The second proviso removes from the act certain employees now covered who are engaged in processes or occupations necessary to the production of goods for commerce. These employees will be removed from the coverage of the act if their employers are not directly engaged in the production of goods for commerce and if less than 50 percent of their employer's business is necessary to such production for commerce by other employers. The chief impact of this restriction will fall on employees in firms which, as a substantial part of their business, provide goods or services to other firms engaged in production of goods for commerce. It should be noted that this restriction on coverage applies not only to the minimum wage and overtime provisions of the act, but also to its child labor provisions. Under this proviso, coverage. is made dependent, for many firms, on the nature of the employer's business rather than on the activities of the employee. It should be noted that this employer test does not operate uniformly so that if certain conditions were met all employees of the employer would be covered whereas if the test was not met none of the employees would be covered. For example, if an employer in the industries affected by this proviso is engaged to the extent of 49 percent in a business necessary to production of goods for commerce, then none of his employees would be covered even if some of them were exclusively engaged in work necessary to the production of goods for commerce. On the other hand, if the employer were engaged in the extent of 51 percent in a business necessary to production, he could still exclude any employees who in any workweek are not engaged in covered work. These provisos will make necessary the application in many situations of several tests to determine coverage where only one is required under existing law. The provisos contain new language, drawing new lines, and the meaning of some of the language is not clear. The changes made may therefore give rise to differences of opinion and will inevitably require a reexamination of questions of coverage which have previously been settled by the courts. Section 3 (k) of the bill, defining "sale," is the same as section 3 (k) now in the act. Section 3 (1) of the bill, defining "oppressive child labor," is the same as section 3 (1) of the present act. Section 3 (m) of the bill, defining “wage," is the same as section 3 (m) in the present act. Section 3 (n)—Regular rate of pay Section 3 (n) of the bill is a new provision which has no counterpart in the present act. Although the act requires payment of compensation for overtime hours of work at a rate not less than one and one-half times the employee's regular rate of pay, no statutory definition of "regular rate" is provided. The phrase has been defined in several decisions of the Supreme Court * to mean "the hourly rate actually paid the employee for the normal, non-overtime workweek for which he is employed. * * * It is not an arbitrary label chosen by the parties; it is an actual fact. Once the parties have decided upon the amount of wages and the mode of payment the determination of the regular rate becomes a matter of mathematical computation, the result of which is unaffected by any designation of a contrary 'regular rate' in the wage contracts." Section 3 (n) does not replace this definition with a statutory definition. Rather, it undertakes to prescribe methods for computing an employee's regular rate of pay by categorizing and classifying various types of payments to employees and by specifying at length and in detail a variety of conditions under which such payments are to be included in or excluded from the computation of his "regular rate." In addition, section 3 (n) requires that specified types of payments be credited to overtime compensation due under the statute, and that other types of payments be credited to overtime compensation under some conditions but not under others. The present act has no provision dealing with crediting. Section 3 (n) provides (1) a method for computing regular rate in what may be termed "the ordinary case," i. e., the case of an unorganized employee employed at a single job whose compensation is on some ordinary basis; (2) a method for computing regular rate for an employee employed on a salary covering both straight-time and overtime hours under a contract of employment which provides a regular hourly rate of pay; (3) a method for computing regular rate for em 149 Madison Avenue Corp. v. Asselta, 331 U. S. 795; Walling v. Youngerman-Reynolds Hardware Co., 325 U. S. 419 Walling v. Harnischfeger Corp., 325 U. S. 427; United States v. Rosenwasser, 323 U. S. 360; Walling v. Hellmerich & Payne, 323 U. S. 37. ployees under a collective-bargaining agreement; (4) alternative methods for computing regular rate for employees performing two or more kinds of work at different rates of pay. Each method is elaborately detailed, but such undefined terms as "normal," "basic," "substantial" occur frequently, and many provisions of this section require reference to other provisions in order to ascertain their meaning. An illustration of the complexities of this attempted codification is to be found in the several subsections treating of bonuses, subsections (1) (A) (2), (1) (A) (3), (1) (A) (6), (1) (C) (4), (1) (C) (5), (3) (A) (2). As is developed more fully below, the provisions on the simplest type of bonus, the production bonus, can be summarized as follows: (1) A bonus based exclusively on production is always a part of the regular rate except in the case of a bonus paid pursuant to a collective-bargaining agreement which bonus is a part of the regular rate only if paid monthly or more frequently; (2) A bonus based on production but also related