Fair Labor Standard Act Analysis - Term Paper Example

FAIR LABOR STANDARD ACT Enacted in 2004 the 42nd amendment of the FLSA, re ifying and redefining term “exempt” brought significant changes to employment practices. US Department of Labor defines five categories of exempt employees: professionals, administrators, executives, outside salespeople, and computer professionals. FLSA legislation, particularly its 42nd amendment has been characterized as controversial, particularly in higher education, because school districts fearing FLSA liability prohibit individuals who would be classified nonexempt under the FLSA amendment from athletic coaching. Paper discusses the employment knowledge and practices occurring in higher education in the light of 42nd amendment to the FLSA, with a particular emphasis on school coaches and athletic directors. INTRODUCTION On August 23, 2004, the 42nd amendment of the Fair Labor Standards Act (FLSA) became law and brought sweeping changes to the previous law forcing many businesses and institutions of higher learning to examine their current employment practices. Due to the reclassification and definition of what constitutes an employee as exempt or a volunteer, along with minimum wage and overtime pay changes, some organizations have been obligated to pay employees higher wages, reduce the number of working hours employees are allowed to work in a week, reduce the number of staff employed, and increase the responsibilities of their exempt employees. Because of the difficult legal language of the FLSA, Crampton, Hodge, and Mishra (2003) note that many employers unwittingly violate the law which has resulted in costly litigation. This paper aims to discuss the employment knowledge and practices occurring in higher education, with a particular emphasis on school coaches and athletic directors, audience significantly affected by the 42nd amendment of th FLSA. HISTORY OF THE FLSA The FLSA, also referred to as the Minimum Wage Law, Overtime Law, or Child Labor Law (Fair Labor Standards Act, 1938), was passed in 1938 to stimulate the economy and protect employees who were not being treated fairly by their employers (Crampton, Hodge, & Mishra, 2003). The basic principles of the FLSA included a standard 40-hour workweek, minimum wage standards, child labor standards, and provisions for overtime pay at the rate of time-and-a-half for hours worked over 40 in a week. Two court cases played key roles in the passage and constitutional acceptance of the FLSA. The National Industrial Recovery Act (NIRA) of 1933 was an attempt to regulate wages and hours of workers along with improved working conditions. Additionally the act was the first to set government minimums on wages, weekly work hour limits, and limitations on child labor (Crampton, Hodge, & Mishra, 2003). However, the United States Supreme Court, in the 1935 case of Shechter Poultry Company versus the United States, declared the NIRA unconstitutional (1935). The Court recognized the importance of protecting the employee from improprieties caused by their employer; however, it was more concerned with allowing free market trade to prevail. In 1936, as a result of the NIRA ruling, Congress acted and passed the Walsh-Healy Act (Walsh-Healy Act, 1936). Similar to the NIRA, it set minimum standards for wages and overtime. The second important case that influenced the FLSA was the 1937 Supreme Court ruling in the West Coast Hotel Company versus Parrish (1937). Even though the Supreme Court ruled that the NIRA was unconstitutional, it stated that some regulation of working conditions was a valid exercise of government power. From the outcome of the Court’s decision, the federal government moved quickly to regulate hours and wages with the passing of the Fair Labor Standards Act on June 25, 1938 (Crampton, Hodge, & Mishra, 2003). AMENDMENT 42 AND ITS LASTING IMPACT One of the most recent amendments to the FLSA, amendment 42, focused on two main issues: increasing the minimum salary level wage for an employee to be considered “exempt”, which had not been changed since 1975, and to set parameters for the classification of exempt status for persons working in professional, administrative, executive, computer, and outside sales job categories (United States Department of Labor, 2003). According to the Department of Labor, approximately 6.7 million employees who earn between $155 and $455 per week, and 5.4 million current nonexempt salaried employees will benefit from the strengthening of the overtime protection and salary minimums of the FLSA (Preis & Johnson, 2004). For most businesses and organizations, the FLSA only covers those who incur more than $500,000 in annual dollar volume (Preis & Johnson, 2004). However, it does cover hospitals, all schools (primary through post-secondary), and federal, state, and local governments regardless of the dollar volume of business. Furthermore, the FLSA’s provisions involving minimum wage and overtime pay only apply to employees that are categorized as nonexempt by the regulations established in the FLSA (Crampton, Hodge, & Mishra, 2003). According to the US