” And, for a professional, the rate would be
“not less than $95 per week ($70 ... in Puerto Rico or the Virgin Islands).” In each
case, an employee paid at not less than $125 per week, meeting other standards,
would be deemed to meet the requirements for exempt status.64
61 The Kantor Report, pp. 4-5.
62 Ibid.
63 Federal Register, April 5, 1958, p. 2256. The initiative, in terms of “the number of
employees and establishments” impacted, was regarded by Labor Secretary James Mitchell
as “the most important” labor-related regulatory change of the year. See Annual Report of
the Secretary, 1959, p. 228.
64 Federal Register, November 18, 1958, pp. 8962-8963. With a Federal Register notice of
January 27, 1959, pp. 581-582, Administrator Lundquist updated Subpart B of 29 CFR 541.
Updating and Reconsideration (1960s)
During the early 1960s, the Wage/Hour Division took up two aspects of the
Section 13(a)(1) exemption. First, there was the continuing issue of adjustment of
salary thresholds. Second, there was a broader concern about how exemption should
be applied, especially in retail and service industries to which wage/hour protections
had been extended under the 1961 FLSA amendments.
Adjusting the Earnings Thresholds
In January 1962, Administrator Lundquist noted the “widespread increases in
wage and payroll levels which have taken place” since the various thresholds were
last adjusted (1959) and convoked two hearings on the issue: March 26, 1962, in
Washington, and April 9, 1962, in Santurce.65
As might have been expected, reaction to the EAP exemption was split. (a)
Some employer representatives proposed elimination of the salary tests entirely. (b)
Others argued for retention but “set on an industry, area, or regional basis.” (c) Still
others proposed that the tests “be set at the level of the lowest paid executive
employees in the lowest wage and salary areas of the country.” The dominant
position among employers, DOL reported, was that the salary levels “should not be
increased.” Generally, employee representatives appeared to favor a threshold
increase. It was also suggested that any increase in the salary thresholds be pegged
to a percentage of the increase in the cost of living: a form of indexation.66
Ultimately (to be effective September 30, 1963), the thresholds were raised as
follows: for executives, to “not less than $100 per week ($75 ... in Puerto Rico, the
Virgin Islands, or American Samoa)”; for administrative workers, to “not less than
$100 per week ($75 ... in Puerto Rico, the Virgin Islands or American Samoa)”; and
for professionals, to “not less than $115 per week ($95 ... in Puerto Rico, the Virgin
Islands or American Samoa).” In each case, where other qualifications had been met,
a salary of $150 per week would be deemed sufficient “to meet all of the
requirements of this section.”67
Treatment of the Service and Retail Industries
Initially, the Fair Labor Standards Act (FLSA) had applied primarily to workers
and establishments in production work. Under the 1961 FLSA amendments,
wage/hour protection was gradually extended to workers employed in the retail and
65 Federal Register, January 23, 1962, pp. 665-666. See also Annual Report of the
Secretary, 1962, p. 226.
66 Federal Register, July 9, 1963, p. 7002.
67 Federal Register, August 30, 1963, pp. 9505-9506. Under P.L 84-1023, August 8, 1956,
a special industry structure (still in place) was established through which to regulate the
minimum wage in American Samoa. Puerto Rico and the Virgin Islands remained under a
similar arrangement until the 1990s. See also Federal Register, September 6, 1963, p. 9782.
service trades. That process would continue under the 1966 amendments to the
FLSA and cause the Department to update its EAP coverage criteria.68
The basic employer position, during the 1963 Wage/Hour hearings, was “... that
the present [29 CFR 541] regulations are not appropriate to the retail and service
industry and should not be applied.”69 It was concerned, inter alia, about problems
of definition, of industry structure, and of the separation of exempt from non-exempt
functions. The DOL summary states: “Employer representatives made it clear that
the primary purpose of these [their alternative proposals] ... is to extend the minimum
wage and overtime exemption to assistant managers and assistant buyers.” Again:
Employer representatives further state that it is necessary in retail establishments
to delegate managerial authority and responsibility downward to the lowest
possible echelons. With particular reference to assistant managers and assistant
buyers in this regard, they contend that such employees are not “assistants to” the
manager or buyer, but that they in fact have equal authority and responsibility
with the manager or buyer in the managerial function.
Some argued that the wage/salary structure in retail and service establishments (with
commissions, bonuses, etc.) was different from other industries and that “the
imposition of salary tests would require a complete revamping of their accounting70
pract i ces.”
Lundquist was “not persuaded ... that the managerial functions of executive
employees in retail and service establishments differ in any significant particular
from those of bona fide executive employees in other industries or establishments.”
Further, the Administrator stated:
... without intending comment as to the merits of the proposed definition of
management in retail and service establishments, I consider it both unnecessary
and improper to include in the regulations a definition of the managerial function
which would have exclusive application in any one industry.
Lundquist argued for a lower “tolerance” for non-exempt work by otherwise exempt
executive and administrative employees.71 He accepted the employer contention that
the salary threshold for administrative employees should not be set higher than for
executive employees. “Employer representatives contend, and the Division’s
experience under the regulations has demonstrated,” he stated, “that there is
68 See Milton C. Denbo, “The Fair Labor Standards Amendments of 1961: An Analysis,”
Labor Law Review, August 1961, pp. 731-738; and “Expansion of Minimum Wage Lawthnd
Approved,” Congressional Quarterly: Almanac, 89 Congress, 2 Session, 1966
(Washington: Congressional Quarterly Service, 1966), pp. 821-830. See also Annual Report
of the Secretary, 1963, pp. 244-245.
69 Federal Register, July 9, 1963, p. 7002.
70 Ibid., p. 7003.
71 Ibid., pp. 7005-7006.
frequently an overlapping in the work performed by executive and administrative
employees, with attendant difficulty in distinguishing these categories.”72
Threshold adjustment was allowed on an interim basis for newly covered
workers in the retail and service industries: $80 per week for executive and
administrative employees ($55 in the territories) and $95 for professionals ($75 in the
territories). After September 1965, the rates were to equal those for otherwise
covered employees.73 Section 13(a)(1) concerns then moved on to peripheral matters.
Refining the Process (late 1960s and 1970s)
In June 1969, Wage and Hour Administrator Robert D. Moran noted that
“significant increases in wages and salary levels have taken place since the salary
tests were last amended.” Therefore, he proposed an across the board increase with74
a public hearing on the projected increase to be held on September 16, 1969.
Adjusting the Earnings Thresholds
Employers, generally, urged: (a) that the rates not be raised; (b) that the salary
tests be eliminated; and (c) that differentials be established for geographical regions
and for different industries. Some employers argued that increases should “be
limited to the percentage increase in the Consumer Price Index” — in effect, a form
of indexation. At the same time, Moran acknowledged, “[m]any organizations and
individuals opposed our proposals on the basis that they would be inflationary.”
Labor spokespersons “all agreed that an increase in the salary requirements” was
needed — but that the proposed increases were insufficient. “One union
representative recommended an automatic salary review provision ... stating that such
a provision would eliminate the lengthy periods which normally occur between
revisions ... and would keep the salaries current and meaningful.”75
By this point, a certain redundancy was apparent: perhaps among the witnesses,
but certainly in the reaction of the Division. To an employer call for differentials
72 Ibid., p. 7004. Various other adjustments, restructuring definitions and patterns of
exemption or coverage, would be made to the regulation during the period. See Federal
Register, September 15, 1961, pp. 8635-8638; December 28, 1963, pp. 14423-14424; April
14, 1964, p. 5088; and December 30, 1964, pp. 19103-19104. Refinement of the treatment
of driver salesmen is dealt with in Federal Register, March 10, 1964, p. 3206; June 22,
1965, pp. 8005-8006; July 10, 1965, p. 8754; December 24, 1965, pp. 16077-16079; and
Annual Report of the Secretary, 1965, p. 185, and 1966, p. 173. The treatment of academic
administrative personnel and teachers is taken up in Federal Register, January 10, 1967, pp.
73 Federal Register, September 6, 1963, p. 9782; and Annual Report of the Secretary, 1964,
p. 185.
74 Federal Register, June 27, 1969, pp. 9934-9935.
75 Federal Register, January 22, 1970, pp. 883-884. Comments are presented in the
aggregate.
(geographic and industrial), Moran responded that the current system had “been
successfully applied for 30 years.” As for elimination of salary tests, he stated: “...
the validity of these tests has been fully explored;” arguments for their elimination
“are not supported by the Divisions’ experience.” Annual review and/or indexation
were relegated to the realm of “further study.” Industry objection to higher
thresholds, Moran argued, was faulty: the increases would simply be keeping up with
past inflationary trends. With respect to the union appeal for substantially higher
thresholds, he protested: “... a salary increase of the magnitude which they have
proposed would in my judgment cause the loss of the exemption to a substantial
number of employees who were intended by Congress to be exempted.”76
New salary tests were set as follows: $125 per week for executive and
administrative employees; $140 for professional employees. A rate of $200 was set
for persons earning at a higher level under which “less emphasis is given” to a
worker’s duties and responsibilities.77 For those brought under FLSA wage and hour
requirements by the 1966 amendments, Moran set a phased-in structure: executive
and administrative employees, $115 per week until February 1, 1971, when the rate
would go up to $125 per week; professionals, $130 per week to rise to $140 per week
afer February 1, 1971. The test for those earning at higher levels would similarly be
phased-up: $175 per week, to rise to $200 beginning February 1, 1971.78
Expansion and Tinkering
With the basic update of the thresholds out of the way, Moran turned to broader
(and, potentially, more contentious) issues. A notice in the Federal Register of
September 10, 1970, cited several new areas that, ultimately, would become subjects
of concern with respect to the Section 13(a)(1) exemption. Among them:
First. The 1966 FLSA amendments made the act “applicable ... to employees in
hospitals, nursing and rest homes, and other residential care establishments ...
bringing within the Act various para-medical employees in occupations” — not then
included with the 29 CFR 541 structure.
Second. “Consideration is also being given to the status under the exemption of
employees in occupations in the data processing field.” Moran explained:
“Employees are identified by a multitude of titles, including program operator,
programer, systems analyst, and many others. They have varied experience and
training,” he explained, “and perform a variety of tasks which are difficult to measure
in terms of their significance and importance to management.”
76 Ibid.
77 Ibid., p. 885. For Puerto Rico, the Virgin Islands and American Samoa, the rates would
be $115 for executives, $100 for administrative employees, and $125 for professionals.
78 Federal Register, January 22, 1970, p. 885. Moran subsequently extended the effective
date of the earnings thresholds to March 15, 1970. See Federal Register, February 20, 1970,
p. 3220.
Third. While the concept of professional had applied to the learned and artistic
professions, there were others to whom it might also be made to apply. Should it
include, Moran asked, other occupations such as “highly skilled technicians in the
electronics and aerospace industries” not, strictly speaking, in a field of science or
learning but whose crafts “are learned primarily through extensive experience and
on-the-job training rather than through a ‘prolonged course of specialized intellectual
instruction and study.”
The Division, faced with petitions from some industries, was beginning to rethink the
scope of the EAP exemption and whether it might not be expanded to include certain
workers presently covered under FLSA minimum wage and overtime pay standards.79
Among issues specified for discussion were: (a) to explore “a clearer definition
of ‘prolonged course of specialized intellectual instruction and study’”; (b) whether
those possessed of such training “perform activities substantially different or more
difficult than those having a lesser degree of training”; and (c) the extent to which
workers trained in fields of science and learning “consistently exercise discretion and
judgment of substantial importance, as opposed to engaging in merely routine or
mechanical work or making analyses based on the results of standardized tests.”80
An initial hearing was scheduled for December 1, 1970; but then, in the interim,
the Administrator broadened the scope of the hearing. On November 13, 1970, he
called for written testimony on a proposal to clarify “the interpretation of the
‘primary duty’ test” and to explore the manner in which the Division should deal
with “employees who have responsibilities similar to those of the owner or
manager.”81 The hearing was moved back to February 2, 1971.82
In December 1971, a new Administrator, Horace E. Menasco, issued a new final
rule which involved, primarily, interpretation. He added guidelines “to aid in
determining exemption of paramedical employees.”83 With respect to the status of
computer services workers, Menasco was dubious. Although he offered clarification,
he was unwilling to recognize the field as professional. He explained:
The employer representatives contended that computer programers and systems
analysts should be considered professional employees. Some supporters of this
position would include the position of junior programer in this category. The
testimony brought out, however, that a college degree is not a requirement for
entry into the data processing field, that only a few colleges offer any courses in
a field designated as computer science, and that there are presently no licensing,
79 Federal Register, September 10, 1970, p. 14268. Treatment of data-processing and other
computer industry personnel for EAP purposes had been a DOL concern at least as early as
the late 1950s and early 1960s. See Annual Report of the Secretary, 1960, p. 243.
80 Ibid., pp. 14268-14269.
81 Federal Register, November 13, 1970, p. 17424. See Federal Register, March 15, 1971,
p. 608.
82 Federal Register, November 6, 1970, p. 17116.
83 Federal Register, December 2, 1971, pp. 22976-22977.
certification, or registration provided as a condition for employment in these
occupations.
Menasco stated that employee spokespersons had opposed a grant of professional
status to computer services workers, arguing that it was “a relatively new occupation
area” and is in “a state of flux and that job titles and duties are not regularized and
overlap and intermix in a confusing manner.” They also argued that “to expand the
exemption [to the computer services field] was an invitation for employers to work
such employees longer hours with no additional compensation.” Menasco concurred
that the field was not, then, “generally recognized by colleges and universities as a
bona fide academic discipline.” He added:
To consider a period of technical training, on-the-job training, or years of
experience as an alternative to a prolonged course of intellectual instruction and
study would seriously weaken the professional exemption by allowing employers
to claim the exemption for various kinds of paraprofessional and sub-
professional groups.
Thus, he declined to grant professional status for the industry but did make “certain84
additions and clarifications” in Subpart B.
Treatment of “highly paid technicians” proved to be similarly vexing.
Statements, pro and con, were received from “the electronic and aerospace industries;
the funeral service industry; the news media; employment placement agencies; and
technical artists and writers of the electronics industry.” In a review of the
submissions and testimony, Menasco found that salary levels for the targeted
technicians “were not exceptionally high.”85 Further, the workers in question feared
a “loss of income” through the “loss of overtime pay.” They expressed concern that
the absence of an overtime pay requirement would result in assignment of longer
hours of work and a parallel “increase in unemployment.” Menasco declined “to
change the definition of professional employee” with respect to technicians.86
Adding Equal Pay Protections
As part of the “Education Amendments of 1972,” Congress added to Section
13(a)(1) the language “(except section 6(d) in the case of paragraph (1) of this
subsection).” Adding Section 6(d), which prohibits discrimination on the basis of
sex in the payment of wages, to Section 13(a)(1) creates a situation in which an
84 Federal Register, December 2, 1971, p. 22977. Congress would later adjust the status of
computer services workers. See CRS Report RL30537, Computer Services Personnel:
Overtime Pay Under the Fair Labor Standards Act, by William G. Whittaker.
85 As a case study, see CRS Report RL30697, Funeral Services: The Industry, Its
Workforce, and Labor Standards, by William G. Whittaker.
86 Federal Register, December 2, 1971, p. 22977. In language dealing with primary duty,
Menasco reiterated the position of his predecessors in affirming the case-by-case character
of the EAP exemption. “A determination of whether an employee has management as his
primary duty,” the rule stated, “must be based on all the facts in a particular case.”
employer may be exempt from the minimum wage and overtime pay requirements
of the FLSA but must comply with the act’s equal pay requirements.87
In mid-March of 1973, Acting Wage and Hour Administrator Ben Robertson
made the necessary technical adjustments to the Code of Federal Regulations and
then arranged for publication of the equal pay provisions in the Federal Register.88
Readjusting the Earnings Thresholds
On August 12, 1974, Wage and Hour Administrator Betty Southard Murphy
signed a notice of proposed rulemaking dealing with the several salary thresholds
under Section 13(a)(1) of the FLSA. The thresholds, she pointed out, had last been
raised in March 1970 and she argued that they were increasingly out of date. Since
the last round of increases, she stated, the Consumer Price Index had increased by
27.0 points. Further, Congress had raised the federal minimum wage by 40 cents an
hour: from $1.60 to $2.00 — with mandated step increases in the minimum wage to
$2.30 by January 1976. To make the salary tests “realistic,” Murphy proposed new
thresholds and called for comment through a 30-day period.89 The response was
substantial and the Administrator extended the comment period until October 29,
The proposal sparked attention, but it was reported that comment was
“predominantly negative” with the exception of trade union testimony. The proposed
threshold increases would be “inflationary,” it was argued. The National Association
of Manufacturers (NAM) protested that it did not see “how it is possible to justify the
increase.”91 For the NAM, Michael Markowitz stated:
Throughout industry, there are many supervisory positions, both in the plant and
in the office, which pay less than $15,600 a year [the interim ‘upset’ test level
proposed by Murphy]. To establish the upper limit at that level would create
administrative chaos since, for a substantial percentage of employees with
responsibilities that are genuinely executive or administrative, it would become92
necessary to document all the other tests to ensure compliance with the law.
A similar concern, though from a different perspective, was voiced by Nathaniel
Goldfinger of the AFL-CIO. He stated,
87 See P.L. 92-318, Section 906(b).
88 Federal Register, March 16, 1973, pp. 7114-7115, and May 7, 1973, pp. 11390-11412.
89 Federal Register, August 16, 1974. The rates Murphy proposed were intended to be of
an interim character, pending completion and analysis of a study by the Bureau of Labor
Statistics of the exemptions under Section 13 of the act — a study mandated by Congress
in the 1974 FLSA amendments (P.L. 93-259). See also Bureau of National Affairs, DLR,
August 16, 1974, p. A15.
90 Federal Register, September 17, 1974, p. 33377.
91 DLR, October 11, 1974, p. A12.
92 Ibid., p. A13. The concept of “upset” refers to the higher threshold for a “short test” for
exemption.
It has been clear throughout the history of the FLSA that unless the salary tests
were set high enough to separate nonexempt from exempt employees they would
be useless and the other duty tests would have to be depended upon to make a93
correct separation between exempt and nonexempt employees.
The interim character of the proposed threshold increases caused broad concern. It
would set in motion two shifts in personnel policy: interim and long-term. And,
there was concern that, whatever a survey by Bureau of Labor Statistics (BLS) might
find, rolling back the interim threshold levels would be impractical. Other issues
were raised: the desire for regional differentials (for the South and rural areas), small94
business viability, and alleged inflationary and employment impacts.
Murphy did not call for indexation of the thresholds, per se, but she stated: “...
it is believed that the widely accepted Consumer Price Index may be utilized as a
guide for establishing these interim rates.” Although the increases initially proposed
had been deemed economically justified by DOL, Murphy opted for a more
conservative approach. Thus, she stated, “in order to eliminate any inflationary
impact, the interim rates hereinafter specified are set at a level slightly below the
rates based on the CPI.” Because she had adopted a conservative approach, Murphy
decided that no further distinction should be made between the covered workforce
at large and those brought under the act by the amendments of 1966 or by subsequent
enactments.
The new rates, to become effective in April 1975, were listed as follows: for
executive and administrative employees, not less that $155 per week; for
professionals, not less than $170. Special sub-minima were set at $130 per week for
executive and administrative employees and at $150 per week for professionals in
Puerto Rico, the Virgin Islands, and American Samoa. For workers paid at a higher
rate (and whose duties may not be monitored as carefully for exemption purposes),
the so-called “upset test” was set at $250, with a special rate of $200 for workers in
Puerto Rico, the Virgin Islands, and American Samoa. The threshold applicable to
the motion picture industry was set at $250 per week.
Murphy regarded the threshold rates as an interim expedient. “The present rates
have become obsolete and interim rates are required to protect the interests of all
concerned, including employees and employers, and to enable the Wage and Hour
Division to administer the Act in a proper and equitable manner.” But, she
admonished: “The use of interim rates is not ... to be considered a precedent.”95
93 DLR, October 11, 1974, p. E1.
94 DLR, October 22, 1974, pp. A16-A17.
95 Federal Register, February 19, 1975, pp. 7091-7094. See also DLR, February 19, 1975,
p.A2.
The Salary Thresholds Fall into Disuse
A salary threshold as an indicator of executive or administrative status had been
instituted under Andrews and, extended to professionals, expanded upon by his
successors. Some may argue that the system was flawed: that the thresholds were
too low or, conversely, too high. Some suggested that the thresholds be indexed in
order to retain a fixed value; others urged that they be dispensed with altogether,
classification for exemption resting upon the duties tests. Threshold elimination was
never, formally, adopted as a policy goal: indeed, their retention and updating would
be continuously espoused. But, in practice, they came to be dispensed with after
The Carter Administration
Administrator Murphy had regarded the 1975 threshold levels as temporary,
pending an economic study of the EAP exemption by BLS and its review by
Wage/Hour. The study, prepared by Robert Turner, was published in 1977.97
In an April 7, 1978, statement, Wage and Hour Administrator Xavier M. Vela
affirmed that “current salary tests ... no longer provide basic minimum safeguards
and protection for the economic position of low paid executive, administrative, and
professional employees....” Vela called for a hearing on May 8, 1978, to review the
thresholds and “to determine the amount” by which they “should be increased.”
Taking into account changes in the CPI and a recently legislated increase in the
federal minimum wage, Vela urged that the thresholds be raised.98
The May 1978 hearings spanned three days with 22 witnesses and 189 written
statements. Comments, DOL noted, fell into two categories: concern about the
methodology for determining threshold levels; and, assertions with respect to impact.
DOL reported that some employers, “particularly those with fixed or declining
revenues, stated that they would have no option but to lay off some of their
employees, if the levels were raised.” Employee witnesses anticipated little impact
since, in many industries, “average hourly wages were significantly higher than the
salary tests being proposed.”99 Rudy Oswald of the AFL-CIO argued that the
proposed tests “are not high enough to eliminate from the exemption employees
whose status in management or the professions is questionable.”100
96 Federal Register, March 31, 2003, p. 15562.
97 U.S. Department of Labor, Employment Standards Administration. Executive,
Administrative and Professional Employees (Washington: U.S. Govt. Print. Off., May
98 Federal Register, April 7, 1978, p. 14688-14691. Under P.L. 95-151 (November 1, 1977),
the federal minimum wage had been increased, in steps, to $3.35 per hour after January
99 Federal Register, January 13, 1981, pp. 3011-3013.
100 DLR, June 13, 1978, p. A8.
Some may have found puzzling a split within the Carter Administration, pitting
the Council on Wage and Price Stability (COWPS) against DOL. In a June 1978
submission to the Department, COWPS argued that “[n]o rationale for the
exemptions” had been provided by Congress in 1938. Since “no rationale is given
for the salary test,” it stated, “no consistent reason for or method of changing it can
be or is offered.” COWPS faulted the methodology used by DOL, charging that it
rested upon support documents that provide neither “cost data or evidence of a need
for DOL action in this area.”101 COWPS asserted that the proposed increase would
be inflationary and raise labor costs to the disadvantage of employers: an impact that
“could signal an insincerity on the part of this government in its anti-inflationary
stance.” It then presented its view of appropriate economic policy, urged that some
form of indexation be instituted with respect to the thresholds (perhaps pegging, but
apparently not reliance upon the Consumer Price Index), and concluded:
In summary the Council urges DOL to withdraw its proposal on the grounds that
this DOL action is unnecessary to protect workers, that it is not required by
Congress, and that it unduly contributes to inflationary pressures. Moreover
DOL’s action ... is in direct contravention of clearly stated administration policy102
to restrain increases in prices and wages.
