U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

94–134 PDF 2004

THE DEPARTMENT OF LABOR’S OVERTIME

REGULATIONS EFFECT ON SMALL BUSINESS

HEARING

BEFORE THE

SUBCOMMITTEE ON WORKFORCE, EMPOWERMENT 

& GOVERNMENT PROGRAMS

OF THE

COMMITTEE ON SMALL BUSINESS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

WASHINGTON, DC, MAY 20, 2004

Serial No. 108–67

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

COMMITTEE ON SMALL BUSINESS 

DONALD A. MANZULLO, Illinois, Chairman 

ROSCOE BARTLETT, Maryland, Vice 

Chairman 

SUE KELLY, New York 

STEVE CHABOT, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

JIM DEMINT, South Carolina 

SAM GRAVES, Missouri 

EDWARD SCHROCK, Virginia 

TODD AKIN, Missouri 

SHELLEY MOORE CAPITO, West Virginia 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

TRENT FRANKS, Arizona 

JIM GERLACH, Pennsylvania 

JEB BRADLEY, New Hampshire 

BOB BEAUPREZ, Colorado 

CHRIS CHOCOLA, Indiana 

STEVE KING, Iowa 

THADDEUS MCCOTTER, Michigan 

NYDIA VELA ́ ZQUEZ, New York 

JUANITA MILLENDER-MCDONALD, 

California 

TOM UDALL, New Mexico 

FRANK BALLANCE, North Carolina 

ENI FALEOMAVAEGA, American Samoa 

DONNA CHRISTENSEN, Virgin Islands 

DANNY DAVIS, Illinois 

GRACE NAPOLITANO, California 

ANI ́BAL ACEVEDO-VILA ́ , Puerto Rico 

ED CASE, Hawaii 

MADELEINE BORDALLO, Guam 

DENISE MAJETTE, Georgia 

JIM MARSHALL, Georgia 

MICHAEL MICHAUD, Maine 

LINDA SA ́ NCHEZ, California 

BRAD MILLER, North Carolina 

[VACANCY]

J. MATTHEW SZYMANSKI, Chief of Staff 

PHIL ESKELAND, Policy Director 

MICHAEL DAY, Minority Staff Director

SUBCOMMITTEE ON WORKFORCE, EMPOWERMENT AND GOVERNMENT 

PROGRAMS 

TODD AKIN, Missouri, Chairman 

JIM DEMINT, South Carolina 

SHELLEY MOORE CAPITO, West Virginia 

JEB BRADLEY, New Hampshire 

CHRIS CHOCOLA, Indiana 

STEVE KING, Iowa 

THADDEUS MCCOTTER, Michigan 

TOM UDALL, New Mexico 

DANNY DAVIS, Illinois 

GRACE NAPOLITANO, California 

ED CASE, Hawaii 

MADELEINE BORDALLO, Guam 

[VACANCY]

JOE HARTZ, Professional Staff

(II) 

C O N T E N T S 

WITNESSES

Page 

Robinson, Mr. Alfred, Deputy Administrator, Wage and Hour Division, U.S. 

Department of Labor ........................................................................................... 3

Fendly, Mr. Neill, Certified Mortgage Consultant, President/CEO, Mortgage 

Defense, Inc. ......................................................................................................... 11

Fitch, Mr. John, Senior V.P. for Advocacy, National Funerals Directors Association .................................................................................................................... 13

Bird, Mr. Ronald, Chief Economist, Employment Policy Foundation ................. 14

Eisenbrey, Mr. Ross, V.P. & Policy Director, Economic Policy Institute ............ 16

APPENDIX

Opening statements: 

Akin, Hon. W. Todd .......................................................................................... 18

Prepared statements: 

Robinson, Mr. Alfred, Deputy Administrator, Wage and Hour Division, 

U.S. Department of Labor ............................................................................ 21

Fendly, Mr. Neill, Certified Mortgage Consultant, President/CEO, Mortgage Defense, Inc. ......................................................................................... 36

Fitch, Mr. John, Senior V.P. for Advocacy, National Funerals Directors 

Association ..................................................................................................... 41

Bird, Mr. Ronald, Chief Economist, Employment Policy Foundation .......... 48

Eisenbrey, Mr. Ross, V.P. & Policy Director, Economic Policy Institute ..... 56

(III) 

(1)

THE DEPARTMENT OF LABOR’S OVERTIME 

REGULATIONS EFFECT ON SMALL BUSINESS 

THURSDAY, MAY 20, 2004

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON WORKFORCE, EMPOWERMENT AND

GOVERNMENT PROGRAMS

COMMITTEE ON SMALL BUSINESS

Washington, D.C. 

The Subcommittee met, pursuant to call, at 2:18 p.m. in Room 

311, Cannon House Office Building, Hon. W. Todd Akin, presiding. Present: Representatives Akin, Udall, and Sanchez. 

Chairman AKIN. The meeting of the Subcommittee will come to order. Forgive me for begin a little late. Too many meetings and 

too little time here, but I appreciate your interest in this issue, and 

we will go ahead and proceed. I believe we will be able to get 

things done in a timely manner. I would like thank you all for joining us here today as we exam- ine the proposed changes in the Department of Labor’s overtime 

regulations and their effect on small businesses and their employees. I would especially like to thank our witnesses who have agreed 

to testify before this Committee. On April 23, 2004, the Department of Labor issued final regula- tions under the Fair Labor Standards Act implementing the exemption from overtime pay for executive, administrative, professional, outside sales, and computer employees. These exemptions 

are often referred to as the ‘‘white collar’’ exemptions. 

To be considered exempt, employees must meet certain minimum tests related to their primary job duties, and in most cases must 

be paid on a salary basis at not less than minimum amounts as 

specified in the applicable sections of these regulations. These regulations will become final on August 23, 2004. 

