E-Mail This Article

Legislation may alter criteria for overtime pay

By Diane E. Lewis, Globe Staff, 3/23/03

Globe Photo/Sarah Brezinsky Attorney Howard Brown with papers he filed in the case for Stone & Webster engineers who said the now bankrupt firm denied them overtime pay.

Employees stand to win or lose millions of dollars in overtime as the US government prepares to redraw regulations that have not been changed in 30 years. The revisions could cause higher paid employees to receive less compensation for working extra hours.

Union and liberal activists fear the rules will be revised to exclude salaried white-collar workers who are struggling with the working conditions of the 21st century. Employers, smarting over multimillion-dollar settlements, say the existing law imposes time-clock standards on a digital workplace. They argue that it was originally designed to help low-wage workers with no clout in the boardroom - not highly compensated professionals.

The struggle is being waged on the following front: a proposed change in federal regulations imposed under the Fair Labor Standards Act of 1938, the law that mandates the 40-hour work week and overtime pay. The Department of Labor, the federal agency charged with rewriting the rules, expects to release proposed changes for public comment in 30 to 60 days.

Under the law, companies must pay employees time-and-a-half for working more than 40 hours. Employees who are classified as executives, administrators or professionals are generally exempt, but figuring out whether a worker fits into one of those three classifications is confusing because the job descriptions in the law haven't been updated in 54 years.

''Right now, the current regulations tell employers whether a keypunch operator, a gang leader, or a straw boss are exempt or not,'' said Tammy McCutchen, administrator for the Department of Labor's wage and hour division. ''We don't even know what some of those jobs are, or whether they exist today.''

Unions and management agree that something must be done, but they disagree on the method. Unions argue that overtime should be available to all classes of workers, regardless of income. They want the salary test used to determine eligibility for overtime increased to more accurately reflect today's wage rates. Currently, an employee can be labeled exempt if he or she supervises two or more people and earns a minimum salary of $8,060. That rule was imposed when manufacturing drove the nation's economy, and it is meaningless today, said McCutchen.

''We have situations where people who earn $15,000 but supervise two people are considered exempt, but an engineer who doesn't hold an advanced degree but makes $100,000 per year is entitled to overtime,'' she said.

The Bush administration, backed by business groups and employers, says the changes would qualify more low-wage workers for overtime pay by raising the salary limit. Right now, minimum wage workers who work at least 40 hours weekly take home approximately $11,000 per year, according to the Labor Department.

The administration acknowledges, however, that fewer professionals could qualify if the changes the government seeks also move more job classifications that might have qualified for overtime in the past into the exempt category. Business leaders, who are seeking to reduce payrolls during the current downturn, are hoping for such a reprieve.

''Professionals and other people who are exempt presumably have more bargaining power with their employers, and are less likely to need FLSA's protections,'' said Michael Eastman, referring to the protections of the Fair Labor Standards Act. Eastman is director of labor law policy for the 3.1 million-member US Chamber of Commerce in Washington, D.C.

For both sides, the stakes are high: An estimated 80 million US employees - about 20 percent of the work force - were covered by the overtime rule in 1999, according to the AFL-CIO, a 65-member union federation. The General Accounting Office reports that close to 45 percent of exempt employees worked more than 40 hours per week in 1998. By contrast, only 19 percent of employees eligible for overtime payments worked extra hours.

But unions maintain that the overtime regulations are not confusing. They also say that overtime pay should not be limited to low-wage workers.

''Employers see overtime as a cash flow problem,'' said Kelly Ross, a legislative representative for the AFL-CIO. ''But overtime was designed to discourage employers from requiring excessive hours. Take it away and you take away the discentive, resulting in more work hours, less flexibility for employees, and less time with their families.''

Unions also argue that employers have been getting around the law by misclassifying lower paid workers as managers. To rectify that problem, labor is seeking an increase in the law's salary test that more accurately reflect today's wage rates.

McCutchen said some employers are misclassifying workers as exempt because of confusion over the rules. Others are skirting the regulations, resulting in a rash of lawsuits and multimillion dollar settlements. In 2002, the Labor Department awarded $143 million in back pay to US workers who either were cheated out of overtime or misclassified as exempt under the Fair Labor Standards Act, up 29 percent over the $111 million companies paid to settle such cases the year before, federal statistics show.

As a contract engineer at Boston-based Stone & Webster between 1993 and 1999, Roy Simons rarely had time for recreation and didn't see much of his family. Dispatched to power plants around the country, he said he routinely worked 50 to 60 hours per week, including weekends.

''The first contract job I had with the company I worked seven days a week, 12 hours a day,'' for six months, recalled Simons, now 65 and living in Lindenwold, N.J. ''That was in New York state. You didn't go out. You just slept, ate and worked.''

In 1999, Simons sued, alleging that he'd been denied hundreds of hours of overtime pay. Last year, a Delaware bankruptcy court agreed. It approved a settlement requiring that Stone & Webster, then under Chapter 11 bankruptcy protection, pay between $100 and $10,000 for overtime to each of 131 employees around the country, many of them engineers.

The engineering company, whose assets have been sold to the Louisiana-based Shaw Group Inc., paid a total of $350,000 in back overtime last year. This year, it could wind up spending $250,000 more when final payments are released by the court, said Howard M. Brown, the Boston lawyer who represented the plaintiffs.

Brown, who also represents employers, said problems arose at Stone & Webster after the company laid off dozens of engineers in the early 1990s and then rehired them as independent contractors. Although they were classified as hourly workers, he said, they were treated as if they were still receiving a salary. Under the law, hourly workers are entitled to overtime after working 40 hours.

Some legal specialists blame the dot-com era for the current confusion over the law.

''The overtime issue is a work culture question, and the dot-com era gave rise to it,'' said Joshua M. Davis, a management lawyer and a director at Goulston & Storrs in Boston ''Young companies were trying to create workplaces that felt equitable. So, the CEO was not on a pedestal and the people who earned the big dollars were in workspaces similar to those who made less. In an environment like that, the FLSA gets pushed aside. Everybody is treated as if they are exempt from overtime.''

Diane E. Lewis can be reached at dlewis@globe.com.

E-Mail This Article