FROM THE ARCHIVES: July 14, 2003
How Lawyers Work Overtime
Given all the union hollering over Labor Secretary Elaine Chao's proposals to update overtime laws, it's tempting to think this is just one more run-of-the-mill labor spat. The real story is that Ms. Chao is pushing through some much needed tort reform.
The Labor Department recently outlined plans to update the nation's antiquated overtime provisions, first devised in 1938. Those Depression-era laws were originally meant to protect low-wage workers from toiling too many hours by guaranteeing them overtime; they specifically exempted most white-collar workers. By now the rules are so outdated (they refer to such jobs as "straw boss" and "leg man") that companies are at a loss to know how to categorize their employees or figure out who qualifies for overtime.
That confusion has been a gold mine for trial lawyers. By 2001, the number of class action suits over overtime pay had surpassed even that other tort-bar standby -- workplace discrimination suits. Plaintiff attorneys trawl through companies, looking for categories of workers they say were "miscategorized" and "unfairly" deprived of overtime pay . Once they find a court to agree, they can extort millions in back pay and other damages from companies for huge groups of worker-plaintiffs.
And what payouts they are. In California in 2001, the Farmers Insurance Exchange was hit with a $90 million judgment after lawyers argued that the company's claims adjusters should be paid overtime. After that precedent, most companies have given into the legal extortions, preferring to settle out of court to avoid getting hit with huge awards. Last year Radio Shack coughed up $30 million and Starbucks $18 million to settle store managers' claims that they were due overtime.
Ms. Chao's update will help clear up the confusion, providing companies with clarity about job categorizations and returning overtime to the low-wage workers for whom it was originally intended. Today, only the rare worker earning less than $8,000 a year automatically qualifies for overtime. Ms. Chao's rules would raise that threshold (untouched since 1975) to about $22,000, securing overtime for 1.3 million more low-wage earners. On the other side, the rules would more clearly define who qualifies as an executive, manager or professional and make it harder for white-collar workers earning more than $65,000 a year to claim time-and-a-half.
The new rules will also be a boon to the economy in another way. One reason the U.S. weathered the latest downturn better than countries like France or Germany is that it has flexible labor laws that allow companies to manage costs and use their work forces more efficiently. The new overtime regulations will give companies more freedom to create 21st-century work forces that increasingly depend more on white-collar jobs with varied time demands than on factory-floor jobs that go in eight-hour shifts.
The unions are making hay over the rules, but largely for recruitment purposes. The Labor Department's modernization won't have any real effect on the rank-and-file, since many are already guaranteed overtime via collectively bargained contracts. But the unions have been trying for years (largely unsuccessfully) to recruit white-collar workers into the cause. They hope that by demonizing the overtime provisions they'll persuade more professionals to join unions to "protect" them in negotiations.
What the unions don't say is that these new laws will give non-union workers a lot more job flexibility and security. Overtime rules make it impossible to work flexible hours because companies are required to pay for extra hours rather than allow workers to save up time in exchange for working fewer hours later. Salaried workers can also be more confident of a steady paycheck when companies hit rough times.
Despite these obvious benefits, unions and trial lawyers recently persuaded Democratic House members -- aided by pro-labor Republicans like New York's Jack Quinn and Peter King -- to try to kill the overtime provisions via a labor spending bill. Ms. Chao prevailed by three votes, but Senate Democrats are gearing up to try the same.
The Senate has so far been the graveyard of tort reform, but Ms. Chao's provisions give Republicans an opportunity to follow through on their promises to reform the tort system and remedy at least one field of lawyerly largesse. Seeing Ms. Chao's update through safely might not qualify Senators for overtime, but it would certainly count as a job well done.
