April 2003, Vol. 126, No.4
Federal overtime law
Book reviews from past issues
Federal overtime law
"Moments Are the Elements of Profit": Overtime and the Deregulation of Working Hours under the Fair Labor Standards Act. By Marc Linder. Fanpihua Press, Iowa City, 2000, 524 pp., $15/paperback.
The Federal overtime law, which is part of the Fair Labor Standards Act (FLSA) originally enacted in 1938, requires that employees be paid one and one-half times their regular rate of pay for all hours above 40 worked in each workweek. The purpose of this requirement is typically claimed to be twofold: (1) to spread employment among a greater number of workers by imposing an additional wage cost on employers who require their employees to work more than 40 hours a week; and (2) to provide an extra reward to those workers who have to work more than 40 hours a week, and thus have less time to spend in activities of their own choosing. These are admirable goals, but the fact remains that in the more than 60 years since passage of the FLSA, there are still millions of workers in the United States who work much more than 40 hours a week, often unwillingly.
How is it that the FLSA has not been a greater force for the reduction of working hours? This is the question explored in the four lengthy essays that constitute Moments Are the Elements of Profit, by Marc Linder, professor of law at the University of Iowa, as well as a practicing attorney.
The first chapter is a history of the origins and development of the overtime provision, including a discussion of overtime laws before the FLSA was enacted and of selected overtime laws in various States and foreign countries. The remaining three chapters illustrate in detail how special provisions in the overtime law have undermined its force. Two of these chapters deal with exemptions to the overtime (as well as minimum wage) provisions that excuse employers from paying time-and-one-half overtime compensation—in the one case to salaried managers, and in the other case to certain employees of certain small businesses. These exemptions reduce the number of employees who are protected by the FLSA’s overtime compensation provisions. The other chapter shows how Congress in 1947 excluded certain kinds of activities from being compensable, and in effect shortened many employees’ workweeks, thus reducing or eliminating these workers’ overtime pay by legislative fiat.
The chapter on the origins and development of the overtime law explores the various methods by which excessive hours could be curtailed by means other than time-and-one-half wages for work of more than 40 hours in a week. Work of more than 40 hours in a week could be forbidden altogether (except perhaps in certain emergency situations). Employers could be required to request workers to work overtime, and be barred from taking any adverse action against an employee who declines to work overtime. The overtime premium could be raised to double-time or higher. The minimum wage could be raised to a high enough rate to reduce the financial need of workers to work long hours in order to be paid a living wage each week. Linder discusses these various options and others by concrete examples, mainly legislative debates about such proposals and some laws that adopted variants of these approaches.
The chapter on the exemption for certain salaried workers (executive, administrative, and professional employees) traces the legislative origins of this exemption to the National Industrial Recovery Act of 1933, and notes that when Congress included a similar provision in the FLSA, it directed the Department of Labor to flesh out the details in regulations. These regulations set forth a two-part test: in order to be exempt, an employee must be paid at least a specified amount per week on a salary basis, and must satisfy certain duty requirements. The theory behind the regulation was that managerial workers who are deprived of minimum-wage and overtime-compensation protections should be paid on a salary basis because that is the hallmark of such workers (they are paid to do a job, no matter how many or few hours per week they work, whether on account of major projects that require long hours or slow weeks that leave time for golf and similar outings); that the salary had to be high enough to provide the workers with a living wage; and that they had to perform specified true managerial duties.
At least 32 million workers are deprived of FLSA wage protections because of this exemption, Linder notes. More than 25 years ago, when the salary test was high enough to reflect what bona fide executives were actually earning, it was typically a clear dividing line between who was exempt and who was not. Today, by contrast, most purported executives have their exempt or nonexempt status determined by the necessarily less precise managerial duties tests.
The chapter on the narrower definition of compensable activities enacted by Congress in 1947 is a riveting story that, as Linder ruefully notes, "has receded into oblivion." The story starts shortly after the end of World War II. Unionized workers, facing shorter workweeks because of reduced military production after the war, instituted lawsuits seeking back pay for the time at the beginning of the workday for the time that they spent walking, riding, or traveling from the factory gate or place where they punched a time clock to their actual place of work, and for the time spent in the return trip at the end of the day. The Supreme Court ruled in the workers’ favor in three cases.
