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94–676 PDF 2004

S. HRG. 108–542 

FINAL RULE ON OVERTIME PAY 

HEARING 

BEFORE A

SUBCOMMITTEE OF THE 

COMMITTEE ON APPROPRIATIONS 

UNITED STATES SENATE 

ONE HUNDRED EIGHTH CONGRESS 

SECOND SESSION 

SPECIAL HEARING 

MAY 4, 2004—WASHINGTON, DC 

Printed for the use of the Committee on Appropriations 

( 

Available via the World Wide Web: http://www.access.gpo.gov/congress/senate 
(II) 

COMMITTEE ON APPROPRIATIONS 

TED STEVENS, Alaska, Chairman 

THAD COCHRAN, Mississippi 

ARLEN SPECTER, Pennsylvania 

PETE V. DOMENICI, New Mexico 

CHRISTOPHER S. BOND, Missouri 

MITCH MCCONNELL, Kentucky 

CONRAD BURNS, Montana 

RICHARD C. SHELBY, Alabama 

JUDD GREGG, New Hampshire 

ROBERT F. BENNETT, Utah 

BEN NIGHTHORSE CAMPBELL, Colorado 

LARRY CRAIG, Idaho 

KAY BAILEY HUTCHISON, Texas 

MIKE DEWINE, Ohio 

SAM BROWNBACK, Kansas 

ROBERT C. BYRD, West Virginia 

DANIEL K. INOUYE, Hawaii 

ERNEST F. HOLLINGS, South Carolina 

PATRICK J. LEAHY, Vermont 

TOM HARKIN, Iowa 

BARBARA A. MIKULSKI, Maryland 

HARRY REID, Nevada 

HERB KOHL, Wisconsin 

PATTY MURRAY, Washington 

BYRON L. DORGAN, North Dakota 

DIANNE FEINSTEIN, California 

RICHARD J. DURBIN, Illinois 

TIM JOHNSON, South Dakota 

MARY L. LANDRIEU, Louisiana 

JAMES W. MORHARD, Staff Director 

LISA SUTHERLAND, Deputy Staff Director 

TERRENCE E. SAUVAIN, Minority Staff Director 

SUBCOMMITTEE ON DEPARTMENTS OF LABOR, HEALTH AND HUMAN SERVICES, AND

EDUCATION, AND RELATED AGENCIES

ARLEN SPECTER, Pennsylvania, Chairman 

THAD COCHRAN, Mississippi 

JUDD GREGG, New Hampshire 

LARRY CRAIG, Idaho 

KAY BAILEY HUTCHISON, Texas 

TED STEVENS, Alaska 

MIKE DEWINE, Ohio 

RICHARD C. SHELBY, Alabama 

TOM HARKIN, Iowa 

ERNEST F. HOLLINGS, South Carolina 

DANIEL K. INOUYE, Hawaii 

HARRY REID, Nevada 

HERB KOHL, Wisconsin 

PATTY MURRAY, Washington 

MARY L. LANDRIEU, Louisiana 

ROBERT C. BYRD, West Virginia (Ex officio) 

Professional Staff 

BETTILOU TAYLOR

JIM SOURWINE

MARK LAISCH

SUDIP SHRIKANT PARIKH

CANDICE ROGERS

ELLEN MURRAY (Minority) 

ERIK FATEMI (Minority) 

ADRIENNE HALLETT (Minority) 

Administrative Support 

CAROLE GEAGLEY
(III) 

C O N T E N T S 

Page 

Opening statement of Senator Arlen Specter ........................................................ 1 

Opening statement of Senator Tom Harkin .......................................................... 2 

Statement of Tammy D. McCutchen, Administrator, Wage and Hour Division, 

Employment Standards Administration, Department of Labor ....................... 3 

Prepared statement .......................................................................................... 5 

Statement of Craig Becker, associate general counsel, AFL–CIO ....................... 16 

Prepared statement .......................................................................................... 18 

Statement of David S. Fortney, partner, Fortney & Scott, LLC .......................... 25 

Prepared statement .......................................................................................... 26 

Statement of Ross E. Eisenbrey, vice president, Economic Policy Institute ....... 34 

Prepared statement .......................................................................................... 36 

Statement of Dr. Ronald Bird, Ph.D., chief economist, Employment Policy 

Foundation ............................................................................................................ 41 

Prepared statement .......................................................................................... 42 

Prepared statement of Senator Patty Murray ....................................................... 57 

Prepared statement of the American Nurses Association .................................... 60 

(1) 

FINAL RULE ON OVERTIME PAY 

TUESDAY, MAY 4, 2004 

U.S. SENATE,

SUBCOMMITTEE ON LABOR, HEALTH AND HUMAN

SERVICES, AND EDUCATION, AND RELATED AGENCIES, 

COMMITTEE ON APPROPRIATIONS, 

Washington, DC. 

The subcommittee met at 9:30 a.m., in room SD–192, Dirksen 

Senate Office Building, Hon. Arlen Specter (chairman) presiding. 

Present: Senators Specter, Craig, Harkin, and Murray. 

OPENING STATEMENT OF SENATOR ARLEN SPECTER

Senator SPECTER. Good morning, ladies and gentlemen. The hour 

of 9:30 having arrived, we will now proceed with the hearing of the 

appropriations Subcommittee on Labor, Health, Human Services, 

and Education. 

The subject of our hearing is the final rule on overtime pay. This 

subcommittee has held two hearings on the proposed regulation, on 

July 31 of last year and January 20 of this year, on the proposed 

regulation which was issued on March 31, 2003. There have been 

substantial revisions in the regulation, and my distinguished colleague and ranking member, Senator Harkin, who has just joined 

us, was on the floor yesterday discussing the new regulation in 

some detail. It is anticipated that there will be a vote on the 

amendment offered by the Senator from Iowa on this subject. We 

thought it would be useful to have this hearing to explore the applicability of the regulation in some detail. 

The existing regulation has not been revised for a very long time, 

substantially unchanged since 1975, and is said to be subject to a 

great many vagaries. Our inquiry will focus on the contrast between the current regulation and the final proposed regulation to 

see what differences there are illustrative of administrative employees where the definition is ‘‘customarily and regularly exercises 

discretion and independent judgment,’’ contrasted with the current 

final regulation on administrative employees, ‘‘primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.’’ We are interested to know what 

effect that will have by way of clarification. On the surface, it looks 

like the definition is very similar, referring to the exercise of discretion and independent judgment. 

Similarly illustrative on professional employees with the current 

regulation specifying ‘‘primary duty of performing work requiring 

knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual 
2 

instruction and study,’’ contrasted with the final regulation on professional employees, ‘‘primary duty of performing work and requiring knowledge of an advanced type in a field of science or learning 

customarily acquired by a prolonged course of specialized instruction.’’ With the addendum, ‘‘customarily’’ can mean the employee 

has obtained the knowledge through a combination of work experience and intellectual instruction. Here again, the inquiry goes to 

what improvements will be on clarification to avoid the complexities of litigation, which is the primary objective of the new regulation. 

That is a very brief opening on some matters of special concern, 

but I now want to yield to my distinguished colleague, Senator 

Harkin. We are operating under a time constraint, as usual, with 

other commitments beginning at about 10:45. So I think we will 

have adequate time for the panels, but we will ask people to observe the time limitations, leaving the maximum amount of time 

for dialogue, questions, and answers. 

Senator Harkin. 

OPENING STATEMENT OF SENATOR TOM HARKIN

Senator HARKIN. Thank you very much, Mr. Chairman, for holding this very important hearing regarding the final rules issued 

last week by the Department of Labor on overtime eligibility. 

Again, make no mistake, the rule, while an improvement over 

the proposed rule, will still I think strip many workers of their 

right to fair overtime compensation. At the outset, it seems like we 

are now using as a yardstick of measurement on this new rule 

what the proposed rule was. So if this is a little bit better than the 

proposed rule, it must be okay. I submit, however, we should use 

as the yardstick of measurement who is getting overtime now and 

how much overtime they are getting now compared to what the 

final rule says. As I said last week, the proposed rule was profoundly terrible, and this rule is just plain terrible. So if that is an 

advancement, that is an advancement. 

Since the passage of the Fair Labor Standards Act in 1938, the 

40-hour work week has been pretty sacrosanct, supported by Presidents and Congresses of both parties. I would also point out that 

since 1938, the Fair Labor Standards Act has been amended many, 

many times, 12–14 times. I cannot get a correct count on it. It has 

been changed and amended. But in almost every circumstance that 

I can determine, it has been done through a congressional process 

where the Congress would hold hearings on the appropriate committees. We called in management, called in labor, called in all affected parties to see what needed to be done to upgrade and modify 

the rules and then act accordingly. 

This, to my information, is the first time that any administration 

has promulgated rules in the fashion in which they did, in other 

words, just put them out there, no public hearings. You get all the 

comments back and then you issue a final rule without the Congress having had any real input whatsoever. I think this in itself 

is the wrong way to proceed. 

If employers can more easily deny overtime pay, they are simply 

going to push their employees to work longer without compensation. Statistics show that without overtime rights people are twice 
3 

as likely to work more than 40 hours a week and three times as 

likely to work more than 50 hours a week. 

The final rules issued last week I believe will deny time-and-ahalf overtime pay to possibly millions of workers earning as little 

as $23,660. Now, part of my questioning to Ms. McCutchen will be 

on that line. The administration claims that no workers earning 

less than $100,000 will lose overtime under this final rule. That I 

wish to discuss with Ms. McCutchen to find out if that is so or not. 

I do want to discuss also this concept of a team leader which is 

not in present rules or regulations, that a team leader who leads 

a team of other workers can be denied overtime pay even if they 

do not have any direct supervisory role. What is a team leader? It 

is not defined. We do not know. An employer decides whether you 

are a team leader or not, just whatever they want. So I believe this 

loophole alone—well, not me, but MIT Professor of Management 

Tom Kochen estimates that this one loophole alone could strip 

overtime rights from up to 2.3 million workers making $23,660 or 

more annually. So the stakes are very high. 

I had one very poignant communication with a worker in Seattle 

who said that she depends on overtime for helping her out. She is 

a single mother. She said, remember, when I get home from work, 

my second shift starts. I have got kids to feed, clothes to wash, 

housework to do, et cetera. She put it I think very poignantly when 

she said my time with my family is premium time. It is the best 

part of my day or my week. If I am going to be asked to give up 

my premium time with my family, I ought to get premium pay for 

it, which is overtime. And I think that really succinctly captures 

it. 

So, Mr. Chairman, I really want to hear Ms. McCutchen and I 

hope we will have a good exchange of questions so we can figure 

out just who is covered and who is not. Thank you very much, Mr. 

Chairman. 

STATEMENT OF TAMMY D. MC CUTCHEN, ADMINISTRATOR, WAGE AND 

HOUR DIVISION, EMPLOYMENT STANDARDS ADMINISTRATION, 

DEPARTMENT OF LABOR 

Senator SPECTER. Thank you very much, Senator Harkin. 

We turn now to our lead witness, Ms. Tammy McCutchen, Administrator of the Wage and Hour Division of the Employment 

Standards Administration, bachelor’s degree in English literature 

from Northwestern and a law degree from Northwestern University 

School of Law. Thank you very much for joining us, Ms. 

McCutchen, and we look forward to your testimony. 

Ms. MCCUTCHEN. Thank you, Mr. Chairman and members of the 

subcommittee, for the opportunity to discuss the Department’s final 

white collar regulations. 

The final regulations published in the Federal Register on April 

23 strengthen and restore the overtime protections of the Fair 

Labor Standards Act. The final rules guarantee overtime protection 

for every worker earning less than $23,660 per year where the current regulations only provide a guarantee for employees earning 

less than $8,060 a year. The final rules provide equal or greater 

protection to workers between $23,660 and $100,000 per year. 

The final rules ensure that employees can better understand 

their rights, that employers can better understand their legal obli-
4 

gations, and that Wage and Hour investigators have the tools they 

need to more vigorously enforce the law. 

In addition, because the final rule provides clarity and certainty, 

employees will not have to wait through years of Federal court litigation to recover the overtime pay they have earned. Federal overtime class actions have tripled since 1997 and now outnumber Federal employment discrimination class actions. 

The Department published draft rules in March 2003 and for the 

last 13 months, we have been carefully considering the public comments and public debate regarding the draft rules. We believe the 

final regulations are responsive to the public concerns, including 

concerns raised by members of this subcommittee. 

First, blue collar workers. A new section provides that blue collar 

workers such as longshoremen, carpenters, electricians, and factory 

workers are entitled to overtime protection. 

Second, first responders. A new section provides that police officers, fire fighters, EMT’s, and other first responders are entitled to 

overtime protection. 

Third, union members. A new section states that nothing in the 

final regulations relieves employers of their obligations under 

union contracts. 

Fourth, nurses. For the first time in history, the regulations 

state that licensed practical nurses are entitled to overtime protection, while leaving unchanged the current rules regarding registered nurses. 

Fifth, engineering technicians. The final preamble adopts the 

comments filed by the International Federation of Professional and 

Technical Engineers, which is the parent union of the Society of 

Professional Engineering Employees and Aerospace, that engineering technicians and similar technical employees are entitled to 

overtime protection. 

Sixth, veterans. The final rule deletes the language in the draft 

rules regarding military training and states that the Department 

intends no change to the educational requirements for the professional exemption. 

Some organizations have now raised new issues regarding new 

occupations and I look forward to answering your questions, particularly about the team leaders, and any other specific occupations 

discussed in the final regulations. 

For now, let me just state that the changes made in the final 

rules merely adopt current Federal case law, Wage and Hour opinion letters, or longstanding enforcement policy from the Wage and 

Hour Division field operations handbook. 

Before closing, I would like to spend a few minutes to discuss 

why the Department has opposed Senator Harkin’s amendment. 

The Department shares your concern that the overtime protections 

for low-wage and middle class workers should be maintained or 

strengthened, but we believe the final regulations are the best way 

to achieve this result. The amendment raises many questions, and 

we believe will put overtime protections for millions of employees 

at risk. 

For example, how would we determine which sections, paragraphs, or even sentences of the final rules would still be in effect 

should the amendment pass? 
5 

How would the amendment work for employees whose entitlement to overtime pay is unclear under the current regulations? 

How would the amendment affect employees receiving overtime 

pay today not because it is required under the FLSA statute or the 

regulations, but because the employer is paying that overtime voluntarily? 

How would the amendment affect the last 50 years of Federal 

case law, Wage and Hour opinion letters, and Wage and Hour field 

operations handbook sections which are not reflected in the current 

regulations but are in the final rule? Would all or some of these 

still have the force of law, and which ones? 

What about new employees who are hired? Will they be subject 

to a different set of rules? And what rules would apply to an employee who changes employers but performs the same work? It appears that the amendment could result in different employees who 

perform the same work for the same employer being paid differently and that could raise a whole new set of legal issues. 

In short, we have opposed the amendment because we do not 

know what the law would be for any employee if the amendment 

is passed. We do know that it would add confusion and double the 

litigation. The amendment would make our enforcement of the regulations more difficult because each case would require two determinations instead of one. First, was the employee exempt under 

the current regulations, and second whether the employee is exempt under the final regulations. 

PREPARED STATEMENT

Mr. Chairman, for the last 20 years, both Republican and Democratic administrations have recognized the need to reform these 

regulations. These are constructive changes that will benefit millions of workers and they are long overdue. 

Thank you for inviting me here today, Mr. Chairman, and I will 

be happy to answer questions. 

[The statement of follows:] 

PREPARED STATEMENT OF HON. TAMMY D. MCCUTCHEN

Chairman Specter and Members of the Subcommittee: I am pleased to appear before you today to discuss the Department of Labor’s final rule addressing the Fair 

Labor Standards Act’s ‘‘white-collar’’ exemptions. This rule sets forth the criteria for 

determining who is exempted from the Act’s minimum wage and overtime requirements as an executive, administrative, or professional employee. The new regulations appear in Title 29 of the Code of Federal Regulations, at Part 541. 

As you know, the Department’s proposed rule was published in March 2003, and 

the final rule was published on April 23. The Department is very proud of the final 

rule. Overtime pay is important to American workers and their families, and this 

updated rule represents a great benefit to them. Under the new regulations, workers earning less than $23,660 per year—or $455 per week—are guaranteed overtime 

protection. This will strengthen overtime rights for 6.7 million American workers, 

including 1.3 million low-wage, salaried ‘‘white-collar’’ workers who were not entitled to overtime pay under the old regulations, and who will gain up to $375 million 

in additional earnings every year under this final rule. We have also strengthened 

overtime protections for licensed practical nurses, police officers, fire fighters, paramedics, and similar public safety employees. 

The new rule exempts only ‘‘white-collar’’ jobs from overtime protection. The Department has updated the rule to clarify that ‘‘blue-collar’’ workers—such as construction workers, cashiers, manual laborers, employees on a factory line or workers 

compensated under a collective bargaining agreement, will not be affected by the 

new regulation. 
6 

1During the course of public debate on the Department’s proposed rule, an excellent summary 

of the changes in the structure of the American workplace and implications for Part 541 reform 

was submitted to a January 20, 2004 Senate subcommittee hearing at which the Secretary of 

Labor and Wage and Hour Administrator testified. See Hearing on Proposed Rule on Overtime 

Pay: Before the Subcomm. On Labor, Health and Human Services, Education of the Senate Appropriations Comm., 108th Cong., 2nd Sess. (2004) (written statement of Ronald Bird, Chief 

Economist for the Employment Policy Foundation). Among other insights, the Bird testimony 

notes that: before World War II, nearly one-in-three (33.6 percent) workers were employed in 

manufacturing; in 1940, only one-in-six (17.9 percent) were employed in managerial or professional occupations; nearly one-half (48.2 percent) of all employees worked in occupations related 

directly to manufacturing and production; more than three-quarters (75.1 percent) of all adult 

workers had never finished high school; and most workers expected to say with a single employer during the course of their working life. In contrast, today less than one-in-seven (13.6 

percent) works in the manufacturing sector; nearly one-in-three (30.1 percent) work in managerial or professional occupations; less than one-in-three (28.5 percent) work in occupations related 

directly to manufacturing and production; more than 58 percent of the population age 16 and 

older have at least some post-secondary (college-level) education, while 38 percent have a college-level degree and only 11.9 percent have less than a high school diploma; and average job 

tenure is under five years and declining. 2Fair Labor Standards Act: White-Collar Exemptions in the Modern Work Place (GAO/HEHS– 

99–164, September 30, 1999). 

Under section 13(a)(1) of the Fair Labor Standards Act (FLSA), certain executive, 

administrative and professional employees are exempt from the overtime requirements. The new rules will end much of the confusion about these exemptions that 

has led to an explosion of class action litigation and failed sufficiently to protect 

workers’ rights. 

The Department has issued a final rule that is responsible and responsive to the 

public. We worked hard to get it right. Let me emphasize Mr. Chairman, that this 

final rule is significantly different from the proposed rule. For the past year, we listened to thousands of comments—from workers and employers—and have designed 

new regulations that are clear, straightforward and fair. We also listened closely to 

Congress, whose comments have been a tremendous benefit to the Department. The 

Department extends its gratitude to Congress for identifying issues in the proposed 

rule that needed more explicit clarification. The final rule successfully addresses the 

concerns that have been raised and is much stronger as a result. Under the rulemaking process, we have made significant changes from the proposal and we believe 

the final product is better in every way, and a significant improvement over the old, 

confusing regulations that have not been updated for decades. 

Unfortunately, much of the recent press coverage and public debate over this rule 

has been misleading and inaccurate. I thank you, Mr. Chairman for the opportunity 

to discuss precisely what this new rule means for American workers. By returning 

clarity and common sense to the regulations, we 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. With this 

update, more workers will receive overtime pay, and they will get it in real time— 

when they earn it—not years later after enduring lengthy battles in federal court. 

The framework of the old rule was based upon the American workplace of a halfcentury ago. The old rule, therefore, reflected the structure of the workplace, the 

type of jobs, the education level of the workforce, and the workplace dynamics of 

an industrial economy that has long since changed.1 With each passing decade of 

inattention, the overtime regulations became increasingly out of step with the realities of the workplace and provided less and less guidance to workers and employers. 

When Congress passed the Fair Labor Standards Act in 1938, it chose not to provide definitions for many of the terms used, including who is an ‘‘executive, administrative or professional’’ employee. Rather, in Section 13(a)(1) of the Act, Congress 

expressly granted to the Secretary of Labor the authority and responsibility to ‘‘define and delimit’’ these terms ‘‘from time to time by regulations.’’ 

The Department, therefore, has the duty to update these regulations. Unfortunately, despite every administration since President Carter placing Part 541 reform 

on its regulatory agenda, until now, the DOL has been unable to meet its charge 

from Congress. 

Suggested changes to the Part 541 regulations have been the subject of extensive 

public commentary for two decades. Significantly, in a 1999 report 2 to Congress and 

at a May 2000 hearing before a subcommittee of this Committee, the U.S. General 

Accounting Office (GAO) chronicled the background and history of the exemptions, 

estimated the number of workers who might be included within the scope of the exemptions, and identified the major concerns of workers and employers. The GAO 

concluded that ‘‘given the economic changes in the 60 years since the passage of the 

FLSA, it is increasingly important to readjust these tests to meet the needs of the 
7 

3See Final Rule, Table A–4 of Appendix A. 

modern work place,’’ and recommended that ‘‘the Secretary of Labor comprehensively review the regulations for the white-collar exemptions and make necessary 

changes to better meet the needs of both employers and employees in the modern 

work place. Some key areas of review are (1) the salary levels used to trigger the 

regulatory tests, and (2) the categories of employees covered by the exemptions.’’ 

There is no question this rule needed to be updated. The minimum salary level 

was last increased in 1975, almost 30 years ago, and was only $155 per week. The 

job duty requirements in the regulations had not been updated since 1949—almost 

55 years ago. The salary basis test was set in 1954—a half century ago. 

From the beginning of this rulemaking, the Department has been consistent in 

what it wanted to achieve with this update. The primary goal remains to protect 

low-wage workers. Under the old rule, only employees earning less than $8,060 per 

year were guaranteed overtime pay—that is equivalent to less than minimum wage 

earnings. The regulations also needed to be reformed to ensure that all workers receive overtime pay without having to wait years for federal court litigation to play 

out. Even lawyers find it difficult to determine who is entitled to overtime pay 

under the old rules, and very few employees understand their rights. Reforming the 

‘‘white-collar’’ regulations is also a catalyst for compliance with the law, because employers are more likely to comply with clearer rules that reflect the work place of 

the 21st Century. Finally, this update benefits both employees and employers by reducing wasteful litigation. Federal class actions for overtime pay have tripled since 

1997, and now outnumber discrimination class action lawsuits. Often in these protracted lawsuits, workers receive only a few thousand dollars each, while the lawyers may walk away with millions of dollars. We simply cannot allow this legal morass to continue unabated. 

