[House Hearing, 108 Congress]
[From the U.S. Government Printing Office]




                               before the

                         COMMITTEE ON EDUCATION
                           AND THE WORKFORCE
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION


                             April 28, 2004


                           Serial No. 108-54


  Printed for the use of the Committee on Education and the Workforce

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


93-385                      WASHINGTON : 2004
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                    JOHN A. BOEHNER, Ohio, Chairman

Thomas E. Petri, Wisconsin, Vice     George Miller, California
    Chairman                         Dale E. Kildee, Michigan
Cass Ballenger, North Carolina       Major R. Owens, New York
Peter Hoekstra, Michigan             Donald M. Payne, New Jersey
Howard P. ``Buck'' McKeon,           Robert E. Andrews, New Jersey
    California                       Lynn C. Woolsey, California
Michael N. Castle, Delaware          Ruben Hinojosa, Texas
Sam Johnson, Texas                   Carolyn McCarthy, New York
James C. Greenwood, Pennsylvania     John F. Tierney, Massachusetts
Charlie Norwood, Georgia             Ron Kind, Wisconsin
Fred Upton, Michigan                 Dennis J. Kucinich, Ohio
Vernon J. Ehlers, Michigan           David Wu, Oregon
Jim DeMint, South Carolina           Rush D. Holt, New Jersey
Johnny Isakson, Georgia              Susan A. Davis, California
Judy Biggert, Illinois               Betty McCollum, Minnesota
Todd Russell Platts, Pennsylvania    Danny K. Davis, Illinois
Patrick J. Tiberi, Ohio              Ed Case, Hawaii
Ric Keller, Florida                  Raul M. Grijalva, Arizona
Tom Osborne, Nebraska                Denise L. Majette, Georgia
Joe Wilson, South Carolina           Chris Van Hollen, Maryland
Tom Cole, Oklahoma                   Tim Ryan, Ohio
Jon C. Porter, Nevada                Timothy H. Bishop, New York
John Kline, Minnesota
John R. Carter, Texas
Marilyn N. Musgrave, Colorado
Marsha Blackburn, Tennessee
Phil Gingrey, Georgia
Max Burns, Georgia

                    Paula Nowakowski, Staff Director
                 John Lawrence, Minority Staff Director

                            C O N T E N T S


Hearing held on April 28, 2004...................................     1

Statement of Members:
    Boehner, Hon. John A., Chairman, Committee on Education and 
      the Workforce..............................................     2
        Prepared statement of....................................     4
    Miller, Hon. George, Ranking Member, Committee on Education 
      and the Workforce..........................................     4
    Norwood, Hon. Charlie, a Representative in Congress from the 
      State of Georgia, prepared statement of....................    36
    Owens, Hon. Major R., a Representative in Congress from the 
      State of New York, prepared statement of...................    25

Statement of Witnesses:
    Bird, Ronald E., Chief Economist, Employment Policy 
      Foundation, Washington, DC.................................    41
        Prepared statement of....................................    44
    Chao, Hon. Elaine L., Secretary, U.S. Department of Labor, 
      Washington, DC.............................................     7
        Prepared statement of....................................     9
    Fortney, David S. Fortney, Esq., Partner, Fortney & Scott, 
      LLC, Washington, DC........................................    52
        Prepared statement of....................................    55
    Smith, Karen Dulaney, Wage and Hour Consultant, Austin, TX...    47
        Prepared statement of....................................    50

Additional materials supplied:
    AFL-CIO, Working Families e-Activist Network, TV Ad and e-
      mail, ``Help Stop Bush's Overtime Pay Take-Away with Ads'', 
      April 13, 2004.............................................    65
    American Bankers Association (ABA), News Release, ``ABA 
      Statement on Labor Department Final Overtime Rule'', April 
      20, 2004...................................................   100
    American Insurance Association (AIA), Press Release, ``AIA 
      Praises New Labor Regulations'', April 20, 2004............   109
    Americans for Tax Reform (ATR), News, ``Labor Department 
      Announces New Rule to Clarify 50-Year Old Regulations and 
      Increase Overtime Pay for Millions of Workers'', April 20, 
      2004.......................................................   113
    The American Legion, Letter to Secretary Chao, April 26, 2004    28
    Associated Builders and Contractors, Inc., (ABC), News 
      Release, ``ABC Applauds Labor Department Effort to Revise 
      Outdated Rules Under Fair Labor Standards Act'', April 20, 
      2004.......................................................   102
    Disabled American Veterans, Letter to Secretary Chao, April 
      26, 2004...................................................    29
    Food Marketing Institute (FMI), Press Release, ``Food 
      Retailers and Wholesalers Applaud DOL for Rewriting 
      Overtime Rules for the 21st Century Economy'' April 20, 
      2004.......................................................   107
    Fraternal Order of Police, Letter and Press Release, ``Final 
      DOL Regulations Protect and Expand Overtime for America's 
      First Responders'', April 20, 2004.........................    21
    Heritage Foundation, WebMemo 485,''The New Overtime 
      Regulations: Clearer Rules, Fewer Conflicts'', April 20, 
      2004.......................................................   106
    Johnson, Cheryl, RN, President, United American Nurses, AFL-
      CIO (UAN), April 28, 2004..................................   116
    Mortgage Bankers Association (MBA), Statement by Kurt 
      Pfotenhauer, Senior Vice President of Government Affairs, 
      ``MBA Applauds Department of Labor for Modernizing the Fair 
      Labor Standards Act'', April 20, 2004......................   110
    National Association of Convenience Stores (NACS), Press 
      Release, ``Convenience Store Industry Commends Labor 
      Department's Efforts on `Fair Pay' Overtime Initiative 
      Under FLSA'', April 20, 2004...............................   114
    National Association of Manufacturers (NAM), Press Release, 
      ``NAM Welcomes Labor Dept. Announcement of Update of 
      Nation's Antiquated Overtime Regulations'', April 20, 2004.   112
    National Association of Mortgage Brokers, Press Release, 
      ``Mortgage Brokers Applaud DOL Overtime Regulations'', 
      April 22, 2004.............................................    99
    National Council of Chain Restaurants, of the National Retail 
      Federation, News Release, ``NCCR Welcomes Updated Overtime 
      Rules'', April 20, 2004....................................    98
    National Federation of Independent Business (NFIB), News, 
      ``NFIB: DOL Overtime Rule Offers Clarity for Small 
      Business'', April 20, 2004.................................   108
    National Restaurant Association, Press Release, ``National 
      Restaurant Association Recognizes Labor Department's 
      Modernization of Overtime Regulations'', April 20, 2004....   111
    National Retail Federation (NRF), News Release, ``Retailers 
      Welcome New Overtime Regulations'', April 20, 2004.........   115
    Retail Industry Leaders Association (RILA), RILA News, 
      ``Retail Industry Leaders Association Applauds Release of 
      New Overtime Regulations'', April 20, 2004.................   101
    Society for Human Resource Management (SHRM), PR Newswire, 
      ``New White-Collar Exemption Rules Expected to Bring 
      Clarity to Workplace'', April 20, 2004.....................   103
    U.S. Chamber of Commerce, Letter to Chairman John Boehner, 
      April 28, 2004.............................................    87
    U.S. Chamber of Commerce, Press Release, ``Chamber Welcomes 
      White-Collar Overtime Reform'', April 20, 2004.............    97
    U.S. Department of Labor, Fair Pay Facts, Overtime Security 
      for the 21st Century Workforce, ``AFL-CIO Distortions Harm 
      Workers''..................................................    81
    Veterans of Foreign Wars of the United States, Letter to 
      Secretary Chao, April 22, 2004.............................    30



                       Wednesday, April 28, 2004

                     U.S. House of Representatives

                Committee on Education and the Workforce

                             Washington, DC


    The Committee met, pursuant to notice, at 10:35 a.m., in 
room 2175, Rayburn House Office Building, Hon. John Boehner 
(Chairman of the Committee) presiding.
    Present: Representatives Boehner, Petri, Ballenger, 
Hoekstra, McKeon, Castle, Johnson, Norwood, Isakson, Biggert, 
Platts, Tiberi, Keller, Wilson, Cole, Porter, Kline, Carter, 
Blackburn, Gingrey, Burns, Miller, Kildee, Owens, Payne, 
Andrews, Woolsey, Hinojosa, McCarthy, Tierney, Kind, Kucinich, 
Wu, Holt, Davis of California, McCollum, Grijalva, Majette, Van 
Hollen, Ryan, and Bishop.
    Staff present: Kevin Frank, Professional Staff Member; Ed 
Gilroy, Ed, Director of Workforce Policy; Donald McIntosh, 
Staff Assistant; Jim Paretti, Professional Staff Member; Molly 
Salmi, Deputy Director of Workforce Policy; Kevin Smith, 
Communications Counselor, and Jo-Marie St. Margin, General 
Counsel; Jody Calemine, Minority Counsel Employer-Employee 
Relations; Margo Hennigan, Minority Legislative Assistant/
Labor; Tom Kiley, Minority Press Secretary; John Lawrence, 
Minority Staff Director; Marsha Renwanz, Minority Legislative 
Associate/Labor; Amy Rosenbaum, Minority Special Assistant for 
Policy; Peter Rutledge, Minority Senior Legislative Associate/
Labor; Michele Varnhagen, Minority Labor Counsel/Coordinator; 
and Mark Zuckerman, Minority General Counsel.
    Chairman Boehner. A quorum being present, the Committee on 
Education and the Workforce will come to order. We are meeting 
today to hear testimony on assessing the impact of the Labor 
Department's final overtime regulations on workers and 
employers overtime regulations. For those who are standing and 
who would prefer to sit, the Committee has made available 2257 
directly upstairs as an overflow room where you'll be able to 
hear and see the testimony that the Committee will receive 
    Opening statements are limited to the Chairman and the 
Ranking Member. If other Members have statements, they can be 
submitted for the record. And with that, I ask unanimous 
consent for the hearing record to remain open for 14 days to 
allow Member statements and any other extraneous material 
referenced during the hearing to be submitted for the official 
hearing record, and without objection, so ordered.


    Chairman Boehner. Good morning, Madam Secretary and all of 
our guests today. Thanks for coming. Today our focus will be on 
evaluating the Labor Department's final regulations on overtime 
pay, its impact on workers and employers, and how these rules 
will work in practice.
    There's been a lot of information and misinformation about 
this proposal, and this is why we're here today, to hear 
directly from the Secretary of Labor and other distinguished 
    For years we've known that the Fair Labor Standards Act 
regulations governing overtime are complex, confusing and often 
incite needless litigation. As a result, these outdated rules 
make it next to impossible for workers to know whether they are 
entitled to overtime, for employers to know how to pay their 
employees, and for the Labor Department to enforce these 
workforce protections. Moreover, millions of low wage workers 
who should be earning overtime pay currently are not.
    Modernizing these decades-old regulations has been on the 
agenda of every administration, Republican and Democrat, for 
the last 20 years.
    In March of 2003, the Department began this difficult 
effort by offering a draft proposal to update these outdated 
rules, which have not been substantially changed in 54 years. 
Unfortunately, the American people were subjected to a campaign 
of misinformation based on fear, distortions and untruths. Some 
attempted to paint this draft proposal as an attack on workers, 
falsely claiming it would eliminate overtime pay for millions, 
which is simply not true.
    After reviewing more than 75,000 public comments on the 
draft proposal, both positive and negative, the Department 
published its final rule last week, and I'm pleased that 
Secretary Chao is here with us today to tell us more about the 
facts. As Joe Friday said, ``just the facts, ma'am.''
    It's important that we come into this hearing I think with 
an open mind and ready to listen. It's troubling that some seem 
to have reached conclusions about the final rule even before it 
was issued last week. It appears that the Labor Department has 
worked very hard to address legitimate concerns raised by both 
workers and employers, but I want to hear directly from the 
Secretary and other witnesses, and this is why we're holding 
this meeting today.
    Numerous changes were made to the final rule issued last 
week. For example, the final regulation ensures that workers 
making less than $23,600 annually will automatically be 
entitled to overtime pay. It's unacceptable that today's 
outdated regulations would allow someone earning as little as 
$8,060 to qualify as a white collar employee and therefore 
prevented from receiving overtime.
    According to the Department's analysis, the final 
regulation will extend new overtime rights to an estimated 1.3 
million American workers and strengthen existing overtime 
protections for 5.4 million working Americans.
    The Department's economic analysis of its final overtime 
rule indicates few, if any, workers making less than $100,000 
per year will be adversely affected by the final regulation. 
The Department estimates the only workers who will likely be 
affected are those making more than $100,000 annually whose 
white collar job responsibilities qualify them as exempt from 
overtime. According to the Department, no more than 107,000 
workers nationwide fall into this highly compensated category.
    And finally, and I think most importantly, the Department's 
final rule protects the overtime rights of blue collar workers, 
union workers, nurses, veterans, firefighters, policemen and 
similar public safety workers and responds to concerns raised 
with the earlier draft regulations during the comment period by 
ensuring the overtime rights of these workers are not affected 
under the final rule.
    Our focus here today should be putting more money into the 
pockets of working Americans, not trial lawyers. Because of 
confusion over these outdated rules, class action overtime 
lawsuits are now the fastest growing category of employment 
litigation. I had dinner on Saturday night with a labor 
attorney who basically represents employers, and he told me, he 
said, ``If it weren't for the job that I have, I'd be a 
plaintiff's attorney out filing these litigation suits, class 
action suits on FMLA, because they are so outdated, there's so 
much confusion, and I could make a whole lot of money.'' I 
said, ``Well, thank you for not doing it.''
    Doing nothing would be a victory for the trial lawyers who 
have lined their own pockets with gotcha class action lawsuits. 
Clearer rules will reduce the cost of litigation, encourage 
employers to hire more workers, and strengthen current law 
overtime protections for American workers. This is especially 
important for the millions of low wage workers who will receive 
new overtime pay protections under the final rule.
    I want to commend the Department for its willingness to 
make adjustments in the final regulation and urge everyone to 
listen to the facts and put election year politics aside. I 
think the Department has taken great steps and exhibited great 
courage in doing something that administrations for 20 years 
have attempted to do but never gotten very far. This is good 
for American workers. It's good for American employers, and 
good for the American economy.
    And I'll now yield to my friend and colleague, Mr. Miller.
    [The prepared statement of Chairman Boehner follows:]

Statement of Hon. John A. Boehner, Chairman, Committee on Education and 
                             the Workforce



    Mr. Miller. Thank you, Mr. Chairman. Thank you for holding 
this hearing, and Madam Secretary, thank you for being here.
    History very often is in the eye of the beholder. I would 
tell a different history of these regulations. I would tell a 
history of regulations that were published and said that they 
were going to strengthen overtime protections for workers and 
extend them to millions of low income workers, and then upon 
analysis of those regulations by many, many parties, it became 
very clear that not only would these regulations extend 
overtime protections to millions of low income workers, it 
would threaten the overtime protections to millions of other 
    That history is validated by the fact that on a bipartisan 
basis, both the House and the Senate rejected the idea of these 
regulations, and the most dramatic retreat from those original 
regulations by the Department of Labor as they submit these 
final regulations for our consideration.
    I would suggest to you that in the time available to read 
and analyze the 530 pages of these artfully crafted new 
regulations, it's clear to me and I think to many others who 
have undertaken the beginnings of the analysis that the policy 
continues, and that is to cut the overtime protection for 
millions of workers, in this instance those workers between the 
base salary of $23,660 and the ceiling of $100,000.
    That when you look at the number of workers who can be 
adversely affected in these new regulations, you start to see 
the potential of millions of employees who are in that 
situation; employees working in financial services, chefs, 
computer programmers, route drivers, assistant retail managers, 
preschool teachers, team leaders, working foremen and many 
other categories that are created in these regulations either 
in reactions to lawsuits or the interests of specific 
industries within the country that have been seeking these 
changes for a number of years.
    And I think that we'll see that your dinner guest will find 
himself well compensated by continuing to go to court by the 
flood of litigation that will be created by the definitions 
within these new regulations. So he will continue to do very 
    Later today we will hear from a witness, Karen Smith, who 
served as a Department of Labor Wage and Hour investigator in 
the Reagan, Bush and Clinton administrations and a management 
consultant for employers for the last several years, and will 
explain some of the nuances and the definitional context of 
these regulations that threaten the overtime protection of 
millions of workers, as have other analysts who have had a 
chance to look at these regulations.
    What I don't understand is why we continue to see this 
assault on middle class working Americans by the Bush 
Administration. We all applauded the effort to raise the income 
ceiling on those who would be eligible for overtime 
protections. There was no disagreement on either side of the 
aisle about that effort. What we don't understand why then that 
good deed has to be extracted by putting other people who have 
overtime rights today at risk.
    Middle class Americans face so many problems today--
shrinking real pay, higher cost of basic benefits, greater 
competition for employment, downsizing, outsourcing, higher 
costs of higher education and all that goes on with maintaining 
your economic status in this country and the ability to provide 
for your family. But one problem they don't have is too much 
money from overtime.
    And to suggest now that these regulations are going to 
start curtailing the access to overtime for millions of 
America's families who need that. We all understand the 
overtime in the workplace is a love-hate relationship. We love 
it at the end of the year when it's in our W-2 form, but we had 
it on a Friday night when we're asked to work it, and we hate 
it when we're asked to work overtime when we know we now have 
to adjust the time of our daycare arrangements, the time of 
dinner for our family, whether we're going to have a vacation, 
whether we're going to be able to go to the movies or we're 
going to be able to take care of other needs of the family. But 
we work it, and we get a premium pay for that reason.
    Under these regulations for millions of workers in the 
categories that I have named, and we'll go into detail later, 
they're going to find out that they're going to work the 
overtime; they're just not going to get the pay. But that's 
what these regulations were designed to do in a whole range of 
    So, again, I would go back to the original plea that many 
of us made when the initial regulations were put forth, those 
that have now been withdrawn. I would hope that we would go 
back to holding harmless those individuals that currently have 
overtime. Why are we taking away the overtime of these 
individuals when for so many of them, it means whether or not 
they qualify for the mortgage on their house, whether or not 
they're going to be able to afford their car or finance their 
kids' education. That's what overtime means to millions of 
    We wouldn't understand that in the Congress of the United 
States, because we only work a 3-day week or a 2-day week, so 
we never get up against those 40-hour weeks here in Washington. 
But for millions of Americans, they bump up against that 40 
hours all the time, and they then have to restructure their 
life in order to keep their job, and they should be compensated 
for that activity.
    So I look forward to a discussion of these regulations, but 
I must say, I must say that I am deeply disturbed that millions 
of Americans will have the threat to what they now have the 
right to, and that is overtime compensation for overtime worked 
put at risk because of these regulations.
    Thank you, Mr. Chairman.
    Chairman Boehner. It's now my pleasure to introduce our 
first panel today. The Honorable Elaine Chao is the nation's 
24th Secretary of Labor, nominated by President Bush and 
confirmed by the U.S. Senate in January of 2002. Secretary 
Chao's previous government career included serving as Deputy 
Secretary of the U.S. Department of Transportation, Chairman of 
the Federal Maritime Commission, and Deputy Maritime 
Administrator in the U.S. Department of Transportation.
    She brings a wealth of business experience to the post of 
labor secretary, having worked as vice president of 
syndications at Bank of America Capital Markets Group, and as a 
banker with Citigroup. Secretary Chao has also served as 
director of the Peace Corps and as president and CEO of the 
United Way of America.
    She has received her MBA from the Harvard Business School 
and her undergraduate degree in economics from Mount Holyoke 
    Secretary Chao is accompanied this morning by Ms. Tammy 
McCutchen, the Administrator of the Wage and Hour Division of 
the Department of Labor, which has principal oversight over the 
nation's Federal wage and hour laws.
    And with that, Madam Secretary, we're glad that you're here 
and we're anxious to hear from you.

