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House Committee on Education & the Workforce Subcommittee on Workforce Protections: Examining the Policies and Priorities of the Wage & Hour Division

House Committee on Education & the Workforce
Subcommittee on Workforce Protections
Examining the Policies and Priorities of the Wage & Hour Division
Wednesday, February 14, 2024

Topline

  • Republicans blasted the Department of Labor’s Final Rule on Employee or Independent Contractor Classification Under the Fair Labor Standards Act, arguing that it will cost millions of jobs and damage entrepreneurship.
  • Republicans also voiced concerns over the DOL’s proposed overtime rule and warned that it would face serious legal challenges.
  • Democrats raised concerns over the recent spike in child labor violations.

Witnesses

  • The Honorable Jessica Looman, Administrator, Wage and Hour Division

Opening Statements

Workforce Protections Subcommittee Chair Kevin Kiley (R-Calif.)

In his opening statement, Kiley noted that Acting Labor Secretary Julie Su has tripled the record for time in office as an unconfirmed appointment and said that her lack of confirmation creates a crisis of confidence and legitimacy for the Department of Labor. Kiley called on President Biden to abandon Su’s failed appointment and remove her from office. He explained that the policies passed down by the Wage and Hour Division will have disastrous consequences, citing the California-inspired independent contractor rule, which will deprive freelancers across the country of their livelihoods.

Kiley discussed California’s AB 5, which he said caused countless people in over 600 professions to lose their jobs. He said AB 5 is the law that President Biden cited as his model for the Department of Labor’s independent contractor rule. Kiley explained that he will be introducing a Resolution of Disapproval under the Congressional Review Act to nullify the independent contractor rule and stop the Department of Labor from attacking the nation’s workforce. Kiley also outlined his concerns with the Wage and Hour Division’s overtime rule, which he said will be especially harmful to non-profits and small businesses. He said the overtime rule will cost the economy $19 billion and force businesses to cut down hours, reduce jobs, and divert resources toward compliance. Kiley concluded by urging Looman to withdraw the proposed overtime rule and stop the independent contractor rule. 

Workforce Protections Subcommittee Ranking Member Alma Adams (D-N.C.)

In her opening statement, Adams emphasized how the Biden Administration and Congressional Democrats prioritized economic growth from the bottom up, and middle out, all while exceeding expectations. She noted that the Biden Administration added 14.8 million jobs to the economy, and that President Biden created more jobs in his first two years in office than President Trump did in all four years in office. She lauded President Biden for embracing a progressive, pro-worker regulatory agenda, citing his repeal of harmful regulations imposed by the previous Administration, which allowed unscrupulous employers to misclassify workers and avoid liability for labor violations.  

Adams warned that the most dangerous economic policies come from hardline Republicans who want to turn back the clock on fundamental workplace protections. She blasted Republicans for spending more time trying to undermine acting Secretary Su than preventing children from being forced to work in slaughterhouses. Adams noted that the Trump-era proposed independent contractor rule would have cost nearly $4 billion each year in lost wages and benefits. She urged Congress not to interfere with the Wage and Hour Division’s work, noting that years of Republican spending cuts have left the Division unable to properly and thoroughly enforce overtime pay protections and investigate violations. 

Testimony

The Honorable Jessica Looman, Administrator, Wage and Hour Division

In her testimony, Looman explained how the Wage and Hour Division enforces employment laws to ensure that workers are properly compensated, and businesses can compete on a level playing field. She noted that in the last year, the Division recovered more than $274 million in back wages and damages for more than 163,000 workers, while conducting almost a thousand investigations into illegal child labor. Looman added that the Division protects employees who are misclassified as independent contractors and who lose the full wages and protections that they are entitled to. 

Looman emphasized the Division’s work to investigate every actionable child labor complaint, tip, and referral. She warned that there has been an 88 percent increase in the number of children employed in violation of federal child labor protection laws since 2019 and noted the Division’s launch of the National Strategic Enforcement Initiative on Child Labor. Looman concluded that the vast majority of employers want to follow the law and pledged the Department of Labor’s commitment to supporting them with information, outreach programs, and compliance assistance. 

Question & Answer

Employee or Independent Contractor Classification Under the Fair Labor Standards Act

Rep. Glenn Grothman (R-Wisc.) said that people love being independent contractors, because it gives them freedom and allows them to make good money. He asked Looman if it bothers her that she’s taking away their freedom. Looman said the DOL is addressing misclassifications under the Fair Labor Standards Act. She added that she recognizes that independent contracts are an important part of the economy.

