Overtime rule not so good for all...

The holes in the overtime rule

Despite Obama's sweeping new regulation, America's 1930s-era labor law is still leaving a strange assortment of workers in the cold.

By Danny Vinik

On Wednesday, the American workplace got a huge jolt when President Barack Obama released his new overtime rule, sharply expanding the number of people who qualify for overtime pay. According to the left-leaning Economic Policy Institute, more than 12 million people will be affected by the rule, which among other things raised the salary threshold for receiving overtime and imposed an automatic adjustment every three years.

But behind the headline was a strange fact about the U.S. job market that the rule largely left unchanged: A huge list of American jobs are specifically exempt from overtime. They include airline employees, truckers, and railroad workers, as well as farm laborers, home-based wreathmakers (really) and rural elevator operators. The administration’s overtime regulation estimates that up to 4.5 million workers fall into these categories, including up to 2 million Americans in transportation and 900,000 in agriculture work.

Some of these are exempt for obscure reasons dating back to the 1930s, but there's one big shift that has left some workers out in the cold. Decades ago, legal protections for many of them seemed less important—even undesirable—because they had the backing of powerful labor unions to negotiate wages and safe working conditions on their behalf. But the decline of unions have left such workers unprotected in the modern labor force, covered neither by the law nor by a strong union contract.

The overtime exemptions are as old as the underlying law, called the Fair Labor Standards Act, originally passed in 1938. A host of political compromises left some workers out of the overtime requirement; historians generally attribute the exemption for farmworkers and domestic workers, who at the time were both mainly black, to the need to get the support of Southern lawmakers. Various other exemptions also seem outdated today, such as one for switchboard operators.

In other situations, the exemptions still make sense. That includes an exemption for seamen, who often are out at sea for weeks at a time. Determining what overtime means for workers who spend weeks working and then weeks off would have been a significant challenge for the government.

“Some of them are designed to cover jobs where tracking hours and OT just don’t make sense, like door to door salesmen,” James Sherk, a research fellow in labor economics at the Heritage Foundation, wrote in an email.

For other occupations, though, the exemptions have a more surprising origin: labor unions didn't want those workers covered. Many labor leaders worried the FLSA would limit their ability to collectively bargain with employers. For that reason, many heavily unionized industries, like trucking, are exempt from overtime regulations; in the 1930s, the drivers didn’t need the labor protections.

“The teamsters were the strongest union on earth, and they had huge density. The fact that the Fair Labor Standards Act didn’t set overtime hours for them didn’t matter,” said Ross Eisenbrey, the vice president of the Economic Policy Institute. Today unions still ask for carve-outs; after Los Angeles passed a $15 minimum wage last year, local unions requested an exemption from it, prompting cries of hypocrisy among conservative groups.

When the FSLA was passed in 1938, 29 percent of all non-agricultural workers were in a union. That number peaked in 1954 at 34.7 percent. But today, it has plunged—just 7.5 percent of non-farm employees were unionized in 2015. Yet, the carve-outs remain, leaving millions of workers unprotected either by unions, or by federal overtime law.

When policymakers generally talk about updating the overtime regulations, they are referring to the rules surrounding which workers qualify for a “white collar” exemption. The FLSA exempted workers engaged in executive, administrative and professional work but left it up the Department of Labor to determine who fits that description. The new overtime rule updates who qualifies for that exemption, so that fewer people are exempt. (All hourly and blue collar workers qualify for overtime.)

But the exemptions for many other industries specifically mentioned in the FLSA—even for outdated reasons—aren't something Obama has the power to fix. They're written into the law, and would fall to Congress. There's little interest in a Republican Congress in updating the law to allow more workers to qualify for overtime. State and local governments have attempted to fill some of these holes with labor regulations of their own, said Sachin Pandya, a law professor at the University of Connecticut who writes frequently about the FLSA. But many workers can still fall between the cracks, especially in states with weak labor laws.

The new overtime rule comes amid a broader debate about the future of the labor market, as more and more workers are classified as independent contractors. Under that classification, workers not only do not qualify under overtime and minimum wage laws, they also don’t receive benefits like health insurance, pay into worker’s comp and unemployment insurance and aren’t covered my most anti-discrimination statutes.

Policymakers are grappling with how to ensure workers are protected in this changing work environment. Some have proposed a portable benefit package that accrues based on hours worked without ties to a singular employer. Two former Obama administration officials suggested a third worker classification may be needed for workers, such as Uber drivers, whose job doesn’t fit neatly as either a traditional employee or independent contractor.

The future of overtime is intricately tied into these ideas, especially if the number of independent contractors continues to grow. Obama’s new rule is a reminder that the labor laws of the 1930s may need a much deeper updating in the years ahead.