                     LABOR, WASHINGTON, DC

    Secretary Chao. Thank you, Mr. Chairman, and Members of 
this Committee, for the opportunity to discuss the Department 
of Labor's new overtime security rules, which are a tremendous 
step forward for America's workers.
    The new rules published in the Federal Register as of April 
23rd strengthen and guarantee overtime pay protection for an 
unprecedented 6.7 million additional workers. They modernize 
and clarify what's often called white collar regulations that 
have not been substantially updated since 1949. As the world of 
work changes, these regulations remain frozen in time. They're 
difficult and sometimes nearly impossible to interpret or 
enforce in the modern workplace. They list positions which no 
longer exist like leg man, gang leader, straw boss, keypunch 
    This rule has been on the regulatory reform agenda of the 
Department of Labor since 1977 when President Jimmy Carter was 
in office. Because of the ambiguity and the outdated nature of 
these rules, a lot of workers are forced to resort to lengthy 
court battles and hire--spend money and hire lawyers to find 
out whether they're eligible for overtime. In fact, overtime 
complaints now generate more Federal class action lawsuits than 
employment discrimination class action lawsuits.
    There has to be a better way for workers to get the 
overtime that they've earned, and that's why the Department has 
developed stronger, clearer overtime rules to help working 
    The final rules dramatically increase the number of workers 
who will be guaranteed overtime because the salary threshold 
has nearly tripled. Under the current regulations, workers 
earning more than $8,060 annually can be classified as 
executives and denied overtime protection. Under the new rules, 
workers earning up to $23,660 annually are guaranteed overtime 
regardless of their job title or responsibilities.
    Changing the salary threshold alone ensures overall 
protection--overtime protection for 6.7 million workers. That's 
1.3 million workers who had no right to overtime at all, and 
another 5.4 million workers whose overtime rights were 
ambiguous at best.
    The first draft of this rule did generate a great deal of 
interest and discussion. Members of Congress expressed their 
views, and we received about 75,000 comments from the public. I 
want to say that we have listened very carefully to all these 
comments and concerns, and we have produced a final rule that 
puts workers' overtime protections first and it strengthens and 
clarifies their overtime protection. That's why, for example, 
we took the extra step of spelling out in the new white collar 
rules who is not impacted by them. For the first time in 
history, the overtime rights of police, firefighters, 
paramedics, emergency medical technicians, other public safety 
employees, licensed practical nurses, are explicitly protected 
in the Department's white collar overtime rules. And for the 
first time ever, the overtime rights of blue collar workers 
such as construction workers, longshoremen, factory workers, 
are spelled out plainly in these rules.
    The final regulations preserve overtime protections for 
veterans, cooks. They were never, never taken away. But again, 
to clarify that these overtime rules strengthen overtime 
protection, we have put in those occupations and those 
categories as well.
    We have also included union members and made sure that the 
final regulations preserve overtime protections for union 
members whose overtime pay is secured under a collective 
bargaining agreement.
    The new rules are very clear.
    One. Everyone who is paid by the hour is entitled to 
    Two. All blue collar and manual laborers are entitled to 
    All salaried workers earning less than $23,660 a year are 
entitled to overtime, period, regardless of job title or 
    Salaried workers. Salaried workers earning more than 
$23,660 annually must be paid overtime unless they perform 
executive, administrative or professional duties.
    Now, unfortunately, a great deal of misinformation and 
distortions harmful to workers have been spread about the 
impact of these rules.
    These rules have been attacked for taking away overtime 
rights when the exact opposite is true. The new rules either 
preserve existing definitions of executive, professional and 
administrative duties or make them stronger and clearer to 
protect workers based on current Federal case law or statutes 
passed by the Congress.
    With these new rules, workers will clearly know their 
rights to overtime pay, employers will know what their legal 
obligations are, and this Administration, which has set new 
records for aggressive wage and hour enforcement, will have 
updated and strengthened new standards with which to vigorously 
enforce the rules to protect workers' pay.
    In fact, just yesterday I announced a new wage and hour 
overtime security enforcement task force to ensure that 
workers' expanded overtime rights are secured. I met with our 
wage and hour district directors and charged them to help 
workers and employers know the facts about these new rules and 
not be misled by misinformation that is being spread.
    The final rule gives our Department investigators the tools 
with which to ensure overtime security for millions of workers.
    I have to say this to the Committee. I am deeply concerned 
about the campaign of misinformation about these new rules. The 
confusion it is designed to create will only harm workers by 
denying them good information about their overtime pay rights.
    To prevent that from happening, we have put a tremendous 
amount of effort into compliance assistance and maximizing our 
enforcement presence. Our goal is to ensure that workers get 
the overtime pay that they've earned, and that's why the 
Department has issued updated overtime rules that will 
strengthen and guarantee overtime protections for more workers 
than ever before.
    Mr. Chairman, thank you for inviting me to be here today, 
and I'll be more than happy to answer any questions that the 
Committee may have.
    [The prepared statement of Secretary Chao follows:]

Statement of Hon. Elaine L. Chao, Secretary, U.S. Department of Labor, 
                             Washington, DC