As many of you know, this is the first significant update of the 

rules governing the white collar exemption to the Fair Labor 

Standards Act in nearly 50 years. Given these rules are among the 

most convoluted and ambiguous federal regulations, this long overdue update is welcome news for business owners and for their employees. 

The current regulations have caused a great deal of confusion for 

both employers and their workforce. Employers today are more 

likely to be sued for alleged violations of the Fair Labor Standards 

Act than any other labor statute. In fact, the number of class action 

lawsuits under the Fair Labor Standards Act has more than douVerDate 0ct 09 2002 16:51 Oct 12, 2004 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 G:\HEARINGS\94134.TXT MIKEA
2

bled since 1997. Costly litigation is counterproductive, takes valuable time and drains resources away from businesses, resources 

that should be used to improve employee benefits, make American 

companies more competitive, and create new jobs. 

During the 108th Congress this Committee has held hearings on 

a diverse field of topics, including health savings accounts, union 

salting abuse, assistance programs offered by the Small Business 

Administration most recently, the federal minimum wage. 

Despite the diversity, each is focused on answering a central 

question: What can we do to lower the cost of doing business in the 

United States? 

Answering this question with good policy is fundamental to 

maintaining a healthy, vibrant economy where businesses can 

flourish and produce jobs for the American people. We must continue to make it easier to do business in America in order to facilitate stronger and longer term growth. The revised overtime regulations do just that by cutting bureaucratic red tape, reducing the 

need for costly litigation. 

I look forward to hearing the testimony presented today, but before we get to testimony I would like to turn to our distinguished 

ranking member, Mr. Udall, for any opening statement he would 

like to offer. 

[Chairman Akin’s statement may be found in the appendix.] 

Mr. UDALL. Thank you, Chairman Akin. It is a pleasure to be 

here with you today. 

Today’s hearing will look at the Department of Labor overtime 

regulations and the impact it will have on our nation’s working 

families and small business owners. This proposal will raise the 

threshold for earnings and will revise the types of jobs that enable 

individuals to qualify for overtime. 

I am very concerned about the effect that this regulation will 

have on many hard working individuals and on our nation’s small 

businesses. By the department’s own admission, this regulation 

would strip overtime pay from hundreds of thousands of hard 

working Americans. These regulations will also create a pay cut for 

middle class families, most of whom already feel a pinch from the 

economic policies of this administration. 

Middle class workers are finding themselves facing shrinking 

wages and climbing health care costs. These new overtime regulations are only going to worsen their economic situation and strip 

them of their right to overtime pay. 

The administration may claim that these overtime regulations 

are flexible and will help with payroll costs, but in reality these 

new rules will only add to the exploding volume of paperwork that 

already create problems for small businesses. 

This new rule will ultimately create much confusion for our nation’s small firms. The overtime regulations are lengthy and very 

complicated. Because much of the terminology used in the new rule 

has changed, it will create confusion for small businesses which do 

not have the time or manpower to weed through all 530 pages. The 

complex regulation will dramatically increase the amount of paperwork and create litigation problems for small enterprises for failing 

to comply with the rule they may not even understand. 

3

Further exacerbating this issue is the fact that the new overtime 

regulations could go into effect as early as August 23rd. This is not 

nearly enough time to make an accurate analysis of what type of 

impact this will have on our economy and our nation’s small businesses. 

What is clear at this point is that these regulations will deprive 

a significant number of hard working employees of their overtime 

pay and will create confusion for small businesses who may find 

themselves faced with new litigation problems due to the complexity of the rule. 

Mr. Chairman, although I made my concerns known, I nevertheless very much look forward to hearing the testimony of the distinguished witnesses on the panel and thank them for coming today. 

I yield back. 

Chairman AKIN. Thank you. Because of the fact we have got 

some votes coming up, I am going to go ahead. We also have two 

panels of witnesses, which is a little unusual for our Committee, 

I am going to go ahead to try to move things along and hear from 

our panel. 

Our first panelist is Alfred Robinson who is the Deputy Administrator of the Wage and Hour Division of the United States Department of Labor. And Alfred, we just appreciate your coming in. You 

have got five minutes, and with no objection you can submit any 

other additional written comments for the record. 

Proceed. Thank you. 

STATEMENT OF ALFRED B. ROBINSON, WAGE AND HOUR 

DIVISION, U.S. DEPARTMENT OF LABOR 

Mr. ROBINSON. Thank you, Mr. Chairman, and distinguished 

members of the Subcommittee. 

I appreciate this opportunity to discuss with you the department’s final Part 541 or white collar regulations, and to emphasize 

the new rules’ positive impact upon small businesses and employees. 

As you know, the department published its final rule last month. 

The department is very proud of the final rule for a number of reasons. Under the new regulations workers earning less than $23,660 

per year or $455 per week are guaranteed overtime protection. This 

new minimum salary level for exemption almost triples the current 

minimum salary of only $8,060 per year, and strengthens overtime 

rights for 6.7 million American workers. 

Of these 6.7 million workers, 1.3 million are low wage salaried, 

white collar workers who are not entitled to overtime pay under 

the old regulation, and they will gain up to $375 million in additional earnings every year. Other provisions strengthen overtime 

protection for licensed practical nurses, police officers, fire fighters, 

paramedics, and similar public safety employees, and blue collar 

workers, such as construction workers, manual laborers, and employees on factory lines. Such employees will not be affected by the 

new regulation. 

As for workers earning between $23,660 and $100,000 per year, 

the final rule provides equal or greater overtime protection and ensures that employees can better understand their rights, employers 

4

better understand their legal obligation, and wage and hour investigators have the necessary tools to vigorously enforce the law. 

