Human Resources: Fair Labor Standards Act
An Examination of the Fair Labor Standards Act of 1938 and Its Implications for American Workers Today
Although most Americans take for granted the wide range of social programs that are in place for their protection, many of these initiatives are fairly recent in origin, but one that has been around for quite some time is the Fair Labor Standards Act of 1938. The legislation established a minimum standard wage and a maximum work week of 40 hours in industries that were engaged in interstate commerce. The implications of the Act were profound, and today, in what has become a classic pattern over the years, calls for increases to the federal minimum wage are followed by impassioned cries from industry leaders that such an initiative will do more to harm business than it will to help minimum-wage workers. Rather than routinely bankrupt America’s businesses, though, the federal minimum wage has served as a vehicle with which the nation can help ensure that all workers receive a living wage, but critics have consistently pointed out that the federal minimum wage has been and remains too low for this purpose (Hart, 1994). To determine how effective the Fair Labor Standards Act has been in accomplishing its original purposes and what implications this legislation had on American workers and industries, this paper will provide an overview of the Act, followed by an assessment of the impact of the legislation. Finally, an analysis of current and future trends is followed by a summary of the research in the conclusion.
Review and Discussion
Background and Overview. According to the U.S. Office of Personnel Management (OPM), the Fair Labor Standards Act of 1938, as amended, is published in law in sections 201-219 of title 29, United States Code. The Act establishes minimum standards for both wages and overtime entitlement and codifies the administrative procedures and standards whereby covered worktime must be compensated for American workers today (An Overview of the Fair Labor Standards Act, 2005). According to the OPM, “Included in the Act are provisions related to child labor, equal pay, and portal-to-portal activities. In addition, the Act exempts specified employees or groups of employees from the application of certain of its provisions” (An Overview of the Fair Labor Standards Act, 2005, p. 2). OPM’s current FLSA regulations are published in part 551 of title 5, Code of Federal Regulations; changes to the Code of Federal Regulations are published in the Federal Register. According to Marcus, Minifie, Natarajan, and Wilson (1997), the FLSA was enacted in 1938 to help eliminate conditions that were detrimental to the nation’s commerce and the general welfare of workers; it was reasoned that by vesting the Secretary of Labor with broad investigative and enforcement powers, it would be possible to both prevent employee subrogation and to improve labor relations and the flow of commerce in the process (Marcus et al., 1997).
Broadly speaking, the FLSA prohibits an employer from:
Failing to pay minimum wage or overtime compensation to an employee;
Failing to keep individual work records for each employee;
Discriminating on the basis of sex by paying different wages for equal work;
Using oppressive child labor;
The FLSA makes it illegal for an employer to discharge or to discriminate against an employee due to the employee’s filing of a FLSA complaint or institution of a FLSA proceeding;
The FLSA prohibits the transport and sale of products manufactured by employees subjected to certain unlawful practices; and The FLSA includes a “hot goods” ban that makes it an offense to purchase goods from an establishment where a FLSA violation has occurred, unless the purchase was made in good faith and without knowledge of the business’s violations or unless the purchaser is the ultimate consumer (Marcus et al., 1997).
Furthermore, a cause of action brought under the protections provided by the FLSA preempt all other criminal statutes; as a result, the prosecution of employers for violations covered by the FLSA may proceed only under the FLSA provisions, and only penalties provided in the statute may be sought; however, Marcus and her colleagues add that state wage statutes are enforceable if they are not in conflict with the applicable FLSA provisions. In addition, the FLSA stipulates that its minimum wage provisions represent the floor rather than the ceiling, and its provisions do not in any way excuse an employer who violates a state or federal law which may set a higher minimum wage or a shorter work week (Marcus et al., 1997).
While most American workers take their present 5-day, 40-hour schedule of weekly hours for granted, this regimen was first introduced in the United States during the 1920s. The concept of a 40-hour week received support in 1926 when Henry Ford decided to convert his automobile plants from a 6-day to 5-day week. The 8-hour day, which Ford employees received a decade earlier along with the $5/day minimum wage, remained in effect; such progressive thinking was doomed to be short-lived though. In response to the worst depression in U.S. history and the demands of social movements that government provide substantive help, policymakers in the New Deal era looked to assist the type of American citizen President Franklin Roosevelt had called the “forgotten man at the bottom of the economic pyramid”; this assistance was to be provided in the form of regulatory labor policies and redistributive social policies that would previously have been forbidden within institutions of the national government (Mettler, 1998). Perhaps no other period in American history would even have resulted in such a set of progressive — and in many cases largely unconstitutional — federal initiatives that were targeted at the nation’s most marginalized citizens.