    Chairman Boehner. Madam Secretary, we appreciate the fact 
that you're here and again say how proud I am of you and your 
team at the Department for the job that you're doing in the 
face of what else happens in this town.
    Now we all know there's two things that happen in 
Washington. We do public policy, and unfortunately, we do it in 
a political setting. And the political battle on this issue has 
already begun, and I for one am disappointed that right out of 
the box, opponents of the Department's effort and the 
administration have sought to sling political mud rather than 
to discuss the substance of the new regulations themselves.
    For an example, the AFL-CIO has already mischaracterized 
these regulations as a ``pay cut'' quote/unquote. In fact, I 
believe that you would estimate that these rules will result in 
more overtime pay going into employees' pockets. And I'd like 
for you to expand on that. And as a follow-up, I think many of 
us would be interested to know that if this is really going to 
cost employers more money, why are so many employers 
wholeheartedly embracing these reforms?
    Secretary Chao. I would say that there's bipartisan support 
for reform of these rules. As I mentioned, these reforms have 
been on the regulatory agenda for well over 25 years. It's been 
there since 1977 when President Jimmy Carter was in office.
    I think what most people want is clarity. We need clarity 
in these much outdated rules so that workers know their 
overtime rights and so that employers can know what their legal 
obligations are and so the Department can again more fully 
vigorously enforce the law as well.
    So clarity is a very important part of why this updated 
rule is so much needed.
    Chairman Boehner. Somebody was whispering in my ear the 
other day that the AFL-CIO a week and a half before this 
regulation was issued were filming commercials attacking the 
proposed rule that they hadn't even seen yet. Do you know 
anything about this?
    Secretary Chao. The overtime rules were released on--they 
were announced on April 22nd. They were posted in the Federal 
Register on April 23rd, and the rules were not released in 
    Chairman Boehner. A number of us over the period between 
the draft regulation and the final regulation heard from 
nurses, both registered nurses and licensed practical nurses, 
about threats to their overtime. Can you explain to the 
Committee exactly how the final regulations treat registered 
nurses and licensed practical nurses, and about nurses whose 
overtime is guaranteed under a collective bargaining agreement?
    Secretary Chao. The new overtime rules actually strengthen 
overtime for licensed practical nurses. For the very first 
time, LPNs are specifically listed as being guaranteed 
    Registered nurses' status remains unchanged. It is what the 
current rule says. Furthermore, registered nurses who are 
receiving overtime under collective bargaining agreements will 
continue to receive overtime, and if registered nurses are 
continuing to receive, they will continue to receive overtime. 
So these rules will be clarified. And, again, they are 
strengthened for LPNs, and the current rule on registered 
nurses will still remain the same.
    Chairman Boehner. Well, Madam Secretary, it's an honor for 
us to have you here once again before our Committee. You've 
been here many times. You have a distinguished career in public 
service. And I can't say it often enough how impressed I am 
that the Department would do something that needed to be done. 
Fifty-four years since any substantive changes to this law took 
place, and the confusion that exists in many workplaces is 
undeniable, both by employees and employers.
    And by bringing clarity to this and by doing your duty to 
look at the 75,000 comments that were made on the draft 
regulations, I think what we have before us is a set of 
regulations that are fair, that are understandable and will 
guarantee the overtime rights for millions and millions of 
American works.
    With that, I'll yield to Mr. Miller.
    Mr. Miller. Thank you. I'm not sure about your campaign of 
disinformation. I'm still not clear what you're talking about, 
but let's go to the specifics.
    First of all, in the previous proposed regulations, 
obviously various organizations across the country, myself 
included and many Members of the House and the Senate, talked 
about people who were going to lose their overtime under those 
regulations. Many of those people now have been explicitly 
exempted. So obviously there was some ambiguity. There was some 
concern about that, and those were changed. I don't think that 
was about misinformation. That was about the facts of people 
who under those regulations their right to overtime was placed 
at risk. Those have now been changed. The Secretary enumerated 
those. So let's just stick with that part of it.
    My concern is that under these regulations, there's still 
significant job classifications, Madam Secretary, that are in 
that zone between $23,660 and $100,000 that with the new 
regulations will find themselves certainly open to question as 
to whether or not they have a right to overtime.
    The suggestion has been that registered nurses' rights are 
absolutely protected. And yet the regulation has changed and 
the regulation appears to read that as long as they are given--
before you start shaking your head, let me finish reading it--
as long as they're guarantee the $455 per week that as long as 
that guarantee is there, then they're not necessarily 
guaranteed overtime as long as that base salary is guaranteed, 
and even with the insertion of the hourly wage in the 
discussion of that base salary.
    Journalists, you may have seen a number of commentaries in 
the paper, the question of whether they're included or not 
included is a determination of whether or not they're creative 
or not. If they're just gathering facts and information, if 
they're doing it on a big fire, they're out working long hours 
on whatever it is, they may or may not be exempt under that 
    Chefs, we say that those chefs that have 4-year degrees are 
exempt, and we describe the duties that will make the exempt. 
And yet we know there are hundreds of thousands of chefs in 
this country that have 2-year degrees that do those exact 
same--those exact same duties in terms of creativity and the 
production of food for restaurants.
    Working supervisors. A concern has been raised there by a 
number of employee organizations. The question if you're 
designated a supervisor, and another time the separation had to 
be that you had to spend a lot of time supervising and not 
doing your regular work. You're working in a cannery, you're 
dumping tomatoes in the cannery, you're in the dumping bay, you 
have three or four other bays, and you're the supervisor, but 
all night long in your night shift you're still dumping 
tomatoes off of the truck, are you exempt or aren't you exempt? 
You're now a working supervisor. In the old days, because most 
of your duties was dumping tomatoes and supervising the bay to 
make sure that they got to the conveyor belt, that they got to 
the sorting belt, then they got--but now you're a working 
    Assistant retail managers I think provides the mechanism by 
which many retail employees will find themselves designated in 
managerial task. Again, they don't have to perform any great 
supervisory talents, and they can certainly perform the same 
work as those that they are supervising. A distinction that 
used to provide for your right to overtime or not has now been 
stripped from those regulations.
    I think it continues to go on, and you can make this 
argument even with respect to nursery school teachers under the 
new definitions because of the changes that have been made 
    Computer employees. As you know, there were exemptions and 
distinctions were drawn among computer employees for those who 
were--in the previous regulation, those who achieved a level of 
proficiency in theoretical and practical applications that 
really set them apart from other employees. But now we see that 
really entry level computer employees also is open to question 
in these regulations, serious question I believe, as to whether 
or not they in fact will be protected for overtime as they are 
today because those distinctions are stripped from the 
regulations as they currently exist.
    And so what I think you're seeing here is that these 
regulations were written with a purpose, and they're written 
with an understanding of those distinctions that protected 
people's rights to overtime within those industries, because 
obviously, as you and the Chairman have stated, these 
regulations have not changed for a number of years, and so 
there's a body of law that has been built up. There's 
interpretations of your wage and hours inspections, and those 
people have their rights protected. Those now are thrown into 
    Finally, on another one in the name of modernizing these 
rules in the new multi-task world, if you did inside sales at a 
previous time, you were provided overtime. But as I read the 
definition of employees in financial services generally meet 
their duty requirements for the administrative exemption if 
their duties include work such as collecting, analyzing 
information regarding the customer's income, assets, 
investments or debts, determining which financial products are 
best to meet the customer's needs, the financial circumstances, 
advising the customer regarding the advantages and 
disadvantages of different financial products, marketing, 
servicing and promoting the employer's financial products. 
Individuals who do all those and which you find out now in the 
modern world if you call a Citicorp or you call a Wells Fargo, 
you find out that there's one person on the other end of the 
line that does all of those things.
    They help you determine whether your mortgage payments are 
in line or not, but they also then start asking you if you want 
additional products, would you like a home equity loan, would 
you like a credit card, can they help you with a student loan.
    But the regulation says in a little however, if the 
employee whose primary duty is selling financial products, he 
does not qualify for this administrative exemption. But the 
multi-task employee who is selling the financial products would 
be exempt from overtime. So there's a little flag at the end 
that says make sure you don't designate these people as 
primarily selling the products.
    So there's a whole class of people who had rights to 
overtime before who now under that definition in the new multi-
task world will find out that they in fact do not have the 
availability of that overtime to them. And the classifications, 
job classifications, there are numerous other ones where these 
situations continue to exist in terms of mobile technicians, in 
terms of route drivers, all of which are brought into question 
by these regulations.
    I do not think that's misinformation. I think those are 
very legitimate questions given the language used in the new 
regulations, the body of law that existed, both administrative 
law and judicial law that existed prior to the changes to these 
regulations and those people who are impacted by them.
    Thank you, Mr. Chairman.
    Secretary Chao. Is there a question?
    Chairman Boehner. The Secretary may respond if she chooses.
    Secretary Chao. Well, I'm very glad, Mr. Miller, that you 
brought these concerns up. Because once again, the extent of 
your litany of occupations reflect the tremendous confusion 
that surrounds the current rule.
    Our new rules are built upon the current rule and also 
current case law. And rather than have people have to do a 
great deal of research, we have clarified these rules, 
encompassing once again current rule and case law.
    Some of the jobs that you've mentioned didn't exist 40 
years ago, which is why it is very important that this rule be 
updated to reflect the occupations and the positions which 
currently exist.
    Overtime rights are expressly guaranteed, for example, for 
manual and blue collar workers in what are white collar 
regulations. Because there has been disinformation going on and 
a lot of workers have been scared, we went the extra length of 
including in the final rule expressly overtime protection 
rights for workers who would not have normally been affected by 
this rule. We wanted to ensure that they get overtime, which is 
why in order to fight the misinformation, we made sure that 
their overtime guarantee rights were explicitly included.
    As I've said in my testimony, the new rules do not expand 
the category of workers who do not receive overtime. They are 
as equal or more protective than current law. And if I can, I 
would like to ask Tammy McCutchen, Administrator of Wage and 
Hour, to address your particular occupations.
    Ms. McCutchen. My notes, I think you mentioned eight--nine 
occupations, and I'd like to start with the last ones first.
    First, on technicians, in particular engineering 
technicians. In the preamble we cited to and agreed with the 
comments that were filed by the engineering technicians who 
work at Boeing, and we agreed with them in our preamble that 
they are entitled to overtime pay.
    On financial services, the section on financial services 
reflects the current sections at 201(a)(2), 205(c)(5), 205(d) 
and also adopts the current case law, Reich v. John Alden in 
'97 in the First Circuit, Hogan v. Allstate from the 11th 
Circuit in 2004, and Wilson v. Allstate decided by the Middle 
District of Georgia in 2002.
    What we did was we took that current case law, we read what 
it said and we adopted it and put it in the regulations so that 
employees and employers don't have to hire a lawyer to go find 
the case law that's not reflected in the current regulations, 
because, as the Secretary said, 50 years of Federal court case 
law is not reflected in the current litigation.
    On computer employees, what we did on the computer 
employees is adopt virtually word for word the 1990 and 1996 
statutory amendments passed by Congress regarding computer 
employees. It also reflects the current sections at 205(c)(7) 
and 207(c)(7).
    On nursery school teachers, this is one I'm particularly 
puzzled about, and I want to read to you the current 
regulations at 541.301(g)(2), which regards the exemption for 
teachers. And what section says is that teaching--exempt 
teachers include, quote, ``teachers of kindergarten or nursery 
school pupils.'' That is in current Section 541.301(g)(2). And 
we took the language from the exiting regulation and repeated 
it in the final. So since it's the exact same words as the 
current regulation, it cannot be a change in the law or less 
protective than the current regulations.
    On assistant managers and working supervisors, we adopted a 
series of case law, Burger King and Dairy Queen cases. There 
are about six Federal cases cited in our preamble which 
discusses when an assistant manager is exempt and when he is 
not exempt. And in particular, we retained in the final 
regulation language that specifically states--and this is 
from--excuse me. This is from existing--it's in the final 
regulation at 106(c), which specifically states that working 
supervisors and relief supervisors are entitled to overtime 
pay. We used two examples: a relief supervisor working on a 
production line, and an electrician who is directing the work 
at a constructionsite.
    On chefs, the rule that we adopted says that only chefs who 
have advanced 4-year college degrees in the culinary arts can 
be denied overtime pay, and we clarified that ordinary cooks 
and any other type of cook or chef who does not have a 4-year 
post-high school degree cannot be denied overtime pay.
    On journalists, our preamble discusses a series of about 
six cases that have been decided over the last 10 years 
defining who--which journalists are entitled to overtime pay 
and which are exempt. And again, what we did in our final rule 
is discuss the cases in the preamble, read the cases, determine 
what the Federal courts said and write that into the 
    Finally, the section that you referred to on nurses about 
minimum guarantee plus extra, that section has been in our 
field operations handbook for decades. And what we did is we 
took a section that has been a long-standing position of the 
Department of Labor available to employees and employers only 
by filing a FOIA request and getting a copy of the field 
operations handbook, and we put that in the final regulation 
instead so that employers and employees can have easy access to 
a policy that's been in place at the Department for years.
    I think I covered it all.
    Mr. Miller. I appreciate that. And that's your story, and 
stick to it. But again, I think if you read the language on the 
primary duties of chefs, you will see that you create a 
definition there of people who don't have a 4-year degree who 
carry out those duties. And the same is true on financial 
    Chairman Boehner. The gentleman's time has expired. The 
Chair recognizes the gentleman from North Carolina, Mr. 
    Mr. Ballenger. As a member of this Committee for 20 years, 
and I'd like to say right to start with that I've employed 
people in my business back home since 1948, 25 at that time and 
300 now, and if they think the rules are so simple right now, 
they've got to have their heads examined because supervisors 
have always been exempt as long as somebody can make up a story 
about what a supervisor is. And you all have firmly come out 
with an answer of what supervisor responsibilities are.
    But I'd like to--he mentioned in his opening thing about 
computers. And as I remember, we were here I think, the senior 
member and myself were both here at the time that we passed a 
    Let me just ask the question. The regulations include 
slightly different exemption rules for computer employees, and 
those rules were mandated by us here in Congress back in 1990. 
Can you tell us briefly what those rules are and how the final 
regulation before us today affects computer employees?
    Secretary Chao. I'd be more than glad to. As I mentioned, 
on the issue of computer technicians, we basically followed the 
will of Congress. And so there was a legislative act in 1996, 
and we basically incorporated what that legislative rule, or 
what that legislation basically said. If I can, I'll ask Tammy 
to cite it in greater detail.
    Ms. McCutchen. The regulation that was passed in 1996 
exempted only certain high level computer employees who were 
involved in design and programming. And our rule adopts that 
almost word for word.
    One of the things that was in the regulations before 
Congress acted and which I have heard people talk about 
incorrectly is that the Congressional action did not include a 
requirement that computer employees who are exempt need to 
exercise discretion and independent judgment. Our regulation 
prior to 1996 had included that additional requirement, but the 
Congress took it out in 1996, and therefore we had to take it 
out, we believe, in order to follow the will of Congress, that 
additional requirement.
    Everything in the computer exemption is the same as the 
Congressional action in 1996.
    Mr. Ballenger. Thank you, ma'am. And, Madam Secretary, 
during the debate on the proposed regulation, we heard a lot of 
numbers thrown around, in particular a study done by an 
organization called the Employee Policy Institute, or EPI, 
which garnered a lot of media attention. And I think it's 
important to note for the record that while EPI may call itself 
an objective think tank, its board of directors reads like a 
Who's Who of organized labor, including as chairman of the EPI 
board the president of AFSCME, and as a board member, the 
secretary and treasurer of the AFL-CIO and current presidents 
in half a dozen of the country's largest unions.
    Now these may be good and honorable people, but I wouldn't 
exactly call them objective or nonpartisan. And the fact that 
all of these unions and more are listed prominently as 
financial donors and supporters of the EPI gives me some pause 
in accepting EPI's analysis as fair and unbiased.
    But putting that aside, Madam Secretary, and addressing the 
EPI study on its merits, did the Department examine EPI's 
report and the conclusions reached in its study? Which is--what 
is the Department's response to EPI's claims?
    Secretary Chao. I think you also did not mention that 
they're housed at the AFL-CIO as well. Nevertheless, the claims 
are false. Their assertions demonstrate that they do not 
understand the current rule. And I would like again Tammy, who 
has analyzed this study, to elaborate a bit more on that.
    Ms. McCutchen. There's actually a very thorough response to 
the EPI study that is included in the economic report that was 
published with the final rule, and it's available on the 
Department's web page.
    In general, their report included broad classifications of 
employees who are entitled to overtime and will not see any 
change under this rule. For example, they included in their 
figures every cook in America. And I think that we have 
clarified in the final rule that ordinary cooks are not exempt.
    They also included a large number of employees who work 
only part time and thus by definition do not--you know, work 20 
or 30 hours a week and never get close to 40 hours a week. And 
so these types of mistakes that they've made about the current 
law continue to add up and makes their number far larger than 
it could possibly be when you look at the current case law.
    A good example is the computer employee example we 
discussed. How can employees be losing overtime when all we've 
done is adopted the will of Congress in the 1996 enactment?
    Mr. Ballenger. Well, I'd like to thank you, Madam 
Secretary. Having been on this Committee for almost 20 years, 
attempting to correct this law is a wonderful effort on your 
part. And the fact is, it's somewhat considered like we used to 
in politics used to talk about Social Security, touching the 
third rail and being electrocuted by the effort. I think you're 
doing an excellent job, and I'd just like to thank you 
profusely as an employer who has been trying for 40 years to 
figure out how we can work out overtime, how you do figure 
overtime, how you don't figure overtime, and it's very 
difficult. It really is. I mean, it's so nebulous that the 
description that we have a law that everybody can understand is 
making a lot of trial lawyers very wealthy in efforts to prove 
that point.
    Secretary Chao. Thank you. Our intent as always is to 
strengthen and guarantee overtime protection to millions more 
    Mr. Ballenger. Thank you.
    Secretary Chao. Thank you.
    Chairman Boehner. Mr. Kildee.
    Mr. Kildee. Thank you, Mr. Chairman, Madam Secretary. I go 
home every weekend and generally after mass I go to a few union 
halls and talk to union people and they certainly were very 
alarmed when your first proposed regulations and had a $60,000 
figure, and then it was changed--well, proposed, and then 
changed to $100,000. But they're still very skeptical.
    What assurances can I give them that the $100,000 figure 
will not be unilaterally rolled back, since this is within the 
purview of the executive branch of government, unilaterally 
rolled back to $60,000 or some lesser figure, or that the 
classifications that you have moved around a bit will not be 
    Secretary Chao. First of all, union members covered by 
collective bargaining agreements are not impacted at all by 
this rule. Because of the misinformation that was being 
circulated, we went out of our way to put in the final rule 
express overtime guarantees for union members who have overtime 
protection under the collective bargaining agreement. So that's 
the first point, if I could.
    Secondly, we have gone beyond what was expected, because we 
wanted to combat some of this misinformation, we expressly put 
overtime guarantees for union members who are under collective 
bargaining agreements. Because union members under collective 
bargaining agreements will abide by the collective bargaining 
agreement, and when they get overtime, that will of course 
remain the same.
    The salary level. This is a regulation. Once it goes final, 
it cannot be unilaterally rolled back. It's not like an 
executive order. So the $100,000, first of all--I want to 
clarify several things, but the $100,000 salary threshold, that 
will be there because it's part of the regulation. It will not 
be rolled back.
    And let me also clarify, this $100,000 does not apply to 
hourly workers. It does not apply to blue collar workers. It's 
only for white collar workers who are in supervisory or 
managerial positions.
    Mr. Kildee. First of all, I want to make it clear that 
labor unions, their interest goes beyond their own membership. 
They are concerned beyond just their own members.
    But let me ask you this question also. New Section 541(4) 
says that nothing in the regulation relieves employers from 
their contractual obligations under collective bargaining 
agreements. If the union contracts simply refers to applicable 
law for overtime eligibility, a union worker will be directly 
and immediately affected by these regulations when they take 
effect. Isn't that true?
    Secretary Chao. I'm sorry. I didn't hear the question. If 
you could repeat that, please.
    Mr. Kildee. If union contracts simply refers to applicable 
law for overtime eligibility, a union worker will be directly 
and immediately affected by the applicable law then? In other 
words, if the--
    Secretary Chao. No. If a worker is under a collective 
bargaining agreement, they're covered by the collective 
bargaining agreement, and it is not impacted by these white 
collar regulations.
    Mr. Kildee. But if the contract refers only to the Wage and 
Hour Act, it says the overtime shall be in accordance with the 
Wage and Hour Act, then they would be affected by your changes 
in the Wage and Hour Act.
    Secretary Chao. Well, I don't think so. And I will give you 
another example. Just because--
    Mr. Kildee. Well, they would be.
    Secretary Chao. A collective bargaining agreement when it 
expires, for example, wages don't go back to minimum wage. 
They're $5.15. So there's no impact for union members under 
collective bargaining agreements.
    Mr. Kildee. All right.
    Secretary Chao. And if I can ask Tammy perhaps she can 
clarify that a little bit further.
    Mr. Kildee. Let me say, if the contract were to say that 
the overtime would be in conformity with the Wage and Hour Act, 
then that would affect the results of the contract.
    Now, if they say they have to get their own language in 
rather than the Wage and Hour Act, that puts more things on the 
negotiating table and creates a greater onus for the bargaining 
unit then if that's part of the collective bargaining; whereas 
if they could refer to a reasonable Wage and Hour Act, they 
could feel better protected.
    But if they have to go beyond the Wage and Hour Act because 
they feel it no longer is protective enough, then that becomes 
part of the negotiations, which puts a greater onus. There's 
only so much you can put on that table for negotiating.
    Secretary Chao. As I mentioned, union members under 
collective bargaining agreements are not impacted. But let me 
ask Tammy McCutchen perhaps to clarify it even further.
    Ms. McCutchen. Thank you, Madam Secretary. First of all, a 
union member, if you're paid by the hour you're entitled to 
overtime. It doesn't matter what's in--that's what these rules 
say. And so if you're a union member who is paid by the hour, 
you're entitled to overtime.
    If you perform blue collar or manual labor, 541.3 clearly 
states you're entitled to overtime. So these rules strengthen 
protections for union workers no matter what's in their 
collective bargaining agreements.
    Mr. Kildee. You still haven't answered my question. If--
    Mr. Hoekstra. [presiding] The gentleman's time has expired. 
We're going to keep moving. I think the Secretary has limited 
time, and we obviously have a lot of member interest, so we're 
going to try to stick to the clock a little closer. Mr. McKeon?
    Mr. McKeon. Thank you, Mr. Chairman. Madam Secretary, I too 
want to thank you and your staff for the courage and the 
leadership that you're showing in trying to protect the 
workforce of America.
    In the public debate on the proposed rules issued last 
March, we all heard significant concern that the proposed 
regulations would have taken overtime pay away from policemen, 
firefighters, EMTs and other first responders. In that light, I 
was especially pleased to see that the final rule issued by the 
Department was endorsed by the Fraternal Order of Police, who 
noted, and I quote, ``These final regulations show that this 
Administration and the Department of Labor are responsive to 
the concerns of rank and file first responders.'' End quote.
    I would first ask that the statement of the Fraternal Order 
of Police be inserted in the record of today's hearing. I would 
also ask that the record include a letter from the President of 
the Fraternal Order of Police to the Committee setting forth 
the FOP's views on these final regulations.
    Mr. Hoekstra. Without objection, so ordered.
    [The provided material follows:]

   Fraternal Order of Police, Letter and Press Release, ``Final DOL 
      Regulations Protect and Expand Overtime for America's First 
                      Responders'', April 20, 2004





    Mr. McKeon. Thank you, Mr. Chairman. That done, Madam 
Secretary, perhaps you could explain to us exactly how the 
final rule treats policemen, firefighters, EMTs and other first 
    Secretary Chao. The final rule strengthens overtime 
protection for these workers. And the Fraternal Order of Police 
supported the rule because it provides clearer, stronger 
overtime protection than ever before. As I mentioned, the final 
rule includes--expressly states the overtime protection for 
police, firefighters, first responders and other public health 
safety workers as well. And maybe, Tammy, you can elaborate on 
that as well.
    Ms. McCutchen. We inserted a brand new section, which 
appears at 541.3(b), and what that does is it first of all 
states that, you know, police officers and firefighters who are 
doing the day by day work of the public agency, who are 
investigating crimes and who are fighting fires, who are 
interviewing witnesses and collecting evidence are entitled to 
overtime pay.
    And in fact, we go further. In final regulation 
541.3(b)(2), (3) and (4), we set forth why police officers 
generally do not qualify as exempt executive, administrative 
and professional employees.
    Secretary Chao. Thereby strengthening their overtime.
    Mr. McKeon. Thank you, Madam Secretary. I think in your 
testimony you explained clearly that any worker, no matter what 
his job or her job or job title, who makes $23,660 or less is 
automatically entitled to overtime. And I understand that 
there's a slightly different test for salaried employees who 
make more than $100,000 a year. It seems to me that there are a 
lot of workers right in the middle of that range, people making 
between $23,660 and $100,000. What is the Department's estimate 
of the impact of these final regulations on these workers?
    Secretary Chao. These final rules will help to strengthen 
overtime for these workers as well, because the erosion in our 
rule--the erosion in overtime protection comes about through 
the ambiguity of our rules.
    The best way we have to protect workers is to ensure that 
these outdated rules are brought up to date, that they no 
longer include positions which no longer exist, and that they 
fit a modern workplace. And so for the Department's estimates 
of these final impacts, again, we're going to get about--we're 
going to increase overtime protection for about 6.7 million 
workers because of the increase in salary thresholds. And then 
of the workers above that, we expect, again, strengthened 
overtime protection as well.
    Tammy, anything?
    [No response.]
    Mr. McKeon. Thank you very much.
    Secretary Chao. Thank you.
    Mr. Hoekstra. Mr. Owens?
    Mr. Owens. Thank you, Mr. Chairman. I'd like unanimous 
consent to submit a statement for the record.
    Mr. Hoekstra. Without objection. Which statement is that? 
Oh, your statement?
    Mr. Owens. To submit a statement in addition to what I'm 
going to say orally.
    Mr. Hoekstra. Without objection, so ordered.
    [The prepared statement of Mr. Owens follows:]

Statement of Hon. Major R. Owens, a Representative in Congress from the 
                           State of New York



