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[Senate Hearing 108-233]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 108-233
 
                     PROPOSED RULE ON OVERTIME PAY
=======================================================================

                                HEARING

                                before a

                          SUBCOMMITTEE OF THE

            COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                            SPECIAL HEARING

                     JULY 31, 2003--WASHINGTON, DC

                               __________

         Printed for the use of the Committee on Appropriations

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

                               __________

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                            WASHINGTON : 2003
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                      COMMITTEE ON APPROPRIATIONS

                     TED STEVENS, Alaska, Chairman
THAD COCHRAN, Mississippi            ROBERT C. BYRD, West Virginia
ARLEN SPECTER, Pennsylvania          DANIEL K. INOUYE, Hawaii
PETE V. DOMENICI, New Mexico         ERNEST F. HOLLINGS, South Carolina
CHRISTOPHER S. BOND, Missouri        PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky            TOM HARKIN, Iowa
CONRAD BURNS, Montana                BARBARA A. MIKULSKI, Maryland
RICHARD C. SHELBY, Alabama           HARRY REID, Nevada
JUDD GREGG, New Hampshire            HERB KOHL, Wisconsin
ROBERT F. BENNETT, Utah              PATTY MURRAY, Washington
BEN NIGHTHORSE CAMPBELL, Colorado    BYRON L. DORGAN, North Dakota
LARRY CRAIG, Idaho                   DIANNE FEINSTEIN, California
KAY BAILEY HUTCHISON, Texas          RICHARD J. DURBIN, Illinois
MIKE DeWINE, Ohio                    TIM JOHNSON, South Dakota
SAM BROWNBACK, Kansas                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            TOM HARKIN, Iowa
JUDD GREGG, New Hampshire            ERNEST F. HOLLINGS, South Carolina
LARRY CRAIG, Idaho                   DANIEL K. INOUYE, Hawaii
KAY BAILEY HUTCHISON, Texas          HARRY REID, Nevada
TED STEVENS, Alaska                  HERB KOHL, Wisconsin
MIKE DeWINE, Ohio                    PATTY MURRAY, Washington
RICHARD C. SHELBY, Alabama           MARY L. LANDRIEU, Louisiana
                           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

                            C O N T E N T S

                              ----------                              
                                                                   Page

Opening statement of Senator Arlen Specter.......................     1
Opening statement of Senator Tom Harkin..........................     1
Statement of Tammy D. McCutchen, Administrator, Wage and Hour 
  Division, Employment Standards Administration, Department of 
  Labor..........................................................     2
    Prepared statement...........................................     4
Statement of Christine L. Owens, director, Public Policy, AFL-CIO     7
    Prepared statement...........................................     9
Statement of Lawrence Z. Lorber, partner, Proskauer Rose LLP.....    10
    Prepared statement...........................................    12
Statement of Ross Eisenbrey, vice president and policy director, 
  Economic Policy Institute......................................    16
    Prepared statement...........................................    18
Prepared statement of Senator Patty Murray.......................    25

                     PROPOSED RULE ON OVERTIME PAY

                              ----------                              

                        THURSDAY, JULY 31, 2003

                           U.S. Senate,    
    Subcommittee on Labor, Health and Human
     Services, and Education, and Related Agencies,
                               Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 3:02 p.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. We now move to our panel on overtime, and 
our first witness will be Ms. Tammy McCutchen, Administrator of 
the Wage and Hour Division of the Employment Standards 
Administration. Ms. McCutchen has a law degree from 
Northwestern and a bachelor's degree in English literature also 
from Northwestern.
    Ms. McCutchen, thank you for joining us today. We are going 
to be sticking very close to the time limits because we are 
under time constraints to conclude both this hearing and 
another segment on union financial reporting by 4:45.
    I now turn to my distinguished colleague, Senator Harkin.

                OPENING STATEMENT OF SENATOR TOM HARKIN

    Senator Harkin. Thank you very much, Mr. Chairman, for 
having this hearing on such an important issue as overtime pay. 
You are to be commended for having this hearing. I thank you.
    I want to thank Ms. McCutchen and Mr. Eisenbrey for joining 
us today to discuss this issue.
    I just have a brief statement I would like to make. I will 
shorten it as much as I can.
    Mr. Chairman, we had a similar discussion at our 
authorizing committee meeting earlier this week on the 
nomination for the new Labor Solicitor. I was disturbed that he 
believed that Congress gave the Labor Secretary authority to 
broadly define the terms of the Federal Labor Standards Act and 
the overtime protections within that law. I do not believe that 
is the case. All we have to do is look at history and what 
Congress intended.
    Congress passed time-and-a-half pay for overtime to 
increase jobs, and it included narrow exceptions as to who 
would fall outside the overtime pay protections. So what I hope 
we can find out at today's hearing is does this updated 
regulation reflect the intent of Congress that overtime 
protection and the 40-hour work week applies to all American 
workers with very few narrow exceptions.
    At this point I have my doubts. From everything I have read 
and reviewed, the proposal goes much further than that. It 
makes the duties test so vague that employers can easily 
reclassify workers and take away their overtime protection even 
when it is obvious these workers are not managers and they are 
not in charge.
    Now, I know the FLSA is an old law. It needs updating and 
that is fine. I do not mind that. We can increase the salary 
threshold. That is, I know, in the proposal. And that is good. 
But do not take away the protections that workers currently 
have. These workers include nurses, paralegals, secretaries, 
police officers, health technicians, many, many more, and a lot 
of times this overtime can be 25 percent of their entire 
paycheck.
    So again, I just want to close by saying that in 1999 a GAO 
report found that employees who do not have overtime protection 
are twice as likely to work overtime than those who are 
covered. I repeat. The GAO found that employees who do not have 
overtime protection are twice as likely to work overtime than 
those who are covered. So why would we want to encourage that 
kind of activity?
    Last, I asked the Labor Solicitor, the person who just got 
confirmed by us this week--Mr. Radzely I believe his name is--
how many comments they had received on this, and I guess it is 
over 80,000.
    Ms. McCutchen. Just about 80,000.
    Senator Harkin. About 80,000 comments have been received on 
this from all over the country, obviously indicating a strong 
interest in this proposal. My point is this is a proposal that 
has broad-reaching effects. It affects a lot of people in this 
country, and not one public hearing was ever held on it. To me 
that is the kind of proposed rule that should not go into 
effect until they have heard from the public and they get out 
in the public and hear from them on this.
    So with that, I thank you again, Mr. Chairman, for holding 
this hearing.
    Senator Specter. Thank you, Senator Harkin.
    Ms. McCutchen, 5 minutes, and we look forward to your 
testimony.

STATEMENT OF TAMMY D. McCUTCHEN, ADMINISTRATOR, WAGE 
            AND HOUR DIVISION, EMPLOYMENT STANDARDS 
            ADMINISTRATION, DEPARTMENT OF LABOR
    Ms. McCutchen. Thank you, Mr. Chairman and members of the 
committee. I am pleased to appear before you today to correct 
some of the confusion and misinformation that has been 
circulating regarding the Department of Labor's proposed 
revision to the white collar regulations. The Department and 
the administration began this difficult project because we care 
about working Americans. The minimum wage and overtime 
requirements of the Fair Labor Standards Act are among the 
Nation's most important worker protections, but these 
protections have been severely eroded because the Department 
has not been able to update the white collar regulations in 
over 50 years. Through its proposal, the Department is seeking 
to restore the overtime protections intended by the Fair Labor 
Standards Act, especially to low wage and vulnerable workers 
who have very little bargaining power with their employers, 
while at the same time minimizing, to the extent possible, the 
economic impacts of any changes.
    I have submitted a written statement for the record 
describing the Department's proposal in more detail. In the few 
minutes I have today, I would like to briefly summarize the 
proposal and discuss its likely impact.
    To qualify as an exempt white collar worker under the 
existing regulations, the employee must be guaranteed a minimum 
weekly salary and perform certain job duties. The minimum 
salary level was last updated in 1975, over 28 years ago, and 
is now only $155 per week. Thus, under existing regulations an 
employee earning only $8,060 a year may be classified as an 
exempt executive and be denied overtime pay. By comparison, a 
minimum wage employee earns about $10,700 per year.
    Our proposal would increase this minimum salary level to 
$425 per week, or $22,100 per year. This is a $270 per week 
increase and the largest increase in the 65-year history of the 
FLSA. The largest prior increase was only $50 per week. With 
this change, all employees earning less than $22,100 per year 
will be automatically entitled to overtime no matter what job 
duties they perform. An outside independent economist has 
concluded that this change will result in 1.3 million 
additional workers sharing up to $895 million in additional 
wages every year. This change is necessary to restore overtime 
protections to the most vulnerable of workers in America today. 
Of the 1.3 million workers who gain this guaranteed overtime 
protection, 55 percent are women, 41 percent are minorities, 
and 69 percent have a high school education or less.
    Changes to the duties test are also necessary to restore 
overtime protections to the workers in America today. The 
existing regulations are so confusing that often employment 
lawyers and even wage and hour investigators have difficulty 
determining whether employees qualify for the exemption. The 
regulations are nearly impossible for the average worker to 
understand. This confusion is made worse because the job duty 
requirements in the regulations have not been changed since 
1949 when Harry Truman was President and a computer filled an 
entire room. The regulations are hopelessly outdated, 
discussing jobs such as keypunch operators, leg men and gang 
leaders that we do not believe exist today, while providing 
little guidance for jobs of the 21st century. Confusing, 
complex and outdated regulations allow unscrupulous employers 
to play games and to manipulate the rules. More and more, 
employees must resort to lengthy court battles to receive their 
overtime pay.
    Thus, the Department has attempted to clarify and simplify 
the existing regulations while minimizing the impact on workers 
to the greatest extent possible. The Department proposes to add 
a requirement to the executive duties test used today to test 
most employees for exemption, thus making it more difficult to 
qualify as an exempt executive. The basic requirements of the 
professional exemption will remain the same and the Department 
has sought comments on how to improve the confusing 
requirements for the administrative exemption and seeks to find 
a common sense test that average workers can understand. We 
have no intent to expand the exemptions.
    These changes to the duties test should make it easier for 
employees to understand their rights and enable the Department 
to vigorously enforce the law. It will ensure employers have no 
excuse for abuse. The changes to the duties test should also 
reduce litigation, thus ensuring that employees receive their 
overtime pay now today when they need it to house and feed 
their families, not years from now after lengthy litigation.
    The exemptions only apply to white collar employees who 
work in an office setting. The proposal will not impact blue 
collar workers who perform routine or manual labor such as 
construction workers, carpenters, electricians, mechanics, 
cooks, secretaries, or similar workers. In addition, the 
Department has not proposed any changes to the current rules 
for nurses or medical technicians, and the proposal will have 
no impact on police officers, fire fighters, or other first 
responders.