The Fair Labor Standards Act of 1938 (hereinafter, FLSA or the “Act”) was enacted by Congress in 1938 as a response to the enormity of the economic conditions that existed in the midst of the Great Depression. The purpose of the FLSA was to help protect workers from substandard wages and oppressive working hours and conditions that were detrimental to the “health, efficiency, and general well-being of workers”; in this regard, the FLSA was “designed to give specific minimum protection to individual workers and to ensure that each employee covered by the Act would receive [a] fair day’s pay for a fair day’s work and would be protected from the evil of ‘overwork’ as well as ‘underpay'” (Walter, 2002, p. 79). The Act was targeted at protecting the most vulnerable workers such as children and low-paid “sweatshop” employees; however, the Act did not apply to public agencies and the FLSA regulations initially issued by the United States Department of Labor (“DOL”) did not envision the Act being applied to public agencies (Walter, 2002).
For the purposes of enforcement, the FLSA defines an employer as being “any person acting directly or indirectly in the interest of an employer in relation to an employee . . . .” (29 U.S.C. Sections 203(d). In United States v. Rosenwasser (323 U.S. 360, 363), the Supreme Court further defined “employer” for purposes of FLSA jurisdiction as being the “broadest . . . that has ever been included in any one act” (1945, n. 3). Therefore, for the purposes of FLSA enforcement, an employer can be considered any “individual, partnership, association, corporation, business trust, legal representative, or any organized group of persons” (Marcus et al., 1997, p. 459). Further, besides a corporation itself, a corporate officer with operational control is also considered an employer and can be held jointly and severally liable under the FLSA for unpaid wages; these corporate officers are liable in their individual rather than their representative capacities though (Marcus et al., 1997).
The FLSA provisions also apply to both individual employers and to employers that represent any type of “enterprise” (Marcus et al.,. 1997). Here, the commerce clause becomes relevant for enforcement of the provisions of the FLSA when the employers are involved in interstate commerce; of course, Congress has sought to expand the interstate commerce concept to include virtually anything that involves a business transaction and therefore the provisions of the FLSA are applicable to individual employers in those “industries engaged in commerce or in the production of goods for commerce” (Marcus et al., 1997). Liability applies to individual business entities if they constitute an “enterprise” when related activities are performed through a unified operation or where there exists common control for a common business purpose; the authors report that a significant amount of litigation has been devoted to determining which businesses constitute enterprises within the meaning of the Act (Marcus et al., 1997).
As discussed further below, the definition of employer for the purposes of FLSA enforcement also encompasses public agencies but labor organizations are not included, except when acting in their capacity as an employer, or any person acting as an officer or agent of a labor organization (Marcus et al., 1997). Like the situation with monopolies and professional baseball leagues in the United States, the situation with the labor organization and the FLSA is also unique in that criminal, but not civil, remedies may be sought against it; for example, Marcus et al. report that:
sections 216(a) provides for criminal penalties for willful violations by “any person,” while sections 216(b) provide for a civil action for monetary damages against “any employer”; the FLSA, therefore, does not provide for private actions by employees against a labor union (Marcus et al., 1997). The FLSA provides for enforcement against labor organizations by either injunctive proceedings instituted by the Secretary of Labor under [sections] 217 or by criminal prosecutions for willful violations under [sections] 216(a) (Marcus et al., 1997).
In addition, under the Fair Labor Standards Act of 1938, children under the age of sixteen are prohibited from being employed in most occupations, and in hazardous industries, children under of 18 years are banned outright from employment (Marcus et al., 19979). According to Marcus and her associates, these specific factors, as subsequently amended, were originally included in the FLSA in response to both the exploitive nature of the early 20th century workplace and the enormity of the economic forces at play. This point is made in the book, The Quest for a Living Wage: The History of the Federal Minimum Wage Program, by Willis J. Nordlund (1997), who reports that, “During the decade immediately preceding the Great Depression and the nine years prior to the passage of the Fair Labor Standards Act, the American economy went through a wrenching experience. Contrary to a widely held belief, the decade of the 1920s was not a period of exuberant economic growth that resulted in a higher standard of living for all Americans” (p. 3). In fact, the 1920s represented a unique decade in American history for a number of reasons; however, rampant economic improvement as envisioned by the FLSA clearly was not one of them; unemployment had been high throughout the decade of the 1920s, and the distribution of income remained uneven (Nordlun, 1997).