to profits is a part of the regular rate only if paid quarterly or more frequently; (3) A bonus based on production but also related to some other factor is a part of the regular rate under Section 3 (n) (1) (A) (2) however infrequent, but under Section 3 (n) (1) (C) (5) such a bonus is included only if paid quarterly or more often; and such a bonus paid pursuant to a collective-bargaining agreement is a part of the regular rate only if paid monthly or more frequently. The following discussion of the provisions of the proposed section indicates some of the problems raised by it. (1) Except as provided in paragraphs (2), (3), and (4) of this subsection, the "regular rate of pay" at which an employee is employed shall be computed by dividing his normal, straight-time compensation for the workweek in question by the total number of hours worked by such employee during such workweek. Standing alone, this provision would conform to the present general rule under the Supreme Court's definition of “regular rate" as the "hourly rate actually paid for the normal nonovertime workweek." The bill does not employ the language used by the Court, although to do so would tend to minimize the amount of litigation over new terms. The effect of section 3 (n) (1) is to define "regular rate" as the hourly "normal straight-time compensation." The problem then becomes one of defining "normal straight-time compensation," and it is to this problem that the three subsections of 3 (n) (1) are devoted. (A) There shall be included in normal, straight-time compensation (1) Basic wage payments, whether at an hourly rate, day rate, piece rate, or salary. This subsection apparently is intended to embrace all "normal straight-time compensation." Yet no reference is made to tips, commissions, "board, lodging, and other facilities" (see sec. 3 (m)), or to any other possible means of remuneration. This could be rectified by adding a general "catch-all" to section 3 (n) (1) (A) (1). (2) Production bonuses and other incentive payments determined by reference to the production or efficiency of such employee (or of any group of which he is a member) and without reference to the profits of the enterprise. The phrase "without reference to the profits of the enterprise" may permit an employer to evade the overtime premium by simply stating that his production bonus will be paid only "if profits permit" or "if profits exceed $- (some minimal figure)." Other questions raised are discussed under sections 3 (n) (1) (A) (6) and 3 (n) (1) (C) (5). At present production bonuses are included in the regular rate. Walling v. Harnischfeger Corp., 325 U. S. 427; Walling v. Alaska Pacific, 152 F. (2d) 812. (3) Attendance bonuses. Attendance bonuses are now included in the regular rate (Bibb Manufacturing Co. v. Walling, 164 F. (2d) 179), and this provision embodies the present law. (4) Shift differentials. The term "shift differentials" may be ambiguous in the light of section 3 (n) (B) (2), discussed below, dealing with "overtime premiums for work performed outside the normal workday or workweek." At present "shift differentials" are recognized as part of the regular rate (Cabunac v. National Terminals Corp., 139 F. (2d) 953), and this provision embodies the present law. (5) Premiums for hazardous, arduous, or dirty work. Premiums for particular types of work are now included in the regular rate, and this provision merely embodies the present law. (6) Such other bonuses not specifically excluded by this subsection as are paid quarterly or more often pursuant to any contract or established practice of his employer; This subsection apparently refers to bonuses "other" than attendance bonuses and production bonuses not related to profits. Hence it would seem that such bonuses are not subject to the "quarterly" rule. But in section 3 (n) (C) (5), discussed below, the quarterly rule is made applicable to all bonuses excepting only bonuses based exclusively on production. Thus, subsections 3 (n) (A) (2), (3), and (6) and subsection 3 (n) (C) (5) appear to be inconsistent as to whether attendance bonuses, and production bonuses not related to profits but related to some other factor (e. g., length of service) are subject to the "quarterly" test. It would seem simpler and hence preferable to provide for all "includable" bonuses in one subsection instead of three. The phrase "pursuant to any contract or established practice" is necessarily one requiring clarification on a case-to-case basis, but would apparently include bonuses which the employer has promised, agreed, or arranged to pay, and, if so, would, to this extent, be in conformity with the present rule. Walling v. Garlock, 159 F. (2d) 44; Walling v. Richmond Screw Anchor Co., 154 F. (2d) 780. (B) There shall be excluded from normal, straight-time compensation and shall be credited to overtime compensation for the purposes of section 7-- (1) Overtime premiums paid for work performed in excess of the normal workday or workweek scheduled in good faith by established practice or a collective-bargaining agreement, and (2) Overtime premiums paid for work performed outside of the normal workday or workweek scheduled in good faith by established practice or a collective-bargaining agreement, including premium payments for work performed on Saturdays, Sundays, and holidays. (1) One problem in administering section 3 (n) (1) (B) (2) would be that of determining whether a sum paid to an employee as a premium for working outside of the normal workday is paid as an “overtime premium" under 3 (n) (1) (B) (2) or a "shift differential" under 3 (n) (1) (A) (4) and hence part of the regular rate of pay. This difficulty would be intensified in situations in which the premium amounted to less than one-half time