                           PREPARED STATEMENT

    Finally, this rule does not affect obligations under 
existing collective bargaining agreements, and thus should not 
impact union members covered under union contracts.
    I see my time is up. Thank you for allowing me to speak 
today.
    [The statement follows:]

             Prepared Statement of Hon. Tammy D. McCutchen

    Mr. Chairman and members of the Subcommittee: I am pleased to 
appear before you today to discuss the Department of Labor's proposed 
revision of the Fair Labor Standards Act's ``white collar'' 
regulations, which provide the criteria for determining who is excluded 
from the Act's minimum wage and overtime requirements as an executive, 
administrative, or professional employee.
    Congress included this exemption from the Act's monetary 
requirements in the original Fair Labor Standards Act of 1938, in 
Section 13(a)(1). The regulations that we are revising appear in Title 
29 of the Code of Federal Regulations, Part 541. As provided in the Act 
itself, employees working in a bona fide executive, administrative or 
professional capacity are not entitled to receive the minimum wage or 
overtime pay otherwise required by the Fair Labor Standards Act.
    The statute itself does not define the terms executive, 
administrative or professional. Rather, the statute delegates to the 
Secretary of Labor the administrative discretion, and the duty, to 
define and delimit these terms ``from time to time by regulations.''
    The existing regulations require three basic tests for each 
exemption: (1) a minimum salary level, now set at $155 per week for 
executive and administrative employees and $170 per week for 
professionals under the basic ``long'' duties tests for exemption, 
whereas a higher salary level of $250 per week triggers a shorter 
duties test in each category; (2) a salary basis test, requiring 
payment of a fixed, predetermined salary amount 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 criteria in the existing regulations defining who is exempt 
have not been changed in decades. The job duties tests were last 
revised in 1949. The salary basis test was set in 1954. The minimum 
salary levels were last updated in 1975, over 28 years ago. Under those 
salary rates that are still in effect today, an employee earning only 
$8,060 a year may qualify as an exempt ``executive.'' By comparison, an 
employee paid the current minimum wage of $5.15 an hour and working 40 
hours per week earns about $10,700 a year.
    The Congress recently asked the U.S. General Accounting Office 
(GAO) to review these ``white collar'' exemption regulations under the 
Fair Labor Standards Act. In a report issued by the GAO in September 
1999,\1\ GAO chronicled the background and history to the exemptions, 
estimated the number of workers who might be included within the scope 
of the exemptions, identified the major concerns of employers and 
employees regarding the exemptions, and suggested possible solutions to 
the issues of concern raised by the affected interests. In its 
September 1999 report, the GAO said ``We recommend 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.''
---------------------------------------------------------------------------
    \1\ Fair Labor Standards Act: White Collar Exemptions in the Modern 
Work Place (GAO/HEHS-99-164, September 30, 1999).
---------------------------------------------------------------------------
    For the past year and a half, the Department has been working on 
proposed reforms to update and clarify these exemptions, published as a 
regulatory proposal in the Federal Register on March 31st this year (61 
FR 15560). Last spring, we invited both business associations and 
worker advocates to meet with the Department so we could listen to 
their views and concerns about the existing regulations. We invited 
nearly 80 different stakeholder groups, including those who commented 
on previous proposed rules on this issue, including 16 employee unions, 
and heard from over 40 of them. We also reviewed comments that were 
filed with the Department during rulemaking efforts in the 1980s, and 
studied the entire regulatory history from 1938 to the present.
    The existing regulations are complex. Complex rules are difficult 
to apply and particularly difficult to enforce. In many instances, even 
lawyers and experienced Department of Labor investigators have had 
difficulty interpreting and applying the current regulations. When 
rules are not clear, the confusion becomes a breeding ground for 
litigation. In 2001, for the fist time ever, private collective actions 
filed in federal court for violations of the Fair Labor Standards Act 
outnumbered discrimination class actions. This lack of clarity benefits 
no one and is particularly harmful to employees. Many misclassified 
employees may be forced to wait years to receive overtime pay that they 
need today as the legal process winds its way through the court system. 
Other misclassified employees, who never bring a lawsuit or complain to 
the Department, may never receive the wages they are due under federal 
law.
    Under the leadership of Secretary of Labor Elaine Chao, the 
Department of Labor has issued a proposed rule to modernize and 
simplify the regulations. Reforms are needed to make the regulations 
easier to apply and enforce. Reforms are also necessary to strengthen 
overtime protections for low-wage workers. Bringing the rules into the 
21st century and clarifying outdated regulatory language will help 
employees better understand their rights and ensure they receive their 
overtime pay when due. Employers will be better able to understand 
their obligations and comply with the law. Reducing administrative and 
litigation costs will free up resources that may be devoted to 
stimulating economic growth. And clearer rules will better equip the 
Department of Labor to vigorously enforce the law.
    I would like to spend a few moments discussing our proposal and how 
we believe it will impact workers, but let me first discuss the workers 
who will not be impacted. First, because these exemptions are limited 
to certain defined classes of ``white collar'' workers, only those 
employees who perform office or non-manual work meeting the specified 
duties tests can be classified as exempt from receiving overtime pay. 
This rule does not impact employees who perform routine or manual work. 
Thus, for example, the proposal will not impact construction workers, 
carpenters, electricians, mechanics, plumbers, teamsters, cooks, 
secretaries and similar workers because none of these workers would 
qualify as ``white collar'' workers meeting the duties tests contained 
in the regulations. In addition, the Department has not proposed any 
changes to the current regulation regarding overtime pay for nurses or 
medical technicians and the proposal would have virtually no impact on 
police officers or firefighters. Finally, this rule does not affect 
obligations under existing collective bargaining agreements so if such 
an agreement provides that certain categories of workers will receive 
overtime premium pay, employers must continue to abide by those 
agreements without regard to these regulations.
    Our proposal would increase the minimum salary level required for 
exemption as a ``white collar'' employee to $425 per week, or $22,100 
per year. This is a $270 a week increase, and the largest increase 
since the Congress passed the Fair Labor Standards Act in 1938. (The 
largest prior increase was $50 per week.) With this change, all 
employees earning less than $22,100 a year would be automatically 
entitled to the overtime protections of the Fair Labor Standards Act. 
Under the current rules, even a worker earning minimum wage would not 
be automatically entitled to overtime protections. We estimate that 
this change will result in 1.3 million additional workers, eligible for 
overtime pay for the first time, sharing up to $895 million in 
additional wages every year.
    As in the current regulations, the Department's proposal also 
includes a streamlined test for higher compensated ``white collar'' 
employees. To qualify for exemption under this aspect of the proposed 
rule, an employee must: (1) be guaranteed total annual compensation of 
at least $65,000, regardless of the quality or quantity of worked 
performed; (2) perform office or non-manual work, and (3) meet at least 
one or more of the exempt duties or responsibilities specified for an 
executive, administrative, or professional employee. This is the same 
concept found in the current rules for the ``Special Proviso for High 
Salaried Executives'' known as the ``short test.''
    The Department's proposal will also update, simplify and clarify 
the duties tests. The current regulations provide two sets of duties 
tests for each of the three exemption categories--that is, there is 
both a short duties test and a long duties test for each of the 
executive, administrative and professional exemptions. The current long 
duties tests only apply to employees earning between $8,000 and $13,000 
a year, and thus, has been basically inoperative for a decade. Thus, 
our proposal would rely on the existing ``primary duty'' approach found 
in the current short tests. To be exempt, an employee must receive the 
required minimum salary amount and have a primary duty of performing 
the duties specified for an executive, administrative or professional 
employee.
    For the executive exemption, the proposal would maintain the two 
requirements from the current short test and add a third requirement 
from the current long test. Thus, under the proposal, an exempt 
executive must (1) have a primary duty of managing the entire 
enterprise or a customarily recognized department or subdivision 
thereof, (2) direct the work of two or more other workers, and (3) have 
authority to hire or fire other employees or have recommendations as to 
hiring and firing be given particular weight. By adding this third 
requirement from the inoperative long test, the proposal would make it 
more difficult to qualify as an exempt executive. In other words, fewer 
workers would qualify as exempt executives under the proposal than 
qualify for the exemption today.
    The Department has not proposed substantial changes for the 
professional exemption. The current duties test for professional 
employees requires a primary duty of ``work requiring knowledge of an 
advance type in a field of science or learning customarily acquired by 
a prolonged course of specialized intellectual instruction and study.'' 
The proposal would add a phrase clarifying that the required advanced 
knowledge can also be gained through an equivalent combination of 
intellectual study and work experience. But, this is not a change from 
the current rule. As explained in the current regulations at section 
541.301, and in case law, the term ``customarily'' restricts the 
exemption to those professions where an advanced, specialized degree is 
a standard prerequisite for entry into the profession, but also makes 
the exemption available for ``the occasional lawyer who has not gone to 
law school, or the occasional chemist who is not a possessor of a 
degree in chemistry.'' The proposed change merely clarifies that the 
chemist without a chemistry degree cannot qualify for exemption unless 
he possesses knowledge and skills equivalent to a chemist with the 
advanced degree, and that such equivalent knowledge may be gained 
through combinations of military training, community college or 
technical school courses or specialized on-the-job training.
    The major change to the duties test for the administrative 
exemption is the proposal to replace the ``discretion and independent 
judgment'' requirement, which has been a source of much confusion and 
litigation, with a new standard that exempt administrative employees 
must hold a ``position of responsibility with the employer.'' To meet 
this requirement, an employee must either customarily and regularly 
perform work of substantial importance or perform work requiring a high 
level of skill or training. This change seeks to clarify the standards 
for determining eligibility for administrative workers. In our proposal 
the Department specifically sought comment about replacing the 
``discretion and independent judgment'' test. Under both the current 
rule and the proposal, the exemption applies only to those employees 
who meet the administrative employee primary duty test of performing 
office or non-manual work related to management policies or general 
business operations.
    Under the Department's proposal, all employees who earn less than 
$22,100 per year would be automatically entitled to the overtime 
protections of the law. Outside economists estimate that this change 
would guarantee overtime pay to an additional 1.3 million low-wage 
workers. Overtime protections will be strengthened for another 10.7 
million hourly workers who currently perform both exempt and non-exempt 
duties and are paid overtime; the proposed changes to the duties tests 
will make entitlement to overtime pay more certain for these employees. 
Thus, under our proposal, overtime protections will be guaranteed or 
strengthened for 12 million workers. Our economists have estimated that 
there are about 640,000 hourly workers earning an average of $50,000 a 
year, all with college degrees, that employers might be able to 
reclassify as exempt. Of the 1.3 million additional workers who will be 
guaranteed overtime protection under our proposal, all earn under 
$22,100 per year; almost 55 percent are women; over 40 percent are 
minorities, and almost 25 percent are Hispanic; and almost 70 percent 
have only a high school education or less. Thus, consistent with the 
original purposes behind the enactment of the Fair Labor Standards Act 
in 1938, our regulatory proposal focuses additional overtime 
protections on some of our country's most vulnerable low-wage workers.
    The Department's Notice of Proposed Rulemaking invited public 
comments for 90 days. During that comment period, which closed on June 
30, we received almost 80,000 submissions, some of which are duplicates 
(for example, multiple copies of identical comments were received by e-
mail, facsimile, and regular mail or delivery/courier service). We are 
continuing to sort through these comments to identify such duplications 
among the many comments received. The Department will review all 
comments received and give careful consideration to all of the views 
that have been submitted. I would be happy to answer any questions any 
Members of the Subcommittee may have, but note for the record that the 
Department is in the midst of rulemaking and will carefully consider 
the full record before deciding on the next step.
    This concludes my prepared statement in this matter.

