Sep. 2, 2003 - FORT WAYNE, Ind.--It was 1938. Unemployment levels were high. The economy was still struggling to recover from a series of setbacks, including a devastating drop in the stock market. Workers lucky enough to have jobs complained of long hours, yet employers were reluctant to boost hiring because of continued economic uncertainty.

The U.S. Congress, spurred on by President Franklin D. Roosevelt, responded by passing the Fair Labor Standards Act. The new law created the 40-hour work week and required employers to pay wages at a rate of time-and-a-half for hours worked beyond that.

The law was designed to accomplish two key objectives: to prevent employers from abusing workers with excessive hours, and to encourage employers to spread the workload out by hiring more people -- thus reducing those high unemployment levels.

Fast forward to 2003. Unemployment levels are high. The economy is struggling to recover from a series of setbacks, including a substantial drop in the stock market. Workers who have managed to hang on to their jobs complain of increased workloads and hours, yet employers are reluctant to boost their hiring because of continued doubts about the strength of the economic recovery.

The U.S. Labor Department, spurred on by President Bush, proposes a series of changes in the wage and duty standards that have evolved under the FLSA. The rules determine which "white collar" employees must be paid overtime for all hours over 40 in a work week, and which employees are considered exempt from this requirement because they are classified as executives, administrators and/or professionals.

The proposed rules are expected to be finalized early in 2004 and could take effect within a few months of that date.

Proponents -- primarily businesses and Republicans -- argue the new rules will update antiquated standards to reflect the changing nature of jobs and the work place. They also automatically will guarantee overtime to 1.3 million low-wage workers by raising the minimum wage level for exemption.

Opponents -- mostly labor activists and Democrats -- claim the new rules could deprive as many as 8 million workers -- including some nurses, police officers and firefighters -- of the overtime they now are eligible to collect. They also argue the new rules could exacerbate the country's lingering unemployment problem.

"The idea of the Fair Labor Standards Act was to force companies to hire more people because, at a certain point, you can't squeeze any more work out of a person," said Fort Wayne attorney Patrick Proctor, who handles a lot of employment law cases.

"Jobs have changed, I agree with that," Proctor said. "But I don't think the need to promote hiring has gone away."

According to statistics analyzed by the labor-backed Economic Policy Institute in Washington, the recovery from the recession that ended in November 2001 is the worst -- in terms of employment growth -- since the Bureau of Labor Statistics began tracking monthly employment figures in 1939.

The Labor Department argues the proposed rules changes, with a single set of wage and duties tests for each category of employees, will cut regulatory red tape and reduce expensive litigation.

"We think that will help create jobs because it will decrease the time and money employers need to comply with the rules," said Tammy McCutchen, administrator of DOL's Wage and Hour Division in Washington.

Proctor, on the other hand, believes the revised rules will prompt a flood of new lawsuits.

"And frankly, that's where I make my bread and butter," he said.

The FLSA "is one of the most misunderstood laws out there," said Marshall Anstandig, vice president of senior, labor and employment law for Knight Ridder, the owner of The News-Sentinel and partner with the Journal Gazette Co. in Fort Wayne Newspapers Inc.

Reporters, photographers and other media and advertising workers are among those who may be reclassified as exempt from overtime under the proposed new rules. They could fall in a sub-category of exempt, learned professionals referred to as "creative professionals."

"Certainly it opens up the door for classifying more people as exempt," Anstandig said.

The new rules will take effect next year unless a law is enacted to prevent it.

In July, the Republican-led House of Representatives defeated the Democrat's bill that would have stopped the Department of Labor from changing the rules without legislative consent. A bipartisan Senate group has proposed a similar measure as an amendment to an appropriations bill. A vote on that is expected after the current recess.

The FLSA always has exempted certain executives, administrators, professional employees and outside salespeople from overtime requirements, based on the belief those individuals had enough control over their work and enough clout to establish their own work hours and conditions.

But Congress gave the Labor Department the power to define, and occasionally redefine, who belonged in those exempt categories.

The current rules, some of which haven't been changed in 50 years, include a two-tiered series of tests based on wages and the job duties performed.

For most job categories, the "short test" applies if the employee earns at least $250 a week. The long test, which includes a lengthier, more demanding description of job duties, generally applies when the worker is paid more than $155 but less than $250.

"It looks like what they're trying to do is good from the standpoint that they're trying to streamline it," said Bruce Hamilton, vice president of human resources for Lutheran Health Network. "Anything that would be easier for employers, I'm in favor of."

Both sides agree the wage minimums in the current tests, which haven't been boosted in about 30 years, are far too low. They allow a worker making as little as $8,000 a year to be exempted from overtime if he or she primarily performs management functions.