According to Howard D. Samuel (2000), “Historical events show that oppositions within the labor movement had prolonged passage of legislation relating to minimum wages and maximum hours, contained in the Fair Labor Standards Act of 1938” (p. 32). Despite the opposition, however, eventually the Fair Labor Standards Act did pass, and President Roosevelt commented, a few days after he signed it on June 28, 1938, that “I do think that next to the Social Security Act it is the most important Act that has been passed in the last two to three years”; however, it required three more sessions of Congress and an enormous effort on the part of the legislation’s advocates to get it passed, in no small reason, because of the divisions within the labor movement (emphasis added) (Samuel, 2000).
The provisions of the FLSA also established a wage-and-hour division in the Department of Labor to enforce its provisions. According to Benjamin Kline Hunnicutt’s book, Work without End: Abandoning Shorter Hours for the Right to Work (1988), the legislation was supposed to cover workers in interstate commerce, and set minimum wages at 25 cents per hour in 1938 and 30 cents in 1939; maximum hours were set at 44 in 1938, 42 in 1939, and 40 for 1940 and the following years (Hunnicutt, 1988). The issue of a minimum weekly wage increase was resolved by the formula set forth in Table 1 below:
Table 1. FLSA Early Minimum Weekly Wage Formula.
Weekly Wages
Weekly Rate
First year
$11.00 (44 X $.25)
Second year
$12.60 (42 X $.30)
Third year
$14.00 (40 X $.35)
Fourth year and after
$16.00 (40 X $.40)
(Source: Hunnitcutt, 1988.)
Advocates in the federal administration at the time maintained that millions of American workers would be covered by the initiatives; however, opponents, including labor representatives, were virtually unable to find anyone to whom the bill actually applied, particularly in the provision on hours. Hunnicutt advises that, “Certainly some southern textile mills were covered. But since the average workweek was at 40 hours in industry, the bill was recognized for what Roosevelt had meant it to be: a cap to ‘overlong hours’ and not a method to reduce unemployment” (p. 247). While the FLSA may not have been intended to reduce unemployment, as the 20th century progressed, many labor advocates became fearful that the net impact of the legislation and newly introduced innovations in the workplace would be to reduce working hours and therefore wages and benefits.
According to McCarthy and McGaughey (1989), “Back in the late 1950s, the public became aware of a long-term threat to jobs from a phenomenon for which the word ‘automation’ had recently been coined. The idea of shortening the workweek through amendment of the Fair Labor Standards Act was among the suggestions offered then to deal with this problem” (p. 11). Generally that was the recommendation of organized labor. Some of the unions were advocating a 35-hour workweek, others a 32- or 30-hour week, but all were making essentially the same point: that the new labor-saving technologies were destroying jobs held by their members on the basis of 40 or more hours a week. “At a lower level of hours, however, those jobs might be saved. This point-of-view did not prevail. The business community was opposed to the shorter-workweek idea. When academic and government economists joined in the opposition, the proposal was doomed” (McCarthy & McGaughey, 1989, p. 12). The demand for shorter working hours was not acted upon 40 years ago because of dire predictions that the economy’s growth and development would be adversely affected by such an initiative.
Then, as now, the objective of public policy was to encourage economic growth, and the Cold War was no time to be thinking about cutting back on economic growth: “The U.S. economy needed to grow rapidly, it was argued, so that the nation could honor its global commitment to fight communism, build hospitals and schools, and provide a continually rising standard of living for American workers. Many believed that cutting work hours would put the economy in a straight jacket, so to speak. It would freeze industry at a particular level of development” (McCarthy & McGaughey, 1989, p. 12). Further, at the time, many economists suggested that the idea that shorter hours might create jobs was based on a fallacy that they called the “lump of labor” theory. Paul Samuelson suggested in his popular economics textbook that: “The lump-of-labor argument implies that there is only so much useful remunerative work to be done in any economic system, and that is indeed a fallacy…. There is no doubt that drastic shortening of hours would imply lower real earnings than a full-employment economy is capable of providing at a longer workweek” (McCarthy & McGaughey, 1989, p. 12). Just as the circumstances in which the FLSA was first promulgated have changed in fundamental ways over the years, concepts of what represents work and the number of hours worked have likewise experienced some drastic changes.