    Senator Specter. Thank you very much, Ms. McCutchen.
    We are going to proceed with the panel 2, so if you would 
step back. We find the process works best when we have heard 
both sides and then can have an exchange during the question 
and answer session.

STATEMENT OF CHRISTINE L. OWENS, DIRECTOR, PUBLIC 
            POLICY, AFL-CIO
    Senator Specter. Our next witness is Ms. Christine Owens, 
director of the AFL-CIO Public Policy Department, a law degree 
from the University of Virginia, bachelor's from the College of 
William and Mary. Thank you for joining us, Ms. Owens, and the 
floor is yours.
    Ms. Owens. Thank you, Senator Specter and Senator Harkin, 
members of the committee. I appreciate the opportunity to 
appear here today on behalf of the AFL-CIO to discuss our 
concerns about the proposed changes to the overtime 
regulations.
    In our view there is no justification whatsoever for any 
regulatory change that would disqualify more workers from the 
overtime protections of the Fair Labor Standards Act. This is 
for reasons that are every bit as vital and valid today as they 
were in 1938.
    First, the purposes of the FLSA's overtime rules have not 
changed. They are designed to encourage employers to hire more 
workers by discouraging them from assigning excessive hours to 
their current employees and to ensure that when workers put in 
overtime hours, they receive a fair wage for doing so.
    Second, as the Supreme Court has held and this Congress has 
recognized, coverage under the FLSA is broad and exemptions are 
to be narrowly construed. No institution other than this 
Congress has the authority to make changes that deviate from 
these purposes and basic rules of construction.
    With the steady escalation in Americans' work hours in 
recent years, workers need the protections of the FLSA overtime 
requirements as much now as ever, and in an economy that is 
experiencing the greatest job loss in a decade and in which 
wages are flat, American workers need more and better jobs, not 
fewer. For these reasons, changes in the overtime regulations 
must enhance rather than reduce overtime protections and extend 
them to more workers not fewer.
    Regrettably, we believe that the Department's proposals 
take us in the opposite direction. There has been considerable 
debate over the number of workers who will be affected, and 
Ross Eisenbrey from EPI will speak to that. But let me just say 
that to our knowledge, the only study that even attempts to 
estimate the number of workers who will lose overtime 
protection is the EPI study, and that study concludes that more 
than 8 million workers are at risk of losing their overtime 
protection.
    The Department has argued that its proposals are necessary 
to update the overtime rules for the new economy of the 21st 
century, but what is it about today's economy that makes it 
less critical that licensed practical nurses, medical 
technicians, paralegals, bookkeepers, some secretaries, and 
low-level supervisors have protections against excessive work 
hours and have the capacity to control their work hours and to 
earn overtime pay? Many of these workers need that pay to send 
their kids to college, to pay bills, and many of these workers 
need these protections to have time with their families.
    But more is at stake than just these workers. Also at stake 
is the future of the 40-hour work week and its vulnerability to 
repeal by regulation. If DOL can expand the exceptions to the 
rule every time it regulates, then it will repeal the Fair 
Labor Standards Act through regulatory action alone.
    I want to point out that on Tuesday--and Senator Harkin 
referenced this--when acting DOL Solicitor Howard Radzely 
testified, he took the position that the Secretary of Labor has 
the authority to define the overtime exemptions broadly, and 
that is precisely what he said. She can define the exemptions 
broadly. He went on to say that consistent with that authority, 
the Secretary could, under proper circumstances, exempt as many 
as 90 percent of all workers who earn above the proposed 
minimum salary threshold of $22,100. If this rule were the 
case, the Fair Labor Standards Act would no longer exist for 
most American workers.
    We believe the Department's proposals are inconsistent with 
the intent of the FLSA and the scope of the Department's own 
authority. Congress intended for the FLSA overtime protections 
to apply to the vast majority of workers and for the exemptions 
to cover a limited few. Congress plainly did not intend, nor 
did it empower the Department of Labor to repeal the 40-hour 
work week for most American workers through regulation. I am 
not suggesting that is what the Department is doing right now, 
but we do believe that these regulations move us in that 
direction and create a dangerous precedent for further 
broadening of the exemptions by regulation.

                           PREPARED STATEMENT

    The 40-hour work week enshrined in the Fair Labor Standards 
Act of 1938 is a bedrock labor protection that American workers 
and their families depend on. DOL's proposal threatens the 
protections of the overtime rules and sets an alarming 
precedent for the future that will hurt workers and hurt the 
economy.
    Thank you very much.
    [The statement follows:]

                Prepared Statement of Christine L. Owens

    Mr. Chairman, members of the Committee, thank you for inviting me 
to testify on behalf of the AFL-CIO about the Department of Labor's 
(DOL) proposed revisions to the Part 541 regulations governing overtime 
eligibility.
    Let me begin by saying there is no justification for disqualifying 
more workers from the overtime protections of the Fair Labor Standards 
Act (FLSA). This is for two reasons every bit as vital and valid today 
as when the FLSA was passed in 1938.
    First, the purposes of the FLSA's overtime rules--to encourage 
employers to hire more workers by discouraging them from assigning 
excessive hours to their current employees and to ensure that workers 
who do put in overtime hours receive a fair wage for doing so--are 
unchanged. And second, as the Supreme Court and Congress have 
repeatedly recognized, coverage under the FLSA must be broadly 
construed and exemptions from the Act must be narrowly interpreted. In 
these respects, the law has not changed since 1938--and no institution 
other than Congress has the authority to make changes that are 
inconsistent with the FLSA's abiding purposes and precepts.
    With the steady escalation in work hours Americans have experienced 
over the last two decades, workers today need the protections of the 
40-hour workweek now more than ever. There can be no question that the 
FLSA works to help workers control their hours: the GAO has found that 
44 percent of workers without overtime protection work more than 40 
hours per week, compared with only 20 percent of workers protected by 
the FLSA. Unfortunately, as the GAO has also documented, a declining 
percentage of American workers are protected by the FLSA, as more and 
more of them fall into the statutory exemptions for ``executive,'' 
``administrative,'' and ``professional'' employees.
    If we are serious about addressing the problem of excessive work 
hours, we must extend the overtime protections of the FLSA to more 
workers, not fewer.
    Regrettably, DOL's proposed changes to the overtime regulations 
take us in the opposite direction. There has been considerable debate 
over the precise number of workers who could lose overtime protection 
under the proposed regulations. To my knowledge, the only study that 
even attempts to estimate this figure is a report by the Economic 
Policy Institute (EPI), which concludes that over eight (8) million 
workers could lose their overtime protection. DOL's deeply flawed 
regulatory analysis, by contrast, only attempts to estimate the number 
of workers currently earning overtime pay who would lose overtime 
protection under the proposed regulations. The number of workers 
currently earning overtime pay is only about one-seventh the total 
number of workers who enjoy overtime protection under the FLSA.
    DOL argues that its proposed changes in the regulations are 
necessary to ``update'' the overtime rules for the ``new economy'' of 
the 21st century. This is curious, given that DOL issued a report only 
two years ago concluding that changes in the new economy neither negate 
the need for overtime protections nor warrant broadening of the 
overtime exemptions. DOL has failed to explain, nor can it explain, why 
the 40-hour workweek is obsolete for the eight million workers who 
would lose overtime protection under the proposed regulations. What is 
it about the 21st century economy that makes the 40-hour workweek 
obsolete for police, firefighters, licensed practical nurses, 
paramedics, secretaries, paralegals, bookkeepers, and low-level 
supervisors? Just as they did in 1938, these workers need more control 
over their time, and they need protection against excessive work hours. 
Many of them need overtime pay to send their children to college and 
pay their bills, just as they did in 1938.
    Yet much more is at stake here than just the work schedules and 
household budgets of eight million workers, as important as these may 
be. Also at stake is the future of the 40-hour workweek, and its 
vulnerability to repeal by regulation. If DOL has the authority to 
expand the exceptions to the 40-hour workweek, at some point those 
exceptions will swallow the rule. Broadening the overtime exemptions 
amounts to the same thing as rolling back the 40-hour workweek. On 
Tuesday, acting DOL solicitor Howard M. Radzely took the position that 
the Secretary of Labor has authority to define the overtime exemptions 
``broadly.'' Mr. Radzely testified that under certain circumstances, 
the Secretary may even have authority to disqualify from overtime 
protection 90 percent of all workers earning more than $22,100.
    The direction DOL is headed is a radical departure from both its 
past practice and from the intent of the FLSA. Every single change DOL 
proposes to the ``duties'' tests--the tests used to determine whether 
the nature of individuals' work warrants stripping them of overtime 
eligibility--would make it easier for employers to deny their workers 
overtime protection. DOL trumpets the fact that its proposal would 
raise the minimum salary threshold--the salary level below which 
workers are automatically guaranteed overtime protection--and there is 
no question that an increase in the salary threshold is long overdue. 
However, on at least six occasions in the past, DOL has adjusted the 
minimum salary threshold for inflation, without ever once hiding behind 
one of these periodic inflation adjustments in order to weaken the 
``duties'' tests and restrict overtime eligibility for workers above 
the threshold. If DOL weakened the ``duties'' tests every time it 
adjusted the minimum salary threshold, it would eventually gut the 
overtime protections of the FLSA entirely and effectively repeal the 
40-hour workweek by regulation. DOL does not have that authority.
    DOL appears to fundamentally misunderstand the intent of the FLSA 
and the scope of its own authority. Congress intended the protections 
of the 40-hour workweek to apply to the vast majority of workers, with 
the exception of only a narrowly limited class of employees. Few would 
dispute--and we certainly do not--that low wage workers should never be 
exempt from the FLSA and should always enjoy its absolute protection. 
But it is quite another thing altogether to contend, as DOL does now, 
that Congress's purpose in legislating the 40-hour workweek was 
exclusively or even primarily to protect only low-income workers. 
Congress most definitely did not intend such a cramped reading of the 
FLSA or a correspondingly expansive reading of the exemptions. And 
Congress plainly did not intend nor did it empower DOL to repeal the 
40-hour workweek for the vast majority of American workers through 
regulation. DOL's position is inconsistent with the purposes and 
history of the FLSA and with how the courts and this Congress have 
viewed the law and its exemptions. While this view is of obvious 
benefit to employers, it hurts rather than helps American workers and 
the American economy.
    Although we believe DOL's proposed changes to the duties tests are 
unjustified, there are other steps DOL could take to ``clarify'' the 
overtime rules and discourage litigation. The single most important 
step in this regard is for DOL to adequately adjust the minimum salary 
threshold. If DOL applied the methodology it most recently used in the 
past (and incorrectly claims to be using now), the salary threshold for 
the stricter ``long'' duties test would be $31,720. There would be no 
confusion over whether workers earning less than this amount are 
entitled to overtime protection, and there would be no litigation over 
their overtime rights. DOL has chosen not to make this clarification, 
or any one of a number of other clarifications that would guarantee 
overtime protection for more workers. The real issue is not whether the 
overtime rules should be clarified, but whether any clarification of 
the overtime rules should protect more or fewer workers.
    The 40-hour workweek enshrined in the Fair Labor Standards Act of 
1938 is a bedrock labor protection that American workers have depended 
on for decades and still value as a fundamental workplace right. It is 
also a benchmark by which we measure social progress in America and 
around the world. DOL's proposal not only threatens this core 
protection for eight million workers, but also sets an alarming 
precedent for further restriction of overtime eligibility and for 
regulatory repeal of the 40-hour workweek.