Under section 13(a)(1) of the FLSA and its implementing regulations, employees 

cannot be classified as exempt from the minimum wage and overtime requirements 

unless they are guaranteed a minimum salary and perform certain required job duties. The old rule required three basic tests for each exemption: (1) a minimum salary level, set at $155 per week per week for executive and administrative employees 

and $170 per week for professionals under the basic ‘‘long’’ duties test for exemption, whereas a higher salary level of $250 per week triggered a shorter duties test 

in each category; (2) a salary basis test, requiring payment of a fixed, predetermined 

salary amount per week that is not subject to reduction because of variations in the 

quality or quantity of work performed; and (3) a duties test, specifying the particular types of job duties that qualify for each exemption. 

The new regulations expand the number of workers guaranteed overtime protection by nearly tripling the $155 per week, or $8,060 per year, salary threshold. The 

final rule increases the minimum salary level required for exemption as a ‘‘whitecollar’’ employee to $455 per week. This is a $300 per week increase from the old 

rule, and the largest increase since Congress passed the Fair Labor Standards Act 

in 1938. This is also a $30 per week increase from the proposed rule, and means 

that overtime protection is guaranteed for all workers earning less than $23,660 per 

year. 

This dramatic increase in the salary level also means that the final rule strengthens overtime protections for 6.7 million salaried workers earning from $155 to $455 

per week. 5.4 million salaried workers, who today are at risk of being denied overtime, are now guaranteed overtime protection. 1.3 million salaried workers, who are 

not entitled to overtime today, will gain up to $375 million per year in additional 

earnings. The final rule identifies the occupations these 1.3 million workers are in 

and the estimated number of currently exempt workers who will likely gain compensation under the final rule.3 They are predominately married women with less 

than a college degree and live in the South. 

The Department’s final rule also includes a streamlined test for highly-compensated ‘‘white-collar’’ employees. To qualify for exemption under this section of the 

final rule, an employee must: (1) receive total annual compensation of at least 

$100,000, an increase of $35,000 over the proposed rule; (2) perform office or nonmanual work as part of their primary duty; and (3) customarily and regularly perform any one or more of the exempt duties or responsibilities of an executive, administrative, or professional employee. The final rule also strengthens this exemption by clarifying that employees must receive a portion (at least $455 per week) 

of their compensation on a salary basis. Given the final rule’s significant increase 

in this test’s salary level, 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 
8 

even this result is unlikely given the incentives for employers to retain high-skilled 

workers and minimize turnover costs. 

The final rule simplifies and clarifies the duties tests for each of the exemptions 

so that the regulations are easy for employees and employers to understand and for 

the Department to enforce. The old rule provided two sets of duties test for each 

of the exemption categories. There was both a ‘‘short’’ duties test and a ‘‘long’’ duties 

test for each of the executive, administrative and professional exemptions. The long 

tests applied to employees earning between $8,060 and $13,000 per year. Given 

these low levels, the long tests essentially have been inoperative for many years. 

Accordingly, the final rule replaces the long duties tests with guaranteed overtime 

protection for workers earning less than $23,660 per year and retains the short test 

requirements for workers earning above that level, especially emphasizing the existing ‘‘primary duty’’ approach found in the current short tests. Significantly, as discussed below, the final rule has retained the ‘‘discretion’’ and ‘‘judgment’’ concepts 

from the current short tests, ensuring that the final rule’s standard duties test are 

now equally or more protective than the current short duties tests. As a result, few 

if any workers earning between $23,660 and $100,000 are likely to lose the right 

to overtime pay. 

In recent months, there has been a tremendous amount of misinformation about 

the likely impact of the Department’s new rule on employees such as blue-collar 

workers, police officers, nurses and veterans. 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. Section 541.3(a) of 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 nonmanagement employees in maintenance, construction and similar occupations such 

as carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, operating 

engineers, longshoremen, construction workers and laborers. 

Similarly, to make certain the intentions of the Department are clear, Section 

541.3(b) of the final rule provides that police officers, fire fighters, paramedics, 

emergency medical technicians and similar public safety employees who perform 

work such as preventing, controlling or extinguishing fires of any type; rescuing fire, 

crime or accident victims; preventing or detecting crimes; conducting investigations 

or inspections for violations of law; performing surveillance; interviewing witnesses; 

interrogating and fingerprinting suspects; preparing investigative reports; and similar work are entitled to overtime pay. 

Section 541.301(e)(2) states that licensed practical nurses and other similar health 

care employees are generally entitled to overtime pay, since possession of a specialized advanced academic degree is not a standard prerequisite for entry into such 

occupations. The current law regarding registered nurses is unchanged. Further, the 

Department never intended to allow the professional exemption for any employee 

based on veteran status. The final rule has been modified to avoid any such misinterpretation. 

In response to the public commentary evidencing further confusion, the Department has also emphasized the right to overtime protection for technicians and other 

skilled employees, as Section 541.301 clarifies that there is no change to the educational requirements for the professional exemption. As a result, employees in occupations that customarily may be performed with a ‘‘general’’ academic degree, or 

through an apprenticeship, or with training in routine mental or manual processes, 

such as cooks, are entitled to overtime pay. As was the case under the previous rule, 

those working under union contracts are protected. Section 541.4 provides that neither the FLSA nor the final regulations relieves employers from their obligations 

under union collective bargaining agreements. 

Under the final rule, the executive exemption adds a third requirement to the current short test that makes it more difficult to qualify as an exempt executive. In 

other words, fewer workers qualify as exempt executives than qualify under the old 

regulations. Under the final rule, an exempt executive must (1) have the primary 

duty of managing the entire enterprise or a customarily recognized department or 

subdivision thereof, (2) customarily and regularly direct the work of two or more 

other workers, and (3) have authority to hire or fire other employees or have recommendations as to the hiring and firing or other change of status be given particular weight. This third requirement is from the old long duties test, and its addition makes the exemption more difficult to meet. 

The final rule also deletes the special exemption in the proposed rule for ‘‘sole 

charge’’ executives, and strengthens the business owner exemption by requiring the 

20-percent equity interest in the enterprise to be a ‘‘bona fide’’ interest, as well as 
9 

requiring the employee to be ‘‘actively engaged’’ in the management of the enterprise. 

In response to numerous comments, the final rule’s administrative exemption has 

been significantly modified from the proposed rule. The revised test in the final rule 

requires that (1) the employee have the primary duty of the performance of office 

or non-manual work directly related to the management or general business operations of the employer or the employer’s customers, and (2) the primary duty must 

include the exercise of discretion and independent judgment with respect to matters 

of significance. The proposal’s language regarding ‘‘position of responsibility’’ and 

‘‘high level of skill or training’’ was dropped as potentially ambiguous, resulting in 

a final test that is easy to apply and is as protective as the current short test. Moreover, the final rule is more protective because it strengthens the ‘‘discretion and 

independent judgment’’ standard by adding the requirement, currently in the interpretive section of the old regulation, that the discretion be exercised ‘‘with respect 

to matters of significance.’’ 

Similarly, the ‘‘discretion and judgment’’ concept has been retained in the final 

rule’s test for exemption as a learned professional. The final rule in this area requires an employee to have the primary duty of ‘‘the performance of work requiring 

advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction.’’ To emphasize that the educational requirements of this exemption have not been changed from the old rule, 

the final regulation breaks down the three elements of this test: (1) the employee 

must perform work requiring advanced knowledge; (2) the advanced knowledge 

must be in a field of science or learning; and (3) the advanced knowledge must be 

customarily acquired by a prolonged course of specialized intellectual instruction. 

The phrase ‘‘work requiring advanced knowledge’’ is explicitly defined as ‘‘work 

which is predominantly intellectual in character, and which includes work requiring 

the consistent exercise of discretion and judgment, as distinguished from performance of routine mental, manual, mechanical or physical work.’’ Similarly, the final 

rule’s test for a creative professional exemption remains as protective as it was 

under the old rule. 

Mr. Chairman, workers win under this final rule. We have guaranteed and 

strengthened overtime protection for more American workers than ever before. We 

have strengthened overtime rights for 6.7 million workers, including 1.3 million lowwage, white-collar workers who likely will see an increase in their paychecks. In the 

course of issuing these regulations, a great deal of misinformation has surrounded 

their impact. They have been unfairly characterized as taking away overtime pay 

from millions of Americans when the exact opposite is true. That is why we took 

the extra step of spelling out in the regulations who is not affected by the new rules. 

We want police officers, fire fighters, paramedics, emergency medical technicians, 

public safety employees and licensed practical nurses to know that the new regulations will better protect their overtime rights, not harm them. In fact, the new rule 

strengthens their claim to overtime. In addition, blue-collar workers, technicians, 

cooks and veterans who currently receive overtime pay will continue to receive overtime pay. The final rule will not affect union workers covered by collective bargaining agreements. 

With these new regulations, workers will clearly know their rights and employers 

will know their responsibilities. The new rule also enables the Department of Labor 

to enforce vigorously our nation’s overtime laws and regulations, and will reduce 

needless and costly litigation. We at the Department of Labor are very proud of the 

updated rule, Mr. Chairman. America’s workers deserved action. They now have a 

strengthened overtime standard that will serve them well for the 21st Century. 

Thank you, Mr. Chairman and Members of the Subcommittee. I would be happy 

to answer any questions you may have. 

Senator SPECTER. Thank you very much, Ms. McCutchen. 

The Washington Post editorialize today on the regulation and 

notes that the 1938 law makes an exception for white collar workers, those in executive, administrative, and professional positions. 

Figuring out who falls into this category has become a particularly 

byzantine area of labor law and the regulations outlining the exceptions have not been updated for 50 years. 

When Secretary of Labor Chao responded to questions for the 

record from our January 20 hearing this year, she noted the discretion and independent judgment standard was described as ‘‘one of 

the most confusing and difficult requirements in the regulations,’’ 
10 

and further noted that Federal courts have had difficulty interpreting and applying the standard. 

When I look at the current regulation on administrative employees, it says, ‘‘customarily and regularly exercises discretion and 

independent judgment.’’ When I look at your final regulation, it 

says, ‘‘primary duty includes the exercise of discretion and independent with respect to matters of significance.’’ 

Ms. McCutchen, where is the improvement from the current law 

to your proposed final regulation to avoid the vagaries of litigation? 

Ms. MCCUTCHEN. First of all, of course, we made an attempt in 

our proposed rules to adopt a new test, which the commenters uniformly did not like. So we decided to go back to the discretion and 

independent judgment in the current standard. 

The ‘‘includes’’ language is in the current short test, which is 

541.2(e)(2), and it states that the exemption applies to employees 

whose primary duty consists of the performance of work described 

in paragraph (a) of this section which includes work requiring the 

exercise of discretion and independent judgment. 

The ‘‘customarily’’ language comes from current long test, which of course applies only to employees earning between $8,000 and 

$13,000 a year and therefore has been replaced with a guarantee 

of overtime, which is an improvement. 

We have also added the words in the regulatory text itself ‘‘with 

respect to matters of significance.’’ Under the current rule, that is 

in the interpretive guidelines, which courts are free to ignore, and 

we put it up into the regulatory text at the suggestion of our career 

professionals at the Wage and Hour Division who felt it was very 

important to make the point that the primary duty must include 

exercise of discretion or judgment with respect to matters of significance, not with respect to matters such as deciding which pens to 

buy, that it has to be discretion and independent judgment on a 

major issue for the employer, not a minor one. And that is an improvement that will benefit employees. 

Senator SPECTER. Well, Ms. McCutchen, where you have the core 

language saying ‘‘customarily and regularly exercises discretion 

and independent judgment’’ and then you add to it two layers of 

additional description, ‘‘primary duty,’’ there you have a question 

of interpreting what is a primary duty, and then you have the subsequent language ‘‘with respect to matters of significance.’’ Here 

again, there is no clear-cut delineation as to what may be significant or not. 

In a context where you have had a lot of litigation, a lot of class 

actions—and I share the Department of Labor’s interest in minimizing the litigation and class actions—and you have had many, 

many lawsuits with a lot of factual settings, it seems to me that 

you would have a basis for coming to closure with those vagaries. 

I have been involved in a lot of litigation matters, and you learn 

from the experience of the court cases. But to come right back with 

the same language, ‘‘customarily and regularly exercises discretion 

and independent judgment,’’ and adds only ‘‘primary duty’’ and 

‘‘matters of significance,’’ which require a lot of interpretation 

themselves, I do not see that you have advanced the ball much. 

Ms. MCCUTCHEN. What we did in the final regulation is we took 

a lot of the Federal court case law, some of the new language in 
11 

the definitional section, what is a matter of substantial importance, 

what is primary duty, what is discretion and independent judgment. There are new definitional sections which take language out 

of the current case law and out of the Wage and Hour enforcement 

policy and opinion letters and incorporates that into the regulation 

itself. So now it is clearer which cases and which language from 

which cases are the ones that are the law. Whereas before, employees would have to go and do their own legal research or file a FOIA 

request with the Department to get the information, the information is now in the regulatory text itself. 

I will also say that most commenters believed that sticking with 

the current language would cause them less problems than the proposed position of responsibility test. They felt that the position of 

responsibility test was vague and that they would prefer to go back 

to the current language because that is what they are comfortable 

with. We would have liked to have clarified it even further, but we 

did not receive any comments with any better ideas. Obviously, our 

idea of position of responsibility was not working because the commenters felt that it was too vague and the definitions would not 

help. 

So what we did instead is looked at the Federal case law, looked 

at the Wage and Hour opinion letters, and incorporated the key 

parts of that case law and opinion letters into the regulatory text 

itself, which we believe will be beneficial, especially to employees 

and HR managers because they will no longer have to hire a lawyer to find those cases that describe what is discretion and independent judgment. They will be able to go to the list of factors that 

is in the final regulation to make that determination. 

Senator SPECTER. Well, my red light went on in the middle of 

your answer. 

Senator HARKIN. Go ahead. 

Senator SPECTER. No, no. I am going to adhere to the time limit. 

I have grave reservations that notwithstanding the changes you 

have made, that they will not have to have legal interpretation. I 

have yet to see a regulation which does not require a lot of analysis 

and a lot of legal interpretation, but if we can avoid the lawyers, 

so much the better, speaking as a lawyer. 

Senator Harkin. 

Senator HARKIN. Ms. McCutchen, first, to clear up one point. If 

an employer in the past or today wanted to determine whether or 

not certain employees were exempt or not exempt, they could go to 

you for an advisory opinion, could they not? 

Ms. MCCUTCHEN. They can. 

Senator HARKIN. And so I was thinking about this case against 

the Farmers Insurance Exchange in California last year. A jury 

slapped them with a $90 million judgment because they had not 

been paying the claim adjustors overtime for years. The company 

said it believed it was correctly exempting its adjustors as professionals. But they could have gone to you to try to determine that. 

They could have gone for an advisory opinion. Right? Why would 

an employer not come to seek your advice on whether or not an employee is exempt or not? 

Ms. MCCUTCHEN. First of all, the Farmers Insurance case was 

brought under California law and not Federal law. 
12 

Senator HARKIN. I understand that. 

Ms. MCCUTCHEN. Since California law is different, I could not 

have opined on that. 

But actually we did have a request for an opinion letter on insurance claims adjustors and we did issue that opinion letter, which 

has been adopted by two Federal courts since we issued it. 

Senator HARKIN. Now. I am just talking about in the past. My 

point is any employer can come to DOL right now and ask for an 

advisory opinion. 

Ms. MCCUTCHEN. Including an advisory opinion about the effect 

of the current rules, which we expect to get requests for. 

Senator HARKIN. I understand. I just wanted to make that point. 

Second, Ms. McCutchen, Secretary Chao said that under the new 

regulations issued last week, no workers earning between $23,660 

and $100,000 a year would lose overtime protection and that the 

only provision in this regulation that would restrict overtime eligibility is new section 541.601 on highly compensated employees 

under which approximately 107,000 workers earning over $100,000 

a year would lose overtime rights. Is that correct? 

Ms. MCCUTCHEN. I believe that is correct for two reasons. One, 

the changes that we made to the duties test that apply between 

$23,660 and $100,000 are all adopting current Federal case law, 

current Wage and Hour opinion letters, or the current Wage and 

Hour field operations handbook. So although it is a change in the 

language of the regulation, it is not a change in the current law 

that is being applied in the courts today. 

What you have to recall is since these regulations have not been 

changed in 50 years, there is 50 years of case law and Wage and 

Hour opinion letters that are not incorporated into the regulations. 

Senator HARKIN. There is a new provision in the final rules 

about team leaders. Team leaders is not in the current regulations, 

nor is it defined in the final rule. The final rule—let me find the 

thing on team leaders—on the team leader issue, which I believe 

is a loophole big enough to drive any kind of a truck through, there 

is no real definition of what a team leader is and how a team leader would operate in the workforce here. I am just trying to find 

where this is right here. 

Section 541.203. An employee who leads a team of other employees assigned to complete other projects for the employer meets the 

requirements for the exemption even if the employee does not have 

direct supervisory responsibility over the employees on the team. 

And you list a few white collar examples. But employers are given 

no clear guidance on what the rule contemplates by the term 

‘‘major projects,’’ and nowhere does the rule define what a team 

leader is or state that the team leader exemption is not to be applied to blue collar work. 

How can you say that no one—you say you believe this. No one who makes between $23,660 and $100,000 a year under this new 

rule will lose overtime pay protection that they have under the current law. That is what you are saying. 

Ms. MCCUTCHEN. I believe our economic analysis says few if any 

because I do not think anybody can speak in absolutes. 

Senator HARKIN. Oh, few. 

Ms. MCCUTCHEN. No one can speak in absolutes. 
13 

Senator HARKIN. She said none. 

Ms. MCCUTCHEN. Well, we believe it is going to be none, but the 

economists say few if any. 

Senator HARKIN. What about a team leader? What about all 

these team leaders that can now be exempt? 

Ms. MCCUTCHEN. Well, this is a particularly puzzling issue to me 

because the language that you quoted—and I would like to quote 

the full language—is actually a pro-employee change from the current language. And I would like to read the current regulation and 

the final regulation. 

The language in the current regulation, which is in 541.205(c), 

says that the administrative exemption applies ‘‘to a wide variety 

of persons who either carry out major assignments in conducting 

the operations of the business or whose work affects business operations to a substantial degree.’’ So the current language says that 

the administrative exemption is available to a wide variety of employees who work on major projects. 

We have limited that definition of an administrative exempt employee to limit it only to the person who leads the team who works 

on major projects. And we have defined what the major projects 

are, which is the key to the final rule. What the final rule says is 

‘‘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 a business, negotiating a real estate 

transaction or a collective bargaining agreement or designing and 

implementing productivity improvements.’’ 

That parenthetical is key to the section, and what it says is that 

the current language of a wide variety of persons who carry out 

major assignments is now limited only to a person who leads a 

team who conducts a major assignment like opening a new plant 

or being the lead in a collective bargaining negotiation on behalf 

of the company. We are not talking about union bargaining unit 

members, who are sometimes called team leaders, who might direct 

the work of other employees day by day but are not assigned to 

complete major corporate change type of functions. 

So it is much more limited in the final than it is in the current. 

And I agree with you that we should be comparing the rule to the 

current law and the current regulation, and this is a pro-employee 

change from the current regulation. 

Senator HARKIN. So that list of examples that you just gave me 

is exhaustive? 

Ms. MCCUTCHEN. Our examples are not—in this one, I think we 

said ‘‘such as.’’ We did not include the language ‘‘including or limited to,’’ but I think the purpose of the parenthetical is to indicate 

that we are talking about major projects. We are talking about people who are leading a project to buy a new business, not to buy office supplies. 

Senator HARKIN. An employer can decide what a major project is. 

Ms. MCCUTCHEN. Well, ultimately the Department of Labor and 

the Federal courts are going to decide, and if anybody has questions about a particular team leader who does not complete major 

projects, they are free to send a request for an opinion letter from 

me. 
14 

Senator HARKIN. Well, I thought it is interesting that they put 

that thing in there, that they do not even have to have supervisory 

authority. 

Let me get to one other thing. 

Ms. MCCUTCHEN. Well, this is the administrative exemption. I 

am sorry for interrupting you. This is the administrative exemption, and the executive exemption is the exemption that is designed 

for managers and supervisors. The administrative exemption covers employees who do not have supervisory responsibility but still 

work on major issues for the employer. 

Senator HARKIN. I think I see. 

Two other things. Well, you want to get into the management. 

It has long been held that—the Wage and Hour field operations 

handbook defines those exempt employees—a rule of thumb is their 

primary duty must be more than 50 percent. Fifty percent of their 

time has to be in management or professional work. Is that not 

true? 

Ms. MCCUTCHEN. It has been a guidance, a rule of thumb. It has 

never been an absolute rule. 

Senator HARKIN. It is a rule of thumb in your operations handbook. That has been deleted from the final rule. Is that not true? 

Ms. MCCUTCHEN. It is a guideline, yes. 

Senator HARKIN. That 50 percent has been deleted. 

Ms. MCCUTCHEN. It has been a guideline and it is still as a 

guideline under the final rule. 

Senator HARKIN. No, it is not. Fifty percent is not a guideline 

under the final rule. No, it is not. It has been deleted. Is that not 

right? 

Ms. MCCUTCHEN. In the final rule, 541.700(b) states the amount 

of time spent performing exempt work can be a useful guide in determining whether exempt work is the primary duty of an employee. Thus, employees who spend more than 50 percent of their 

time performing exempt work will generally satisfy the primary 

duty requirement. The final rule adopts the Federal court decisions 

in a series of cases involving Dairy Queen and Burger King that 

state that the 50 percent rule is a guideline but supervisors who 

can both supervise and perform nonexempt work at the same time 

can still be executives. So what we did is we adopted the case law 

in the Burger King and the Dairy Queen cases. 

Senator HARKIN. So you adopted that to take away the 50 percent rule of thumb. 

Ms. MCCUTCHEN. No. It is a guideline. We call it a ‘‘useful 

guide.’’ We replaced the word ‘‘rule of thumb,’’ which seemed to us 

a very odd word to have in a regulatory text, and replaced it with 

the language ‘‘useful guide.’’ 

Senator HARKIN. Well, no. What you say is the amount of time 

spent on a primary duty can be a useful guide. 

Ms. MCCUTCHEN. Is a useful guide. 

Senator HARKIN. Well, but it is different than what it is now. It 

is not a 50 percent rule of thumb. 

Let me get to the police. DOL’s talking points on fair overtime 

security for the 21st century says that the final regulations ‘‘contain an ironclad guarantee of overtime protection for police offi-
15 

cers.’’ Does this mean all police sergeants are entitled to overtime 

protection? Yes or no. 