Grothman asked if it bothers her that the DOL is taking away a smart Ph.D.-level person’s ability to operate as an independent contractor. Looman said the new rule protects independent contractors who are not covered by the Fair Labor Standards Act and who are in business for themselves. 

Rep. Haley Stevens (D-Mich.) emphasized the importance of advocating for workers. She said that it shouldn’t be up to Committee Members to say to workers, “You must enjoy being an independent contractor who doesn’t get your full wage.”

Kiley argued that the independent contract rule is going to cost more than 3 million jobs and urged Congress to consider what happened in California with its rule on independent contracts. He called for the withdrawal of the independent contractor rule and emphasized the need to evaluate every Department of Labor rule to see if it actually supports workers and the economy.

Rep. Lisa McClain (R-Mich.) asked Looman if she ever owned a business. Looman said she had not but had managed one. McClain noted that she’s making rules for business owners despite not having ever owned a business, and asked how many business owners she consulted on the independent contractor rule. Looman said the DOL held roughly 30 listening sessions with business owners. 

McClain asked how the rule impacts entrepreneurship. Looman said it protects workers who are in business for themselves. McClain replied, “by making it more difficult for them to do business? It doesn’t add up.”

Rep. Tim Walberg (R-Mich.) noted that he sponsored the Direct Seller and Real Estate Harmonization Act, a bipartisan bill that would incorporate language from the IRS Code into the Fair Labor Standards Act. Walberg explained that the bill would ensure that people who choose to work in the direct selling of real estate are classified as independent contractors under both the IRS Code and the Fair Labor Standards Act. Walberg said the Wage and Hour Division declined to accept stakeholder recommendations to incorporate the harmonization into its final independent contractor rule, and asked Looman to commit to working with him to ensure that additional guidance is provided so that legacy independent contractors have clarity under both statutes. Looman agreed.

Rep. Ilhan Ohmar (D-Minn.) asked Looman to walk her through the typical investigation process for misclassification. Looman said they are especially focused on the most vulnerable workers who may be deprived of their right to minimum wage and overtime pay.

Rep. Bobby Scott (D-VA) noted that because of the Davis-Bacon Act, a lot of people are misclassified as independent contractors. He asked if that’s something the Wage and Hour Division is involved with.  Looman said they are responsible for ensuring that the Fair Labor Standards Act and the Davis-Bacon Act are enforced. 

Scott asked what happens when someone is misidentified as a lower-classified worker. Looman explained that there are two kinds of misclassification, the misclassification of employees as independent contractors, and the misclassification according to the type of work that is being performed under the Davis-Bacon Act. She explained they work with the companies and agencies involved to make sure employees are getting the right wage. 

Kiley asked if licensed real estate agents would be classified as employees or independent contractors under the new rule. Looman explained that there is a fact-based analysis on the individual worker and how they are performing work for their company. Kiley asked if a classic real estate agent who works for a brokerage firm would qualify as an independent contractor or as an employee. Looman said the rule reflects long-standing precedent, and real estate agents who are in business for themselves would continue to be independent contractors. 

Kiley then asked about independent operator truckers. Looman replied that workers who are in business for themselves are independent contractors, while workers who are economically dependent on their employer are employees.

Kiley asked who is responsible for conducting the six-factor analysis to determine classification. Looman explained that employers are responsible for that, while the DOL provides them with guidance and evaluates the factors when they investigate misclassification. 

Kiley noted the DOL has been going after unscrupulous employers without the new rule in effect, and said the new rule isn’t needed. He asked if Looman was aware of the freelance community’s opposition to the new rule and the lawsuit they brought about the comment period. Looman said she was aware, and Kiley asked why she thinks they oppose the rule. Looman said it’s the DOL’s responsibility to do outreach and education to make sure freelancers know their right to be in business for themselves is still protected. 

DOL’s Proposed Overtime Rule

Rep. Eric Burlison (R-Mo.) said the Department of Labor’s proposed overtime rule would seriously harm almost all employers. He noted the 60-day public comment window for the proposed overtime rule was insufficient and a disservice to both employers and employees. Burlison asked why the proposal was pushed through so quickly and in such an unprecedented manner. Looman said the DOL proposed the rule to address specific exemptions for executive assistants and administrative employees from the overtime rule in the Fair Labor Standards Act.

Burlison asked Looman to imagine how many comments the DOL would have received if they kept the comment period open for the normal length of time. Looman explained the proposal was made to update a rule from 2019, which also had a 60-day comment period. 