    Mr. Owens. I also would like to make a correction of the 
Secretary's testimony. There are 2.4 million cooks employed in 
America. You stated that the EPI study said all 2.4 million 
would be exempt. EPI did not say that. EPI said about 400,000 
would be exempt, and I think the record ought to be corrected 
in that respect.
    Secretary Chao. I didn't criticize EPI on that point.
    Mr. Owens. The question of compensatory time versus cash 
for overtime has been on the agenda for the last four or 5 
years. As the Ranking Democrat on the Workforce Protection 
Committee, I've had to deal with that repeatedly. You did not 
deal with that in these regulations.
    Secretary Chao. Right.
    Mr. Owens. Compensatory time versus cash. Can we assume 
that's off the table and that's no longer going to be a matter 
of concern to the Labor Department, that we won't have to deal 
with that? These regulations will make it clear that we're 
talking about cash now and forever?
    Secretary Chao. This regulation has nothing to do with comp 
    Mr. Owens. Yeah, but you're rewriting the rules. So since 
you left that out, we can assume that--
    Secretary Chao. No. These rules have never had anything to 
do with the comp time.
    Mr. Owens. Well, an amendment, we proposed to amend the 
    Secretary Chao. No.
    Mr. Owens. We proposed to amend the rules to make 
compensatory time--
    Secretary Chao. These are two separate issues. We never--we 
never anticipated including--
    Mr. Owens. What law would we be amending if we dealt with 
compensatory time versus cash for overtime? Overtime is only 
one law.
    Ms. McCutchen. In order for there to be comp time, it has 
to be a statutory amendment. It is the Fair Labor Standards 
Act, and that talks about when you're entitled--
    Mr. Owens. It has to be an amendment, right, to the Wage 
and Hour Act?
    Secretary Chao. But it is not part 541 of this rule. It's 
something completely different.
    Ms. McCutchen. It has not been amended, and the Department 
has never suggested that it be amended. Comp time has to do--it 
only applies to employees who are entitled to overtime. These 
are about white collar workers, and so it's a totally separate 
issue. We don't have any authority at the Department of Labor 
to make the statutory changes that would be necessary for 
anything like comp time.
    Mr. Owens. I'm talking about broader policy question. The 
Secretary is involved with policymaking.
    Chairman Boehner. [Presiding] If the gentleman will yield. 
No employee in the private sector is entitled to comp time in 
lieu of overtime pay. Only Federal workers, state workers and 
local government employees are entitled to comp time.
    Mr. Owens. Yes. Let's--and I was asking, Mr. Chairman--
    Chairman Boehner. And that's under the law, not under 
regulations. It's under the law.
    Mr. Owens. Mr. Chairman, do we have your word that this is 
off the table and we won't have any discussion of it in the 
    Chairman Boehner. Well, there's going to be a lot of 
discussion about it, because if it's good enough for Federal 
workers, state workers and local government workers, it ought 
to be good enough for our constituents who'd like to have 
compensatory time off in lieu of overtime pay.
    Mr. Owens. Thank you. I have one last point I want to 
clarify. The $100,000 ceiling. Do we have a ceiling right now 
of any kind?
    Secretary Chao. Yes. It's about $13,000.
    Mr. Owens. That's the ceiling now?
    Secretary Chao. Yes. That's why it needs to be--this rule 
needs to be updated. The ceiling is currently $13,000 for 
highly compensated executives. This is another example why this 
rule needs to be updated.
    Mr. Owens. A hundred thousand dollar ceiling means that 
that's a little less than $53 an hour if you are working an 
hourly rate. If an electrician working by himself, and there 
may be other people on the job, but he basically is not 
supervising anybody, and he works in a situation where the work 
is seasonal or there are gaps between one job and another so 
that during the course of the year he makes only $50,000 or 
$60,000, is his hourly pay such that he will not be eligible 
for overtime because he makes $53 an hour, $60 an hour?
    Secretary Chao. An electrician is not what's called under 
the terms a white collar worker. So, therefore, he would not be 
impacted at all by that $100,000 rule anyway. The $100,000--
    Mr. Owens. Section 541.601(a)(3) says that seasonal and 
project workers who are paid pro rata at a rate that would push 
them higher than the $100,000 ceiling, even though they won't 
reach that mark because they only work eight or 9 months, will 
lose their rights to overtime pay.
    Maybe you can get that clarified and let us know in writing 
    Secretary Chao. I think it's pretty clear. The $100,000 is 
not definitive. It is only an upper salary threshold. It does 
not apply to blue collar workers. It does not apply to hourly 
workers. And it possibly may apply to a worker who is making 
$100,000 with job responsibilities that are more of a 
managerial or supervisory nature.
    Chairman Boehner. The gentleman's time has expired. The 
Chair recognizes the gentleman from Texas, the Chairman of the 
Employee-Employer Relations Subcommittee, Mr. Johnson.
    Mr. Johnson. Thank you, Mr. Chairman. Madam Secretary, 
you've already stated that you're authorized to make these 
changes, and I think the law does say that by regulation as the 
Secretary of Labor you can change these rules, and you've 
already stated that Republicans and Democrats alike over the 
years have attempted to make these changes.
    And one of the changes that you made in your proposal was 
removing the phrase ``training in the armed forces.'' That's so 
that anybody with military background, like mine, can obtain 
overtime pay under your regulations.
    As a matter of fact, Mr. Chairman, I've got three letters 
here from the American Legion, the Veterans of Foreign Wars, 
and the Disabled American Veterans all supporting this 
regulation. I would ask permission to put these into the 
    Chairman Boehner. Without objection, so ordered.
    [The provided material follows:]

     The American Legion, Letter to Secretary Chao, April 26, 2004



  Disabled American Veterans, Letter to Secretary Chao, April 26, 2004



  Veterans of Foreign Wars of the United States, Letter to Secretary 
                          Chao, April 22, 2004



    Mr. Johnson. Thank you, sir. These are prominent veterans 
groups, and each one is thanking the Department for its work on 
the final rule, and each is appalled at the assertions that the 
proposed changes target veterans.
    Having fought in two wars myself, I was particularly 
angered over the undue anxiety that was placed on those proud 
veterans who have successfully transitioned into the civilian 
workforce. It's obvious to me that certain opponents of these 
regulations had scripted their opposition before even seeing 
the final regulation, as you indicated, Mr. Chairman. And I 
would ask that these letters be considered.
    And, Madam Secretary, do you care to explain what changes 
or clarifications were made with regards to overtime 
eligibility for our veterans?
    Secretary Chao. I do. And let me first of all say that the 
statute does say that the Secretary has the responsibility from 
time to time to define and delimit these overtime regulations.
    In fact, in the preamble it says allowing more time to pass 
without updating the regulations contravenes the Department's 
statutory duty to define and delimit the Sections 13(a)(1) from 
time to time.
    So in fact, we have a responsibility to keep these 
regulations up to date.
    Secondly, on the point of veterans--
    Mr. Johnson. Well, you're doing a good job of that too, let 
me say.
    Secretary Chao. Thank you. Second, on the point of 
veterans, I was particularly concerned of the misinformation 
that's been spread about the veterans' status. So in the final 
rule, as I've mentioned, we've listened. We wanted to make sure 
that we got everything right. We went the extra step of making 
sure that this particular issue is addressed as well. And if I 
can ask Tammy to elaborate.
    Ms. McCutchen. The concern about veterans was raised under 
the professional exemption with questions about our intent on 
the educational requirements that are necessary in order to be 
exempt professionals.
    We state very clearly in the preamble, and we've 
restructured the professional exemption to clarify that we do 
not intend any changes to the education requirements to the 
professional exemption, and that's where we took out that 
language regarding training in the armed forces, attending a 
technical school and attending a community college from the 
final 541.301(d).
    We also addressed veteran status, particularly in two 
places in the preamble, making it very clear that veteran 
status has nothing to do with whether or not you're entitled to 
overtime. And I'd like to give you those pages. It's at 69 
Federal Register 22149 and 69 Federal Register 22150.
    Mr. Johnson. Thank you, ma'am. I appreciate you taking care 
of our great veterans.
    Secretary Chao. Thank you.
    Mr. Johnson. And I know you do consider them in every 
place. Let me ask you another, or make a statement. I 
understand that more than 340,000 workers received a record of 
$212.5 million in back wages as a result of the Wage and Hour 
Division investigations last year, up from roughly 263,000 
workers. That's another 100,000 plus who received $175 million 
in back pay in 2002.
    And I just want to congratulate you on a significant 
improvement, something I think we would all agree is an 
excellent result and ask you what is the Department's intent 
going forward with respect to enforcement of the new 
    Secretary Chao. Thank you for asking that. As mentioned, I 
met with the Department's Wage and Hour district directors who 
are in charge of the investigators within the Department.
    We indeed have a very good record in terms of enforcement. 
We have recovered more back pay for workers than any other year 
or administration. And in fact, it's an 11-year high. So it is 
an enforcement record that we are justly proud of.
    I met with the Wage and Hour district directors yesterday 
to charge them with helping to inform employers and workers of 
the new overtime security rules. As I mentioned, there's been a 
great deal of misinformation and confusion about the current 
rule and about what is needed--about the final rule as well.
    So I spoke with them, and I asked that they make 
clarification, communication and enforcement of these new rules 
a top priority.
    These new rules are part of our enforcement effort, because 
the ambiguity in these rules are eroding workers' rights to 
overtime security.
    Mr. Johnson. Thank you for your concern. Thank you, Mr. 
    Chairman Boehner. The gentleman's time has expired. And if 
it weren't for the great Wage and Hour Division at the 
Department of Labor, I wouldn't have gotten the back pay, 
overtime pay that I was entitled to 32 years ago.
    With that, the Chair recognizes the gentleman from New 
Jersey, Mr. Payne.
    Mr. Payne. Thank you, Mr. Chairman. I just wondered if you 
might be able to give me the definition of team leader.
    Secretary Chao. Sure.
    Mr. Payne. It's a new category. I'm interested in what a 
team leader is.
    Secretary Chao. Sure. Mr. Payne, I think she--
    Mr. Johnson. Can he turn his mic on, Mr. Chairman?
    Secretary Chao. Turn your microphone on. Anyway, I'll be 
more than glad to answer the issue about team leaders, because 
that is also an area of confusion.
    In fact our final rule strengthens overtime protection for 
workers, because we tighten up on the language and we clarify 
the language and narrowed its scope. And, Tammy, can I ask you 
to answer that?
    Ms. McCutchen. Certainly. What I'd like to do is read you 
the current law on this section. The current law appears at 
541.205(c), and it states that employees who can be classified 
as administrative exempt employees who aren't entitled to 
overtime includes a, quote, ``wide variety of persons who carry 
out major assignments.'' So the current regulation says ``a 
wide variety of persons who carry out major assignments.''
    What we've done in the final rule, which is 541.203(c), is 
we've stated that an employee who leads a team of other 
employees assigned to complete major projects for the employer, 
such as purchasing, selling or closing all or part of a 
business, negotiating a real estate transaction or collective 
bargaining agreement, or designing and implementing 
productivity improvements.
    That language strengthens overtime protections for 
employees in two ways. First, we say that only the leaders of 
these major project teams can be exempt rather than the current 
regulation, which says ``a wide variety of employees'' who work 
on major projects can be exempt.
    Secondly, we've defined what it means to carry out a major 
assignment and limited it to only those very significant 
assignments that happen in a corporation. We're not talking 
about people who lead teams to buy office supplies. We're 
talking about an employee who leads the team to purchase a 
business. So it's very much tightened and more protective than 
the current regulatory language.
    Thank you.
    Mr. Payne. Well, let me just say that, you know, there 
seems to be subjectivity. When you use terms--first of all, we 
create this new category, but then when we take terms like and 
we say this is clarifying 50 years of legislation that needs 
changing, but we use things like ``significantly'' or 
``significantly change'' something, you know, what is 
significant to one person may not be significant to someone 
else. And so you're, you know, I think now we're getting into 
    And the more that we tend to make new categories which tend 
to not be very clearly, you could have five typists and 
someone's got to maybe answer the phone and type and so that 
could be a team leader and therefore exempt. So I just think 
that although I looked at the web site and it's called the fair 
pay overtime initiative, sounds great, I've listened to titles 
for the last three or 4 years, and anytime--the better the 
title, the worse it was for the worker--before your time, Ms. 
Secretary. I mean, you know, flexible family friendly something 
what's meant, well, you don't get overtime. You can work 40, 
50, 60 hours without overtime, and then when it gets slow, the 
employer can say you have tomorrow off, not when you want it, 
but when they want it.
    And so we just get concerned that this tremendous new 
thrust to assist workers when we've been attempting to increase 
the minimum wage from $5.15 it's so--gets you a little 
skeptical when we find that all of a sudden the Department of 
Labor is so friendly to workers that we want to enhance and 
improve them when we can't even get an increase in the $5.15 
minimum wage.
    And so it tends to make some of us I guess who have been 
for a while a little skeptical and leery. And so when we see 
new terms and this sort of making it better, it just seems to 
me to be contrary to just a simple basic thing as why can't we 
increase the minimum wage in America from $5.15 an hour. So 
I'll yield back. Thank you.
    Chairman Boehner. The Chair recognizes the gentleman from 
Georgia, Mr. Norwood, the Chairman of the Workforce Protection 
    Mr. Norwood. Thank you very much, Mr. Chairman. And, Madam 
Secretary, we are all delighted you're here. I want to state 
for the record that I'm very grateful for what you're doing in 
these regulations, and I'd like to thank you for the 98 percent 
of the workers in my district in Georgia that aren't union 
    I'd like to thank you for the employers in our district who 
hopefully will spend less time in court. And at the end of the 
day when the truth comes out and the facts are really known, I 
think probably I can come back and say I'm very grateful on 
behalf of the 2 percent of the union membership in my district.
    Now you've pointed out a number of things to me that I find 
interesting. The collective bargaining agreement, as you said, 
overrules these regulations. So in effect, this rule doesn't 
affect the 10 percent of the members in this country that are 
unionized. It affects the 90 percent that aren't, because they 
can fix their problems with a collective bargaining agreement. 
Isn't that what you said to me, or said to us?
    Secretary Chao. Yes.
    Mr. Norwood. I thought I heard it that way. There is, 
unhappily, during an election year, a campaign of distortion 
going on. My friend, Mr. Miller, doesn't believe it, but it is. 
And my concern about that is that when you put out 
misinformation, you scare people.
    I don't know if anybody's trying to scare people or not, 
but the workers of the country and in fact our colleagues have 
a reason to be concerned when they look to just one think tank 
to get their information. I am absolutely amazed--and everybody 
knows how it happens in this town--that when in doubt, hire a 
think tank, pay them, put them in your own office building and 
tell them how to think and ask them to do an analysis that 
suits you.
    And I think EPI, Economic Policy Institute, has done just 
that. Their board, as you pointed out, is made up mostly of 
AFL-CIO members. They're housed in that building. I don't 
understand how anybody can use that as analysis, because it is 
going to distort the information during an election year.
    Further, I am amazed that the solicitation and the 
storyboards in the AFL-CIO commercial claiming that these 
regulations would take away overtime for millions of Americans. 
Well, of course that would scare people if it were true. And 
what amazes me is all of this was prepared a week or two before 
the final, final, final regulations was made public to anyone.
    Did the Labor Department send these folks an updated or 
advanced copy of these new rules? How did they know to go out 
and start having a commercial to oppose regulations if you 
didn't send them an advance copy of the regulations?
    Secretary Chao. No. The Department did not send an advance 
    Mr. Norwood. Well, why would anybody want to have a 
negative commercial airing to scare people about regulations 
that they didn't know what the final regulation was? What is 
the point to that?
    Secretary Chao. One can only ask.
    Mr. Norwood. Well, the political battle is on. This is what 
this is all about. You've done a great job helping workers. But 
the problem is, we're in an election year. I'm very 
disappointed that right out of the box, opponents of your 
efforts and the Department's efforts and the Administration 
have sought to sling political mud rather than discuss the 
substance of these regulations themselves, for which I hope 
we're having a good conversation today.
    The AFL-CIO has already mischaracterized these regulations 
as a pay cut. Now my understanding is--maybe my think tank is 
telling me what I want to hear, too--but my understanding is 
that's not the case. In fact, I believe you estimated that 
these rules will result in more--underline ``more,'' please, 
ma'am--overtime pay going into the pockets of the employees.
    I want you to expand on that just a little bit for me. And 
as a follow-up, I think many of us would be very interested, 
Madam Secretary, to hear why if this really will cost more 
money, why in the world have so many employers wholeheartedly 
embraced these reforms? What are they thinking about? It's 
going to cost the employers of America a lot of money for you, 
Madam Secretary, to put these regs into place. Why are they 
supporting you on this?
    Secretary Chao. Well, workers are going to see an increase 
of approximately $375 million in overtime pay. That's what 
these new rules will accomplish. It will mean real money for 
    Mr. Norwood. You estimate that employers are going to pay 
$375 million more dollars than they pay today--
    Secretary Chao. Every year. Every year.
    Mr. Norwood.--to employees. Why in the world are they for 
    Chairman Boehner. The gentleman's time--
    Mr. Norwood. Can the Secretary finish answering, Mr. 
    Chairman Boehner. The Secretary may respond.
    Secretary Chao. I think part of it, you will have to ask--
part of the answer, as we have seen submitted in some of the 
comments, which again, we have reviewed very carefully, is the 
desire for certainty and for predictability.
    And also, when the rules are unclear, workers are not 
protected either.
    [The prepared statement of Mr. Norwood follows:]