Ms. MCCUTCHEN. It is very hard for me to speak in absolutes, 

but we believe that the vast, vast, vast, vast majority of sergeants 

would be entitled to overtime because generally they may direct 

the work of other employees but they do not have management as 

their primary duty and they do not have authority to hire or fire, 

which is the third requirement that we added to the executive exemption. 

Senator HARKIN. So which police sergeants would be entitled to 

overtime protection and which would not? 

Ms. MCCUTCHEN. Well, I actually just discussed this issue with 

our district director out of Kansas City who said that sometimes 

in a very, very small police department, the sergeant actually 

might be the top executive in the department, but they are called 

a sergeant. 

In the regulation, what we did and particularly in the preamble 

is we discussed the many, many different cases that are out there 

regarding police officers. It is our view of the cases that the Federal 

courts generally view sergeants and below as entitled to overtime 

and that is what we tried to adopt in the final rule, and police captains and police commissioners as not entitled to overtime, with the 

battleground really being lieutenants. And the Federal courts have 

found some lieutenants to be exempt and some lieutenants to be 

nonexempt depending upon their particular job duties. So it all depends upon your job duties, but we believe that we have increased 

the protection substantially for sergeants in the final rule. 

Senator HARKIN. Ms. McCutchen, I just will close on this. You 

went on about my amendment and all these problems and how you 

determine it. That is really reaching, Ms. McCutchen. 

My amendment would work as follows. There are one or two 

steps, very simple. In each case you see if the employee is eligible 

for overtime under the old regs. If they are, they get overtime. Very 

simple. Then if no, if they are not eligible for overtime under the 

old regs, you look at the new regs. If they are eligible for overtime 

under the new regs, they get it. If not, they do not. Two steps. Very 

easy. 

Last I would say that the amendment I offered invalidates the 

whole section of the new regulation, not just for a single litigant 

but for all future litigants. If someone is eligible for overtime now, 

they will continue to be eligible for it under my amendment. If they 

are not eligible under the present rule, they look at the new regulation, if they are eligible, they get overtime. If not, they do not. Because I thought the whole idea of this was to expand overtime pay 

protections. 

That is what my amendment does. If you are eligible under the 

old, you continue to get it. If you are not eligible under the old, you 

look at the new regulation. If under the new regulation you are eligible for overtime, you get it. That expands overtime pay protection. If you are not eligible under the old and you are not eligible 

under the new, you do not get overtime. It is a very simple twostep process. It is not quite as convoluted as what you said. 

Last I would just say that you were quoted last year—well, it is 

not a quote. It was in a story saying that you predicted a deluge 
16 

of lawsuits as employees and employers press for clarification once 

the new rules go into effect. John Bilhorn, whom I do not know, 

a Chicago attorney who represents employees in lawsuits said it is 

just going to create new areas of fog. And I would just close by saying that that is what I think is exactly what is going to happen 

here. 

Thank you, Ms. McCutchen. Thank you, Mr. Chairman. 

Senator SPECTER. Thank you, Senator Harkin. 

Ms. McCutchen, would you please stay with us for the balance 

of the hearing? Because there may well be issues raised by the next 

panel which we would like to have your comment on. 

Ms. MCCUTCHEN. I do have to step out for another event for 

probably a half an hour, but I will try to come back. I am sorry. 

I am just previously scheduled for another event, but I will try to 

come back so that I am here when the next panel is done. I apologize. 

Senator SPECTER. Well, Ms. McCutchen, though, we need you to 

listen to what they have to say so that you are in a position to comment about them. When we schedule these hearings, we really expect witnesses to be able to stay. We had an experience with the 

Secretary last time which was difficult for the subcommittee. So we 

expect you to stay. 

Let us proceed now to panel two. Questions will be submitted to 

the record. 

Senator Craig, do you have questions of Ms. McCutchen? 

Senator CRAIG. I do not. Thank you. 

STATEMENT OF CRAIG BECKER, ASSOCIATE GENERAL COUNSEL, AFL– 

CIO 

Senator SPECTER. Our first witness is Mr. Craig Becker, Associate General Counsel of AFL–CIO. He is also Associate General 

Counsel of the Service Employees International Union. Bachelor’s 

degree from Yale and a law degree from the Yale Law School. 

Thank you for joining us, Mr. Becker, and we look forward to your 

testimony. 

Mr. BECKER. Thank you for the opportunity to appear before you 

on this very important subject. I have litigated in this area and 

also taught the Fair Labor Standards Act at UCLA and University 

of Chicago Law Schools, published several articles on the subject. 

In my view the new regulations in both obvious and subtle ways 

will expand the scope of the four primary exemptions to the basic 

protections of the Fair Labor Standards Act. 

These regulations are obviously dense, long, and complex, 61 

type script pages. So what I want to do in my very short time before you is illustrate how they depart from some fundamental principles which have guided the construction of the amendments in 

four ways. 

First, the old regulations governing these exemptions contained 

a clear and explicit percentage limit on the amount of time employees could spend on nonexempt work. 20 percent of their time, 40 

percent in the retail and service industries could be spent on nonexempt duties. 

Now, outside the outside salesman exemption, that percentage 

limited fall into disuse because of the woefully inadequate salary 
17 

levels for the long test. The Department, however, has now increased those salary levels but discarded this very clear and explicit bright line rule and replaced it with a vague test of the primary duty which ultimately rests on a subjective analysis of what 

the ‘‘most important’’ duty of the employee is. We submit that if 

you want to avoid litigation, you retain the bright line rule and do 

not substitute a vague and subjective analysis. 

This will have particular impact in two areas. One, low level 

managers and supervisors. The cases cited by the Administrator, 

Burger King cases, universally held that these low level assistant 

managers spent most of their time flipping burgers and serving 

customers, and therefore they did not meet this bright line rule 

and were nonexempt under the 20 percent tolerance level. 

Second, in the area of outside sales, there was no salary requirement for the 20 percent limitation. So here is an absolutely clear 

area where the new regulations exempt employees who were not 

exempt under the old regulations; that is, outside salesmen who 

spend more than 20 percent of their time performing non-outside 

sales work. We substitute for that clear and explicit test a vague 

primary duties test. 

The second area where the regulations clearly depart from longstanding principles is in regard to the salary basis test. It has long 

been held that people who qualify on the duties tests universally 

are paid a salary, not only a salary level, but they are paid on a 

salary basis; i.e., they do not punch a clock. So in return for not 

being paid overtime, they have certain compensatory privileges. 

They can leave for an hour during the day to take their kid to the 

doctor. The salary basis test has existed for over 50 years. The old 

regulations provided that you could not be paid on an hourly basis. 

The new regulations retain in name the salary basis test, but define salary basis away by saying explicitly you can be paid on a salary basis even though you are actually paid hourly. Even though 

you are actually paid hourly. 

In other words, many employees who used to qualify under the 

duties test—and the most obvious example is registered nurses— 

in many cases—and I cite them in my written testimony—held that 

nurses do not qualify for exemption because they are not paid on 

a salary basis. I.e., in a hospital a nurse’s time is strictly controlled. They do not have the kind of autonomy that Congress had 

in mind for exempt employees, and therefore they do not qualify on 

the salary basis test. 

The Department has now defined away what it meant to be paid 

on a salary basis, and I quote from the Court of Appeals for the 

Third Circuit which said, ‘‘Paying an by the hour affords the employee little of the latitude that the salary requirement recognizes. 

A basic tension exists between the purpose behind a salary requirement and any form of hourly compensation.’’ 

The Department has now said, you can be paid hourly and still 

qualify on a salary basis test. Again, here is another area where 

clearly employees such as nurses—and that is a very important 

classification because of the high number of forced overtime hours 

which nurses work, given the nursing shortage—who were previously not exempt because they could not satisfy the salary basis 
18 

test will now be considered exempt because of the dilution of what 

it means to be paid on a salary basis. 

Third—and let me just say in the 5 seconds I have left—the old 

regulations did not expressly exempt any named classifications. 

That is, the old legislative regulations had tests and then the interpretive regulations, which did not have the force of law, had certain examples of how the tests apply. The interpretations have 

been eliminated and in the legislative regulations, named classifications are now exempt. The rule has always been that titles did 

not matter. It mattered what you actually did. But now the Department is saying in the legislative regulations that certain named titles are exempt, and beyond titles, certain whole industries, financial services employees are exempt. 

My fourth point was going to be team leaders, but team leaders 

have been extensively discussed. 

So let me just say that I did a Federal court search for exemption 

cases involving team leaders to see if this new provision would be 

consistent—— 

Senator SPECTER. Mr. Becker, could you sum up? 

PREPARED STATEMENT

Mr. BECKER. And all I wanted to say about team leaders, since 

it has already been discussed, is that a search of Federal court 

cases for cases holding team leaders to be exempt under the old 

regulations found no cases whatsoever. So this is a new provision 

in the regulations. 

Thank you for your time. 

[The statement follows:] 

PREPARED STATEMENT OF CRAIG BECKER

Thank you for the opportunity to appear before you today to discuss this important subject. I have experience in this area both as a litigator and as an academic. 

I have represented employees in many industries in actions brought under the Fair 

Labor Standards Act (FLSA). In addition, I have taught labor and employment law, 

including the FLSA, at the University of California at Los Angeles and the University of Chicago Schools of Law and published several articles about the FLSA. 

The new regulations, in both obvious and subtle ways, expand the scope of the 

four primary exemptions to the basic protections of the FLSA. They depart from several fundamental principles that have undergirded the construction of the statutory 

exemptions for decades. Time and space permit me to provide you with only a few 

illustrative examples. 

ELIMINATION OF CLEAR TOLERANCE LEVELS

The old regulations governing the executive, administrative, professional and outside sales exemptions contained a clear and explicit percentage limit on the amount 

of time employees could spend on nonexempt work and still be classified as exempt 

executive, administrative, professional or outside sales employees. Exempt employees could not devote more than 20 percent of their time (or in the case or retail or 

service employees, 40 percent of their time) in any workweek to nonexempt duties. 

29 C.F.R. § 541.1(e), 541.2(d), 541.3(d), 541.5(b), 541.5(b). Congress considered these 

limitations on the amount of time that exempt employees could devote to nonexempt 

duties when it extended the FLSA to retail and service establishments in 1961 and 

modified them only by setting the tolerance level for executive and administrative 

employees in those industries at 40 percent. 29 U.S.C. § 213(a)(1). While this clear 

rule had fallen into disuse, except as applied to outside salesmen, because for the 

other exemptions it was attached to the so-called long-test that was only applied to 

employees earning amounts that had become so low that the test was no longer 

widely used, the Department has now raised the salary level but also discarded the 

clear and sensible tolerance levels. In their place is a vague definition of ‘‘primary 
19 

duty,’’ § 541.700, that requires application of a wide variety of factors and ultimately 

a subjective judgment about what the employee’s ‘‘principal, main, major or most 

important duty’’ is. This vague and ultimately subjective test will lead many employers to misclassify employees as exempt based on the employers’ own notion of 

what is ‘‘most important,’’ thereby contracting coverage and increasing litigation. 

DILUTION OF SALARY BASIS TEST

For over 50 years, the regulations have required employers to prove not only that 

employees perform the duties of an executive, administrative or professional employee, but also that the employees were paid above a minimum salary and paid 

that salary on a ‘‘salary basis.’’ The salary basis requirement embodied the empirical finding that bona fide executive, administrative and professional employees did 

not punch a clock, but rather had a degree of control over their own working hours. 

This autonomy compensated for the loss of overtime pay because long hours were 

less oppressive to an employee who was free to take a break during the day to attend to personal business or for other purposes. The new regulations ostensibly retain the salary basis requirement but undermine the meaning of the term ‘‘salary 

basis.’’ 

The old regulations provided that additional compensation along with a salary 

was not inconsistent with payment on a salary basis. However, the examples given 

did not include additional compensation paid on an hourly basis. In addition, the 

regulations provided, ‘‘The test of payment on a salary basis will not be met, however, if the salary is divided into two parts for the purpose of circumventing the requirement of payment ‘on a salary basis’. For example, a salary of $200 in each 

week in which any work is performed, and an additional $50 which is made subject 

to deductions which, are not permitted.’’ 29 C.F.R. § 541.118(b). 

The new regulations expressly provide that ‘‘[a]n exempt employee’s salary may 

be computed on an hourly, a daily or a shift basis, consistent with the exemption 

and the salary basis requirement, if the employment arrangement also includes a 

guarantee of at least the minimum weekly required amount paid on a salary basis 

regardless of the number of hours, days or shifts worked and a reasonable relationship exists between the guaranteed amount and the amount actually earned. The 

reasonable relationship test will be met if the weekly guarantee is roughly equivalent to the employee’s usual earnings at the assigned hourly, daily or shift rate for 

the employee’s normal workweek.’’ § 541.604(b). The new regulations further provide 

an example of a reasonable relationship: ‘‘Thus, for example, an exempt employee 

guaranteed compensation of at least $500 for any week in which the employee performs any work, and who normally works four or five shifts each week, may be paid 

$150 per shift without violating the salary basis requirement.’’ Id. If the employee 

in the example works only three shifts, she will be paid only $500 instead of the 

$750 she earns when she works five shifts but she may continue to be treated as 

exempt. Thus, a reasonable relationship is defined to allow at least a $250 per week 

variation based on hours worked, a permissible variation of at least 50 percent of 

the employee’s minimum weekly compensation. 

The old regulations provided that employees were not paid on a salary basis if 

they could be suspended for less than one day for disciplinary reasons other than 

‘‘infractions of safety rules of major significance.’’ 29 C.F.R. § 541.118(a)(5). The new 

regulations add to this limited exception deductions for ‘‘unpaid disciplinary suspension of a full day or more imposed in good faith for infractions of workplace conduct 

rules.’’ § 541.602(b)(5). 

In Brock v. The Claridge Hotel and Casino, 846 F.2d 180 (3d Cir. 1988), cert. denied, 488 U.S. 925 (1988), the Court of Appeals held that low-level casino managers 

who were paid on an hourly basis with a minimum salary guaranteed were not paid 

on a salary basis. The Court reasoned, ‘‘Paying an employee by the hour affords that 

employee little of the latitude the salary requirement recognizes. Thus, a basic tension exists between the purpose behind a salary requirement and any form of hourly 

compensation.’’ Id. at 184. The Court also found, at the Secretary’s urging, that such 

a method of compensation, in effect, allows for the docking of employees’ pay for absences of less than one day which is inconsistent with salaried status. Id. at 185. 

To argue that an employee who is paid by the hour is paid on a salary basis ‘‘contravenes the common meaning of the term . . ., the purpose behind a salary 

requirement . . ., and the Labor Department’s empirical findings on the attributes 
20 

1The Department cites this decision and this decision alone after stating that ‘‘[c]ourts also 

have upheld the reasonable relationship requirement.’’ Preamble at 245 (citations to the Preamble to the new regulations are to the typescript version submitted to the Federal Register. 

This version appears on the Department’s web site at http://www.dol.gov/esa/regs/compliance/ 

whd/fairpay/preamble.pdf.) In fact, the Court expressly did not do so. 846 F.2d at 185 n. 6. 2Or in excess of the alternative standard permitted in hospitals and similar institutions by 

29 U.S.C. § 207(j). 

of bona fide [exempt] status.’’ Id. at 186. The Court found such a construction also 

‘‘conflicts with the Secretary’s interpretation of those regulations.’’ Id.1

These two changes to the definition of what it means to be paid on a salary basis 

will thus permit employers to classify many employees as exempt who previously 

failed the salary basis test. One area where this will be true is nursing. While registered nurses meet the duties test for the professional exemption, they have until 

now consistently failed the salary test because their employers exercised close control over their time, not permitting them to come and go as they chose and docking 

them if they miss part of a day. Klein v. Rush-Presbyterian-St. Luke’s Medical Center, 990 F.2d 279 (7th Cir. 1993), for example, involved a registered nurse who was 

held to be nonexempt because the employer did not pay her on a salary basis. The 

Court noted, ‘‘the regulations have determined that a salaried employee is paid the 

same regardless of the number of hours worked. . . . An exempt employee’s pay 

cannot be reduced for absences of less than a day.’’ Id. at 284. In Klein, the Court 

held the RN was not paid on a salary basis because she had her compensatory time 

docked if she missed part of a day and she was suspended for reasons other than 

major safety violations. This case would come out differently under the new regulations. 

Another example is Elwell v. University Hospitals Home Care Services, 276 F.3d 

832 (6th Cir. 2002), which also involved a nurse. The nurse was also held to be nonexempt on the grounds that she was not paid on a salary basis. ‘‘Because the undisputed facts show that Elwell’s compensation arrangement was based at least in part 

on the number of hours she worked, we conclude that the district court correctly 

awarded summary judgment to the plaintiff as to University’s claim that she was 

an exempt professional.’’ Id. at 839. This case would also come out differently under 

the new regulations. 

The new regulations will allow employers to pay employees such as these RNs for 

hours worked in excess of 40 in a workweek 2 at straight, as opposed to overtime, 

rates or to ‘‘pay’’ them in compensatory time off. This is expressly provided for in 

the new regulations which indicate that ‘‘the exemption is not lost if an exempt employee who is guaranteed at least $455 each week paid on a salary basis also receives additional compensation based on hours worked beyond the normal workweek’’ and that ‘‘[s]uch additional compensation may be paid on any basis... and 

many include paid time off.’’ § 541.604(a). 

Thus, under the new regulations employers will be able to both closely control employees’ time, requiring them to punch a clock, and at the same time deny them 

overtime compensation. This will lead to the exemption of a large number of employees who previously failed the salary basis test. 

WIDENING OF WINDOW OF CORRECTION

The old regulations allowed employers to correct only inadvertent deductions from 

pay in order to preserve the exempt status of employees. The old regulations provided, ‘‘where a deduction not permitted by these interpretations is 

inadvertent... the exemption will not be considered to have been lost if the employer reimburses the employee for such deductions and promises to comply in the 

future.’’ 29 C.F.R. § 541.118(a)(6). 

The new regulations provide that the exemption is not lost unless the employer 

‘‘did not intend to pay employees on a salary basis.’’ § 541.603(a). It further provides, 

‘‘An actual practice of making improper deductions demonstrates that the employer 

did not intend to pay employees on a salary basis.’’ § 541.603(a). Proving a practice 

of making deductions requires more than proving deductions were intentionally 

made. § 541.603(a). Intentional improper deductions will not cause a loss of exempt 

status if they are ‘‘isolated.’’ § 541.603(c). Moreover, even if the employer has a practice of making improper deductions, the exemption is only lost during the time period of the deductions and for those employees in the same class, working for the 

same manager. § 541.603(b). Finally, a complete safe-harbor is created for employers 

who simply communicate a policy (which need not be in writing) forbidding improper deductions that includes a complaint mechanism, reimburse employees subject to improper deductions and promise to comply in the future. § 541.603(d). This 

will insulate the employer unless the employer ‘‘willfully violates the policy by con-
21 

tinuing to make improper deductions after receiving employee complaints.’’ 

§ 541.603(d). 

The Department makes clear that the final rule is a departure from its prior position. Preamble at 233. 

DEPARTURE FROM WORKWEEK ANALYSIS

Consistent with Congress’ creation of a standard 40 hour workweek, the Department has long used the workweek as the unit of analysis under the Act. Thus, for 

example, the minimum salaries under the old short and long tests were established 

on a workweek basis. See, e.g., 29 U.S.C. § 541.1(f). The new regulations depart from 

this analysis in creating a highly paid employee category. They provide that an employees whose ‘‘total annual compensation is at least $100,000 is exempt if he or 

she ‘‘customarily and regularly performs any one or more of the exempt duties.’’ 

§ 541.601(a). Moreover, they permit employers to retroactively adjust employees’ salary after the end of the year. Under the new rules, an employer that fails to pay 

an employee the required amount by the end of the year can make up the difference 

by the end of the next pay period. § 541.601(b)(2). Thus, an employer can wait until 

the end of the year, compare its potential overtime liability to the salary deficit and 

decide to avoid the former by paying the latter. The employee, meanwhile, cannot 

determine if he or she must be paid in accordance with the Act’s requirements until 

the end of the first pay period of the new year. 

EXEMPTION OF LOW LEVEL MANAGERS AND ASSISTANTS WHO SPEND LARGE AMOUNTS

OF TIME PERFORMING RANK-AND-FILE DUTIES

The old regulations contained a section governing ‘‘working foremen,’’ i.e., employees who have some management functions, but also perform rank-and-file work. 29 

C.F.R. § 541.115. Its express intent was to ‘‘distinguish between the bona fide executive and the ‘working’ foreman or ‘working’ supervisor who regularly performs ‘production’ work or other work which is unrelated or only remotely related to this supervisory activities.’’ 29 C.F.R. § 541.115(a). The old regulations provided that a 

working foreman who spent more than 20 percent of his time performing the same 

work as his subordinates or other nonmanagerial work was not exempt. 29 C.F.R. 

§ 541.115(b). 

The new regulations eliminate this provision. In fact, the new regulations expressly provide, ‘‘Concurrent performance of exempt and nonexempt work does not 

disqualify an employee from the executive exemption.’’ § 541.106(a). The new regulations add, ‘‘For example, an assistant manager in a retail establishment may perform work such as serving customers, cooking food, stocking shelves and cleaning 

the establishment, but performance of such nonexempt work does not preclude the 

exemption.’’ § 541.106(b). The new regulations thus permit the exemption of employees who spend most of their time, even all of their time, on ordinary work B cooking, 

stocking, cleaning—so long as they also have management functions that can be 

designated their ‘‘primary duty.’’ 

Prior decisions about such employees, such as assistant managers in fast food restaurants, consistently held that they failed the old long-test because they performed 

too much nonexempt work. See Donovan v. Burger King Corp., 675 F.2d 516 (2d Cir. 

1982); Marshall v. Erin Food Services, Inc., 672 F.2d 229 (1st Cir. 1982); Donovan 

v. Burger King Corp., 672 F.2d 221 (1st Cir. 1982). By wholly eliminating the long 

test and the working supervisors provisions and providing that exempt employees 

can perform exempt and nonexempt duties at the same time, the new regulations 

strip low-level managers at the bottom of the salary range who perform substantial 

amounts of ordinary rank-and-file work of the Act’s protection. 

WIDENING OF EXEMPTION FOR 20 PERCENT OWNERS

The old regulations contained an exception to the tolerance limits on performance 

of nonexempt work for an employee who owns at least a 20 percent interest in the 

enterprise. 29 C.F.R. § 541.1(e). All of the other requirements for exemption still had 

to be met by such an employee. The new regulations simply define a 20 percent 

owner as exempt if he or she ‘‘is actively engaged in [the enterprise’s] management.’’ 

§ 541.101. 