STATEMENT OF LAWRENCE Z. LORBER, PARTNER, PROSKAUER 
            ROSE LLP
    Senator Specter. Thank you, Ms. Owens. We turn next to Mr. 
Lawrence Lorber, partner in the law firm of Proskauer Rose, a 
member of the U.S. Chamber of Commerce, law degree from the 
University of Maryland, undergraduate degree from Brooklyn 
College.
    Would Mr. Ross Eisenbrey also come forward at this time?
    Thank you for joining us, Mr. Lorber, and the floor is 
yours.
    Mr. Lorber. Thank you, Mr. Chairman. My name is Lawrence 
Lorber. I am a partner in the law firm of Proskauer Rose. I am 
testifying today on behalf of the U.S. Chamber of Commerce. The 
Chamber is the world's largest business federation.
    The Fair Labor Standards Act is one of our oldest 
employment laws. It was passed in 1938, a very different time 
when the American work place bore little resemblance to the 
work place of the 21st century. The Congress was clear in 1938, 
and the law remains so today that the FLSA was not intended to 
be universal law prescribing with finite detail the working 
conditions, including the compensable hours of employment of 
every employee. Rather in 1938 and today the FLSA recognizes 
that its reach is constrained and that a significant number of 
employees falling into the statutorily identified categories of 
executive, administrative, and professional would remain 
outside its purview. And it was never intended that the 
boundaries of these white collar exemptions would remain 
static.
    Throughout the past 65 years, there have been efforts to 
review the FLSA and its regulatory structure so that it would 
accurately reflect work place conditions. In 1999, the General 
Accounting Office found that the Department of Labor should 
``amend the regulations to better suit the modern work place. 
This report,'' the GAO report, ``recommends that the Secretary 
of Labor comprehensively review current regulations and 
restructure white collar exemptions to better accommodate 
today's work place and anticipate future work place trends.''
    It certainly cannot be argued that the GAO is a partisan 
agency. And it is illuminating to note that in response to the 
GAO recommendation, the Department of Labor, then in the 
administration of President Clinton, stated that, ``the white 
collar exemption regulations were on its agenda to be reviewed 
in the future.'' And former Wage and Hour Administrator Kerr, 
who testified at House hearings on the GAO report, said that 
while the GAO recommendations could not be accomplished in the 
short run, the extensive process of consultation with all 
stakeholders and regulatory analysis could well lead to the 
implementation of ``comprehensive 541 changes.'' So it should 
come as absolutely no surprise to this committee, the Congress, 
or the public that the Department of Labor, after conducting 
extensive stakeholder meetings, has begun the process of 
modernizing the regulations governing which white collar 
employees are eligible for overtime.
    I would note that in his seminal book, ``The Work of 
Nations,'' former Secretary of Labor Robert Reich described the 
dramatic change in the designations of work in America. He 
noted that even beginning 1870 the Census Bureau categorized 
jobs into executive or managerial, sales or administrative or 
production functions. However, Secretary Reich goes on to say, 
however: ``But these categories have little bearing upon the 
competitive positions of Americans worldwide, now that 
America's core corporations are transforming into finely spun 
global webs. Someone whose job falls officially into a 
`technical' or `sales' subcategory may, in fact, be among the 
best paid and influential people in such a web. To understand 
the real competitive positions of Americans in the global 
economy, it is necessary to devise new categories.''
    Secretary Reich's prescient analysis of the evolution of 
the American work place was right in 1991 and it is certainly 
right today. And the Department's proposal adapts the 
regulatory scheme to the modern realities so that the statute 
continues to have meaning and vitality, but even more 
importantly, the proposal attempts to simplify the 
categorization of exempt and non-exempt work.
    I would add, as an attorney, it seems to me it makes no 
sense for employers, large or small, to hire expensive lawyers, 
consultants, and job analysts to answer what should be a 
relatively simple question of who is to be paid premium 
overtime for work over 40 hours in a week. Yet, under the 
current regulatory scheme, that is precisely what has happened.
    I would note as well that in 1995 I was appointed to the 
first board of directors of the Office of Compliance which 
enforced the Congressional Accountability Act which this 
committee knows applied 11 labor laws, including the FLSA, to 
the Congress. The FLSA on the Hill and the Congress as an 
employer impacted a small number of jobs involving highly 
skilled individuals. Yet, the fluctuating work weeks, the 
uncertain nature of authority, and the non-hierarchical office 
structures made compliance an extremely difficult process here. 
Think then of the impact on new businesses which do not have 
the benefits or resources available to Congress.
    I note in my testimony a case which I think exemplifies the 
problems in the current regulations, the case called Hashop v. 
Rockwell Space Operations where the trainers of the NASA Space 
Shuttle ground personnel who relied on manuals were deemed to 
be non-exempt because they relied on manuals and worked in 
groups. Astronauts would come under that same criteria as non-
exempt workers.

                           prepared statement

    I see that my time has concluded. Again, we simply hope 
that this committee will understand that the proposal is an 
ongoing process and will allow that process to continue. Thank 
you.
    [The statement follows:]

                Prepared Statement of Lawrence Z. Lorber

    Mr. Chairman, Members of the Committee. My name is Lawrence Lorber 
and I am a partner in the law firm of Proskauer Rose LLP. I am 
testifying today on behalf of the United States Chamber of Commerce. 
The Chamber is the world's largest business federation, representing 
more than three million businesses and organizations of every size, 
industry sector and geographical region. Proskauer Rose LLP is a member 
of the Chamber's Labor Relations Committee and I serve on the Steering 
Committee of that Committee. While I am here today on behalf of the 
Chamber, my testimony also reflects my experience as a practicing labor 
and employment lawyer for over thirty years as well as my previous 
experience at the Labor Department in various administrative and 
advisory positions. Thus, I am someone who has been charged with the 
responsibility to interpret and enforce employment regulations from the 
perspective of the enforcement agency and someone who has counseled 
employers with respect to their obligations under the regulations and 
represented employers facing enforcement actions. In addition, from the 
period 1995 through 1998, I had the unique experience of serving on the 
first Board of Directors of the Office of Compliance, the agency of 
Congress established by the Congressional Accountability Act to apply 
and enforce eleven labor and employment laws, including the Fair Labor 
Standards Act to the Congress and Congressional entities in your role 
as an employer. I will briefly discuss that experience in the context 
of the proposed regulatory revision in this testimony.
    The Fair Labor Standards Act is one of our oldest employment laws. 
It was passed in 1938, a very different time, when the American 
workplace bore little resemblance to the workplace of the 21st Century. 
Yet its basic thrust is still timely--to ensure that employees are 
treated fairly and that ``the unprotected, unorganized and lowest paid 
of the nation's working population . . . secure for themselves a 
minimum subsistence wage.'' Brooklyn Savings Bank v. O'Neil, 324 U.S. 
697 (1944). However, the Congress was clear in 1938, and the law 
remains so today, that the FLSA was not intended to be a universal law 
prescribing with finite detail the working conditions, including the 
compensable hours of employment, of every employee. Rather, in 1938, 
and today, the FLSA recognizes that its reach is constrained, and that 
a significant number of employees falling into the statutorily 
identified categories of executive, administrative, and professional 
would remain outside of its purview. However, it was never intended 
that the boundaries of these ``white collar'' exemptions would remain 
static. Indeed, the Congress in 1938 recognized that the Secretary of 
Labor would review the reach of the exemptions periodically and, in 
order to remain a vital part of our employment system, the regulations 
would need to be adjusted to reflect the dynamic changes in the 
workplace and workplace relationships between employees. Indeed, the 
statute specifically charges the Labor Department with the 
responsibility to define and delimit the regulations from time to time. 
Unfortunately, they have not been significantly adjusted in over half a 
century, despite urging to the contrary.
    Throughout the past 65 years, there have been efforts to review the 
FLSA and its regulatory structure so that it would accurately reflect 
workplace conditions. In 1999, the General Accounting Office reported 
to Congress the following:

    ``In the last 45 years, the DoL has adjusted the FLSA regulations 
only in a piecemeal fashion to meet the needs of particular types of 
employers and employees. Given the economic and work place changes over 
this period, a more comprehensive look at these regulations is 
necessary to determine whether a consensus could be achieved on how to 
amend the regulations to better suit the modern work place. This report 
recommends that the Secretary of Labor comprehensively review current 
regulations and restructure white-collar exemptions to better 
accommodate today's work place and anticipate future work place 
trends.'' (Emphasis added)----Report of the GAO-Fair Labor Standards 
Act--White Collar Exemptions in the Modern Place, September 1999.