The only benefit to which the Council would point was the “higher pay received by
impacted workers.”103 Both DOL and COWPS focused upon statistical analysis of
the cost impact of a threshold change, and both (to a lesser extent, COWPS) tended
to ignore fundamental policies inherent in the Section 13(a)(1) exemption.
For 2 ½ years, the proposed rule remained dormant. Then, on January 9, 1981,
Donald Elisburg, Assistant Secretary for Employment Standards, signed a final rule
increasing the thresholds on a two-step basis: the first to take effect on February 13,
101 Ibid., p. D1. Later, the Council would, explain (without documentation) what Congress
“no doubt” had in mind in creating the Section 13(a)(1) exemption in 1938.
102 DLR, June 13, 1978, p. D3. The Council’s testimony, signed by COWPS Director Barry
Bosworth, with others, is reprinted in full in the DLR.
103 DLR, June 13, 1978, p. D2. For a brief discussion of the relationship between COWPS
and the Secretary of Labor (economist Ray Marshall), see Melvyn Dubofsky, “Jimmy Carter
and the End of the Politics of Productivity,” in Gary M. Fink and Hugh Davis Graham, eds.,
The Carter Presidency: Policy Choices in the Post-New Deal Era (Lawrence: University
Press of Kansas, 1998), pp. 108-111.
104 Federal Register, January 13, 1981, pp. 3010-3017. Under the final rule, the salary
schedule was to have been as follows: for executives, $225 on February 13, 1981, and $250
on February 13, 1983; for administrative personnel, $250 on February 13, 1981, and $280
on February 13, 1983; for professionals, $320 on February 13, 1981, and $345 on February
13, 1983. Parallel rates for Puerto Rico, the Virgin Islands and American Samoa would
have been: executives, $180 and $200; administrative personnel, $225 and 250; and
professionals, $260 and $285.
The Reagan and Bush Administrations
On February 12, 1981, there appeared in the Federal Register a brief notice,
signed by Henry T. White, Jr., Deputy Administrator, Wage and Hour Division,
stating that the effective date of the rule dealing with the EAP exemption would be
“stayed indefinitely ... to allow the Department to review the rule fully before it takes
effect.” The comment period on the rule was declared “reopened.”105
Reconsidering the Threshold Issue. The process remained open but did
not reach fruition. On March 27, 1981, DOL sought comment as to whether the stay
should be indefinite.106 Of early responders, “the overwhelming majority ... mostly
restaurant[s] and hotels,” were reportedly opposed to any increase in EAP thresholds
— some opponents quoting COWPS criticism of the initiative.107 An announcement
of April 30, 1982, stated that the rule had been “targeted for review by the President’s
Task Force on Regulatory Relief” — but a new rule did not appear.108
The process began anew with an advanced notice of proposed rulemaking
published in the Federal Register of November 19, 1985. “The Department is
interested in the views of the public with respect to all aspects of the regulations.
Comments,” it stated, “are invited concerning the current definitions of terms relating
to the salary, duties, and responsibilities tests for such employees, as well as the
interpretations of such definitions.” The notice presented 20 specific areas of
concern.109 On January 17, 1986, the comment period, originally set to close on110
January 21, was extended to March 22, 1986. No action on the broad issue would
be taken through the next several years.
105 Federal Register, February 12, 1981, p. 11972. See also Federal Register, February 13,
106 Federal Register, March 27, 1981, pp. 18998-18999. A standoff may have developed
between labor and the Administration on the issue. Secretary of Labor Raymond Donovan
stated that DOL was “concerned that modification of the wage provision could aggravate
already intolerable levels of unemployment and inflation and exacerbate the business costs”
and could have a “devastating” effect on small business. Conversely, the AFL-CIO’s John
Zalusky asserted that the Administration’s “track record has not been good” with respect to
labor standards protections and expressed fear that any further regulatory changes in this
area would “brutalize” the FLSA exemptions. See DLR, March 4, 1987, p. A8.
107 DLR, April 10, 1981, p. A5-A8. DLR noted: “Restaurants and restaurant employees
comprise the largest single category among the 300 to 400 responses received so far by
DOL.” While many industry comments were “similar or identical letters,” few responses
were found to have been received from labor by April 6 when DLR conducted its review.
108 Federal Register, April 30, 1982, p. 18709. See also Federal Register, October 28, 1982,
p. 48536; April 25, 1983, p. 18169; October 17, 1983, p. 47547; April 19, 1984, p. 16043;
and October 22, 1984, p. 41825.
109 Federal Register, November 19, 1985, pp. 47696-47698. See also DLR, April 30, 1985,
p. A9.
110 Federal Register, January 17, 1986, p. 2525.
Pay Docking and Local Governmental Employees. When developing
regulations for Section 13(a)(1), the Secretary had imposed numerous requirements
that, once in place, had to be complied with. Among these was the requirement that
workers be salaried — which had come to mean:
... that an employee will be considered to be paid ‘on a salary basis’ if the
employee regularly receives each pay period a predetermined amount
constituting all or part of the employee’s compensation and the predetermined
amount is not subject to reduction because of variations in the quality or quantity
of work performed. Subject to specified exceptions, the employee must receive
the full salary for any week in which any work is performed without regard to the111
number of days or hours worked....
Thus, for short periods (the language would be interpreted to mean less than one
day), any deduction from an employee’s pay for hours not worked would vitiate his112
or her status as salaried.
With the passage of time (and amendment of the FLSA), state and local
governmental employees were brought under the act. At the same time, state and
local statutes, in some cases, forbade payment of workers for time not actually
worked (even for short periods). And, so, a conflict developed. If deduction were
not made, the employer would be in violation of state and local law. On July 11,
against whom a deduction was made for absences of less than a full day could no
longer be regarded as exempt under Section 13(a)(1), and therefore would be eligible113
for overtime pay for hours worked in excess of 40 per week. State and local
governments found themselves confronted with substantial back pay liability.
As the liability debt mounted, some Members of Congress called upon DOL for114
clarification. “To date,” chided Senator John Seymour (R-CA), “DOL has not
issued final regulations; this has left the courts without clear guidance and, as115
evidence, they have rendered conflicting rulings.” In early September 1991, the
Department issued a new regulation: to provide immediate relief and to effect a116
longer term solution. However, in March 1992, the regulation (which had been
111 See 19 CFR 541.118, as explained in Federal Register, August 19, 1992, p. 37666.
112 This is not a matter of payment for work not performed. Rather, as an exempt executive,
administrative or professional employee, the worker is expected to complete his or her
duties: sometime working extra hours without extra pay and on other occasions being absent
for less than one day without a deduction from his or her salary.
113 See, for example, Abshire v. County of Kern, 908 F. 2d 483 (9th Cir. 1990).
114 In testimony before the House Subcommittee on Labor Standards, July 1, 1993, William
J. Kilberg, Solicitor of Labor during the Ford Administration, suggested that the “actual
impact, in fact, may greatly exceed” a $20 billion figure estimated by the Employment
Policy Foundation. See DLR, July 2, 1993, p. D3.
115 Congressional Record, August 2, 1991, pp. S12253-S12254.
116 Federal Register, September 6, 1991, pp. 45824-45826 and 45828-45830. See DLR,
(continued...)
implemented on an emergency basis) was invalidated by the U.S. District Court for
Eastern California.117 Again, public sector employers voiced concern, as did some
Members of Congress.118 On August 14, 1992, DOL issued a new final rule. It
provided that an “employee of a public agency,” otherwise qualified for EAP exempt
status, “shall not be disqualified from exemption ... on the basis that such employee
is paid according to a pay system established by statute, ordinance, or regulation”
that, in effect, mandates docking of pay for short-term absences.119
The Clinton Administration
For the Clinton Administration, updating the earnings thresholds remained a
part of the regulatory agenda. A target date for rulemaking was initially set for
September 1993.120 No action was taken, however. Although the issue remained on
the agenda, no new timetable was immediately set.121
In a Federal Register notice for November 14, 1994, DOL recalled that the
thresholds had not been updated since 1975 when they were set “on an interim basis.”
It noted further that the “salary level tests are outdated and offer little practical
guidance in the application of the exemption.” Numerous comments and petitions,
it stated, had “been received in recent years from industry groups regarding the duties
and responsibilities tests in the regulations” and “recent court rulings have caused
confusion on what constitutes compliance with the regulation’s ‘salary basis’ criteria
in both the public and private sectors.” The Department continued:
Some 23 million employees are within the scope of these regulations. Legal
developments in court cases are causing progressive loss of control of the
guiding interpretations under this exemption and are creating law without
considering a comprehensive analytical approach to current compensation
concepts and workplace practices.... Clear and comprehensive regulations will
once again provide for central, uniform control over application of these
regulations and will eliminate this apprehension.
Thus, DOL concluded “that a comprehensive review” was needed. It stated that it
would re-open the comment period — continuing from the Reagan era initiatives of
116 (...continued)
September 9, 1991, pp. A11-A12.
117 Alex v. State of California, 1992 U.S. Dist. LEXIS 6795; 30 Wage & Hour Cas. (BNA)
118 DLR, July 17, 1992, pp. A13-A15, and August 3, 1992, A5/A6. See also DLR, August
119 Federal Register, August 19, 1992, pp. 37666-37678.
120 Federal Register, April 26, 1993, p. 24569.
121 Federal Register, October 25, 1993, p. 56587; and April 25, 1994, p. 20610.
122 Federal Register, November 14, 1994, pp. 57129-57130.
In May 1995, the issue was again deferred, as it would be through the remainder
of the Clinton Administration.123 On April 24, 2000, the now routine notice in the
Federal Register projected the target date for notice of proposed rulemaking as April
2001 — after the Administration would have left office — and that date, in turn, was
deferred until September 2001.124
123 See Federal Register, May 8, 1995, pp. 23544-23545; November 28, 1995, pp. 59613-
November 9, 1998, pp. 61288-61289; April 26, 1999, pp. 21500-21501; and November 22,
124 Federal Register, April 24, 2000, pp. 23029-23030; and November 30, 2000, pp. 73410-
SECTION II
A New Initiative from the Bush Administration
(2003-2004)
Entering office early in 2001, the Bush Administration was confronted with the
on-going issue of 29 CFR 541: the EAP regulation. It, too, noted that the regulation
was outdated and pledged to engage in “outreach and consultation.”125 The spring
of 2002 saw yet one more deferral — with action targeted for early 2003.126
A New Rule Proposed
On March 31, 2003, Wage and Hour Administrator Tammy McCutchen posted
in the Federal Register a “proposed rule with request for comments.”127
Administrator McCutchen proposed an extensive reworking of the EAP regulation.
The proposal would somewhat condense the existing regulation and, further, would:
!Raise the salary test threshold for all EAP workers to $425 per week
(annualized at $22,100 per year). Anyone earning less than the new
threshold would automatically be eligible for overtime pay on the
basis of low earnings. Those satisfying the salary test (earning more
than $22,100 annually) would still have to meet a duties test.128
!Create a new highly compensated threshold at $65,000 per year.
Anyone earning in excess of $65,000 a year and performing any
function associated with EAP status could be exempt.129
!Redefine portions of the duties test for EAP exemption. Such
definitions may include what the employee actually does, his or her
relationship to the employer or the firm, the relative importance of
the EAP duties as opposed to non-EAP work, matters of
independence of judgment and initiative, the education required of
a professional, and related matters.
As had been the case during earlier Administrations, a review of 29 CFR 541 sparked
intense interest. By the time the comment period closed on June 30, over 75,000
comments had been received by the Department and an intense debate had been
125 Federal Register, May 14, 2001, pp. 25687-25688.
126 Federal Register, May 13, 2002, pp. 33314-33315.
127 Federal Register, March 31, 2003, pp. 15560-15597.
128 There are workers currently earning between the existing EAP thresholds ($8,060 for
executives and administrators; $8,840 for professionals) and the proposed threshold of
$22,100 who, because they do not perform the duties of an executive, administrator or
professional worker, are covered by the minimum wage and overtime pay requirements of
the FLSA. The proposed regulation would not extend any new protection to these workers.
129 How this would work out, in practice, may depend upon how one defines the duties of
an otherwise exempt EAP employee.
triggered.130 In the early fall of 2003, DOL continued to evaluate testimony and to
review policy options.
Congressional Reaction
The complications and controversies involving the Section 13(a)(1) exemption,
had deep roots. Litigation concerning aspects of the problem had drawn the attention
of workers and employers — and of Members of Congress. The problems were not
new; that action was taken to rectify them may have been somewhat unexpected.
An Early Alert? During the second Clinton Administration, the General
Accounting Office began a review of the Section 13(a)(1) exemptions. It conferred
widely and, thus, alerted each side of the debate to potential regulatory issues.
In September 1999, GAO published a report, Fair Labor Standards Act: White-
Collar Exemptions in the Modern Work Place. The report focused upon five issues.
(1) How many employees are covered by the white-collar exemptions and how
have the demographic characteristics of these employees changed in recent
years? (2) How have the statutory and regulatory requirements changed since the
enactment of the FLSA? (3) What are the major concerns of employers
regarding the white-collar exemptions? (4) What are the major concerns of
employees regarding the white-collar exemptions? (5) What are possible131
solutions to the issues of concern raised by employers and employees.
GAO found (in 1998) between 19 and 26 million full-time workers classified as
executive, administrative, or professional employees and, thus, exempt from FLSA
minimum wage and overtime pay protections. A gradual shift from manufacturing
to a service economy since 1938, GAO suggested, had resulted in an increase in the
number of exempt workers. About 42% of exempt workers were women: exempt132
workers “were more than twice as likely as nonexempt workers to work overtime.”
Neither side appears to have been wholly satisfied with the EAP exemption as
structured. Employers, GAO found, were concerned about potential liability where
workers were mis-classified. They also argued that the existing regulation was
“confusing” and led to “inconsistent results in classifications of similarly situated133
employees.” Workers were concerned “about preserving work-hour limitations”
130 Congressional Record, October 2, 2003, p. H9155.
131 U.S.General Accounting Office, Fair Labor Standards Act: White-Collar Exemptions in
the Modern Work Place, GAO/HEHS-99-164, p. 2. (Hereafter cited as GAO Report 99-164,
White Collar Exemptions.) The report was amplified by testimony of GAO’s Cynthia M.
Fagnoni before the House Subcommittee on Workforce Protections, May 3, 2000, Fair
Labor Standards Act: White-Collar Exemptions Need Adjustment for Today’s Work Place,
GAO/T-HEHS-00-105. GAO’s review is lengthy, detailed, and replete with
recommendations for possible revision of the Section 13(a)(1) exemption.
132 GAO Report 99-164, White Collar Exemptions, p. 2.
133 Ibid., p. 3. GAO found aspects of the duties test that “involved difficult and sometimes
(continued...)
and believed that the regulations “as applied ... were not sufficient” and did not
“adequately restrict” classification of workers as exempt. The salary test, they stated,
had been “severely eroded” by inflation and the duties test had been “oversimplified,
leading to inadequate protection of low-income supervisory employees.”134
The Appropriations Process. On July 10, 2003, during House floor
consideration of the Labor, Health and Human Services, and Education, and Related
Agencies Appropriations bill (H.R. 2660), an effort was made by Representative
David Obey (D-WI) to block implementation of the proposed EAP rule. The Obey
amendment was defeated in the House by a vote of 210 ayes to 213 nays.135
Through early September, similar action was debated in the Senate. On
September 10, 2003, by a vote of 54 yeas to 45 nays, the Senate voted to approve an
amendment to H.R. 2660 offered by Senator Tom Harkin (D-IA).136 It read:
None of the funds provided under this Act shall be used to promulgate or
implement any regulation that exempts from the requirements of Section 7 of the
Fair Labor Standards Act of 1938 ... any employee who is not otherwise
exempted pursuant to regulations under Section 13 of such Act (29 U.S.C. 213)137
that were in effect as of September 3, 2003.
Thus, under the Harkin amendment, DOL would be able to proceed with its initiative
to increase the earnings thresholds, since that would narrow the exemption rather
than expand it, but would be restricted from making changes in the definitions of
duties and of the concepts of executive, administrative, or professional which some
perceived as potentially expanding the general exemption and certainly removing138
overtime pay coverage from individual workers currently protected.
133 (...continued)
subjective determinations, and that it was a source of contention in DOL audits.”
134 GAO Report 99-164, White Collar Exemptions, pp. 2-3. GAO stated of the executive
exemption: “... it is, in fact, difficult to challenge exempt classification if employees
supervise two or more full-time employees and spend some time — even if minimal — on
management tasks.” Further, see Daniel V. Yager, Senior Vice President & General
Counsel, the Labor Policy Association, to Administrator McCutchen, June 30, 2003, 64 p.;
and Ross Eisenbrey and Jared Bernstein, Eliminating the Right to Overtime Pay, Briefing
Paper, Economic Policy Institute, undated but early summer 2003, 17 p.
135 Congressional Record, July 10, 2003, pp. H6568-H6571, and H6579-H6580.
136 Congressional Record, September 10, 2003, p. S11269. See also DLR, July 25, 2003, p.
A4, September 4, 2003, p. A6, Sept 8, 2003, pp. A4-A5, and September 11, 2003, pp. AA1-
AA2.
137 Congressional Record, September 5, 2003, p. S11136.
138 Later, some questioned whether the Harkin amendment would apply only to current
employees or to prospective employees as well? Representative Obey stated: “The Senate
provision would provide the same protections to newly hired workers as to current workers.
It does not grandfather in current workers but ensures the same overtime pay protections to
all workers in a job classification.” Congressional Record, October 2, 2003, p. H9155.
On October 2, 2003, the House took up appointment of conferees on H.R. 2660.
At that juncture, Representative Obey offered a motion to instruct the House
conferees “to insist on Section 106 of the Senate amendment regarding overtime
compensation under the Fair Labor Standards Act” (i.e., the Harkin amendment).
Following debate, the Obey motion was approved by 221 ayes to 203 nays: the
House conferees were instructed to support the Harkin amendment in conference.139
Thus, both the Senate and the House were on record with respect to the Harkin
amendment and the proposed revision of the Section 13(a)(1) regulation. The Senate
had spoken directly; the House, through instruction given to its conferees. In the
background was the threat of a Presidential veto if the Harkin amendment (and/or
certain other contentious provisions) remained part of the bill.140
As the first session of the 108th Congress moved to a close, several
appropriations bills (among them, the DOL funding measure) remained to be passed.
Ultimately, the House developed an omnibus appropriations bill (H.R. 2673: the
FY2004 Consolidated Appropriations bill). H.R. 2660 remained in conference,
having been by-passed. The conference report on H.R. 2673 (H.Rept. 108-401),
filed November 25, 2003, provided:
The conference agreement deletes without prejudice language proposed by the
Senate that none of the funds appropriated in this Act shall be used to promulgate
or implement any regulation that exempts employees from the Fair Labor141
Standards Act of 1938.
If approved as reported, the conference report would leave the Department free to
move forward with the proposed rule restructuring the Section 13(a)(1) exemption.
House Consideration of the Conference Report. The report was called
up for debate in the House on December 8, 2003. Representative Louise Slaughter
(D-NY) opened discussion of the issue by pointing out that, the instructions given to
the conferees notwithstanding, the Harkin amendment has “mysteriously ...
disappeared.”142 Representative Rosa DeLauro (D-CT) picked up on the same theme.
“... [I]n clear defiance of the will of both chambers of Congress ...,” she stated, this
bill “allows the Department of Labor to gut” the FLSA, “effectively repealing the 40-
hour workweek” while it “opens the door to mandatory overtime....”143 And,
Representative Obey affirmed: “Both Houses of the Congress voted to provide
139 Congressional Record, October 2, 2003, pp. H9155-H9166.
140 See Nick Anderson, “Spending Bill In Congress Might Draw Bush Veto,” Los Angeles
Times, November 21, 2003, p. 20; “The Incredible Bloated Money Bill,” The New York
Times, November 21, 2003, p. 30; and Murray Light, “Bush Used Veto Power To Pass Pork-
Filled Spending Bill,” The Buffalo News, February 1, 2004, p. H5.
141 U.S. Congress, Conference Committees, Making Appropriations ... for the Fiscal Year
Ending September 30, 2004, and for Other Purposes, conference report to accompany H.R.thst
142 Congressional Record, December 8, 2003, p. H12754.
143 Ibid., p. H12813.
overtime protections for workers because the administration is trying to take those
protections away....” Mr. Obey added: “This bill, without one minute of comment
in the conference committee, arbitrarily at the instruction of the Republican
leadership rips out those protections.”144
The omnibus bill was complex with overtime pay but one of its components.
Representative John Boehner (R-OH), chairman of the Committee on Education and
the Workforce, stressed the benefits the bill would provide for education.145 House
Majority Leader Tom DeLay (R-TX) lauded the fiscal aspects of H.R. 2673. “This
omnibus represents the values of discipline, innovation, and conviction we all
treasure,” and declared the bill full of “... sound, disciplined policies, funded at
responsible, reasonable levels.”146 And Representative C. W. Bill Young (R-FL),
House Appropriations Committee Chairman, stressed fiscal responsibility, observing:
“... is we are within the budget. There are a lot of good increases.... But we offset
those increases with rescissions, so that we were able to stay within the budget.”147
From the context of the debate on the conference report, other issues appear to have
been of greater concern to the Majority than was overtime pay regulation.
The House vote on the conference report was 242 yeas to 176 nays.148
Senate Consideration of the Conference Report. It remained for the
Senate to consider the conference report on the omnibus appropriations bill. That
action was postponed until late January 2004 — the start of the second session.