The old regulations are very difficult for employment lawyers 

and human resource professionals to understand, and much more 

so for average workers or small business owners. They have created so much confusion over these exemptions that it has resulted 

in an explosion of class action litigation and has failed sufficiently 

to protect worker rights. 

The department issued a final rule that is responsible and responsive to the public. For the past year, we listened to thousands 

of comments from employees, labor organizations, business associations, and employers, and designed new regulations that are clear, 

straightforward, and fair. We worked hard to get it right. The importance of small businesses to our economy made it critical that 

the department get it right. 

These entities are the engine of job creation in this country. The 

department estimates that there are 39 million employees working 

at some 5.2 million small business establishments that are covered 

by the FLSA. 

During the rulemaking process the department carefully weighed 

the concerns expressed by the many commenters. Because of their 

size, small businesses noted that they are disproportionately impacted by unclear overtime rules and concomitant risks of possible 

litigation. The department’s final rule is sensitive to the unique 

challenges of small businesses. 

Also, we have already embarked upon an aggressive compliance 

assistance program to help small enterprises understand and comply with the new rule. The department’s website is dedicated to 

promoting compliance with the new white collar regulations. Small 

businesses, as well as employees, may obtain a wide array of compliance assistance materials such as facts sheets, video, and other 

helpful aides. Also, the department distributes printed versions of 

the material for employers and employees who do not have access 

to the internet. 

The department is working with the Small Business Administration to educate small business owners and employees about Part 

541 as part of our ongoing participation in the SBA Expo Reg Fair 

hearings. We have other programs in Texas, New Jersey, and in 

California where we do compliance assistance with small businesses. 

Small businesses expressed concern during the comment period 

that because of regional differences in salary and industry characteristics they might face disproportionate burden from the increased salary level. Accordingly, the department’s methodology 

specifically considered salary levels actually being paid by small 

businesses, and in low wage regions. The department’s approach 

was designed specifically to achieve a careful and delicate balance, 

mitigating the adverse impacts of raising the salary threshold on 

small businesses covered by the law by staying consistent with the 

objective and the statute to clearly define and to delimit which 

workers qualify for the exemptions. Our overriding goal has been 

to prevent the misclassification of exempt employees. 

5

Mr. Chairman, my time is about to expire, and I want to thank 

you and members of the Subcommittee, and I would be happy to 

answer any questions that you may have. 

[Mr. Robinson’s statement may be found in the appendix.] 

Chairman AKIN. Thank you, Administrator. Let me just—what 

was kind of interesting from our opening statements it seems like 

a couple of ships passing in the night, and so I want to see if I can’t 

go over a few things. 

What I think I heard you say, first of all, that many additional 

new people qualify for overtime; is that correct? 

Mr. ROBINSON. That is correct, Mr. Chairman. 6.7 million employees’ overtime rights will be strengthened. 

Chairman AKIN. But let us talk about the new ones that do not 

quality that will qualify under this. 

Mr. ROBINSON. And of those there are 1.3 million who will qualify, and they will share in approximately $375 million in additional———. 

Chairman AKIN. Okay, now, it is possible that what both of us 

said at the same time is true, because you are saying 1.3 million 

additional people will qualify for overtime that do not qualify currently; is that correct? 

Mr. ROBINSON. That is correct. 

Chairman AKIN. Now, it is also possible that you may have some 

people who currently qualify who in the future will not. So I guess 

the question I have is how many of those are there, and when you 

put the two together which one is more? 

Mr. ROBINSON. Okay. Of that 6.7, you are correct, 1.3 will. 5.4, 

there will be no question because of the new salary level that they 

will qualify. 

Chairman AKIN. So there were 5 point something that were questionable are sort of in the gray zone. 

Mr. ROBINSON. That is right because they were subject to the duties test. But with raising the salary level from $155 to $455, they 

are guaranteed overtime protection so there will not be any question for those 5.4. 

Our estimates as to people who could lose overtime is that there 

are approximately 107,000 employees or workers who could be converted to exempt salary status as a result of when we test for highly compensated employees. 

Chairman AKIN. So if you did not like what you were doing, what 

you could say is there is over 100,000 people who are going to lose 

their ability to get overtime, but on the other hand if you liked it 

you could say there are 1.3 million who do not qualify who will 

qualify, so the net total is there is still a huge amount more that 

do not qualify for overtime that with the new regulations will qualify; is that correct? 

Mr. ROBINSON. That is correct and——

Chairman AKIN. So the net total is pretty close to 1.2 million in 

total and will qualify, more than what will not. 

Mr. ROBINSON [CONTINUING] That is correct, and I would also 

caution that about 107,000, based on our economic analysis, they 

could lose. Some of them may already not be receiving overtime, 

but it is because of the economic models, and the thinness, if you 

6

will, of data it is very hard to predict at that level of exactly how 

many of 107,000———. 

Chairman AKIN. You are saying 107,000 is——

Mr. ROBINSON. It is a max. 

Chairman AKIN [CONTINUING] It is a maximum and it is an estimate? 

Mr. ROBINSON. Yes, sir. 

Chairman AKIN. Okay. So first of all, we are raising the earning 

ceiling also significantly. 

Mr. ROBINSON. That is correct. 

Chairman AKIN. And that is part of the reason why you are getting so many more people who qualify for overtime. 

Mr. ROBINSON. That is correct. 

Chairman AKIN. So the net result is that a whole lot more people 

are going to qualify for overtime with the change in the rules and 

regs than currently do? 

Mr. ROBINSON. That is correct. 

Chairman AKIN. Okay. 

Mr. ROBINSON. Yes. 