Department of Labor (2003), there are five categories of exempt employees: professionals, administrators, executives, outside salespeople, and computer professionals. They offer basic definitions for each category as follows: an executive is a manager with authority over subordinates, an administrative employee is a staff employee, such as a secretary, a professional is someone with special knowledge obtained through education or training, such as an attorney, an outside salesperson sells goods or services to customers away from the organization, and a computer professional must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker (Crampton, Hodge, & Mishra, 2003). The effects of the FLSA Amendment 42 to part-time and contracted employees and their employers carry significant positive and negative outcomes. According to the Department of Labor, the 42nd amendment was intended to restore overtime for lower-wage employees, many of whom are part-time, strengthen overtime protection for the mid-level income employee, and reduce FLSA litigation (Preis & Johnson, 2004). In addition to helping this group of employees, the Department of Labor (2003) has estimated that businesses and employers will save at least $252.2 million per year by the reclassification of exempt employees with the reduction of overtime wages. The FLSA changes have brought criticism from both employees and employers. In an effort to maintain the expense of employee wages in light of the FLSA changes, the National School Boards Association (NSBA) reported that some school districts, for fear of FLSA liability, now prohibit individuals who would be classified nonexempt under the FLSA amendment from athletic coaching (Scholand, 2005). Jim Carr, legal counsel for the National Association of Intercollegiate Athletics (NAIA), noted that the practice of offering a nonexempt employee a flat rate stipend contract for the season (i.e., $2000 to coach cross country), is no longer a legal means of paying an individual if the amount divided by the hours worked is less than minimum wage - it is a violation of the FLSA (Scholand, 2005). However, institutions have reclassified coaches as educators, qualifying them for the teaching exemption, because they are offering students academic credit for participating in varsity athletics and, as a result, grade and evaluate each student athlete. Some institutions, such as Massachusetts Institute of Technology, have deemed all coaches, both full and part-time, as educators and thus exempt under the professional category because their student athletes earn academic credit for participation in varsity sports, and all coaches are teaching and ultimately grading their athletes. Scholand (2005) adds that, generally speaking, coaches will be considered exempt as long as their primary duty is exempt work, which includes academic instruction or training. Crampton, Hodge, and Mishra (2003) explain that a common mistake employers make is assuming that if they offer an employee a salary (in order to classify them as exempt status) instead of an hourly wage, they are not required to pay overtime or minimum wage. However, John Thompson, labor law partner with Fisher & Phillips of Atlanta, Georgia, stated that exemptions apply to individuals, not to job titles (CPA Personnel Report, 2004). He added that human resource departments that take a vague job description and make an exemption decision based on that job description are taking a legal risk that could have significant future implications for their institutions (CPA Personnel Report, 2004). In one case, according to the NSBA, the Akron (OH) school district had decided to not offer nonexempt employees contracts to coach or to be advisors of extra curricular activities (National School Board Association, 2004). Patrick Scmitz, deputy director of legal services for the Ohio School Boards Association, claims that due to the structure of most athletic programs, it is not feasible to track hours, and if an employee filed a lawsuit, the burden of proof would fall on the school district to demonstrate they followed the law (Scholand, 2005). He added that the practice of only offering exempt employees coaching contracts will hurt the larger urban school districts that have traditionally relied on part-time, off campus (nonexempt) coaches to fill vacancies (Scholand, 2005). LITIGATION AND THE FLSA In 2002, FLSA lawsuits nationwide totaled 3,872, of those cases 96 percent were settled out of court (Young, 2003). In Mississippi, 110 schools districts that were involved in FLSA suits paid between $15 and $20 million to plaintiffs (Young, 2003). Class action lawsuits involving FLSA law have become common. David S. Fortney, the former acting Solicitor of Labor General for the United States Department of Labor, stated that FLSA class action suits occur more than any other type of employment litigation nationwide (Soronen, 2003). Each year the Department of Labor reviews tens of thousands of minimum wage violations (Lott & Russell, 1995). Federal enforcement policy states that complainants are advised of their right under the FLSA “to bring private suit