based on the rate applicable during the normal workday. Perhaps a proviso could be added to both (1) and (2) requiring that the "overtime premium" be at least 50 percent. (2) The term "the normal workday or workweek" is ambiguous. Does it refer to the workday or workweek of the employee, or of the establishment? Where a "normal" workday or workweek is scheduled as such, but is not the actual normal workday or workweek worked by the employee, which is to be taken as the normal workday or workweek for purposes of sections 3 (n) (1) (B) (1) and 3 (n) (1) (B) (2)? The problem also arises here and more particularly in section 3 (n) (3), infra, as to the meaning of the term "collective-bargaining agreement," since this is nowhere defined. Are any restrictions or limitations such as those existing under section 7 (b) (1) and (3) requiring certification by the National Labor Relations Board contemplated? If so, these restrictions should either be spelled out in this section or should be incorporated by reference. (C) There shall be excluded from normal, straight-time compensation but shall not be credited to overtime compensation— (1) Premium payments for work performed during vacations, This is substantially in accord with existing interpretations. The phrase "other time not worked," however, is so broad as to follow for ambiguity in interpretation. If it is intended to mean merely such other occasional time not worked as resembles vacations and holidays, e. g., time out for sick leave, attending funerals in the immediate family, and the like, the new section merely codifies the Division's existing rule as set forth in Release R-1625 which states that payment for hours when the employee is not at work due to "vacations, holidays, illness, or other similar causes" should not be regarded as part of the regular rate of pay. If this is the intention of the drafter, the phrase should be limited more strictly to indicate his intention. As it now stands the section might be used to permit devices to raise employees' rates of pay without raising their overtime rates through schemes in which the extra compensation paid to employees is labeled pay for hours scheduled and not worked. For example, there are contracts between employers and employees which provide that an employee shall be regarded as "on call" for 80 hours a week and shall be compensated at straight-time and overtime for such hours based on the minimum rate, whereas, in fact, the employee works a fluctuating workweek ranging from 40 to 50 hours and is not actually regarded as being on call. Walling v. Uhlmann Grain Co., 151 F. (2d) 381. (3) Employer contributions and employee benefits paid under a bona fide retirement annuity, or pension plan, medical or hospitalization plan, or death-benefit plan. With certain limitations discussed below, this has been the view of the Administrator as expressed in release R-1743. This release limited the application of the rules to plans in which the following two conditions were met: (1) The employee must not have the option to receive instead of the benefits under the plan any part of the contributions of the employer, and (2) the employee must not have the right to assign the benefits or to receive a cash consideration in lieu of the benefits either upon termination of the plan or his withdrawal from it voluntarily or through severance of employment with the particular employer. (4) Contributions made by the employer and payments made to the employee under any bona fide profit-sharing plan or trust which is approved by the Administrator under appropriate regulations or by the terms of which the employer is required to distribute to, or irrevocably set aside for the benefit of, his employees a predetermined percentage of his profits, This subparagraph allows for the payment to employees of certain compensation for services without including such payment in the computation of regular rate under a bona fide profit-sharing plan or trust in any one of three ways: (1) Where the plan is approved by the Administrator; (2) Where the employer is required under the plan to distribute to employees a predetermined percentage of his profits; and (3) Where the employer is required to irrevocably set aside for the benefit of employees a predetermined percentage of his profits. (5) Bonuses paid less often than quarterly the amount of which is not measured exclusively by the production or efficiency of such employee (or of any group of which he is a member). As indicated above (sec. 3 (n) (1) (A) (6)), this subsection is inconsistent with the earlier subsections which make it appear that some bonuses in addition to those related exclusively to production are part of the regular rate whether or not they are paid as often as quarterly. (2) In the case of any employee employed at a fixed weekly, semimonthly, or monthly salary for both straight time and overtime hours under a contract of employment which expressly provides a regular hourly rate of pay, the rate so specified shall be deemed to be "the regular rate of pay" at which he is employed if, but only if, it is not substantially less than his average straight time hourly earnings, after due allowance for overtime, over a representative period of time. This section appears to represent an attempt to incorporate into the statute the rulings of the Supreme Court in Walling v. Belo (316 U. S. 624), and Walling v. Halliburton (331 U. S. 17). The phrase "not substantially less than his average straight-time hourly earnings, after due allowance for overtime, over a representative period of time" is not clear. Apparently the purpose of the phrase is to require that there be some reasonable relationship between the salary, the hours worked and the hourly rate. Under contracts