Chairman AKIN. The second point is, is that I think there was 

criticism that there was a haziness or fuzziness or hard to follow 

the new regulations. Now, my understanding is that the only reason we are doing this is because we have 50-year-old rules and 

regs, and nobody really—I mean, it is a big struggle and that is 

why we have this huge increase in litigation. Obviously your objective was to make it more straightforward and simple; is that not 

right? 

Mr. ROBINSON. That is correct. 

Chairman AKIN. And to make sure that both employees and employers know exactly where they stand? 

Mr. ROBINSON. That is correct, Mr. Chairman. 

Chairman AKIN. So you would disagree with the fact that we 

have made it more complicated, but you would say we have simplified it? 

Mr. ROBINSON. I would say that we clarified the rule. 

Chairman AKIN. Yes. 

Mr. ROBINSON. We simplified, it, yes, Mr. Chairman, and if I may 

give you an example. We have reduced the regulatory burden. The 

current regulation has over 33,000 words in it. The final regulation 

that we propose has a little over 15,000 words in it, so we have 

been able to clarify, streamline, simplify at the same time without 

compromising employee overtime protection, and in fact strengthening employee overtime protection. 

Chairman AKIN. One of the other questions might be that the 

economic rule that accompanies the final rule, it states in the rule 

that it will eventually cost businesses a significant amount of 

money. I am just wondering, why are businesses and trade associations so supportive of the rule if it is going to end up costing them 

money? Is it simply the red tape reduction and the fact that the 

new rule is easier to understand, and therefore reduces the chances 

of cost of litigation? 

Mr. ROBINSON. Mr. Chairman, I think that you have accurately 

explained part of that. We are updating the rules, clearer, simpler, 

easier for employees to know their rights, easier for the—excuse 

7

me—for employees to know their rights, employers to know their 

obligations, and easier for Wage and Hour, Department of Labor to 

enforce. 

And so yes, bringing these rules into the twenty-first century 

brings clarity and clearer rules that———. 

Chairman AKIN. Administrator, my nickel has run out here, and 

I need to now recognize the minority. 

Mr. UDALL. Thank you, Mr. Chairman. 

First, on this issue of the numbers and the disagreement. I think 

what the real issue is here, and we could probably go on and on 

about it, but I just want to state this for the record is that your 

regulation has so many vague terms in it that could be used to reclassify, and you can make an argument that the number is small, 

and others, I think, can make the argument that the numbers are 

very large, but clearly the terms are very vague. They can be interpreted very, very differently. So I think the numbers comparison 

really is not a fair one. 

But the thing that I am interested in in terms of small business 

people is this whole litigation issue. I mean, these are massive in 

terms of the numbers of pages. I mean, we are talking about 530 

pages of regulations. 

You are creating whole new terms, and as all of us know that 

it followed this kind of litigation. When you put out a new regulation, when you create new terms, it takes years and years to define 

the terms in the regulation through the court system, and we have 

had the Fair Labor Standards Act on the books since the 1930s, I 

think 1938. Many of the key phrases have been interpreted by the 

courts. As soon as you get these interpretations over the years 

what happens is you have a lot less litigation, and lawyers working 

with small business people can give them good, solid advice. 

What we are talking about doing here is something sweeping. I 

mean, in 50 years you are sweeping aside and creating a whole 

new set of terms which are going to require litigation, which are 

going to require small business people to consult attorneys to figure 

out what these terms mean, and they are not going to be able to 

figure out what they mean. 

The attorneys are going to say, well, this is what I think it 

means, but we do not know what a court is going to say, and then 

you are going to go into court. And so I do not see how you can 

walk in here, sir, and say that this is not going to create litigation 

problems. 

I mean, I guess my question to you is, is it not a fact that whenever you get a new regulation or a new statute it takes a long time 

before you really sort out a lot of the problems that come from not 

having clear court rulings on the new phrases and key issues that 

are in the regulation? 

Mr. ROBINSON. Congressman, if I can reply. What we have done 

here is condensed, if you will, the regulations that are currently on 

the books. We have streamlined and reorganized them. As I have 

mentioned, we have reduced just the word count itself, and we 

have relied on case precedent to explain in this preamble to the 

rule the rationale for the test as articulated in the regulation. 

The test for duties component of the exemptions is based very 

closely on the existing short duties test of the rule that currently 

8

exists. For example, the executive test, it is the short test with a 

new component from a long test in the current regulation for hiring 

and firing or authority of hiring and firing. 

So we think we have been consistent with trying to use terminology that is in the current rule without opening up this rule to 

the charge that it will result in litigation by using concepts that 

are in the current regulation, defining them, relying on case law. 

Discretion and independent judgment is currently in the regulation. Today, you will find that concept in the proposed final regulation that we issued last month. 

So we have tried to be consistent and take into account the 

precedent that you have mentioned so that there will be consistency, and there will be certainty, and this would consequently reduce litigation. 

Mr. UDALL. Well, I do not see how when you move from one set 

of clear tests, I mean, the old rules have very clear tests that are 

there and the tests use specific phrases and they have been litigated over the years, and really in this new rule you substitute 

case-by-case determinations. 

I mean, the recurring theme to me looking at these regulation is 

over and over again you have this case-by-case determinations. I 

mean, let us take an example here. 

The department suggests that it will no longer require that executives actually manage the enterprise or a department or a subdivision thereof, it may be enough to be in charge of a team or 

grouping, but a case-by-case analysis is required. 

I mean, as soon as you start throwing this out of a clear test, 

which has been defined in the courts, to a case-by-case analysis, I 

think you are just inviting litigation. I think you are inviting a significant amount of litigation. And just to give one final example, I 

know I have run out of my times, but I think this is very important, Mr. Chairman, is here we have a new creative professional 

exemption for chefs. And what we say about it, it is so vague that 

it ‘‘must be applied,’’ this is quoting from the rule, it is on chefs. 