Likewise, John Diebold advised the Joint Economic Committee of Congress in 1960 that: “Unlimited demand for goods and services will prevent unemployment from automation. Since human wants are unlimited, increased productivity and production will find a market in satisfying these wants. Through greater productivity earnings will increase to such an extent that there will be a tremendous rise in our standard of living” (McCarthy & McGaughey, 1989, p. 13). This observation was made more than 45 years ago, and then, as now, the choice was clear: “Either we could take the pessimistic expedient of shortening work time and so abort part of our economic future, or we could continue upon the upward glide-path to new heights of prosperity. Of course we chose the latter” (McCarthy & McGaughey, 1989, p. 13). Clearly, the United States elected to produce goods and services over more leisure for its workers in the firm belief that the two were somehow related.
While it is not possible to assess the impact of shorter hours on the nation’s standard of living because work hours in this country have failed to decline, it is possible to track the progress in living standards, or lack thereof, given the decision to renounce shorter hours for the sake of more production. An analysis the statistical data concerning the concept of there being a simple tradeoff between leisure and living standards is provided in the tables and figures that follow.
Table 2. Average Hours Worked per Week in U.S. Civilian Economy, 1860-1987
Year
Average
Workweek
68.0
65.4
64.0
61.9
1900
60.2
1910
55.1
1920
49.7
1930
45.9
1940
44.0
1950
42.5
1955
41.6
1960
40.8
1965
40.5
1970
39.1
1975
38.7
1980
38.5
1985
39.0
1987
39.0
Source: McCarthy & McGaughey, 1989, p. 12.
As can be readily seen on the hours column in Table 2 above and Figure 1 below, the average workweek in the U.S. civilian economy declined more rapidly in the earlier part of this century than in the years after World War II. For example, during period between 1900 and 1940, the average workweek dropped from 60 to 44 hours, which represents a decline of 4 hours per week per decade during this time. During the period between 1940 and 1980, the average workweek further declined from 44 to 38.5 hours, representing a significant decline of 1.4 hours per week per decade (McCarthy & McGaughey, 1989).
The period between 1940 and 1960 accounted for 3.5 hours of the 5.5 hours decline since 1940, and the period after 1960 for 2.0 hours. Since 1980 there has been, in fact, a slight gain in average hours (McCarthy & McGaughey, 1989); this trend continues today (Edwarsd, 1993).
Figure 1. Average Hours Worked per Week in U.S. Civilian Economy, 1860-1987
Source: Based on data in McCarthy & McGaughey, 1989, p. 12.
As can be seen in Table 3 and Figure 2 below, in terms of living standards, the average real hourly wage in the United States more than doubled in the quarter century between the two world wars. The average real hourly wage increased by an additional 50% from the end of World War II until 1970. The increase in real earnings has subsequently stalled and even started to decline.
Table 3 and Figure 2 below show the median money income of U.S. families in constant dollars in the period between 1960 and 1985; as can be readily seen, there was an increase of $7,991 in annual earnings during the first thirteen years, followed by a decrease of $1,829 during the last twelve years (McCarthy & McGaughey, 1989).
Table 3. Median Money Income of U.S. Households in Constant 1986 Dollars.
Year
Annual
Income
1960
20,807
1965
24,176
1970
27,862
1973
29,734
1975
27,949
1978
29,647
1980
27,974
1983
27,155
1985
28,269
Source: McCarthy & McGaughey, 1989, p. 14.
Figure 2. Median Money Income of U.S. Households in Constant 1986 Dollars
Source: Based on data in McCarthy & McGaughey, 1989.
Assessment of the Impact of the Fair Labor Standards Act.
The right of American workers to organize and to engage in collective bargaining was first codified with the National Labor Relations Act of 1935; social provisions for the unemployed, elderly, and single mothers with children were further institutionalized through the Social Security Act of 1935; minimum wages were guaranteed by the Fair Labor Standards Act of 1938 (Mettler, 1998). According to Richard Edwards (1993), the FLSA, like the NLRA, also had its roots and found partial expression in some earlier legislation; for instance, restrictions on the length of the workweek had been a component of the National Recovery Act codes of 1933 and 1934; however, the FLSA established these rights for affected American workers on a permanent basis (Edwards, 1993).
