Fair Labor Standards Act Is Still Important; Let’s Keep It That Way

Lawmakers passed the Fair Labor Standards Act 80 years ago, but it remains one of the most important pieces of legislation in the nation's history. Prior to 1938 there were no wide-ranging standards for child labor, minimum wage, a 40-hour work week, or overtime. The FLSA's protections made the nation’s work culture into what it is today, and many workers are unable to imagine working without those rights.

That said, the work environment has changed significantly since the FLSA was passed 80 years ago, and Congress has not updated it accordingly. Wage violations are still common, employees are regularly misclassified, and the gig economy has complicated what it means to be an employee in a way those who conceived the FLSA could not have anticipated.

We sat down with two of our labor and employment and overtime, wage and hour attorneys, Christina Thomas and Angeli Murthy, to discuss the legacy of the FLSA and how it shaped the modern workplace, the updates it needs to protect the modern worker, and what’s in store for the statute and employees going forward.

The FLSA Shaped the Modern Work Environment

Not all legislation has had as profound an effect on society as the FLSA. Before it was passed, workers of all ages were routinely overworked and underpaid in greuling factories. This included children and the elderly who were not spared the wrath of employers if they wasted precious time.

The Fair Labor Standards Act was passed 80 years ago, but remains one of our nation's the most important pieces of legislation.

Thomas explains that, at the time, “a group of intellectuals — I’m going to call them intellectuals because at the time that’s what they were — really started focusing on minutiae and pushing human beings farther and farther into what they perceived to be quality productivity.”

Some employers would even count the seconds of lost work.

"Taylorism" as it was known, Thomas says, led to “some business leaders actually going onto factory floors with a stopwatch and standing over a child or a grandmother and clicking the stopwatch every time they would waste a second.”

To improve working conditions for all workers — especially children and the elderly — President Franklin D. Roosevelt and Congress passed the FLSA with bipartisan support. The FLSA served as a sort of compromise between businesses that were overworking and underpaying their employees, and workers and their families.

One way this compromise manifests itself is through overtime.

Murthy says that one goal of the FLSA “is to make sure that employers have to pay overtime, in part so that employers won’t want to pay overtime. Ideally, businesses would send people home after 40 hours and if they need more work, they’ll hire more people,” she explains. “Then you have more people employed in the workforce and people also get to spend more time with their families.”

Today, we take many of the provisions in the FLSA for granted. It’s hard to imagine on the FLSA’s 80th anniversary that people once argued over whether or not there should be a minimum wage when we currently argue over how much it needs to be increased. In this way and others, the FLSA changed how generations of workers think they deserve to be treated and compensated by their employer.

One goal of the FLSA “is to make sure that employers have to pay overtime, in part so that employers won’t want to pay overtime."

“Workers feel like they have rights whether or not they’re in a union, whether or not they’re in a position of ‘power’ in a company; they know there are these minimums and requirements that apply to them,” Murthy says. “And so, I think, in a sense, the FLSA gives workers dignity because it allows them to feel that there are standards they can seek to enforce, and that they have some sort of recourse if they're not being treated fairly with respect to their pay.”

Still, far too often employees need to seek legal recourse for mistreatment in the workplace. The FLSA has unquestionably improved working conditions for most laborers in the U.S., but companies still skirt the law, sometimes without employees even realizing it.

The FLSA Looks Good for 80, But a Minor Facelift Wouldn’t Hurt

While the ultimate goals of the FLSA will never be obsolete, there are aspects of the statute that could be improved to ensure 21st century workers are fairly compensated.

One glaring example of this is the minimum wage. While a minimum wage is important to have, it hasn’t been increased frequently enough to keep up with inflation. In fact, when adjusted for inflation, the federal minimum wage peaked in 1968 at $8.68 (in 2016 dollars), according to the Pew Research Center. Pew also found that the current federal minimum wage of $7.25 has lost roughly 9.6 percent of its purchasing power since it was last increased in 2009.

“There’s no one I know that can live on $7.25 an hour for a 40-hour week,” Murthy says. “When you have a $7.25 minimum wage, people are just going to have to get multiple jobs — they’re not actually getting more time with their families.”

Fortunately, 29 states, the District of Columbia, and nearly two dozen cities and counties have set their own higher minimums. For those not living in those states, though, it may even be difficult or impossible to afford the rent making $7.25 an hour.

Another update to the FLSA many workers would benefit from is a change in employee classification. Increasingly, the rise of the gig economy has led businesses to hire workers as independent contractors, who are not considered employees under the FLSA and therefore not entitled to many of the laws protections.

Pew also found that the current minimum wage of $7.25 has lost roughly 9.6 percent of its purchasing power since it was last increased in 2009.