‘‘It must be applied on a case-by-case basis with particular focus on 

the creative duties and abilities of the particular chef at issue.’’ 

That is the end of the quote right there. 

So here we are talking about case-by-case particular duties. I 

mean, I just think you are opening yourself wide open to litigation. 

I appreciate the courtesy, Mr. Chairman, and I yield. 

Chairman AKIN. I thank the gentleman. And next questioning we 

go to Ms. Sanchez, and five minutes. 

Ms. SANCHEZ. Thank you, Mr. Chairman. 

America’s businesses need clear, concise laws to provide their 

workers with decent jobs that provide fair pay and benefits, and in 

my view that is not asking a lot. If I am a small business owner, 

and I will state for the record my husband is actually a small business owner, what they want is a clear rule with a clear answer, 

and what I am hearing is that the rules do little to clarify the overtime regulations, and to avoid litigation, which is the primary objective in the first place of amending the rules. 

I have to add that I am not alone in the belief that it creates 

more confusion than it clarifies. Senator Spector said last week, 

and I quote, ‘‘There is no indication that this new regulation is 

9

going to clarify anything at all. On the current state of the record 

I am opposed to the regulation.’’

I want to thank you, Mr. Robinson, for being here. I am hoping 

you might be able to help me shed some light to these new and 

what I consider complex rules. I have a limited amount of time, so 

I am going to run through my questions quickly, and I will allow 

you to address them one on one at your leisure, and I will remind 

you of them if you should have questions. 

But I want to pose some scenarios to you. Let us say that I am 

a small business owner and I have quality teams. I need to know 

whether I can stop paying overtime to my team leaders, and 

whether I will be sued if I do. 

The new Section 541.203 provides, and I am quoting, that ‘‘an 

employee who leads a team of other employees assigned to complete major projects for the employer generally meets the duties requirement for the administrative exemption.’’

The term ‘‘team leader’’ is a very familiar one in American industry. I want to know what is the definition of team leader, and will 

that not have to be litigated? What is the definition of major 

project, and will that not have to be litigated? And can I stop paying overtime to team leaders on major projects if most of their work 

is production work, but they perform some minimal office or nonmanual work in their capacity as team leaders? 

Scenario number two: Let us say I am an owner of a mediumsized business with a unionized workforce. Will my employees be 

affected by this regulation? The new Section 541.4 says that nothing in the regulation ‘‘relieves employers from their contractual obligations under collective bargaining agreements.’’

But what if my contract with my workers simply refers to applicable law for overtime eligibility, and would not this regulation 

change the applicable law on overtime eligibility? 

I am wondering if you can tell us what percentage of union contracts have their own eligibility terms as opposed to referencing applicable law, and I want you to consider the union contracts that 

do not have their own eligibility terms. Is it not true that to the 

extent this regulation has any effect on workers’ overtime eligibility union members would still have to negotiate at the bargaining table for what is now currently guaranteed by law? 

Last question: There are potentially millions of workers who perform supervisory work or other management work or administrative work related to management or professional work less than 50 

percent of the time. Without a 50 percent rule of thumb is not overtime eligibility of these workers in jeopardy? Without a 50 percent 

rule of thumb is it not true that workers are more likely to consider 

these kinds of duties to be their employees’ primary duty even 

though the employee spends a small amount of each time on them? 

And if you need me to repeat, I will be more than happy to, Mr. 

Robinson. 

Mr. ROBINSON. Let me try to address your first set of questions 

dealing with quality teams. The regulation as you noted has a provision in there that is more protective of overtime pay for individuals who perform work as you used the term ‘‘team leaders’’ than 

in the current regulations. They must lead a team of other employees assigned to complete major projects. 

10

We define major projects in the regulation as purchasing or selling all or part of a business, negotiating a real estate transaction, 

negotiating a collective bargaining agreement. Those are major 

projects, and that is some guidance provided in the regulation as 

well. 

So we are talking about buying, selling, closing part of factories, 

not buying or selling office supplies, so we have tried to give guidance as to what qualifies as major projects. 

Ms. SANCHEZ. But that term would be subject to interpretation, 

and potentially litigation, would it not? 

Mr. ROBINSON. Well, we think it is more restrictive than what 

is in the current regulation which uses the terms ‘‘a wide variety 

of persons carrying out major assignments,’’ and it has a broad list 

of what is considered to be major assignments. So we feel like this 

rule that we have promulgated is more protective and gives better 

guidance than the current regulation. 

Ms. SANCHEZ. But would not case law from the old regulation 

provide the type of guidance needed to assess the old regulation? 

Mr. ROBINSON. Yes, ma’am, and I would have to check. I would 

be glad to get back with you on this. What we have also tried to 

do is rely on existing case law to justify our regulation that you 

have before you. 

So to the extent there is some precedent in this area, and I do 

not have it here, I can look it up after we are through if you would 

like, but we have tried to rely wherever there is precedent out 

there to justify the rationale and the explanation of our rules. 

Chairman AKIN. Mr. Administrator. 

Mr. ROBINSON. Yes. 

Chairman AKIN. We are out of time, and so I would recommend 

perhaps for Ms. Sanchez, you might be able to respond——

Ms. SANCHEZ. In writing. 

Chairman AKIN [CONTINUING] Independently or in writing. 

Mr. ROBINSON. We can do it either way, yes. 

Chairman AKIN. Whichever you would prefer. 

Ms. SANCHEZ. I thank you and I thank the Chairman. that would 

be wonderful. 

Chairman AKIN. All right. One quick thing that you did bring up 

which raises a question before we move to the next panel. My understanding was that these regulations really do not apply to people who are in unions, because I thought they had their own separate agreements; is that not correct? 