Burlison cited the proposed 2016 Obama-era overtime rule, which faced serious legal challenges and was eventually blocked. He said he expects and hopes that the same will happen with this rule. Burlison also noted that he will be introducing the Overtime Pay Flexibility Act later this week to stop the Biden Administration from implementing these proposed rules. 

Rep. Virginia Foxx (R-N.C.) noted that a previous witness testified that automatic updates to the Fair Labor Standards Act’s exempt employee salary threshold would violate the Notice and Comment Rulemaking Requirements and potentially the Constitution. Foxx noted the current proposed overtime rule includes automatic updates, and asked Looman to address these legal concerns. Looman replied that overtime protections are fundamental to the Fair Labor Standards Act. 

Foxx told Looman that the DOL is in violation of the Administrative Procedure Act and the Constitution. Looman said the proposed overtime rule would be adopted in accordance with the Administrative Procedure Act and affirmed that automatically updating the salary threshold does comply with the APA and the Fair Labor Standards Act. 

Walberg asked Looman to discuss the legal challenges that the new overtime rule may face. Looman said the proposed rule is still under development, so she couldn’t speculate on potential legal challenges.

Walberg asked if the new rule would go in the same direction as the overturned Obama-era overtime rule. Looman said the DOL is focused on reviewing all the comments and finalizing a rule that protects all workers who should be covered by the Fair Labor Standards Act. 

Child Labor Violations

Adams criticized Republicans for their agenda, which hinges on putting children to work and making them work for longer hours. Adams asked about the risks to children’s educational outcomes when they work for more than 20 hours a week during the school year. Looman said illegal child labor has detrimental effects on children’s health and educational outcomes. 

Adams noted the Wage and Hour Division assessed a penalty of $1.5 million for Packers Sanitation Services, a major sanitation service provider for meat packing facilities, for illegally employing more than 100 children across eight states. She said that the penalty seems trivial, and asked if the penalties that the Wage and Hour Division can assess under current child labor law provide an adequate disincentive to employers. Looman said they can currently assess a little over $15,000 per violation and have asked Congress to consider whether that is an adequate penalty.

Adams asked how many inspectors the Division currently employs and how many employees they cover. She also asked what it would mean for workers and children if the Division had significantly more inspectors. Looman said they have 721 investigators to protect 165 million workers at 11 million workplaces. She called for significantly more resources to serve more workers and support compliance assistance efforts for employers. 

Omar said Congressional action is lacking on child labor exploitation, but noted she’s happy that the Biden Administration is attempting to address it. She asked Looman to describe how the DOL is enforcing child labor protection with limited resources, and to highlight the work of the Interagency Task Force to Combat Child Labor Exploitation. Looman explained that as part of their national initiative, the DOL is working to make sure that all of their employees know what red flags to look out for and how to enforce child labor protections. Omar said Republicans are chasing culture wars and undermining Secretary Su while children are risking their lives in slaughterhouses. 

Kiley noted that the child labor crisis, which is tied to the crisis at the Southern Border, is getting worse. 

Rep. Mary Miller (R-Ill.) asked if the open border policy has caused the increase in child labor violations.

Looman replied that the Biden Administration is focused on preventing child labor violations. Miller said the Biden Administration has lost 85,000 children and said the Administration must own the increase in violations.

Miller asked if President Biden had taken any responsibility for the uptick in child exploitation. Looman said yes, and noted the DOL is working to address this problem, including through an interagency task force.

Davis-Bacon Act

Rep. Bob Good (R-Va.) said Congress should repeal the Davis-Bacon Act, which would save taxpayers $24 billion over ten years. He asked Looman why we should pay $24 billion more for federal construction projects. Looman said her Division’s responsibility is to enforce the Davis-Bacon Act and ensure workers get the pay they are entitled to according to the work they are performing. 

Good noted the Davis-Bacon Act was designed to favor white union-operated businesses during the Jim Crow era. He said the Division updated the Davis-Bacon Act last year, and asked why they would prop up a law with such a racist history. Looman said they are focused on ensuring that federal investments create good jobs and that workers involved in federal construction projects are compensated at a locally fair rate. 

Good concluded that if Congress doesn’t repeal the Davis-Bacon Act, it should at least commit to reforming the wage-determining process and take all workers into account, including those not represented by a union. 

For more information on this meeting, please click here. 

For an archive of past SIFMA hearing coverage, please click here.