A regulatory matter with a twist: long overdue revision of overtime law awaits action in Congress.

Most of us scarcely pay attention to the thousands of rules and regulations written by different federal government agencies. The material is usually dry, technical and difficult to understand. But there is no shortage of it. In 2002, the Federal Register which publishes notices and updates of agency rulemakings, reached 75,000 pages for the year. While the process may be a sleeper, critics say that there is no greater impediment to American prosperity than the immense body of regulations. The CATO Institute in Washington, D.C. reports the total cost of federal regulation is on the order of $500 billion a year, a figure that does not include banking regulation and regulation at the state and local levels.

One rulemaking proposal this spring has gotten the attention of the business and labor communities, as well as the Congress. In March, the U.S. Department of Labor (DOL) proposed regulations dealing with a matter of great importance to franchised businesses--the classification of exempt employees and those who qualify for overtime. The revision to Part 541 regulations under the Fair Labor Standards Act (FLSA) is long overdue--they were last updated 50 years ago.

Under the FLSA employers are required to pay time and a half fur hours worked in excess of 40 in a workweek. Certain workers fall within the so-called white-collar exemptions for executive, administrative and professional employees. Congress delegated to the DOL the responsibility of defining these terms in 1938 and DOL complied with Title 29, Part 541 of the Code of Federal Regulations. The regulations define and explain the three tests that determine whether an employee is exempt or nonexempt: the salary test, the duties test and the salary basis test.

Goldmine for Trial Lawyers

In general, the business community supported the latest move by DOL and was relieved that the new proposed rules would yield greater clarity and simplify matters. As reported in the Wall Street Journal Online on July 14, "The confusion has been a goldmine 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." The Journal reports that in 2002 Radio Shack paid up to $30 million and Starbucks $18 million to settle store managers' claims that they were due overtime.

Under the Administrative Procedure Act, which governs all agency rulemaking proceedings, the DOL provided the public 90 days from March 31, or until June 30, to review and then provide written comment on the department's proposal. The International Franchise Association (IFA) and thousands of others--associations, large and small businesses, union members--did so.

In its comments, IFA expressed support for the department's long overdue move to help businesses by modernizing the rules. The association pointed out that DOL needed to recognize that, with today's soft economy, employers are doing more with less, in terms of number of employees and workloads, and that multi-tasking is the norm, not the exception. The Labor Department's proposal would increase the FLSA salary test for the first time since 1975--guaranteeing that all workers making up to $425 a week receive overtime rather than the current $155. IFA relayed the concerns of its members that the 70 percent increase in a minimum weekly salary would present a challenge for a number of them, particularly in small towns or rural areas. IFA supported updating the job duties tests--for the first time since 1949. The association and others believe this will contribute to significant savings in litigation costs.

Further, IFA suggested that the Labor Department revisit ways to reduce the economic impact on small businesses. (For a complete copy of the IFA's comments, visit www.franchise.org, click on Government Relations, then Regulatory Issues.) The next step for DOL is to review the comments it received and make modifications in some areas before enactment of the new rules, most likely in early 2004.

Senate Action Likely

Nearly a week after the comment period closed, certain members of Congress got involved in a legislative effort to block the department from proceeding. An amendment was offered to the U.S. House Labor/HHS appropriations bill that defunded the initiative. Supporters and unions argued that the DOL regulation takes away overtime pay from any employee currently entitled to it. The House amendment to defund was narrowly defeated 213-210 on July 10 after intense lobbying by the business community. At this writing, a similar amendment is expected in the U.S. Senate when that body takes up the Labor/HHS spending bill. Iowa Sen. Tom Harkin (D) is poised to offer a measure blocking DOL from acting.

Opponents of the DOL proposal claim that eight million workers will lose overtime pay under the new rule. Proponents call for adhering to the administrative process and argue the new rule will entitle overtime for 1.3 million more low-wage earners. The proposal better defines who qualifies as a white collar professional and makes it more difficult for those earning $65,000-plus to claim overtime. The issue is expected to be brought up for action this month.

This is one regulatory matter the franchising community should care about. Given our shared commitment and investment in class action reform, the franchising community must not let this new rule be stopped or sidetracked--and IFA will work to prevent that. It has taken DOL 50 years to act. Franchising cannot afford a missed opportunity that helps strengthen its business sector.

Betsy Laird is vice president of government relations for the international Franchise Association. She can be reached at 202-662-0768.