Chairman AKIN. So all of what we are talking about deals with 

non-union people. 

Mr. ROBINSON. Union employees will be protected by their collective bargaining agreement. 

Chairman AKIN. Whatever that agreement is that they negotiate. 

Ms. SANCHEZ. Excuse me, Mr. Chairman, if I could clarify. Many 

of the new contracts reference applicable law or applicable regulations in determining whether employees are eligible for overtime 

law. So to the extent that you are changing the regulation or the 

definition, you are also changing then the collective bargaining 

agreements; is that correct? 

11

Chairman AKIN. I will go ahead and ask that question for you. 

Is it true that there are some agreements that go back to the new 

set of standards? 

Mr. ROBINSON. That go back to the current standards? 

Chairman AKIN. Yes, or I guess they really could not go back to 

the current because they do not exist, but is it true that in some 

cases agreements between employees and employers reference applicable law? 

Mr. ROBINSON. I am sure that there are agreements out there 

that reference applicable law, yes, sir. This provision, though, does 

not deny union members who are currently receiving overtime 

under the provisions of collective bargaining agreements, it does 

not change their eligibility. 

Chairman AKIN. I know what you are saying. So in other words, 

it does not change anybody that is getting overtime, but if in certain particular agreements that was not specified then they would 

fall back. 

Mr. ROBINSON. And some people that are not making $455 per 

week, they might be making $300, will be guaranteed overtime protection because———. 

Chairman AKIN. It cuts both ways. 

Mr. ROBINSON. Yes. 

Chairman AKIN. Yes. Thank you for clarifying. 

I think it is time now for us to go to our second set of panelists, 

so if they could come forward as quickly as possible. I do have the 

sense of an impending vote here. So thank you. 

Thank you again for joining us today, and our first panelist is 

Mr. Neill Fendly. He is a certified mortgage consultant, President/

CEO of Mortgage Defense, Incorporated in Scottsdale, Arizona, and 

so that says to me you have come a long way, and I want to just 

thank you for making the trip and appearing before us today. You 

have five minutes to give an oral presentation, and then without 

objection if you would like to submit anything else for the record, 

you will be free to do that. 

Proceed. Thank you. 

STATEMENT OF NEILL E. FENDLY, MORTGAGE DEFENSE, INC. 

Mr. FENDLY. Mr. Chairman, Congresswoman Sanchez, I am Neill 

Fendly, government affairs chair, and past president of the National Association of Mortgage Brokers. I appreciate the opportunity to discuss issues of vital importance to the small business 

community, and specifically, mortgage brokers. 

The AMB is the nation’s largest organization exclusively representing the interests of the mortgage brokerage industry and has 

more than 24,000 members and 48 state affiliates nationwide. 

Mortgage brokers are typically small businesses who operate in the 

communities in which they live and consist of one office and several 

employees. 

The AMB commends the U.S. Department of Labor for updating 

and clarifying its regulations regarding overtime pay for American 

workers. The new regulations go a long way towards recognizing 

the vast changes that have occurred in the American economy over 

the years. The final changes will help to clarify the Fair Labor 

12

Standards Act, and to make it more workable in the modern economy, and hopefully reduce litigation for small business. 

Wage and hour litigation has become the leading source of costly 

employment litigation for small business, particularly for mortgage 

brokers and lenders regarding the status of loan officers and overtime pay. We believe the Department of Labor revisions will 

change this trend for small business owners. 

For the mortgage industry, the new rules help clarify the status 

of loan officers and make the rules regarding overtime pay more 

consistent with actual industry practice. 

A loan officer or a mortgage broker must make certain judgments 

when assisting consumers in financing the most important purchase of their lives. The mortgage loan officer positions require a 

high degree of skill and judgment. The old regulations did not take 

these facts into account. 

In the financial services industry employees will be included in 

the administrative exemption if their duties include: collecting and 

analyzing information regarding the customers’ income, assets, investments or debts; determining which financial products best 

meets the customer needs and financial circumstances; advising 

the customer regarding the advantages and disadvantages of different financial products; and marketing service or promoting the 

employer’s financial products. 

These duties are highly analogous to other financial services occupations such as stockbrokers that have always been exempt 

under the previous Department of Labor overtime rules. 

The new rules ensure that similarly situated occupations are 

treated the same, a fairness objective that should be part of any 

administrative rule taking. The proposed regulations recognize that 

business practices and employment relations today are vastly different than those that existed at the time the original regulations 

were implemented. 

In just the past 15 years, there has been a rapid radical evolution of the home mortgage market. An entire new industry, mortgage brokers, has evolved to serve as the intermediaries between 

the lenders and the consumer. The number and complexity of mortgage loan products as expanded dramatically. The advent of riskbased pricing, the development of sub prime mortgage market has 

added a vast array of new products and underwriting considerations that must be evaluated by loan officers. 

As a consequence of these changes and others, the role of the 

loan officer today, whether at a bank, savings and loan association, 

mortgage company, or mortgage broker, is radically different from 

the role of the loan officer even 20 years ago. Thus there is no 

standard template mortgage that applies to all customers. This role 

requires a high degree of skill and judgment, bringing together the 

needs of the consumer with the products offered by the lenders. 

In closing AMB applauds the substantial effort of the Department of Labor in overhauling these regulations. Thank you again 

for providing me the opportunity to testify on the Department of 

Labor final overtime rule, and I would be happy to answer any 

questions that any of the members may have. 

[Mr. Fendly’s statement may be found in the appendix.] 

13

Chairman AKIN. Thank you very much and bringing it in on 

time, Neill. I have been informed that we have got a vote coming 

up pretty quickly so I am just going to go ahead and run down, let 

everyone get your five minutes out, and then if we have time we 

will do some questioning. Thank you. 