to collect back wages, plus equal an equal amount in liquidated damages, as well as attorney’s fees and court costs” (United States Department of Labor, 1977, p. 21). Additional costs could be incurred by those organizations that are prosecuted by the Department of Labor. Fines for inadequate recordkeeping, contempt, legal fees, and investigative costs for the government may also be charged to the defendants. The School Litigation Group (SLG), of which former congressman and United States Secretary of Agriculture Mike Espy is a member, have been the leaders in filing FLSA claims that have received monetary judgments for their clients (Soronen, 2003). Their strategy, mainly in southern states, involves holding press conferences and buying radio time advertising a toll-free number for individuals to call to make a FLSA claim (Soronen, 2003). In a report for the American School Board Journal, Cook (2003) noted that the School Litigation Group had branched out into at least 10 states, with more being added every month. Mississippi, with 6,000 claims filed in 105 of the states 152 school districts in 2002, witnessed its court system clogged by the flurry of litigation filed from this organization (Soronen, 2003). In some cases, individuals have agreed to work for free as a volunteer, to work “off the clock” on their own time, or to accept a salary even if the hours worked do not equal minimum wage (Crampton, Hodge, & Mishra, 2003). Under FLSA law, those practices are illegal. Employees cannot waive their rights to compensation or release employers from the full amount due them for hours worked (Cihon & Castagnera, 1999). Whether employees are paid on an hourly, weekly, monthly, or seasonal basis, the total earnings for a week must average out to the minimum wage for all employees (Crampton, Hodge, & Mishra, 2003). Furthermore, company statements that overtime will not be permitted or paid unless authorized do not eliminate the employees’ right to be paid for overtime actually worked (Cihon & Castagnera, 1999). Coaches on athletic staffs are not considered exempt unless they meet the FLSA minimum salary level and qualify for exempt status under the professional category of the Act. The FLSA notes that individuals employed in the practice of law or medicine, or employed as teachers in an educational institution are exempt (United States Department of Labor, 2003). However, for a teacher/coach to be an exempt employee, the primary duty must be teaching – an individual could not be a coach that teaches just one class a year and be classified as exempt (United States Department of Labor, 2003). However, The Department of Labor issued a list of exempt employees (United States Department of Labor, 2005) that included certified athletic trainers as exempt employees under the professional category. This has proved beneficial to athletic departments due to irregular work hours of trainers and the potential for overtime pay. CONCLUSION One negative consequence of the FLSA change has been felt by individuals attempting to get coaching experience and willing to volunteer in order to learn and to expand their resume. Because of fear of litigation or the inability to guarantee minimum wages, many individuals have been turned away who, in the past, would have been offered a chance to gain experience through volunteering (Scholand, 2005). Furthermore, in an effort not to exceed human resource budget limitations, institutions could decide to reduce the benefit levels their employees receive or pass part or all of the benefit costs on to their workforce (Crampton, Hodge, & Mishra, 2003). Another negative outcome has been the reduction of parttime staff due to their non-exempt status along with the reduction of hours for other part-time coaches in order to maintain fiscal responsibility. Scholand (2005) explained that if part-time coaches cannot be deemed exempt, the choice for the institution is to increase the salary of the coaches’ contract to ensure at least minimum wages for hours worked, set limits on the number of hours part-time coaches can work, or release them. Releasing coaches has its downside to institutions in that they could face an increased liability from a lack of adequate supervision and increase employee turnover due to the added responsibilities shifted to the exempt employees. REFERENCES Cihon, P. J., & Castagnera, J. O. (1999). Employment and labor law. Cincinnati, OH: West Publishing Company. CPA Personnel Report (2004, October). Are your employees classified correctly? Avoid common pitfalls in wage and hour compliance. Journal of Tax Practice Management, 3(5), 9-11. Crampton, S. M., Hodge, J. W., & Mishra, J. M. (2003). The FLSA and overtime pay. Public Personnel Management, 32(3), 331-346. Lott, J. R., & Roberts, R. D. (1995). The expected penalty for committing a crime: An analysis of minimum violations. Journal of Human Resources 30(2), 397-403. National School Boards Association. (2004, July). Legal clips: Department of Labor responds to letter from Congressmen asking for guidance on overtime pay volunteers. 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