In this regard, the FLSA covers most hourly workers and requires their employers to pay a 50% premium (commonly known as “time and a half”) to employees who work more than forty hours a week; the Act also mandated a minimum wage and restricted the use of child labor. In certain types of industries, it established restrictions on how employers may organize production; for example, in the manufacture of some women’s garments, it prohibited production in the home (Edwards, 1993). Of course, these newly gained rights were also linked with new obligations and responsibilities, as citizens began to pay more taxes to national government to finance social programs and to tolerate the increased government intervention in private life that accompanied new regulatory policies. “The metamorphosis embodied by such policies has been widely regarded a “constitutional revolution,” a permanent expansion of the scope and an alteration of the subject matter of national government authority” (Mettler, 1998, p. 5). In spite of these early efforts at securing statutory rights for American workers, the collective-bargaining approach continued to characterize the provision of workers’ rights during the 1940s and 1950s. According to Edwards, “Between passage of the FLSA and the 1960s, there was little further advance in statutory rights, either at the federal or the state level. The major pieces of federal legislation passed during this period focused on labor law (and reflected the conservative tide): the 1947 Taft-Hartley and 1959 Landrum-Griffin acts revised the NLRA framework, making it less favorable to unions” (p. 106). The legislative granting of substantive rights enjoyed some new momentum in the 1960s, though, in response to several factors including:
1)
The fruition of the unions’ efforts to generalize collective-bargaining gains through legislation;
2)
The growth and success of the civil rights movement;
3)
The revival under Presidents Kennedy and Johnson of the New Deal vision of government as solver of social problems; and,
4)
The increased social opportunities made possible by the long prosperity of the 1960s (Edwards, 1993).
Unfortunately, many of those specifically targeted by the FLSA remain at a disadvantage simply by virtue of employers who ignore its provisions. As recently as 1970, fully 25% of the farm wage workers in the United States were less than 16 years old, the mandated minimum age for such work (with numerous exemptions, though). For instance, in 1969, the federal minimum wage for farm wage workers was increased to $1.30 an hour; however, this increase only applied to workers on larger farms and another exemption allowed farmers to pay migrant children under 16 the prevailing piece rate provided that scale was being paid to everyone else in the field.
Generally speaking, though, the Fair Labor Standards Act (FLSA) of 1938 made it illegal to employ children under 16 years of age while school was in session and prohibited children from working at specific hazardous jobs. Nevertheless, abuses then and now were rampant. According to Ronald B. Taylor (1973), “Each year untold thousands of boys and girls are employed legally and illegally to harvest the nation’s crops. The American Friends Service Committee reported: ‘The use of children as industrial laborers was outlawed under the Fair Labor Standards Act of 1938, yet in 1970 one-fourth of the farm wage workers in the United States are under 16 years old'” (p. 5). Notwithstanding these abuses, though, it is reasonable to assert that the vast majority of American employers attempt to comply with the provisions of the FLSA, if only to stay out of trouble with the employment authorities. There have been some significant changes to the original act in recent years that have kept employers on their toes as they attempt to keep abreast of those changes that affect them in particular.
According to Jeffrey D. Pollack (2001), today, the FLSA requires employers to pay their employees for all hours worked, and to pay overtime for hours in excess of forty per week. Therefore, understanding the definition of “hours worked” becomes essential to ensure compliance with the current provisions of the FLSA. In this regard, Pollack notes that there are a variety of statutory and regulatory sources for the definition, and several liability and remedies provisions under the FLSA. For example, the FLSA does not specifically define “hours worked”; instead, it defines “employ” as “to suffer or permit to work” [29 USC section 203(g)]. In 1940, Jerome Davis and Emanuel Stein asked, “What does ‘able to work’ mean? Does it suggest mental ability, physical ability, legal ability? And who is the judge of ability? The worker himself? The employer? The government? There are certain groups of people who, although perhaps physically and mentally able to perform many types of work, are still not ‘able to work’ because of some legal obstacle” (p. 31). Beyond these legal obstacles (such as age or in some cases gender), work has also been defined as being “physical or mental exertion (whether burdensome or not) controlled or required by the employer and pursued necessarily and primarily for the benefit of the employer and his business” [Tennessee Coal, Iron & R.R. Co. v. Muscoda Local No. 123, 321 U.S. 590, 598 (1944)] (Pollack, 2001). Black’s Law Dictionary (1990) advises that “work” is “to exert oneself for a purpose; to put forth effort for the attainment of an object; to be engaged in the performance of a task, duty or the like. The term covers all forms of physical or mental exertions, or both combined, for the attainment of some object other than recreation or amusement” (p. 1605). These definitions taken together, then, provide a fairly comprehensive picture of what “work” is in terms of the FLSA, but today, it is also necessary to expand the analysis to the regulations in 29 CFR Part 785, as well as the Portal-to-Portal Act (29 USC section 251 et seq.), discussed further below.