NARROWING THE DEFINITION OF NOT ‘‘DIRECTLY RELATED TO MANAGEMENT’’ 

Both the old and new regulations require that the work of administrative employees be ‘‘directly related to the management or general business operations of the employer or the employer’s customers.’’ New § 541.200. However, the old regulations’ 

interpretations defined the term ‘‘directly related to management policies or general 
22 

business operations’’ not to include ‘‘ ‘production’ or, in a retail or service establishment, ‘sales’ work.’’ 29 C.F.R. § 541.205(a). The new regulations contain a narrow 

exclusion. They provide that the term ‘‘related to the management or general business operations’’ does not include ‘‘working on a manufacturing production line or 

selling a product.’’ § 541.201(a). 

CREATION OF EXPRESSLY EXEMPT CLASSIFICATIONS

The old legislative regulations did not expressly exempt any named classifications 

of employees. The regulations were divided into legislative regulations having the 

force of law and interpretive regulations having only persuasive force. In the old interpretive regulations, the Department gave some examples of how the legislative 

regulations would apply to certain classifications, for example, registered nurses. 29 

C.F.R § 541.301(e)(1). But these examples did not have the force of law. 

The new regulations eliminate the interpretive sections and include numerous express designations of specific classes of employees as exempt in the legislative sections. This departs from the long-established proposition that job titles alone are not 

determinative of exempt status. Indeed, the new regulations continue to state that 

‘‘[a] job title alone is insufficient to establish the exempt status of an employee’’ and 

that ‘‘[t]he exempt status of any particular employee must be determined on the 

basis of whether the employee’s salary and duties meet the requirements of the regulations.’’ § 541.2. But the novel, express designation of a specified classification as 

exempt in the legislative regulations is a marked departure from this principle. 

CREATION OF EXEMPTION FOR TEAM LEADERS

Under the heading, ‘‘Administrative exemption examples,’’ the new regulations include, ‘‘[a]n employee who leads a team of other employees assigned to complete a 

major project 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)... even if the 

employee does not have direct supervisory responsibility over the other employees 

on the team.’’ § 541.203(c). This is a broad new category of exempt employees. 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. 

There was no parallel provision in the old regulations. The old regulations long 

test for administrative employees did include an employee ‘‘[w]ho executes under 

only general supervision special assignments and tasks.’’ 29 U.S.C. § 541.3(c)(3). But 

a ‘‘special project’’ is far different from a ‘‘major project’’ because a special project 

is a project outside the ordinary work of the employer while a major project is simply an important project. Thus, the small category of previously exempt special 

project employees were those who worked on extraordinary projects as staff (as opposed to line) employees (29 U.S.C. § 541.201(a)(2)) outside the ordinary routine of 

the employer’s business. The newly exempt team leaders can work on major project 

on a continuous basis as an integral part of the employer’s business. 

In addition, special project employees under the old regulations also had to have 

as his or her primary duty the ‘‘performance of office or non-manual work directly 

related to management policies or general business operations,’’ had to ‘‘customarily 

and regularly exercise discretion and independent judgment,’’ and could not devote 

more than 20 percent of his or her time to nonexempt work. 29 C.F.R. § 541.2(a)– 

(d). The new regulation expressly eliminated the 20 percent tolerance level which 

is critically important because most project and team leaders also perform the ordinary duties of the other members of the team in substantial quantities. By stating 

that team leaders ‘‘generally meet the duties requirements,’’ the new regulations encourage employers and courts to assume that all elements of the exemption are met 

for employees so designated. 

CREATION OF CATEGORICAL EXEMPTION OF FINANCIAL SERVICES EMPLOYEES

New § 541.203 provides that ‘‘[e]mployees in the financial services industry generally meet the duties requirements for the administrative exemption. This exempts 

a vast range of employees with the only exception being those ‘‘whose primary duty 

is selling financial products.’’ The classification of all employees in an industry as 

exempt is a radical departure from prior practice under which it was universally 

held (as discussed above) that exemption depended on the actual duties performed 

by individual employees. 

The Department justifies this blanket industry exemption by reference to a handful of cases, all but one arising out of insurance companies and with the one excep-
23 

tion arising out of a management consulting firm and not the financial services industry. Preamble at 95–102. 

Moreover, the case law is not as uniform as the Department suggests because in 

Casas v. Conseco Finance Corp., 2002 U.S.Dist. LEXIS 5775 (D.Minn. 2002), the 

Court ruled that almost 3,000 ‘‘loan originators’’ employed by Conseco did not fall 

into the administrative exemption because they were line rather than staff employees. The Court found that the employees’ primary duties were ‘‘to produce the very 

product that Conseco exists to produce: design, create and sell loans.’’ Id. at *21. 

The Department is not correct when it suggests this decision was based solely on 

a finding that the employees’ primary duty was sales. Preamble at 98. The new regulation would reverse this decision and all others based on similar reasoning unless 

the primary duty of the employees at issue is the selling of financial products. 

CREATION OF EXEMPTION FOR INSURANCE CLAIMS ADJUSTORS

The new regulations expressly provide that insurance claims adjusters ‘‘generally 

meet the duties requirements for the administrative exemption.’’ § 541.203(a). Prior 

case law has held some claims adjustors nonexempt. See, e.g., Bell v. Farmers Ins. 

Exchange, 115 Cal.App.4th 715, 9 Cal.Rptr.3d 544 (2004) (decided under state law 

but following federal precedent). As recently as February 26, 2004, multidistrict litigation involving claims representatives employed by Farmers Insurance Exchange 

resulted in a holding that several categories of such representatives are nonexempt. 

In re Farmers Ins. Exchange Claims Representatives’ Overtime Pay Litigation, MDL 

Docket No. 33–1439 (D.Or. Feb. 16, 2004). 

CREATION OF EXEMPTION FOR CHEFS

The new regulations provide that chefs with a four-year degree in culinary arts 

are exempt learned professionals. § 541.301(e)(6). This is a significant expansion of 

the types of employees who can be classified as learned professionals for several reasons. First, the old regulation defined as professionals only those who worked in a 

field requiring knowledge ‘‘in a field of science or learning customarily acquired by 

a prolonged course of specialized intellectual instruction and study.’’ 29 C.F.R. 

§ 541.3(a)(1). Most chefs do not acquire their knowledge through such a prolonged 

course of study, yet the new regulation nevertheless exempts the minority of chefs 

who do. Second, cooking has never before been classified as a ‘‘field of science or 

learning.’’ Third, cooking is manual labor. Thus, the new exemption of chefs is a significant expansion of the learned professional exemption. The new exemptions for 

athletic trainers and funeral directors, discussed below, share several of these novel 

characteristics. 

CREATION OF EXEMPTION OF ATHLETIC TRAINERS

The new regulations provide for the first time that athletic trainers are exempt 

learned professionals. The Department acknowledges in its preamble to the final 

regulations that ‘‘[i]n the past, the Department has taken the position that athletic 

trainers are not exempt learned professionals.’’ Preamble at 135. 

CREATION OF EXEMPTION OF FUNERAL DIRECTORS

The new regulations also provide for the first time that funeral directors are exempt learned professionals. The Department also acknowledges that ‘‘[i]n the past, 

the Department has taken the position that licensed funeral directors and embalmers are not exempt learned professionals.’’ Preamble at 138. In fact, as recently as 

2000, the Department filed an amicus brief arguing this position. Preamble at 138. 

LOOSENING OF STANDARDS FOR EXEMPTION OF TEACHERS

The old regulations short test required that teachers be paid on a salary basis and 

perform work requiring the consistent exercise of discretion. 29 U.S.C. § 541.3(e). 

The old regulations long test required that teachers be paid on a salary basis, perform work requiring the consistent exercise of discretion, and perform work that is 

predominantly intellectual and varied. 29 U.S.C. § 541.3(a) (3). 

The final regulations eliminate all these requirements. § 541.303. 

EXPANSION OF EXPRESSLY EXCLUDED CLASSES OF PROFESSIONALS

The old regulations interpretations listed a number of occupations as falling into 

the category of learned professions. The new legislative regulations expand the list 

of exempt occupations to include dental hygienists and physicians assistants as well 

as the specific classification discussed above. § 541.301(e). 
24 

REMOVAL OF PRESUMPTION AGAINST EXEMPTION OF JOURNALISTS

The Department contends in the preamble to the final regulations that the regulations were ‘‘intended to reflect current federal case law regarding the status of journalists as creative professionals. Preamble at 145. The Department quotes the conclusion in one such case that it is the Aminority of reporters ‘whose work depends 

primarily on invention, imagination, or talent.’ ’’ 146 (quoting Reich v. Newspapers 

of New England, Inc., 44 F.3d 1060, 1075 (1st Cir. 1995)). 

The old regulations were consistent with this case law. They provided, ‘‘[o]bviously 

the majority of reporters do work which depends primarily on intelligence, diligence, 

and accuracy. It is the minority whose work depends primarily on invention, imagination, or talent.’’ 29 C.F.R. § 541.302(d). ‘‘The reporting of news, the rewriting of 

stories received from various sources, or the routine editorial work of a newspaper 

is not predominantly original and creative in character... and must be considered as nonexempt work.’’ 29 C.F.R. § 541/302(f)(2). The new regulations, in contrast, to not contain any of this language. § 541.302(d). They provide: 

‘‘Journalists may satisfy the duties requirements for the creative professional exemption if their primary duty is work requiring invention, imagination, originality 

or talent, as opposed to work which depends primarily on intelligence, diligence and 

accuracy. Employees of newspapers, magazines, television and other media are not 

exempt creative professionals if they only collect, organize and record information 

that is routine or already public, or if they do not contribute a unique interpretation 

or analysis to a news product. Thus, for example, newspaper reports who merely rewrite press releases or who write standard recounts of public information by gathering facts on routine community events are not exempt creative professionals. Reporters also do not qualify as exempt creative professionals if their work product 

is subject to substantial control by the employer. However, journalists may qualify 

as exempt creative professionals if their primary duty is performing on the air in 

radio, television or other electronic media; conducting investigative interviews; analyzing or interpreting public events; writing editorials, opinion columns or other 

commentary; or acting as a narrator or commentator.’’ 

§ 541.302. The removal of the express presumption that journalists are non-exempt 

and other changes in the language of the regulation will obviously encourage employers improperly to treat journalists as exempt and argue that they satisfy the 

standard articulated in the new regulation. 

WIDENING OF THE COMPUTER PROFESSIONAL EXEMPTION

The old regulations made clear that the exemption of computer professionals applied only to those at the highest levels of the profession. They applied only to employees performing ‘‘[w]ork that requires theoretical and practical application of 

highly-specialized knowledge in computer systems analysis, programming, and software engineering.’’ 29 C.F.R. § 541.3(a)(4). The old regulations interpreted this provision to apply ‘‘only to highly-skilled employees who have achieved a level of proficiency in [these areas].’’ 29 C.F.R. § 541.303(c). The new regulations eliminate the 

prefatory language and its interpretation, thus exempting all employees working in 

these computer fields. § 541.400(b). 

WIDENING OF THE OUTSIDE SALES EXEMPTION

The old outside sales exemption contained a 20 percent limit on the amount of 

non-outside sales work an exempt employee could perform. 29 C.F.R. § 541.5(b). The 

new regulation eliminates this tolerance level. § 541.500. In light of this change, the 

Department’s contention that the ‘‘primary duty test is relatively simple, understandable and eliminates much of the confusion and uncertainty that are present 

under the existing rule’’ is difficult to comprehend. Preamble at 160. The 20 percent 

tolerance level was a bright line rule. Elimination of the 20 percent tolerance level 

will both render more employees who perform some outside sales work exempt and 

create additional litigation concerning when employees have outside sales as their 

primary duty. 

CONCLUSION

In each of these respects and in others too numerous to describe comprehensively 

here, the new regulations widen the exemptions and thereby make it more difficult 

to achieve Congress’ objective of creating national wage and hour standards. 
25 

STATEMENT OF DAVID S. FORTNEY, PARTNER, FORTNEY & SCOTT, 

LLC 

Senator SPECTER. Thank you very much, Mr. Becker. 

We turn now to Mr. David Fortney, co-founder of Fortney and 

Scott, a Washington-based firm specializing in labor and employment issues. He had been with the Department of Labor in the capacity of acting solicitor and chief legal officer, a bachelor’s degree 

from Penn State and a law degree from Duquesne. Thank you for 

joining us, Mr. Fortney, and we look forward to your testimony. 

Mr. FORTNEY. Good morning, Mr. Chairman and members of the 

subcommittee. It is a privilege to be here again to discuss what we 

now have as the final regulations, whereas before, the committee 

was looking at the proposed regulations. 

Without spending too much time on it, let us remember where 

we are coming from. We are coming from current regulations that 

I think everyone agrees, even those that perhaps are challenging 

these regulations, the current regulations do not work well. They 

create a morass. They create uncertainty. 

My primary practice is working with employers to help them 

comply. I will tell you typically an employer will come and say, how 

are we supposed to compensate people? And as someone who has 

spent a great deal of time, both at the Labor Department trying to 

enforce and in the private sector trying to work with various employers, answering those questions is sometimes unnecessarily difficult and it results in giving less than satisfactory answers. Those 

are the so-called weasel answers that lawyers give that drive employers crazy. Well, I think it is probably this way. 

These regulations in my view are a significant step forward in 

clarifying the rules. They do provide more certainty, and they do, 

I think, responsibly address the current environment, in which we 

have seen what are the current salary requirements, which are a 

technical morass and has resulted in the slightest error in how people are compensated, resulting in hundreds if not millions of dollars in liabilities and really creating a frenzied litigation lottery. 

Moreover, the duties tests—the way they have been defined in 

the current regulations where the regulations are vague, you look 

at field operation handbooks and other guidance in court cases that 

I would suggest are not readily available to employers and certainly not to small business people, or to employees for that matter, 

are now at least codified within the rules in a much clearer, more 

concise fashion. 

With respect to specifics, this is not all a pro-employer set of 

changes. In general, these rules codify the current requirements. 

There are several substantive changes, however. 

With respect to executives, the requirements are more rigorous 

now than they have been under the current law. Now there is a 

requirement to have hire and fire authority to some degree. Under 

the current rule, there are many folks who are properly exempt 

from overtime who do not have such authority. 

The administrative exemption, which has received I think the 

lion’s share of the focus of the hearing and the criticism, I submit 

is codifying what rules we have there. Now, the rules may not be 

perfect, and as Ms. McCutchen indicated in her statement, a proposal was made to change those rules. I think generally everyone 
26 

said, wait a minute, do not give us a new test that is vague and 

uncertain. If those are our choices, we will take the existing test, 

clarify it, which I think is what the Department has done. We now 

have a test within the four corners of the reg that is supported by 

the court decisions that go behind it. So it is more than just the 

words, it is the whole fabric that goes with it, and I think that is 

very, very helpful. 

Professional exemptions again have been clarified appropriately 

and in my view have not been expanded or changed. There is one 

new addition. It is certainly a new exempt category that has before 

not existed, the so-called highly compensated, and that focuses on 

$100,000. The Labor Department, though, has modified that some. 

So it is not just that you are paid $100,000. First of all, they have 

made clear no matter how much you are paid, if you are blue collar, that is, do primarily manual work, work with your hands, you 

get overtime. It does not matter whether we call you a team leader. 

It does not matter whether you are highly compensated earning 

more than $100,000. You get overtime. The rules are crystal clear 

on that. There is no room for doubt or wiggle on that. 

PREPARED STATEMENT

With respect to the highly compensated, though, we are talking 

about folks who have to perform at least one duty and have to be 

paid in accordance with the salary requirements at the minimum 

of $455 per week. 

With that, I will save my time for answering questions as they 

may come up. I know there are a lot of areas that I think the chair 

and others would like to discuss. Thank you. 

[The statement follows:] 

PREPARED STATEMENT OF DAVID S. FORTNEY

Mr. Chairman, Members of the Subcommittee. My name is David Fortney, and 

I am a co-founder of the law firm, Fortney & Scott, LLC in Washington, DC. I am 

testifying today to provide the Subcommittee with my assessment of the U.S. Department of Labor’s newly promulgated Final Regulations governing overtime in the 

workplace. My testimony reflects my experience as a practicing labor and employment attorney for twenty four years, as well as my previous experience at the U.S. 

Department of Labor, where I served as the Deputy Solicitor and Acting Solicitor 

during the first Bush Administration, under Secretaries of Labor Elizabeth Dole and 

Lynn Martin. In my positions at the Labor Department, my responsibilities included 

the interpretation and enforcement of the Fair Labor Standards Act of 1938 

(‘‘FLSA’’), as amended, and the regulations implementing the FLSA, including the 

‘‘white-collar’’ exemption regulations that are the focus of today’s hearing and that 

provide exemptions from overtime and minimum wage for ‘‘white-collar’’ jobs, including executive, administrative and professional positions. In addition to my government experience, I have extensive experience and expertise in counseling and advising employers to comply with the white-collar regulations and to respond to the 

growing number of class action claims being filed against employers. I will discuss 

my experience and views on these matters in the context of the newly promulgated 

white-collar exemption regulations. 

INTRODUCTION AND OVERVIEW OF THE FLSA WHITE-COLLAR EXEMPTION REGULATIONS

The white-collar exemption regulations are dramatically outdated and have imposed significant confusion and uncertainty in determining who is, and who is not, 

exempt from the FLSA’s minimum wage and overtime requirements. The FLSA imposes minimum wage and overtime requirements on covered employers, but also, in 

29 U.S.C. § 213 (a), provides certain exemptions from these requirements. Section 

213 (a) states that the minimum wage and overtime requirements shall not apply 

to any employee employed in a bona fide executive, administrative, or professional 
27 

capacity or in the capacity of outside salesperson. Section 213 also authorizes the 

Secretary of Labor to ‘‘define and delimit’’ these exemptions. As you know, the regulations for implementing these statutory exemptions—commonly referred to as the 

‘‘white-collar’’ exemptions—are codified at 29 CFR Part 541. The white-collar exemption regulations impose two requirements for a job to be classified as exempt. First, 

the employee must be paid on a salary basis and at the required salary level. And, 

second, the job duties must involve managerial, administrative or professional skills 

and duties. 

THE CURRENT WHITE-COLLAR EXEMPTION REGULATIONS ARE OUTDATED AND REQUIRE

COMPREHENSIVE REFORM

The problem that all stakeholders face under the current regulations, including 

employers, employees and the Labor Department, is in trying to apply the outdated 

regulations to today’s workplace. The duties tests were last modified in 1949—over 

50 years ago—and have remained essentially unchanged since that time. The salary 

basis was added to the regulations in 1954 and was last updated in 1975—over 25 

years ago. As a result, the long-outdated requirements create uncertainty and frustrate compliance efforts. For example, the ‘‘long test’’ for determining whether an 

employee is exempt from the overtime provisions of the statute is currently triggered by a weekly salary of only $155, a figure so out-of-date that it renders the 

long test meaningless. Virtually every salaried employee earns more than $155 per 

week and is therefore potentially outside the overtime protections of the law. Indeed, if an employee is paid the minimum wage of $5.15 per hour, which equals 

$206 for a 40-hour workweek, the long test is met. Moreover, the alternative salary 

test of $250 for ‘‘highly compensated’’ exempt employees (the ‘‘short test’’) is nearly 

met with the minimum wage and, as a practical matter, is not a useful tool. Therefore, as a practical matter, because of the general obsolescence of the salary test, 

and assuming that the technical salary requirements are satisfied, typically the 

evaluation of whether jobs properly are classified as exempt primarily turns on the 

duties requirements. 

The duties tests, however, have proven to be a vast ‘‘gray’’ area, because the current regulations are too vague. As a result, both employers and the Labor Department are faced with inconsistent results that often are no more certain than the 

next court decision. In particular, the administrative exemption’s requirements, 

which require exempt employees to perform ‘‘staff’’ rather than production or sales 

work, and exercise ‘‘discretion and independent judgment’’ on important matters in 

managing the employer’s general business operations, are particularly difficult to 

apply. For example, a court ruled that a project superintendent, who supervised 

three large construction projects for a construction management company, earning 

an annual salary of $90,000, was not an exempt administrative employee. The court 

reasoned that under the staff versus production dichotomy, the employee ‘‘produced’’ 

construction project management and thus was a nonexempt production employee. 

See Carpenter v. R.M. Shoemaker Co., 2002 WL 987990, 7 Wage & Hour Cas. 2d 

(BNA) 1457 (E.D. Pa. May 6, 2002). Similarly, the professional exemption was found 

not to apply to network communications specialists who had advanced physics, 

mathematics and engineering degrees, and who trained mission control personnel, 

because, the court held, the employees failed to exercise discretion, because they 

used technical manuals and made group decisions. Hashop v. Rockwell Space Operations, 867 F. Supp. 1287 (S.D. Texas 1994). 

The result is that the current vague regulations result in unintentional noncompliance and resulting liabilities. The significant increase in employment claims 

is a clear indication that the current rules are not working—why should we have 

escalating claims when the rules have not changed? Wage and hour class actions 

now are the most frequently filed class action claims employers face, and individual 

wage and hour lawsuits doubled in 2002. 

In my experience, the explanation for these unacceptable developments is simple—plaintiffs’ lawyers have discovered that the outdated regulations provide an excellent basis for filing ‘‘gotcha’’ claims that primarily benefit the attorneys. Moreover, under the current outdated rules, employers often are required to secure expensive legal guidance on what is required to secure compliance, and even then the 

best that typically can be provided is somewhat guarded advice. As one of our clients once asked me, why should extensive good faith compliance efforts have the 

same feel as spinning a roulette wheel? 

Everyone—perhaps with the exception of a small cadre of plaintiffs’ lawyers who 

are making huge fees filing these wage and hour class action lawsuits—agrees that 

the outdated regulations require revision, because the rules are not only vague and 

ambiguous but also difficult to apply to many positions in today’s modern workplace. 
28 

The U.S. General Accounting Office (‘‘GAO’’) review of regulations in 1999 recommended that the Secretary of Labor comprehensively review and make the necessary changes to the white-collar regulations to better meet the needs of both employers and employees in the modern workplace and to anticipate future workplace 

trends. The GAO’s recommendations recognized the problems in achieving compliance. My personal experience has been that it often is difficult to advise employers 

because the rules are not clear. Additionally, the judicial interpretations vary and 

compound the problems in securing compliance. Moreover, it is my belief, based on 

my personal experience, that these same factors pose challenges to the Labor Department’s ability to effectively and efficiently enforce these rules in a uniform and 

consistent manner. 

OVERVIEW OF THE CHANGES IN THE FINAL OVERTIME REGULATIONS

The Final Regulations, to be codified at 29 CFR Part 541, provide clarified tests 

for the executive, administrative and professional exemptions. See 69 Fed Reg 

22122–22274 (April 23, 2004). These new regulations should make compliance easier 

and provide greater certainty. This result directly benefits all stakeholders—employers, employees and the Labor Department. Greater compliance should directly result 

in lower litigation claims and resulting exposures. Although the higher standard salary test of $455 per week ($23,660 per year), 

which is nearly a 300 percent increase from the current long test, may impose a 

hardship on some sectors, this material change is a return to the original exemption 

criteria that required a salary of sufficient magnitude in order for an employee to 

be classified as exempt. Thus, the only employees who will be affected by the new 

higher minimum salary levels are those who will start to receive overtime. The estimates by the Labor Department are that 1.3 million workers now exempt would 

gain overtime protection by the new $455 per week ($23,660 per year) requirement. 

