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WebMemo #617 on Jobs and Jobs and Labor Policy

December 3, 2004

After Overtime, Now What?

By

One of the most important stories lost in the last-minute rush to pass a budget last month was what Congress did not do: In spite of constant pressure from organized labor, Congress did not overturn new overtime regulations that took effect last August. Various proposals to block the new rules, which cover the so-called white-collar exemptions from the Fair Labor Standards Act (FLSA), had been proposed, and some had secured the approval of the House or the Senate; but the two houses of Congress were never able to get this to the President's desk, and with completion of the budget for the 2005 fiscal year and the impending arrival of a more conservative Congress, labor's best chance to stop the new rules has probably passed.

This means that the new overtime rules remain in effect. Just as important, the Administration has demonstrated that a Republican Administration can tackle substantive labor law reform and live to tell about it.

As for the union movement, one thing it needs to ponder is not just why it lost, but why it chose to resist these regulations in the first place. For example:

  • The rules had been in desperate need of an update. The FLSA sets the minimum wage, establishes a standard 40-hour workweek, and provides that workers must receive time-and-a-half pay for overtime. Executives, administrators, and professional employees are exempted, however, from the FLSA and are not entitled to overtime pay. The regulations that defined who qualified under these "white-collar" exemptions had not been significantly changed since the mid-fifties and had not been revised at all since 1975. As a consequence, the rules were severely out-of-date, and many employees could not be certain whether they were or were not exempted. Expensive class-action lawsuits focused on overtime pay and the white-collar exemptions were becoming increasingly common.
  • The Administration's final rules were far from radical. Generally, the new rules followed all precedents set by the older rules, adding some details and accounting for new industries and occupations. New minimum salary requirements mean that 1.3 million workers will gain overtime pay. Clearer rules mean both easier enforcement of overtime pay and less risk that workers will be denied overtime pay because of confusion.

Nonetheless, the labor union movement vehemently opposed the new overtime rules. The AFL-CIO alleged that they would "hurt many workers, taking much-needed extra cash out of their pockets during an economic crunch and discouraging companies to create new jobs." Union lobbying was nonstop, and Democratic lawmakers attempted to insert amendments blocking the new rules into a wide range of bills. Overtime became an issue in the presidential campaign, and even after the election was settled, union supporters in Congress made a last-ditch effort to thwart the new rules in the federal budget.

The Administration and Department of Labor Staff deserve credit for seeing a politically difficult task through to completion. The President threatened to veto any legislation that would have blocked the new overtime rules, and that threat was ultimately enough to protect them from defeat. The Administration's determination should improve working conditions throughout the country and make it easier for employers to assign work and create jobs.

A poorly chosen battle could cost the labor movement clout and credibility. Union opposition was based on a series of poorly done studies that projected that millions of workers would lose overtime protection under the new rules. But the predicted widespread loss of overtime pay has yet to occur, and most likely never will.

Press reports since the new rules took effect indicate that, when companies have applied the new rules, they have found either no change or that more workers would be entitled to overtime pay. One striking example is Frank's Nursery and Crafts, a Michigan-based retailer of lawn care and gardening supplies. Before filing for bankruptcy in September 2004, Frank's had performed a review of its employees' overtime eligibility under the new rules. If there ever was an employer that would want to take back overtime pay in order to cut costs, it would be one that was staring bankruptcy and likely liquidation in the face, yet Frank's found that none of its employees lost overtime protection under the new rules.

The AFL-CIO is considering sweeping changes to stem its long decline in membership and influence. The union movement represented nearly a quarter of American wage earners in 1973, but now only 12.9 percent are union members, and only 8.2 percent of workers in the private sector are union members. Challengers to current ALF-CIO President John Sweeney are proposing the consolidation of smaller unions, new regional councils, and other changes that could give the labor federation more political muscle.

Among the issues the union movement should consider is not only its current strength, but also how that strength is used. As leaders of America's union movement ponder radical restructuring to reverse decades of decline, maybe one area they should look at is a political and lobbying operation that so stridently opposed a relatively benign labor law reform.

Paul Kersey is Bradley Visiting Fellow in Labor Policy at The Heritage Foundation.

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