The proposed rules would raise the minimum wage level to $22,000. Below that, employees automatically would be entitled to overtime.

Hewitt Associates, a business consulting firm in Lincolnshire, Ill., believes this provision might present significant costs to employers.

Some companies might have to raise the salaries of their exempt managers to keep them ahead of lower-paid subordinates who are also eligible to collect overtime, a Hewitt analysis said.

The new wage minimums -- which the Labor Department specifically set to cover the lowest 20 percent of salaried employees -- are still only at about poverty level for a family of five, according to the 2003 Health and Human Services guidelines.

"This is where the Department of Labor says they're going to pick up people," Proctor said,"but I've never had anyone come in here who was making less money. What we fight about is the job duties."

Nurses are concerned about both the new job duties language and the second part of the wage standard -- a $65,000 wage cap they fear would exempt virtually everyone paid more than that.

The Labor Department set the upper wage limit at the point that divides the upper 20 percent of salaried workers from the rest. But it doesn't take into consideration the already wide differences in wage levels and living costs across the country, said Suzanne Martin, associate director of United American Nurses.

UAN, which represents about 100,000 registered nurses nationwide, currently is involved in an effort to organize nurses at Parkview Hospital in Fort Wayne.

At some facilities in New York City, for example, the beginning salary for nurses is already $62,000, Martin said.

"There are some the exemption will apply to as salaries rise, as inflation increases," Martin said.

The Department of Labor looked at varying top salary standards from one labor market to another, but "there were a lot of challenges to doing that," McCutchen said.

The proposed change in duties language that potentially could affect nurses allows employers to consider military and on-the-job training and years of experience in addition to professional certifications and degrees when deciding who is exempt.

Currently, with the exception of nurse managers, there is a single special class of nurses at the highest level of the clinical ladder who are exempt in the Lutheran Health Network.

"That's pretty standard and common practice," Hamilton said.

Parkview uses similar criteria.

"We look at each position individually and compare it with Department of Labor requirements for both salary and the job duties when determining if the position will be exempt or nonexempt," said spokeswoman Karen Belcher.

"With the proposed changes in the professional definitions, we don't know how much of an impact it will have on us. It probably will be minimal, but we'll need to wait and see what the final definitions say," Belcher added.

Hamilton thinks the new rules will have little, if any, impact on Lutheran employees. In any event, he believes there are many good reasons to keep paying nurses, physical therapists and medical technicians overtime even if they could be reclassified as exempt.

"Just because we can do it doesn't mean we should do it. I think that's a responsible approach," Hamilton said.

Application of the new language on professionals "is likely to be difficult and may leave loopholes for some employers, the DOL and the courts to determine," said the analysis by Hewitt Associates.

"In any event, these proposed changes likely will open the door for employers to reclassify a large number of previously nonexempt employees as exempt. The resulting affect on compensation and morale could be detrimental as employees previously accustomed to earning, in some cases, significant amounts of overtime pay would suddenly lose that opportunity," the Hewitt analysis concluded.

Hamilton agrees a widespread reclassification of people could raise serious employee relations issues.

That could be particularly detrimental for employers in areas such as health care, where the competition for qualified workers is intense.

"If a business wants the best employees, they have to offer a higher wage. That's supply and demand," said Cathy Mulder, a member of the faculty of the Indiana University Division of Labor Studies at Indiana University-Purdue University Fort Wayne.

Workers in jobs where there is less competition for their services might not be so lucky.

In a time when many business decisions are driven by Wall Street's opinion of a company's bottom line, how likely is it companies will pay employees overtime if they aren't required to?

"Certainly every corporation is oriented toward turning a profit," Anstandig said.

Membership in a labor union will offer workers some protection from changes in their exempt status as a result of the new rules.

"But will this get people to rise up?" Mulder said. "It could. However, what's been happening is that people are tired. People are working more than one job. They don't have a lot of energy for that.

"The unionization rate since the 1980s has been decreasing almost every year. People are feeling beaten down," she said.

The level of protection a union would offer also is a matter of debate.

Anstandig said Knight Ridder probably will look at expanding employee exemptions at union as well as at nonunion newspapers. "That might not require bargaining," he said.

Once the rules are finalized, Knight Ridder will probably define a "realm of action" and let each newspaper property make its own decisions within that framework, Anstandig said.

Proctor, who represents area labor unions in contract negotiations, said the issue already has come up at the bargaining table. Some companies have raised the possibility of using the new language to exempt more people from overtime and from the union's bargaining unit.

Thus far, the language that defines which computer programming and engineering workers would be exempted has been fairly noncontroversial. The language in the current tests, like the computer industry itself, is relatively new and won't change a lot.

That's pretty much where all agreement ends.