These are employees who today are performing jobs with exempt duties but who are 

being paid below the $455 per week salary requirement. 

The Final Regulations also retain and clarify the two long-standing requirements 

for classifying employees as exempt—the duties and salary tests. The Final Regulations, however, also impose new duties test for some white-collar exemptions, and 

some of the changes result in more demanding requirements. For example, under 

the executive duties test of the Final Regulations, employees are required to (1) 

have a primary duty of managing the entire enterprise or a department or subdivision, (2) direct the work of two or more other workers and (3) have hiring/firing authority or substantial influence over these decisions. This is a more restrictive test, 

and some executives who currently are exempt will no longer be exempt. The Final 

Regulations also provide clarification of existing criteria, many of which are retained. Thus, for example, while the Administrative exemption’s criteria remain essentially unchanged, the Final Regulations provide extensive, helpful examples of 

which administrative job duties are exempt and nonexempt. Similarly, under the 

Professional Exemption of the Final Regulations, the duties test is generally retained (the ‘‘discretion’’ requirement of the long test under the Current Regulations 

is eliminated), but the Final Regulations clarify when education and experience 

qualify an employee as a professional. 

The Final Regulations retain the salary basis requirement that employees be paid 

a fixed, predetermined salary for each week in which the employee performs work, 

but allows employers greater latitude in making pay deductions for, for example, 

employee misconduct and violations of safety and workplace conduct rules. The liability for improper deductions or ‘‘dockings’’ is reasonably limited to the employees 

who are directly affected. 

Finally, the proposed regulations add new eligibility for exempting highly compensated workers with an annual salary of at least $100,000, if they perform office 

or non-manual work, are paid on a salary basis at the rate of at least $455 per 

week, and customarily and regularly meet one of the duties of either an exempt executive, administrative or professional employee. The payment of a salary of 

$100,000 or more does not meet the requirements for the highly compensated exemption unless the duties and salary requirements also are satisfied. 

THE FINAL REGULATIONS PROVIDE MUCH GREATER CLARITY TO THE OVERTIME REQUIREMENTS AND WILL RESULT IN GREATER COMPLIANCE AND OVERTIME PROTECTIONS

The Labor Department deserves significant credit for meeting the challenge of updating the long-ignored overtime rules. Under Secretary Chao’s leadership, the Department successfully has completed a very complex rulemaking. Faced with such 

clearly outdated regulations and with recommendations by the General Accounting 
29 

Office and others urging an overhaul of the regulations, the current Secretary of 

Labor undertook the long-neglected task of providing regulations that are meaningful for the modern workforce. This was a task that earlier Administrations, both 

Democratic and Republican, had considered but shied away from, undoubtedly over 

concern that revising these regulations would be controversial. 

1. The Rulemaking Process Resulting in the Final Overtime Regulations 

In the FLSA, Congress quite consciously left undefined those broad terms describing which jobs were exempt (‘‘any employee employed in a bona fide executive, administrative, or professional capacity’’) and explicitly placed on the Secretary of 

Labor the duty to ‘‘define and delimit’’ the terms used in the exemptions. Congress 

also explicitly provided that the Secretary’s actions in defining and delimiting the 

exemptions are subject to the provisions of the Administrative Procedure Act. 

During 2002, the Department initially met with over 40 interest groups, representing employers and employees, to learn of their suggestions and concerns. On 

March 31, 2003, the Department of Labor published proposed regulations (the ‘‘Proposed Regulations’’) in the Federal Register, and requested comments on the proposal. See 68 Fed Reg 15560–15597 (March 31, 2003). In the preamble to the Proposed Regulations, the Department explained the existing regulations and the 

changes proposed, and provided comparisons between the two. In accordance with 

Executive Order 12866, the proposal included a Preliminary Regulatory Impact 

Analysis, and a regulatory flexibility analysis assessing the impact of the proposed 

regulations on small businesses, as required by the Regulatory Flexibility Act. The 

public had an opportunity to comment on these economic analyses, as well as on 

the substantive provisions of the proposed regulations. 

The rulemaking record remained open for 90 days. When it closed on June 30, 

2003, the Department of Labor had received more than 75,000 comments from a 

wide variety of interests, including employees, employers, trade and professional associations, labor unions, small business owners, Members of Congress and others. 

The proposal also prompted vigorous public policy debate in Congress and the 

media. 

Against this backdrop, the Department issued the Final Regulations, to be codified at 29 CFR Part 541 that provide the much-needed update of the overtime requirements. See 69 Fed Reg 22122–22274 (April 23, 2004). The Final Regulations 

clearly evidence that the Labor Department fully reviewed the comments received 

in the rulemaking record and carefully determined what changes it should make to 

the regulations, based on the comments received. 

2. The Salary Component Will Again Become a Meaningful Criterion 

Among the major improvements achieved by the Final Regulations is the updating 

of the salary requirements, resulting in a restoration of the salary component as a 

meaningful criterion in the determination of whether employees receive overtime. 

The Final Regulations nearly triple the current $155 per week minimum salary 

level required for exempt employees to $455 per week, or $23,660 per year. 29 CFR 

§ 541.600. As a result, any employee earning less than $455 per week will receive 

overtime—regardless of their duties or how they are paid. The Labor Department 

estimates that this change alone results in 1.3 million currently exempt white-collar 

workers gaining overtime protection. At the same time, employers clearly benefit 

from having an unambiguous rule that helps facilitate compliance. 

The Final Regulations also introduce clarity and common sense to the highly com- pensated white-collar employees who earn at least $100,000 per year. 29 CFR 

§ 541.601. These highly compensated employees properly can be classified as exempt 

if they ‘‘customarily and regularly’’ perform any one or more of the exempt duties, 

and receive at least $455 per week on a salary basis. These salary changes are consistent with the underlying purposes of the FLSA, which are to protect overtime for 

those workers who earn the least, and presumably are least able to negotiate adequate compensation arrangements. 

3. The Administrative Exemption is Clarified 

Another improvement implemented by the Final Regulations is the clarification 

of the Administrative exemption. 29 CFR §§ 541.200–541.204. The Proposed Regulations set forth a new duties test for Administrative employees, requiring such employees to hold a ‘‘position of responsibility.’’ Many feared that the introduction of 

a new standard would have the inevitable effect of triggering significant uncertainty 

and litigation regarding the scope of the exemption. In response, the Labor Department’s Final Regulations rejected that new standard and, instead, essentially retain 

the current test for Administrative employees, with significant clarifications and 

better guidance. The result is that employers and employees now have the benefit 

of using long established criteria that is further clarified by the numerous examples 
30 

set forth in the Final Regulations. Thus, under the Final Regulations, a worker who 

is compensated on a salary or fee basis at a rate of not less than $455 per week 

must have as his/her primary duty ‘‘the performance of office or non-manual work 

directly related to the management of the general business operations of the employer or the employer’s customers and whose primary duty must include the exercise of discretion and independent judgment with respect to matters of significance.’’ 

The addition of the requirement of ‘‘matters of significance’’ to the former discretion 

and independent judgment requirement is in keeping with current law and is useful 

in understanding that the Administrative exemption takes into account the level of 

importance or consequences of the work performed. 29 CFR § 541.202. 

Moreover, the listing of examples of the job duties that typically are either exempt 

or non-exempt under the Administrative exemption is particularly useful. 29 CFR 

§ 541.203. The examples essentially codify the major court rulings, and provide 

much needed clarity and certainty in determining whether employees properly can 

be classified under the Administrative exemption. The examples of employees who 

often are exempt include: 

—insurance claims adjusters; 

—financial services industry employees whose duties include ‘‘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’’ (NB: if the employee’s primary duty 

is selling financial products, the exemption is not available); 

—employee who leads a team of other employees assigned to complete major 

projects for the employer; 

—executive assistant or administrative assistant to a business owner or senior executive of a large business; 

—human resources managers who formulate, interpret or implement employment 

policies and management consultants who study the operation of a business and 

propose changes (NB: personnel clerks typically are non-exempt); and, 

—purchasing agents with authority to bind the company on significant purchases. 

On the other hand, examples of workers who typically are not exempt include: 

—inspectors doing ordinary inspection work along standardized lines involving 

well-established techniques and procedures; 

—examiners or graders; 

—comparison shoppers who report a competitor’s price, distinguished from the 

buyer who evaluates the reports on competitors prices; and, 

—public sector inspectors or investigators of various types, such as fire prevention 

or safety, buildings or construction health or sanitation, environmental or soils 

specialists and similar employees. 

These changes to the Administrative exemption in the Final Regulations add 

much needed clarity and make it much easier for employees to be properly classified 

as exempt or non-exempt. The result should be greater compliance with the overtime requirements, which is in the interest of employers and employees alike. 

4. The Learned and Creative Professional Exemptions Are Clarified 

The Final Regulations for the Professional exemption provide much clearer guidance for today and the future, similar in approach to the changes in the Administrative exemption. 29 CFR § 541.300–541.304. The Professional exemption continues to 

be divided into the Learned Professional and Creative Professional categories. 

The Learned Professional test tracks the existing learned professional criteria, 

and streamlines and summarizes the current criteria without material changes. The 

Final Regulations focus on employees with the primary duty of performance of work 

requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction. 29 CFR 

§ 541.301. The proposed regulatory language that would have allowed equivalent 

knowledge ‘‘through a combination of work experience, training in the armed forces, 

attending a technical school, attending a community college of other intellectual instruction’’ has not been included in the Final Regulations. This proposed language 

had been criticized as allowing military training to suffice as training for a learned 

profession, sufficient to qualify for exemption. The Labor Department clarified in the 

Preamble to the Final Regulations that it ‘‘never intended to allow the professional 

exemption based on veterans’ status.’’ 69 Fed Reg 22123. Also see 69 Fed Reg 22150 

(‘‘Thus, a veteran who is not performing work in a recognized professional filed will 

not be exempt, regardless of any training received in the armed forces.’’). 
31 

The Learned Professional regulation includes examples and explanations illustrating the application of the exemption, including occupations that properly are 

classified as exempt, such as: 

—Registered or certified medical technologists who have four years of college and 

course work approved by the Council of Medical Education of the American 

Medical Association; 

—Nurses—registered nurses who are registered by the appropriate State examining board continue to be exempt, as they are and have been under the current 

regulations. Licensed practical nurses generally do not qualify for the learned 

professional exemption; 

—Dental hygienists who have completed four academic years of study approved 

by a designated credentialing body; 

—Physician’s assistants who have completed four academic years of study approved by a designated credentialing body; 

—Accountants—certified public accountants generally are exempt, but clerks and 

bookkeepers are non-exempt; 

—Chefs, including executive and sous chefs with specialized, four year degrees are 

exempt, but fast food cooks and cooks who perform predominantly routine mental, manual, mechanical or physical work are non-exempt; 

—Athletic trainers who have four academic years of pre-professional and professional study in a curriculum accredited by the designated credentialing body; 

—Funeral directors and embalmers who are licensed in states requiring four 

years of study and graduation from an accredited college of mortuary science. 

The new regulations also provide that paralegals generally do not meet the 

learned professional exemption. 

Another significant clarification is that Learned Professionals now can use manuals that provide guidance involving highly complex information pertinent to difficult 

or novel circumstances. See 29 CFR § 541.704. The preamble explains that this new 

section is intended to avoid the absurd result reached by a court, ruling that instructors who trained Space Shuttle ground control personnel were non-exempt because they relied on manuals to assist in their training. 69 Fed Reg 22188–22189. 

This welcome change means that scientists and other learned professionals do not 

become non-exempt technicians if they use manuals that provide general guidance 

on addressing open-ended questions or novel circumstances, as distinguished from 

directions on routine and recurring circumstances. 

Finally, in what will clearly be valuable future guidance, the Final Regulations 

recognize that the areas in which the professional exemption may be available are 

expanding. The Final Regulations provide that when specialized curriculum and 

courses of study are developed by accrediting and certifying organizations similar 

to those listed in the examples, additional Learned Professional exemptions will be 

recognized. 29 CFR § 541.301(f). These provisions will help ensure that the Final 

Regulations continue to be viable and provide guidance for the Learned Professional 

exemption as our workforce continues to develop and change in the 21st Century. 

The Creative Professional exemption under the Final Regulations has been modified primarily with respect to journalists. See 29 CFR § 541.302. The Final Regulations specifically recognize that some journalists may qualify for the exemption, 

while others will not. While the Labor Department did not intend to create an 

across-the-board exemption for journalists, the Final Regulations reflects the status 

of case law, which recognizes that ‘‘the duties of journalists vary along a spectrum 

from the exempt to the nonexempt. The determination of whether a journalist is exempt must be made on a case-by-case basis.’’ 69 Fed Reg 22158. 

5. The Executive Exemption is More Restrictive 

The most significant changes to any exempt classification are those relating to the 

Executive exemption. 29 CFR §§ 541.100–541.106. While the Final Regulations 

maintain many of the same requirements and definitions of the current regulations, 

the Final Regulations do make significant changes to the exemption qualification 

criteria. Most notably, the Final Regulations impose a requirement that executives 

must have either the authority to hire or fire other employees or that such executives’ suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status be given ‘‘particular weight’’ (the ‘‘Hire/Fire 

Requirement’’). 29 CFR § 541.100(a)(4). While this requirement exists under the long 

test of the current regulations, it is rarely invoked because most executives qualify 

under the short test that contains no such requirement. Thus, for many employers, 

this new, more restrictive criterion may limit the number of employees who can 

qualify as exempt under the Executive exemption. In fact, many executives who currently are exempt may lose their exempt status. Although most employers and their 

representatives did not favor the restriction of the Executive exemption with the ad-
32 

ditional requirement of the hire/fire authority, employers at least have the benefit 

of reasonably clear requirements. Realistically, employers will need to assess whether currently exempt executive employees meet this new criterion. 

The Final Regulations also modify the executive exemption for a business owner 

by adopting the new classification of exempt executive employee proposed in the 

Proposed Regulations; i.e., any employee who owns at least a bona fide 20 percent 

equity interest in the enterprise in which the employee is employed and who is actively engaged in its management. 29 CFR § 541.101. The Final Regulations, however, modify the Proposed Regulations in two material ways. First, the Final Regulations require that an owner/employee’s 20 percent business interest be a ‘‘bona 

fide’’ one. This was designed to insure that the ownership in the business must be 

genuine, not illusory. Second, the Final Regulations require the owner/employee to 

be ‘‘actively engaged’’ in the business’ management. Moreover, in the case of a 20 

percent business owner, the salary threshold of $455 does not apply. The Final Regulations make additional changes to the executive exemption. The ‘‘sole charge’’ exemption is eliminated completely. Also, the Final Regulations make clear that performing exempt and nonexempt duties concurrently will not disqualify an employee 

from the executive exemption, if the employee meets the other requirements of the 

executive exemption. 29 CFR § 541.106. The determination of whether the employee 

meets the other requirement when he/she performs concurrent duties is made on a 

case-by-case basis. 

6. The New Regulations Require that the ‘‘Primary Duty’’ be the Performance of Exempt Duties 

The Final Regulations adopt the requirement that the ‘‘primary duty’’ constitute 

exempt duties. 29 CFR § 541.701. The primary duty requirement replaces the current regulations that limited the percentage of time to activities that were not directly and closely related to exempt work, as in the Outside Sales exemption discussed below. Under the current regulations, often 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 adoption of the 

primary duty standard will avoid the need for such expensive and time consuming 

analyses and promotes greater compliance. 

7. Salary Deductions—The Salary Requirements Are Clarified so that Deductions 

from Pay Now can be Made Due to Suspensions for Infractions of Workplace 

Conduct Rules, and There is a ‘‘Safe Harbor’’ for Employers to Address Improper 

Pay Deductions 

The salary requirements under the Final Regulations continue to prohibit partial 

day deductions or ‘‘dockings’’ from exempt employees’ pay. The Final Regulations 

add an exception to the salary basis requirement for deductions from pay due to 

suspensions for infractions of workplace conduct rules. 29 CFR § 541.602(b)(5). This 

added exception reflects recognition of the growing trend to place increased responsibility and risk of liability on employers for their employees’ (exempt and non-exempt) conduct. 69 Fed Reg 22177. 

The effect of improper deductions also is clarified. 29 CFR § 541.603. A practice 

of making improper deductions demonstrates that the employer did not intend to 

pay on a salary basis, as is the case under the current regulations. If there is an 

improper practice of deductions, then the exemption is lost during the time period 

in which the improper deductions were made for the employees in the same job classification working for the same managers responsible for the actual improper deductions. 29 CFR § 541.603(b). This new provision is a significant improvement in the 

current rules. This currently results in a windfall of overtime payments to exempt 

employees who were properly paid on a salary basis, simply because, for example, 

a manager mispaid a small subset or one of the employees. These changes close a 

loophole that resulted in undeserved windfalls to many properly salaried employees. 

Finally, the ‘‘safe harbor’’ provision, codified in 29 CFR § 541.603(d), is a modification of the existing window of correction whereby employers can address improper 

deductions in salary payments. This provision provides that employers with clearly 

communicated policies that include a complaint procedure will not lose the exemption for any employees unless the employer violates the policy by continuing to 

make improper deductions after receiving employee complaints. This provision creates helpful incentives for employers to promulgate clear policies about how employees should be paid, thereby enabling employees to help police compliance. The provision also provides a mechanism for employers to be promptly advised if salary payment discrepancies occur and allows employers to take necessary remedial action. 

The revisions to the salary deductions and the safe harbor for investigation and 

corrections of improper salary deductions are significant steps in enabling employers 
33 

to comply with the overtime rules, while avoiding disproportionate windfalls to unaffected employees. Similarly, the provisions empower employees, who can take steps 

to help ensure prompt compliance. 

8. There are Limited Changes to the Computer and Outside Sales Exemptions 

The Final Regulations make limited changes to the Computer and Outside Sales 

exemptions, codified at 29 CFR §§ 541.400–.402 and 541.500–.504, respectively. The 

Computer exemption regulation consolidates all of the regulatory guidance on computer occupations into a new regulatory subpart. The consolidation of the Computer 

regulations will help ensure that the exemption is applied properly. The Outside 

Sales exemption’s primary change is the imposition of the primary duties discussed 

above, and the elimination of the 20 percent limit on duties in the current regulations. 

9. Conclusions About the Final Regulations 

The Final Regulations are a significant improvement over the current regulations 

and will result in improved compliance in administering the exempt classifications. 

The Final Regulations are more concise, easier to understand, clearer in scope, and 

drafted in a manner that will make them easier to apply in the changing workplaces 

we face in the 21st Century. The elimination of exemptions for persons making less 

than $23,660 ($455 per week) means that all such employees will be eligible for 

overtime. The Final Regulations also eliminate many of the technical requirements 

and are much easier for a human resources representative or business owner to understand and follow. The changes in the salary rules will promote greater compliance and limit overtime payments to those employees who were affected by the 

practices that violate the salary requirements. The safe harbor changes will encourage employers to have clear compensation practices and complaint procedures to ensure that employees are properly compensated without the delay, costs and uncertainty of litigation. 

MISINFORMATION AND CONFUSION RELATING TO THE FINAL OVERTIME REGULATIONS

There also has been a significant amount of confusion resulting from inaccurate 

information and news stories relating to the Final Regulations, and I would like to 

briefly address some of those matters. One common misconception is that the Final 

Regulations result in a ‘‘take away’’ of overtime on a widespread basis. This is not 

the case. Although we can allow economists to project the impact of the Final Regulations, the only changes that are guaranteed are that 1.3 million workers gain 

overtime protection because of the new $455 per week requirement. 

Many employees’ representatives have raised false alarms, claiming that their exempt/non-exempt status will be changed by the Final Regulations. Take nurses, for 

example. Registered Nurses currently are exempt, even though the overwhelming 

majority receives shift premiums or similar additional payment as a result of market factors and that classification remains unchanged. Generally, Licensed Practicing Nurses currently are not exempt, and their status also has not changed. The 

Final Regulations provide that RNs are exempt, 29 CFRR § 541.301(e)(2), and the 

Preamble provides that the Labor Department ‘‘.... did not and does not have 

any intention of changing the current law regarding RNs, LPNs or other similar 

health care employees. . . .’’ 69 Fed Reg 22153. Thus, claims by nurses that the 

Final Regulations have, in some way, negatively affected nurses’ status, are simply 

not true. 

The Final Regulations also include similar provisions specifying that police officers, firefighters paramedics, emergency medical technicians and similar public safety employees are non-exempt. 29 CFRR § 541.3(b). Again, this continues the same 

status that these occupations have under the current regulations. 

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. 29 CFR 

§ 541.3(a). Again, there is no change from the current regulations. These are, and 

have always been, the ‘‘white-collar’’ exemption regulations. 

Finally, the claim that the Proposed Regulations would have allowed military experience to be used as a course of study sufficient to justify a Learned Professional 

exempt status has been refuted by the Labor Department. In the Preamble to the 

Final Regulations, the Labor Department notes that it was ‘‘. . . never intended to 

allow the professional exemption based on veterans’ status.’’ 69 Fed Reg 22123. Also 

see 69 Fed Reg 22150 (‘‘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.’’). Thus, in order to avoid any confusion on the matter, the language 

in Section 541.301(d) of the Final Regulations defining the criteria for Learned Pro-
34 

fessionals 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 the exemption, determined on a case-by-case basis. 

CONCLUSION

Where do we stand today? The Department of Labor has completed a protracted 

and long overdue rulemaking process. The current regulations are not serving anyone’s interests except those of class action lawyers. The employment community— 

employers, employees and government enforcement agencies alike—should embrace 

the Final Regulations as a great step forward in creating working guidelines that 

all can understand and implement as we move headfirst into the 21st Century 

workplace. 

Thank you for your time. I will be happy to answer any questions you may have. 

STATEMENT OF ROSS E. EISENBREY, VICE PRESIDENT, ECONOMIC 

POLICY INSTITUTE 

Senator SPECTER. Thank you very much, Mr. Fortney. 

Our next witness is Mr. Ross Eisenbrey, vice president of the 

Economic Policy Institute, former Commissioner of U.S. Occupational Safety and Health Review Commission. An undergraduate 

degree from Middlebury, and a law degree from Michigan. Thank 

you for joining us, Mr. Eisenbrey, and the floor is yours. 

Mr. EISENBREY. Thank you, Senator Specter and members of the 

committee. It is an honor to be here. Thank you for inviting me. 