A First Cloture Attempt. On January 20, when the Senate reconvened, the
Majority Leader, Senator Bill Frist (R-TN), announced that a cloture vote on
consideration of the Consolidated Appropriations Act of 2004 would occur at 3
o’clock. He warned Members that failure to approve the measure could result in “a
continuing resolution”and noted dire consequences such action could product.149
Minority Leader Tom Daschle (D-SD) responded that although the proposed
legislation “was once a good bill,” the Administration had “intervened at the eleventh
hour and demanded changes, laid down an ultimatum, and even forced the
conference to take positions in direct conflict with earlier positions taken on rollcall
votes in both the House and the Senate.” Certain provisions, he stated, now “made
the bill unsupportable to many Senators” and urged the Senate to “take the time to
fix the bill’s problems because they affect millions of American families.”150
144 Ibid., p. H12826.
145 Ibid., p. H12827.
146 Congressional Record, December 8, 2002, pp. H12828-H12829.
147 Congressional Record, December 8, 2003, p. H12830.
148 Ibid., p. 12845.
149 Congressional Record, January 20, 2004, p. S1-S2.
150 Ibid., p. S3.
The debate that followed was divided along partisan lines with Democratic
Senators taking the lead on the overtime question. Two issues seemed paramount.
First, there was substantive concern that the regulation proposed by DOL would
adversely affect workers. Senator Joseph Biden (D-DE) stated that the regulation “...
would make it easier — would actually create an incentive — for employers to
classify workers who have little advanced education and little or no authority, to
classify those workers as white collar workers” with the result that “... millions of
workers could lose the right to overtime pay.”151 A second concern was with process.
Senator Jack Reed (D-RI) protested that the bill “contains elements that contradict
the express votes of this body and the other body, bipartisan votes....”152 Senator Tim
Johnson (D-SD) asserted that “[t]here “was no conference in a meaningful sense.”153
When there was “no request for time” from the Majority, Senator Daschle
pleaded for “... a few days to work with the administration and the House to fix the
most egregious provisions in this bill, provisions that have already been rejected by
both Houses of Congress and bipartisan majorities.”154 In reply, Senator Frist
recalled the costs of delay: “shortchanging our diligent efforts ... in the fight against
terrorism,” loss of funding for “food security,” a negative impact upon “millions of
veterans,” adverse effect for “people who suffer from HIV/AIDS,” “shortchanging
the needs of schools.”155 A vote on cloture failed: 48 yeas to 45 nays.156
Cloture and Approval of the Conference Report. On January 22, 2004,
the Senate again considered cloture. Anticipating that cloture would carry, Senator
Daschle viewed what he stated was “the hijacking of the process that went on during
the deliberations on the Omnibus appropriations bill.” The Senator opined:
... I know why we will probably get cloture today. Nobody here wants to be
accused of shutting the Government down. Everybody understands the
commitment that this legislation reflects in its support for veterans and for so
many other things that we care deeply about. Senators are put in a very difficult
position.
Turning again to the issue of process, Senator Daschle affirmed: “... I think it is an
erosion of democracy in our Republic that is deplorable....”157 Throughout, both in
the House and Senate, debate on the overtime pay issue was laced with expressions
of concern about the legislative process.
151 Ibid., p. S14.
152 Ibid., p. S6.
153 Ibid., p. S7.
154 Ibid., p. S19.
155 Ibid., p. S20.
156 Ibid., p. S20. In an article in The Washington Post, January 21, 2004, p. A4, reporter
Helen Dewar explained: “Frist repeated earlier warnings that Congress was likely to keep
funding programs at current levels if the bill failed — meaning loss of about $6 billion in
proposed spending increases and nearly 8,000 home-state projects sought by senators of
both parties.”
157 Congressional Record, January 22, 2004, pp. S128-S129.
Senator Jon Corzine (D-NJ) sought unanimous consent to proceed with a
concurrent resolution that would have restored the Harkin amendment to the omnibus
measure, that is, barring the use of funds to be appropriated to DOL for
implementation of the proposed overtime regulation. But, objection was heard.158
Moving from the overtime pay issue, Senator Kay Bailey Hutchison (R-TX)
reminded the Members: “If we do not pass this bill — the alternative is a continuing
resolution — it means that last year’s priorities would prevail, and there would be
some major losses in funding for the next nine months of this year.” Like Senator
Frist, Senator Hutchison reviewed the range of programs that could be negatively
impacted were there resort to a continuing resolution. And, she concluded:
We will pass this bill and give our children a chance, and our country a chance,
to have the increases we need for our homeland security, and the education of
our children and the research into cancer to find the cause and the cure. We must159
pass the omnibus bill to go forward in all of these aspects.
From the Minority, however, it was suggested that the rationale for deleting language
approved by both Houses had not been explained. “One would think if they were
going to take these out,” stated Senator Edward Kennedy (D-MA), “at least they
would ... come down here and explain to the American people why.” He continued:
“Let’s hear them defend the Labor Department’s regulation....”160 Senator Hutchison
responded, inter alia: “There has been a full vetting of the differences on this bill.”
She again cited the programs that would suffer were the omnibus bill not approved.161
Just prior to a second vote on cloture, Senator Frist again reviewed the programs
that would be lost were the conference report not approved. He did not, then,
address the substance of the overtime pay regulation or of other provisions in dispute.
Cloture was agreed to by a vote of 61 yeas to 32 nays (7 not voting). Thereafter,
the Senate approved the conference report by a vote of 65 yeas to 28 nays (7 not
voting).162 The bill was signed by President on January 23, 2004 (P.L. 108-199).
Alternative Attempts at Accommodation
Through 2003 and into 2004, several other initiatives with respect to overtime
pay regulation (Section 13(a)(1)) had been under development.
Freestanding Legislation. On July 8, 2003, Representative Peter King (R-
NY) introduced H.R. 2665, legislation to restrict the Department from exempting
workers from overtime pay protection through the proposed rule. A companion bill,
S. 1485, was introduced by Senator Kennedy on July 29, 2003. The bills were
158 Ibid., p. S130.
159 Ibid., pp. S130-S132.
160 Ibid., p. S134.
161 Ibid., p. S135.
162 Ibid., pp. S155-S156.
referred respectively to the House Committee on Education and the Workforce and
to the Senate Committee on Health, Education, Labor, and Pensions. No action has
been taken on either bill.
A Hearing in the Senate: Round One. On July 31, 2003, a hearing on the
proposed overtime rule was conducted by the Labor, Health and Human Services,163
and Education Subcommittee on the Senate Appropriations Committee. Chaired
by Senator Arlen Specter (R-PA), the Subcommittee searched for common ground164
for agreement between DOL and those critical of the proposed regulation.
Much of the testimony focused upon what the proposed Section 13(a)(1) rule
would do. Ross Eisenbrey, speaking for the labor-oriented Economic Policy Institute,
argued that DOL had seriously underestimated the likely impact of the rule. He
suggested that the Department had not been entirely open with respect to the
assumptions and methodology upon which its estimates were based. So the Institute,
he explained, conducted its own analysis and came to conclusions somewhat
different from those of DOL. Eisenbrey was concerned about definitions embedded
in the rule — which could, he suggested, result in a significant body of workers being165
moved out from under the wage/hour protection of the act. Wage/Hour
Administrator Tammy McCutchen conceded that some workers would be reclassified
to exempt status, but she argued that the impact would be slight. Quoted in the Daily
Labor Report, she affirmed: “We have no intention of expanding the exemptions.”166
The hearing established a context for debate; it did not appear to achieve167
common ground.
The Study Commission Proposal. During the summer, critics of the
proposed rule continued to voice concern with respect to the particular workers who
could be adversely affected and, more broadly, with respect to the implications of the
regulatory change for the general structure of federal wage/hour regulation.
On September 9, 2003, in an effort to avoid any “disruption which would be
occasioned ... by the [proposed DOL] regulations going into effect” and, hopefully,
to effect a reasonable accommodation, Senator Specter introduced S. 1611. The bill
proposed a commission of eleven members with representatives from business, the
public sector, and organized labor. The commission would seem to bring clarity with
163 The Subcommittee also considered revision of the Labor-Management Reporting and
Disclosure Act and new technologies for combating the hazard of coal dust for miners.
164 Press Release, Labor-HHS Subcommittee Hearings for July 31, U.S. Senate Committee
on Appropriations, July 25, 2003.
165 Testimony of Ross Eisenbrey, July 31, 2003, Senate Appropriations Committee website,
visited January 29, 2004.
166 DLR, August 1, 2003, p. AA1.
167 U.S. Congress. Senate Committee on Appropriations, Subcommittee on Departments of
Labor, Health and Human Services, and Education, and Related Agencies, Proposed Rulethst
on Overtime Pay, 108 Cong., 1 sess., July 31, 2003 (Washington: GPO, 2004).
respect to existing overtime pay regulations and the possible impact of the proposed
rule.
Under the proposed legislation, the commission would “conduct of a thorough
study of, and develop recommendations on, issues relating to the modernization of
the overtime provisions” of the FLSA. Among specific mandates, the commission
would: (a) review the categories of exemptions, the numbers of workers involved,
and the impacts of changes in overtime pay regulation (i.e., establish a more solid
statistical base); (b) examine the regulation currently under consideration to
determine whether it “is sufficiently clear to be easily understood by employers and
workers;” (c) assess “the paperwork burden” associated with the regulation as
proposed and the impact for enforcement and compliance by DOL; and (d) “study
other issues determined appropriate by the Commission.”
While the commission would proceed with its work, the pending Section
13(a)(1) regulation would be held in abeyance. Under S. 1611, no modification to
the overtime pay requirements of the FLSA would be made until at least 60 days after
the commission’s report is submitted. Creation of a commission would assure, in
effect, that the Secretary would not be able to proceed until Congress had an
opportunity to evaluate any proposed regulatory change with respect to overtime pay.
The bill was referred to the Committee on Health, Education, Labor, and Pensions.168
A Hearing in the Senate: Round Two. The proposed revision of the
Section 13(a)(1) regulation produced a divided response: labor/workers, generally,
in opposition to the proposal; the employer community generally in support of the
change. On January 20, 2004, as the Senate returned from recess and took up
consideration of the conference report on H.R. 2673 (discussed above), Senator
Specter convened a hearing on the proposed rule before the Appropriations
Subcommittee on Labor, Health and Human Services, and Education.
Secretary of Labor Elaine Chao, the lead witness, opened the hearing by
reminding Congress that, when adopting the FLSA, it has chosen “not to provide
definitions for many of the terms used” but, rather, had left to the Secretary “the
authority and responsibility to ‘define and delimit’ these terms ‘from time to time by
regulations.’” The “primary goal” of the proposed rule, she stated, “is to have better
rules in place that will benefit more workers” — especially “low-wage workers.” Its
intent, she affirmed, is “to restore overtime protections, especially to low-wage,
vulnerable workers who have little bargaining power with employers.” She pointed
to the need to clarify existing law: to free the parties from “costly class action
lawsuits” and allow employers to “use litigation costs to grow and expand their
businesses and create new jobs.” Ms. Chao added: “Clear, concise and updated rules
will better protect workers and strengthen the Department’s ability to enforce the
law.” The Department, she stated, “... has ‘zero tolerance’ for employers who try to169
play games with the overtime laws.”
168 See Congressional Record, September 11, 2003, pp. S11419-S11421, and S. 1611.
169 Testimony of Labor Secretary Elaine Chao, January 20, 2004, Senate Appropriations
Committee website, visited January 29, 2004.
There seemed little disagreement among the witnesses that the existing
regulations (29 CFR 541) were ambiguous and that the salary thresholds for
exemption needed to be updated. There was significant disagreement, however,
about both the intent and the likely impact of the proposed rule. AFL-CIO Secretary-
Treasurer Richard Trumka charged that the proposed rule “would redefine 8 million
workers as ineligible for federal overtime protection” and “thousands more workers
every year would be stripped of their overtime rights.” The proposal, he asserted,
“would effectively gut the 40-hour workweek through administrative regulation.”
The issue before Congress, Trumka argued, “is ... whether the Bush Administration
should be allowed to strip workers of their overtime rights.” The proposed rule, he
concluded, was “designed for the benefit of employers, not workers.”170
Economist Jared Bernstein of the Economic Policy Institute questioned the
statistical foundation for DOL assertions. The difference between the Department’s
impact assessments and those of the Institute “is large enough to totally change the
way one views” the proposed regulation. And he argued that the proposed rule
would be deleterious to the interests of workers.171 Management attorney David
Fortney, a former Deputy (and Acting) Solicitor of Labor in the first Bush
Administration, praised Secretary Chao for undertaking “the long neglected task” of
updating the Section 13(a)(1) regulations. While he declared the rulemaking process
to be “fair and orderly,” Fortney pointed out that those who might disagree with the
outcome could always sue. The final regulations, he concluded, “will undoubtedly
be the subject of challenges in the courts.”172
To avoid unnecessary litigation, however, was an issue of Subcommittee
concern. If one acknowledges an absence of clarity under the existing regulations,
would the proposed rule be an improvement? The Daily Labor Report observed:
Senator Arlen Specter (R-Pa.), who chairs the Labor-HHS subcommittee, said
several times at the hearing that the proposed rule does not clarify definitions of
“professional” and “administrative” employees who would be exempt from
overtime protections. For example, he said, the proposed rule says a professional
should be performing work “of substantial importance.... How do you define
substantial importance?”
Secretary Chao acknowledged that both the current regulation and the proposed rule
were “very complicated.”173
A Continuing Focus of Dispute
Neither passage of the omnibus legislation nor the hearings by the Senate
Appropriations Subcommittee resolved the dispute over the Administration’s Section
170 Testimony of Richard Trumka, January 20, 2004, Senate Appropriations Subcommittee.
171 Testimony of Jared Bernstein, January 20, 2004, Senate Appropriations Subcommittee.
172 Testimony of David Fortney, January 20, 2004, Senate Appropriations Subcommittee.
173 DLR, January 21, 2004, p. AA2.
Exempting Veterans? Central to the new regulation proposed by DOL is the
issue of definition. For example, how would a bona fide “professional” be defined
for Section 13(a)(1) purposes? Under current regulation, a professional is not simply
a highly skilled worker. Rather, DOL has anchored the concept to an academic
credential: normally (through not in all cases), a college degree plus appropriate
professional training. The proposed rule would alter that — and, in the process, the
exemption of professionals from FLSA wage/hour protection could be significantly
expanded, some argue. Compare the language of the current and proposed regulations174
with respect to the requirements for professional status.
A Professional Under the Existing RegulationA Professional Under the Proposed
(29 CFR 541.3(d) and (e)(2))Regulation (29 CFR 541.301(a) and (d))
... knowledge of an advance[d] type in a field ofThe term “advanced knowledge” means
science or learning customarily acquired by aknowledge that is customarily acquired through
prolonged course of specialized intellectuala prolonged course of specialized instruction
instruction and study as distinguished from abut which also may be acquired by alternative
general academic education and from anmeans such as an equivalent combination of
apprenticeship, and from training in theintellectual instruction and work experience.
performance of routine mental, manual, or
physical processes.... [Italics added.]
A college education would perhaps give anThe best prima facie evidence that an employee
executive or administrator a more cultured andmeets this requirement is possession of the
polished approach but the necessary know-howappropriate academic degree. However, the
for doing the executive job would depend uponword “customarily” means that the exemption is
the person’s own inherent talent. Thealso available to employees in such professions
professional person, on the other hand, attainswho have substantially the same knowledge
his status after a prolonged course oflevel as the degreed employees, but who
specialized intellectual instruction and study.attained such knowledge through a
[Italics added.]combination of work experience, training in the
armed forces, attending a technical school,
attending a community college or other
intellectual instruction. [Italics and bolding
added.]
The proposed rule, some argue, is more flexible and/or ambiguous than the
language that it would replace: moving from a documentable professional degree to
a series of alternative sources and levels of knowledge that, in turn, would
presumably need to be defined and measured. What meaning is conveyed to an
employer or employee in Seattle or El Paso by the terms substantially the same
knowledge level or the degreed employees or other intellectual instruction? How
much work experience (with other instruction) would be required for equivalency
with the current concept of bona fide professional?
The phrase “training in the armed forces” sparked a vigorous immediate
reaction. During a hearing sponsored by the Senate Democratic Policy Committee
in early November 2003, John Garrity, a civilian electronics technician from
Philadelphia, expressed concern that “... the new rules will eliminate overtime pay
174 This report moves, sequentially, through consideration of the proposed rule and,
ultimately, the final rule. The provisions will change in some measure prior to promulgation
of the final rule on April 23, 2004.
for military veterans who gained their technical training in the military.” Garrity
argued that veterans, recipients of military training (however measured) who return
to work in the civilian labor force, could be deemed to be professional for Section
Concern about the veterans status issue built slowly, gradually being picked up
by the media. During a hearing on January 20, 2004, Senator Patty Murray (D-WA)
asked Secretary Chao about DOL’s “attempts to lower the educational requirements”
for the professional exemption and observed that “... there is no guidance on how to
make the determination on whether or not a veteran’s training in the military is
equivalent to a four-year degree.” Secretary Chao, perhaps misunderstanding the
question, replied that “the military is not covered by these regulations.”176
Ms. Chao’s response did not quiet concerns. Trumka of the AFL-CIO, a later
witness, branded as “particularly reprehensible” the action of the Administration (the
proposed rule) in “stripping overtime rights from veterans who have received
technical training in the military.” Trumka stated that if “an employer determines”
training received in the military is equivalent to professional training, “that employer
will now be allowed to deny those veterans overtime eligibility and refuse to pay
them anything for overtime work.”177 Later that afternoon, Senator Kennedy asserted
that “our veterans and our men and women serving so bravely now in Iraq and across
the world ... return to civilian life only to find that the training they earned in the
military is cruelly used to deny them their right to overtime pay.” He added
Under current regulations, workers can be denied overtime protection if they fall
within the category of what they call professional employees, workers with a 4-
year degree in a professional field. It is changed this year under the Bush
administration. The plan would do away with the standard and allow equivalent
training in the Armed Forces. You go and serve in Iraq and get the training to
serve in Iraq, and come back here and you are ineligible, under these regulations,178
for overtime pay.
Discussion continued over several days with Senator Kennedy (and others) repeatedly
raising the issue of training received in the armed forces and exemption from FLSA
wage/hour protections. Some major companies, the Senator suggested, find that
“most skilled technical workers received a significant portion of their knowledge and
training outside the university classroom, typically in a branch of the military
175 Hearing by the Senate Democratic Policy Committee, Washington, D.C., November 3,
176 Transcript of hearing, January 20, 2004, Subcommittee on Labor, Health and Human
Services, and Education, Senate Appropriations Committee, LEXIS-NEXIS document,
pp. 8-9. See also DLR, January 21, 2004, p. AA.
177 Testimony of Richard Trumka, January 20, 2004, Senate Labor, Health and Human
Services, and Education Subcommittee.
178 Congressional Record, January 20, 2004, p. S4. See also comments of Senator Jack Reed
(D-RI), Congressional Record, January 21, 2004, p. S72.
service.” So, Senator Kennedy stated, the Administration added the military training
provision “banning them from receiving overtime.”179
A Dialogue with the Department of Labor. A Departmental response was
not immediate, but a DOL spokesperson later stated that “no veterans will be affected
unless they are professionals.”180 To critics, however, the affirmation may have
begged the question since at issue was how the concept of professional would be
defined and how it would be applied to veterans once they were discharged and
reentered the civilian labor force.
Later, under date of January 27, 2004, Secretary Chao addressed a letter to
Speaker Dennis Hastert (R-IL) in which she affirmed that the “‘white collar
exemptions’ do not apply to the military. They cover only the civilian workforce.”
She added that “nothing in the current or proposed regulation makes any mention of
veteran status” and the proposed rule “will not strip any veteran of overtime
eligibility.” Ms. Chao argued that “military personnel and veterans are not affected
by these proposed rules by virtue of their military duties or training.” And she
charged that critics of the proposed rule were trying “to confuse and frighten181
workers.” Similarly, Assistant Secretary Victoria Lipnic reportedly asserted:
“This is a new low in the disinformation campaign against the Department of Labor’s182
proposal to strengthen overtime pay protection for workers.”
“No one is claiming that the rule affects the military force,” countered Senator
Kennedy. “The issue is [that] the veterans who leave the military to work in the
civilian workforce would lose overtime protections because they have had training
in the Armed Forces.” The provision expanding the definition of learned
professional to persons who have received “training in the armed forces,” the Senator
stated, “is new language. It is not in the current regulations. The only purpose is to
take away overtime for veterans.” The proposed regulation is not concerned about
“people who are in the military” but, rather: “It is after they get out that they are183
going to be subject to this.”
179 Congressional Record, January 23, 2004, p. S212. Senator Hillary Clinton (D-NY),
Congressional Record, January 22, 2004, pp. S136-S137, would argue that the
Administration was “breaking faith with our veterans.”
180 Helen Dewar, “Senate Passes Funding and Democrats Relent,” The Washington Post,
January 23, 2004, p. A5.
181 See Congressional Record, February 2, 2004, p. S351-S352, for text of the Secretary’s
letter to Speaker Hastert. Representative Sam Johnson (R-TX) also had Ms. Chao’s letter
printed in the Congressional Record, February 4, 2004, p. H368, taking the occasion “... to
denounce an effort by Big Labor to scare our Nation’s veterans and service men and women
into thinking the Department of Labor is out to take away their overtime.” He added: “It
is a sad day indeed when the men and women of our forces are exploited for political gain.”
182 Lipnic is quoted by Leigh Strope, “Unions Say Veterans Risk Losing Overtime,”
Chattanooga Times Free Press, January 30, 2004, p. C2.
183 Congressional Record, February 2, 2004, p. S352.
On February 12, 2004, during a hearing before the House Appropriations
Subcommittee on Labor, Health and Human Services, Education and Related
Agencies, Representative Steny Hoyer (D-MD) questioned Secretary Chao on the
veterans’ issue. The expanded definition of a learned professional is “new language
in your regulation” and has caused “fear ... by some veterans groups and by others”
that training received in the military will be regarded as “professional training which
will then be used to exempt people from overtime eligibility.” Secretary Chao
responded that “... there is a great deal of malicious disinformation on this rule.” The
Hoyer/Chao dialogue continued:
CHAO: ... These regulations are very, very hard now to enforce. Our own
investigators are sometimes at a quandary as to how to fully enforce these rules.
And what’s happening is that the courts themselves are very confused....
Veterans, I don’t know how — the people who spread the rumors that veterans
would lose all overtime ought to be ashamed of themselves because they are,
again, potentially endangering veterans. They are frightening them for no good
purpose. And as I mentioned, there is no such provision in the proposed rule
affecting veterans. Our final rule has not even come out yet....
HOYER: But you didn’t reference as to why the language was added.