Congress responded by enacting the Portal-to-Portal Act of 1947, which in effect nullified the Supreme Court’s decisions by stating that "preliminary" and "postliminary" activities such as "walking, riding, or traveling to and from the actual place of the performance of the principal activity" were not compensable (unless made so by contract or by custom or practice). But Congress did more than establish this narrower definition of compensable activities. It made two additional important changes to the FLSA that affected not only these activities, but all other situations as well. First, Congress added a statute of limitations of 2 years, or 3 years in the case of willful violations, thereby greatly reducing the amount of back wages that workers could recover, even for those activities that were clearly compensable. Second, Congress eliminated class actions and representative actions in court, making it more difficult for workers to be included in a lawsuit.
The chapter on the exemption for small businesses is a complex but deftly told chronicle of how there actually never was a small business exemption to the FLSA, and the attempt by small-business lobby groups to claim that there had always been one. Amendments in 1989 stripped from the protections of the FLSA numerous employees who had previously enjoyed its benefits. The adverse effect of this legislation fell most heavily on construction workers, but also on workers in retail and service businesses.
Originally, the FLSA applied to individual employees, based on the links that each one had to interstate commerce, without regard to the size of the employer. Thus, an employee who regularly crossed State lines was covered, as was an employee who regularly worked on items that were shipped out of State, regardless of whether the employer was a large or small business. Few construction workers or employees in retail or service establishments were covered originally, except those who regularly crossed over into a neighboring State in connection with their work, or worked on goods that were sent out of State.
This so-called individual coverage under the FLSA resulted in many anomalous situations in which workers doing essentially the same work were covered by the law, or not covered, depending upon whether or not they crossed State lines or produced goods for interstate commerce. Indeed, employers could segregate work so that, for example, a mailroom clerk who packaged and sent goods only within the same State would not be covered, whereas another employee in the same mailroom who did the same job with respect to goods shipped out of State would be covered.
In 1961, Congress greatly expanded FLSA protections by extending coverage to all employees in an entire enterprise if that enterprise had at least two employees who were individually covered (that is, "engaged in," or "producing goods for," interstate commerce) or who were "handling, selling or otherwise working on" goods or materials that had been shipped in from out of State. Under this expanded coverage, if an enterprise had two mailroom clerks who were shipping goods out of state, then all employees of the enterprise would be covered, even though none of those other employees were engaged in, or producing goods for, interstate commerce. Equally important was the "handling" coverage, as it came to be called. For example, construction workers who handled nails or lumber or roofing shingles that had been shipped in from out of State were covered for the first time, as were restaurant workers and other retail or service business workers who handled utensils, plates, apparel, and myriad other goods and materials that had been shipped in from out of State.
Some enterprises were covered only if they did a specified dollar volume of business in a year. However, these annual dollar amounts were lowered for retail and service enterprises to $250,000 and were eliminated altogether for construction enterprises. Thus, the trend from 1961 until the 1989 amendments was to expand enterprise coverage to protect more workers. In explaining these intricacies, Linder lays bare the distortion of earlier legislative history that underlay the attempts by certain business interests and legislators in 1989 to claim that these dollar volume tests amounted to a small business exemption that had always been a part of the FLSA. When Congress raised the annual dollar volume threshold for enterprise coverage to $500,000 in 1989, it removed from coverage almost all construction workers and many retail and service workers in these small businesses—one of the first major rollbacks in the protections of the FLSA.
Many books written about the FLSA are mainly for practitioners, and hence tend to focus on the innumerable details of the current state of the law. Linder‘s goal is much different. He approaches the FLSA from a historical view, and his writing has a definite edge. The narrative power, the striking insights, and the mordant eloquence—all make this a book that will appeal to an audience far beyond those interested in the overtime law to all those who seek to understand an important and ongoing aspect of the struggle between labor and capital in modern America. In short, Linder’s book shows how politics and the conflict of values have shaped an important part of the legal landscape for working men and women in the last 60 years.
—James B. Leonard
formerly with the
U.S. Department of Labor
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