I have three things to say about this rule. The first is that the 

benefits that the Department claims for it are phony, that they 

have invented the number, that 1.3 million low-wage workers will 

benefit from this rule, and I will show you why that is so. The rule 

will increase litigation in a number of ways. I know that that has 

been a justification for the rule. It has been a particular concern 

of the chairman and there are just so many ways that this is going 

to increase litigation. Finally, the third point is that millions of 

workers I believe are going to lose overtime rights because of this 

rule. Let me start with the benefit calculations. 

The Department of Labor admits in its economic analysis that it 

has inflated the estimate. Their data show that a minority of workers actually work overtime, and yet the Department assumes, for 

purpose of inflating the benefit estimate, that all of them, all 100 

percent of the workers that are in the survey and that they identify 

worked overtime. So they have admitted that they have inflated 

this estimate. 

More importantly perhaps, if you look at the estimate and their 

economic analysis and look at the kinds of workers that they have 

included, you can see that they have included workers who do not 

benefit. There is no way on this earth that they could benefit. They 

have said that cashiers, secretaries, typists, receptionists, bookkeepers, general office clerks, bank tellers, and data entry keyers 

are the kinds of employees, even though they are paid less than 

$23,660 a year, who are exempt executives under current law or 

exempt administrative employees. I submit that there is no circumstance under which a cashier is exempt under current law and 

this is just phony. 

We have looked at these rules ourselves, at their economic estimate and the effects on low-wage workers. Our estimate is that it 

is closer to 240,000 or 250,000 workers who might benefit from this 

rule, a far cry from the 1.3 million they claim. 
35 

My second point is that this is going to increase litigation. A 

prime example is the professional exemption where going from a 

rule that is a bright line test that you have to have a specialized 

degree and then the interpretive guidelines that the administrator 

said courts are free to ignore say that in the rare case, an employee 

who does not have a degree could be a professional, they have now 

made that the rule and with language that says if they have substantially the same knowledge and do substantially the same work 

as a degreed professional employee. What in the world does that 

mean and is that not going to be the cause of endless litigation? 

They have dumbed down the requirement for what it means to 

be a manager. You no longer have to manage a department or a 

subdivision. The preamble cites approvingly a district court case 

from Illinois that says you can be the manager of a team or a 

grouping and be an exempt executive. That is going to cause endless litigation. 

This whole notion of doing away with the 20 percent limit on 

nonexempt work and saying working foremen now have concurrent 

duties and can be treated as exempt executives will cause needless 

litigation. 

Then they create this notion of—they say they are clarifying the 

rule—that blue collar employees are nonexempt and entitled to 

overtime, but then they qualify it. They say non-management blue 

collar workers and non-management production line employees. 

Well, what is a management production line employee? Can you 

imagine the litigation over this issue? 

Finally, I would say that the net result of all this is absurdity, 

that instead of changing these rules to do away with the notion 

that a Burger King assistant manager is an exempt executive, even 

though he spends 90 percent of his time frying fries and flipping 

burgers, they have made that the basis of their test and that will 

be the law from here forward if the Harkin amendment is not enacted. 

Finally, millions of workers will lose their right to overtime pay. 

Some are inarguable, the highly compensated that they admit. Funeral directors and embalmers, except in the Sixth and Seventh 

Circuit, have always been held to be nonexempt. They are not professional employees. Nursery school teachers, chefs and cooks. They 

have created two new exemptions for chefs and cooks. Then there 

are others that are less obvious. All of these professional employees 

who in the proposed rule they admitted were losing their right to 

overtime—they admitted 350,000 of them who were being paid 

overtime now would lose their right to overtime. They just wave a 

wand and they have disappeared from the economic analysis, but 

they are still there. 

PREPARED STATEMENT

The team leaders that you have identified. 

Computer employees. Nothing has been mentioned about the 

changes there. They have removed language that protects computer 

employees as professionals. 

So overall you have I think clearly millions of workers who will 

lose under this rule. 

Thank you. 
36 

[The statement follows:] 

PREPARED STATEMENT OF ROSS E. EISENBREY

INTRODUCTION

The U.S. Department of Labor has issued a final rule that changes the legal exemptions from the right to overtime pay for executives, professionals and administrative employees. Many in Congress, the press, and the public have asked EPI to 

estimate how many employees will lose overtime pay or the right to receive it as 

a result of this new rule. However, such an estimate will take time and it is too 

soon to give a complete answer to that question. The rule and its explanatory text 

and regulatory analysis are more than 500 pages long and differ in unexpected ways 

from the proposed rule the DOL issued last year. The final rule and its preamble 

are also rife with ambiguity. Many regulatory provisions have been changed without 

real explanation, even while the Department claims—contrary to the plain language 

of the rule—that it is not changing the law. 

All in all, the rule means longer hours and less pay for millions of workers—and 

more litigation for our entire economy. A number of things about the rule are immediately clear: 

First, the Department has created new exemptions that jeopardize the overtime 

rights of millions of employees who earn between $23,660 and $100,000 a year. The 

overtime rights of the nation’s 367,000 nursery school and pre-school teachers are 

weakened. Low-level working supervisors all throughout American industry will be 

reclassified as ‘‘executives’’ and will lose overtime rights; just as fast food assistant 

managers already have in some jurisdictions, even though they spend 90 percent or 

more of their time doing routine, production-line work such as flipping burgers and 

taking customer orders. 

Despite its claims to the contrary, the new rule’s treatment of cooks, chefs, and 

sous chefs, for example, of whom 2.4 million are employed in the United States, will 

cause hundreds of thousands to lose their right to overtime pay. Funeral directors 

and embalmers will be treated as exempt learned professional employees by the 

Labor Department for the first time, and large numbers of employees in the financial services industry will be adversely affected by a new blanket exemption. 

Second, the rule will lead to an explosion of litigation because the Department 

chose 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. Most notably, the new rule encourages employers to treat nondegreed employees as professionals, as long as they have ‘‘substantially similar’’ 

knowledge and do substantially similar work. The best possible objective criterion 

is missing: there is no requirement that they receive substantially similar pay. How 

will the Department know whether a non-degreed sous chef has substantially the 

same knowledge as a college grad? By making him prepare a souffle ́, or taste-testing 

his Caesar salad? The rule also reduces the requirement that an exempt executive 

manage ‘‘the enterprise in which he is employed or of a customarily recognized department or subdivision thereof,’’ to a new and embarrassing level of absurdity. 

Rather than the enterprise or a department or subdivision, it will be enough to be 

in charge of a ‘‘grouping or team.’’ Unhelpfully, the Department suggests that a 

‘‘case-by-case analysis is required’’—a guaranteed recipe for litigation. Department 

stores will argue that an employee ‘‘in charge of’’ the perfume counter is an exempt 

executive because she has the ‘‘authority’’ to suggest shift assignments for two other 

employees. 

Third, contrary to the Bush Administration’s claims, it is not the case that 1.3 

million low-wage workers who are not getting overtime pay now will. The Administration is engaged in consumer fraud, selling this new regulation on the promise of 

benefits it knows full well will not materialize. Part of the problem is that the Department’s estimate assumes that every employee among these 1.3 million low-wage 

workers actually worked overtime during the year, even though the evidence is that 

they did not, and even though only about one employee in seven generally works 

overtime. If the Department had made this same assumption with respect to the 

proposed rule, it would have found that almost 5 million employees would have lost 

overtime pay, rather than the 644,000 it claimed. Moreover, the number of employees who will be guaranteed coverage by the $23,660 threshold will diminish over 

time because it is not indexed for inflation. An administration that cared about lowwage workers would have raised the threshold to at least keep pace with inflation 

since 1975, in other words, to at least $28,075. 

Fourth, by the Department’s own estimates, more than 100,000 employees who 

earn $100,000 a year or more will lose their right to overtime pay. As inflation and 
37 

1The American Heritage Dictionary defines chef as ‘‘A cook, especially the chief cook of a large 

kitchen staff.’’ According to the Department of Labor’s Occupational Outlook Handbook, ‘‘The 

terms chef and cook are often used interchangeably. . . .’’ ‘‘Chefs and cooks create recipes and 

prepare meals. . . .’’ ‘‘A sous chef, or sub chef, is the second-in command and runs the kitchen 

in the absence of the chef.’’ 

rising productivity increase the pay of American workers, the number of employees 

adversely affected by this new test will grow each year. 

Fifth, a bizarre and poorly explained new exemption for ‘‘team leaders’’ creates 

the potential for hundreds of thousands of currently 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. 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. 

Sixth, the Department’s claims that it has clarified and expanded the overtime 

rights of police officers and other first responders are untrue. The ambiguities in 

the rule make their rights more uncertain than ever. 

Seventh, despite the Department’s claims in power point presentations to public 

officials 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. 

Eighth, by reducing the penalties for employers who illegally dock the pay of salaried workers, the Department removes an important deterrent and makes it more 

likely that hourly employees will lose overtime pay. 

ANALYSIS

1. Chefs and cooks 

The treatment of cooks and chefs is a good example of the artful deception of the 

final rule and the magnitude of the rule’s potential harm. Under current law, chefs, 

sous chefs, and other cooks can be found exempt and denied overtime pay only if 

they manage a kitchen, supervise, hire and fire other employees, and have executive 

duties as their primary duty. They are not, however, learned professionals, because 

cooking is not a learned profession (it is not ‘‘a field of science or learning’’ and does 

not involve ‘‘work that is primarily intellectual in nature’’), and most chefs learn 

through on-the-job training and apprenticeship, not formal education at a college or 

school of culinary arts. Nevertheless, the final rule expands the exemption to treat 

‘‘chefs and sous chefs’’ with a four-year degree as exempt learned professionals. In 

addition, the rule for the first time extends the exemption for creative professionals 

to chefs and sous chefs even though cooking has never been found by a court to 

meet the test of being ‘‘a recognized field of artistic or creative endeavor,’’ as required by new 541.302(a) or the current law’s test for artistic professionals—‘‘a recognized field of artistic endeavor.’’ 541.302(b). 

The effect of these two new avenues of exemption for chefs and cooks will be a 

significant loss of overtime coverage. Now that the Department has created the 

‘‘learned profession’’ of being a chef or cook 1 with a four-year culinary arts degree, 

541.301(d) of the final rule permits employers to deny overtime pay to any of the 

hundreds of thousands of chefs or cooks 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 

and intellectual instruction.’’ As the Department of Labor’s Occupational Outlook 

Handbook points out, ‘‘many chefs are trained on the job,’’ ‘‘others may receive formal training in independent cooking schools,’’ and still others get two-year degrees 

or learn through apprenticeships sponsored by industry associations and trade 

unions. The new creative professional exemption legalizes the denial of overtime to 

non-degreed chefs who do not have executive duties, effectively catching any chef 

the other exemptions missed, since every chef creates unique new recipes—the criterion identified at a hearing before a House committee by Secretary Chao and Administrator McCutchen for distinguishing between a creative chef and a non-exempt 

chef or cook. 

There are about 2.4 million cooks and chefs in the United States, about 60 percent 

of whom are fast food cooks, institution and cafeteria cooks, or short order cooks, 

and are unlikely to be exempted, whatever their skills might be. The other 850,000 

chefs, head cooks, and restaurant cooks are fair game for the three exemptions, depending on their skills and creativity—and the creativity of their employers. 
38 

Nursery school teachers 

According to the testimony of Karen Dulaney Smith, a management consultant on 

FLSA issues who for 12 years was a federal Wage Hour Division investigator, nursery school teachers who devoted most of their day to custodial care were always considered non-exempt employees, regardless of their educational attainment, because 

their work did not require the consistent exercise of discretion and independent 

judgment. A Wage Hour Division opinion letter written in 2000 is consistent with 

Ms. Smith’s testimony that most pre-school teachers are non-exempt and entitled 

to overtime under current law. 

‘‘Based on the information provided, it is our opinion that while ‘‘childhood education settings’’ (for ages 0–5), commonly referred to as preschools may engage in 

some basic educational activities for the children attending, preschool employees 

whose primary duty is to protect and care for the needs of the children would not 

ordinarily meet the requirements for exemption as teachers.’’——2000 DOLWH 

Lexis 14 (September 20, 2000). 

The final rule removes the discretion and judgment requirement from the current 

regulation’s definition of a professional employee in current section 541.3(b) and 

places it in the definition of ‘‘work requiring advanced knowledge’’ at 541.301(b)— 

a provision that applies only to learned professionals. Thus, under the final rule, 

all nursery teachers will be exempt, and all of those who have been found to be entitled to overtime in the past will lose that entitlement. 

Funeral directors and embalmers 

With the exception of two federal judicial circuits, funeral directors and embalmers have never been held to be exempt learned professionals. As the Department 

admits in the preamble to the final rule, ‘‘In the past, the Department has taken 

the position that licensed funeral directors and embalmers are not exempt learned 

professionals.’’ Moreover, for at least the past six years, Congress has considered 

legislation to exempt funeral directors and embalmers but has chosen not to do so. 

Nevertheless, the Department has chosen to create a new exemption requiring only 

four years of post-secondary education, including a year of mortuary science school 

(which includes courses in cosmetology, according to the court in Rutlin v. Prime 

Succession, Inc.). In most of the nation, the final rule takes away the overtime 

rights of funeral directors and embalmers, yet the Department’s economic analysis 

does not account for any change in coverage. 

Working foremen and working supervisors 

The final rule turns current law on its head and eliminates the right to overtime 

pay for low-level supervisors who spend the vast majority of their time performing 

routine, manual, non-exempt production, as long as their most important duty is 

managerial. Relying on poorly reasoned cases interpreting the current regulations, 

most notably the Burger King cases from the First and Second Circuits, the final 

rule completely reverses those regulations, which set a limit of 20 percent on the 

amount of non-exempt work a supervisor can do and still be found an exempt executive. 

Section 541.115(b) of current law provides: 

‘‘Clearly, the work of the same nature as that performed by the employee’s subordinates must be counted as nonexempt work, and if the amount of such work performed is substantial the exemption does not apply.’’——(‘‘Substantial’’ as used in 

this section means more than 20 percent.) 

Section 541.115(c) of current law applies the same rule to a supervisor whose 

work is different from his subordinates’: 

‘‘Another type of working foreman or working supervisor who cannot be classed 

as a bona fide executive is one who spends a substantial amount of time in work 

which, although not performed by his subordinates, consists of ordinary production 

work or other routine, recurrent, repetitive tasks which are a regular part of his 

duties. Such an employee is in effect holding a dual job.’’ 

The current rule is simple common sense. An employee who spends 90 percent 

of his time frying French fries and flipping burgers is not a bona fide executive, 

even if he is simultaneously responsible for supervising the other two employees on 

his shift. An employee who works on a sewing machine six or seven hours a day 

is not a bona fide executive, even if he does supervise other employees. 

Nevertheless, the final rule rejects common sense and adopts the position that an 

employee can spend 100 percent of his time performing ordinary, routine, repetitive, 

non-exempt production tasks and yet still be a bona fide executive by concurrently 
39 

or simultaneously performing ‘‘executive’’ duties such as supervision of two other 

employees. New section 541.106(b) provides: 

‘‘For example, an assistant manager in a retail establishment may perform work 

such as serving customers, cooking food, stocking shelves, and cleaning the establishment, but performance of such nonexempt work does not preclude the exemption 

if the assistant manager’s primary duty is management. An assistant manager can 

supervise employees and serve customers at the same time without losing the exemption. An exempt employee can also simultaneously direct the work of other employees and stock shelves.’’ 

The implications of this change in the law are far greater than the Department 

admits. While claiming to conform the regulations to current case law, in fact the 

Department is rejecting the better-reasoned cases and extending the worst case law 

beyond retail to the rest of American industry. Burger King and the other cases that 

have permitted employees to do unlimited amounts of menial work while still being 

held to be exempt executives are not the law in every judicial circuit, and they have 

not been extended outside of the fast food and retail industries. New section 541.106 

applies the notion of concurrent duties to every industry, including construction, 

manufacturing, and other ‘‘blue collar’’ work. Employees who spend the vast majority of their time doing blue-collar, manual labor will now be subject to exemption 

as ‘‘bona fide executives’’ as long as the employer can establish that their most important duty is supervisory. 

Because the Department treats this sweeping new rule as established law, its economic analysis does not account for any loss of overtime rights or pay. One can get 

a sense of how damaging this change will be, however, by examining the Department’s estimate that 346,000 low-income ‘‘managers and administrators not elsewhere classified’’ and ‘‘supervisors and proprietors of sales occupations’’ will have 

their overtime rights restored by the new $23,660 salary test. In the Department’s 

view, all of those low-income employees would otherwise qualify as ‘‘bona fide executives’’ or administrators, despite their abysmal pay. 

Clarity and litigation 

The new concurrent duties test in 541.106 is a good example of how the final rule 

increases confusion and makes increased litigation a certainty. The final rule abandons the bright line test that an employee who spends more than 80 percent of his 

time doing nonexempt work cannot be a bona fide executive and replaces it with 

language that forces the employer and employee to make a determination on a 

‘‘case-by-case basis and based on the factors in section 541.700.’’ 

The learned professional exemption, which has required, except in rare instances, 

that any bona fide exempt professional must have a specialized academic degree (a 

clear, objective test), is expanded in the final rule to permit non-degreed employees 

to be exempted and denied overtime pay if they have ‘‘substantially the same knowledge and do substantially the same work’’ as the degreed professionals. This one 

provision will generate thousands of unnecessary cases and devour the resources of 

the Wage and Hour Division as it tries to weigh the knowledge of thousands of nondegreed employees working in dozens of different professional occupations. The Department failed to add any sensible objective measure of equivalence, such as a market test: is the non-degreed employee receiving substantially the same pay? 

Even when the Department claims to be bringing clarity to difficult issues, it isn’t. 

New 541.3 provides that the ‘‘exemptions do not apply to manual laborers or other 

‘blue-collar’ workers who perform work involving repetitive operations with their 

hands, physical skill and energy.’’ Anyone doing any such work would seem to be 

exempt under the final rule, but the Department has thrown in a qualifier that destroys any illusion of clarity. Section 541.3 goes on to say that ‘‘non-management 

production-line employees and non-management employees in maintenance, construction and similar occupations... are not exempt under the regulations.’’ This 

raises the question: What is a management blue-collar employee? What is a management production line worker? We have already seen the answer in 541.106: an 

employee can spend all day doing production work or construction work—manual, 

blue-collar work—and be exempt as a bona fide executive as long as he simultaneously supervises two other employees. Construction and utility crews all over 

America work without any manager higher than a working foreman to supervise 

them, a more senior employee charged with ensuring the safety and quality of the 

work, even as he works side-by-side with the other laborers. If his most important 

duty is managing the other employees, his employer will exempt him as a bona fide 

executive who concurrently does exempt and non-exempt work. As the preamble of 

the final rule makes clear, the Department now believes that an executive can be 

in charge of a unit no more substantial than ‘‘a grouping or a team.’’ 
40 

Team leaders 

There are many other examples of the Department changing the law to weaken 

overtime protection while simultaneously increasing the law’s confusion and the 

likelihood of litigation. None is more glaring than the new exemption for ‘‘team leaders’’ in 541.203(c). Current law has no equivalent provision, and I have found no 

case that holds ‘‘team leaders’’ to be exempt even if they have no supervisory duties. 

The term ‘‘team leader’’ is widely used in American industry, and usually describes 

a non-management employee responsible for calling meetings and directing a group 

of front-line employees who have been given an important task of a kind that historically was reserved to management, such as improving efficiency and productivity, improving customer service, researching and implementing IT improvements, 

identifying safety problems and recommending solutions, or improving employee morale. According to an expert in the field, Professor Thomas Kochan of the MIT Sloan 

School of Management, there are somewhere between 750,000 and 2.3 million currently non-exempt team leaders who could lose their right to overtime because of 

this new exemption. 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. 

The Department has opened an enormous loophole, but does almost nothing to explain it in the preamble of the final rule. Administrator McCutchen has suggested 

that current section 541.205(c) also allows the exemption of team leaders, but that 

language bears no resemblance to new 541.203(c): 

‘‘Employees whose work is ‘directly related’ to management policies or to general 

business operations include those whose work affects policy or whose responsibility 

it is to carry it out. The phrase also includes a wide variety of persons who either 

carry out major assignments in conducting the operations of the business, or whose 

work affects business operations to a substantial degree.’’ 

New 541.203(c) has created a significant new exemption and a significant new 

source of confusion and litigation. 

Police officers 

New section 541.3 seems to deny the application of the exemptions to most law 

enforcement personnel, and the preamble specifically addresses the case of police 

sergeants, normally the lowest level of front-line supervision on a police force. The 

treatment of sergeants is instructive. The preamble explains that sergeants are entitled to overtime ‘‘because their primary duty is not management or directly related 

to management or general business operations; neither do they work in a field of 

science or learning where a specialized academic degree is a standard prerequisite 

for employment.’’ This raises the question, what if a sergeant had so much management responsibility that it did constitute his primary duty? When asked in a public 

forum whether a sergeant is exempt regardless of his duties, just by virtue of his 

rank, Solicitor of Labor Howard Radzeley refused to respond. This is not surprising, 

since the Fair Labor Standards Act does not permit the DOL to exempt employees 

by title or rank: their duties must be examined to determine whether they are executive, administrative, or professional. Nor does the statute justify treating one kind 

of manager differently from another based on whether one is a first responder. Congress could change the statute to accomplish such distinctions, but it has not. 

The bottom line is that the rights of police officers are still at risk. The final rule 

makes it easier to find that an employee’s primary duty is an exempt duty, because 

it allows employees to spend unlimited amounts of their time doing non-exempt 

work (work such as investigating crime scenes, making arrests, etc.) and yet still 

be found exempt. Police officers could also be exempt if they are deemed ‘‘team leaders,’’ whose primary duty is presumed by the final rule to be administrative. 

Low-income workers 

There is no basis in fact for the Department’s estimate that 1.3 million low-income 

workers will receive overtime pay that they are not receiving now. There are only 

1.2 million salaried white collar employees who work overtime and make less than 

$23,660 a year. Using the Department’s own estimates of the likelihood of exemption for such low-paid employees, fewer than one-fifth—about 250,000—are likely to 

be exempt. As the Department admits, the lower paid an employee is, the less likely 

it is that she is exempt as a bona fide executive, professional or administrator. The 

Department actually admits that it has fabricated its estimate. Even though the 

BLS Current Population Survey data show that a minority of the employees the Department considers likely to be exempt actually reported working any overtime, the 

Department assumed for the purpose of its estimate that 100 percent of them did. 
41 

STATEMENT OF DR. RONALD BIRD, Ph.D., CHIEF ECONOMIST, EMPLOYMENT POLICY FOUNDATION 

Senator SPECTER. Thank you, Mr. Eisenbrey. 

Our next witness is Dr. Ronald Bird, Chief Economist at the Employment Policy Foundation. He had been chief economist at 

Dynacorp, holds a Ph.D. in economics from the University of North 

Carolina at Chapel Hill. Thank you for joining us, Dr. Bird, and 

the floor is yours. 

