New U.S. Overtime Rules in Effect

In an unprecedented overhaul of the nation’s overtime pay rules, the Bush administration is delivering to its business allies an election-year plum they’ve sought for decades.

The new rules take effect today after surviving many efforts by Democrats, labor unions and worker advocates to block them in Congress and kill them through public and political pressure. The administration and business groups say the old regulations were out of date and confusing and were sparking multimillion-dollar lawsuits.

The change will have little or no effect in California, which has its own stronger overtime rules, said Dean Fryer, spokesman for the state Department of Industrial Relations. “The only ones who would be affected would be government employees, and they’re covered by union contracts,” he said.

Seventeen other states have their own overtime rules, which will prevail if they offer stronger worker protections, said labor attorney George Preonas, of the Los Angeles office of Seyfarth Shaw. Sorting that out will be a headache for businesses with operations in multiple states, he said. “Frankly, it’s a mess.”

The Labor Department says no more than 107,000 workers will lose overtime eligibility from the changes, but about 1.3 million will gain it. The Economic Policy Institute, a liberal Washington think tank, says 6 million will lose and only a few will get new rights to premium pay for working more than 40 hours a week.

But no one really knows. That makes the issue harder to demonize politically, a benefit -- or a problem -- depending on the side you take.

Regardless, “nobody should get their overtime pay taken away,” said Karen Nussbaum, executive director of Working America, an AFL-CIO organization created for workers unable to join unions.

About 115 million workers are covered by the overtime rules in the 1938 Fair Labor Standards Act.

The overhaul is the culmination of decades of lobbying by business groups representing retailers, restaurants, insurance companies, banks and others that have been hammered by workers’ overtime lawsuits, many of them successful.

Wal-Mart Stores Inc. is facing dozens of lawsuits by workers claiming they were cheated out of overtime and worked off the clock. An appeals court upheld a $90-million verdict against Farmers Insurance Exchange, sued for overtime by claims adjusters. Other companies that have made multimillion-dollar payouts include Starbucks Corp., Radio Shack Corp., Rite Aid Corp. and Bank of America Corp.

Labor Secretary Elaine Chao told Congress the new rules would help stop “needless litigation” because they were designed to clarify who’s entitled to overtime. Critics say the rules will prompt even more lawsuits.

Chao and other Labor Department officials are traveling the country touting to employers, human resources officials and friendly labor unions what now is called the “FairPay” initiative.

“As the new rules become effective, people will come to see that they do exactly what we’ve said they will do, which is provide a stronger and clearer overtime guarantee for more working Americans,” said Deputy Labor Secretary Steven Law. He noted that a judge last month ruled in favor of Geico insurance claims adjusters, citing the pending rules.

Sen. Tom Harkin (D-Iowa), who led the Senate fight to block the regulations, questioned the Bush administration’s motives. “Let’s face it, some of their major supporters in industries covered in here want this change,” he said.

The rules could be politically dangerous in an election year when the weak jobs market is a big concern for voters.

“There is a risk -- we are in high season,” said Rich Bond, a political strategist and a former Republican National Committee chairman. “Every word at this point will be parsed, for good or bad.”

After an uproar from Democrats and labor leaders about the initial proposal and unsuccessful attempts in Congress, with the help of moderate Republicans, to block the final plan, the rules were revised. The FairPay title was added and estimates of the number of workers affected were trimmed.

“It’s absolutely true that it’s been much more of a political issue than it should have been,” said Michael Eastman, the U.S. Chamber of Commerce’s labor law policy director.

“It’s been on the regulatory agenda since the Carter administration. It shouldn’t be this controversial.”

Many provisions in the draft plan that had become political lightning rods were removed or changed. The analysis of the new rules says “it is impossible to quantitatively estimate” how many workers will lose overtime eligibility. The draft had said 1.5 million to 2.7 million “will be more readily identified as exempt.”

Gone is language suggesting that employers could reduce overtime costs by cutting the hourly wages of newly eligible workers and adding back the overtime to equal the original salary.

Sections were added to make clear that police, firefighters and other public safety officers were not exempt from overtime, regardless of rank or pay level. But labor officials say middle- and upper-ranking officers such as lieutenants still could lose overtime.

The rules address jobs that are targets of lawsuits, spelling out what duties would exempt them from overtime. They include pharmacists, funeral directors, journalists, claims adjusters, dental hygienists and chefs.