 Statement of Hon. Charlie Norwood, a Representative in Congress from 
                          the State of Georgia



    Chairman Boehner. As everyone--all the members know--the 
bells have rung. There are two votes on the House floor. We 
will proceed quickly, I hope, with Mr. Andrews and Ms. Biggert, 
because by the time we get back, the Secretary will have run 
out of time. And so when we resume at approximately 12:30, we 
will resume with our second panel. Mr. Andrews.
    Mr. Andrews. Thank you, Mr. Chairman. I'd like to thank the 
Secretary and welcome her back to the Committee. It's always a 
pleasure to have her here. The good news is that I fixed the 
    Mr. Andrews. The bad news is that that makes me a learned 
professional so I can't get overtime anymore and I'm very upset 
about that.
    Chairman Boehner. The gentleman was not entitled to 
overtime before he learned how to turn on his microphone.
    Mr. Andrews. That's because I was presumptively creative, 
Mr. Chairman. The first question I have, Madam Secretary, is 
about nursery school teachers. Assume that we have a nursery 
school teacher who makes $25,000 a year, who presently receives 
overtime if she has to teach before eight o'clock in the 
morning or after four o'clock in the afternoon and she has a 
bachelor's degree in elementary and preschool education.
    Under this new rule, could her overtime be taken away?
    Secretary Chao. Tammy, can I ask you to answer that?
    Ms. McCutchen. Sure. The current rules list nursery school 
teachers. The current regulations list nursery school teachers 
as exempt teachers under current Section 541.205(c). But I 
think that's partly because nursery school teachers--nursery 
school doesn't mean today what it meant back in 1949.
    Long-standing wage and hour policy which we've adopted in 
the preamble in the final rule states that you're an exempt 
teacher if you're actually teaching. The key distinction is, 
are you involved in child care or are you actually imparting 
    Mr. Andrews. Let's say that what happens is the parents 
drop the children off at 7:30, and for that half hour, she's 
responsible for starting the day, telling the children what day 
it is, whether it's raining or sunny, and between three and 
four o'clock she reviews the lessons that were done during the 
day. I assume that's teaching. So that means she's now exempt 
and she would lose her overtime?
    Ms. McCutchen. It's hard to give a clear answer without 
more facts, but I think on the facts--
    Mr. Andrews. What more facts would you like?
    Ms. McCutchen.--she would be entitled to overtime because 
her primary duty would not be teaching. Her primary duty would 
be child care.
    Mr. Andrews. So the difference between eight o'clock and 
three o'clock is child care and not teaching? Who's going to 
make that determination?
    Ms. McCutchen. Wage and Hour investigators with years and 
years of experience.
    Mr. Andrews. If she files a complaint. If she files a 
complaint. But if she just says--
    Secretary Chao. That's why these rules are very important.
    Mr. Andrews. Right.
    Secretary Chao. Because we want workers to know their 
rights. Because when they know their rights, they can file 
these complaints.
    Mr. Andrews. One thing I do want to make clear, though, she 
doesn't make anything near $100,000 a year, but she may lose 
her overtime if the facts go the wrong way, right? This 
$100,000 a year--
    Secretary Chao. Well, right now, right now it is so 
confusing that we can't even help her. She has to go to the 
courts and to hire a lawyer and wait a very long time before--
    Mr. Andrews. But the fact of the matter is, if there's a 
determination that she's teaching between 7:30 and 8 and 
between 3 and 4 in the afternoon, then she loses her overtime, 
    Secretary Chao. No. I'm sorry. No. I think under those 
facts, she would be entitled to overtime under existing long-
standing wage and hour enforcement policy, and I want to 
emphasize again--
    Mr. Andrews. But doesn't this rule--this rule changes that 
policy, doesn't it?
    Secretary Chao. No. It is not a change. That policy has 
been in the field operations handbook for decades. It is a 
long-standing policy. We are not changing the current law. I 
guess I'd like--
    Mr. Andrews. Well, let me ask a question, then. Senator 
Harkin has a piece of legislation that says that people who 
presently are protected by the overtime law will be 
grandfathered, or grandmothered in this case, and still 
protected. I assume that you would support that legislation 
since it simply reiterates what you just told me?
    Secretary Chao. No, I do not, because Senator Harkin's 
amendment will add even more confusion to an already very 
confused area. And let me give you a reason.
    Mr. Andrews. Well, now--
    Secretary Chao. Let me explain why.
    Mr. Andrews. Yeah, but, if I may, Madam Secretary, I want 
to come back to the point that your colleague made. She said 
that under my facts, the person right now is entitled to 
overtime and this doesn't change that. Well, if that's the 
case, why don't we just reiterate that in the statute and say 
that she's protected and it can't lose it under these new 
    Secretary Chao. Because the Harkin amendment would attach 
overtime guarantees to a person. So let's use Dick Grasso as an 
example. Dick Grasso started out at the New York Stock Exchange 
as a stock boy. He received overtime. Under the Harkin 
amendment, he would be guaranteed overtime for the duration of 
his career, even as he receives $148 million in additional pay.
    Mr. Andrews. I assume you're concerned about his other 
compensation he's been guaranteed as well. Let me ask you about 
chefs, because you made a comment about chefs. If you have a 
chef that's in the learned--excuse me, that's in the creative 
professional category, and the chef has less than this 5 years 
of education, can the chef lose his or her overtime?
    Ms. McCutchen. What we did is we adopted in--we discussed 
in the preamble an existing wage and hour opinion letter from 
some years back about florists and when florists are creative.
    Mr. Andrews. Right.
    Ms. McCutchen. And we applied that to creative professional 
exemption in discussing the creative professional exemption for 
    Mr. Andrews. But there are chefs that have less than this 
minimum academic standard who could lose their overtime under 
the new rule, correct?
    Ms. McCutchen. Only if they're creating unique new dishes, 
like they're creating recipes themselves.
    Mr. Andrews. Every chef claims that he or she does that, 
    Chairman Boehner. The gentleman's time--
    Mr. Andrews. Thank you very much.
    Chairman Boehner. The gentleman's time has expired. The 
Chair recognizes the gentlelady from Illinois, Ms. Biggert.
    Mrs. Biggert. Thank you, Mr. Chairman. And first of all, 
let me associate my remarks with the Chairman's remarks on 
compensatory time. That is a statutory issue which is very near 
and dear to my heart.
    Madam Secretary, thank you very much for being here. As you 
know, we've heard in detail about a lot of misinformation 
spread around about these regulations. One concern that I've 
heard from my constituents is that these regulations somehow 
remove the concept of the 40-hour work week or that workers who 
are eligible for overtime in a week where they work more than 
40 hours will now have their work schedule spread over 2 weeks 
or 80 hours before they are eligible for overtime. Is that 
    Secretary Chao. These news rules will strengthen the 40-
hour work week. The erosions in these rules in terms of 
accountability and relevance is hurting workers. So we need to 
have these--as we have seen already in today's meeting, there 
seems to be a great deal of ambiguity and confusion about the 
current rule.
    These rules are very prescriptive, and therefore, it is 
necessary from time to time that they be updated. So in fact 
these rules by being updated will help workers with the 40-hour 
work week. It will strengthen the 40-hour work week.
    Mrs. Biggert. Thank you for that clarity. And one other 
quick question. Although these regulations are broadly written 
and cover employees in a wide range of industries, I know the 
final regulations addressed with specificity a number of 
industries and occupations, including the financial services 
    And again, opponents claim that all these workers will lose 
overtime pay. Can you specifically tell me how the final rules 
apply to workers in the financial services industry? I think 
the insurance adjusters and funeral directors.
    Secretary Chao. I want to make sure that we have the exact 
answers, so let me ask Tammy McCutchen to address those as 
    Ms. McCutchen. What we did in all of these categories--
financial services, insurance claims adjusters and funeral 
directors--is to adopt the existing Federal court case law. And 
we did not just list their title. We took the case law and we 
said, for example, financial services employees who collect and 
analyze financial information, who provide advice and 
consulting to a customer about which financial products are 
appropriate, are entitled to overtime consistent with the 
Federal regulation.
    For funeral directors, there are two Federal court cases 
that addressed funeral directors. And what they found is that a 
funeral director who has 4 years, three or 4 years of education 
beyond high school are exempt professionals, and we adopt those 
two cases. One of those cases was a 7th Circuit case, and 
another one is a 6th Circuit case.
    And what our rule says is not all funeral directors are 
exempt, but only those who have 4 years of college-level 
courses and are licensed by a state that requires that. The 
same is true for insurance claims adjusters. We adopted four 
Federal cases that address the exempt status of insurance 
claims adjusters.
    Mrs. Biggert. And then, quickly, why did the Department 
specify these segments in particular?
    Ms. McCutchen. Because these were segments in particular 
that in recent years have generated a lot of confusion and a 
lot of litigation. And in order to find out if you're in these 
industries, you can't go to the regulations and find out 
whether you're entitled to overtime or not. You have to 
basically get a lawyer who can do legal research for you.
    And we felt it was important because there's been so much 
confusion, so much litigation, that we put it in the rule 
itself so that an employee can read the rule and find out 
whether they're entitled to overtime pay.
    Mrs. Biggert. Thank you very much. I yield back.
    Chairman Boehner. I want to thank you, Madam Secretary, and 
thank you, Ms. McCutchen, for your excellent testimony. As I 
said earlier, just the facts. And I think both of you have 
presented an awful lot of facts to help clarify what the new 
rules and regulations regarding overtime are.
    Ms. Woolsey. Mr. Chairman?
    Chairman Boehner. The Committee--
    Ms. Woolsey. Is there any chance being that so many members 
still want to ask questions that we could have another hearing 
with the Secretary so we could follow up--
    Chairman Boehner. We could consider that. But under the 
Secretary's agreement--
    Ms. Woolsey. No, I understand today, but maybe even in the 
very near future?
    Chairman Boehner. Well, we can work with the Secretary to 
see if that's possible.
    Ms. Woolsey. Thank you.
    Chairman Boehner. The Committee will stand in recess for 
approximately 30 minutes, and when we resume, we will resume 
with the second panel.
    Secretary Chao. Thank you.
    Chairman Boehner. The Committee will come to order. We've 
completed the testimony from the Secretary, and we will now 
turn to the second panel. It's my pleasure to introduce them 
and thank them for coming today.
    The first witness in the second panel will be Dr. Bird, who 
is the Chief Economist for the Employment Policy Foundation. 
Dr. Bird has extensive experience in labor economics research, 
forecasting survey design, data management and public policy 
analysis. He's the author of more than 70 papers, peer-reviewed 
articles and reports on topics such as public policy economics, 
economic theory and analysis, the economics of education, 
energy economics and regional economic issues.
    Prior to joining the Employment Policy Foundation, Mr. Bird 
served as the department chair and professor of Wesleyan 
College's Department of Economics and Finance and was an 
associate professor at North Carolina State University and the 
University of Alabama. Dr. Bird earned his PhD in economics 
from the University of North Carolina.
    We will then hear from Ms. Karen Dulaney Smith, a Wage and 
Hour Consultant. Ms. Smith offers consultation on wage and hour 
pay issues to employers, employees, attorneys and associations. 
Prior to entering private practice, Ms. Dulaney was an 
investigator with the Wage and Hour Division of the United 
States Department of Labor for more than 12 years, and she's a 
frequent lecturer on these topics.
    And then last, we will hear from Mr. David Fortney, a 
partner of the firm Fortney & Scott, LLC. Mr. Fortney has 
practiced law for 23 years, and his practice focuses on 
workplace-related matters. Mr. Fortney provides broad-based 
experience and expertise in labor and employment, government 
relations and litigation matters.
    Mr. Fortney served as the acting solicitor of labor and has 
held other senior policy positions in the U.S. Department of 
Labor during the first Bush administration. And more recently, 
Mr. Fortney served as a member of the Presidential Task Force 
on 21st Century Workplace.
    And with that, I'd like to ask Mr. Bird to begin.

                   FOUNDATION, WASHINGTON, DC

    Mr. Bird. Thank you, Mr. Chairman and Members of the 
Committee. My name is Ronald Bird. I am an economist, and I 
have spent much of the last 30 years studying the conditions 
and trends affecting the American workplace.
    I think lost in the debate over the Department of Labor's 
proposed revision of the rules concerning who is exempt and not 
exempt under the Fair Labor Standards Act is the question of 
why amending the regulations is necessary in the first place.
    I think before considering the impact of any particular 
change, it is important to consider why reform of FLSA white 
collar regulations has been on the Department of Labor's 
regulatory calendar for over 25 years in both Democratic and 
Republican administrations.
    The Fair Labor Standards Act was engaged in 1938, and the 
regulatory structure of definitions and categories of duties 
implementing its pay classifications have remained essentially 
unchanged since 1954. The minimum salary thresholds for 
possible exempt status were last changed in 1975. The law has 
changed little, while the workplace it governs has changed 
    The FLSA was enacted when America was still in the midst of 
the Great Depression. Nearly one in five Americans who wanted a 
job could not find one. The labor supply exceeded demand, and 
the bargaining position of the typical worker was weak. The 
Fair Labor Standards Act was envisioned in part as a way to 
redress the perceived imbalance between employers and employees 
in free market bargaining about wages, hours and working 
    Today the fundamental competitive conditions of the labor 
market are very different. In March 2004, the unemployment rate 
was 5.7 percent, dramatically lower than the 19.1 percent in 
1938. The peak unemployment rate following the 2001 recession 
was the lowest of any recession of the past 30 years and second 
lowest in 50 years.
    An ironic indicator--an ironic indicator of the sweep of 
change in labor market conditions since the passage of FLSA in 
1938 is the fact that many of us consider today's 5.7 percent 
unemployment rate too high because recently we have enjoyed the 
benefits of it being even lower.
    As an employee, I like low unemployment rates. These low 
unemployment rates have become the norm over the past 20 years 
and will likely remain the norm in the future as an aging 
population pressures the economy to produce more goods and 
services with a relatively smaller proportion of the population 
active in the workforce.
    As an employee, I like the trend of lower unemployment 
rates not just because I am less likely to be unemployed, but 
because the relative scarcity of potential replacements gives 
me power to make demands about wages, hours and working 
conditions that my grandfather in 1938 would never have dared.
    Before World War II, nearly one in three workers were 
employed in manufacturing. In contrast today, one in seven 
works in the manufacturing sector. The industries that have 
experienced relative job growth are characterized by workplace 
organizations in which job duties are not as narrowly defined 
as they were in manufacturing in the 1940's. The number of jobs 
where duties do not clearly fit the categories defined by the 
old FLSA rules has increased considerably.
    Managerial and professional jobs have increased more than 
any other category. In 1940, only about one in six workers were 
employed in managerial or professional occupations. Today, 
nearly one in three employees work in such jobs.
    The 50-year-old regulations make the process of determining 
FLSA status for workers in management and professional jobs the 
most complex and time consuming.
    It is important, too, to recognize that everyone who is 
eligible by duties for exempt status is not automatically paid 
on a salaried basis. Qualifying for exemption does mean that 
pay status or pay amount will change. For example, I used to 
work for a government contractor firm. My job duties and 
education qualified me for exemption as a professional, and my 
weekly earnings were in excess of the minimum thresholds. 
Nevertheless, my employer and I agreed to an hourly pay 
arrangement. My earnings fluctuated from week to week, and I 
was paid an overtime premium when I worked over 40 hours.
    Needless to say, I frequently wanted to work over 40 hours 
a week, but the boss was less frequently willing to let me work 
that many hours as I would have liked. The point is that I was 
an hourly worker and technically nonexempt because of the pay 
status only. My employer could have converted me to salary and 
exempt status based on my duties. That did not happen because 
it was in both of our interests to keep things on an hourly 
    The complexity and ambiguity of the existing rule is also 
evidenced by the amount of disagreement and litigation that it 
generates. For the past 3 years, FLSA issues, mostly related to 
the exempt/not exempt status question, have been the leading 
employment related civil action in Federal courts.
    Revision of FLSA regulations has been on the regulatory 
agenda for 25 years. This revision is long overdue.
    Thank you.
    [The prepared statement of Mr. Bird follows:]

    Statement of Ronald E. Bird, Chief Economist, Employment Policy 
                       Foundation, Washington, DC





    Chairman Boehner. Thank you.
    Ms. Smith.