Critics of the new language on professionals argue it might be used to exempt nurses, physical therapists, lab workers and other medical technicians, pharmacists, police officers, firefighters, paramedics, paralegals, reporters, photographers, graphic designers, chefs and even dental hygienists, to name a few.

"This is the one that I find the most egregious," said Ross Eisenbrey, vice president and policy director of the Economic Policy Institute.

Eisenbrey co-authored the EPI analysis of the proposed rules that predicts as many as 8 million workers, all told, could lose their overtime eligibility.

The EPI report warned the new language on administrative employees -- which changes the exemption test from the current "customarily and regularly uses discretion and independent judgment" to "holds a position of responsibility" -- effectively will exempt a wide array of workers. Among them are bookkeepers, loan officers, marketers, payroll and benefits administrators, executive secretaries and insurance adjusters.

The new language is just too broad, Proctor agreed.

"Name me a job that doesn't have substantive responsibility for the worker to get it right. The fry cook at McDonald's has a substantive responsibility to make sure the burgers are cooked," Proctor said.

The language that covers executives also is being changed, and Eisenbrey argues that will open the door to the exemption of many middle managers, as well as those with only occasional supervisory responsibilities.

The difference between exempt and nonexempt could rest on as tiny a difference in language as an article: "the" primary duty of a worker as opposed to "a" primary duty, Eisenbrey said.

McCutchen vehemently disagrees with all of Eisenbrey's conclusions.

"EPI's estimate is way too high," she said.

The Labor Department predicts its revised rules will exempt about 640,000 more people nationwide. And the department says it will make overtime more certain for another 10.7 million people, including those loan officers and insurance adjusters EPI claims will become exempt.

The Labor Department expects the changes in the language defining professionals, for example, to be applied sparingly, covering people like "the occasional lawyer without a law degree or chemist without a degree in chemistry," McCutchen said.

And there is no intent to broadly exclude nurses and other health- care workers, police officers, firefighters and EMTs, she added.

Eisenbrey isn't buying.

"Their whole spin on this is dishonest," he said. If the Labor Department doesn't want the new language to exempt large numbers of employees, "then why is the language being changed at all?"

During the department's period for comment on the new rules, which ended June 30, more than 78,000 suggestions, objections and opinions were submitted by individuals, labor unions, businesses and business advocacy groups.

The DOL will take all those into consideration as it finalizes the new rules and writes a lengthy preamble that will establish a context for their enforcement.

The preamble will ensure the courts evaluate the department's intent, as well as the language of the revisions, when they interpret how the new rules should be applied, McCutchen said.

"That's one of the scariest things I've heard yet," Eisenbrey responded.

Many of the employers who've commented on the proposed rules want them to go even further in exempting workers from overtime. "Businesses say, 'Jump,' and the Labor Department says, 'How high?' " he said.

"And the courts will not even look at the preamble if the regulatory text is clear," Eisenbrey contended.

The new set of rules also lessens potential penalties for employers who are found to have violated them.

The proposed "safe harbor would give employers more opportunity to correct improper employment practices in-house," the Hewitt analysis noted.

But the relaxed policies mean even the minimum wage level for exemption could be avoided, critics charged.

"The regulations literally tell employers how to comply with the letter of the law without giving workers an extra dime," read a statement from Mark F. Wilson, a Washington attorney for the Communications Workers of America.

One thing seems almost certain: The application of the proposed rules will result in litigation.

McCutchen acknowledges that probably will increase business compliance costs, but only in the short run.

Proctor fears the new language is so general that employee lawsuits will be harder to win and attorneys who represent workers will be more selective about which cases they accept.

And Hewitt concluded employers are alarmingly unprepared for the effect the changes could have on their operations.

A Hewitt survey released in August found 42 percent of the 268 major companies Hewitt questioned hadn't even examined the potential impact of the rules changes on their business.

"This is disturbing given the fact that the proposed changes would require virtually all employers to review their existing job classifications and wage levels," said Hewitt senior consultant Tom Farmer.

"Unfortunately, we're seeing many companies exhibit a wait-and-see approach."

Photo illustration By Keith Hitchens Of The News-Sentinel

Proctor: Revisions could lead to flood of new lawsuits

McCutchen: Changes will help create jobs

Eisenbrey: Many workers risk losing overtime

St. Joseph Hospital burn unit nurse Michelle McCarty, R.N., left, talks with Lisa Kinchen, L.P.N., and Cherrie Parker, R.N., right, during a shift change. Lutheran Health Network has no plans to change nurses overtime eligibility. Photo By Brian Tombaugh Of The News-Sentinel

Story Filed By The NEWS SENTINEL, FT.WAYNE,IN.

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(c) 2003, The News-Sentinel, Fort Wayne, Ind. Distributed by Knight Ridder/Tribune Business News. KRI,