of the kind held valid in the Belo and Halliburton decisions, the stipulated "regular rate" actually operated to control the compensation in a substantial number of workweeks in which the employee worked longer hours than was required to earn the guaranteed salary. This was regarded by the courts as evidence of the genuineness of the stipulated rate, and enabled the Supreme Court to hold that such rate was the actual regular rate. Section 3 (n) (2) does not expressly require that the stipulated rate be actually used at any time to determine the compensation received by the employees. In the Belo case the Court laid considerable stress on the fact that the employees under consideration worked widely fluctuating hours, that if they had been paid on an hourly rate basis they would have suffered the inconveniences of an unstable and unpredictable income and, therefore, that employment on a guaranteed salary basis was of distinct advantage to them. Subsection 3 (n) (2) thus departs from existing law in that it does not limit the fixed salary plan of employment to employees whose hours of work fluctuate widely. To the extent that section 3 (n) (2) might permit employment for scheduled workweeks in excess of 40 hours in length without effective provision for overtime pay until the employees had completed the scheduled workweek, it would go beyond the Belo rule and author ize agreements which have been held to violate section 7. See 149 Madison Avenue Corp. v. Asselta (331 U. S. 795). Section 3 (n) (2) is silent as to whether it applies to employees receiving wage payments of other types in addition to a salary of the kind described. This should be clarified. If it is intended to apply to such employees, it fails to make clear that nonovertime payments above the salary (e. g., extra commissions and incentive earnings) should be reflected in the regulate rate. The phrase “average straight-time hourly earnings" is not expressly defined, and there is nothing to indicate whether it refers to "normal, straight-time compensation" of the kinds described in section 3 (n) (1). ** * The term "fixed salary" is nowhere defined. "Salary basis" is defined in section 3 (0) as "compensation * predetermined in amount and not subject to reduction because of variations in the number of hours worked: Provided, That deductions may be made for absences in violation of, or in excess of the time allowed under, a reasonable annual- or sick-leave plan * * *." Presumably the term "fixed salary" as distinguished from "salary basis" means that no deductions may be made. It may, however, be otherwise construed, and might conceivably mean that nothing except the salary would ever be payable, regardless of the number of hours worked by the employee in the workweek. This should be clarified. Section 3 (n) (3): (3) In computing the "regular rate of pay" of an employee employed under a bona fide collective-bargaining agreement (A) There shall be included in normal, straight-time compensation— (1) Basic wage payments, whether at an hourly rate, day rate, piece rate, or salary; (2) Production bonuses and other incentive payments distributed not less frequently than monthly, the amount of which is determined by reference to the production or efficiency of such employee (or of any group of which he is a member) and without reference to the profits of the enterprise; and (3) Such other payments of the character described in section 3 (n) (1) (A) (if the same were applicable) as are not excluded by designation as "overtime" payments in the provisions of such agreement or by an express provision thereof; (B) There shall be excluded from normal, straight-time compensation and shall be credited to overtime compensation (1) Payments which are creditable under the provisions of section 3 (n) (1) (B), (2) Payments designated as "overtime" payments or otherwise made creditable to overtime by the provisions of such agreement, and (C) There shall be excluded from normal, straight-time compensation but shall not be credited to overtime compensation such payments of the character described in section 3 (n) (1) (C) as are not designated as "overtime" payments nor otherwise made creditable to overtime by the provisions of such agreement. This subsection boiled down to its essential elements provides that the regular rate of pay set forth in a bona fide collective bargaining agreement shall be the regular rate of pay (except that production bonuses determined without reference to profits and paid monthly or more often and any other bonuses of the type included in section 3 (n) (1) (A) and not labeled overtime shall be included) and that all payments designated as overtime shall be excluded from the regular rate and credited against overtime due under the act. In the absence of an express agreement that certain payments shall be excluded from the regular rate of pay or an express designation of such payments as "overtime," payments of the kind described in subsection 3 (n) (1) (A) are included in the rate. The exclusionary provisions of subsections 3 (n) (1) (B) and 3 (n) (1) (C) are incorporated by reference. Here, as in subsection 3 (n) (1) (B), the term "collective bargaining agreement" is not defined. This subsection permits employers through collective bargaining agreements to contract outside of the overtime provisions of the act, by designating as "overtime" payments, payments which are in actual fact part of the employees' straight-time earnings, and which are so recognized by the proposed statute with respect to all other employees. This would enable employers under collective bargaining agreements to operate on overtime schedules without bearing the same full additional costs as employers operating without collective bargaining agreements. |