CHAO: I don’t think it was added at all. It was not added. There is no impact
at all on veterans. There was some aspect about the military training. This is a
white-collar regulation, so that’s why it does not affect workers such as
construction workers, because it’s blue collar. First responders, it doesn’t — it’s
only white-collar workers.
Second issue was about — and this rule only applies to civilian workforce. it
does not apply to the military workforce.
HOYER: ... Veterans are for the most part civilians.
CHAO: Well, this — that is not the case. Veteran status has got nothing to do
with qualifying for the professional exemption. Military training does not, in and
of itself, qualify someone for the professional exemption. So that is not true.
The Secretary then responded more generally. “The current regulations are very, very
complex and the outdated nature of the regulations have made it even more
ambiguous and difficult to interpret ... very, very confusing.”184
On March 4, 2004, the venue had changed (a hearing before the House
Committee on Ways and Means concerning the Fiscal Year 2005 Budget) but the
issue remained largely the same. Representative Earl Pomeroy (D-ND) again raised
the question of overtime pay with Secretary Chao, citing reports that the Department
had provided “guidance” to employers — “advisory points that appear to be advising
employers in terms of how to avoid paying overtime.” The Secretary replied: “Any
184 Quotations are from a February 12, 2004, House Appropriations Subcommittee hearing,
transcript by Federal Document Clearing House, Inc. To a question by Representative Jesse
Jackson (D-IL), Ms. Chao spoke of “an active campaign of disinformation.”
employer trying to evade the overtime rules will feel the full wrath of the United
States government. We will brook no evasion of the law.” But Representative
Pomeroy posed the question differently.
POMEROY. ... It appears to me that you have allowed employers to avoid
paying overtime by changing the overtime rules. I understand you enforce the
rules, but you have changed the rules for the benefit of employers at the expense
of their employees....
CHAO. Sir, I take great offense at your tone.
I do not need to be lectured about a tremendous disinformation campaign that is
waged by people who are deliberately — deliberately taking action that could
potentially hurt workers.
Ms. Chao went on to explain that the advisory points had been written into the
regulatory proposal. “It was required by the regs.”185
Amending the JOBS Act (S. 1637): Phase I
Defeat of the Harkin amendment to the omnibus appropriations bill (FY2004)
may have had less to do with the overtime pay issue than with the need to conclude
the appropriations process. If so, it would be reasonable to expect a Harkin-type
amendment to reemerge in another context.
Debate Recommences in the Senate. On March 3, 2004, the “Jumpstart
Our Business Strength (JOBS) Act” (S. 1637) was called up in the Senate.186 Early
in the process, it would be linked to the Section 13(a)(1) overtime pay issue.
Almost immediately, Senator Harkin announced that he would “offer an
amendment ... that will stop the administration from implementing its proposed new
rules to eliminate overtime pay protection for millions of American workers.” The
Administration, he stated, “has zero credibility on this issue [overtime pay]”; the
proposed regulation is “a frontal attack on the 40-hour workweek.” He averred that
“the new criteria for excluding employees from overtime are deliberately vague and
elastic so as to stretch across vast swaths of the workforce.” Senator Harkin again
raised the veterans’ training issue. “According to the proposed rules, employers can
consider specialized training and knowledge gained in the military as equivalent to
what is learned in professional schools. This will allow employers to reclassify
veterans as ineligible for overtime.” Senator Harkin concluded broadly: “The truth
185 Quotations are from the transcript of the March 4, 2004, Ways and Means Committee
hearing, prepared by FDCH Transcripts. The advisory points referred to by Representative
Pomeroy are set forth in a background segment, “Methodology for Estimating Costs,” part
of the rulemaking process. See Federal Register, March 31, 2003, pp. 15576-15577.
186 S. 1637 is a largely a tax and trade proposal dealing with international business issues,
introduced by Senator Charles Grassley (R-IA) with a bipartisan group of cosponsors.
is, we cannot build a sustainable recovery by exporting jobs, by driving down wages,
and by making Americans work longer hours without compensation.”187
Support for the Administration’s proposal was voiced by Senator Mike Enzi (R-
WY). Senator Enzi recalled discussions with “small businessmen” in Wyoming who
“are being killed by the [current] ... regulations and, in some cases, by trial
attorneys.” Turning to the putative Harkin amendment (not then introduced), Senator
Enzi asserted that it would “prohibit the Secretary of Labor from updating the rules
exempting white-collar employees” from the wage/hour protections of the act and
would be “an attempt to reject the new, turn back the clock, and look to yesterday for
the answer to tomorrow’s problems.” Senator Enzi stated: “Through the course of
the debate on overtime over the next several days, we will hear a lot of numbers.
Some of them are statistics and we know how statistics work.” With that caveat, he
read into the record the statistical projections of possible impact presented by DOL
in support of the proposed rule.188
Senator Enzi turned to the issue of the possible impact of the proposed rule for
veterans. “Supporters of this amendment claim that military personnel and veterans
will lose their overtime pay under the proposed rules. However, military personnel
and veterans are not affected by the proposed rules by virtue of their military status
or training,” he said. Ignoring the issues raised by Senator Kennedy and others, he
observed: “Nothing in the current or proposed regulation makes any mention of
veteran status.”
Senator Enzi described the current regulation as “antiquated and confusing,”
adding: “Ambiguities and outdated terms have generated significant confusion
regarding which employees are exempt from the overtime requirement. The
confusion has generated significant litigation and overtime pay awards for highly
paid white-collar employees.” The proposed regulation, he stated, would “update and
clarify” the treatment of workers under Section 13(a)(1).189
Discussion of the overtime pay issue continued intermittently as part of the
general debate on S. 1637. On March 4, Senator Reid appealed for a vote on the
Harkin amendment to limit the authority of DOL to proceed with the proposed rule.
“We have not been able to have a vote on that,” he stated, “because of parliamentary
barriers thrown up by the majority.”190 Senator Harkin agreed: “It is obvious that the
Republican side of the aisle does not want to vote on the overtime bill.”191
187 Congressional Record, March 3, 2004, pp. S2076-S2079.
188 Ibid., pp. S2081-S2082. The statistics on each side of the issue have been a focus of
dispute by persons holding conflicting views.
189 Congressional Record, March 3, 2004, pp. S2082-S2083.
190 Congressional Record, March 4, 2004, p. S2205.
191 Ibid., p. S2211. Later, p. S2212, Senator Harkin speculated on Administration motives
in declining to permit a vote on the overtime rule. “Perhaps that is why the Republican side
doesn’t want to vote on them. They want the Department to issue the regulations, get them
in force and effect. Then they know it is harder to overturn them, once those rules and
(continued...)
Prelude to Cloture. For the most part, comment originated with the
Minority, the Majority remaining focused on other aspects of S. 1637 — issues that,
of course, also concerned the Minority.
After the discussion of March 4, the Senate moved on to other matters, resuming
consideration of S. 1637 on March 22. Again, Senator Harkin stressed “how192
urgently necessary it is” to deal with the proposed overtime rule. Pointing to the
essential trust of the bill (serious issues of trade and international economy), he
urged: “Let’s have a good debate. I am willing to have a time agreement, if the other
side would like to have a time agreement.” Referring to the paucity of opposition
comment, he stated:
I want to hear from the other side why we should let these proposed regulations
go into effect. Let’s have the debate so the American people can understand
what is at stake, and let’s have an up-or-down vote .... Let’s have an up-or-down
vote on whether the Senate would agree with the administration that these
proposed rules ... should go into effect....
He suggested that the Department might “go back to the drawing board, work with
Congress, do it in an open, aboveboard manner.”193
Senator Charles Grassley (R-IA) proposed that a series of amendments to S.
1637 — including the Harkin amendment — be in order. Senator Reid, joining the
Senator from Iowa in a call for “an up-or-down vote,” expressed concern that the
Majority still might invoke cloture, which would be viewed as counterproductive, in
an effort to block the Harkin amendment. Senator Reid added: “... I think it would
be extremely doubtful, without an up-or-down vote on overtime, that he [the majority
leader] would be able to get cloture on this bill.”194
When the Grassley amendment had been agreed to, Senator Harkin called up
amendment No. 2881, the overtime amendment, and sought its immediate
consideration.195 Senator Harkin reaffirmed: “... all we want is debate and a vote on
191 (...continued)
regulations are out there.”
192 Congressional Record, March 22, 2004, p. S2848.
193 Ibid., p. S2850.
194 Ibid., p. S2851.
195 The Harkin amendment would prohibit any further exemptions under Section 13(a)(1)
and would render invalid any regulatory change with respect to Section 13(a)(1) that would
exempt workers who would otherwise be protected under the FLSA. However, it would not
impede the Department from moving forward with an increase in the earnings threshold for
Section 13(a)(1) purposes. The Harkin amendment, in pertinent part, reads as follows:
(1) The Secretary shall not promulgate any rule under subsection (a)(1) that
exempts from the overtime pay provisions of section 7 any employee who would
not be exempt under regulations in effect on March 31, 2003.
(2) Any portion of a rule promulgated under subsection (a)(1) after March 31,
(continued...)
the overtime issue ... probably tomorrow — not tonight but tomorrow.” Like Senator
Reid, he had procedural concerns. “I have heard some talk around that the other side,
the Republican side, will now file a cloture motion. Obviously, if that cloture motion
wins, then my amendment fails....”196
Senator Grassley acknowledged the possibility that cloture would be sought,
although he indicated that he would be opposed to doing so. “That, of course, is a
leadership decision.” Were cloture to be called for, Senator Grassley expressed the
“hope that [it] will not poison the waters.” He noted that the cloture process takes
48 hours and suggested that the intervening period be used to reach agreement so that
“the cloture motion could be vitiated.” The Senator then turned to the tax and trade
issues of S. 1637.197 Thereafter, Senator Mitch McConnell (R-KY) submitted a
motion for cloture.198
The motion for cloture, some suggested, would serve as a gauntlet. The
Minority, said Senator Reid, “believe we are entitled to an up-or-down vote regarding
... overtime.” He explained: “We know there is an effort not to have a vote, the
reason being this amendment will pass.... The majority doesn’t want to vote on this
because it is embarrassing to the President who has no support from the American
people on this overtime issue.” While it was not the purpose of the Minority, he
stated, “to amend this bill to death,” still a cloture vote could result in bringing down
S. 1637 which, he averred, “is not good for the country.”199
Cloture Denied, the Senate Moves On. Senator Max Baucus (D-MT)
opened the session of March 23 with an explanation of the parliamentary situation.
The Harkin amendment was then pending. “The effect of this cloture motion,” he
said, “would be to block a vote on the Harkin Amendment.” The motion for cloture,
he concluded, “has brought the Senate to something of an impasse.”200
Senator Harkin stated that the motion for cloture would delay a vote until March201
24 and even then “[t]hey will not get cloture.” There seemed a general agreement
that the primary bill was important. The World Trade Organization, Senator Grassley
explained, had found that “our pretax policy is an illegal export subsidy, and
195 (...continued)
2003, that exempts from the overtime pay provisions of section 7 any employee
who would not otherwise be exempt if the regulations in effect on March 31,
196 Congressional Record, March 22, 2004, pp. S2852-S2853. Senator Harkin expressed his
willingness “to enter into a time agreement” on debate on the amendment.
197 Congressional Record, March 22, 2004, p. S2853.
198 Ibid., p. S2853. Pointing to the legislative history of the Harkin overtime pay
amendment, Senator McConnell saw the initiative as “repetitious,” and “irrelevant.” See
Congressional Record, March 22, 2004, p. S2936.
199 Ibid., p. S2936.
200 Congressional Record, March 23, 2004, p. S2958.
201 Ibid., p. S2970.
consequently ... has authorized Europe to do up to $4 billion a year in sanction
against U.S. exports.”202 Senator Harkin stated that he had heard “rumors the
leadership on the Republican side will ... pull the bill and somehow blame Democrats
... for not getting this bill through.” While he affirmed that he “would like to get this
bill through,” Senator Harkin averred:
The other side, though, simply because they do not want a vote on overtime, is
saying they are going to go ahead and pay these tariffs. It seems to me what they
are saying is they would rather pay tariffs to Europe than overtime to workers.
Again: “The administration may want to take away overtime pay ... But at least we
ought to have the right to vote on whether we ought to uphold that decision.”203
Senator Jon Kyl (R-AZ) rose in opposition to the Harkin amendment and to
critique the views of opponents of the DOL initiative. He sought “to clarify the
situation so American workers are not frightened of these proposed rules” — which,
he said, had been subject to “mischaracterization by certain people.” He suggested
that some comments about the rule might be “inaccurate, misleading, and therefore
... frightening.” Senator Kyl then reaffirmed the case for the rule that had been
presented by Secretary Chao, affirming:
It [the proposed rule] does not take away people: it adds to the number of people
who would qualify for overtime.... It will actually ensure that the lowest 20
percent of all salaried workers get pay of time and a half for overtime work.
Further, he stated, by redefining the concepts included in the Section 13(a)(1)
exemption, the DOL initiative would “eliminate all of [the] ... cost and all of the
wasted energy in litigation and paying a lot of trial lawyers by clarifying who is
covered and who is not covered.”204
In general, Senator Jeff Sessions (R-AL) concurred with the Senator from
Arizona. He protested “how frustrating it is to see a very carefully constructed
proposal by the Secretary of Labor, Elaine Chao, being mischaracterized, therefore
placing fear in the American people through the misrepresentation of the nature of
these regulations.”205 Of the alleged negative impact of the proposed rule, Senator
Sessions affirmed: “That is not true. It is false. In fact, it is going to guarantee a lot
of people overtime who are not receiving it today.” And, he continued: “There is no
202 Ibid., p. S2959.
203 Ibid., pp. S2970-S2971.
204 Ibid., p. S2977. The comment by Senator Kyl, which parallel’s the position taken by
Secretary Chao and DOL, is predicated upon an increase in the earnings threshold. What
the impact of that increase might be is subject to dispute — as is the question of whether the
proposed rule would bring clarity or added confusion. But, in any case, the Harkin
amendment would not interfere with an increase in the earnings threshold. It would simply
restrict the Secretary from redefining the non-monetary concepts of executive,
administrative, and professional as they appear in the proposed rule.
205 Congressional Record, March 23, 2004, p. S2979.
plot here to try to undermine the right of working Americans to receive overtime.
That is a completely bogus and political argument....”
Senator Sessions voiced concern about the “confusing and outdated regulations”
currently in place. Suggesting at least one of the reasons some employers have
endorsed the Department’s initiative, he stated:
Many employers worry about incurring large unexpected litigation costs due to
their inability to properly interpret these confusing rules. Even lawyers and
Department of Labor investigators can have difficulty deciphering the line
between exempt and nonexempt employees.
Senator Sessions added: “If we make it clearer so that it is indisputable what
overtime is and what it is not, we will see less confusion.”206
On the motion for cloture, March 24, the vote was largely along party lines (51
yeas to 47 nays: Republicans in favor of cloture, Democrats opposed) — short of the
A Second Cloture Attempt. Various bills, in some respects interrelated,
would occupy the attention of the Senate during late March and early April. Among
them was H.R. 4, welfare reform reauthorization, consideration of which commenced
on March 29. As an adjunct to the effort to move people from welfare to work,
Senators Barbara Boxer (D-CA) and Kennedy proposed an amendment to raise the
federal minimum wage from its current level of $5.15 and hour, in steps, to $7.00 an
hour. On March 30, Senator Frist called for invocation of cloture; and, on April 1,
2004, the motion for cloture failed (51 yeas to 47 nays) — and again, setting aside
a major piece of legislation, the Senate moved on to other issues.208
Debate in the Senate through this period shifted easily from minimum wage to
overtime pay (with other labor-related concerns) often linked both in substance and
procedure. On both sides of the debate, there were some who appeared to view these
issues as part of a general initiative, though their perspectives differed. Senator Frist,
as the vote for cloture on H.R. 4 neared, observed: “If cloture is not invoked, it will
be clear that this legislation will be gridlocked by these unrelated matters and
206 Ibid., p. S2980. Later, Senator Judd Gregg would describe the current rule as “a morass
of regulations” that have “led to a litigation frenzy.” See Congressional Record, March 24,
207 Congressional Record, March 24, 2004, p. S3066. For parliamentary reasons, Senator
Frist voted with the prevailing side — and then entered “a motion to reconsider the vote by
which cloture was not invoked.” At the session’s close, Senator Frist warned: “I hope
Members will all rethink their desire to offer unrelated amendments and bring unrelated
issues to the floor.... If we are unable to come to some resolution, we will do what we are
doing now and proceed to other Senate business with the Unborn Victims of Violence Act.”
Congressional Record, March 24, 2004, p. S116. See also DLR, March 25, 2004, p. AA1.
208 Congressional Record, March 30, 2004, p. S3359, March 30, 2004, p.S3359, and April
1, 2004, p. S3538. The Boxer-Kennedy amendment would also have established a federal
minimum wage for the Commonwealth of the Northern Mariana Islands.
therefore will be difficult to finish.”209 Senator Dashle denied that there was a
partisan purpose in resisting cloture. “It isn’t our unwillingness to have a good
debate; it is our unwillingness to be locked out of the process.” Again, Senator
Daschle stated: “People on the other side of the aisle, for whatever reason, have
refused to allow us an opportunity to have an up-or-down vote on protecting worker’s
overtime, on minimum wage, and on unemployment compensation.”210
With the failure of cloture on H.R. 4, the focus shifted back to overtime pay and
S. 1637. Off the floor, discussion proceeded between the Majority and Minority with
respect to compromise. On the floor, debate continued.211 On Monday, April 5,
Senator Frist announced that the Senate would try again to complete consideration
of S. 1637. “We continue to have discussions on how to finish this legislation ...
Given the importance of this bill and the timeliness of it,” he stated, “it is imperative
we find a way to complete the measure as quickly as possible....”212 Later that
afternoon, Senator Frist filed a second cloture motion on S. 1637.213 He announced
that a vote on cloture would occur on Wednesday, April 7.214
Debate and negotiation continued. Senator Harkin rose to discuss the economy:
outsourcing of jobs, an increase in the minimum wage, and the DOL overtime pay
initiative. Tying the issues together, he asserted that revision of the Section 13(a)(1)
regulation was “all but guaranteed to hurt job creation.” He chided that the Majority
“would rather sacrifice the underlying bills [S. 1637 and H.R. 4] ... than allow a vote
on these issues so crucial to working Americans.”215 Conversely, Senator Grassley
stressed the importance of the tax and trade provisions of S. 1637. “I want
Americans to understand that Senators on my side of the aisle are ready, willing, and
able to provide a real shot in the arm to America’s manufacturing sector.” He said:
“We are blocked from providing the relief that American manufacturing deserves and
needs.”216 Senator Gregg charged the Minority with “shooting the programs which
would create jobs”and termed the Minority position “cynicism ... rather extreme.”217
Senator Grassley added: “A vote against stopping debate is a vote against tax relief
for America’s beleaguered manufacturing sector....”218
209 Congressional Record, April 1, 2004, p. S3520.
210 Ibid., p. S. 3521. Extension of unemployment benefits was the third in the group of
labor-related issues variously in contest before the Senate since late in the first session ofth
the 108 Congress.
211 Congressional Record, April 2, 2004, p. S3600.
212 Congressional Record, April 5, 2004, p. S3624.
213 Ibid., p. S3729.
214 Ibid., p. S3730.
215 Ibid., p. S3731.
216 Congressional Record, April 7, 2004, p. S3892.
217 Congressional Record, April 6, 2004, p. S3739.
218 Congressional Record, April 7, 2004, p. S3893.
On April 7, the Senate conducted a second cloture vote with respect to S. 1637.
Again, it failed: 50 yeas to 47 nays.219
Later, Senator Frist stated that the negotiators were “making real progress” and
that they were attempting to pare down likely amendments through agreement by
both sides.220 At day’s end, he still expressed hope that the Senate would continue
to work with S. 1637.221 As the session commenced on April 8, Senator Frist
announced that the Senate “will resume consideration” of S. 1637. “We have been
working with the Democratic leadership to lock in a final list of amendments to the
bill. We will be continuing that effort over the course of this morning.”222
Further consideration, however, would not be immediate. The bill was again
set aside but Senator Frist sought unanimous consent “that when the Senate returns
to the bill, Senator Harkin or his designee be recognized in order to offer his
amendment relating to overtime.”223 He affirmed that S. 1637 was a bill “that we
absolutely must address and we will continue to address.”224
As he laid out the program for April 19 (following the Easter recess), the
Majority Leader announced that an agreement had been reached with respect to
limitation of amendments on S. 1637.225 But, still ahead was actual floor
consideration of S. 1637 and of the Harkin amendment — and accommodation of any
differences with the House of Representatives.
219 Ibid., pp. S3894-S3895.
220 Ibid., p. S3910.
221 Ibid., p. S3952.
222 Congressional Record, April 8, 2004, p. S2959.
223 Ibid., pp. S4008-S4009.
224 Ibid., p. S4060.
225 Ibid., p. S4072.
SECTION III
Promulgation of the Final Rule: April 23, 2004
The final rule governing Section 13(a)(1) was published on April 23, 2004. The
152-page document was divided into two parts. Section one summarizes comments
received by DOL, together with the Department’s reaction and policy justification for
the final rule. The second section constitutes the rule per se. Both segments are
essential to an understanding of DOL’s intent and to the interpretation of its policy.
The final rule quickly sparked hearings and floor debate.226
Substance or Illusion?
The final rule appears to differ from the proposed rule in some details but not
in broad approach. The lower salary threshold below which workers cannot be
classified as exempt ($22,100 in the proposed rule) was raised to $23,660. The
proposed rule had set $65,000 and over as the salary test for highly compensated
employees. That upper threshold, under the final rule, was increased to $100,000.
Above that level, workers who perform some executive, administrative and/or
professional functions, can be classified as exempt. Thus, there are three categories
of salaried workers under the final rule: (a) those earning less than $23,660 who are
minimum wage and overtime pay protected; (b) those earning between $23,660 and
$100,000, who, depending upon their duties, may be exempt; and (c) those earning
more than $100,000 who likely are exempt.
The new threshold levels of the final rule have received considerable attention.
How significant these changes are may not be clear. Most bona fide executive,
administrative, or professional workers can be expected to earn in excess of $23,660.
Above that level, exemption rests, largely, upon the duties test. While DOL argues
that the duties test under the final rule will be clearer and easier to apply, critics
suggest that it could prove to be more complex and more likely to provoke litigation.