The precedents established by in 29 CFR Part 785 and the Portal-to-Portal Act (29 USC section 251 et seq.) stipulated that employers must pay for all hours an employee works — even if the employer does not request the work; the employer bears the burden of preventing unwanted work; in fact, just the “mere promulgation of a rule” is insufficient for this purpose and the employer must “make every effort” to enforce the rule (29 CFR section 785.13). The defense that the employee could have completed the work in less time is not viable, nor is the employee’s failure to claim the hours (Pollack, 2001). Furthermore, if the employer “knows or has reason to believe” the employee is working, the employer must pay for the time pursuant to 29 CFR section 785.11. Under appropriate circumstances, constructive knowledge will be imputed; nevertheless, “[w]hile an employer must pay for [all] work it suffers or permits, an employer cannot suffer or permit an employee to perform services about which the employer knows nothing” (Pollack, 2001, p. 56). The FLSA was also applied to employees of the United States federal government in 1974; section 3(e)(2) of the Act which authorized the provisions of the Act to be applied any person employed by the government of the United States, as specified in that section (An Overview of the Fair Labor Standards Act, 2005, p. 3).
The Congressional Accountability Act of 1995, as amended, sections 1301 et seq. Of title 2, of the United States Code, also expanded the rights and protections of the FLSA to those employees working for the following U.S. federal government entities:
The United States House of Representatives;
The United States Senate;
The Capitol Guide Service;
The Capitol Police;
The Congressional Budget Office;
The Office of the Architect of the Capitol;
The Office of the Attending Physician; and The Office of Compliance (Who Does What, 2005, p. 2).
While the definition of employer for the purposes of FLSA enforcement also encompass the above public agencies, today, labor organizations, though, are not included, except when acting in their capacity as an employer, or any person acting as an officer or agent of a labor organization (Marcus, 1997). The situation of the labor organization is unique in that criminal, but not civil, remedies may be sought against it: sections 216(a) allows criminal penalties for willful violations by “any person,” while sections 216(b) provide for the maintenance of a civil action for monetary damages against “any employer”; therefore, the FLSA does not provide for private actions by employees against a labor union. Nevertheless, the Ac does provide for enforcement against American labor organizations through either injunctive proceedings instituted by the Secretary of Labor under sections 217 or by criminal prosecutions for willful violations under sections 216(a) (Marcus, 1997).
By any measure, then, the impact of the FLSA on the American workplace has been profound to date simply by virtue of the number of workers it have embraced; however, recent changes in the original rules which had not been updated in decades have some important implications for American employers and employees alike today. These issues are discussed further below.
Current and Future Trends. According to Ellen Mutari (2004), the FLSA is important today not simply in terms of how it helps to maintain a consistent labor supply, but also because it served as the basis for government intervention in market mechanisms in the first place by helping establish the precedent for federal intervention in anything related to interstate commerce. In this regard, “Rather than viewing market mechanisms and government regulations dichotomously,” she says, “economic actors debating the FLSA treated both market mechanisms and socially defined living standards as legitimate elements of wage-setting” (p. 129). This observation was made in response to the trend that has emerged since the mid-1990s wherein coalitions of community groups, faith-based activists, and labor unions have sought legislation known as “living wage ordinances”; these ordinances generally mandate that private businesses receiving public funds must pay their own workers a “living wage” that is higher than the current federal minimum wage. According to Mutari, “The emphasis of the 1996 Personal Responsibility and Work Opportunity (“welfare reform”) Act on labor market activity as the primary means of provisioning for single mothers, along with concerns about economic inequality and the privatization of public services, have provided support for the contemporary living wage movement” (2004, p. 130). In these types of initiatives, the dollar threshold that is typically requested is the hourly rate equivalent for one full-time earner to maintain a family of three or four above the federal poverty line; however, the legislated compromise is generally lower than this amount (Mutari, 2004).