Our next panelist is going to be Mr. John Fitch. He is the Senior 

Vice President for Advocacy, National Funeral Directors Association. 

And John, whereabouts do you hail from? 

Mr. FITCH. I was born and raised here in Washington, D.C., sir. 

Chairman AKIN. Okay, good. Well, we do not have you from 

Scottsdale, Arizona anyway John, please proceed. You have five 

minutes. 

STATEMENT OF JOHN H. FITCH, NATIONAL FUNERAL 

DIRECTORS ASSOCIATION 

Mr. FITCH. Thank you, Mr. Chairman. It is a pleasure to be here 

representing the National Funeral Directors Association. 

The NFDA represents more than 13,000 funeral homes and over 

20,000 licensed funeral directors and embalmers in all 50 states. 

The average NFDA member is independently owned and operated 

with fewer than 10 employees, and has been in the same family for 

over 60 years. The NFDA is the leading funeral service organization in the United States, providing a national voice for the profession. 

We have a strong interest in the Fair Labor Standards Act, and 

we have a particular interest in the professional employee exemption and its application to funeral directors and embalmers. 

Based on their licensing requirements and primary duties, NFDA 

has long believed that licensed funeral directors and embalmers 

should be exempt from the minimum wage and overtime requirements of FLSA. The NFDA’s position is based on the belief that licensed funeral directors and embalmers comply with the duties test 

of the current FLSA implementing regulations for professionals. 

The Department of Labor has historically disagreed with NFDA on 

this issue. 

As a result, we have come to Congress on several occasions and 

introduced legislation to exempt licensed funeral directors from the 

Fair Labor Standards Act. 

However, subsequently the Department of Labor took note of the 

professional requirements and duties of licensed funeral directors 

and embalmers, and the federal court decisions related thereto in 

the final rule published on April 23, 2004. 

With regard to litigation involving funeral directors, there have 

been two landmark court cases, one in the 6th Circuit and one in 

the 7th Circuit Federal District Court cases that address the question of whether or not a licensed funeral director under the current 

rules are exempt under the professional exemption, and in both circuits the district courts and the circuit courts have agreed that licensed funeral directors in fact met the current test, and that creates a disparity throughout the country because you have other jurisdictions that do not have that litigation, so the new overtime 

rules address the litigation problem for funeral service. 

14

The NFDA believes that the duties and responsibilities of funeral 

directors meet the current test for the Fair Labor Standards Act, 

and we have said so in our comments on the proposed rules. While 

the final rule was changed slightly, it is the first time the Department of Labor has recognized licensed funeral directors and embalmers as professionals, and we definitely support that whole 

area. 

Mr. Chairman, NFDA strongly believes that the changes in the 

overtime rule that was promulgated by the Department of Labor 

are an accurate reflection of the duties and responsibilities of today’s licensed funeral directors and embalmers. We believe that 

both employers and their valued staff benefit tremendously. 

Moreover, it will have a positive competitive advantage in that 

it will hopefully encourage new entrants into the profession, and 

make salaries more competitive. By recognizing the professional 

status of licensed funeral directors and embalmers, the Department 

of Labor has improved the economic and family lives of each practitioners whose daily professional life is console and attend the needs 

of families in their communities who have lost loved ones. They are 

highly competent, compassionate, and caring individuals who deserve to be considered professionals. 

I would be happy to answer any questions. 

[Mr. Fitch’s statement may be found in the appendix.] 

Chairman AKIN. Thank you again. That was a call for a vote. We 

probably have time to fit in the two more testifies if you can kind 

of keep on the same pattern, and I think you are running about 

four minutes or so if I can get everybody done. I am not too sure 

how many votes there are in a row and I doubt we will be able to 

come back, so we may be able to just take your testimony. 

Our next witness would be Ronald Bird, Ph.D., Chief Economist 

for the Employment Policy Foundation. Ronald. 

STATEMENT OF RONALD BIRD, EMPLOYMENT POLICY 

FOUNDATION 

Mr. BIRD. Thank you, Mr. Chairman. 

Lost in the debate over the Labor Department’s proposed revision 

of the Fair Standards white collar exemption is why amending the 

regulations and revising the regulations is necessary in the first 

place. 

The FLSA was enacted in 1938, and the regulatory structure and 

definitions and categories of duties implementing its pay classifications have remained essentially unchanged since 1954. 

In 1938, America was in the midst of a great depression. Nearly 

one in five Americans who wanted a job could not find one. Labor 

supply exceeded demand, and the bargaining position of a typical 

worker was weak. 

Today, the fundamental competitive conditions of the labor market are very different. In March 2004, the unemployment rates was 

5.6 percent, dramatically lower than the 19.1 percent in 1938. The 

peak unemployment rate following the 2001 recession was the lowest of any recession of the past 30 years, and the second lowest in 

50 years. 

An ironic indicator of the sweep of change in labor market conditions since the passage of the FLSA in 1938 is the fact that most 

15

of us consider today’s 5.6 percent unemployment rate to be too high 

because recently we have enjoyed the benefits of it being even 

lower. 

As an employee, I like the low unemployment rates that have become the norm over the past 20 years, and will likely remain the 

norm in the future as an aging population presses the economy to 

produce more goods and services with a relatively smaller proportion of the population active in the labor force. 

As an employee, I like the trend of lower unemployment rates 

not just because I am less likely to be unemployed, but because the 

relative scarcity of potential replacements gives me power to make 

demands about wages, hours, and working conditions that my 

grandfather in 1938 never would have dared. 

The occupational structure of work has changed as we have 

moved into an increasing knowledge-based economy. Today, nearly 

one in three employee work in managerial and professional category jobs, far different from 50 years ago. 