Dr. BIRD. Thank you, Mr. Chairman and members of the subcommittee. 

My name is Ronald Bird. I am an economist. Unlike the other 

members of the panel, I am not a lawyer, and I have spent much 

of the past 30 years studying the conditions and trends affecting 

the American workplace. 

I think lost in the debate over the Labor Department’s proposed 

revision of the rules concerning who is exempt and who is nonexempt under the Fair Labor Standards Act is the reason why 

amending the regulations is necessary in the first place. I think before considering the impact of any particular change or any particular change in wording, it is important to consider why reform 

of the FLSA white collar regulations has been on the Department 

of Labor’s regulatory calendar for over 25 years under both Democratic and Republican administrations. 

The FLSA was enacted in 1938 when America was still in the 

midst of the Great Depression. Nearly 1 in 5 Americans who wanted a job could not find one. Labor supply exceeded demand, and the 

bargaining position of the typical worker was weak. The Fair Labor 

Standards Act was envisioned in part as a way to redress the perceived imbalance between employers and employees in free market 

bargaining about wages, hours, and working conditions. 

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

5.7 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 Fair Labor Standards Act 

in 1938 is the fact that most of us consider today’s 5.7 percent unemployment rate to be too high, primarily because recently we 

have enjoyed the benefits of it being even lower. 

As an employee, I like low unemployment rates that have become 

the norm over the past 20 years and that will likely remain the 

norm in the future as an aging population pressures 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, power to make demands 

about wages, hours, and working conditions that my grandfather in 

1938 would have never dared make. 

Before World War II, nearly 1 in 3 workers were employed in 

manufacturing. In contrast, today less than 1 in 7 works in manufacturing. Industries that have experienced relative job growth 
42 

have been characterized by workplace organizations in which job 

duties are just not as narrowly defined as they used to be. 

Managerial and professional jobs, ones with a high probability of 

being exempt, given the right duties being satisfied, have increased 

more than any other category. In 1940, only about 1 in 6 workers 

were employed in managerial and professional occupations. Today 

nearly 1 in 3, 30 percent, are in such jobs. 

I think it is also 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 contracting firm. My job duties and education qualified me 

for exemption as a professional, and my weekly earnings were in 

excess of the minimum thresholds. Nevertheless, my employer and 

I agreed to an hourly pay arrangement. My earnings fluctuated 

from week to week depending on my reported hours, and I was 

paid an overtime premium when I worked over 40 hours. Needless 

to say, I wanted to work over 40 hours a lot more than I had the 

opportunity to do so. 

The point is that I was an hourly worker and technically nonexempt because of the pay status, but my employer could have converted me based on my duties to salary and exempt status at any 

time. That did not happen because it was in both of our interests 

to keep things on an hourly basis. And if he had done so against 

my wishes, I would have quit because there were six other people 

willing to hire me. 

PREPARED STATEMENT

An employer who would change an employee’s status to shave a 

few cents off the payroll would do so at his peril and likely lose a 

valuable worker. Today’s employers are more concerned about the 

high cost of turnover, the high cost of recruiting and hiring and 

training new workers, averaging over $17,000 per worker for the 

kind of workers we are talking about, than shaving a few cents off 

the payroll through compulsory reclassification. 

Revision of the FLSA regulations has been on the regulatory 

agenda for 25 years. This revision is long overdue. 

Thank you, sir. 

[The statement follows:] 

PREPARED STATEMENT OF DR. RONALD BIRD

Thank you, Mr. Chairman and members of the committee. I am honored by your 

invitation to come here today to share the findings of my economic research regarding trends of labor market change that may be relevant for understanding the need 

for revision of regulations implementing the white collar exemptions under the Fair 

Labor Standards Act (FLSA). My name is Ronald Bird, and I am an economist who 

has spent much of the past thirty years studying the conditions and trends affecting 

the American workplace, employment, unemployment, earnings and the role of education and training to ensure American competitiveness in the global economy. 

My research career has taken me from graduate study at the University of North 

Carolina at Chapel Hill to faculty positions at North Carolina State University and 

the University of Alabama. For the past five years, the Employment Policy Foundation has enabled me to pursue a broad agenda of research regarding the condition 

of the American workplace and the forces of change that are rapidly reshaping it. 

My work relevant to the issue of FLSA reform is one aspect of those efforts. 

The Employment Policy Foundation is a non-profit, non-partisan educational and 

research institution. EPF supports research to develop facts—hard data—that are 
43 

relevant to the assessment of workplace conditions and policies. I am here today to 

share with you some of the facts that I have been able to find that may be relevant 

to your inquiries about the need for revision of FLSA rules revisions and the impact 

of revisions. 

WHY REFORM OF THE EXEMPT-NON EXEMPT RULES ARE NEEDED

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

concerning who is exempt and non-exempt under the Fair Labor Standards Act 

(FLSA) is why amending the regulations is necessary in the first place. Before considering the impact of any particular change, it is important to consider why reform 

of the FLSA white collar regulations has been on the Department of Labor’s regulatory calendar for over 25 years in both Democratic and Republican administrations. 

THE WORKPLACE HAS CHANGED DRAMATICALLY

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

categories of duties implementing its pay classifications have remained essentially 

unchanged since 1954. The minimum salary thresholds for possible exempt status 

were last changed in 1975. The law has changed little, while the workplace it governs has changed enormously. 

Today’s American workplace is different in structure and more complex in its organization than the workplace of 1938. The workplace transformation of the past 

65 years reflects at least six dimensions of change that affect relevance and applicability of current FLSA regulations. 

LABOR DEMAND AND SUPPLY

The FLSA was enacted in 1938 when America was still in the midst of the Great 

Depression. Figure 1 shows the unemployment rate in 1938—19.1 percent. Nearly 

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

demand, and the bargaining position of the typical worker was weak. The FLSA was 

envisioned, in part, as a way to redress the perceived imbalance between employers 

and employees in free market bargaining about wages, hours and working conditions. The FLSA was also envisioned as a way to encourage sharing of work among 

those seeking it. In 1938, the average workweek was only 44 hours, and typical 

hours of work for factory workers had been falling steadily since 1900, even during 

pre-depression boom times. The overtime premium concept was seen in 1938 by 

many of its proponents as a way to reduce hours (and pay) of employed workers and 

open new jobs and shift pay to unemployed people. 

Today the fundamental competitive conditions of the labor market are very different. Figure 1 shows unemployment in March 2004 at 5.7 percent, dramatically 

lower than the condition 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 of us consider today’s 

5.7 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 twenty years and that will likely remain the norm in the future as 

an aging population pressures the economy to produce more goods and services with 

a relatively smaller proportion of the population active in the labor force. 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 would have never attempted. 

INDUSTRIAL STRUCTURE

Before World War II, nearly one-in-three (33.6 percent) workers were employed 

in manufacturing. In contrast, today less than one-in-seven (13.6 percent) works in 

the manufacturing sector. (See Figure 2.) The industries that have experienced relative job growth are characterized by workplace organizations in which job duties 

are not as narrowly defined as they were in manufacturing in the 1940s. The number of jobs where duties do not clearly fit the categories defined by the current 

FLSA rules has increased considerably. 

Even in manufacturing, technological and organizational advances that have 

raised productivity have also blurred the definitional lines of many job responsibilities, qualifications and duties. The result of these changes in industrial structure 
44 

and workplace organization has been to complicate significantly and increase the 

number of FLSA coverage/exemption status determination decisions that employers 

must make each year. 

OCCUPATIONAL STRUCTURE

Managerial and professional jobs have increased more than any other category. 

In 1940, only about one-in-six workers (17.9 percent) were employed in managerial 

or professional occupations. Today, nearly one-in-three employees (30.1 percent) 

work in such a position. 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 FLSA status for workers in management and professional jobs the 

most complex and time consuming. (See Figure 3.) 

In 1940, nearly one-half (48.2 percent) of all employees worked in occupations related directly to manufacturing and production, including: laborers, craftspeople, 

construction workers, assembly-line workers and machine operators. Jobs related to 

manufacturing and manual production are now less than one-in-three of all occupations (28.5 percent). In 1938, determination of coverage status for workers in these 

types of occupations was fairly straightforward—the job title and the job duties were 

closely aligned and readily associated with decision criteria of the FLSA rules. 

Today, there are fewer numbers of ‘‘easy-to-classify’’ jobs. Even among production 

occupations, technological and organizational changes have often blurred the lines 

of distinction on which the current duties tests rely. 

These changes in occupational structure mean that many more jobs today than 

in the past may quality for exemptions defined in the Fair Labor Standards Act. 

The increase in the number of potentially exempt jobs makes it much more important today that the regulations implementing the exemption concepts be clearer, 

and easier to apply. The larger number of decisions about exemption status that 

must be made in today’s workplace magnifies the cost burden of rules that are complex and cumbersome. 

EDUCATION

Just as occupational and industrial structures have changed, educational attainment of the workforce has also changed dramatically. In 1940, it was not uncommon 

for the typical worker to be a high school dropout—over three-quarters (75.1 percent) of all adult workers had never finished high school. 

Today, over 58 percent of the population age 16 and older has at least some postsecondary (college-level) education. Over 38 percent of workers now have a collegelevel degree. Only 11.9 percent have less than a high school diploma. Between 1998 

and 2001, the number of jobs held by college graduates has increased 5.8 million 

while employment of persons with no more than a high school diploma has declined 

by 1.7 million. (See Figure 4.) 

The increase in employment of college graduates reflects the changing structure 

of the workplace and increasing need for workers who can think critically and analytically, and who can manage and coordinate their work activities through complex 

automated information, process control and communication systems. Increased educational attainment is also associated with increased diversity of job duties and the 

breakdown of traditional organizational hierarchies in the workplace. These education-related changes have blurred the definition of professional work as currently 

defined in the FLSA regulations and made the process of determining status of employees under the regulations more complex. 

EARNINGS

Changing occupational structure and rising educational attainment have resulted 

in a workforce that is significantly better paid than 65 years ago. In 1938, the average full-time equivalent worker earned $1,249 (equivalent to $15,800 in 2003 dollars). Today, the average full-time, year-round worker earns $44,579, 15.7 percent 

of full-time, year-round workers earn over $65,000 and 4.2 percent earn over 

$100,000. 

The trend is towards greater numbers of high earning workers. Since 1992, the 

number of full-time, year-round workers earning over $65,000 in real 2002 dollar 

equivalent doubled from 7.4 million to 14.9 million, and the number earning over 

$100,000 increased 41 percent from 2.5 million to 4.2 million. Growth of number of 

employees earning over $100,000 per year accounted for 8.7 percent of total employment growth for full-time, year-round workers over the past decade. The number of 

full-time, year-round workers earning less than $65,000 increased 18.7 percent. 

Growth of jobs paying $65,000 or more accounted for 37.5 percent of total employment growth for full-time, year-round workers over the past decade. 
45 

Figure 5 shows the change in annual earnings per full-time equivalent workers 

from 1940 to 2002. In current dollars, annual earnings have increased by a factor 

of 30. After adjusting for inflation, real earnings have increased by a factor of 2.5. 

Higher earnings and the strong growth of numbers of highly skilled workers at 

the highest end of the earnings spectrum are factors that also indicate the shift in 

bargaining power in favor of employees. Figure 6 compares the average hourly earnings per full-time equivalent worker in 1938 to the 25 cents per hour minimum 

wage that was set in 1938. The average worker in 1938 earned only 2.4 times the 

minimum—60 cents per hour. In 2003, the average hourly earnings per full-time 

equivalent worker was 6.1 times greater than the 2003 real dollar equivalent of that 

original minimum wage ($3.17). 

Higher earnings have made it more important that status determinations under 

Part 541 be accurate. The confusion and complexity associated with the current 

rules mean that both employees and employers have more at stake, and both will 

benefit by revised rules that make the status determination process simpler, easier 

to understand, and less prone to error or disagreement. The possible loss of overtime 

pay to employees who are wrongly classified as exempt has been a stated concern, 

despite statistical evidence that classification has little or no impact of average 

weekly earnings. 

WORKPLACE DYNAMICS

Beyond the changes in workplace structure, education and earnings, the American 

workplace has become more dynamic in terms of employment growth and turnover. 

Technological change, global competition and changing social norms have resulted 

in a workplace in which new jobs are created and old jobs eliminated at a faster 

rate than ever before. In 1938, most workers expected to stay with a single employer 

for his or her working life. Today, average job tenure is under five years and declining. 

The typical worker entering the workforce today can expect to change jobs seven 

times over a working life. Both new jobs created by economic growth and replacement job openings created by job-shift turnover and retirement result in decisions 

that employers must make about FLSA coverage/exemption status. 

According to data from the Bureau of Labor Statistic’s Job Openings and Turnover Survey, private sector employers made 45.6 million hiring decisions in 2002, 

despite a total employment level that was essentially unchanged. The 45.6 million 

hiring actions reflects replacement of employees who lost jobs, changed jobs or retired. This 42.2 percent turnover rate indicates the flux of job creation, i.e., the job 

elimination and job switching that constantly characterizes our dynamic labor market. 

Each of these hiring actions involves some degree of decision-making regarding 

FLSA coverage/exemption status of the job. For replacement positions, the decision 

may be limited to a review of the existing determination to confirm whether it is 

still appropriate. For newly created positions, the decision making process to determine FLSA coverage/exemption status is more lengthy. Net job growth (1.6 million 

annually) is a minimal estimate of new job positions created. Because of changing 

job duties, expansion and contraction of employment within industries, and offsetting job eliminations and creations, the number of new positions that require more 

intensive effort for determination of coverage/exemption status may include a sizable number of the 45.6 million hiring actions per year previously identified as ‘‘replacement’’ hires. 

ACCELERATING WORKPLACE CHANGE AND INCREASED REGULATORY BURDEN

Each of the categories of change discussed above reflects on-going and accelerating forces affecting the American workplace. These changes have already increased the regulatory burden under the existing Part 541 rules to a significant degree. However, the need for revisions to Part 541 does not rest solely on the history 

of workplace change and increased burden. 

The complexity and ambiguity of the existing rule is evidenced by the amount of 

disagreement and litigation it generates. For the past three years, FLSA issues— 

most related to the exempt-nonexempt status of workers—have been the leading 

employment-related civil action in federal courts. For the 12 months ending September 30, 2003, a total of 2,251 FLSA cases were filed, including 102 large class 

action cases. The number of class action FLSA cases has tripled since 1997. Figure 

7 (on the next page) shows the significant increase in the number of FLSA cases 

filed from 1993 to 2003. 
46 

STATUS AND CHOICE

It is important to recognize that everyone who is eligible by duties for exempt status is not automatically paid on a salary basis. For example, I used to work for a 

government contractor firm. My job duties and education qualified me for exemption 

as a professional, and my weekly earnings were in excess of the minimum thresholds. Nevertheless, my employer and I agreed to an hourly pay arrangement. My 

earnings fluctuated from week to week depending on my recorded hours, and I was 

paid an overtime premium when I worked over 40 hours. Needless to say, I frequently wanted to work over 40 hours a week but the boss was less frequently willing to let me work as many extra hours as I would have liked. 

The point is that I was an hourly worker, and technically non-exempt because of 

the pay status, but my employer could have converted me to salary and exempt status based on duties. That did not happen because it was in both of our interests 

to keep things on the hourly basis. For me it meant occasional extra income, and 

for my employer it meant less risk of losing me to a competitor because I was happy 

with the arrangement. In today’s labor market, many employees have more bargaining power than was typical 50 years ago. An employer who would change an 

employee’s status to shave a few cents off the payroll would do so at his peril and 

likely lose a valuable worker to a competitor. 

CONCLUSION

The revision of FLSA regulations has been long overdue. It has been on the regulatory agenda for 25 years. Inflation, along with rising real wages, has rendered the 

long-test for exemption—applicable to employees making between $155 and $250 

per week—virtually moot. In 2003, 75.9 percent of employees who earned between 

the current minimum threshold of $155 per week and the proposed new salary test 

threshold of $455 also earned over $250 per week. For those 6.0 million full-time 

and part-time employees, determination of their exemption status was based on an 

attenuated list of duties under the ‘‘short test.’’ 

The new rule will ensure that everyone who earns less than $455 is classified as 

nonexempt. They would be guaranteed the protections of the FLSA, including having a basic hourly wage rate defined, having their working hours tracked and recorded, and being paid a fifty percent hourly wage rate premium in the event that 

they work over 40 hours during a given week. 
47 
48 
49 
50 

Senator SPECTER. We will now proceed with 5-minute rounds. We 

really have to conclude the hearing in advance of 11 o’clock. 

Dr. Bird, is the thrust of your testimony that the improved status of the workers, as a matter of the marketplace, makes it a situation where it does not matter a whole lot what the technicalities 

are of the regulation in effect? 

Dr. BIRD. Well, certainly we need the Fair Labor Standards Act 

and we need it to be able to protect the people it was designed to 

protect. 

Senator SPECTER. I agree with you about that, but as I listened 

to your testimony—and I found it very illuminating—the comparison you make with 1938 is that the employee is in a lot better position. 

Dr. BIRD. Yes. 

Senator SPECTER. So it might not make a whole lot of difference 

what the definitions are if the employee can walk away from the 

job and find a new one if he is not being treated fairly. Maybe we 

are making a too much of a fuss about the semicolons. I am just 

trying to get the thrust of your testimony. 

Dr. BIRD. Right, yes, sir. I appreciate that question because it 

really does illustrate I think the problem that we have encountered 

in the discussion about the old rule versus the final new rule. We 

see in that discussion a lot of jumping to conclusions I think. 

Senator SPECTER. We are experts at that, Dr. Bird. 

Dr. BIRD. I guess that is why we have got three lawyers and one 

economist on the panel. 

Senator SPECTER. That is the second time you have made that 

observation. 
51 

Dr. BIRD. First of all, people are jumping to conclusions. 

Senator CRAIG. As a non-lawyer, it is a good point, Mr. Chairman. 

Senator SPECTER. But you are not an economist, Senator Craig. 

Senator CRAIG. That does not make any difference. 

Senator SPECTER. Let me move over to Mr. Fortney for just a 

minute. Just a thought when you talked about a job for your grandfather in 1938. My father would have loved to have any job regardless of what the regs had to say. 

Mr. FORTNEY. And my grandfather knew he was lucky to have 

one. 

Senator SPECTER. That is when he went to Lyons, Kansas to 

open up a junkyard with his bare knuckles. 

Mr. Fortney, what about Mr. Eisenbrey’s testimony that there is 

a vast overstatement, a vast inflation in the number of workers 

who will work overtime? 

Mr. FORTNEY. Senator Specter, I am not sure I am the best witness to comment on the numbers, the economic impact of these regulations. 

Senator SPECTER. You are the best one available, Mr. Fortney. 

Mr. FORTNEY. Well, I can tell you that with respect to whether 

the classifications have changed—I listened to Mr. Eisenbrey’s comments—those are examples that he listed there. They are not 

changes. They are examples. They are codifications of what otherwise today an employer or an employee has to pay a lawyer to go 

out and dredge through the cases and provide those examples. That 

is not new. It is there. They are listed specifically as examples. We 

are not, if you will, exempting or carving out specific occupations 

or classifications. They are listed as examples not by title, but describing job duties. I mean, if the law is not changing, the numbers 

should not change materially. So I would disagree I guess on that 

level with his comments. 

Senator SPECTER. Well, you raise a good point and Ms. 

McCutchen raised a good point when she said that regs do make 

a selection of the cases and give the parties some detailed information as to which cases are to be followed. Implicitly in that, cases 

were rejected if they are not included. 

I would like to ask both Mr. Becker and Mr. Eisenbrey whether 

that is not a significant improvement, to have the case law readily 

at hand so that people who are trying to figure out what these 

words mean—and as I noted before, they are very similar under 

the current reg or under the final proposed reg. But is it not true 

that incorporation of the case law into the regulations is a substantial help, Mr. Eisenbrey? 

Mr. EISENBREY. I am not persuaded that it is a substantial help, 

but I think it is important to realize that the Department chose the 

cases to put in here very selectively. For example, they chose a case 

from several years ago on insurance claims adjustors that went 

against the employees. They did not include a case from February 

that they could have from the State of Oregon where it held that 

insurance claims adjustors were entitled to overtime. 

Senator SPECTER. So they made a selective basis which you think 

undermines their credibility. 
52 

Mr. Becker, in the opening class with Professor Kessler in contracts, he had a Wisconsin case at Yale and a Minnesota case. They 

were about the sale of a cow, as I recollect. Maybe you can refresh 

my recollection. You have been there more recently. So it is hard 

to figure out from the case law what was what. That is how they 

confuse law students, Senator Craig. 

Senator CRAIG. That is why I did not become one. 

Senator SPECTER. How about it, Mr. Becker? Is this case law too 

selective to be valid or does it give some fair indication to the prospective parties as to what the law is? 

Mr. BECKER. I think to say that what has happened here is a 

codification of case law which was well established under the old 

regulations is misleading, and let me give you two examples. 

Take, for example, chefs. Now, chefs we may think are important 

or unimportant as a group of employees, but what is important is 

the principle. The cases cited by the Department relate to chefs 

who are actually executives, that is, chefs who are not exempt as 

professionals, but chefs who are exempt because they have the requisite managerial authority. The exemption of chefs is not unusual 

simply because for the first time it explicitly exempts this classification and tempts employers to say anybody called a chef is exempt, but it also alters the nature of the professional exemption in 

an important way. 

The professional exemption has always said it applies to people 

in a profession, the vast majority of whom acquire their professional knowledge through a prolonged course of study, lawyers, 

doctors, et cetera. The difference here is they say even though it 

is the minority of chefs who have a prolonged course of study, those 

who do are now exempt. So it is not simply that the case law does 

not support what they are doing in that area, but they are also 

changing the nature of the exemption. 

Take areas where they have not codified the case law, and I cite 

case law concerning nurses. They repeatedly say we are expressly 

saying that registered nurses are exempt under these regulations, 

but that is misleading because they are expressly saying that 

under the duties test and registered nurses have been held in case 

after case not to be exempt under the salary basis test. Do they 

codify that case law? No. In fact, they expressly change that case 

law. So it is misleading to think that what is happening here is the 

codification of the consensus view in the courts. 

Senator SPECTER. Senator Harkin. 

Senator HARKIN. Thank you, Mr. Chairman. I think the more we 

get into it, the more I am convinced that this should have gone 

through the normal legislative process with hearings and taken 

some time to figure all this out rather than the slam-dunk type of 

process that the Department used in issuing these rules last year, 

getting comments, and then coming back again with the final rule 

without really having a legislative hand in it from those of us who 

represent our constituents, both employees and employers. Again, 

it is just the wrong way to make these kinds of changes. 