Professional exemption, based upon knowledge acquired in the armed forces,
had produced strongly negative public comment. It was argued (incorrectly,
according to DOL) that returning veterans could find themselves unexpectedly
exempt because they had received training in or through the military: for example,
in such fields as nursing, electronics, and space related work. While the old rule had
emphasized knowledge acquired on the basis of college plus technical/professional
training, the proposed rule had opened professional status and exempt status to
workers:
226 Federal Register, April 23, 2004, pp. 22122-22274. At this writing, some committee
transcripts were not yet available. Therefore, citations are often fragmentary, prepared
testimony, press releases, and other relevant documents.
... who have substantially the same knowledge level as the degreed employees,
but who attained such knowledge through a combination of work experience,
training in the armed forces, attending a technical school, attending a community227
college or other intellectual instruction. (Emphasis added.)
In the final rule, DOL dropped the phrase “training in the armed forces” (and other
wording) and restructured subsection 541.301(d) to read in pertinent part as follows:
... who have substantially the same knowledge level and perform substantially the
same work as the degreed employees, but who attained the advanced knowledge228
through a combination of work experience and intellectual instruction.
DOL explained that it “never intended to allow the professional exemption for any
employee based on veteran’s status. The final rule,” it stated, “has been modified to
avoid any such misinterpretations.”229 Arguably, exemption under the proposed rule
would not have been “based on veteran’s status” but, rather, upon knowledge
acquired through one’s employment — which, under each version of the rule, might
include military employment. Thus, the revised language may not satisfy critics.
Building the Case for Reform?
Certain business interests have long sought FLSA modification. In late 1994,
the Labor Policy Association (LPA), a Washington-based “non-profit association of
corporate employee relations executives,”230 published a report, Reinventing the Fair
Labor Standards Act To Support the Reengineered Workplace. It pointed to
“dramatic changes in workplace demographics and work structures” since enactment
of the FLSA in 1938. With time, it argued, “... the FLSA’s coverage rules have
become so encrusted with meaningless distinctions that no employer can be231
completely confident which types of employees come within the Act’s ambit.”
The LPA report, focusing heavily on Section 13(a)(1), argued that the FLSA was
227 Federal Register, March 31, 2003, p. 15589.
228 Federal Register, April 23, 2004, p. 22265.
229 Ibid., p. 22123.
230 See Labor Policy Association (LPA), Annual Report 1988, for a description of its
orientation and work. In 2003, LPA became The Association of Senior Human Resource
Executives or HR Policy Association. See LPA/HR Policy Association press release July
231 Labor Policy Association, Reinvention the Fair Labor Standards Act To Support the
Reengineered Workplace, October 7, 1994, p. i, reprinted in U.S. Congress, House
Committee on Economic and Educational Opportunities, Subcommittee on Workforcethst
Protections, Hearings on the Fair Labor Standards Act, 104 Cong., 1 sess., March 30,
June 8, October 25, and November 1, 1995, p. 27. (Hereafter cited as House Subcommittee
on Workforce Protections, Reinvention the Fair Labor Standards Act To Support the
Reengineered Workplace, 1995.)
aged, out-of-date, and in need of reform — and, among federal labor laws, “holds a
position nearly comparable to that of the Dead Sea Scrolls.”232
Both in the final rule and the flurry of DOL comment associated with its release,
several themes were emphasized that would be picked up, initially, by the media, and
repeated by supporters of the DOL initiative.
DOL argued, in building the case for reform, that the existing regulation was
“confusing, complex and outdated” — so much so “that employment lawyers, and
even Wage and Hour Division investigators, have difficulty determining whether
employees qualify for exemption” — “very difficult for the average worker or small
business owner to understand.”233 The FLSA is based, Secretary Chao stated, upon
the “workplace of a half-century ago.”234
DOL had “listened very carefully,” Chao observed (and others reiterated),
implying that the Department had been responsive to commenters and had adjusted
the final rule accordingly.235 Critics may disagree as to whether DOL’s changes in
the proposed rule were corrective or merely non-substantive adjustments of language.
“The primary goal” in crafting the rule, DOL emphasized, was “to protect low-wage
workers.” Ms. Chao said: “Overtime pay is important to American workers and
their families, and this updated rule represents a great benefit to them.”236
232 Ibid., p. 30. Maggi Coil of Motorola, Inc, appearing on behalf of the LPA (pp. 16-18),
explained to the Committee that she was also a member of LPA’s FLSA Reform Task Force
“which has been meeting for approximately a year, to try to look at ways to bring a moreth
than 50-year-old piece of labor law into the 20 century....” Ms. Coil explained that the
Task Force “includes more than 50 LPA member companies” and is “...composed primarily
of compensation directors and legal counsel within the companies.”
233 Federal Register, April 23, 2004, p. 22122.
234 Secretary Chao, House Committee on Education and the Workforce, April 28, 2004.
(Hereafter cited as House Education and the Workforce Committee, and by date.) Kirk
Pickerel, president, Associated Builders and Contractors, applauded revision of “the
antiquated and outdated regulations.” See ABC press release, April 20, 2004.
235 House Education and the Workforce Committee, April 28, 2004. Administrator
McCutchen, before the Senate Appropriations Subcommittee on Labor, Health and Human
Services, and Education, May 4, 2004, testified: “For the past year, we listened to thousands
of comments — from workers and employers — and have designed new regulations....”
(Hereafter cited as Senate Appropriations Subcommittee, and by date.)
236 House Education and the Workforce Committee, April 28, 2004. See also testimony of
Alfred Robinson, Deputy Wage and Hour Administrator, House Small Business
Subcommittee on Workforce, Empowerment, and Government Programs, May 20, 2004.
(Hereafter cited as House Small Business Committee, and by date.)
Whatever the reality may be (it is a subject of dispute), DOL declared that the
final rule “strengthens and clarifies” overtime protection.237 The new regulations,
McCutchen stated, “are clear, straightforward and fair.”238
There was also a negative element in DOL’s defense of the final rule. Some
critics of the initiative, the Secretary seemed to suggest, lacked integrity. On Capitol
Hill to brief Republicans on the final rule, Ms. Chao asserted: “There has been a
massive misinformation about this rule.”239 On that theme, Karen Kerrigan of the
Small Business Survival Committee would assert: “The campaign of disinformation
to discredit the rule update has been shameful.”240 Similarly, the “O. T. Coalition,”
an business-oriented group, stated: “Throughout the entire rulemaking process,
opponents have engaged in a campaign of blatant misinformation about the proposed
regulation.”241 When the labor-oriented Economic Policy Institute issued a report in
July 2004, critical of the final rule, DOL spokesperson Ed Frank termed it “a last-
ditch effort to re-start the misinformation campaign....”242
A Mixed Reaction
The final rule sparked a prompt and sharply divided reaction. Each side seemed
to question the intentions of the other. While critics tended to focus upon detail,
definition, and potential administrative complications, proponents seemed to prefer
more generalized statements about the need for reform and the benefits that, they
asserted, would flow from the new rule.
“The Department is very proud of the final rule,” Secretary Chao stated. From
the beginning, she observed, DOL “has been consistent in what it wanted to achieve
with this update. The primary goal,” she urged, “remains to protect low-wage
workers.”243 DOL would frequently reiterate its determination to protect the right of
low-wage non-professional and non-managerial workers to overtime pay. When
technical questions were raised, DOL spokespersons tended to cite or read a
provision of the rule, letting the rule speak for itself. “We are pleased to see people
recognize the significant gains to workers under our final rule,” Ms. Chao stated: “...
there can be no doubt that workers win.”244 “America’s workers,” added Deputy
Administrator Robinson, “... now have a strengthened overtime standard that will
237 House Committee on Education and the Workforce, April 28, 2004.
238 Administrator McCutchen, Senate Appropriations Subcommittee, May 4, 2004. The
industry-oriented Small Business Survival Committee, in a press release of May 20, 2004,
expressed its agreement that the final rule provides “certainty and clarity.”
239 DLR, April 21, 2004, p. AA5.
240 Press release, Small Business Survival Committee, May 20, 2004.
241 Letter from the O. T. Coalition to Chairman W. Todd Akin of the House Small Business
Subcommittee on Workforce, Empowerment, and Government Programs, May 20, 2004.
242 DLR, July 15, 2004, p. AA2.
243 Secretary Chao, House Committee on Education and the Workforce, April 28, 2004.
244 Secretary Chao is quoted in Kirstin Downey, “Plan Expands Eligibility for Overtime
Pay,” The Washington Post, April 20, 2004, p. A8.
serve them well for the 21st Century.”245 And, Majority Leader DeLay reportedly
“said he is ‘very excited at the fact that the administration took on a politically
sensitive issue’” and “‘showed leadership and understanding.’”246
Others offered different perspectives. “When you start to read the fine print,”
said Representative George Miller, Ranking Minority Member of the Committee on
Education and the Workforce, “you see that overtime pay for potentially millions of
employees ... is at risk.”247 Senator Harkin viewed the rule as “anti-employee,” “anti
... overtime” pay, and “designed to strip many workers of their right to fair
compensation.” He averred that it was a “frontal attack on the 40-hour workweek.”248
Some from industry seemed less than enthusiastic. R. Bruce Josten of the U.S.
Chamber of Commerce, though he found the final rule a “much needed improvement
over the plainly unacceptable status quo,” allowed that “[n]o one disputes that there
are some controversies raised by the Department’s regulation[s]” and stated that they
“do not address all of the concerns of the Chamber.”249 The industry journal,
Nation’s Restaurant News, reported that the final rules will be “more complicated
and costly for restaurant operators to implement than those first proposed,” but there
seemed to be agreement that the rule was “an improvement” over the current
regulation.250 The Labor Policy Association termed the rule a “first step.”251
Promulgation of the final rule did little to mollify critics of the initiative. Some
questioned whether the rule would “reduce needless and costly litigation” as
McCutchen had promised.”252 Deputy Administrator Robinson noted that the current
rule had been “streamlined” and shortened by some 15,000 words.253 But each
deletion and change of language, others contended, could provoke interpretive issues
and spark new litigation. DOL, observed Ross Eisenbrey of the Economic Policy
Institute, has chosen “to adopt new definitions that are unclear and new tests for
exemption that require a case-by-case analysis that will be almost impossible for
Wage and Hour’s enforcement staff.” He characterized that approach as “a
guaranteed recipe for litigation.”254
Would the final rule be protective of workers, whatever their duties and wage
level? Was it sufficiently clear to eliminate needless and costly litigation? Could it
245 Deputy Wage and Hour Administrator Robinson, House Small Business Subcommittee,
May 20, 2004.
246 DLR, April 21, 2004, p. AA4.
247 DLR, April 29, 2004, p. AA1.
248 DLR, May 5, 2005, p. AA3.
249 Press release, U.S. Chamber of Commerce, May 3, 2004, p. 1.
250 Dina Berta, “Industry Leaders: DOL’s Final OT Rules More Complex, Costly,” Nation’s
Restaurant News, May 24, 2004, p. 12.
251 LPA (HR) Fact Sheet, June 30, 2003.
252 McCutchen, Senate Appropriations Subcommittee, May 4, 2004.
253 DLR, May 27, 2004, p. B2.
254 Eisenbrey, Senate Appropriations Subcommittee, May 4, 2004.
be enforced, reasonably, by DOL’s Wage and Hour Division? There were wide
interpretive differences.
Oversight and Legislation
Beginning during the last week of April 2004, as Members and staff attempted
to digest the lengthy and complex text of the final rule, hearings would be held before
three congressional separate committees. Further, the final rule would repeatedly be
the focus of floor debate, both in the Senate and in the House of Representatives.
Hearing: Education and the Workforce, April 28, 2004
On April 28, 2004, five days after release of the final rule, an oversight hearing
was conducted by the full House Committee on Education and the Workforce.
Setting the Tone for Debate? Current regulations, Chairman Boehner
noted in an opening statement, are “outdated,” “complex, confusing and often” incite
“needless litigation,” and are “next to impossible” to apply. The American people,
he said, had been “subjected to a campaign of misinformation based on fear,
distortions and untruths.” He added that the final rule would protect “the overtime
rights of blue-collar workers, union workers, nurses, veterans, firefighters, policemen
and similar public safety workers,” and adversely affect “few, if any workers, making
less than $100,000 per year.” Further, he predicted, “[c]lear rules will reduce the cost
of litigation, encourage employers to hire more workers and strengthen current ...
overtime protections.” It is, he concluded, “good for American workers ... for255
American employers ... and for the American economy.”
Conversely, Representative Miller stated that the proposed rule would have
threatened “the overtime protections” of millions of workers and asserted: “... in the
time available to read and analyze the 530 pages of these artfully crafted new
regulations,” it seems clear that the policy continues to be “... to cut the overtime256
protection for millions of workers....” He enumerated groups of workers he
deemed vulnerable: those “working in financial services, chefs, computer
programmers, route drivers, assistant retail managers, preschool teachers, team
leaders, working foremen and many other categories that are created in these
regulations either in reactions to lawsuits” or in response to special constituencies
who “have been seeking these changes for a number of years.”257
255 FDCH Transcripts, Congressional Hearings, House Committee on Education and the
Workforce Committee, Overtime Pay Rules, April 28, 2004, pp. 1-2. (Hereafter cited as
FDCH Transcripts. Separate from prepared statements cited by witness.)
256 FDCH Transcripts, p. 3. The rule was issued in various formats, the more extended first.
Representative John Tierney (D-MA) later opined: “... I think it’s a little bit unfortunate that
this hearing has actually happened before most people have had an opportunity to really
digest the complications that are in this new rule....” FDCH Transcripts, p. 54.
257 Ibid., p. 3.
The Department Weighs In. Secretary Chao, the lead witness,
accompanied by Administrator McCutchen, pointed first to the “ambiguity and the
outdated nature” of the current regulations: “frozen in time” and “difficult and
sometimes nearly impossible to interpret or enforce in the modern workplace.”258
Then, turning to the DOL response, she affirmed: “... we have listened very carefully
... and we have produced a final rule that puts workers’ overtime protections259
first....”
Without delving into technical issues, Secretary Chao listed groups of workers
that she said would now be protected. “The final regulations preserve overtime
protections for veterans, cooks. They were never, never taken away.” “We have also
included union members and made sure that the final regulations preserve overtime
protections for union members whose overtime pay is secured under a collective
bargaining agreement.” She added: “... all blue-collar and manual laborers are
entitled to overtime.” “The new rules either preserve existing definitions of
executive, professional and administrative duties or make them stronger and clearer
to protect workers based on current federal case law or statutes ...,” and further:
With these new rules workers will clearly know their rights to overtime pay,
employers will know what their legal obligations are and this administration,
which has set new records for aggressive wage and hour enforcement, will have
updated and strengthened standards with which to vigorously enforce the rule to
protect workers’ pay.
Turning to the alleged campaign of misinformation, the Secretary stated that “...
unfortunately, a great deal of misinformation and distortions harmful to workers has
been spread about the impact of these rules.” She urged people “to not be misled by
misinformation that is being spread.” Mildly chiding critics of the final rule, she
asserted: “... I am deeply concerned about the campaign of misinformation about
these new rules. The confusion it is designed to create will only harm workers by260
denying them good information about their overtime pay rights.”
Interpreting the Rules. Assertions of clarity notwithstanding, the final rule
is lengthy and complicated — replete with new terms and concepts that, some charge,
will need to be litigated. Perhaps most notable among these is the new subsection
541.301(d) which expands the criteria for professional exemption from a primarily
degree-based orientation (normally, college plus technical/professional education) to
a broader and, arguably, more ambiguous standard:
... employees in such professions who have substantially the same knowledge
level and perform substantially the same work as the degreed employees, but who
attained the advanced knowledge through a combination of work experience and261
intellectual instruction. (Italics added.)
258 Ibid., p. 5.
259 Ibid., p. 6.
260 Ibid.
261 29 CFR 541.301(d) of the final rule. Federal Register, April 23, 2004, p. 22265.
Directly or implicitly, Subsection 541.301(d) was central to much of the questioning
during the hearing before the House Committee on Education and the Workforce and
the other hearings that would immediately follow.
The questions suggested by subsection 541.301(d) were numerous, inter alia:
What is meant by substantially the same? How will the employer, the employee, and
the Department assess the substantial sameness of an employee’s knowledge and
work? How much work experience or intellectual instruction does it take to reach
equivalency to the “prolonged course of specialized intellectual instruction” under
the existing rule? And pressed, how would one define intellectual instruction in the
context of the Section 13(a)(1) exemption? In practical terms, would the option be
loosely applied (broadening the Section 13(a)(1) exemption and extending it to a
wide range of currently protected workers) or would its application be narrow?
Registered Nurses and LPNs. With publication of the proposed rule,
Chairman Boehner recalled, concern was voiced “both [by] registered nurses and
licensed practical nurses, about threats to their overtime.” He asked Secretary Chao:
“Can you explain to the committee exactly how the final regulations treat registered
nurses and licensed practical nurses, and about nurses whose overtime is guaranteed
under a collective bargaining agreement?”
CHAO: The new overtime rules actually strengthen overtime for licensed
practical nurses. For the very first time LPN’s are specifically listed as being
guaranteed overtime. Registered nurses’ status remains unchanged. It is what
the current rule says. Furthermore, registered nurses who are receiving overtime
under collective bargaining agreements will continue to receive overtime. And
if registered nurses are continuing to receive overtime, they will continue to262
receive overtime.
How the concept of “substantially the same” might apply with respect to nurses and
LPNs was not addressed, nor were issues relating to the potential for adjustment of263
hourly and salaried pay status for nurses and related workers.
Chefs and Cooks. The final rule states that “executive chefs and sous chefs”
(concepts not defined in the rule) who “have attained a four-year specialized
academic degree in a culinary arts program, generally meet the duties requirements
for the learned professional exemption.” (Italics added.) “The learned professional
262 FDCH Transcripts, p. 8.
263 See comments of Karen Dulaney Smith, former investigator for DOL’s Wage and Hour
Administration, FDCH Transcripts, p. 43 and pp. 5 and 6 of her prepared statement. FDCH
Transcripts, p. 8.
Chairman Boehner stated that the final rule “is really going to cost employers more
money” and asked Ms. Chao why employers supported the rule. She responded: “I think
what most people want is clarity. We need clarity in these much outdated rules so that
workers know their overtime and so that employers can know what their legal obligations
are. And so, the department can again more fully vigorously enforce the law as well.” And,
she emphasized: “... clarity is a very important part of why this updated rule is so much
needed.” FDCH Transcripts, p. 7.
exemption is not available to cooks who perform predominantly routine mental,
manual, mechanical or physical work.”264 And, “to the extent a chef has a primary
duty of work requiring invention, imagination, originality or talent” (concepts not
defined in the rule), “... such a chef may be considered an exempt creative
professional.”265 (Italics added.) Here, too, the alternative standard, “substantially the
same,” could come into play.
Representative Miller raised the issue with Secretary Chao. “We say that those
chefs that have four-year degrees are exempt and we describe the duties that will
make them exempted and, yet,” he continued, “we know that there are hundreds of
thousands of chefs in this country that have two-year degrees that do those exact
same duties....”266 Ms. Chao affirmed that “[o]vertime rights are expressly
guaranteed” in the final rule and protested that “there has been disinformation going
on and a lot of workers have been scared.”267 She then turned for a technical
response to McCutchen, who explained that “... only chefs who have advanced four-
year college degrees in the culinary arts can be denied overtime pay. And we
clarified,” she stated, “that ordinary cooks and any other type of cook or chef who
does not have a four-year post high school degree cannot be denied overtime pay.”268
Later in the hearing, the issue was revived by Representative Robert Andrews
(D-NJ) who asked if a chef, in the “creative professional category,”could lose his or
her overtime protection.
ANDREWS: But there are chefs that have less than this minimum academic
standard who could lose their overtime under the new rule, correct?
McCUTCHEN: Only if they’re creating unique new dishes, like they’re creating
recipes themselves.
ANDREWS: Every chef claims that he or she does that, right?269
For 12 years, Karen Delaney Smith, now a consultant and part of a second panel,
had been an investigator with DOL’s Wage and Hour Division. Of chefs and sous
chefs, Ms. Smith stated: “This is not a white-collar job; it is manual; much of it is
repetitive; it is not a field of science or learning.” Again:
264 29 CFR 541.301(e)(6). Exemption, generally, is based upon the employee’s “primary
duty” — under Section 541.700(a), the “principal, main, major or most important duty that
the employee performs.” Section 541.700(b) states that “[t]ime alone ... is not the sole test”
of what constitutes a worker’s primary duty. Thus, an employee (performing exempt
functions for a relatively brief period), if not regarded as a learned or creative professional,
could still potentially be classified as an exempt executive or administrator.
265 Federal Register, April 23, 2004, p. 22154. Comment is from the preface to the final
rule.
266 FDCH Transcripts, p. 9.
267 Ibid., p. 11.
268 Ibid., p. 12.
269 Ibid., p. 36.
The regulation makes clear that chefs who have a four year degree are exempt.
To the extent that chefs have creative ability, they can be exempt [creative]
professionals. That means potentially every chef can be exempt....
Furthermore, having declared the culinary arts a learned profession, the
Department creates the possibility of attaining professional status not just
through a four-year college degree but also through work experience. How will
the Department determine that a non-degreed employee has ‘substantially the
same knowledge’ as a degreed sous-chef?
Ms. Smith inquired rhetorically, “How will the Department even tell a cook from a
sous chef? After all, the dictionary definition of ‘chef’ is ‘cook’....”270 The restaurant
industry, Smith said, has been identified by DOL “as a low-wage industry” and she
added that “it’s very common in this industry to work 50 or 60 hours a week.”271
Status of Union Workers. The final rule provides, inter alia, that employers
and employees “are not precluded” from negotiating “a higher overtime premium ...
than provided by the Act.” Again: “... nothing in the Act or the regulations in this
part relieves employers from their contractual obligations under collective bargaining
agreements.”272 Secretary Chao assured the Committee: “We have ... made sure that
the final regulations preserve overtime protections for union members whose
overtime pay is secured under a collective bargaining agreement.”273
During questioning, Representative Dale Kildee (D-MI) suggested that union
workers had concerns about the final rule. Secretary Chao quickly responded that
“... union members covered by collective bargaining agreements are not impacted at
all by this rule” and that such concerns were the result of “misinformation that was
being circulated.” The Secretary added:
Because we wanted to combat some of this misinformation, we expressly put [in]
overtime guarantees for union members who are under collective bargaining
agreements. Because union members under collective bargaining agreements
will abide by the collective bargaining agreement, and when they get overtime
that will, of course, remain the same.
Representative Kildee acknowledged that nothing in the regulation “relieves
employers from their contractual obligations under collective bargaining
agreements.” But, he added: “If the union contracts simply refer to applicable law
for overtime eligibility, a union worker will be directly and immediately affected by
these regulations when they take effect. Isn’t that true?” The Secretary asked that
the question be repeated.