Under the FLSA job title alone is not sufficient to determine coverage or exemption status. The 50-year-old regulations make the 

process of determining status more complex and time consuming 

than is desirable. Changes in occupational structure mean that 

many more jobs today than in the past may qualify for exemptions 

based on the exemptions defined in the act. The increase in the 

number of potentially exempt jobs makes it more important today 

that the regulations implementing the exemption concept in the act 

are clearer and easier to apply. 

It is important to recognize that everyone who is eligible by duties for exempt status is not automatically paid on a salary basis. 

Qualifying for exemption does not mean that pay status or pay 

amount will change. 

For example, I used to work for a government contractor firm. 

My duties and education qualified me for exemption as a professional, and my weekly earnings were in excess of the minimums. 

Nevertheless, my employer and I agreed to an hourly pay arrangement. 

In 2001, 7.6 million managerial and professional workers who 

were entitled to overtime because they were paid on an hourly 

basis even though their duties would have allowed them to be 

made exempt, they were not made exempt not because even though 

they could have been, because it was not in their interest or their 

employer’s interest to make it otherwise. 

Instead of shaving a few cents off of payroll by trying to reclassify an employee, today’s employer is much more concerned with 

the tremendous cost of trying to replace an employee who might 

leave to go to work for another employee if he is not treated right. 

The complexity and ambiguity of the old rule is also enhanced by 

the disagreement and litigation that it generates. Revision of these 

regulations has been on the agenda for 25 years, and the revision 

is long overdue. 

[Mr. Bird’s statement may be found in the appendix.] 

Chairman AKIN. Thank you very much for your testimony, Ronald, and our last witness would be Mr. Ross Eisenbrey, and you are 

the Vice President and Policy Director of the Economic Policy Institute; is that correct, Ross? 

16

Mr. EISENBREY. That is correct. 

Chairman AKIN. Good. We have got probably enough time if you 

can do the same as everybody else, and I think we are just going 

to call an end to the hearing because we have probably got about 

an hour break and I do not want to keep everybody. 

STATEMENT OF ROSS EISENBREY, ECONOMIC POLICY 

INSTITUTE 

Mr. EISENBREY. I will be quick, Mr. Chairman, and I would like 

to request that I get a letter of invitation. Could I get that from 

the Committee? I got an oral invitation that we need something———. 

Chairman AKIN. A letter, I think we can arrange that. Yes, 

thank you. 

Mr. EISENBREY. I would like to start off by seconding what Mr. 

Udall said, and pointing out that some of the testimony that you 

have heard makes it clear exactly what he said; that by changing 

current law the department cannot possibly be keeping current 

law, which is what they say. 

If you want to keep the law the same, do not change it. If you 

change the language, you are going to change peoples’ rights. Mortgage brokers say on page 3 of their testimony, ‘‘The industry understands that this language in the new rule was intended to ensure that boiler room employees with little skill or knowledge and 

who offer no meaningful advice to consumers should not be exempt 

administrative employees.’’

Well, that is not the current law. The current law is that loan 

officers, mortgage loan officers are generally non-exempt, entitled 

to overtime because they do not consistently use enough independent judgment and discretion in their work to be considered exempt administrators. 

The law has changed a little bit thanks to what the Department 

has done, and they are no pushing to change the law from where 

it is now, and this is going to happen across the board. Every employer faced with this new language, the team leader language that 

Ms. Sanchez pointed to, will read it and say, well, this is new and 

different, and this is going to apply to people, there is nothing like 

this in current law. The team leaders is a great example. 

The provision that the department cites disingenuously has nothing to do with deeming employees to have met all the duties, which 

is what the team leader provision does. It is a provision that illustrates that it needs to be directly related to management. 

Well, that is one prong of the test. This new provision says if you 

are a team leader, you are presumptively—you have met the duties 

test, and you do not get overtime. 

There are 2.3 million team leaders. The question about what is 

a major project is exactly right on. An employer would say improving productivity, which is one of the illustrations, is a major thing 

to me, to any employer. Well, there are millions of productivity 

teams, and if they are not in every business, there could be after 

this passes and they will all be exempt. 

I guess finally, I think it is important to realize that the department’s numbers, three times in their testimony they say 1.3 million 

employees will gain overtime rights. We have looked at that. We 

17

have taken the current population survey data that they use, and 

the number is really 380,000, 384,000 people who are currently receiving overtime who make less than $455 a week who will gain 

rights. The numbers, you should ask for a National Science Foundation peer review or a GAO look at this. Their numbers are 

wrong, and they are provably wrong. 

[Mr. Eisenbrey’s statement may be found in the appendix.] 

Chairman AKIN. Thank you all of the panelists for keeping your 

comments right in line. We are just about within walking distance 

of getting to the board, so I am going to call an end to the hearing, 

but thank you all for participating, and for your perspective. 

The hearing is now adjourned. 

[Whereupon, at 3:10 p.m., the Subcommittee was adjourned.]

18


94134.001
19


94134.002
20


94134.003
21


94134.004
22


94134.005
23


94134.006
24


94134.007
25


94134.008
26


94134.009
27


94134.010
28


94134.011
29


94134.012
30


94134.013
31


94134.014
32


94134.015
33


94134.016
34


94134.017
35


94134.018
36


94134.019
37


94134.020
38


94134.021
39


94134.022
40


94134.023
41


94134.024
42


94134.025
43


94134.026
44


94134.027
45


94134.028
46


94134.029
47


94134.030
48


94134.031
49


94134.032
50


94134.033
51


94134.034
52


94134.035
53


94134.036
54


94134.037
55


94134.038
56


94134.039
57


94134.040
58


94134.041
59


94134.042
60


94134.043
61


94134.044
62


94134.045
63


94134.046
64

Æ


94134.047