                         AUSTIN, TEXAS

    Ms. Smith. Mr. Chairman and distinguished Members of the 
Committee, my name is Karen Dulaney Smith. I'm a former United 
States Department of Labor Wage and Hour Investigator. I began 
my career in 1987 during the Reagan Administration, continued 
through the Bush Administration and into the Clinton 
Administration and left shortly before the birth of my second 
child in 1999.
    What I want you to know is that most of the flaws in this 
regulation are going to negatively affect workers who earn 
between $23,660 and $100,000 a year. Many of these employees 
work in businesses that the Department has identified as low-
wage industries, such as the restaurant industry and the child 
care industry. Some of them are nursery school teachers, 
nurses, chefs, team leaders, outside salespeople and financial 
service employees.
    Ladies and gentlemen, this regulation is going to decrease 
the rights of workers and very little if anything to decrease 
the litigation that employers are currently experiencing. I 
cannot give you an estimate of the overall impact of this 
regulation, nor can I speak to every issue. Even if I were 
prepared to do so, you would find this extremely tedious.
    Some of the wording in the final rule, I am disappointed to 
say, artfully weakens the current regulation in very subtle but 
significant ways that will surprise employers and employees 
when businesses begin the implementation process.
    When I worked for the Labor Department, I represented the 
Secretary. I did not represent employees or employers. I 
realize the importance of having learned that. Public servants 
have a difficult obligation to balance public interest when 
making policy. I served proudly for over 12 years investigating 
businesses of all types under the laws enforced by the Division 
and performing other assignments, even working in Wage and 
Hour's National Office for a short time. I was recognized on 
many occasions for outstanding performance. I maintain friendly 
working relationships with the Department, and I am sad that I 
feel obligated to challenge a document that I know required 
many hours of hard work on the part of intelligent and 
dedicated people.
    I have to do that, though. Since leaving the Wage and Hour 
Division, I have worked as a consultant, primarily for 
employers and their attorneys, though I have taken plaintiff's 
work as well. My clients are corporate America, small 
businesses and public agencies. Their business concerns are 
varied: manufacturing, retail, technology and others. I serve 
as a consulting expert and expert witness for attorneys who are 
labor law specialists. They hire me to help them understand the 
regulations and Wage and Hour's enforcement policies and 
procedures, and to assist their clients in achieving compliant 
business practices.
    I have chosen a variety of occupations to elucidate some of 
the more technical points of the current rule and the 
juxtaposition of the final rule. Last year I spent the entire 
comment period looking at this regulation. Obviously, I haven't 
had that kind of time.
    I would like to talk about nursery school teachers. I saw 
in the testimony that raised significant questions. That will 
take me more than the time allotted right now. If a member 
would like to ask a question, I would be more than happy to go 
into that, and it may take me longer than 5 minutes to explain 
it. It is extremely complicated, but I think it's very 
important, because it is going to affect mostly women who are 
working in a low-wage industry.
    There is some conversation in my testimony on registered 
nurses. Those employees were exempt under the old law as far as 
their duties were concerned. They are exempt now as far as 
their duties are concerned. Under a specific provision section 
in this newly promulgated rule that will go into effect right 
before Labor Day, there is an addition of the word ``hourly'' 
to a provision, and it has not been there before.
    Employers in the past could pay on a daily or shift basis 
to their salaried employees as long as they guaranteed a 
salary. Now they will be able to pay on an hourly basis. That 
has some very strong and frightening implications for employees 
who are accustomed to being paid hourly, or even who have been 
paid salary. Their pay levels may change.
    I'd like to discuss the matter of chefs. I'm very concerned 
about that. The restaurant industry is one of those industries 
that the Department of Labor has identified as a low-wage 
industry. I believe that there are people who are cooks, who 
may very well be creative, they may have a couple of years 
experience. But I believe they're going to lose their overtime 
wages, and it's very common in this industry to work 50 and 60 
hours a week. I know, because I participated in targeted 
industry investigations. I have investigated hundreds of 
restaurants of every conceivable description.
    I want to make clear to you with regard to team leaders. 
That word is not in the current regulation. We don't know what 
that's going to mean. Team leaders would have been non-exempt 
when I was an investigator unless they had supervisory duties 
and management responsibilities. The examples that the 
Secretary has given are not exhaustive, and they are not 
conclusive. Those are not the only people who could be exempt 
by the addition of these new words.
    Also, I'd like to talk about working foremen, assistant 
managers and working supervisors. The way that this regulation 
is constructed makes it less obvious to me that those employees 
will be exempt employees.
    Outside sales employees. You know, I initially thought that 
removing that 20 percent tolerance test for outside sales 
employees might not be so harmful to outside sales employees. 
The Secretary said that she wanted to align the primary duty 
test as it is for executive, administrative and professional 
folks. The salary test is not aligned. We don't have to pay 
outside sales folks anything.
    I want to talk about computer employees. There is a 
significant deletion in there that I think will make an impact 
in the computer industry. That's the new production industry of 
the 21st century.
    And finally, I would like to discuss financial service 
employees. I believe that this and other provisions like it are 
loopholed for inside sales. Congress specifically said outside 
sales. The Secretary and the Administrator said that they 
couldn't change that, but I believe that there is a loophole 
where the employers can take advantage of that if they choose 
to do so.
    And I believe my time is out. I'll be glad to answer 
questions you have. Thank you so much.
    [The prepared statement of Ms. Smith follows:]

 Statement of Karen Dulaney Smith, Wage and Hour Consultant, Austin, TX





    Chairman Boehner. Thank you, Ms. Smith.
    Mr. Fortney.

                      LLC, WASHINGTON, DC

    Mr. Fortney. Good afternoon, Mr. Chairman and Members of 
the Committee. I would like to offer my comments that reflect 
both my current practice, which is representing predominately 
employers on compliance matters with the FLSA, and also takes 
into account my prior service as one that was charged with 
responsibilities for enforcing the FLSA when I was the Acting 
Solicitor of Labor.
    In a nutshell, the problem that all stakeholders face today 
under the current regulations, including employers, employees, 
and candidly, the Labor Department, is trying to apply these 
outdated regulations to the workplace. As a result, the 
outdated regulations create uncertainty and frustration.
    The salary requirements, of which there are significant 
improvements in the final regulations, currently frankly are a 
technical morass, resulting in hundreds if not millions of 
dollars in liability in what is nothing short of a frenzied 
litigation lottery to enforce the FLSA. That is not a good way 
to run these regulations or determine these very fundamental 
    The second area which deals with duties also is 
unfortunately under the current regs very gray. The result is 
that there are a host of typically unintended liabilities. In 
order to avoid that, employers are faced with the prospect of 
having to pay counsel, which respectfully to myself and others 
in the practice, isn't cheap, but I think should be an 
unnecessary cost of doing business.
    I would challenge any business person to read the current 
regulations and understand what he or she is supposed to do. 
And it shouldn't be that way, and it doesn't need to be that 
way. And frankly, when you talk to the Labor Department, some 
of the folks there aren't clear on what the current regulations 
are either.
    So I think this exercise is going to be extremely helpful 
in pulling that together and developing some clarification and 
    Now in large part--and it sounds like Ms. Smith and I may 
have some respectful disagreements over and maybe with other 
Members of the Committee what the effect of these changes are. 
But in large part, the predominant--the story of these new 
regulations is, they are clarifying and codifying the law 
that's on the books. The problem is, it's buried in Labor 
Department manuals, it's buried in court cases, it's buried in 
a lot of different places. And unless you're a real expert, 
it's very hard to find.
    There are several areas, though, where the regulations 
actually further narrow the grounds on which people can be 
exempt, meaning not get paid overtime. And probably the easiest 
example to look at is with respect to executives. The new 
executive exemption adds an additional requirement of hiring 
and firing authority. Today there are many individuals who do 
not get overtime. They're salaried. They do not get overtime 
who do not have hire/fire authority. Starting August 23 when 
these regulations go into effect, those folks stand to lose 
that exempt status, and they will have to be paid overtime.
    Now with respect to other issues, as far as the 
administrative exemption, where I think there's been a lot of 
focus and discussion, the fact is that although the Department 
proposed a different standard, that I think many people 
criticized, and the Department in fairness responded to that, 
that is what is supposed to happen in a rulemaking. It is an 
interactive process.
    The story line on the administrative is the Department 
responded and has retained the same standard that governs 
today. And ``administrative'' is the term that encompasses 
these financial advisors and a whole host of the occupations 
that are being discussed in the hearing today.
    Also, as Administrator McCutchen referenced in her earlier 
testimony, the regulation does a very good job of codifying or 
writing down in the four corners of the regulations the rules 
that are out there in the court decisions, again saving people 
having to pay lawyers to go look that up and understand what 
the rules are.
    There are similar changes with respect to the professional 
categories and so forth.
    Another point that I think is very important that these 
regs change is with respect to salary, and what happens if you 
don't meet these technical requirements on paying people the 
correct salary. Today the answer is, you potentially stand to 
lose the ability to pay people on a salary for a whole wide 
range of employees. This is why these cases result in sometimes 
tens of millions of dollars in damages to people who are paid 
who got their salary, who were paid correctly. Now they're just 
receiving this windfall.
    What the Department does is create a system now where the 
employers are encouraged to publish policies, to put complaint 
procedures in place so that people know about it, and then to 
take corrective action. It's very similar to what has worked 
very successfully to deal with workplace harassment and the 
rules that changed there. In large part, that model has now 
been extended. It doesn't benefit anyone to have to wait 5 
years down the road, go through litigation to find out whether 
people were paid correctly or not. This is a very positive step 
forward in that regard.
    I know there are lots of specific questions on areas, and I 
think during the question and answer period I'd be happy to 
answer those.
    Thank you.
    [The prepared statement of Mr. Fortney follows:]

  Statement of David S. Fortney, Esq., Partner, Fortney & Scott, LLC, 
                             Washington, DC










    Chairman Boehner. I want to thank all of our witnesses for 
your excellent testimony. And some of our members didn't have 
an opportunity to question the Secretary on the first panel, 
and so what I'd like to do is begin with those members who 
didn't have a chance. And so the Chair would recognize the 
gentleman from Florida, Mr. Keller.
    Mr. Keller. Thank you, Mr. Chairman. I have sat patiently 
this morning listening to the examination of Secretary Chao by 
those colleagues of mine on the other side of the aisle. And 
after doing that, I am now in a position to get the bottom line 
on this. I can now sum up the Democrats' entire platform in one 
word: Boo.
    They want to scare workers into thinking that they are 
going to get a pay cut with overtime regs. They're trying to 
scare seniors about prescription drugs and Medicare. They're 
trying to scare young people by pretending that we're going to 
bring back the draft. All of these things are simply untrue. 
All of these things are shameless, bogus scare tactics that are 
    Chairman Boehner. If the gentleman could suspend, we've had 
a practice in the Committee of allowing members to disagree, 
but not being disagreeable. So I would just caution my good 
friend from Florida, we don't want to be disagreeable in our 
    Mr. Keller. Well, I respect that comment, but I would like 
to be very specific, Mr. Chairman. I think it's my job to 
represent my constituents as well as it's your job to represent 
    On April 13th, the AFL-CIO sent out this e-mail to Working 
Families e-Activists. It says in this e-mail to click onto a 
link onto their web site. If you click onto the link on their 
web site, it shows a TV ad, and at the top of this page, it 
shows a police officer with a police car saying this comes down 
to protecting the 40-hour work week. The Bush Administration 
has proposed to take away overtime pay for millions of 
Americans who work more than 40 hours a week.
    This is 10 days before the regulations were even issued. 
Ten days later, on April 23, the regulations come out, and they 
specifically provide that police officers and firefighters 
shall be entitled to overtime pay; a specific 
    Now 5 days later, here we are at this hearing. And a few 
minutes ago, I go check the web site, and it's still there, 
still the claim, that police officers are going to have their 
overtime pay taken away. Now why? Why would someone say that? 
Well, we don't have to guess. The goal, according to the e-
mail, is we need to raise money. We need to spread the word. We 
need to stop the overtime pay. We need to stop Bush overtime 
pay take away to raise awareness, even if it means making stuff 
    So let's talk about what the regs really do, and let me 
start with you, Mr. Fortney. Let's take the example of an 
assistant manager at the local Foot Locker retail store who 
makes $18,000 a year in salary. Under these new regs, would he 
be entitled to get overtime pay?
    Mr. Fortney. No he would not, because he makes less than 
the floor amount of $23,660. He will get overtime pay.
    Mr. Keller. That's what I'm saying. He will be entitled--
    Mr. Fortney. He will receive overtime pay.
    Mr. Keller. OK. And before these regs came out, there's a 
possibility he would not get overtime pay.
    Mr. Fortney. I would suggest to you a distinct possibility 
he would not get overtime pay.
    Mr. Keller. OK. So he would be one of the 6.7 working 
Americans who would actually get strengthened under this reg?
    Mr. Fortney. That would be my understanding, yes.
    Mr. Keller. Let me ask you about litigation here. My 
question goes to the need for these regulations, particularly 
because of the issue of wage and hour class action litigation.
    I understand that class action lawsuits under the Fair 
Labor Standards Act have more than tripled since 1997, and 
since 2001, they have outnumbered employment discrimination 
lawsuits. Tell us, if you would, how you believe these regs 
will clarify the situation to hopefully minimize these class 
action lawsuits. Do you have any examples?
    Mr. Fortney. Sure. I'd be happy to. One of the areas in 
which there has been a tremendous amount of litigation 
involves--in the financial industry--involves the application 
of what is called the administrative exemption, so it deals 
with people that are involved in marketing that support, 
provide response to customers, whether they be in banking, the 
securities industry. And there's been extensive litigation in 
those fields, as well as in the insurance industry.
    The regulations have listed as examples under the 
administrative exemption those occupations, not just by title, 
but describing what the job duties are. And what that does 
effectively and very succinctly is, it puts down within the 
four corners of the regulation what people are now spending 
tens of millions of dollars to litigate about in the courts.
    And it effectively has what I'd call codify or written down 
the court rulings within the four corners. What that means is, 
when someone comes and first of all looks at the regulations, 
they can understand who is and is not exempt. That 
clarification is very, very important. If they want to secure 
an opinion from counsel, frankly, counsel can give an opinion 
with a high level of certainty, which does not happen today.
    Mr. Keller. Thank you. And let me ask you to follow up on 
something Ms. Smith was talking about in terms of chefs. She 
testified that chefs will lose overtime. It's my understanding 
that under current law, chefs who have a 4-year specialized 
academic degree from a culinary arts program are already exempt 
as learned professionals. And furthermore, that the new rule 
explicitly states that cooks who perform predominately routine 
mental, manual, mechanical or physical work are entitled to 
overtime, does it not?
    Mr. Fortney. That's exactly right.
    Mr. Keller. Doesn't that seem to be actually more 
protective of these employees?
    Mr. Fortney. I think it certainly at a minimum doesn't 
change it. It doesn't make it so that more people are going to 
lose overtime. And the Department has said that it intends to 
codify what the current rules are, and it appears that it has 
done just that.
    Mr. Keller. OK. Thank you, Mr. Chairman. I yield back the 
balance of my time.
    [The provided material follows:]

AFL-CIO, Working Families e-Activist Network, TV Ad and e-mail, ``Help 
     Stop Bush's Overtime Pay Take-Away with Ads'', April 13, 2004




