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Labor Secretary’s comments on budget proposal map out DOL enforcement strategies

March 19th, 2015  |  Pamela Wolf

Secretary of Labor Thomas E. Perez, in testimony before the House Education and the Workforce Committee on Wednesday, March 18, to justify the President’s budget proposal for the DOL, pointed to the need to raise the minimum wage and combat overtime wage violations, among other things, and outlined the DOL’s new approach to enforcing wage and hour laws. His comments, particularly in the wage-and-hour arena, put certain employers on notice of stepped-up compliance enforcement efforts, particularly those at “the top of the chain.”

Economic recovery. Perez began his testimony by reminding lawmakers that we are now in a climate of economic recovery: “We’ve come a long way in the last six years. In the few months before President Obama took office, the economy was in free fall—we had lost roughly two million jobs. Today, we have had five years—60 consecutive uninterrupted months—of private sector job growth, to the tune of 12 million new jobs over that time. That’s the longest such streak on record, and 2014 was the best year for job creation in the United States since 1999.

“The wind is clearly at our back. The economic indicators are promising across the board. The current unemployment rate is 5.5 percent, down from 10 percent in the fall of 2009. 2014 was the first year in 30 years that the unemployment rate declined in every state in the nation. Consumer confidence is near a seven-year high. The deficit hasn’t fallen this fast since the end of World War II. We’re exporting more in American goods and services than ever before. The auto industry was almost left for dead in 2008, but today sales are high again. All of these factors are leading finally to a strengthening labor market—coming out of the Great Recession, there were nearly seven job seekers for each available position; today that ratio is less than two-to-one.”

But according to Perez, it’s not yet time to celebrate, but rather to “find the common ground to do even better” and “ensure that the fruits of this recovery are enjoyed by more people and more working families.”

Raising the minimum wage. Perez also noted that the impressive economic recovery has not “reversed a decades-long trend in wage stagnation among middle- and low-income families.” He said “we have to help more people increase their incomes and make their paychecks go further,” suggesting that it should begin with “a long-overdue increase” in the minimum wage, including for tipped workers. “The President first called on Congress to take this step more than two years ago, because he believes that no one who works full-time in the wealthiest nation on earth should have to raise their family in poverty.”

The Labor Secretary talked about the many low-wage workers who “need SNAP (formerly known as food stamps) or other forms of public assistance to get by. Often, they are one setback away from complete desperation. For you or me, car trouble and a trip to the repair shop are inconvenient; for many of them, it’s a financial catastrophe,” he observed.

Perez also applauded what he called “forward-looking employers” that are paying higher wages even though not required to do so, “as a matter of enlightened self-interest,” including Costco, the Gap, Shake Shack, and Ace Hardware. “They recognize that it translates into improved morale and greater productivity. It increases retention rates, thus cutting turnover and training costs. Besides, many of them recognize that in an economy driven by consumer demand, better paid workers mean more people with more money in their pockets to spend on all kinds of goods and services, which leads to stronger business growth and more jobs—a virtuous cycle.”

But not all employers will “do the right thing,” according to Perez, “we know that there are some who will try any way they can to raise their profits at the expense of their workers.”

Sketching out the growing wage-hike trend among the states, Perez observed: “Over the last two years, 17 states plus the District of Columbia have raised their own minimum wages, thus benefitting a total of seven million workers nationwide. On Election Day last November, Nebraska, South Dakota, Alaska, and Arkansas all passed ballot measures to increase their states’ minimum wage.”
Nonetheless, Perez urged that the federal minimum wage should be raised “because whether a full time job lifts you out of poverty shouldn’t depend on whether you’ve won the geographic lottery or not.”

Overtime pay. In addition to the Obama administration’s efforts to make headway on the wages front through the president’s executive order mandating a $10.10 minimum wage for workers on new federal construction and service contracts, Perez pointed to the Labor Department’s move “to modernize the nation’s rules on overtime pay, which have not kept up with inflation or with changes in the economy.” Those rules have not been updated since 1975.

“The basic premise of the overtime law that Congress enacted more than 75 years ago is pretty straightforward: If you work more, you should get paid more. But that basic principle is undermined in too many cases,” Perez said. “The assistant manager at a fast food restaurant who puts in 60-70 hours a week for $455 and spends almost all of their time performing the same work as the employees they supervise and who does not get overtime is getting a raw deal. We are updating the rule to prevent this situation.” In doing so, the DOL has “conducted unprecedented levels of outreach, holding multiple listening sessions with employers and workers in a wide array of industries,” he asserted.

The new wage-law enforcement approach. Perhaps the most instructive of Perez’s comments pertained to wage-hour law enforcement, which matters, he said “because the laws that you pass, and the regulations that we promulgate to implement those laws, are only as good and as meaningful as our ability to make those words on a page a reality for American workers,” and enforcement “also levels the playing field for employers who play by the rules.”

The Wage and Hour Division’s investigation force has been increased by more than one-third, Perez noted, also clarifying that the increase only brings staffing back to 1970s levels when the labor force was significantly smaller. The president’s fiscal year 2016 budget calls for more staffing increases, requesting $277 million overall for the WHD, including a $31.7-million increase for additional enforcement staff and support.

How has the WHD changed its approach to enforcement? “We have equipped our investigators with the modern tools they need to do their work. We’ve used data and evidence-based strategies to deploy them strategically,” the Labor Secretary explained. “And we’ve also shifted the focus of our enforcement efforts. Instead of a purely reactive approach where we respond to incoming complaints, we have targeted investigations in industries where we know workers are vulnerable, and where they are often reluctant to raise their voices and exercise their rights.” According to Perez, strategic enforcement yields “very real results for working families” and is also “a more efficient use of resources.”

According to Perez, the WHD has directed its resources to:

• where the data and evidence show wage violations are most likely to occur,
• where emerging business models lend themselves to such violations, and
• where workers are least likely to exercise their rights.

And Perez made clear that the WHD’s continued efforts will focus on industries with low-wage workers: “[W]age violations are pervasive, especially for low-wage workers, and so we must continue to step up our efforts and take our enforcement to the next level. We want and need to create ripple effects that impact compliance far beyond the workplaces where we are actually on the ground investigating.”

The WHD’s efforts will be targeted to employers at the top of the supply chain. “One way to leverage our enforcement resources is to identify the supply chain,” the Labor Secretary explained. “The idea is to cause those at the top of the chain to evaluate the compliance practices of those below them; and to get them to think twice about whether it is worth the risk to their good name, and possibly their bottom line, to do business with a supplier or subcontractor who skirts the law.”

Employers that fit the profile described by the Labor Secretary should consider themselves on notice of stepped-up compliance enforcement.