    Surely it cannot be argued that the GAO adopted a partisan report 
designed to dismember the system of labor and employment laws we 
presently have. And it is illuminating to note that in response to the 
GAO recommendation, the Department of Labor, then in the administration 
of President Clinton, stated that ``the white-collar exemption 
regulations [were] on its agenda to be reviewed in the future.'' Former 
Wage and Hour Administrator Kerr, testifying in hearings before the 
House Committee on Education and the Workforce in 2000 pursuant to the 
GAO Report, stated that while the scope of the GAO recommendations 
could not be accomplished in the short run, an extensive process of 
consultation with all stakeholders and regulatory analysis could well 
lead to the implementation of ``comprehensive 541 changes.'' So, it 
should come as absolutely no surprise to this Committee, the Congress 
or the public that the DoL, after conducting extensive stake holder 
meetings, has begun the process of modernizing the regulations 
governing which white collar employees are eligible for overtime--known 
as the ``white collar'' or ``541'' regulations.
    The Current Proposal.--The Labor Department has conducted an 
extensive process of consultation and review to design the proposals 
issued on March 30. While Administrator McCutchen can elaborate more 
fully on that process, the U.S. Chamber participated as did other 
interested parties. The regulations published for comment thus 
represent the distillation of a long process of review and 
consultation, indeed a process that began even before the current 
Administration took office, as evidenced by the 1999 GAO Report and 
even earlier when the Labor Department requested comments on the issue 
as a result of an Advance Notice of Proposed Rulemaking in 1985. The 
question being asked therefore should not be why this rulemaking 
process is being undertaken, but rather is the proposal a valid 
response to the GAO Report and the obvious changes in the workplace.
    In his seminal book, ``The Work of Nations,'' former Secretary of 
Labor Robert Reich described the dramatic change in the designations of 
work in America. He noted that beginning in 1870, the Census Bureau 
began categorizing jobs into executive or managerial functions, sales 
and administrative support functions and basic production or laborer 
functions. Reiph goes on to say however:

    ``This set of classifications made sense when the economy was 
focused on high-volume, standardized production, in which almost every 
job fit into, or around, the core American corporation, and when status 
and income depended on one's ranking in the standard corporate 
bureaucracy. But these categories have little bearing upon the 
competitive positions of Americans worldwide, now that America's core 
corporations are transforming into finely spun global webs. Someone 
whose job falls officially into a ``technical'' or ``sales'' 
subcategory may, in fact be among the best-paid and influential people 
in such a web. To understand the real competitive positions of 
Americans in the global economy, it is necessary to devise new 
categories.''----Robert B. Reich, ``The Work of Nations,'' 173-74 
(1991).

    Secretary Reich's prescient analysis of the evolution of the 
American workplace is particularly relevant to the proposed revisions 
to the white-collar regulations. The proposal takes as its starting 
point the basic structure of the statute in recognizing that there are 
broad classes of positions that are exempt from the overtime 
requirements. It then adapts the regulatory scheme to the modern 
realities so that the statute continues to have meaning and vitality. 
But perhaps even more importantly, the proposal also attempts to 
simplify the categorization of exempt and non-exempt work.
    It makes no sense to require the services of attorneys, 
consultants, and job analysts to answer what should be the relatively 
simple question of who is to be paid premium overtime for work over 40 
hours in a week. Yet, under the current regulatory regime, with 
hundreds of pages of interpretations, thousands of opinions issued by 
Wage and Hour Administrators, and hundreds of court cases analyzing 
this weighty mass of precedent, that is precisely what is required. 
Too, the fact that regulators and the courts, as well as the employers 
and employees are forced to ``pour new wine into old bottles,'' and fit 
new jobs into old and antiquated definitions, makes no sense. And 
particularly for the small and medium sized employers, who not only 
represent job growth but the new innovations needed in our economy, and 
who make up a large portion of the U.S. Chamber membership, such an 
exercise is entirely non-productive. Nor does such an exercise afford 
the protection to the lower paid workers the FLSA was enacted to 
provide.
    I am reminded here of the time in 1995 and 1996 when Congress was 
required to comply for the first time with the FLSA due to the passage 
of the Congressional Accountability Act. As I noted, I was appointed to 
the original Board of Directors by the joint leadership and remember 
well the confusion and consternation when Congressional offices, which 
have a small number of different jobs, were forced to wade through the 
obtuse requirements of determining who exercised discretion, or who had 
hiring and firing authority, and which staff member exercised 
discretion, when in fact only the Member exercised discretion. As 
applied to Congress, the FLSA impacted a small number of jobs involving 
highly skilled individuals. Yet the fluctuating work weeks, the 
uncertain nature of authority and the non-hierarchical office 
structures made compliance an extremely difficult process. Think then 
of the impact on new businesses which don't have the benefits or the 
resources available to Congress.
    So too, it should be a major warning sign that one of the growth 
areas in class action litigation is the explosion of FLSA 
classification cases. It is obvious that a law as old as the FLSA 
should not now be the source of such litigation activity if the 
requirements are clear and well understood. In fact, it is precisely 
because the old definitions have lost much of their meaning that we are 
witnessing this new phenomenon. An examination of some of the reasons 
for this highlights the reason the new regulations are so sorely 
needed.
    The current regulations require that in order to qualify as an 
exempt professional, an employee must perform work requiring the 
consistent exercise of discretion and judgment. However, as interpreted 
by the Wage and Hour Division, and applied by the courts, this 
requirement led to the strange case of Hasop v. Rockwell Space 
Operations Company, 867 F. Supp. 1287 (S.D. Texas 1994) where the court 
interpreted the current regulations to mean that employees responsible 
for training NASA Space Shuttle ground personnel were not exempt 
because they relied on technical manuals and made decisions in a group. 
Indeed, under this analysis, the astronauts themselves could be deemed 
non-exempt. The proverbial rocket scientists are thus classified as if 
they are common laborers. And so would the advanced computer 
technicians who work in help desks and other technically challenging 
positions. Do we really want them to guess as to the reason for a 
systems failure or would we prefer that they refer to and interpret 
software manuals? So too, the requirement that professionals must have 
college degrees. As we well know, and as the proposed regulations 
recognize, advanced learning can be obtained by training and 
experience. Would the law deny to Bill Gates or Steve Jobs the exempt 
status simply because they do not have college degrees?
    The purpose of this testimony however, is not to summarize or 
comment on all of the proposed changes. For that I commend to the 
attention of the Committee the detailed and extensive comments fled by 
the Chamber on June 30. Those comments were the result of an intense 
and inclusive process whereby the members brought their comments and 
concerns to the Chamber's Fair Labor Standards Committee and a special 
task force that analyzed the proposal and the members concerns. This 
was a serious process that resulted in a uniquely analytical set of 
comments. Nor are these comments simply a resounding endorsement of all 
of the proposals. Far from it. It would hardly take 81 pages to say 
``amen.'' Rather, there are still serious concerns that the Chamber 
hopes that the Labor Department will carefully consider. While the 
proposal simplifies the regulations, it still leaves areas of 
uncertainty. For example, the Chamber believes that just as the 
regulations recognize a realistic bright line test to determine which 
jobs should be deemed non-exempt because the salary is less than $425 
per week regardless of function, so should there be a bright line test 
to distinguish the highly compensated, so that a salary above a certain 
level would be considered per se exempt for white collar employees.
    It is also important to briefly comment upon some of the criticism 
of the proposed regulations. As I noted, the Chamber of Commerce took 
the proposal seriously and its obligation to provide reasoned input 
into the regulatory process. It did not attempt to overwhelm the 
regulatory process with volumes of comments or sound bite criticisms. 
Indeed, it would be helpful if the same requirements that govern the 
introduction of scientific fact into court proceedings would apply as 
well to regulatory comments. If the Daubert standard applied, then the 
unsupported allegation that 8 million jobs would be reclassified if 
these proposals are adopted would be rejected as the great example of 
junk science. Unfortunately, there are no such limitations on public 
comment and the regulators must spend the time to analyze these as well 
as the serious comments.
    However, let me take a few moments to comment upon some of the more 
outrageous criticisms that have been levied. Some critics have claimed 
that somehow the Department's proposal would impact first responders, 
police and fire department personnel, manual laborers, nurses, and 
other health care workers. However, these claims do not withstand 
scrutiny.
    For example, some have claimed that because the Department has 
proposed modifications to the so-called ``production dichotomy,'' a 
part of the administrative exemption, that law enforcement officers 
will now be exempt. But this ignores the threshold question that in 
order to qualify as an exempt administrative employee, the employee 
must perform office or non-manual work. Employees such as first 
responders who are required to run, climb, lift and carry people or 
heavy objects, or who may be required to be skilled in self-defense and 
the use of firearms, simply cannot be said to perform office or non-
manual work.
    Indeed, under the Department's proposal no employee could qualify 
as exempt under the highly compensated employee test or the standard 
test for administrative or professional employees unless he or she 
performed office or non-manual work. The only other way a law 
enforcement employee could be exempt under the Department's proposal 
would be under the standard test for executives, the threshold question 
of which is whether the employee's primary duty is the management of 
the enterprise or a customarily recognized subdivision in which he or 
she is employed. This does not mean that an officer with only a few 
supervisory duties can be exempt from overtime. The Department has 
specifically included language stating that supervisors whose primary 
duty is performing the same kind of work as their subordinates are 
simply not going to be exempt.
    This analysis applies equally to any other type of manual labor. 
What these critics leave out is that these regulations only apply to 
white collar employees--not to those who principally perform manual 
work.
    The status of nurses and other health care workers is also the 
subject of a significant amount of baseless rhetoric. Indeed, under the 
current regulations, registered nurses are already recognized as exempt 
professionals. Nevertheless, in practice, most are paid hourly and 
receive overtime. Why? Because hourly pay and overtime are simply a 
part of the market. Nothing in the Department's proposal changes the 
status of these nurses, nor, for that matter, physician's assistants 
and medical technologists who usually meet the requirements of the 
current test for exempt professionals because they have advanced 
knowledge customarily acquired through a prolonged course of 
specialized intellectual study.
    In conclusion, the Chamber of Commerce believes that the 
recognition of the dramatic changes in the American workplace is long 
overdue and requires the revision or regeneration of the encrusted and 
obsolete regulatory structure of the current white collar regulations. 
We commend the efforts of the Labor Department to undertake this effort 
and believe that the March 30 proposal represents a major step forward 
in the rationalization of this bedrock employment law. While we hope 
that the Labor Department addresses the issues highlighted in our 
comments, we believe that regardless of the ultimate result of 
regulatory review process, and the compromises that must be made, we 
strongly believe that the Department should be encouraged to finish 
this job. It serves neither the economy, nor the employees or 
employers, to leave in place an obsolete and almost inoperable 
regulatory scheme. Nor should the basic purpose of the Fair Labor 
Standards Act be ignored. This was a law designed to assist and protect 
the unprotected and least paid in the workforce. We would therefore 
hope that the regulatory process be allowed to continue to completion.
    Thank you for your time and attention to this matter. I would be 
happy to answer any questions that you might have.