    Chairman Boehner. The Chair recognizes the gentlelady from 
California, Ms. Woolsey.
    Ms. Woolsey. Thank you, Mr. Chairman. I believe that what 
the Republicans, what the Department of Labor is taking credit 
for is rules that were already in place that have not been 
supported over the last few years. So that's codifying--they're 
taking credit for the goodness of making what should have been 
happening already, making it happen.
    Now I want to say something about misinformation and about 
scare tactics. Anybody in this chambers that watched Harry and 
Louise during the health care debate knows what misinformation 
and scare tactics is about.
    I was a human resources professional for 20 years in 
manufacturing, and then 10 years I had my own company, and I 
advised high tech companies on their human resources policies 
and practices. So I'm going to tell you what a team leader is.
    First of all, a team leader is not a professional that's 
negotiating, has a whole group of realtors working under a team 
negotiating for some grand project in some community, because 
that person is a professional, period, not a person paid on an 
hourly rate or a nonexempt person. All right.
    A team leader is a senior employee who has the background 
and the experience to probably earn the top of their pay rate. 
Right then, they've earned it. They've been around. They've got 
experience, and they're at the top of their pay scale. And 
because they've been around, because they know something, 
they've been asked to show more junior workers how to do the 
work, and to give them confidence and to give them guidance.
    But they're doing the work right alongside of them. This 
person today earns overtime. Without that overtime, that leader 
is probably going to earn less than the person that they're 
working and guiding, because the person they will be guiding 
will be getting overtime for the same hours.
    So what are we talking about? We're talking about people at 
the top of their pay grade getting less because they happen to 
be at a high pay grade. And I just don't see how anybody here 
in this room can expect any of us to believe that any new rules 
that impact workers like these do, rules such as the publishers 
standing up and cheering Secretary Chao--newspaper publishers--
when she announced how this would affect reporters. Because 
they knew they were going to save money, tons of money.
    Well, a rule that works for a handful of people and against 
most of the newspaper writers and reporters can't be the rule 
that works for the people of this country. And we know that. So 
another rule, the rule--and Ms. Smith, I'm going to ask you to 
respond to this one. You brought up nursery school teachers.
    We have here at this dais talked about Head Start teachers 
having a 4-year degree and how important that is, how important 
these little kids are. So now under these rules, we're going 
to--have encouraged Head Start teachers to get a 4-year degree, 
that under these rules we're going to take away their overtime. 
Now what in the world are we doing here? This is not the way 
we're going to help the workers that need the help the most. 
And those are not earning $100,000 a year. Somebody earning 
$23,660 is not earning a living that they can raise a family 
on. They should have overtime.
    So would you, Ms. Smith, talk to me about what your views 
are about how these new rules have affected nursery school 
    Ms. Smith. Perhaps the Department of Labor didn't intend in 
its construction to handle this the way they did, but here's 
what the result is. A teacher who, for example, has an 
elementary or secondary certificate and is teaching in a public 
school, as Head Start teachers are, has been in the past 
considered exempt and will be in the future considered exempt.
    The real effect of this nursery school, the inclusion of a 
nursery school teacher in the way that it's included now--the 
words were there before--it's where they are in the regulation 
that is different. And in the interest of time, and I'll be as 
detailed as you'd like me to be, but in the interest of time, 
let me point you to 303 in the final rule, what's proposed here 
that would be passed, not the current law as it is today. It 
says exempt teachers include but are not limited to regular 
academic teachers, teachers of kindergarten or nursery school 
pupils. Specifically includes them in that section. That's like 
the law that we have now. That's not different.
    What's different is in Part D it says the requirements of 
541.300 and subpart (g), the salary requirements of this part, 
do not apply to the teaching professions described in this 
section. So then you have--talk about a conundrum and a 
complication--then you need to go back to Section 300 and read 
what that is.
    And what Section 300 says, that does not apply nursery 
school teachers, they don't have to receive a salary. That's 
not different. They never had any salary guarantee. There was a 
salary exception for teachers, always has been. But they also--
they do not have to have primary duty requiring knowledge of an 
advanced type in a field of science or learning customarily 
acquired by a prolonged course of specialized intellectual 
instruction, or requiring invention, imagination, originality 
or talent in a recognized field of artistic or creative 
    What this means is they can teach anything. And when I was 
an investigator, and I had a lot of experience with this, 
because preschools are automatically all covered under the Fair 
Labor Standards Act. Every employer has to comply with that 
unless they can exempt an employee. The only employees who were 
ever exempt when I made these investigations were executive 
directors and perhaps the teacher who had an early childhood, a 
masters in early childhood education, and they might have been 
teaching the pre-K or some schools do, some preschools do have 
kindergarten. Those teachers might be exempt.
    The others were considered to be lacking in independent 
discretion and judgment, or sufficient discretion and judgment, 
and a lot of times they didn't have degrees.
    Mr. Norwood. [presiding] The gentlelady's time has expired. 
Thank you, Ms. Smith. Mr. Kline, you're now recognized for 5 
    Mr. Kline. Thank you, Mr. Chairman, and thank all members 
of the panel for being here today. I guess I'd have to admit 
I'm getting a little confused with the testimony today. We seem 
to be hearing conflicting reports from the two panels and the 
different witnesses. And I just heard a definition of team 
leaders from one of my colleagues, and I was wondering if Mr. 
Fortney would like to comment on that.
    Mr. Fortney. I'd be happy to. I think the example that was 
given would not qualify as a team leader under the current reg. 
Let's start with what the team leader is defined as.
    A team leader requires that it be involved in major--an 
employee who leads a team of other employees assigned to 
complete major projects for the employer--major projects. So 
that working side-by-side, showing someone how to do something, 
that is not what team leader envisions in this reg. And with 
all due respect, I don't think that's what it means today under 
the current regs.
    Additionally, under the definition of concurrent duties, 
which is 541.106, it makes clear that although an exempt person 
may perform nonexempt work, but it parses out how you're to 
balance that. The example that was given is an example of 
people that may be loosely called team leaders in the 
nomenclature of the workplace but who would not be eligible to 
be salaried and not receive overtime.
    So I hope that answers. But it's a--it codifies what is the 
rule today. It is narrow. It's based on the duties, and it has 
to be a major project in order to be ineligible for overtime.
    Mr. Kline. Thank you. My wife spent over 30 years as a 
registered nurse, and so the issue of nurses has come up again 
and again. And I think it's important that we revisit that one 
more time.
    So let me go back again to you, Mr. Fortney, because Ms. 
Smith has expressed a concern about the effect of the new 
regulation on nurses. But it's been my understanding that the 
final rulemakes no change to regulation governing registered 
nurses, who have always generally been exempt as professionals, 
even though they are often paid overtime because of their 
collective bargaining agreements, which many are members, or 
because of the fact that we have a nursing shortage.
    And my family takes some blame for that, because my wife 
has now retired as a nurse, but my niece is entering the field. 
So we're trying to keep it even.
    And it's my understanding also that licensed practical 
nurses are explicitly exempt in this new regulations, and I 
read Ms. Smith's testimony and listened to what she had to say 
about hourly pay, and, quote, ``the minimum guarantee plus 
extras.'' And could you, Mr. Fortney, explain to us exactly 
what this means from your perspective, and is it a change from 
current regulations?
    Mr. Fortney. Sure. I'd be happy to address that. Nurses. We 
now have an explicit provision within the four corners of the 
regulations dealing with nurses. It's very short. Registered 
nurses who are registered by the appropriate state examining 
board generally meet the duties and requirements for the 
learned professional exemption. Licensed practical nurses, LPNs 
and other similar health care employees, however, generally do 
not qualify as exempt. In plain speaking, LPNs and others get 
overtime; RNs are not--can properly be salaried and not receive 
    With respect to what does it mean to pay on salary, it 
means a number of things under the regulations. Again, it does 
today and it has for a long time. The regulations going back to 
the--the Labor Department has a series of manuals that are 
called field operation handbook, and it defines in great detail 
how people can be paid a salary.
    And salary--it can be computed on an hourly basis. It can 
be paid on an hourly basis. The rule in the current regulation 
defines salary. So even if people are paid hourly, as long as 
you meet the minimums and it's expressed ultimately in terms of 
a fixed amount, it is permissible.
    So I think that is the reason why there may be some 
confusion on this. And in the reality, I think many RNs, as you 
indicate in your question, although they can be exempt--that 
means salaried, not receive overtime--in the real world, many 
of them do receive a whole variety of additional premiums--
shift premiums, overtime, et cetera. So that's a marketplace 
factor as distinguished from what the law requirements.
    Mr. Kline. And there's not a change?
    Mr. Fortney. It is not a change. It is absolutely more--
continues what is there. Makes it clear, puts it within the 
four corners of the reg.
    Ms. Smith. Would the Chair recognize me to respond as well?
    Mr. Kline. I'd be happy to have you respond, Ms. Smith.
    Ms. Smith. Thank you. In this section--
    Mr. Norwood. Ms. Smith, his time is almost up. Be as brief 
as you can.
    Ms. Smith. OK. The minimum guarantee plus extras adds the 
new word ``hourly.'' Registered nurses who are paid hourly, as 
long as they are guaranteed a minimum amount, which is supposed 
to bear a reasonable relationship to the salary for their usual 
hours--those are new words. We don't know exactly what that's 
going to mean yet--there is a possibility that registered 
nurses can be paid hourly and not receive overtime. And that's 
my concern.
    Mr. Norwood. As long as we have lawyers and write new laws 
and write new regulations, anything's a possibility. That's 
understood and a given. But sometimes you have to move forward 
hoping you understand what it means until some smart lawyer 
comes and tells you you don't understand what it means.
    And in fact, speaking of smart lawyers, Mr. Tierney, you 
have 5 minutes.
    Mr. Tierney. Thank you very much, Mr. Chairman. Mr. 
Chairman, I think it's a little bit unfortunate that this 
hearing has actually happened before most people have had an 
opportunity to really digest the complications that are in the 
new rule. And I hope that the Secretary will come back after 
people have had a chance to analyze that.
    But in the meantime, it's ambiguous to some of us and a 
little higher burden to ask about some of the detail. So I hope 
people will bear with us. And I regret some of the 
defensiveness that the Administration and the Secretary are 
going through, but they I hope understand that this is not an 
Administration that's been highly credible to working families 
and the American worker on a number of issues, whether it be 
the Secretary's statement at an earlier hearing where she said 
that the Administration wouldn't extend the unemployment 
benefits for people because she thought that would encourage 
them not to seek work, or whether it's because of their failure 
to fund No Child Left Behind, or attacks on worker safety, 
workers right to organize, or sleight of hand with the Medicare 
prescription drug bill and the history of this rule right on 
down the line.
    So there's reason for skepticism, and people don't mean to 
be attacking the witnesses. We mean to just fulfill our 
responsibility to try to find out exactly what this says.
    Ms. Smith, let me ask you a question about one particular 
section on this. It's now called concurrent duties. It's 
Section 541.106, and I think it used to be called the working 
foreman. It refers to the situation where employees have rank-
and-file duties but also some level of managerial duties, 
usually supervisory or managerial in nature.
    The regulation essentially says an employee can be exempt 
as a supervisor even if the person also performs substantial 
nonexempt work, such as for a manager in a retail store, 
perhaps like the one Mr. Keller mentioned, or as a fast food 
establishment. The supervisor doesn't lose the exempt status 
even if he or she performs work stocking shelves or running the 
cash register. Am I right on that interpretation, Ms. Smith?
    Ms. Smith. That what? I didn't hear the last part.
    Mr. Tierney. That he or she would not lose their exempt 
status even if they perform some work stocking shelves or 
running the cash register or normal duties.
    Ms. Smith. Correct.
    Mr. Tierney. OK. Now the concurrent duties regulation isn't 
limited to any particular industry as I read it. Do you read it 
the same way?
    Ms. Smith. That it's not specific to particular industries?
    Mr. Tierney. Right.
    Ms. Smith. Right. They do give a couple of examples. But it 
will apply to all industries.
    Mr. Tierney. It used to be, as understand it, under the 
long duties test, that if a so-called manager spent more than 
20 percent of time performing rank-and-file work, then that 
person would lose the exemption. But it appears that that's no 
longer true, because they've eliminated the long duties test, 
    Ms. Smith. This is meant to mirror more or less the primary 
duties. They've added some. They've drawn some things from the 
long duties test into the primary duty, but not the specific 
criterion you're looking for. That's correct.
    Mr. Tierney. So it now it looks like the determination of 
whether it's a primary duty is going to be made on a case-by-
case basis. There's no more bright line rule. And I guess it's 
just going to be whether it's a primary or a more important 
duty and somebody's subjective analysis. Would that be your 
    Ms. Smith. Primary duty is a subjective analysis, yes, 
because it doesn't have to be a specific amount of time.
    Mr. Tierney. So it seems to me at least that that goes 
against the claim that the previous law was ambiguous and this 
one is going to be so much better. But if one person or an 
employee spends 75 percent of the time performing routine 
functions and 25 percent of the time managing, then they must 
be nonexempt. But another person might conclude the other way.
    Ms. Smith. Because it depends on their primary duty.
    Mr. Tierney. So smart employer, as opposed to a smart 
lawyer, may just decide this is the way they're going to get 
around the law and then we're going to be in all sorts of 
litigation. It seems not only subjective but a bit ambiguous.
    If we get back to that and we take it out of the Foot 
Locker business that Mr. Keller was talking about, what if 
we're talking about a fire or police sergeant who performs 
regular police work but also does some supervisory work? He 
might be exempt despite the rank or the pay level. Am I right?
    Ms. Smith. I think that those examples are--those are blue 
collar examples, and I think the focus of the Administration 
right now is on exempting white collar workers from overtime. I 
don't think their focus is on exempting blue collar workers. 
I'm not saying it couldn't have that effect. I think that's 
possible. But I don't think that's where the Administration's 
focus is right now.
    White collar workers are, as Mr. Bird has testified, and he 
knows more than I do about this, but white collar workers are 
expanding tremendously, and there are less blue collar workers 
today. And so I think what the Administration is saying is, we 
need to figure out a way where not all--this huge amount of 
white collar workers, they're not all receiving overtime.
    Mr. Tierney. OK. I do think that whether this concurrent 
duty thing goes in, it's so subjective that it could apply to 
this particular area as well as to a retail area.
    Ms. Smith. Yes sir. Absolutely. They have removed the 
definition of working foreman.
    Mr. Tierney. And I guess my question is, if what the 
Secretary says is accurate, that they really did want to 
protect people who are now getting unemployment between $23,660 
and $100,000, I don't know what the resistance would be of just 
having a provision that says that all of those people for that 
job responsibilities would be exempt, would continue to be 
exempt, grandfathered in. And this wouldn't make them for life 
no matter what they change for their job, but it would be their 
job as currently engaged in.
    Ms. Smith. Concurrent duties is a very vague and subjective 
thing that's going to be hard to deal with. The working foreman 
definition was much easier to deal with. We had much more 
examples, and it gave a 20 percent limitation which had nothing 
to do with long or short duties. That's not there any more.
    Mr. Tierney. So, Mr. Norwood's--
    Mr. Norwood. Thank you very much.
    Mr. Tierney. Mr. Norwood's smart lawyers will be busier 
yet. Thank you.
    Mr. Norwood. Thank you, Mr. Tierney. I recognize myself for 
5 minutes. Just a couple of thoughts. We've had enough time 
surely to look at this regulation. The AFL-CIO understood what 
was in it a week before it was issued, so surely we ought to 
    Another thing, while my friend, Mr. Miller is here, and I 
wanted you to be here, I know you may work two or 3 days a 
week, and I congratulate you, but we should put in the record 
that most Members of Congress work six and 7 days a week, and 
I'm sorry that--
    Mr. Miller. Not in Washington, D.C. they don't.
    Mr. Norwood. I'm sorry that the labor union wasn't here who 
enjoyed your comment. But the fact is, most Members of 
Congress--I don't know how you can get away with two or 3 days. 
But most Members of Congress work all week pretty hard.
    Mr. Miller. Through Tuesday night at 6:30--
    Mr. Norwood. Now let me--
    Mr. Miller.--3 o'clock in the afternoon--
    Mr. Norwood. Mr. Miller, come on.
    Mr. Miller.--6:30.
    Mr. Norwood. You are really out of line.
    Mr. Miller. Well, you're out of line with the comment. We 
go in to work at 2:30 on a Tuesday--
    Mr. Norwood. I congratulate you on working two to 3 days a 
week. That's what you said.
    Mr. Miller. I know what I said.
    Mr. Norwood. Mr. Fortney, would you care to comment on 
primary duty?
    Mr. Fortney. Sure. Primary duty--
    Mr. Norwood. And I wish Mr. Tierney were here to hear the 
other side.
    Mr. Fortney. Be pleased to. Primary duty is a part that 
exists under what we call the long test, and those of us that 
have suffered through these proceedings long enough have 
recognized that those are a set of tests or standards that in 
large part are not followed today. That is this percentage 
requirement, point one. So the reference to 20 percent I think 
suggest something that respectfully isn't there, isn't being 
    No. 2, the determination of 20 percent or any percent 
suggests that you're to keep time records and do a host of 
other things that are directly inconsistent with having someone 
being exempt. And indeed, when there is a dispute, under the 
old rules, if I can call them that, the 20 percent, that's 
exactly how that gets resolved. You have people come in with 
time motion and clipboards and they're following what people 
are doing, following around. It's very burdensome, very 
    With all due respect, Ms. Smith, I do not think it provides 
a level of certainty. It creates a false illusion of certainty 
that simply doesn't exist, and it doesn't work well.
    The primary duty codifies the rules that are there. It does 
so in a way that it creates a standard that is more easily 
applicable to the wide range of jobs and well understood in the 
wide range of jobs that we have in the workplace today.
    Mr. Norwood. The Economic Policy Institute, they put out a 
briefing paper, and it was their belief that eight million 
workers would lose overtime pay. Mr. Bird, do you agree with 
    Mr. Bird. No.
    Mr. Norwood. Mr. Fortney, do you agree with that?
    Mr. Fortney. No.
    Mr. Norwood. Mr. Fortney, do you agree with that? Eight 
million workers?
    Mr. Fortney. That seemed very ambitious, and it's a little 
outside. I'm not going to go into the numbers in detail, but 
that seemed--I was frankly stunned by that number. I read the 
report, and I couldn't get the numbers to add up.
    Mr. Norwood. Ms. Smith, do you agree with that?
    Ms. Smith. I'm not an economist. I don't feel qualified to 
answer on economic questions about that kind of impact.
    Mr. Norwood. You were a footnote in that briefing paper as 
I recall.
    Ms. Smith. Yes sir.
    Mr. Norwood. So you had input into that?
    Ms. Smith. Yes. My part of that was to go through and look 
at the different job descriptions that were listed and say 
whether those job descriptions would have been exempt or 
nonexempt under the Fair Labor Standards Act at the time.
    Mr. Norwood. So you don't agree or you don't know if eight 
million workers--you don't know whether eight million workers 
would lose overtime pay, according to this briefing paper put 
out by EPI?
    Ms. Smith. Right. I did not do the economic analysis. That 
was not my part of that.
    Mr. Norwood. But you worked for EPI?
    Ms. Smith. No, I do not work for the EPI.
    Mr. Norwood. Are you a consultant to EPI?
    Ms. Smith. No. I was not a consultant.
    Mr. Norwood. They just called you up. Mr. Bird, you wanted 
to make further comment?
    Mr. Bird. Yes. Thank you, sir. I am an economist, and I'm 
not a lawyer. I'm used to dealing with data and dealing with 
empirical facts. And I too was shocked by that analysis. I 
looked at it very carefully.
    That analysis was--that number of eight million and some 
odd was put forth in the context of the proposed regulation a 
year ago, not this final regulation, and it's important to keep 
that in mind. It was wrong then. It is even more wrong now. It 
was based on jumping to conclusions about things for which 
there was no hard empirical fact.
    Mr. Norwood. Well, Mr. Bird, many people are using that 
briefing report as the Holy Bible.
    Mr. Bird. And I found that to be a very frustrating aspect 
of much of the debate and discussion about this issue. The 
reality is that, you know, first of all, there are three sorts 
of jumping to conclusions going on here, all of which come out 
with very misleading results.
    First of all, I hear jumping to conclusions about how 
changes of a word here or there will change the decision of 
whether or not numbers of people are exempt or nonexempt. And 
the fact of the matter is, we do not have sufficient hard data, 
actual descriptions of the texture of people's work, to be able 
to accurately and empirically say how a change in a phrase here 
or there will move millions of people one side or the other 
side of the line.
    Secondly, there's being--we're jumping to conclusions about 
whether or not becoming potentially qualified for an exemption 
will actually lead to a change in one's pay basis or not. As I 
said in my opening statement and talk about more in the written 
testimony, there are millions of people who are clearly 
qualified for exemption who are working on a salaried basis and 
therefore earning overtime, not because their employer has 
neglected to take something from them, but because they and 
their employer have arrived at a mutual decision.
    And then finally, there is the jumping to the conclusion 
that even if a person's status is changed from hourly to 
salaried, for whatever reason, that they will lose pay, when in 
fact the studies that we've seen looking carefully comparing 
people who do the same job and work the same hours, we find 
that regardless of whether you're paid on a salaried basis or 
an hourly basis, you wind up making the same amount per week 
and per year for doing the same job from the same 
qualifications and the same basis.
    Mr. Norwood. Thank you, Mr. Bird. My time is well expired. 
Mr. Miller, you're now recognized.
    Mr. Miller. Thank you, Mr. Chairman. I appreciate you were 
all amazed and alarmed and whatever with the figure by EPI. But 
I think when you look at what's transpired in the year since 
that came out, they're closer to the mark than the Secretary's 
600,000 impacted because you look at the dramatic rewrite of 
these regulations, it would suggest that they had included far 
more people to lose their overtime in the previous regulations 
than they were willing to tell the public at that time, or the 
regulations were simply that sloppily drawn that you could draw 
that number that's a lot closer to EPI than it was to what the 
Secretary said.
    And as to the changing of a word, Mr. Bird, we all fight 
over the changing of a word because we know what it means to 
your clients and we know what it means to my constituents, and 
that's what legislation is about. And it's amazing. We pay 
people hundreds of thousands and millions of dollars in 
organizations to change a word here and change a word there. 
That's the legislative process, because we know exactly very 
often what that impact is.
    Ms. Smith, let me ask you a question, if you might expand 
on page 493 for the rest of you. I'm looking at the question of 
the financial services industry and those people who will meet 
the administrative exemption.
    And the question there, one of the questions being raised 
by a number of organizations is the impact on people today as I 
understand who would be--would not be exempt because they're 
engaged in sales, with this definition which picks up sales 
among other activities would, as it says there, provide for the 
administrative exemption.
    Ms. Smith. Yes sir. Let's say, as happened recently in our 
family, that I call a bank wanting to borrow money to remodel 
our home. I call the toll free number and speak with Ms. Jones 
and say I would like to apply for some type of loan. She asks 
some questions about my purpose and my financial situation, 
such as why I'm seeking the loan, how much I currently owe on 
my mortgage, what other outstanding debt I have, what savings I 
may have, et cetera.
    After completing the application, she tells me what 
products their company can offer and helps me decide such 
questions as whether I want to take a short-term loan or a 
long-term loan, perhaps convincing me that I should borrow more 
if the interest rate is favorable in order to pay off the car 
or student loan I mentioned in the initial questioning, and 
asked me if I would like to open a direct deposit account or 
credit card with the bank which could lower my percentage 
    I have just described to you each aspect of what the 
Administrator has said is exempt. It says that work such as 
collecting and analyzing information regarding customer's 
income, assets, investments or debts. That would be what she 
did when she asked me about my financial situation.
    Determining what financial products meet my needs. Do I 
want a short term or a long term? Do I want a home equity or an 
unsecured loan?
    Advising the customer regarding the advantages and 
disadvantages. Well, if you do this, you know, it's a shorter 
term loan, but it's a higher interest.
    And marketing service and you're promoting, asking me if I 
want a credit card or to open a direct deposit account.
    I submit to you, Mr. Chairman and members, that what I've 
just described is the process of selling the company's product, 
and that's going to be exempt.
    In the very next sentence, it reads: However, an employee 
whose primary duty is selling financial products does not 
qualify for the administrative exemption. What is the process 
that I just described that the administrator would be exempt? 
It's a selling process.
    And at the very least, I think that those who oppose the 
idea that this is a bad thing for employees could agree with me 
that this would at least be of confusion to employers and could 
encourage more litigation.
    Mr. Miller. Well, I think again, earlier this morning I 
raised the point that when you now engage people in many 
aspects of the financial service industries, however you engage 
them, because of home mortgages or because of automobile loans 
or what have you, you very often now are engaging somebody who 
then has a series of questions for you.
    You can talk about whether or not your payment was received 
on time, and then they want to know, is there anything else can 
they do for you. Can they talk to you about, as I said, a home 
equity loan or this, that or the other thing.
    So the argument is that in the modern world, people are 
multi-tasking. These are the new jobs of the future. These 
are--somebody here said it. I think maybe it was you--said 
these are the production jobs of the future. In my district, 
huge numbers of people are engaged in this activity. Their 
primary worry right at the moment is that those jobs are going 
to be outsourced. But let's assume that they hold onto those 
jobs for the moment.
    Your argument is that you're marrying those tasks into a 
definition here that provides for the administrative exemption. 
Is that?
    Ms. Smith. Yes.
    Mr. Miller. I don't want to put words in your mouth, but, I 
    Ms. Smith. I think at least it would be accurate to say 
that we're going to have to that--well, investigators. I was 
one of those.
    Mr. Miller. I understand this is a gray area.
    Ms. Smith. Right.
    Mr. Miller. It's not a question whether I'm all right or 
you're all right or you're all wrong or what have you.
    Ms. Smith. Sure.
    Mr. Miller. But the question is, I'm just trying to figure 
out what, you know, people are asking what this means to them. 
It seems to me that one of the things that's happened here is 
you have aligned people within a definition. Some of those 
people weren't there before. The job was more segregated than 
    If you wanted to take advantage of this exemption, you 
obviously would train people to multi-task both sales products, 
services, what have you, whether they're on the road, off the 
road or, you know, because that's in theory that the new world 
of work requires that people be able to do this, but it also 
feeds into the administrative exemption. I don't know. I think 
Mr. Fortney would like to comment on that.
    Mr. Fortney. Could I just have maybe 20 seconds?
    Mr. Miller. Sure.
    Mr. Fortney. I think perhaps--
    Mr. Miller. This isn't a black or white game.
    Mr. Fortney. OK. Thank you. I think perhaps there's some 
confusion as to, these points, the exchange that you've just 
had here I think is an interesting policy discussion. But going 
back to what the regs do and whether the regs are changing 
something. The answer is no, they are not.
    The regs--there are several court decisions that deal 
explicitly with where you draw this line, and those court 
decisions--I recognize you're a lawyer, a practicing lawyer, 
the John Alden case, the Allstate Insurance case, that's First 
Circuit, 11th Circuit, and a District Court case out of Georgia 
again involving Allstate Insurance.
    In those cases, the courts have recognized that employees 
can have a wide range of activities, exactly what Ms. Smith has 
described in her scenario, that properly can be deemed to be 
exempt. And the Labor Department has said, this is what we 
intend to do. We don't--we're not creating a new standard, 
we're trying to write down what's out there.
    Now there may be a different issue as to whether a 
different standard should be created, but I think the 
distinction is one that's important. It's not a take-away, it's 
not a change.
    There is a court decision that I think does a good job of 
illustrating what is out there. When is inside sales really 
inside sales? That's a case called Conseco, where it talks 
about your primary duty day to day being selling. But the 
courts have recognized, because they've had to struggle with 
these fairly vague rules the way they are, in these modern 
workplaces that you're describing, where people are doing 
different functions. There is a certain level of, if you will, 
bleeding over into sales function that does not prevent the 
people from being properly classified as exempt. So with that, 
I hope that's helpful.
    Mr. Miller. And if you'll be kind enough to give me 20 
seconds, I would just say that as you're bleeding over, you 
probably would not want to create a position of primary duties 
of selling financial--you'd create a person that does more than 
that duty, who used to be recognized as inside sales. Ms. 
    Ms. Smith. I do not believe, as Mr. Fortney has suggested, 
that this is an interesting policy discussion. I believe that a 
wage and hour investigator will have to look at this regulation 
and decide exemption and nonexemption, and I believe that they 
would have decided that employees were nonexempt when they were 
conducting inside sales activities, and now they're going to 
decide that those employees are exempt.
    I believe here we have a large group of employees who will 
lose exempt status. They will lose their overtime. This is not 
just an interesting policy discussion.
    And I do also think we're talking about clarity here. The 
Administration said repeatedly that they'd like to have a 
clearer law, one that lets employers know what their 
obligations are. This is not it.
    Chairman Boehner. [Presiding] The Chair recognizes the 
gentlelady from Illinois, Ms. Biggert.
    Mrs. Biggert. Thank you, Mr. Chairman. Mr. Fortney, 
following up on this, that Ms. Smith just claimed that an 
employee who calls, solicits information about a customer's 
financial status and sells a customer a loan product she thinks 
would be exempt. But doesn't the rule explicitly provide that 
an employee whose primary duty is sales is entitled to 
overtime? Or do you share Ms. Smith's--
    Mr. Fortney. No, no, no. And this goes back. If the primary 
duty is sales, and we've talked earlier about you can do 
additional duty. If your primary duty is sales, you get 
overtime. That's the rule today. That's the rule under the 
final regulations that will be implemented.
    Mrs. Biggert. So do you agree that this is going to be 
something that is not clear now at the time, for somebody like 
inside sales?
    Mr. Fortney. No. Frankly, with all due respect, I think 
this is something that's much clearer now because in two or 
three fairly succinct sentences, I think the Labor Department 
has done a very fair job of summarizing the case law that's out 
there today. And as I mentioned earlier, that allows a business 
owner and an employee to go read the regulation, a couple or 
three sentences, get a sense as to what the rule is, as well as 
the Labor Department when it comes to enforcing it.
    Mrs. Biggert. OK. Thank you. Then your testimony suggests 
that changes to regulations governing computer employees and 
outside sales employees are largely administrative and do not 
make any substantive changes to the current law. I believe that 
Ms. Smith seems to suggest otherwise.
    Can you expand on your testimony on these points, and do 
you share Ms. Smith's assessment of these regulations?
    Mr. Fortney. Yes. With regard to computer employees, 
there's been some discussion of that. What the regulations do 
is codify in the regulations the language that was used in the 
1996 amendment enacted by Congress. And I think that frankly, 
had the Labor Department steered away from that, I think that 
Congress would rightfully be upset and probably be all over 
    So I'm not sure they had a whole lot of running room on 
that, and I think if you uphold the law, the statue enacted by 
Congress and you look at the reg, it's the same thing. So I 
don't think there is a change. I think that's what it's now in 
the reg clearly.
    With respect to the outside sales, there was a 20 percent 
rule. The Labor Department has adopted, and there's been some 
earlier discussion about the primary duty. And that's still the 
case. The Labor Department also has helped us understand what 
happens in the real world today with outside sales; that 
they're not just selling. They're doing a variety of other 
functions. And I do believe, although--is there room for 
improvement? I suppose, but it's a lot better than what we 
have, and the line is much easier to understand than the rather 
mechanical 20 percent. That suggests an artificial level of 
precision, and in the world, it just doesn't work like that.
    Mrs. Biggert. Thank you. And one last question. How do the 
final regulations affect employees who may actually own some 
share or hold an investment in their company?
    Mr. Fortney. Yes. I'm sorry. There is a specific provision 
that deals with the 20 percent ownership. And there was 
criticism in the proposal as to whether the standards were too 
    Essentially, what the final regs do, they tighten it and 
say that the person can be exempt; that is, not get overtime. 
But they still have to perform, you know, have a bona fide job 
there, be performing duties, exempt duties in a fashion. So it 
does permit that.
    Mrs. Biggert. So that means that let's say a telephone 
operator at IBM owns 50 shares of stock in the corporation, 
that she's not exempt from overtime?
    Mr. Fortney. We're not talking about, with all due respect 
to the operator that owns 50 shares of IBM, no. Because they 
would not meet the requirement, the ownership requirement. It's 
very high.
    What we're really talking about are typically fairly small 
businesses, often family run businesses, closely held 
businesses where people have that type of ownership.
    Mrs. Biggert. OK. And then what--how does that compare to 
current law? What's the current law right now on that? Is there 
a change?
    Mr. Fortney. There's not. Again, there is not--I sound 
perhaps like a broken record, but there is not a change. It's 
concise, it's precise, but it's not substantively different.
    Mrs. Biggert. Thank you. Thank you, Mr. Chairman. I yield 
    Chairman Boehner. Let me thank our witnesses for your 
valuable time and your testimony. And for the benefit of our 
members, it should be obvious that, as this hearing comes to a 
close, that trying to determine exempt or nonexempt status is 
not an exact science. And having run a business, having 
traveled the country, there are every imaginable kind of 
business, every imaginable type of job, and the new rules I 
think will bring more clarity to the workplace for both 
employers and employees than what we've been working under over 
the last several decades.
    But the reason that we have investigators, such as Ms. 
Smith used to be, to go out and try to make these 
determinations and to have enough clarity in the regulation to 
give them the kind of background and basis for making a 
determination about a particular job. Is it going to be 
perfect? No. Is it a lot better than it was? Absolutely. And I 
think that both employers and employees will be very happy 
having more certainty about what to expect in these 
    And with that, the hearing is adjourned.
    [Whereupon, at 1:45 p.m., the Committee was adjourned.]
    [Additional material submitted for the record follows:]