270 Statement of Karen Dulaney Smith, House Committee on Education and the Workforce
Hearing, April 28, 2004. “The rule’s treatment of chefs is a major victory for restaurateurs,”
Rob Green of the National Restaurant Association reportedly told the Daily Labor Report.
See DLR, April 21, 2004, p. AA6.
271 FDCH Transcripts, pp. 43-44.
272 Subsection 541.4 of the final rule.
273 FDCH Transcripts, p. 6.
KILDEE: If union contracts simply refer to applicable law for overtime
eligibility, a union worker will be directly and immediately affected by the
applicable law then. In other words, if the ...
CHAO: If a worker is under a collective bargaining agreement, they’re
covered by the collective bargaining agreement, and it does not impacted [sic]
by these white-collar regulations.
KILDEE: But if the contract refers only to the Wage and Hour Act, as it
says, in effect, the overtime shall be in accordance with the Wage and Hour Act
then it would be affected by your changes in the Wage and Hour Act.
CHAO: I don’t think so, and I will give you another example. Just
because...
At that point, Representative Kildee broke in to affirm: “Well, but it would be.”
A brief discussion followed, at the close of which Ms. Chao again affirmed: “...
union members under collective bargaining agreements are not impacted.” Then, she
turned to McCutchen “... perhaps to clarify it even further.” McCutchen explained:
... for a union member, if you’re paid by the hour, you’re entitled to overtime.
That’s what these rules say.... If you perform blue-collar and manual labor,
541.3 clearly states that you’re entitled to overtime. So these rules strengthen
protections for union workers no matter what’s in their collective bargaining
agreement.
Representative Kildee protested: “You have still not answered my question.”274
Related Issues. After a short break, discussion resumed with a second panel.
Among issues discussed was the status of inside and outside sales people, treatment
of nursery school teachers, how team leaders (a new concept in the final rule) and
working foremen (or assistant managers or working supervisors) were to be treated,
coverage of computer services employees and of those employed in the financial
services industry. Each of these types of work involved technical issues. Some had
been a subject of congressional hearings and/or of litigation. Their status for Section
As the hearing closed, Chairman Boehner declared that “trying to determine
exempt or non-exempt status is not an exact science.” As for the final rule, he stated,
“Is it going to be perfect? No. Is it a lot better than it was? Absolutely.”275
Hearing: Senate Appropriations Subcommittee, May 4, 2004
Senator Specter had early focused attention on DOL’s new overtime pay policy.
His Appropriations Subcommittee on Labor, Health and Human Services, and
Education, had conducted oversight hearings on the issue on July 31, 2003, and again
on January 20, 2004. (See discussion above.) In each case, DOL had argued that the
new rule would benefit both employers and employees; but it had, some believed,
been less forthcoming about the actual provisions of the rule (then only proposed)
274 Ibid., pp. 16-18.
275 Ibid., p. 69.
and how it could be implemented. Some Subcommittee members questioned
whether the rule, if finalized, would reduce the need for litigation — or, conversely,
would render increased litigation inevitable.
At the January 20 hearing, Ms. Chao had affirmed: “Clear, concise and updated
rules will better protect workers and strengthen the Department’s ability to enforce
the law.”276 Meanwhile, DOL spokesperson Ed Frank would speak of “needless
litigation” and “outdated” FLSA rules. Reiterating the views of Ms. Chao, Frank
stated: “Clearer up-to-date rules will also better protect workers’ overtime rights.”277
Views from the Department of Labor. The Appropriations Subcommittee,
on May 4, 2004, conducted a third hearing on the overtime pay rule — now in its
final form. “Overtime pay is important to American workers and their families,”
began Administrator McCutchen, “and this updated rule represents a great benefit to
them.” The rule, she affirmed, will “strengthen overtime rights” for various
categories of workers, “end much of the confusion about these exemptions,” and
return “clarity and common sense” to the Section 13(a)(1) regulations: it will “help
workers better understand their overtime rights, make it easier for employers to
comply with the law, and strengthen the Labor Department’s enforcement of
overtime protections.” DOL’s “primary goal,” she said, “remains to protect low-
wage workers” — and, further, to reduce “wasteful litigation.” She declared: “We
simply cannot allow this legal morass to continue unabated.”
McCutchen assured the Subcommittee that DOL had “listened to thousands of
comments” and had “designed new regulations that are clear, straightforward and
fair.” She also lamented that “recent press coverage and public debate over this rule
has been misleading and inaccurate” and decried the “tremendous amount of
misinformation about the likely impact of the Department’s new rule on employees
such as blue-collar workers....” McCutchen explained:
The Department never had any intention of taking overtime rights away from
such employees, and the final rule makes this clear beyond a shadow of a doubt.
... the final rule provides that manual laborers or other ‘blue collar’ workers are
not exempt under the regulations and are entitled to overtime pay no matter how
highly paid they might be. This includes, for example, non-management
production-line employees and non-management employees in maintenance,
construction and similar occupations....
McCutchen continued: “... the Department never intended to allow the professional
exemption for any employee based on veteran status.” And: “... those working under
union contracts are protected” under Section 541.4, she affirmed, adding: “The final
rule will not affect union workers covered by collective bargaining agreements.”
In closing, she charged once more that “a great deal of misinformation has
surrounded” the regulations. “They have been unfairly characterized as taking away
276 Secretary Chao, Senate Appropriations Subcommittee, January 20, 2004.
277 DLR, March 3, 2004, p. A8.
overtime pay from millions of Americans when the exact opposite is true.” She
affirmed: “... workers win under this final rule.”278
A Voice in Support of the Final Rule. In defense of the final rule, David
S. Fortney, Deputy and Acting Solicitor at DOL during the first Bush Administration,
characterized the existing regulation in starkly negative terms: “dramatically
outdated,” imposing “significant confusion and uncertainty,” “frustrate[s] compliance
efforts,” “vague regulations result in unintentional noncompliance and resulting
liabilities,” and “vague and ambiguous ... difficult to apply.” His comments were
positive with respect to the final rule: “employers clearly benefit from having an
unambiguous rule that helps facilitate compliance,” “introduce[s] clarity and
common sense,” “add[s] much needed clarity,” “more concise, easier to understand,
clearer in scope....” He stated: “There also has been a significant amount of
confusion resulting from inaccurate information and news stories....”
To provide clarity, Fortney addressed the matter of the professional exemption
and training received in the armed forces. He assured the Subcommittee, quoting
from the preface to the final rule, that DOL “‘... never intended to allow the
professional exemption based on veterans’ status.’” He added, again quoting the
final rule: “‘Thus, a veteran who is not performing work in a recognized professional
field will not be exempt, regardless of any training received in the armed forces.’”
The language of the final rule, he explained, “was amended to clarify that veteran
status alone will not be sufficient, but that a combination of work and experience
may allow the employee to qualify for exemption, determined on a case-by-case279
basis.”
Fortney praised the “primary duty” test. Under current regulation, he said,
“there were drawn out disputes requiring expensive time-motion studies or similar
efforts in order to determine whether the employee was properly engaged in exempt
work.” The new test “will avoid the need for such expensive and time consuming
analyses and promote greater compliance.” He also stated: “Unionized employees
will continue to receive overtime as provided by their collective bargaining
agreements, and a specific provision has been added to the regulations specifying that
‘blue collar’ workers are not exempt from overtime.” He urged “employers,280
employees and government enforcement agencies alike” to embrace the final rule.
Overall, he ventured little beyond the final rule, per se. Technical administrative
questions, raised by critics, remained to be addressed.
278 Administrator McCutchen, Senate Appropriation Subcommittee, May 4, 2004.
279 Accordingly, if an employee were engaged in professional work as a result of training
that was received in the armed forces, it may be that he or she could be exempt on the basis
of that training — not on the basis of veteran status.
280 David Fortney, Senate Appropriation Subcommittee, May 4, 2004.
Doubts and Concerns. Where supporters of the final rule tended to speak
in general terms and to emphasize what they viewed as its positive aspects, critics
looked to nuts-and-bolts issues (i.e., to definitional questions), to practical aspects of
administering the rule, and to its more specific workforce implications.
Team Leaders. Subsection 541.203(c) of the final rule introduced the
concept of the exempt team leader. It states:
An employee who leads a team of other employees assigned to complete major
projects for the employer (such as purchasing, selling or closing all or part of the
business, negotiating a real estate transaction or a collective bargaining
agreement, or designing and implementing productivity improvements) generally
meets the duties requirements for the administrative exemption, even if the
employee does not have direct supervisory responsibility over the other
employees on the team. (Italics added.)
The AFL-CIO quickly took note of this provision, declaring that it was “an enormous
new loophole that will allow management to disqualify workers from overtime
simply by appointing them ‘team leaders.’”281 Responding to AFL-CIO concern,
DOL declared in flat and unqualified terms: “The final rules ensure overtime
protection for ‘blue collar’ team leaders and are more protective of overtime pay for
‘white collar’ team leaders than the current regulations.”282 (Bolding in original.)
The issue had been raised during the April 28 hearing before the House
Committee on Education and the Workforce. Representative Donald Payne (D-NJ)
questioned Secretary Chao about the team leader provision.
CHAO: ... I’ll be more than glad to answer the issue about team leaders because
that is also an area of confusion. In fact, our final rule strengthens overtime
protection for workers because we tighten up on the language and we clarify
language and narrowed its scope....
Ms. Chao then turned to Administrator McCutchen, who read into the record the
phasing of the final rule and affirmed “that only the leaders of these major project
teams can be exempt....” McCutchen added: “... we’ve defined what it means to
carry out a major assignment and limited it to only those very significant assignments
that happen in a corporation.” The Administrator concluded: “So it’s very much
tightened and more protective than the current regulatory language.”283
Representative Payne suggested there seemed to be a certain “subjectivity”
rather than clarity. “You know, what is significant to one person may not be
significant to someone else.”284 Former Wage/Hour investigator Karen Dulaney
Smith raised similar concerns. “That word [team leader] is not in the current
regulation. We don’t know what that’s going to mean. Team leaders,” Smith stated,
281 DLR, April 27, 2004, p. E3.
282 Ibid., p. E5.
283 FDCH Transcripts, pp. 27-28.
284 Ibid., p. 28.
“would have been non-exempt when I was an investigator unless they had
supervisory duties and management responsibilities.”285
During her testimony a week later at the Senate Appropriations Subcommittee,
McCutchen was silent on the team leader matter. But the issue was promptly raised
by AFL-CIO Associate General Counsel Craig Becker. “This is a broad new
category of exempt employees,” he stated. “Given the increasing organization of
work into teams and the incentive this provision will give employers to so organize
work, it potentially sweeps large numbers of employees in numerous industries
outside the protections of the Act.”286 Ross Eisenbrey of the Economic Policy
Institute shared a similar view.
... a bizarre and poorly explained new exemption for ‘team leaders’ creates the
potential for hundreds of thousands of currently [non-]exempt non-supervisory
workers to lose their overtime rights. The use of self-managed teams of non-
managerial, non-supervisory, front-line employees is widespread in American
industry, and millions of employees are routinely involved in them.
Eisenbrey concluded: “The regulations provide no definition of ‘team leader,’ it has
never been defined in FLSA case law, and the Department’s assertion that it is
clarifying current law is patently false.”287
“Blue-Collar” Worker Protection? Before the Committee on Education
and the Workforce, Secretary Chao had affirmed: “The new rules are very clear ...
all blue-collar and manual laborers are entitled to overtime.” And, again: “The new
rule exempts only ‘white-collar’ jobs from overtime protection.” Blue-collar workers288
“will not be affected by the new regulation.”
The final rule, Subsection 541.3(a), however, states in pertinent part: “The
section 13(a)(1) exemptions and the regulations in this part do not apply to manual
laborers or other ‘blue collar’ workers who perform work involving repetitive
operations with their hands, physical skill and energy.” And, later:
Thus, for example, non-management production-line employees and non-
management employees in maintenance, construction and similar occupations ...
are entitled to minimum wage and overtime premium pay under the Fair Labor
Standards Act, and are not exempt under the regulations in this part no matter
how highly paid they might be. (Italics added.)
What if a blue-collar worker, engaged in line or production work, also had duties that
could be classified as executive or administrative? The final rule sets no standard
with respect to the proportion of a worker’s time that must be devoted to exempt
work in order to be classified as exempt. If, upon whatever basis, a worker’s primary
duty (“the principal, main, major or most important duty that the employee performs”
285 Ibid., p. 44. The term is not defined in the final rule.
286 Becker, Senate Appropriations Subcommittee, May 4, 2004.
287 Eisenbrey, Senate Appropriations Subcommittee, May 4, 2004.
288 FDCH Transcripts, pp. 1 and 6.
— likely prioritized by the employer) can be said to be an executive or administrative
function, would that blue-collar worker still be non-exempt?289
It was a technical question (among many) that the Secretary and the
Administrator did not explore: but Eisenbrey expressed concern about definitional
issues involved. He suggested that despite claims “that blue-collar workers are
entitled to overtime, the rule limits overtime rights to ‘non-management blue-collar
employees,’ begging the question of who gets classified as a management blue-
collar worker, a seemingly new class of exempt workers that will grow significantly
under these new rules.” He observed: “It appears that the management of a team
would transform a manual laborer or other blue-collar employee into a ‘management
blue-collar employee,’ leading to exemption and loss of overtime pay.”290
Financial Services Employees. For the past decade, certain interests have
sought to have inside sales staff declared exempt from FLSA overtime pay291
protection. Congress has not acceded; inside sales staff remain non-exempt. The
final rule, however, moves toward exempting at least certain inside sales staff from
wage/hour protection. Section 541.203(b) reads as follows:
Employees in the financial services industry generally meet the duties
requirements for the administrative exemption if their duties include work such
as collecting and analyzing information regarding the customer’s income, assets,
investments or debts; determining which financial products best meet the
customer’s needs and financial circumstances; advising the customer regarding
the advantages and disadvantages of different financial products; and marketing,
servicing or promoting the employer’s financial products. However, an
employee whose primary duty is selling financial products does not qualify for
the administrative exemption. (Italics added.)
While the specified duties might “include work such as” those listed, it need not
include all of them: others, not listed among the examples set forth in the rule, could
also satisfy the requirement. As in other areas, the determinative factor would seem
to be one’s definition of “primary duty.” Since the final rule eliminates a percentage
factor with respect to performance of exempt duties (amount of time spent), a single
exempt function might be sufficient to trigger exempt status.
289 Becker of the AFL-CIO, in his May 4, 2004 testimony, refers to “a vague definition of
‘primary duty’ ... that requires application of a wide variety of factors and ultimately a
subjective judgment.” He adds: “This vague and ultimately subjective test will lead many
employers to misclassify employees as exempt based on the employer’s own notion of what
is ‘most important,’ thereby contracting coverage and increasing litigation.”
290 Eisenbrey, Senate Appropriations Subcommittee, May 4, 2004.
291 See U.S. Congress, House Committee on Education and the Workforce, Subcommittee
on Workforce Protections, Hearing on the Treatment of Inside Sales Personnel and Publicthst
Sector Volunteers Under the Fair Labor Standards Act, hearings, 105 Cong., 1 sess., May
13, 1997; and CRS Report RL30003, Modifying Minimum Wage and Overtime Pay
Coverage for Certain Sales Employees Under the Fair Labor Standards Act, by William
Whittaker.
What the definition of financial services industry encompasses may also be of
concern for some. For example, although it likely includes banks, what about
brokerage firms? The insurance industry? Tax assistance? The interpretation given
to marketing, servicing or promoting the employer’s financial products may be more
troublesome. How are those concepts to be differentiated from selling?
The issue of definition was raised during the April 28 hearing before the
Committee on Education and the Workforce. With Chao and McCutchen at the
witness table, Representative Miller reviewed the requirements of the final rule under
541.203(b) and observed that “... if you call a Citicorp or you call a Wells Fargo, you
find out that there’s one person on the other end of the line that does all of those
things.” For the employer, Representative Miller said, “a little flag” goes up. ‘Make
sure you don’t designate these people as primarily selling the products.’”292
Administrator McCutchen responded that the financial services section of the
final rule “reflects” the current regulation “and also adopts the current case law.” She
added:
What we did was we took that current case law, we read what it said and we
adopted it and put it in the regulations so that employees and employers don’t
have to hire a lawyer to go find the case law that’s not reflected in the current
regulations because, as the secretary said, this 50 years of federal court case law293
is not reflected in the current litigation.
Later, Representative Judy Biggert (R-IL) caused DOL to revisit the issue. “As you
know, we’ve heard in detail about a lot of misinformation spread around about these
regulations,” Ms. Biggert stated. “Can you specifically tell me how the final rules
apply to workers in the financial services industry....” The Administrator replied:
McCUTCHEN: What we did ... is to adopt the existing federal court case law,
and we did not just list their title. We took the case law and we said, for
example, financial services employees who collect and analyze financial
information, who provide advice and consulting to a customer, about which
financial products are appropriate, are entitled to overtime consistent with the
federal regulation.
Ms. Biggert asked: “... why did the department specify these segments in particular?”
Ms. McCutchen responded, in part: “Because these were segments in particular that
in recent years have generated a lot of confusion and a lot of litigation.”294
With the second panel seated, Representative Miller raised the issue with former
Wage/Hour investigator Karen Dulaney Smith. Ms. Smith explained how an inside
customer services representative could become exempt, under the final rule — so
292 FDCH Transcripts, p. 10.
293 Ibid., pp. 11-12.
294 Ibid., pp. 37-38. The treatment of funeral directors and embalmers and of insurance
claims adjusters was also contentious — and were included in Representative Biggert’s
question. Longstanding DOL positions in these areas are overturned through the final rule
— and, indirectly, as the result of litigation.
long as the employer did not designate sales as the worker’s primary duty. At the
least, she suggested, the provision would “be a confusion to employers and could
encourage more litigation.”295 She termed the provision a “loophole” that removed
the distinction between inside sales (non-exempt) and outside sales (traditionally
exempt). “The administration said repeatedly that they’d like to have a clearer law,
one that lets employers know what its obligations are. This is not it.”296
When Administrator McCutchen appeared before the Senate Appropriations
Subcommittee a week later, her prepared statement made no reference to the financial
services issue. Craig Becker of the AFL-CIO, however, before the same
Subcommittee, did raise the question. The financial services provision, he stated,
“exempts a vast range of employees with the only exception being those ‘whose
primary duty is selling financial products.’” Becker argued that a blanket exemption
for an industry was “a radical departure from prior practice” which had relied upon
the actual duties performed. Turning to DOL’s reliance on case law, he stated that
“case law is not as uniform as the Department suggests.”297
Chairman Specter and Ranking Member Harkin had expressed strong interest
in the overtime pay issue and the hearing presented an opportunity for an explanation
of the final rule. According to the Daily Labor Report, each now reacted to DOL
testimony “with varying degrees of skepticism.” Senator Specter reportedly
suggested that the new rules “require a lot of interpretation” and will spawn “lots of
litigation, lots of class actions.” Senator Harkin was quoted characterizing the final
rule as “anti-employee” and an “attack on the 40-hour workweek.”298
Amending the JOBS Act (S. 1637): Phase II
In early May 2004, the Senate resumed consideration of S. 1637. At issue was
the Harkin amendment to deny DOL the authority to reduce overtime pay protection
through implementation of the final rule. (See discussion above.)
Gregg Amendment Presented. On May 4, 2004, Senator Gregg rose to
decry the “fairly Byzantine and complex set of regulations” governing overtime pay
and to applaud DOL for its “conscientious job” with respect to the final rule. He
spoke of the “hyperbole and attack” to which the rule had been subjected and the
“totally spurious and inappropriate analysis” prepared by people “who either did not
understand the rules or decided to pervert the rules” and which, in turn, led to “a lot
of misrepresentation.” Arguments of critics he termed “so bogus and so inaccurate
that it is important to understand how misleading it was as it represents sort of a299
theme of inaccuracy relative to the initial proposed regulations.”
295 FDCH Transcripts, p. 63.
296 Ibid., pp. 44 and 66.
297 Becker, Senate Appropriations Subcommittee, May 4, 2004.
298 DLR, May 5, 2004, p. AA3.
299 Congressional Record, May 4, 2004, p. S4790.
Senator Gregg expressed regret about the “morass” in which “everything is
getting litigated.” Turning to the final rule, he stated: “The first goal of this
regulation as proposed is to make sure people earning not a significant amount of
money are going to get overtime.” What the rule does “is try to put certainty and
definition into the law.”300
Senator Gregg characterized the Harkin amendment as an effort “to stall” the
final rule and suggested that adoption of the Harkin amendment would put at risk the
overtime protection of 6.7 million people. The amendment, he stated, provides “no
attempt to address the overall issue in a comprehensive and systematic way.”301
Thereupon, Senator Gregg proposed his own amendment to be “juxtaposed to
the Harkin amendment.”302 He noted that about 55 groups have expressed concern
about their overtime pay status under the final rule. “We don’t think most of them
are [at risk] because we think the regulation is pretty clear.... But just so there can
be no question about it, this amendment specifically names every one of those groups
and says they have the right ... to their present overtime situation.” The Gregg
Amendment provides:
(1) The Secretary shall not promulgate any rule under subsection [13] (a)(1) that
exempts from the overtime pay provisions of section 7 any employee who earns
less than $23,660 per year.
(2) The Secretary shall not promulgate any rule under subsection [13] (a)(1)
concerning the right to overtime pay that is not protective, or more protective, of
the overtime pay rights of employees in the occupations or job classifications
described in paragraph (3) as the protections provided for such employees under
the regulations in effect under such subsection on March 31, 2003.
(3) The occupations or job classifications described in this paragraph are as
follows:....
The list of potentially impacted “occupations or job classifications” was included in
the Gregg amendment. Among them were the following:
!any worker paid on an hourly basis
!any blue collar worker
!any worker provided overtime under a collective bargaining
agreement
!team leaders
!registered nurses
!licensed practical nurses
! t echni ci ans
!refinery workers
300 Congressional Record, May 4, 2004, p. S4791. Senator Gregg is Chairman of the Senate
Committee on Health, Education, Labor, and Pensions.
301 Congressional Record, May 4, 2004, p. S4791.
302 Ibid., p. S4790.
! chefs
! cooks
!police officers
! firefigh ters
! craft s m en
!funeral directors
!outside sales employees
!inside sales employees
!assistant retail managers
!financial services industry workers
A fourth paragraph reads: “Any portion of a rule promulgated under subsection
(a)(1) after March 31, 2003, that modifies the overtime pay provisions of section 7
in a manner that is inconsistent with paragraphs (2) and (3) shall have no force or
effect as it relates to the occupation or job classification involved.” Senator Gregg
affirmed: “... this amendment goes to getting clarity, clarity in the law....”303
Senator Harkin challenged Senator Gregg’s amendment as “a real
acknowledgment, that there is a long list of occupations and people who are in danger
of losing their overtime” pay. Senator Harkin suggested that one problem was
definitional.
