Commentary: Too Stingy With The Overtime

The Labor Dept.'s new eligibility rules would exclude millions

When the Bush Administration last March announced a rewrite of the 1938 Fair Labor Standards Act (FLSA), which spells out which American workers are eligible to receive overtime pay, the rationale was a good one: to update the law for today's workforce. After all, the distinctions made in the old act between blue-collar and white-collar workers are outmoded, having been written for a bygone industrial era. But the proposed revisions overshoot the mark, and in the guise of modernizing the rules, they strip away overtime protections for millions of workers. Corporate America is seeking the changes to stem a tide of lawsuits against employers that deny workers overtime by classifying them as professionals -- that is, not eligible for blue-collar overtime pay. In part, companies are losing the suits because the job categories are so old-fashioned. But many also exploit the FLSA's dated distinctions to deny legitimate overtime.

So while the Labor Dept. certainly should rewrite the 1938 law, there's no reason why it can't do so less aggressively. "It makes sense to revise the rules to meet the needs of today's workforce," says Jared Bernstein, an economist at the Economic Policy Institute (EPI), a left-leaning think tank in Washington, D.C. "But that's not what the Administration did; they just stripped them out." The EPI calculates that, under the new regulations, as many as 8 million workers could lose their rights to overtime pay.

Even some Republicans think the Labor Dept. has gone too far in its efforts to curb the litigation. Both houses of Congress voted to stop the new regulations. Even so, they haven't been willing to vote against the big spending bill to which the overtime rules are attached. The AFL-CIO is mounting one last effort to oppose the changes but is likely to lose. If it does, Labor will be free to issue final rules, possibly early next year.

That means the Labor Dept.'s sweeping recategorization of jobs will stick (table). As it stands now, the FLSA provides overtime pay to blue-collar workers but not to managers and professionals. But nowadays, many kinds of workers -- including medical technicians, paralegals, and loan officers -- don't fall neatly into either group, and the new rules simply cut them out. For example, the old law denied overtime pay to workers who exercise "independent judgment," which means that paralegals and loan officers are eligible for overtime. The new version says only that such employees must hold a "position of responsibility" -- by which criterion loan officers, say, would be denied the extra pay. Similarly, paralegals now often get overtime, since they're not holders of professional degrees. But under the proposed new standard -- having specialized knowledge of the field, even if it's acquired just through work experience -- paralegals would become exempt.

Another flaw in the Labor Dept. rewrite is the vague language that gives little guidance about what's meant by a "position of responsibility." Even proponents of the revision, such as Michael J. Eastman, director of labor law policy at the U.S. Chamber of Commerce, say they would like to have seen more careful wording. Eastman supports the changes nevertheless. Ironically, the new rules' fuzziness could end up sparking a new round of lawsuits.

By Aaron Bernstein

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