“I believe the main issue now is the classification of workers,” Thomas says. “Lots of benefits in this country are tied to employment: healthcare, unemployment insurance, Social Security disability benefits... things that are connected to the tax infrastructure. All these connections are sort of being pulled apart because there is a big trend in this country to classify workers as independent contractors rather than employees.”

While there are benefits to being an independent contractor, such as setting your own hours and choosing who you work with, the cons are significant. Generally, the protections guaranteed by the FLSA and other labor laws don't apply to people who are classified as independent contractors.

Some independent contractors decide the rewards outweigh the risks. But many employees are misclassified as independent contractors and are not given a choice in the matter. In these cases, workers lose all the protections of the FLSA to which they’re entitled.

Misclassification is also an issue for bonafide employees with regard to overtime exemptions. Depending on what type of duties an employee does and how much they make, they could be eligible to earn time-and-a-half for every hour worked over 40 hours and not even realize it. Businesses sometimes take advantage of this situation and exploit lower-level managers.

“If everyone only has to pay $455 a week to get somebody salaried, there is a lot of incentive for businesses to keep it there and not pay people more," Murthy says, referring to an income aspect of the overtime exemption. "This way, businesses don’t have to give the work to the hourly employees, who would then have to get paid overtime. Rather, businesses assign what is essentially hourly work to ‘managers’ and just work the manager 70 hours a week so that the hourly workers don’t have to get any overtime.”

"There’s no one I know that can live on $7.25 an hour for a 40-hour week." — Angeli Murthy

One way to avoid the above situation is to increase the salary threshold for overtime exemption, which the Obama Administration attempted to do. The new administration scrapped those plans, however, when it took office in January 2017.

Still, while the dollar amounts in the FLSA could do with an increase and a new, 21st century definition of an "employee," the FLSA remains as important as ever.

"... The law itself, I think that the protections it seeks to afford are certainly still — even more now than ever — extremely necessary and appreciated by the workforce,” Murthy says.

What Does the Future Hold for the FLSA and Underpaid and Overworked Employees?

To make any of the necessary updates to the FLSA, Congress would need to act and President Trump would need to follow suit, which is unlikely at this time. The courts, however, also have a big role to play because that’s where a lot of the grey areas in the FLSA get resolved. Thomas gives an example of this with with regard to who is considered an employee.

“There is no formula that you can plug into a computer that will tell you is John Smith an employee or independent contractor,” she says. “Essentially, the courts are deciding this ad hoc.”

An important employment-related decision made by the courts was a recent ruling by the U.S. Supreme Court saying that companies can continue to mandate that employees sign arbitration collective action waivers.

These waivers prevent employees from banding together to take collective action in court over things like improper wage deductions and not receiving overtime, and forces them to handle their grievances individually in private arbitration.

"I believe the main issue now is the classification of workers… because there is a big trend in this country to classify workers as independent contractors rather than employees." — Christina Thomas

When employees band together, they have significantly more leverage against a company because the potential penalty can be significant. In a collective action, a company may end up owing many employees lots of money, which is incentive to pay them all fairly from the beginning.

“The potential for collective action like many laws, is what keeps the employers in line to some degree,” Murthy explains. “I think we can all imagine there are lots of laws we don’t break because we think we might get in trouble.”

On the surface, the SCOTUS ruling seems like a win for businesses that want to shortchange their employees, but that’s only true if they don’t get caught. Otherwise, Thomas thinks businesses should be concerned.

“If I get a person who says that they've been misclassified and that everyone else they work with has been misclassified, and they want to sue a company on a collective basis, sure, is it easier for me to file a collective action with one named plaintiff and try to get it certified and get notice out? It is initially easier to do it that way,” she says. “But is it impossible for me to go and file 200 arbitrations or 200 lawsuits? No. And guess who it hurts when that happens? The company.”

Thomas went on to say that the initial filing fee to answer a collective action complaint costs thousands of dollars, and the entire cost is paid by the business. If a company needs to pay that amount for each individual arbitration, it gets expensive even before the arbitrator’s ruling.

Therefore, in Thomas’s opinion, “the SCOTUS decision doesn’t change much, but what we need is plaintiffs lawyers and employees to start banding together and telling the bad guys enough is enough.”

All in all, it seems as if the SCOTUS decision will certainly affect some employees’ ability to recover improperly deducted wages, but in the long run it may cost businesses more if they’re caught engaging in wage theft.

“I think companies are going to see a big spike in individual actions, so even though they may have fewer class actions, they may actually see a rise in filed cases generally because we’ll have to file more cases,” Murthy says.

"What we need is plaintiffs lawyers and employees to start banding together and telling the bad guys enough is enough." - Christina Thomas.

Employees will need to stand up for their rights with dedicated labor and employment attorneys to make sure businesses are following the FLSA. Some companies don't do things out of the goodness of their hearts, and if Congress is unwilling to compel them, it’ll be up to the people and attorneys working for the people to make sure company policies are in compliance with the FLSA.