For example, the Gregg amendment puts in team leaders, but we do not know
what a team leader is because it has never been defined. What is a team leader?
The Gregg amendment puts in refinery workers. Does that mean oil refinery or
does that cover ethanol plants in Iowa? That is a refinery. Who is covered by
that? We do not know.
Technicians, what is a technician? There is no definition of a technician. The
Gregg amendment covers funeral directors, but how about embalmers? We don’t
know.
He suggested that he could support the Gregg amendment to “move the process304
along,” but his objections to it were numerous.
Debate Resumes. Reconciling the Gregg amendment with the final rule was
then explored. Senator Kennedy urged support for the Gregg amendment but argued
that it would not produce clarification. “To the contrary, it will provide additional
litigation because the test in the ... [final rule] refers to the duties and not to the
professional names that are being used.” The Harkin amendment, he said, “... is the
right way to go and I hope the Senate will follow his lead.”305
Conversely, Senator Mike Enzi (R-WY) charged that the Harkin amendment
was a “trial lawyers’ dream.” Senator Enzi spoke in defense of the final rule.
303 Ibid., pp. S4792-S4793.
304 Ibid., p. S4803.
305 Ibid., pp. S4793-S4794.
The reference to training in the Armed Forces has been deleted and clarifies that
veteran status does not affect overtime. The veterans will get their overtime
regardless of the training received in the armed services.
The final rule states first responders such as police, firefighters, paramedics and
emergency medical technicians are eligible for overtime pay. No question; no
gray area, it clears it up.
The final rule also states licensed practical nurses do not qualify as exempt
learned professionals and are therefore eligible for overtime pay.
The final rule clarifies [that] the contractual obligation under collective
bargaining agreements is not affected.
... the new rule will guarantee overtime protection for blue collar team leaders
and is more protective of overtime pay for white collar team leaders.
Furthermore, there is no change to current law regarding the overtime status of
computer employees, financial services employees, journalists, insurance claims
directors, funeral directors, athletic trainers, nursery school-teachers, or chefs.
Senator Enzi further affirmed: “We need to keep it simple and understandable. The
rule does that.... No lawsuits necessary, it is very clear. That is what the Department
intends.” After lamenting the “antiquated and confusing” current regulation with its
“windfall for trial lawyers,” he endorsed the Gregg amendment which he said would
“provide clearer and fairer overtime rights for workers.”306
The final rule, however, did not dispel interpretive disagreements. Senator Herb
Kohl (D-WI), speaking immediately after Senator Enzi, found it “unlikely to clarify
anything for small business.... We have not simplified anything.” He noted
“troubling exemptions of entire jobs and industries” and observed that the rule
“exempts from overtime ‘team leaders,’ even though these employees may have no
supervisory role....” He further stated:
Certain industries have worked for years to get out of paying overtime to their
workers — and the rule’s list of exemptions reads like a roll call of those that
succeeded. For reasons unclear, even after 500 pages of explanation, journalists,
personal trainers, financial services workers, and computer industry workers —
to name just a few classes — are summarily ineligible for overtime.
Senator Kohl concluded: “Any weakening of the overtime rules is a step down on
the ladder of economic progress.”307
While supporters of the final rule repeatedly affirmed that DOL had listened and
had revised the rule to render it more acceptable, some disagreed. Senator Russell
Feingold (D-WI) alluded to “largely cosmetic changes that the administration
grudgingly made at the eleventh hour” that “did not change the rule’s result....” At
highest risk are “those workers whose salaries fall between $23,660 and $100,000”
306 Ibid., pp. S4796-S4798.
307 Ibid., pp. S4798-S4799.
who “are not guaranteed overtime” pay and who, through “the new duties test,” could
be stripped of their wage and hour protections. “The administration’s public
relations campaign...,” he asserted, “does not reflect the reality of this rule.”308
As debate progressed, Senator Specter called attention to that morning’s hearing
before his Subcommittee. “This is a very complicated regulation,” he began. The
Senator agreed that clarity, with avoidance of unnecessary litigation, was “a very
important objective.” However, on the basis of “an extended hearing this morning”
with Administrator McCutchen and witnesses for and against the final rule, he
concluded that “there is no indication that this new regulation is going to clarify
anything at all.” He turned to the issue of “team leader.”
... this term ‘team leader,’ I think, is going to provide additional complexity, so
that a proposed final regulation here, instead of simplifying and directing and
being an effective instrumentality to eliminate litigation, appears to me to be no
advance over the current regulation, and when you come down to the injection
of a new concept of team leader, it creates additional complications.
Senator Specter declared that, “[o]n the current state of the record, I am opposed to
the proposed regulation.” And, he affirmed his support for the Harkin amendment.309
Division seemed wide. “Does anybody believe this administration’s
Department of Labor is trying to expand overtime pay?,” asked Senator Christopher
Dodd (D-CT). “That is not why the business community is supporting this rule
change, because they want to expand overtime pay,” he stated. “The administration
clearly wants to restrict it and redefine job categories that will allow them to do
so.”310
Proceeding to a Vote. On May 4, the Senate voted on the Harkin
amendment and the Gregg amendment as well. Two parallel roll calls were
conducted. On the Gregg amendment, the vote was 99 yeas with one Senator not
voting. On the Harkin amendment, the vote was 52 yeas to 47 nays — very largely311
along party lines. Thus, both amendments were approved. Action in this area, as
discussed below, would now move on to the House.312
308 Ibid., pp. S4800-S4801.
309 Ibid., pp. S4801-S4802. Senator Harkin concurred. The final rule, he stated, “at least
what we heard about in the hearing this morning, is not a clarification. What we heard in
the hearing is more ambiguous, and it is going to lead to much more litigation.” See
Congressional Record, May 4, 2004, p. S4803.
310 Ibid., p. S4802.
311 Ibid., p. S4806.
312 H.R. 4520, roughly the counterpart of S. 1637, was passed by the House on June 17,
On July 15, 2004, amended to include, inter alia, the Harkin and Gregg amendments, H.R.
The Miller Motions to Instruct: May 2004
During fall 2003, Congress considered and sent to conference H.R. 2660, a bill
to provide appropriations for FY2004 for the Departments of Labor, Health and
Human Services, and Education, and Related Agencies. (See discussion above.)
Ultimately, an appropriation for these agencies was arranged through an omnibus
appropriations bill (H.R. 2673, P.L. 108-199). However, the original bill (H.R. 2660)
remained, technically, in conference.
Motion of May 12, 2004. Representative George Miller, on May 12, 2004,
moved to instruct the conferees on H.R. 2660 to insist on reporting an amendment
supportive of overtime pay protections. The Miller motion was of two parts. First,
it would prevent DOL from expending funds to diminish overtime protection
accorded under Section 13(a)(1) of the FLSA as it stood prior to the recent DOL
initiative. Second, it would allow DOL to increase the salary thresholds required to
exempt workers from overtime pay protections under Section 13(a)(1).
Representative DeLay immediately moved to table the Miller motion. If
concurred in, the DeLay motion would have prevented discussion of the substance
of the Miller motion: that is, the impact of DOL’s final rule. Mr. Miller demanded
a recorded vote, the result of which was 222 ayes (in favor of the DeLay motion) and313
205 nays (favoring consideration of the Miller motion). The vote was largely along
party lines, two Republicans voting with the Democrats. Secretary Chao applauded
the DeLay motion as “a victory for the millions of American workers who will
benefit from stronger overtime protection.”314
Motion of May 18, 2004. Again on May 18, 2004, Representative Miller
moved to instruct the conferees on H.R. 2660 to insist on reporting an amendment
to block funding for implementation of DOL’s final rule — except that DOL would
be permitted to proceed with adjustment of the salary thresholds for exemption under
Section 13(a)(1). As before, Representative DeLay moved to table the Miller motion.
Mr. Miller called for a recorded vote on the DeLay motion to table, the result was
ayes 216 (to support the DeLay motion) and 199 nays (further to consider the Miller315
motion). The vote was largely along party lines.
Hearing: House Small Business Subcommittee, May 20, 2004
Through the year between release of the proposed rule on March 31, 2003, and
release of the final rule on April 23, 2004, areas of controversy with respect to the
new regulations had been clearly (and, relatively early) identified. DOL stressed that
it had conscientiously reviewed issues raised through the comment process, and had
modified the rule to meet the various objections. Still, release of the 152-page final
rule (as published in the Federal Register), cross-referenced to the current rule and
313 Ibid., pp. H2836-H2837, and H.2876.
314 DLR, May 13, 2004, pp. A11-A12.
315 Congressional Record, May 18, 2004, pp. H3106-H3107. See also DLR, May 19, 2004,
pp. A8-A9.
to case law, may have left some non-specialists initially ill-prepared to raise issues
during early hearings. By the May 20 hearing before the House Small Business
Subcommittee on Workforce, Empowerment and Government Programs, however,
there ought to have been few surprises.
Testimony from the Department of Labor. Alfred B. Robinson, Deputy
Administrator for Policy, Wage and Hour Division, was the lead DOL witness for the
May 20 hearing.316 He began by affirming: “The Department is very proud of the
final rule. Overtime pay is important to American workers ... and this updated rule
represents a great benefit to them.” He proceeded to list the groups of workers who,
DOL held, would benefit from the “strengthened overtime protections.” He noted
the alleged deficiencies of the current regulations, stating that small business owners
“can ill afford large and potentially devastating legal fees to decipher and litigate the
old rule’s maze of vague and complicated overtime standards.” And, he praised the317
final rule as “clear, straightforward and fair.”
Robinson assured the Subcommittee that DOL had “listened to thousands of
comments — from workers and employers” and from Congress “whose comments
have been a tremendous benefit to the Department.” Then he added: “Unfortunately,
much of the press coverage and public debate over this rule has been misleading and318
i n accurat e.”
Robinson affirmed that DOL’s “primary goal was to protect low-wage workers.”
Even lawyers, he said, “have found it difficult to determine who is entitled to
overtime pay under the old rules, and very few employees understood their rights.”
Arguing for “clearer rules that reflect the workplace of the 21st Century,” he
concluded: “We simply cannot allow this legal morass to continue unabated.”
Setting aside concerns about diminished coverage and increased litigation,
Robinson accentuated the positive. DOL “... is pleased to report that estimated first-
year costs of the final rule — which decrease significantly in subsequent years — are
316 On June 11, 2004, McCutchen, left DOL to become a partner at the Washington, D.C.,
law firm of Dickstein Shapiro Morin & Oshinsky. Robinson was designated as Acting
Administrator. See DLR, June 3, 2004, p. A3.
317 Robinson, House Small Business Subcommittee, May 20, 2004.
318 The allegation appears to have become a standard DOL talking point. DLR, May 3, 2004,
p. A10, covering the National Conference of State Legislatures’ spring forum, reports on
comments by Howard Radzely, Solicitor of Labor. “Radzely, in his presentation, made
references to the dissemination of ‘misinformation’ by opponents of the rulemaking, a theme
echoed by his fellow panelist, Katherine Graham Lugar, a lobbyist for the National Retail
Federation and executive director of the O.T. Coalition.” Again, on May 11, 2004, Radzely
discussed with the Bureau of National Affairs a DOL program “to monitor court cases”
involving the Section 13(a)(1) exemption. “Establishment of the new ‘overtime security
amicus program’ is intended to counter what Radzely referred to as an ‘unprecedented
misinformation campaign’ that is ‘creating confusion which could compromise the stronger
worker protections’ in the new rules.” See DLR, May 12, 2004, p. A11. At the annual
meeting of the American Bar Association, August 10, 2004, in Atlanta, Radzely reportedly
complained “that there was a significant amount of misinformation regarding what was in
the new rule and what they meant.” See DLR, August 12, 2004, p. AA1.
not likely to have a substantial impact on small businesses.” He estimated that “...
only 107,000 employees who earn at least $100,000 per year, and perform office or
nonmanual work, and ‘customarily and regularly’ perform exempt duties could be
classified as exempt. However, the Department believes even this result is
unlikely....” (Italics in the original.) Robinson added that “few if any workers”
earning between the $23,660 and $100,000 thresholds “are likely to lose the right to
overtime pay.”
In closing, Robinson again asserted that “a great deal of misinformation has
surrounded” the final rule but stated: “We at the Department of Labor are very proud
of the updated rule.”
Although DOL did not initially address issues raised in prior hearings, they soon
surfaced. Representative Linda Sanchez (D-CA) raised the issue of “team leaders.”
Robinson responded that the final rule is “more protective” of such workers than
current regulation. When he stressed that “team leaders” would be engaged in “major
projects,” Ms. Sanchez pointed to those who might be involved in “quality teams,”
suggesting that the concept could be subject to litigation.319
Ms. Sanchez also raised the issue of overtime protection for workers covered
by a collective bargaining agreement. Robinson replied that “[t]hese regulations do
not apply to people in unions.” He explained: “Union employees are protected by
their collective bargaining agreements.” Ms. Sanchez rephrased the question,
explaining that some collective bargaining agreements defer to applicable federal law
on overtime issues and, if the law (or, here, the regulation) were changed, it could
impact workers — even those under a collective bargaining agreement. The query
was expanded upon by Subcommittee Chairman W. Todd Akin (R-MO), but the
issue was not resolved.320
Comment from Other Witnesses. Also appearing before the Small
Business Subcommittee were two witnesses of industry orientation and one of a labor
perspective.
“A loan officer for a mortgage broker,” said Neill Fendly of the National
Association of Mortgage Brokers, “must make certain judgments when assisting
consumers in financing the most important purchase of their lives.” This requires “a
high degree of skill and judgment,” he affirmed, and therefore the mortgage industry
“has long held that loan officers are exempt from the government’s overtime pay
requirements.” Under the financial services section of the final rule, Fendly noted,
loan officers might be exempt administrative employees. “Although the final rule
does not include specific language regarding loan officers,” he stated, “we believe the
department’s decision to frame the rule in the context of existing law is positive for
319 Concerning the discussion portion of the hearing, see DLR, May 21, 2004, pp. AA1-AA2.
With respect to the issue of team leaders, Robinson observed that DOL has relied on
existing case law in drafting that provision.
320 DLR, May 21, 2004, pp. AA1-AA2.
the industry and a significant benefit to small business mortgage brokers with little
or no access to expensive labor attorneys.”321
“Based on their licensing requirements and primary duties,” suggested John
Fitch, representing the National Funeral Directors Association, the “NFDA has long
believed that licensed funeral directors and embalmers should be exempt from the
overtime requirements of the FLSA.” (The industry had sought exemption of such
workers as professionals — a position that DOL had consistently rejected until
promulgation of the final rule.) “The Department concluded in the early 1970’s,”
Fitch explained, “that licensed funeral directors and embalmers do not satisfy the
current duties test for learned professionals.”322 Fitch argued that funeral directors
“continually exercise discretion and judgment,” cannot “adhere to a rigid schedule”
because death is “unpredictable,” and are employed by “mostly small, family-owned
businesses” — and should not receive overtime pay when called upon to work more
than 40 hours a week.323 Under the final rule, he concluded, DOL “recognized, for
the first time, licensed funeral directors and embalmers as professionals.”
Ross Eisenbrey of the Economic Policy Institute was more pessimistic. The
rule, he protested, “is far more likely to provoke additional litigation than to prevent
it.”324 (Italics in original.) He stated:
... I believe the rule is so ambiguous and internally inconsistent that businesses
will find themselves unable to understand or explain it, and workers will be much
more likely to sue when employers take advantage of the rule to reclassify their
employees and cut costs.
The rule both eliminates key objective tests that provide clarity in the current
regulations and introduces a host of ambiguous new terms and provisions that
will be the source of litigation for many years to come.
Eisenbrey projected a “lawsuit-by-lawsuit” interpretation of the final rule. With
questions and comments, he walked the Subcommittee through the rule.
... why aren’t sous chefs, who spend all but a few minutes of the day working
with their hands, ‘blue collar’?
... it is only ‘non-management production line employees and non-
management employees in maintenance, construction, and similar occupations’
who are entitled to overtime premium pay.
321 Fendly, Small Business Subcommittee, May 20, 2004.
322 Fitch, Small Business Subcommittee, May 20, 2004. Though DOL had not classified
funeral directors and embalmers as learned professionals, depending upon their duties they
could have been (and now could be) exempt as administrative or executive employees.
323 Whether the funeral industry is composed mostly of small, family-owned establishments
may be a debatable point. This industry has undergone extremely rapid change during
recent years. See CRS Report RL30697, Funeral Services: The Industry, Its Workforce,
and Labor Standards, by William G. Whittaker.
324 Eisenbrey, Small Business Subcommittee, May 20, 2004.
The rule gives no clue about how to distinguish a management production line
employee from a non-management production line employee, or a management325
maintenance employee from a non-management maintenance employee.
(Bolding in original.)
This [the concept of team leaders] is a broad new exemption that could apply to
as many as 2.3 million currently non-exempt team leaders throughout American
industry. The only limitation on this exemption is that the team’s project must
be ‘major.’ No definition of ‘major’ is provided in the rule....
This new ‘learned professional’ exemption allows employers to deny overtime
pay to employees who ... ‘have substantially the same knowledge level and
perform substantially the same work as the degreed employees.’ What does
‘substantially the same’ mean? It doesn’t mean equal knowledge; could it mean
less? How much less could a non-degreed employee know and still be
considered a professional?
The DOL has gone to great lengths to deny that knowledge employees gain from
service in the armed forces can be used to establish this exemption [the learned
professional]. But how will employers ... prove that none of the knowledge a
veteran has that gives him ‘substantially the same knowledge’ as degreed326
professionals, was gained in the armed services?
Eisenbrey raised a number of other questions dealing, for example, with: the
definition of “customarily and regularly” as applied to exempt highly compensated
employees; the distinction, for exemption purposes, between “marketing, servicing
or promoting the employer’s financial products” and “selling financial products” [the
former are exempt, the latter are not]; the issue of working supervisors; and the
concept of concurrent duties.
Summer and Fall of 2004
As time for implementation of the new rule came closer, the options of critics
seemed to fade.327 Congress could intervene directly with amendment of the FLSA;
but that would seem unlikely, given the position of the Administration. Congress
might have taken up the Specter proposal for a study commission; but given the
position of the Administration, that, too, may have seemed an unlikely solution.
Two bills remained before Congress that could have affected the Department’s
rulemaking. First. There was the JOBS Act, S. 1637 (with its counterpart in the
House, H.R. 4520), having already been passed by the Senate with the Harkin and
325 Subsection 541.3(a) provides, inter alia: “... non-management production-line employees
and non-management employees in maintenance, construction and similar occupations ...
are not exempt under the regulations in this part no matter how highly paid they might be.”
326 Eisenbrey predicted, Small Business Subcommittee, May 20, 2004: “The single change
from current law that will create the most confusion and spark the most litigation is probably
the new test for exemption as a learned professional.”
327 DLR, August 23, 2004, p. AA1.
Gregg amendments included. Second. There was the FY2005 appropriations bill for
the Department of Labor that might have been amended to include language to
eliminate (or restrict) funding for all or part of DOL’s contentious rulemaking
process.
Amending the JOBS Act (S. 1637, H.R. 4520): Phase III
On June 4, 2004, Representative William Thomas (R-CA) introduced H.R.
The two bills were somewhat different: the House bill did not contain the Harkin
and/or Gregg language. Following consideration by the Committees on Ways and
Means and Agriculture, the bill was called up in the House on June 17 and passed by
the House (yeas 251 and nays 178). Referred to the Senate, the bill was placed on
the Senate’s Legislative Calendar (Calendar No. 591).328
On July 14, 2004, Senate Majority Leader Frist sought unanimous consent for
consideration of H.R. 4520. He proposed that the bill be called up, and that S. 1637
be offered as a substitute for the language of the House bill. This would have meant
that the Senate bill (now in the guise of the House bill) would have contained the
Harkin and Gregg amendments.329 He further proposed that a conference be
requested with the House — and that Senate conferees be appointed. Senator Frist
observed that “[m]uch work remains to be done on this bill” and stated: “There are
significant differences with the House bill, so this is likely going to be a challenging
process. I want to make sure that all Senators know that it is unrealistic to expect that
the House will agree with all our provisions and that we will likely have to make
changes to S. 1637.”330
The following day, on July 15, 2004, H.R. 4520 was called up in the Senate. As
discussion drew to a close, Senator Barbara Mikulski (D-MD) spoke in behalf of the
Harkin overtime pay amendment and urged “the conferees on this bill to make sure
the Harkin amendment stays in the final version.”331 This was seconded by Senator
Kennedy: “It would be unconscionable if this bill comes out of conference without
those protections.”332 As amended to include the language of S. 1637 (including the
Harkin and Gregg amendments), H.R. 4520 was passed by a voice vote.333 Senate
conferees were immediately appointed, but some time would pass prior to
appointment of conferees by the House.334
328 Congressional Record, June 17, 2004, pp. H4295-H4388, H4393-H4433.
329 Congressional Record, July 15, 2004, p. S8151.
330 Ibid., pp. S8104-S8105.
331 Ibid., p. S8219.
332 Ibid., pp. S8220-S8221.
333 Ibid., p. S8221. On July 19, 2004, the Senate formally notified the House of
Representatives of its action. The Harkin and Gregg amendments were a part of H.R. 4520
as passed by the Senate.
334 Several Republican Members of the House reportedly had urged that an “up-or-down
(continued...)
On September 29, 2004, when the House moved to appoint conferees on H.R.
Reversing an act of the Department — in effect and to which industry had already
committed itself — would seem to have been more difficult than in preventing its
initial implementation. James McGovern (D-MS), commenting upon the conference
report to be considered by the House, October 7, 2004, conceded that “these
misguided regulations” continue to stay in effect — since the Harkin/Gregg
amendments had been stripped from the bill in conference.335 The House moved
forward with the legislation as reported. On a roll call vote (280 yeas to 141 noes),
the House concurred in the report of the conferees.336
The Senate moved quickly with final passage of the legislation. On October 11,
the conference report was called up. Senator Olympia Snowe (R-ME) observed that
the bill “is silent on an issue of great importance to working Americans”: the
Department of Labor’s new overtime regulations. Senator Snowe noted that in May,
she “was one of 52 Senators who voted in support of the Harkin amendment” and,
after reviewing the negative implications of the rule, stated that she “was
disappointed that the Harkin amendment was not included.”337 Senator Reed of
Rhode Island reviewed the number of times the Senate had voted in favor of the
Harkin (and Gregg) amendments, observing: “I am amazed that the majority has
again stripped this provision which has overwhelmingly passed” both houses and, in
the Senate, now five times.338 Senator Dodd concurred: “... it is now out, despite the
fact we insisted it be part of this legislation.”339 On October 11, the Senate voted to
accept the conference report on H.R. 4520 (yeas 69 to 17 noes).340
On October 21, 2004, the “JOBS” bill was signed into law.