Today, living wage activists have revived arguments that firms whose employees are among the working poor are parasitic, linking this argument to the rise in what has been called corporate welfare. If private sector employers receive tax subsidies and other benefits from state and local government, then those same employers have a social obligation to pay employees a family-sustaining wage. Current living wage initiatives can therefore be seen as attempts to assert a view of economic activity as a process of provisioning, that is, of producing and reproducing human material life. These types of policies provide community interests and well-being primacy over market forces (Mutari, 2004).
The contexts in which these modern living wage campaigns are being prosecuted are dramatically different than those in which the first federal minimum wage was passed though. Waltman (2000) points out that the passage of the federal wage and hour legislation during the New Deal was important on a number of levels that have relevance today; for example, the Fair Labor Standards Act (FLSA) set the first federal minimum wage and established a 40-hour week as a social norm by mandating a higher overtime rate of pay for hourly wage workers. Beyond these firm policy precedents, the FLSA was also important for symbolic reasons: “The symbolic importance of the minimum wage has kept it at the forefront of policy debates even as actual coverage under the policy has waxed and waned” (Mutari, 2004, p. 130). Nevertheless, there are legacies of the FLSA that continue to pervade how American workers view their social contract with their employers and vice versa; certainly, these considerations have experienced some profound changes in the past five decades.
For example, Mutari notes that the living wage movements of then and now provided an alternative theory of wages in sharp contrast the traditional view of wage floors as being rigid barriers to identifying market equilibrium points. Further, by establishing a federal minimum wage, the idea that living standards and workers’ needs mattered in setting wages became part of the American consciousness. According to Mutari, “They mattered not simply in generating labor supply, but as the basis for government intervention in market mechanisms. Living wages were important both normatively (as a matter of ethical fairness and compassion) and analytically (as a means of restoring prosperity and macroeconomic stability)” (p. 130). Instead of the perspective that market mechanisms and government regulations were mutually exclusive elements in this analysis, the economic actors that were debating the FLSA treated both market mechanisms and socially defined living standards as being legitimate elements of wage setting in specific historical and industrial contexts. Furthermore, these findings supported the research by past scholars who focused on the attitudes of economists toward minimum wage legislation during the Progressive Era social reforms from 1912 to 1923 (Power, 1999). Besides debating the role of living costs, purchasing power, labor supply and demand, and productivity in setting wages, wage regulations also, by necessity, must take into consideration increasingly salient issues of identity, that is, which workers (particularly when they are defined by class, gender, and race — ethnicity) are deserving of particular living standards. The notion of who qualifies as a family’s breadwinner and what a living wage mean are matters of historical perspective; for example, the single mothers and immigrant workers who are frequently the focus of today’s campaigns were not the targets of the first federal living wage policy, the minimum wage floor institutionalized under the Fair Labor Standards Act of 1938 (Mutari, 2004). Other changes in the FLSA intended to bring it in line with the workplace of the 21st century have met with mixed reviews.
The new rules are significantly different from the previous ones which had not been amended in any substantive manner for decades took effect on August 23, 2004. Under these new provisions, employees who pass the basic salary standard ($23,660 annually, $455 per week) who have management responsibilities may also be placed in an exemption category, typically the executive exemption class, where employers are not required to pay them overtime and where the maximum hours-per-week provisions of the FLSA do not apply. According to Steve Cocheo’s essay, “Banks Must Labor to Comply with New Overtime Rules; Fair Labor Standards Act Regs Take Effect August 23, 2004,” “While the word ‘executive’ connotes corner offices in some people’s minds, the Labor Department’s rules actually apply much further down the corporate food chain. For example, positions that could be placed under this exemption include head teller, branch manager, and customer service supervisor, as well as department and division heads” (p. 60). To qualify as an “executive” for the purposes of the new FLSA exemption rules, an employee’s primary duty must be management; in addition, the employee must be responsible for the supervision of at least two other full-time employees during the course of a week (Cocheo, 2004).