STATEMENT OF ROSS EISENBREY, VICE PRESIDENT AND POLICY 
            DIRECTOR, ECONOMIC POLICY INSTITUTE
    Senator Specter. Thank you, Mr. Lorber. Our next witness is 
Mr. Ross Eisenbrey, vice president of the Economic Policy 
Institute, former Commissioner of the U.S. Occupational Safety 
and Health Review Commission, a law degree from Michigan, and 
undergrad from Middlebury College. Thank you for coming in 
today, Mr. Eisenbrey, and we look forward to your testimony.
    Mr. Eisenbrey. Thank you very much, Mr. Chairman. It is an 
honor to be here and an honor to testify before the 
subcommittee.
    When the Department of Labor issued its notice of proposed 
rulemaking back at the end of March, we read it and tried to 
understand how it could conclude that so few workers--they 
concluded 644,000 employees would lose their right to overtime 
pay. The proposal makes sweeping changes in the law and they 
are not reflected in the Department's analysis.
    So we called the Department and we asked them to explain 
things and could not get answers from them. So we conducted our 
own analysis, with the help of a team of experts, and estimated 
only 78 out of 257 possible occupational categories, what the 
effects of the rule would be.
    Our conclusions were very different from the Department's. 
We estimate that in those 78 occupations, over 8 million 
workers will lose the right to overtime pay. In Pennsylvania 
alone, we estimate that about 318,000 workers will lose the 
right.
    Why is this? Why are our numbers so different? Well, we 
think that there are three major flaws in the Department's 
analysis.
    The first is that it failed to analyze the effect of most 
of the key changes in the regulations. They do not calculate 
how many employees will lose overtime protection for the 
following changes, which are a handful among scores of changes. 
The proposal eliminates the requirement that professionals and 
administrators consistently exercise independent judgment and 
discretion. That is a change that appears over and over in 
Department opinion letters, many court cases, including the 
Hashop case that Mr. Lorber just mentioned. It is a fundamental 
part of the current law and it is being removed. It is not 
reflected anywhere in the Department's analysis how many 
employees will lose their right when that requirement for the 
exemption is eliminated. In cases it has affected trucking 
company dispatchers, entry level architects and engineers, 
trainers in police academies at Rockwell, among many others, 
mortgage loan officers, engineering firm designers, a very 
broad category.
    The proposal eliminates the provision that distinguishes 
between staff jobs and line or production jobs. That has been 
essential for fire fighters, paralegals, parole officers, and 
importantly news producers in determining that they were non-
exempt and had the right to overtime protection. Without that 
factor in the law, the Department does not analyze what the 
difference will be.
    The proposal undermines the educational requirements in 
substantial ways. These are a key part of the professional 
exemption. Generally, employees now are required to have an 
advanced degree in the area of their profession. It is not 
enough even to have a college degree that is a general degree. 
The Department turns the exception in the rule on its head and 
now says that any or all of the educational requirement can be 
substituted with work experience. That is an enormous change. 
They do not really analyze that, although there is a note in 
the preliminary regulatory impact analysis suggesting that 44 
out of every 100 non-degreed professionals will lose their 
right to overtime pay because of that.
    The primary duty test is changed, and there is no analysis 
of changing it so that instead of having to determine what the 
employee's single primary duty is, now if a primary duty is an 
exempt duty, the employee will be exempt.
    Finally, the highly compensated test will deny overtime pay 
to employees who do not meet the current or even the proposed 
rules for administrative professional or executive exemption, 
but only meet a part of those tests if they make $65,000 a 
year. There is not a full or adequate analysis.
    The second thing the Department failed to do is estimate 
how many people lose protection. They only estimated how many 
people will actually lose pay, but only a small percentage of 
workers at any given time, as reflected in the current 
population survey, are actually receiving overtime pay. What is 
important is do they have the protection. If they do not have 
it, it is more likely that they will be assigned overtime 
because now the premium is a break on employers. Nobody denies 
that employers are less likely to assign overtime to people who 
have the right to time-and-a-half pay. Once they do not have 
the right, they will be assigned overtime and a lot of it.
    The Department did not, finally, apply the changes in the 
rule on an occupation-by-occupation basis, which the Department 
did for GAO in 1999 and again in 2001 in the intervening 
report, that Mr. Lorber did not mention, when the Department 
reviewed these rules and determined that there was no need to 
update them, that they did apply to the 21st century work force 
and that the kind of changes in this proposed rule were not 
necessary.
    The Department has suggested and Ms. McCutchen suggested 
just now again that nurses will not be affected, but the rule 
on its face shows that they will. Nurses are required to have a 
4-year degree under current law. Under the proposal, any or all 
of their educational requirement can be substituted with work 
experience so that a 2-year R.N. now will be treated as an 
exempt professional with some additional work experience.

                           PREPARED STATEMENT

    Police sergeants, secretaries, the other categories that 
she mentioned will be affected by the changes in the law 
because the rule does not apply to broad categories. It 
requires a look at individual employees and what the 
individual's duties are. The rules have changed. Every 
employee's duties will be reexamined and I submit that it is 
very likely that secretaries, many police officers, and many of 
the other occupations she mentioned will be affected.
    Thank you very much.
    [The statement follows:]

                  Prepared Statement of Ross Eisenbrey

    Mr. Chairman, thank you for inviting me to testify today. It's an 
honor for me and for the Economic Policy Institute to present our views 
to you and the subcommittee.
    When the Department of Labor issued its Notice of Proposed-
Rulemaking at the end of March, we tried to understand how it could 
conclude that only 644,000 employees would lose their right to overtime 
pay. The proposal makes radical changes in the law, but the regulatory 
analysis does not reflect them. We asked the Department and its 
contractor for explanations, but could not get answers to our 
questions.
    So we analyzed the changes ourselves, with the help of a team of 
experts, and prepared an estimate for the effect of the proposed rule 
on a subset of the working population, employees in 78 occupational 
categories out of a total of 257 categories identified by the 
Department of Labor as having substantial numbers of white collar 
(office or non-manual) employees.
    Our conclusions are very different from those of the Department. We 
estimate that in those 78 occupations, over 8 million workers will lose 
the right to overtime pay. In Pennsylvania alone, we estimate that 
about 318,000 workers will lose their overtime protection.
    Why do our numbers differ so greatly from what the Department of 
Labor has reported? Briefly, we think the Department's analysis has 
three major flaws:

    1. It fails to analyze the effect of most of the key changes in the 
regulations. DOL does not calculate how many employees will lose 
overtime protection because of the following changes, among many 
others:
  --The proposal eliminates the requirement that professionals and 
        administrators consistently exercise independent judgment and 
        discretion. DOL opinion letters and many court cases identify 
        this as a key test in determining whether workers are the kind 
        of professional or top administrator who should be exempt or 
        have less authority and--however highly skilled or well trained 
        they might be--should have the right to overtime pay. See, for 
        example, Hashop v. Rockwell Space Operations Co., 867 F. Supp. 
        1287 (S.D. Tex. 1994), involving space shuttle ground control 
        instructors, and cases involving trucking company dispatchers 
        and entry-level architects and engineers listed at page 24 of 
        GAO's September 1999 report, Fair Labor Standards Act: White 
        Collar Exemptions in the Modern Workplace. Based on this 
        requirement, DOL opinion letters have denied employers' 
        requests to exempt employees in a wide range of occupations, 
        from executive secretaries and mortgage loan officers to 
        engineering firm designers and human resource generalists.
  --The proposal eliminates the provision in current law that 
        distinguishes between ``staff' jobs that are exempt and 
        ``line'' or ``production'' jobs that have overtime protection. 
        Numerous DOL opinion letters and cases involving employees 
        ranging from police and firefighters to paralegals and parole 
        officers have denied employer attempts to exempt employees 
        because the employees were non-exempt line or production 
        workers. See, for example, Dalheim v. KDFW-TV, 918 F.2d 1220 
        (5th Cir. 1990), where the court found that producers and other 
        employees in the departments responsible for the production of 
        newscasts were non-exempt.
  --The proposal undermines the educational requirements that are a key 
        part of the professional exemption. Whereas current law has, in 
        rare instances, permitted employers to deny overtime protection 
        to a highly skilled and experienced employee who does not have 
        the advanced degree generally required to qualify as a learned 
        professional, the proposal allows employers to substitute work 
        experience ``for all or part of the educational requirement.'' 
        Rather than exempting what the Department has termed the 
        ``occasional chemist,'' the proposal allows every employee 
        working in a professional field (and the number of such fields 
        is constantly expanding) to be deemed a professional and denied 
        overtime pay if they have enough work experience. DOL assumes 
        in its regulatory analysis that six years of job tenure is the 
        equivalent of a college degree and estimates that 44 out of 100 
        non-degreed employees working in the learned professions will 
        be exempt. DOL neglects to calculate how many such employees 
        there are or which professions are affected and to what extent.
  --The primary duty test, which applies to each of the three 
        exemptions, is rewritten to make it easier for employers to 
        exempt their workers. Under the proposal, exempt executives, 
        for example, must have only ``a'' primary duty that is 
        executive. Current law contemplates that executive tasks must 
        be ``the'' primary duty of the exempt employee.
  --The new ``highly compensated'' test will allow employers to deny 
        overtime pay to employees whose primary duty is not 
        administrative, professional or executive. Rather, employees 
        who perform any ``office or non-manual work'' and are 
        guaranteed ``total compensation'' (not necessarily a salary) of 
        at least $65,000 a year, will be exempt if the employee 
        performs any exempt duty or responsibility. Thus, any ``highly 
        compensated'' employee who does ``work in areas such as tax, 
        finance, accounting, auditing, insurance, quality control, 
        purchasing, procurement, advertising, marketing, research, 
        safety and health, personnel management, human resources, 
        employee benefits, labor relations, public relations, 
        government relations and similar activities'' will be 
        automatically exempt.

    2. The Department does not estimate how many employees will lose 
overtime protection; rather it only estimates how many employees who 
are currently receiving overtime pay will lose it. While approximately 
80 or 90 million workers have overtime protection, only about 12 
million at any one time are actually working overtime and being paid 
for it. Because the overtime premium works as it was designed to, and 
discourages employers from assigning overtime to non-exempt workers, 
removing overtime protection will result in many employees working 
overtime who don't work overtime now. Congress and the public should be 
concerned about the loss of overtime protection, not just the loss of 
overtime pay.