334 (...continued)
vote” be taken on that portion of the bill dealing with overtime pay. In a letter to Speaker
Dennis Hastert, DLR reported, it was acknowledged: “Once the new overtime regulations
take effect on August 23, 2004, it may be too late to restore overtime eligibility for our
constituents.” See DLR, June 16, 2004, pp. A10-A11.
335 Congressional Record, October 7, 2004, p. H8706. The reference to overtime protections
had been omitted from the bill. See also DLR September 29, 2004, pp. A8-A9.
336 Ibid., pp. H8725-H8726.
337 Congressional Record, October 11, 2004, p. S11211. “With the support of Sen. Olympia
Snowe (R-Maine),” explained the DLR, October 7, 2004, p. AA1-AA2, the Senate conferees
on the bill approved the overtime amendment, offered by Senator Tom Harkin (D-IA), by
a vote of 12-11. The House conferees then rejected the provision by a vote of 6-3. Under
conference rules, both House and Senate conferees must accept a provision if it is to appear
in a conference report.” The Bush Administration “has threatened to veto any conference
report that includes Harkin’s amendment,” according to the Daily Labor Report.
338 On October 10, 2004, the Senate had again adopted the Harkin (and Kennedy)
amendment as free standing legislation. See Congressional Record, October 10, 2004, pp.
Slll07, and S11215-S11216.
339 Congressional Record, October 11, 2004, p. S11236. See also DLR October 13, 2004,
p. A1 ff.
340 Ibid., p. S11222.
Appropriations for the Department of Labor: FY2005
On July 14, 2004, the House Appropriations Committee approved legislation
(with no bill number then assigned, but soon to be H.R. 5006) to provide funding for
the Department of Labor for FY2005. During consideration of the measure,
Representative David Obey (the Committee’s Ranking Democrat from Wisconsin)
proposed language restraining the Department from moving forward with
implementation of the final rule governing the Section 13(a)(1) exemptions. As with
prior restrictive initiatives, the Obey amendment would not have blocked the
adjustment of the lower thresholds under the final rule (the earnings thresholds) but
would have dealt with the duties tests.
As on prior occasions, those supporting the Administration objected.
Representative Ralph Regula (R-OH), chair of the Appropriations Subcommittee on
Labor, Health and Human Services, Education and Related Agencies, argued that the
Obey amendment, were it approved, would “prevent any federal enforcement of the
law” insofar as Section 13(a)(1) was concerned. Conversely, Representative Obey
reportedly characterized his proposed amendment, aside from its substantive
features, as “an attempt to bring the Labor Department back to the table” on the
overtime pay issue.341
Outside of Congress, the battle continued. Ross Eisenbrey of the Economic
Policy Institute released a study decrying the Department’s action and forecasting
seriously negative results were it implemented.342 Meanwhile, Ed Frank, DOL’s
spokesperson, called the report “a last-ditch effort to re-start the misinformation
campaign that has failed to cover up the fact that millions of workers will benefit
from the Department’s strong new overtime guarantees.”343
The Obey amendment was defeated in the full Committee by a party-line vote
of 31 nays to 29 yeas. According to the Daily Labor Report, Representative Obey
“expects to offer” a similar amendment when the appropriations measure is called up
in the House — perhaps early in fall 2004.344
341 DLR, July 15, 2004, p. AA1.
342 Ibid., pp. AA1-AA2.
343 Ibid., p. AA2. Emphasis added.
344 DLR, July 16, 2004, p. A7. According to the Daily Labor Report, the Committee’s
leadership (Chairman Bill Young and Subcommittee Chair Regula) had expected a full
House vote on the $142.5 billion measure “the week of July 19,” but a leadership aide said
that scheduling conflicts were “‘highly likely’ to postpone the measure until after the August
recess.” The target date for implementing the Section 13(a)(1) regulations would be late
August. An aide to Obey observed: “I can’t imagine what legislation might be more
important to the leadership than the 2005 funding bills.”
Floor Fight in the House (September 2004): H.R. 5006. On September
7, 2004, report was made to the full House on H.R. 5006345 with discussion of the
report to begin the following day.
The next morning, while introducing the rule for consideration of H.R. 5006,
Representative Louise Slaughter (D-NY) opined that, among those workers who
worry about having their jobs “shipped off to Mexico or China,” are some “6 million
workers who stand to lose access to overtime pay under the new rules” set forth by346
the Department of Labor. Immediately, Representative Marsha Blackburn (R-TN)
took the floor to charge that there is “a campaign of disinformation that is being
waged against the overtime pay reforms” and to declare that the new rule, already in
place, was “worker-friendly” and “fair.”347 Thereafter, the rule (H.Res. 754) was348
adopted (209 yeas to 190 nays), and the House proceeded.
Thus, the stage was set for confrontation when, late on September 8,
Representative Obey took the floor. “I had planned at this point to offer an
amendment with the gentleman from California (Mr. George Miller) which would
block most of the sections” of the new Departmental rule. “But now I have been told
that if I intend to offer that amendment tonight, the majority will shut down the
House for the evening.” Obey termed the action “outrageous” but, ultimately, did not349
introduce the amendment.
On September 9, however, Representative Obey did propose his amendment to
H.R. 5006.350 Immediately, Representative Boehner called for a point of order351
against the amendment — but his point of order was overruled by the chair. As
debate continued, two perspectives seem to have appeared. On the one hand, the
Obey (Miller) amendment might have left the Department in limbo, unable to enforce
the new rules but unable, absent a lengthy proceeding, to provide an alternative.
345 Congressional Record, September 7, 2004, p. H6731.
346 Congressional Record, September 8, 2004, p. H6767.
347 Ibid., pp. H6767-H6768.
348 Ibid., pp. H6771-H6772.
349 Ibid., p. H6858. Obey pledged that the amendment would be offered later — and the
House did close for the evening. Earlier in the day, Representative DeLay “told reporters
that Republicans were busy polling members to determine where they stood on the pending
overtime amendment and that even if there were defections, Republicans ‘have other
options’ including a likely veto by President Bush....” In a letter to House Members,
Representatives Boehner and Norwood observed: “It is ironic and sad that Democratic Party
leaders and Washington labor bosses — who portray themselves as the champions of
working-class Americans families — are waging a campaign to take these valuable new
overtime rights away” from those who would benefit because of the Department’s action.
See DLR, September 9, 2004, p. A12. See comments of Representative Sherrod Brown (D-
OH), Congressional Record, September 8, 2004, pp. H6876-H6877.
350 As with other similar amendments, the Obey/Miller amendment would have (a) restricted
funding for the duties portion of the regulation while, at the same time, (b) allowing the
Department to proceed with the earnings threshold segment.
351 Congressional Record, September 9, 2004, pp. H6922-H6923.
“Under the Obey amendment,” Boehner stated, “the Secretary of Labor is prohibited
from protecting workers overtime as required by her current regulations, and she will
be forced to start the regulatory process over in order to develop new regulations to
ensure those protections.”352 Representative Regula affirmed: “... the allegation is
that we would go back to the old regulations, but the truth of the matter is, they are
gone.”353 Conversely, Representative Obey read into the record a review “of
applicable principles of administrative procedure and pertinent judicial precedents”
that indicated that “the Department of Labor would have the authority to immediately
reimplement overtime compensation regulations in effect prior to August 23, 2004,
upon passage of the proposed Obey-Miller rider.” He added: “That means that they
can on their own volition reinstitute those rules within 1 day.”354
As the debate drew to a close, Representative Regula noted that “most of our
speakers have been from the Committee on Education and Workforce” and
“illustrates the fact that this is a legislative issue that ought to be debated and dealt
with there.” But, “in reality, it is before us.”355 On passage of the Obey/Miller
amendment, the vote was 223 yeas to 193 nays — the critics of the Department of
Labor’s rule having won, at least, a momentary victory.356
A New Proposal in the Senate: S. 2810. In the Senate, the appropriations
subcommittee dealing with the Department of Labor and related agencies was under
the chairmanship of Senator Specter. Through several hearings during consideration
of the 2004 appropriations measure, the Senator had expressed some discomfort with
the new overtime pay rules.357
On September 15, 2004, Senator Specter introduced new legislation providing
for the 2005 appropriation for the Department of Labor. The Harkin language was
not in the original bill — the Senator from Pennsylvania choosing to allow the full
Committee on Appropriations to work its will. When the bill was considered, the
vote was 16 yeas to 13 nays, Senators Specter and Ben Nighthorse Campbell (R-CO)358
in support of the Harkin provision.
As reported, the bill (S. 2810) charged that “none of the funds provided in this
Act may be used by the Department of Labor to implement or administer any changes
to regulations regarding overtime compensation” except those changes “specifying
352 Ibid., p. H6925.
353 Ibid., p. H6931.
354 Ibid., p. H6925. For a discussion of the various interpretations, see DLR, Sept 13, 2004,
pp. A9-A10.
355 Congressional Record, September 9, 2004, p. H6931.
356 Ibid., p. H6951. See DLR, September 10, 2004, p. AA1 ff.
357 Senator Specter had variously spoken in opposition to the proposed rule. “I have become
convinced it is a bad regulation,” he said to the Daily Labor Report, August 24, 2004, p. A9.
“It is 154 pages of confusing rhetoric which is going to give the employers a great deal of
discretion on [workers’] classifications.”
358 National Journal Markup Reports, September 15, 2004.
the amount of salary required to qualify as an exempt employee.” In deference to the
floor debates in the House, it would seem, a further provision was added: “This
provision requires the immediate re-instatement and enforcement of the old overtime
regulations in effect on July 14, 2004” — except for those provisions relating to
salary. In short, the duties test was overturned; the earnings test was sustained. And,
in each house, the substance of the Harkin amendment has been accepted.359
The Move to an Omnibus Bill: H.R. 4818. On September 9, 2004,
following the vote in the House on the Obey/Miller amendment, a spokesperson for
Speaker J. Dennis Hastert (R-IL) reportedly affirmed “that the amendment would
likely be stripped from the funding bill in a conference committee and expressed little
concern that the amendment would reach the president’s desk.”360
Gradually, the ground began to shift away from critics of the overtime pay rule.
A few days after the vote, House Appropriations Chairman C. W. Young (R-FL) was
asked his opinion on the issue. “‘I won’t have strong feelings either way,’” he
responded; but he expressed some frustration. “‘That held us up for weeks and
weeks last year. That one amendment,’” he said.361 A few days later, the DLR, citing
Senate Appropriations Committee Chairman Ted Stevens (R-AL), reported that the
“Labor-HHS bill will be rolled into an end-of-session omnibus spending bill.”
Further, the Daily Labor Report noted: “Despite the majority votes in both houses
to rescind parts of the overtime rule on the Labor-HHS bill, Republican leaders have
said they expect the overtime amendment to be stripped from the omnibus bill in the
face of the administration’s threat.”362 Again, in mid-November, quoting a senior
Senate GOP aide, it was reported confidently that an overtime pay provision “will be
stripped from an omnibus appropriations bill.” The article continued: “‘We’re
heading toward most policy pieces being taken out of the omnibus,’ the aide said.
‘They’re controversial. They’re time consuming, and the president won’t sign most363
of them.’”
On November 20, 2004, the House and Senate took up the conference report on
H.R. 4810, the omnibus bill funding the Department of Labor and several other364
agencies during FY2005. Several Members, during the debate, made reference to
the overtime pay issue; but, at large, the measure seemed to have slipped from view.
359 U.S. Congress, S.Rept. 108-345, Departments of Labor, Health and Human Services, and
Education, and Related Agencies Appropriation Bill, 2005, report to accompany S. 2810,th
p. A9. The Senate amendment was included in the bill approved by the Senate
Appropriations Committee, but was not voted upon by the entire Senate. The latter, of
course, had variously voted on that issue in conjunction with other bills.
360 DLR, September 10, 2004, p. A12 ff.
361 DLR, September 16, 2004, p. AA2.
362 DLR, September 29, 204, p. A9.
363 DLR, November 17, 2004, p. A11.
364 The bill contained nine smaller bills, took up in excess of 3,000 pages, and was
completed the night before the debate. See comments of Senator Robert Byrd (D-WV),
beginning on page S11740 in the Congressional Record, November 20, 2004.
Representative Obey stated that “the Republicans have taken out several provisions
that were supported by the majority of this body and should have been retained” and
they have “stripped out the language which would have protected 6 million workers
from being chiseled on their overtime rights.”365 The White House, stated Senator
Byrd, “issued veto threats” to block elimination of “the administration’s overtime
regulation.”366 “Pure and simple,” charged Senator Kennedy, “denying overtime is
a thinly veiled cut in workers’ pay and boost employers’ profits.” He concluded:
“Denying the will of Congress and the American people in this Omnibus bill doesn’t
settle the issue. This battle,” he said, “is far from over. The fight will continue until
workers’ overtime rights are restored.”367
In the House on November 20, 2004, the final vote was 344 yeas to 51 nays; in
the Senate, 65 yeas to 30 nays.368 The measure was signed into law as P.L. 108-447.
365 Congressional Record, November 20, 2004, p. H10193.
366 Ibid., p. S11741.
367 Ibid., p. S11745.
368 Congressional Record, November 20, 2004, pp. H10208-H10209, and S11764-S11765.
SECTION IV
A Mixed Reaction
On October 15, 2004, with only two months of experience behind them, the
Department of Labor’s Solicitor Howard Radzely reportedly proclaimed a certain
amount of satisfaction with the result of the overtime pay regulation. “The
predictions were not accurate,” Radzely said, referring to critics of the plan. “Almost
without exception, the reports indicate people are gaining overtime protection.”369
But, the reports were anecdotal and fragmentary.
Others agreed. In early November, Thomas Sullivan, Chief Counsel for
Advocacy at the Small Business Administration, asserted that the new rule “has
produced the greatest cost savings for small businesses since the administration
began attempting to streamline its regulatory system.” Todd McCracken, National
Small Business Association President, “concurred with Sullivan’s assessment that
the DOL overtime rule had produced the single biggest cost savings to the small
business community.”370
Tammy McCutchen, the author of the new rule (and now with the law firm of
Dickstein Shapiro Morin & Oshinsky), asserted that the rule was “still alive, despite
“‘an AFL-CIO misinformation campaign, misleading media reports, and eight
congressional votes to revoke the changes.’” She reported that “a substantial number
of cases involving incorrect classifications ... of overtime is ‘on the horizon.’”
Mostly, she said, the cases involve calculation of the “‘regular rate’” of pay. But,
McCutchen suggested, the overtime reform was only the beginning of changes
needed in FLSA administration.371
In a speech in Naples, Florida, in early April 2005, DOL’s Radzely affirmed that
the final rule has “clarified and significantly strengthened” the law. “We have not
seen a single incident — let alone the predicted 6 million incidents — of an employee
who has lost pay as a result of the regulations.” He described the rule as “more user
friendly” for both attorneys and human resources personnel and “at least as protective
as the old” where workers were concerned. He observed: “[o]nce we got past the
369 DLR, October 18, 2004, p. A7 ff.
370 DLR, November 18, 2004, p. A2. The summary of comment is by the DLR.
371 DLR, March 17, 2005, p. C1 ff. Emphasis added. The summary of comment is by the
DLR. McClutchen suggested the following changes in the FLSA:
allow employers to pay employees up to 10 percent of their income in bonuses.
apply Section 7(1), which exempts from the overtime rules commissioned inside
sales employees of qualifying retail or service establishments if those employees
meet the compensation requirements, to employees earning at least 50 percent
of their compensation from commissions and whose hourly rates are at least 1.5
times the minimum wage....
require employees with evidence of overtime violations to give the employer the
opportunity to compensate them for two years of back pay before they go to court
with charges of ‘willful violations’ of the FLSA....
extreme rhetoric ... there have been surprisingly few issues” in contention. But, some
problems still existed and, Radzely affirmed: “When employees are ‘on-the-line,’
in terms of exempt/nonexempt status, you can change their job duties, so that they
will become clearly exempt again....”372
New Initiatives of the 109th Congress
Early in the 109th Congress, Senator Harkin rose to address “an issue that my
colleagues have heard me speak about on numerous occasions during the course of
the past two years.” Once more, he invoked the matter of overtime protection for
America’s workers.
Senator Harkin reviewed the history of the Fair Labor Standards Act and of its
importance to workers, especially to those at the margins of the economy. “Overtime
pay rewards work, and it reduces exploitation.” The 40-hour workweek, he
suggested, “creates jobs. Requiring time-and-a-half pay for overtime work
encourages employers to hire more workers, rather than requiring additional hours
of work from existing employees.” To compensate such workers, who are engaged373
through extended periods, he stated, is “simple fairness.”
At this point, Senator Harkin proposed a new bill, S. 223 of the 109th Congress,
that addressed the current FLSA regulations in two ways. First. It set aside the
existing regulations (those in effect since August 2004), allowing all workers to be
covered under the act on the basis of the regulations in effect on March 31, 2003.
The proposal states: “that portion of such regulations (as in effect on March 31,
Second. It provided for indexation of the coverage formula under a new rule: that all
persons earning less than $591 per week would be exempt from the rule, that is,
covered by the standard wage and hour provisions of the act. It then provided that,
not later than December 31 of each calendar year, “the Secretary shall increase the
minimum salary level for exemption under Subsection (a)(1) by an amount equal to
the increase in the Employment Cost Index for executive, administrative, and374
managerial occupations for the year involved.”
Indexation of the exemption, Harkin affirmed, would “avoid future loss of
overtime protections due to inflation.”375 Senator Kennedy, a co-sponsor of the bill,
stated: “This change will bring it to the level it would be if we’d made annual
372 DLR, April 8, 2005, p. C3. Radzely was speaking, here, of employees who might have
preferred exempt to nonexempt status.
373 Congressional Record, January 31, 2005, p. S673.
374 Ibid., pp. S673-S674.
375 Congressional Record, January 31, 2005, p. S763. How each of the provisions would
work (and would work together) may not be entirely clear. On the general question of
indexation, see CRS Report RL30927, The Federal Minimum Wage: The Issue of
Indexation, by Gerald Mayer.
adjustments for wage inflation over the last 30 years.”376 The bill was referred to the
Committee on Health, Education, Labor, and Pensions.
On April 19, 2005, Senator Richard Durban (D-IL) introduced S. 846, a bill to
protect the overtime rights of workers employed as executive, administrative, or
professional employees. Like the Harkin bill, it would set aside existing regulations
(those in effect since August 2004) and index the formula under which exemption
under Section 13(a)(1) would be allowable. The bill was read a second time and
placed on the Senate Legislative Calendar under General Orders, Calender No. 80.377
The various measures, in so far as they addressed the overtime pay issue, died
at the close of the 109th Congress. If overtime pay remained on the agenda for the
Members of Congress, it did not otherwise reappear, nor was it an issue in the 110th
Congress when minimum wage legislation was considered and adopted.
In Summary
On April 23, 2004, DOL promulgated its final rule on overtime pay under
Section 13(a)(1). The target date for its implementation was August 23, 2004. With
the new rule in effect, any administrative or legislative change of the regulatory
structure would be difficult to achieve. Thus, the last week of August was regarded,
in practical terms, as a deadline of sorts — not absolute, but with change, thereafter,
more difficult to effect.
Those who opposed the final rule attempted a number of strategies designed to
block its promulgation in final form and, ultimately, its implementation — notably,
with the FY2005 DOL appropriations measure. None of these were successful.
Critics of the new rule confronted a serious disadvantage. Congress, long ago, had
given to the Secretary the authority to modify the regulation governing executive,
administrative and professional — and to define precisely what those terms meant.
376 Congressional Record, January 31, 2005, p. S674.
377 Congressional Record, April 19, 2005, pp. S3897 and S902-3903. See, also, S. 14,
introduced by Senator Debbie Stabenow (D-MI), a more general bill, part of which deals
with Section 13(a)(1). The bill would index the salary test for exemption. See
Congressional Record, January 25, 2005, pp. S437-S438.
Table 1. Weekly Earnings Thresholds Applicable to Executive,
Administrative, and Professional Employees Under
Section 13(a)(1) of the Fair Labor Standards Act
DateExecutiveAdministrativeProfessionalMotion Picture
Mandat e d Indust r y
1953 — — — 200
1975 h 155 155 170 250
2004 i 455 455 455 695
a. Federal Register, October 20, 1938, p. 2518.
b. Federal Register, October 15, 1940, pp. 4077-4078.
c. Federal Register, October 15, 1940, p. 4077. The salary, in the regulation, is stated as $200 per
month; but, for consistency, has been converted here to $50 per week.
d. Federal Register, December 24, 1949, p. 7706. In Puerto Rico and the Virgin Islands, the rates
were $30 for executives, $50 for administrators and professionals.
e. Federal Register, November 18, 1958, pp. 8962-8963. In Puerto Rico, the Virgin Islands, and
American Samoa, the rates were $55 for executives, $70 for administrators and professionals.
f. Federal Register, August 30, 1963, pp. 9505-9506. Special rates were set for workers newly
covered (retail and service workers) under the 1961 FLSA amendments: $80 for executives and
administrators ($55 in Puerto Rico, the Virgin Islands and American Samoa), and $95 for
professionals ($75 in Puerto Rico, the Virgin Islands, and American Samoa). The regular rates
would take effect on September 2, 1965. In Puerto Rico, the Virgin Islands, and American
Samoa, the rates were $75 for executives and administrators, $95 for professionals.
g. Federal Register, January 22, 1970, p. 885, and Feb. 20, 1970, p. 3220. Special rates were set for
workers newly covered under the 1966 FLSA amendments: $115 for executives and
administrators, $130 for professionals. The regular rates would take effect on Feb. 1, 1971. In
Puerto Rico, the Virgin Islands and American Samoa, the rates were $115 for executives, $100
for administrators, $125 for professionals. The special interim rates would not apply to the
insular jurisdictions.
h. Federal Register, February 19, 1975, p. 7092. In Puerto Rico, the Virgin Islands, and American
Samoa, the rates were $130 for executives and administrators, $150 for professionals.
i. Federal Register, April 23, 2004, pp. 22122-22274. Puerto Rico and the Virgin Islands, at this
juncture, have reached a national standard. For workers in American Samoa, the weekly wage
for exempt status is $380. Under the 2004 special rates, a person who earns $100,000 per year
and performs “any one or more of the exempt duties or responsibilities of an executive,
administrative or professional employee” is presumed to be exempt under the act.