In the alternative, a total of 80 hours spent supervising fellow employees, if part-timers are involved, can be counted for this purpose; however, shared supervision can skew these calculations because employees supervised cannot be double-counted (Cocheo, 2004). Furthermore, to be considered an executive for this purpose, the employee must be in the position to hire and fire subordinates, or at least be able to make significant recommendations along those lines. “If any one of these are missing, the employee does not qualify for the exemption,” Cocheo advises. “There are many entry-level supervisors who don’t have the power to hire or fire employees, nor do they really have the ability to make recommendations” (p. 61). This analyst recommended looking carefully at any situations where an employee is nominally in charge of six or fewer employees, because actual performance and practice may not support the case for considering the employee to be an active manager.
Despite the foregoing, under some circumstances, an employee can still spend less than the majority of his or her time performing management tasks and still be considered an exempt executive. The standards that would be considered, in such cases, would be the employee’s relative autonomy (Cocheo, 2004). There are also provisions in the new rules that take into consideration new innovations in the workplace today. Under the new rules, a manager who for some reason cannot be brought under the executive exemption can instead be exempted by using the computer employee exemption under certain circumstances, which are discussed further below.
Although a number of labor advocates had sought a more comprehensive change in the regulations, Cocheo suggests that the new rules fell far short of this mark. An exemption for computer-related employees has already been in the FLSA rules since 1996, but “. . . many information technology-related positions have been created that just don’t fit the definitions when they were formulated” (Cocheo, 2004, p. 61). As an example, the author cites the position of “website developer,” an occupation that could not even be envisioned by most organizations just a few years ago. According to Cocheo, “The major revamp of the computer classification that was hoped for didn’t materialize. The government was unable to do it so the computer exemption has become very, very limited” (2004, p. 62). It would seem that the FLSA has a sufficient number of exemptions to allow for a good deal of abuse, then. While enforcement procedures are in place across the nation and cases against employers tend to be highly publicized, there remain some gray areas that can affect the outcome of any such prosecutions. For example, the definitions of the primary duties of positions that can qualify for the exemption have also experienced some fundamental changes in recent years. Frequently, the types of people that many businesses today employ simply do not conform to the definitions in the newly promulgated IT rules. For instance, Cocheo cites the example of one primary duty that was listed that involved “machine operating systems” design, documentation, testing, creation, and modification; however, most businesses today — particularly small businesses — tend to simply buy their software off the shelf, but the people who use it are required to understand the mechanics involved and to be sufficiently knowledgeable to customize it to the unique circumstances of the individual business. This level of expertise may not fall within the parameters established by the revised IT definitions. The Labor Department also failed to include a list of titles that might fall into this category as part of their revised regulations. As a result, many of the onsite troubleshooters that companies employ to manage help desks and the like, don’t fall under the exemption; nor do employees who work with computers but whose main job does not involve systems analysis (Cocheo, 2004).
Further complicating issues for many employers and employees alike today is the nebulosity of the definitions in the IT section which provides a wide range of opportunities for employers to misclassify employees who would otherwise meet these criteria. One industry analyst recommended placing a computer worker under other exemption classifications, such as “administrative” (p. 62). Further, the salary standards operate differently for the computer employee according to the revised FLSA rules; these employees can be exempted on the basis of receiving a higher hourly salary of at least $27.63 an hour (Cocheo, 2004). Professional exemptions were also covered in the new rules; however, these did not change substantively from the previous rules. Cocheo reports that accountants and attorneys are the professionals who most often qualify under this exemption. “The basic qualification is a specialization in an advanced field, along with having a consistent ability to exercise discretion. Yet even here some problems from the past rules were carried over” (p. 61). For example, paraprofessionals do not for an exemption, in spite of their training and the considerable amount of autonomy and latitude many have in their work (Cocheo, 2004).
Conclusion
The past 75 years have witnessed some fundamental changes in the way most American workers are treated by their employers, and one of the reasons for these changes was the Fair Labor Standards Act, as amended, of 1938. The research showed that the Fair Labor Standards Act of 1938 was the first federal minimum wage legislation in the United States. The research also showed that this Act first codified and institutionalized the concept that living standards and workers’ needs were relevant issues in the debate over established wages in the United States. While the impact on the FLSA on all American workers has been mixed, the benefits of having such regulatory guidance in place for as many workers as possible became quickly clear as the research progresses. Finally, while the OPM and Congress have attempted to refine the FLSA to meet the changing nature of the American workplace, the recent changes failed to envision the rapidity with which computer-based innovations would sweep the country and the world, and there is a glaring need for further refinements in the very near future.
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