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The Long Term Strategy Behind the Department of Labor's Overtime Rule

It’s not often that proponents of labor regulation admit how forceful the rules have become. Yesterday, however, we had the benefit of one supporter, Non-Profit with Balls, failing to put the spin on.

Vu Le, the writer at Nonprofit with Balls, states the “new FLSA overtime law is good for the nonprofit sector,” because “it will force us to address some entrenched, the destructive philosophies and practices plaguing our sector.” How so? Because the burden of the cost increase will be placed on donors who must, “increase their support.” But what if they don’t? What if nonprofits have to do more with less, as US PIRG warned?

The mindset that forcing behavioral change can happen without negative consequences is in line with the vision of Department of Labor Wage and Hour Administrator David Weil, as he outlined in in 2007.

As Weil put it, the “regulatory strategy … is based on the idea that private actors—individuals, employers, institutions—left to their own devices will not necessarily select policies that are consonant with the public aims related to the five principles. Regulatory systems provide the government with tools to change private behavior, and those tools are usually related to enforcement activities.”

And David Weil has done exactly what he set out to do in 2007. The then-professor at Boston University set out a plan in a 2007 law review article arguing that the commercial contract would not be able to secure benefits for workers, while Big Brother could.

His goals included the full litany of demands from unions and left-wing employment policy advocates. And he is quite happy to force changes behavior to get his desired results.

Weil’s policy goals make freedom, for both businesses and employees, a secondary aspect in contract negotiations behind planned government provisions under punishment of the law in order to secure “public aims,” whatever the negative “unseen” consequences may be.

Thus, it was no surprise that since his appointment to the Obama administration, the Department of Labor, with the National Labor Relations Board joining the cause, has taken extensive steps to restrict business contracts.

His goal was to move away from the commercialization of labor in favor of government decision making. Weil and the Labor Department’s agenda is a direct attack on the modern business model. These changes include the new overtime rule and the NLRB’s newly defined joint employer standard.

The overtime rule raises the threshold to exempt salaried employees from overtime pay from $23,660 to $47,476. Some view this as a victory for embattled workers, but it makes it difficult for non-profits and universities as well as for business to manage a budget.

For instance, the University of Kansas expects a $2 to $3 million dollar increase in salaries alone and especially will have to choose between providing services and raising wages to adhere to the new rule.

The Non-Profit with Balls post envisaged larger donations, which may prove to be wishful thinking, especially because any company or firm donating money or providing grants will also be restrained by this new rule. Thus, given that donations will likely remain stagnant, non-profits will either have to cut jobs or cut services, in the end hurting the people they have set out to help.

Operation Smile, for instance, projects 4,166 fewer surgeries due to a nearly $1 million increase in salaries. Similar effects can be seen throughout the non-profit community here.

Furthermore, the expanding joint employer standard opens up uncertainty for the business community. The past precedent required direct control, though now the new standard opens up companies like Microsoft that have corporate social responsibility programs as well as companies like Subway that agree to labor compliance agreements to being designated as joint employers.

My colleague Trey Kovacs points out that “The [National Labor Relations] Board overturned decades-old employment law that held a joint employer relationship existed when one company exercised ‘direct and immediate’ control over another company’s workforce.” While now “companies may be held legally liable for labor violations committed by other employers with whom they contract, even if they only exercise indirect control, unexercised potential control, and a vague notion of ‘economic and industrial realities.’”

This fits well with Weil’s attack on what he calls “the fissured workplace” and the practice of smaller business units like those found in contractors and franchisees.

This policy will forcefully modify how firms conduct business. There is likely to be a movement toward bigger conglomerated business and the elimination of contracting, due to the uncertainty and increased liability for workers firms do not employ from the new joint employer status. Jobs that have been created under the old standards will surely be lost. These are not isolated, individual cases in the regulatory process in response to genuine problems, but rather a part of a master plan of labor regulators to control the behavior of American business, whatever the consequences.