  U.S. Department of Labor, Fair Pay Facts, Overtime Security for the 
      21st Century Workforce, ``AFL-CIO Distortions Harm Workers''








 U.S. Chamber of Commerce, Letter to Chairman John Boehner, April 28, 












   U.S. Chamber of Commerce, Press Release, ``Chamber Welcomes White-
                Collar Overtime Reform'', April 20, 2004



     National Council of Chain Restaurants, of the National Retail 
  Federation, News Release, ``NCCR Welcomes Updated Overtime Rules'', 
                             April 20, 2004



  National Association of Mortgage Brokers, Press Release, ``Mortgage 
       Brokers Applaud DOL Overtime Regulations'', April 22, 2004



 American Bankers Association (ABA), News Release, ``ABA Statement on 
         Labor Department Final Overtime Rule'', April 20, 2004



    Retail Industry Leaders Association (RILA), RILA News, ``Retail 
     Industry Leaders Association Applauds Release of New Overtime 
                     Regulations'', April 20, 2004



 Associated Builders and Contractors, Inc., (ABC), News Release, ``ABC 
 Applauds Labor Department Effort to Revise Outdated Rules Under Fair 
                 Labor Standards Act'', April 20, 2004



Society for Human Resource Management (SHRM), PR Newswire, ``New White-
Collar Exemption Rules Expected to Bring Clarity to Workplace'', April 
                                20, 2004





   Heritage Foundation, WebMemo 485,''The New Overtime Regulations: 
            Clearer Rules, Fewer Conflicts'', April 20, 2004



  Food Marketing Institute (FMI), Press Release, ``Food Retailers and 
   Wholesalers Applaud DOL for Rewriting Overtime Rules for the 21st 
                    Century Economy'' April 20, 2004



 National Federation of Independent Business (NFIB), News, ``NFIB: DOL 
   Overtime Rule Offers Clarity for Small Business'', April 20, 2004



American Insurance Association (AIA), Press Release, ``AIA Praises New 
                  Labor Regulations'', April 20, 2004



  Mortgage Bankers Association (MBA), Statement by Kurt Pfotenhauer, 
Senior Vice President of Government Affairs, ``MBA Applauds Department 
of Labor for Modernizing the Fair Labor Standards Act'', April 20, 2004



 National Restaurant Association, Press Release, ``National Restaurant 
  Association Recognizes Labor Department's Modernization of Overtime 
                     Regulations'', April 20, 2004



   National Association of Manufacturers (NAM), Press Release, ``NAM 
  Welcomes Labor Dept. Announcement of Update of Nation's Antiquated 
                 Overtime Regulations'', April 20, 2004



Americans for Tax Reform (ATR), News, ``Labor Department Announces New 
 Rule to Clarify 50-Year Old Regulations and Increase Overtime Pay for 
                 Millions of Workers'', April 20, 2004



   National Association of Convenience Stores (NACS), Press Release, 
  ``Convenience Store Industry Commends Labor Department's Efforts on 
      `Fair Pay' Overtime Initiative Under FLSA'', April 20, 2004



National Retail Federation (NRF), News Release, ``Retailers Welcome New 
                 Overtime Regulations'', April 20, 2004



  Statement of Cheryl Johnson, RN, President, United American Nurses, 
                     AFL-CIO (UAN), April 28, 2004