    3. The Department did not apply the changes in the rule on an 
occupation-by-occupation basis, using the methodology established by 
the Department and GAO in 1999. No attempt was made to estimate the 
effect of the rule changes on social workers, paralegals, respiratory 
therapists, reporters and news announcers, bank loan officers, or any 
of the other scores of occupations DOL examined in detail in the past.
    In the weeks since the comment period closed, the Department has 
said a number of things about the effects of the proposed rule that 
downplay the extent to which the proposal will weaken or eliminate 
overtime protections but which are at odds with its text and with the 
regulatory analysis.
    Most notably, the Department has argued that the proposed rule 
makes no changes in the professional exemption that will affect nurses 
and other health technicians, no changes that will affect police 
officers, no changes that will affect cooks, and none that will affect 
secretaries. Each of these claims is wrong.
    To be exempt, nurses, like all professionals, have had to meet 
strict educational requirements under current law. Under the proposed 
rule, as both the text of the rule and the regulatory analysis make 
plain, work experience may be substituted ``for all or part of the 
educational requirements'' for any learned profession, including 
nursing. Once an employer determines that an R.N. with only a two-year 
degree has substantially the same knowledge as an R.N. with a four-year 
degree, it will be free under the proposed rule to exempt him or her 
and refuse to pay overtime.
    It will also be much easier to establish that ``a'' primary duty of 
a nurse is administrative or executive. An otherwise non-exempt nurse 
who spends 90 percent of her time performing patient care could still 
be found to have a primary duty that is administrative or executive, 
especially since the administrative duty tests have been substantially 
weakened.
    Police sergeants and other low-level police supervisors are likely 
to be exempted as executives under the proposed rule. The ``staff vs. 
line'' dichotomy that helped establish the overtime rights of police 
officers has been eliminated. Overtime exemptions under section 
13(a)(1) of the FLSA are not based on job titles or broad occupational 
class; rather, they depend on the tasks and functions each individual 
employee performs. Each officer's duties will be reexamined if the 
proposed rule becomes law, and if a primary duty is determined to be 
supervisory or administrative, the officer will lose overtime 
protection. Thus, the fact that a sergeant performs non-manual work 
like walking the beat during 90 percent of his work hours will not 
matter if he has a primary duty of supervising two other officers or 
performing non-exempt administrative work. Under the proposal, highly 
compensated police officers will not even have to have a primary duty 
of performing exempt work. If they perform any ``office or non-manual 
work'' and perform any one exempt duty of an executive, administrator 
or professional no matter how little of their time is spent doing it--
they will lose the right to overtime pay.
    Police departments have sometimes tried to exempt officers who 
teach in police academies, but have been prevented because the 
instructors did not exercise sufficient independent judgment and 
discretion in how they taught their courses. Because the proposed rule 
eliminates the requirement for independent judgment and discretion, 
those officers will lose their right to overtime pay under the proposed 
rule. The Department claims that under the proposal, ``only chefs with 
a college degree in culinary arts qualify as professionals.'' But the 
rule clearly states--and the regulatory analysis supports--that work 
experience or training that comes from non-college sources can be 
substituted for all or part of the educational requirements.
    Likewise, the proposal encourages employers to treat all of the 
various medical technicians, from respiratory therapists and physical 
therapists to physician assistants and radiology technicians as exempt 
professionals even if they do not have four-year college degrees in 
their professional field. The proposed rule explicitly allows physician 
assistants with 2,000 hours of patient care experience and one year of 
professional course work to be exempted as professionals.
    Finally, the Department has claimed that even highly compensated 
``teamsters,'' autoworkers, plumbers, carpenters, and various other 
construction workers ``will maintain their entitlement to overtime'' 
because their work is not office or non-manual work. Some members of 
these trades and occupations do, however, perform office or nonmanual 
work during at least part of their workday or workweek. A tool and die 
maker who designs and draws up plans for a new tool, for example, 
performs non-manual work. The proposal does not set any minimum 
percentage of time that must be spent doing non-manual work to be 
subject to exemption and loss of overtime pay under the highly 
compensated test.
    Because the Department's analysis suffers from each of the flaws I 
have described, there is little, if any, credibility in its numbers. 
EPI's study demonstrates that the paychecks of millions of workers are 
at stake in this rulemaking. If the Department intends to preserve the 
current law's overtime protections, then it will have to withdraw this 
rule and rewrite it. The Department should eliminate loopholes and 
clarify the rules in ways that preserve or expand overtime protection, 
rather than weaken it. There is no reason for workers to sacrifice 
their right to one of this country's bedrock entitlements.

    Senator Specter. Thank you, Mr. Eisenbrey.
    Would Ms. McCutchen and Ms. Owens please come back to the 
table? We are going to have 5-minute rounds for members.
    Ms. McCutchen, the Federal Register says, ``Estimated costs 
are presented as ranges because data limitations prevent the 
Department from identifying exactly which workers are exempt 
and not exempt based on the current and proposed duties test.'' 
That being so, if the Department cannot estimate how many 
employees will be denied overtime as a result of the proposed 
regulation, on what basis can you assert that workers' overtime 
rights will be strengthened?
    Ms. McCutchen. The strengthening of overtime rights and our 
estimate of 1.3 million workers sharing almost $1 billion a 
year in additional income comes from BLS data on the number of 
hours employees work, what their duties are, and what their job 
titles are, and what they are currently being paid. The 1.3 
million and the $895 million figure represents the difference 
in wage increases or additional overtime pay that employers 
will have to give to employees who are currently making between 
the current minimum of $8,000 a year and the proposed minimum 
of $22,100 a year. Employers who are paying employees less than 
that $22,100, will have two choices. They will either need to 
raise salaries to maintain the exemption or start paying these 
employees overtime pay.
    Senator Specter. Mr. Eisenbrey, in your paper you state 
that the proposed rule is rife with ambiguity and new terms 
such as ``position of responsibility'' will spawn new 
litigation. We would be interested in the specifics that you 
may be able to answer now, but supplement, as to how you would 
craft regulations which would protect the overtime rights of 
workers while bringing greater clarity regarding overtime 
eligibility for employers and employees. There is general 
agreement that there is great ambiguity in the current rules 
and these new rules seek to change that. How can you satisfy 
the requirement of protecting workers from losing overtime but 
at the same time eliminate what everybody agrees are 
ambiguities and vagaries that are very difficult to follow?
    Mr. Eisenbrey. I would be happy to provide the subcommittee 
with some ideas. Some things are obvious. To go from a rule 
that says you have to have an advanced degree in your field of 
specialty to a rule that says we do not know how much work 
experience you need, but you can substitute work experience for 
the educational requirements throws open a whole new area of 
ambiguity that the law does not have.
    Senator Specter. Mr. Lorber, your comments are that there 
should be a simple test to determine an employee's exempt 
status. In fact, it is obviously a complex one. What would you 
suggest on proposed regulations which would provide greater 
certainty with regard to overtime eligibility and reduce what 
has been characterized as ``needless, exploitive litigation''?
    Mr. Lorber. Well, just as the Department has proposed a 
bright line test at $22,100 for the minimum level under which 
everybody would get overtime, they do create a category of 
highly compensated, and the Chamber believes, we believe that 
there should be similar bright line tests at that level as well 
so that anybody over a certain level of income would not have 
to meet the various tests that are still and will still be 
present regardless of the simplification at the Department.
    Senator Specter. Ms. Owens, you say that this regulation 
would be moving in the direction of covering fewer workers, but 
as I understood your testimony, it is not there on its face. 
What is the basis for your saying that although not there now, 
it is moving in that direction?
    Ms. Owens. Well, Senator Specter, we believe that if these 
regulations take effect that as many as 8 million workers are 
at risk of losing overtime protection, but just as significant, 
we think that by broadening the exemptions, that more workers 
in the future are at risk of losing overtime protection. This 
is more than the $8 million that EPI has estimated looking only 
at the work force today.
    Senator Specter. Let the record show that the red light was 
not on when I finished my question.
    I am not commenting about your answer. I just want 
everybody to know that we are observing the 5-minute rule 
because after this panel, we have another hearing.
    Senator Harkin.
    Senator Harkin. Thank you very much, Mr. Chairman.
    I would like to get a little bit to the bottom, whether it 
is 644,000 workers or 8 million. Ms. McCutchen, I understand 
the Department of Labor has said that 644,000 workers would 
lose overtime protection. Is that not just an estimate of 
workers currently earning overtime?
    Ms. McCutchen. That is the regulatory analysis that we are 
required to do when we propose a regulation and it is required 
to be in our notice of proposed rulemaking. So that is correct, 
yes.
    Senator Harkin. It is.
    Ms. Owens, what you are saying is that basically it is more 
important to determine the number of workers that would lose 
the protection, and those that would lose the protection would 
be closer to 8 million.
    Ms. Owens. That is right, Senator.
    Senator Harkin. I just wanted to get that cleared up.
    Ms. McCutchen, do you agree that Congress did not intend to 
the 40-hour work week to apply only to low income workers, but 
rather that Congress intended the 40-hour work week to apply to 
the vast majority of all workers? In fact, did not Congress 
specifically reject a salary ceiling at that time?
    Ms. McCutchen. I am not aware that it specifically 
addressed the salary ceiling. That could be the case.
    I think Congress intended to cover everyone who was not in 
the 30 separate listed exemptions in the Fair Labor Standards 
Act itself from overtime and minimum wage requirements.
    Senator Harkin. So, again, since we rejected a salary 
ceiling, why is there a separate test for highly compensated 
workers in this proposed rule?
    Ms. McCutchen. There has actually been a separate test now 
called the special proviso for highly compensated employees in 
the proposed regulations since the 1950's. There has always 
been a two-tier structure, and based on the regulatory history, 
this two-tier structure exists because the Department believes 
that salary is the best single indicator of exempt status.
    Our proposal is not a salary cap. In fact, we rejected the 
stakeholder suggestions that we have a salary only rule at the 
top end.
    Senator Harkin. Excuse me. I have a chart here. Under 
current law, there is no test for highly compensated employees' 
exemption. Am I wrong on that?
    Ms. McCutchen. You are and let me refer you to the section. 
The section in the current regulations for executive exemption 
is called 541.119, special proviso for high salaried executive; 
541.214, special proviso for highly salaried administrative 
employees; and----
    Senator Harkin. But does it list a salary?
    Ms. McCutchen. Yes, $250 a week.
    Senator Harkin. That is listed there.
    Ms. McCutchen. Yes, in the regulations. The minimum is $155 
for most employees, and then there is a special proviso with 
fewer duties tests for highly compensated employees, which, 
since this regulation has not been updated since 1975, is very 
low, $250 a week, or $13,000 a year. This is one of the 
complexities of the rules that we are trying to address.
    Senator Harkin. I have got to get a copy of that too.
    Ms. McCutchen. Certainly.
    Senator Harkin. Now, I have read the changes you have 
proposed to the duties test, and I tried to apply it. I have 
heard this talk that we are going from something that is 
complex to something that is easier, but you apply those tests 
to particular workers, it is not easy. For example, again, on 
my chart here--maybe this one is wrong, since the first one was 
wrong--it says under the administrative exemptions, current law 
says customarily and regularly exercises discretion and 
independent judgment. That is current law. The proposed 
regulation says, holds a position of responsibility with the 
employer defined as either, one, performing work of substantial 
importance, or two, performing a work requiring a high level 
skill or training. Well, I guess I do not understand how the 
proposed regulation is any clearer or any easier than current 
law. It seems to me it is more convoluted. What does it mean to 
perform work of substantial importance? I happen to think all 
work is important.
    Ms. McCutchen. Both of those standards are actually in the 
regulations now as interpretive guidelines, and there is 
actually case law defining what those two things mean that we 
are going to be looking at closely. The administrative 
exemption is the most difficult exemption to define and to 
apply and we have asked for broad comments on how we can 
improve our proposal. We do not claim it is perfect or it has 
no ambiguities. That is why we need to continue the rulemaking 
process so we can read the comments.
    Senator Harkin. Ms. McCutchen, is this true? The Chicago 
Tribune quoted you as saying: ``The Labor Department's 
McCutchen predicts a deluge of lawsuits as employees and 
employers press for clarifications once the new rules go into 
effect.'' Did you say that?
    Ms. McCutchen. I would not say deluge. I think anytime you 
have a new law or a new statute----
    Senator Harkin. If you did not say deluge, what did you 
say?
    Ms. McCutchen. That you would see probably an immediate 
increase in lawsuits followed by a decrease in lawsuits as 
people, as with any new statute, need to go to the court to try 
to define its boundaries.
    Senator Harkin. Let the record show I quit with 10 seconds 
yet to go.
    Senator Specter. See what a good example will do.
    Senator Craig.
    Senator Craig. I have no questions. Thank you, Mr. 
Chairman.
    Senator Specter. Thank you, Senator Craig.
    Senator Murray.
    Senator Murray. Mr. Chairman, thank you very much and I 
appreciate the witnesses being here. I really appreciate your 
having this hearing.
    I have to tell you at home in Washington State, I am 
hearing a great deal of concern about this proposed rule coming 
down. In my home State of Washington, we have literally lost 
thousands of jobs in the last several years. Boeing has laid 
off 35,000 people and everybody is saying to me why are you 
trying to cut the pay of the people who are still at work. It 
is pretty disheartening to see this coming through a stroke of 
the pen at the Department of Labor.
    Mr. Chairman, I would like to submit for the record a 
letter to Secretary Chao signed by, I believe, 43 U.S. Senators 
urging the Secretary not to go forward with any regulation that 
denies overtime protections.
    Senator Specter. It will be admitted as part of the record.
    [The letter follows:]