Just a couple of things. Dr. Bird, an economist, in 1975 the 

threshold level was around I think $8,060, if I am not mistaken. 

Dr. BIRD. Yes. 
53 

Senator HARKIN. You mentioned in your testimony about the effects of inflation and what has happened on inflation. It is time to 

change these things because of inflation. Well, if you were to factor 

in inflation for the threshold test, the threshold would be $28,075 

rather than $23,660. Do you know why the Department picked 

$23,660 instead of $28,075? 

Dr. BIRD. I am not aware of why a particular number was 

picked. Certainly the fact is, though, the number that is in the 

final rule is significantly higher than what was in the old rule and 

therefore extends protection to a large number of people. 

Senator HARKIN. I am not disputing that, but you rely on inflation. I am just saying, well, I am just taking your inflation figures 

and it really ought to be $28,075. I can find no justification anywhere why it is $23,660. There is a justification for $28,075 because that would factor in inflation from the last time it was 

changed in 1975. 

Dr. BIRD. I think too I would need to look at whether you are 

inflating the $155 number per week or the $250 per week, the long 

test threshold or the short test threshold. The new number $455 

per week is equivalent to the concept of the long test threshold 

under the old rule because there are added duties that have some 

parallel to the long test for people who make between $455 and 

$100,000 per year. 

Senator HARKIN. Mr. Eisenbrey, you mentioned that in your tes- timony, the $28,075. That is where I got the figure. 

Mr. EISENBREY. Yes. I can help you with that. $28,075 would be the lower figure, $155 increased for inflation. If you took the $250 

figure for the short test that Mr. Bird referred to, it would be up 

around $44,000 a year. That would be significant protection for 

workers. 

Dr. BIRD. And if I may interject, though, in setting the equivalent of the short test threshold, instead of merely setting it at 

$44,000, the Department has set that now at $100,000, much higher over inflation. 

Mr. EISENBREY. It is a vastly different test. The highly compensated test admittedly does not apply the same duties test. It allows an employee who customarily and regularly, which means perhaps once a week does one of these executive duties, to be considered exempt. So it is very different from the old test. 

Senator HARKIN. Mr. Fortney, you talked about employers not 

knowing how to operate here and all of these class action lawsuits 

and stuff. I will ask you again, as I asked Ms. McCutchen, if an 

employer has any question about whether or not an employee is exempt or not, they can, can they not, get an advisory opinion from 

the Department of Labor? 

Mr. FORTNEY. That is an excellent question, and the answer is 

in theory yes. In the real world, that process typically takes years. 

Senator HARKIN. How many? 

Mr. FORTNEY. Years. How many years? 2 years, 3 years, sometimes more. There are a significant number of requests that the 

Department—— 

Senator HARKIN. Maybe that is what we ought to fix. 

Mr. FORTNEY. Well, maybe so, but that is something that I personally have had clients that have been through significant efforts 
54 

to try because this is the next step. If the lawyer cannot give you 

a clear answer, let us go to the Department and see if we can get 

a clear answer. That is a process that in fact does not work well. 

Senator HARKIN. I would just interrupt. My time is running out. 

It has been my information that many of the employers who are 

caught up in some of these suits have never sought an advisory 

opinion from the Department of Labor as to whether they should 

pay overtime or not. 

Mr. FORTNEY. They may or may not. I will give the current administration credit. At least they have, as part of their compliance 

assistance focus, made that option much more widely known and 

available. It is still somewhat slow. 

Can I follow up with a point that you raised earlier with respect 

to nurses? Would that be helpful or not? 

Senator HARKIN. Fine. Yes, please, go ahead. 

Mr. FORTNEY. Two things. I think there is some confusion. The 

nurse issue has not changed. The duties test is the same. And I do 

not think there is any disagreement on the panel. The salary requirements are the same, and that is that what this reg does, 

which codifies the wide range of methods that can be used to pay 

a salary, including paying people—this is not self-evident—in hourly components is permissible. The Department, in one these rare 

opinion letters, has issued opinion letters within the last couple of 

years clarifying this. And so I think that there has been a lot of 

confusion with respect to registered nurses who in theory can be 

exempt but in the marketplace, because of market factors, often are 

compensated in such a way that they are not treated as exempt. 

Senator HARKIN. Well, I think if you look at the case of Elwell 

v. University Hospitals Home Care Services, a Sixth Circuit case in 

2002, I think it is illustrative of what we are talking about here 

where a court held that Nurse Elwell was eligible for overtime on 

the grounds that even though she was otherwise a learned professional, she was not paid on a salary basis. Well, the new rule is 

going to be a punch in the gut to our registered nurses of this country, like Nurse Elwell. Under these new rules, a registered nurse 

who earns $25 an hour, works 50 hours a week, will lose $6,500 

a year under these new rules. That is a registered nurse. 

Mr. FORTNEY. With all due respect, I think I would reach a different conclusion on that point. 

Senator HARKIN. Well, the new rule also allows employers to pay 

registered nurses at straight time over 40 hours rather than timeand-a-half, does it not? The new rule. 

Mr. FORTNEY. For an exempt registered nurse, that is correct. 

You could put on additional payments beyond the base salary. 

Whether you call them straight time, holiday time, there are a variety of additional payments that can be made. That is correct. 

Senator HARKIN. And then another loophole. What about a head 

nurse paid hourly who is a team leader? Another loophole. 

Mr. FORTNEY. Well, ‘‘loophole’’ of course is a word designed to 

characterize it. I do not think it is a loophole. 

The team leader area illustrates an area of confusion which is 

the term ‘‘team leader’’ as used on the shop floor is not what is 

codified in these regs. There are a lot of people who are referred 

to as team leaders in the workplace. These regs are very specific 
55 

about the subset of team leaders who are covered and possibly 

could be exempt under the administrative exemption as a team 

leader as the administrator discussed and it focuses on the major 

project responsibilities. 

Senator HARKIN. My time is up. A team leader is not defined in 

the regulations. It is not defined. 

Senator SPECTER. Thank you, Senator Harkin. 

Senator Craig. 

Senator CRAIG. Thank you, Mr. Chairman. Well, I am neither an 

attorney nor an economist, and it is an area of the law that I frankly know very little about, gentlemen. So let me ask some fairly 

basic questions. 

I say that because I think the Fair Labor Standards Act’s frustration today is that it is becoming a place to go litigate almost on 

a constant basis and the threat of litigation is a phenomenal tool 

to be used in the marketplace. Most people like to avoid it. It is 

expensive. Therefore, it is a leverage or a tool oftentimes used 

where it serves a variety of purposes. 

I guess, Mr. Becker, I would ask you, is it your opinion that the 

rule as proposed brings greater certainty, less ambiguity, and 

therefore less potential for lawsuits? 

Mr. BECKER. No. I do not think that is the case. I just return to 

my initial example. We obviously commend the Department for 

raising the salary levels, which has not been done since the 1970’s 

and we all concede is long overdue. But the old rule attached a 

very clear standard to those who are most in doubt, that is, those 

at the lower end of the salary threshold. And that rule was that 

if you perform more than 20 percent of nonexempt duties, that is, 

a clear bright line rule, you are nonexempt. So that is ordinarily 

clear. 

Senator CRAIG. Do you feel that will have to get litigated? 

Mr. BECKER. I am saying the abolition of that clear percentage 

rule is going to cause more litigation. Take the outside sales area. 

Now it is a subjective question. What is the primary duty? And 

that is defined basically as what is the ‘‘most important’’ duty. How 

do we know what is the most important duty, and are we not going 

to tempt employers to say I think this is the most important duty 

as opposed to saying, does this person spend more than 20 percent 

of their time in the office not performing outside sales? That is obvious. That is clear. 

Senator CRAIG. Thank you. 

Mr. Fortney, same question. 

Mr. FORTNEY. I think that the proposed regulations, in fact, do 

add clarity. This primary duty point—— 

Senator CRAIG. Can I follow the logic of clarity, meaning less risk 

of lawsuit? 

Mr. FORTNEY. Well, let us start with—— 

Senator CRAIG. Or are we just a litigious society today where no 

matter how we write the rules, somebody is going to try to use 

them—— 

Mr. FORTNEY. I hope the answer is no. So I think that clarity will 

ultimately produce less litigation, but let us talk about the steps 

that you get there. 
56 

If you are running a small- or medium-sized business, the fundamental question is how do I properly pay people. I would suggest 

to anyone if they would go look at the current regulations now, it 

is not terribly helpful. 

Now, are the final regulations that have come out perfect in that 

regard? No. I am not suggesting that. I do not think anyone is. But 

they are significantly better than what we have, and the listing of 

examples and explanation of duties, the types of duties, make it so 

that I think it is realistic that we can expect a small- or mediumsized employer or an employee—because it is just as important 

that they know what the rules are—— 

Senator CRAIG. I would hope so. 

Mr. FORTNEY [continuing]. Can read that and get a sense, okay, 

here is how I am to be treated under this law. I should get overtime; I should not get overtime. 

I think it is a significant step forward, and I think then if we 

get people classified properly, that then will resolve the litigation 

and the threat of litigation that often results in the current environment. So I do think it will improve and I think that would be 

the steps whereby it would occur. 

Senator SPECTER. Mr. Eisenbrey, I recall you saying you thought 

this would bring more litigation, would not bring less. There is 

greater ambiguity. Did I hear you correctly? 

Mr. EISENBREY. You did and let me just give you two examples. 

This team leader provision—the Department says we are not 

changing the law. This is the same as the major assignment language. If it were the same, why not keep the major assignment language? They have changed the law. They have changed the law. 

They have changed that language. It will be subject to litigation 

just because it is changed. But they have not defined team leader. 

They have put in this language about it being a major assignment, 

but they give an example of productivity teams which are widespread all throughout American industry. Every team leader on 

one of those productivity teams now is going to subject to exemption and that will be litigated. 

The chairman had a good example—— 

Senator CRAIG. Let me move to Dr. Bird before my time is up on 

the same question, Dr. Bird. 

Dr. BIRD. Yes, sir. I think when you look at that question, there 

are really two pieces to the litigation issue. One is what will happen to litigation next year or the next 2 years, and what will happen to litigation on average over the much longer time. Even with 

a clearer rule, a rule that rolls into the surface that is obvious to 

everybody, all of the footnotes and decisions from the past so that 

everything is up front, certainly in the initial phase, you may well 

have a lot of issues to settle and there may be a—— 

Senator CRAIG. A testing for clarification as much as anything. 

Dr. BIRD. Testing it, but then I think that it is reasonable to expect the new rule will lower the rate of litigation in the longer run. 

When you look at litigation costs, there are two aspects, not only 

the number of suits filed, but also the intensity of resource use in 

prosecuting a suit. I think that even where the number of suits 

filed might not go down, the cost of defending and prosecuting a 
57 

case may be less because the applicable rules are clearer and more 

on the surface. 

Third, I think you also have to look at a related compliance cost 

issue which is the administrative burden. That is the cost of making the day-to-day declassification decisions and hoping that you 

make it accurately enough and well enough to avoid getting sued, 

to avoid making a mistake. 

I think this rule is clearer. When you listen to what Ms. 

McCutchen said about how they rolled all of the footnotes and the 

residual from 50 years of case law into the rule, you have got an 

essentially clearer item that should lower both the administrative 

costs and the direct litigation costs. 

Senator CRAIG. Thank you, Mr. Bird. Thank you, Mr. Chairman. 

Senator SPECTER. Thank you, Senator Craig. 

Senator Murray. 

Senator MURRAY. Thank you, Mr. Chairman. I appreciate the opportunity to make a statement at this hearing. I ask unanimous 

consent that my full statement be in the record. 

Senator SPECTER. Without objection, it will be. 

[The statement follows:] 

PREPARED STATEMENT OF SENATOR PATTY MURRAY

Mr. Chairman, thank you for calling this hearing to examine the Department of 

Labor’s ongoing efforts to deny overtime protections to American workers. 

I’ve been concerned about the Administration’s plans for a long time. 

I was hoping that this final rule would ease the concerns of working families, but 

instead it has made them worse. 

There is a lot we still need to explore in this 400-page rule, but from what I’ve 

seen so far, it is bad news for working families. 

This rule opens the door for workers to lose their overtime protections. Specifically, it cuts the rights and incomes of hundreds of thousands of pre-school school 

teachers, veterans, nurses, and law enforcement personnel. Let me share a few examples. 

As a former pre-school teacher, I know that many pre-school and nursery school 

teachers work more than 40 hours a week and deserve overtime pay. 

Today, they are protected. Under this final rule, up to 360,000 pre-school and 

nursery school teachers will lose their overtime pay. 

This rule is also bad news for veterans. Some people claim that the Administration made changes to protect veterans, but here’s the bottom line: 

—Veterans who acquire training outside of the military could still be denied their 

overtime pay. 

—Our veterans deserve better. 

This rule will also hurt many nurses. It will make it easier for employers to reclassify RN’s as salaried professionals—making them ineligible for overtime protections. 

Finally, this rule is a slap in the face to law enforcement officers. For example, 

this rule does not protect sergeants from losing their overtime protections. 

Overall, the Labor Department’s final rule will make things worse for many hardworking Americans. 

We should be strengthening the rights and opportunities of working Americans, 

but this rule undermines them. 

Today, long-term unemployment is at an all-time high, and families continue to 

struggle in this tough economy. I don’t see how this Administration can continue 

to cut the pay of hardworking Americans who rely on overtime to make ends meet. 

I’m left to ask—Haven’t working families been punished enough by this President’s economic policies? 

Let me just add that this rule doesn’t even do what the Administration said it 

wanted to do—to clarify and simplify existing protections. This 400-page rule will 

undoubtedly lead to new rounds of litigation as both sides seek clarifications. 

I look forward to the testimony of our witnesses, and I hope we will have time 

to discuss the many problems with this rule in greater detail during our question 

and answer period. 
58 

Senator MURRAY. I know I just have a couple minutes, because 

members need to leave for a vote. But I just have to say if the purpose of this hearing was to clarify and simplify the existing rules, 

just listening to the last 45 minutes of this hearing, I am not certain that that objective was achieved. But I know I just have a couple of minutes, so just let me ask a few questions. 

I am really concerned that workers with a little more than a high 

school diploma or little or no on-the-job discretionary authority or 

responsibility may be really impacted by this proposal. Under this 

new rule, those workers can be reclassified as executive or administrative employees who no longer would be able to claim extra pay 

for hours worked above 40 hours a week. I am really concerned 

about the lessening of this education requirement. 

Mr. Becker, let me start with you. What do you see as the direct 

result of weakening the education requirement for determining 

overtime? 

Mr. BECKER. Well, let me answer in two ways. And we share 

your concern about those at the bottom end of the spectrum. I 

think you see them affected importantly in two ways. 

One is that the type of employees who now are expressly classified as professional are a wholly new type; that is, funeral directors, athletic trainers, chefs. They are not in what any of us, I 

think, would considered learned professions, that is, professions 

where the norm, the vast majority of people have a prolonged 

course of study. Doctors, lawyers, are the classic examples. Athletic 

trainers I just do not think any of us would consider to fall into 

that classification. 

Senator MURRAY. Preschool teachers would fall into that? 

Mr. BECKER. Excuse me? 

Senator MURRAY. Preschool teachers perhaps would fall into 

that? 

Mr. BECKER. So that is one area where a—because a minority of 

people now have some kind of training or education, they are classified as professional even though the majority in their field do not. 

The other area where you have people with very little education 

who are classified exempt is obviously in this low level manager 

and supervisor working foremen category where case law under the 

old rule, even under the old long test because these employees are 

paid so little, found that they spent more than 20 percent of their 

time, in fact, in some cases 90 to 100 percent of their time, performing ordinary duties, selling products, flipping hamburgers, 

stocking shelves, that those employees can now be classified under 

this concurrent duties test and with the elimination of the working 

foreman provision and the elimination of the 20 percent tolerance 

level as exempt even though they perform ordinary rank and file 

duties. 

Senator MURRAY. Mr. Fortney, would you disagree with that? 

Mr. FORTNEY. I do disagree with that. As discussed, let us go in 

reverse order. The folks with low levels of education that you initially said you were focused on, those are not folks who today 

would be classified as being exempt under the professional exemption possibly, meaning that they presumably should be getting 

overtime, because the professional exemption today clearly requires 

advanced education and learned training. So with respect to those 
59 

folks, it seems to me the only way they possibly could be exempt, 

meaning not getting overtime today, would be if they are executives or administrative. 

These regulations now clarify, for example, that executives, a 

working supervisor whose primary duty is performing nonexempt 

work on the production line, those people do not lose their overtime. The regs specifically provide that. Indeed, the regs have gone 

a step further in clarifying that you have to have supervisory hire/ 

fire authority, not just supervisory, hire/fire authority in order to 

qualify as an executive. This was a point that I tried to address in 

my opening statement that I think that many folks who may have 

limited education and be exempt today are going to gain over time 

that are in these lower level manager supervisory positions, number one. 

Number two, with respect to chefs and some of these other 

issues—— 

Senator MURRAY. Real quickly because I do want to get to Mr. 

Eisenbrey. 

Mr. FORTNEY. Chefs and other issues. The focus is not on what 

their job is. It deals with advanced accreditation and training by 

universities and in most cases State licensing such as for embalmers. 

And finally, kindergarten teachers who you referenced—— 

Senator MURRAY. I said preschool teachers. 

Mr. FORTNEY. I am sorry. Preschool. But the regulations do represent teachers of kindergarten or nursery school pupils will continue to be exempt, and the regulations provide that. 

Senator MURRAY. Mr. Eisenbrey, you get my last 20 seconds. 

Mr. EISENBREY. On the professional exemption, Mr. Fortney said 

it clearly requires advanced education and learned training. That 

is no longer true. The rule says you can get to be a professional 

and exempt with work experience. So that is a major change. 

The hire/fire authority that Mr. Fortney mentioned is not hire/ 

fire authority. If you even have the ability to suggest that somebody have a shift change or that they be considered for a promotion, that is all the authority. You do not have to have hire/fire 

authority. 

And nursery school teachers. This is important. They are losing 

their right to overtime that they have now. There is a Wage/Hour 

opinion letter that says that most nursery teachers, preschool 

teachers do not exercise independent judgment and discretion. 

They are not instructing students. They are watching over them, 

2-and 3-year-olds. And they are entitled to overtime now. Under 

this rule, they lose their right to overtime. As a class they are exempt. 

Senator MURRAY. Mr. Chairman, I am out of time. I thank all of 

our witnesses. 

Senator SPECTER. Thank you very much, Senator Murray. 

Beyond any question, this hearing could go on and on and on on 

a very, very complicated subject. But we very much appreciate your 

coming, gentlemen, and I think it better prepares not only the panelists but those who will following the transcripts. We have to 

make a judgment on this very important subject. 
60 

ADDITIONAL PREPARED STATEMENT

We have received the prepared statement of the American 

Nurses Association that will be included in the record at this point. 

[The statement follows:] 

PREPARED STATEMENT OF THE AMERICAN NURSES ASSOCIATION

In regards to the Senate Appropriations Subcommittee on Labor, HHS hearing on 

May 4, 2004, the American Nurses Association appreciates the opportunity to provide a written statement on the U.S. Department of Labor final revisions to the Federal Labor Standards Act (FLSA) regulations as published in the Federal Register 

on April 28, 2004. 

The American Nurses Association (ANA) represents the nation’s registered nurses 

through its 53 state and territorial state nurses associations. Our members represent the interests of registered nurses practicing in hospitals and nursing homes 

and a wide range of other health care settings. The implementation of these proposed revisions to the FLSA will have implications for their practice, their work environment and the quality of patient care they provide. 

ANA has reviewed the final rule and while the final rule includes some improvements over the proposed rule it still remains controversial for registered nurses. 

Part 541 of the rule redefines which workers are salaried professionals, administrative managers and executives, and, therefore, exempt from federal overtime protections. A worker can be exempted from overtime protections under one of these categories if he or she meets a two-pronged test: her/his qualifications and duties must 

meet the standards outlined in the regulations; and s/he must be paid on a salary 

basis an amount more than $455 per week. 

Registered nurses have long met the ‘‘duties test’’ to be considered learned professionals; however, because most registered nurses are paid on an hourly basis, they 

do not meet the second prong of the existing rules, i.e., the salary component, and 

therefore are entitled to overtime compensation. The Department of Labor is correct 

in their claim that the status of salaried registered nurses remains unchanged 

under the new rule, but it has overlooked the impact on the large percentage of registered nurses who are paid on an hourly basis. The rule is further complicated by 

changes in the definition of a salaried employee by now allowing salaried compensation to be calculated on a hourly or a shift basis. The new regulations create a degree of legal ambiguity that employers may try to exploit. For example, ANA is concerned that employers may try to claim that more RNs are salaried. Creating doubt 

about registered nurses’ right to overtime pay threatens ongoing efforts to retain 

and recruit nurses—particularly in a time when mandatory overtime is a common 

practice and RNs are in short supply. 

As stated by Patti Heffner, RN, in her testimony on January 20, 2004, nurses are 

paid for overtime, whether voluntary or mandatory. Under the proposed changes, 

nurses will be working the same long hours they currently work, but without the 

guarantee for overtime compensation. Expanding the number of professional workers, such as registered nurses, who are exempt from overtime protections, will lower 

the marginal cost of overtime work for the employers. In health care institutions, 

this will encourage the use of mandatory overtime as a staffing strategy. ANA 

strongly opposes mandatory overtime as it has been widely recognized as one of the 

major factors contributing to nurses’ job dissatisfaction and the nursing shortage. 

Mandatory overtime also increases the risk of medical errors and concerns for patient safety. 

The Institute of Medicine (IOM) released a report in November, 2003 which shows 

a clear link between patient safety and the nursing work environment. The study, 

Keeping Patients Safe: Transforming the Work Environment of Nurses recommends 

limiting the number of hours a nurse can work to 12 hours in any 24-hour period 

and 60 hours in any seven day period. 

The overtime regulations are set to go into effect in August, 2004 barring Congressional action to change them. ANA has joined with other organizations representing nurses to send a letter to the U.S. Senate asking Senators to support an 

amendment introduced by Sen. Harkin (D-IA) to roll back any portion of the regulations that restricts eligibility for overtime pay. While ANA appreciates the need for 

clarification of some the regulatory provisions of the FLSA, ANA is concerned these 

revisions in the final rule will not accomplish that goal. In fact, the net effect of 

the final rule will add to the uncertainty by substituting one confusing set of definitions for another. ANA urges you to continue to oppose these changes to the overtime rule. 
61 

Once again, thank you for allowing the American Nurses Association to comment 

on the issues facing nursing. 

CONCLUSION OF HEARING

Senator SPECTER. Thank you all very much for being here. That 

concludes our hearing. 

[Whereupon, at 11:02 a.m., Tuesday, May 4, the hearing was concluded, and the subcommittee was recessed, to reconvene subject to 

the call of the Chair.] 

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