House Hearing Highlights Problems in the Fair Labor Standards Act

The Subcommittee on Workforce Protections of the House Education and the Workforce Committee held a hearing yesterday that focused on the troubled regulatory structure of federal wage and hour law.

The hearing was chaired by Rep. Tim Walberg (R-Mich.) and the witnesses included Dr. Andrew Sherrill from the Government Accountability Office (GAO), Nancy McKeague from the Society for Human Resource Management, Judith Conti from the National Employment Law Project, and the Honorable Paul DeCamp.

Dr. Sherrill started the hearing off describing one of the major reasons the hearing was organized in the first place: a GAO report found that the number of lawsuits related to alleged Fair Labor Standards Act (FLSA) violations have increased dramatically in the last two decades.

The FLSA establishes standards for minimum wage, overtime pay, recordkeeping, and youth employment across the country.

The broad FLSA is hard to comply with in the first place, but that problem is perpetuated by the other major finding of the GAO report, which is that the Wage and Hour Division in the Department of Labor doesn’t have a “systematic approach to developing its guidance” to employers on issues of compliance with the FLSA.

The report says,

…WHD does not have a routine, data-based process for assessing the adequacy of its guidance. For example, WHD does not analyze trends in the types of FLSA-related questions it receives from employers or workers. According to plaintiff and defense attorneys GAO interviewed, more FLSA guidance from WHD would be helpful, such as guidance on how to determine whether certain types of workers are exempt from the overtime pay and other requirements of the FLSA.

The report also tells us that attorney’s increased willingness to take cases related to alleged FLSA violations (95 percent of which deal with overtime pay) contributes to the rise in the number of lawsuits.

The testimony of the three other witnesses fleshed out two competing theories regarding the problems at the heart of the issue.

Judith Conti, with help from Reps. Joe Courtney (D-Conn.) and Mark Pocan (D-Wisc.), argued for the theory that wage theft was the major problem which the Wage and Hour Division needed to better address. The union allies also made sure to spend a good amount of time lobbying for minimum wage hikes.

Ms. Conti proposed that wage theft was exacerbated by the Bush administration’s Wage and Hour Division because it focused too much on assisting companies in compliance with the FLSA and not enough on taking companies to task for incorrectly compensating employees. Therefore, according to Ms. Conti, the Wage and Hour Division should vigorously enforce the FLSA whenever possible.

But Paul DeCamp and Nancy McKeague argued that the bigger problem is that employers are treated too harshly despite the difficulty of complying with the confusing FLSA.

Urging caution, and citing the vast complexities and grey areas that the FLSA creates for many companies, DeCamp and McKeague made convincing arguments for a more balanced approach to enforcement of the FLSA, considering the many compliance difficulties it creates for companies. For example, the FLSA can create a compliance nightmare for nonprofits and small companies because rigid classification requirements do not fit with the needs of those companies to have employees function in multiple roles. This classification quagmire makes it hard for employers to determine how to give overtime pay to certain employees. The opaqueness of the FLSA creates vulnerability to lawsuits even for companies that try to follow the law.

DeCamp elaborated that these civil lawsuits can cost tens of thousands of dollars because the cost per employee wrongly classified can be $1,100. To nonprofits and small businesses, which are especially vulnerable to falling into the traps of the FLSA, those are crippling costs.

I agree with DeCamp and McKeague that the real solution is reforming or repealing the FLSA, instead of putting the pedal to the floor on enforcement of a troubled and confusing law, thus punishing law-abiding companies even further because of alleged “wage theft.”