                                               U.S. Senate,
                                     Washington, DC, June 30, 2003.
    Dear Secretary Chao: We write to express our serious concerns about 
the Department's proposed regulation on white collar exemptions to the 
Fair Labor Standards Act. These sweeping changes could eliminate 
overtime pay protections for millions of American workers.
    We urge you not to implement this new regulation that will end 
overtime protections for those currently eligible. Under current law, 
the FLSA discourages employers from scheduling overtime by making 
overtime more expensive. According to a GAO study, employees exempt 
from overtime pay are twice as likely to work overtime as those covered 
by the protections. Our citizens are working longer hours than ever 
before--longer than in any other industrial nation. At least one in 
five employees now has a workweek that exceeds 50 hours. Protecting the 
40-hour work week is vital to balancing work responsibilities and 
family needs. It is certainly not family friendly to require employees 
to work more hours for less pay.
    Overtime protections clearly make an immense difference in 
preserving the 40-hour work week. Millions of employees depend on 
overtime pay to make ends meet and pay their bills for housing, food, 
and health care. Overtime pay often constitutes 20-25 percent of their 
wages. These workers will face an unfair reduction in their take-home 
pay if they can no longer receive their overtime pay.
    We urge you not to go forward with any regulation that denies 
overtime pay protections to any of America's currently eligible hard-
working men and women.
            Sincerely,

                    Edward M. Kennedy, Tom Daschle, Patty Murray, Mary 
                            L. Landrieu, Byron L. Dorgan, Tom Harkin, 
                            Bill Nelson, Jack Reed, John D. 
                            Rockefeller, IV, Barbara A. Mikulski, Jon 
                            S. Corzine, Frank Lautenberg, Debbie 
                            Stabenow, Herb Kohl, Paul S. Sarbanes, 
                            Joseph R. Biden, Jr., John F. Kerry, Mark 
                            Dayton, Christopher J. Dodd, Patrick J. 
                            Leahy, John Edwards, Maria Cantwell, Joseph 
                            L. Liberman, Russell D. Feingold, Max 
                            Baucus, Robert C. Byrd, Harry Reid, Charles 
                            E. Schumer, Daniel K. Akaka, Barbara Boxer, 
                            Tim Johnson, Jeff Bingaman, Richard J. 
                            Durbin, Kent Conrad, Mark Pryor, Hillary 
                            Rodham Clinton, Evan Bayh, Carl Levin, Bob 
                            Graham, Ron Wyden, Tomas R. Carper, and 
                            Blanche L. Lincoln.

    Senator Murray. Let me just start with Ms. Owens, and thank 
you for being here as well. I think there is a lot of confusion 
about how this law is going to affect people. Could you just 
describe for this committee what a typical worker would be that 
would be affected right now by the rule?
    Ms. Owens. Certainly. As we read the rule, because of the 
proposed changes in the duties test, which involve going from a 
two-prong test, long duties and short duties, to a single test, 
which we believe relax the duties requirements for classifying 
workers as executives or administrative or professional 
employees, we think, for example, that certain kinds of 
technical workers who might work side by side with a 
professional, like a medical technician who works with a 
medical professional of some sort, or an engineering tech who 
works with an engineer, because of the substitution, the 
permission for substituting experience for education--we think 
those workers who do now get overtime pay and are protected are 
at risk of losing those protections. And certainly a number of 
people who work in the industries in your State, Senator 
Murray, would be those types of workers.
    Senator Murray. Right, and that is why I am hearing that 
concern.
    Ms. McCutchen, I have to tell you as a former educator and 
as a former school board member, it appears to me these 
regulations are really an attempt to lower the education 
requirement for professional employees. Under current law, 
dental hygienists fall within the professional exemption to the 
40-hour work week, but only if they have completed 4 years of 
professional study. And is it not true that under the proposed 
rule, dental hygienists with only 2 years of academic training 
and work experience would now fall into that exemption? So it 
seems to me that if employers decide that their employee's work 
experience in a field that customarily requires a degree--it 
could be biology or nursing or engineering, culinary arts, 
accounting--if they have the same knowledge as workers with 
degrees, will employers not now be free to deny those workers 
overtime?
    Ms. McCutchen. No, they will not, Senator Murray.
    Senator Murray. How can you say that?
    Ms. McCutchen. Thank you for the opportunity to correct the 
record. We are not changing the rule, the basic rule, that only 
people who work in professions that customarily require a 
prolonged course of intellectual study are eligible for the 
exemption. The current rule says, for example, that customarily 
means the occasional chemist who is not in the possession of a 
chemistry degree or the occasional lawyer who does not have a 
law degree is not barred from the exemption as long as the 
profession itself is one that generally requires an advanced 
specialized degree for entry. And we have not changed that 
rule.
    Senator Murray. Well, I would assume, Ms. Owens, that you 
would read that differently. Can you explain to me how you----
    Ms. Owens. Well, I think your example--and Mr. Eisenbrey 
may want to comment on this as well--of the dental hygienist as 
a profession that customarily would require that kind of degree 
but perhaps now more and more people who go into the field have 
work experience and a 2-year degree from a technical school or 
a community college, for example, we believe are subject to 
being classified as exempt under these rules. And if that is 
not the case, then I do not think the regulations, as written, 
are clear.
    Senator Murray. Mr. Eisenbrey, could you comment?
    Mr. Eisenbrey. I think it is important to realize that if 
you wanted to keep the law the same, you would not change it. 
They have changed the professional exemption and put in a 
particular new provision that says that you can substitute work 
experience or other things other than the normal academic 
training, experience from the military for the 4 years that are 
currently required. Their regulatory analysis--and I will 
quote--says: ``The proposed rule allows work experience to be 
substituted for all or part of the educational requirement for 
exemption of learned professionals.'' There is no legitimate 
doubt about the effect of that.
    Senator Murray. Well, Mr. Chairman, I would have to agree. 
That is certainly how I read it and it certainly would go to 
Senator Harkin's question to Ms. McCutchen that this is going 
to increase litigation should this proposed rule move forward, 
it sounds to me from listening to this. My understanding was 
the rules were proposed just to clarify the overtime rules and 
to reduce litigation. So I think we have a real problem moving 
forward here.
    Senator Specter. Thank you very much, Senator Murray.
    Well, thank you very much, ladies and gentlemen. This is 
obviously a complex question. It has been very helpful.
    Senator Murray. Mr. Chairman, if I could just ask to have 
my opening statement submitted for the record.
    Senator Specter. Senator Murray's opening statement will be 
made a part of the record.
    [The statement follows:]

               Prepared Statement of Senator Patty Murray

    Mr. Chairman, thank you for calling these important hearings today 
on the proposed regulatory changes the Department of Labor has put 
forth regarding overtime pay and labor union reporting.
    I believe these hearings will provide critical information to the 
Members of this Committee to help them decide whether the rulemaking 
process at the United States Department of Labor (USDOL) is driven by 
fact and reason or an anti-worker political agenda.
    The shoddy rule-making process employed by the USDOL in the 
development of their draft regulations on overtime pay and labor union 
reporting leads this Senator to wonder what's the rush.
    Congress has held no hearings, yet the Secretary of Labor--with a 
few strokes of her rule-making pen--is about to adversely affect the 
quality of life for millions of hard working Americans.
    It is inconceivable to me that as families struggle in this tough 
economy, the Bush Administration wants to cut the pay of millions of 
workers who depend on their overtime to help make ends meet.
    We know that overtime often makes up 25 percent of an eligible 
worker's wages.
    Haven't working Americans been punished enough by this President's 
economic policies? Not only have we seen millions lose their pensions, 
but we've also seen massive tax cuts for the few while everyone else 
struggles just to get by.
    Billion dollar corporate scandals continue to unfold on a regular 
basis, robbing millions of their economic security in their retirement 
years.
    The answer from this Department of Labor is a rule that will 
require thousands of small local unions to comply with a new set of 
costly and unwarranted reporting requirements. These draft rules are 
more cumbersome than the reporting requirements for public corporations 
found in the recently enacted Sarbanes-Oxley legislation.
    And of course we know that multi-billion dollar privately held 
corporations do not have any reporting requirements.
    Unfortunately, these new labor union reporting rules are unlikely 
to ``weed out corruption.'' Nor will they help to establish the 
transparency in labor union reporting the Secretary said was needed 
when she appeared before this Subcommittee to discuss her fiscal year 
2004 budget request in April.
    Millions of details on thousands of forms will not help assure 
labor unions are spending their money properly. Independently certified 
audits certainly remain a better approach, along with the diligence of 
the thousands of local, national and international union officials who 
care deeply about the fiscal integrity of their operations.
    Again, I commend and thank the Chairman for calling these hearings. 
I look forward to working with him as we develop bipartisan approaches 
to critical policies that affect workers who are struggling to pay 
their mortgages and feed their families.

                         CONCLUSION OF HEARING

    Senator Specter. Thank you all very much for being here. 
That concludes our hearing.
    [Whereupon, at 3:47 p.m., Thursday, July 31, the hearing 
was concluded, and the subcommittee was recessed, to reconvene 
subject to the call of the Chair.]

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