Fair Labor Standards Act of 1938: Impact on American Workers

Introduction

Although most Americans take for granted the wide range of social programs that exist for their protection, many of these initiatives are fairly recent in origin. One that has been around for quite some time, however, is the Fair Labor Standards Act of 1938. The legislation established a minimum standard wage and a maximum workweek of 40 hours in industries engaged in interstate commerce. The implications of the Act were profound, and today, in what has become a classic pattern over the years, calls for increases to the federal minimum wage are followed by impassioned cries from industry leaders that such an initiative will do more to harm business than to help minimum-wage workers. Rather than routinely bankrupting American businesses, though, the federal minimum wage has served as a vehicle through which the nation can help ensure that all workers receive a living wage. Critics have consistently pointed out, however, that the federal minimum wage has been and remains too low for this purpose (Hart, 1994).

To determine how effective the Fair Labor Standards Act has been in accomplishing its original purposes, and what implications this legislation has had on American workers and industries, this paper provides an overview of the Act, followed by an assessment of the impact of the legislation. An analysis of current and future trends is then followed by a summary of the research in the conclusion.

Background and Overview of the Fair Labor Standards Act

According to the U.S. Office of Personnel Management (OPM), the Fair Labor Standards Act of 1938, as amended, is published in law in sections 201–219 of title 29, United States Code. The Act establishes minimum standards for both wages and overtime entitlement and codifies the administrative procedures and standards by which covered work time must be compensated for American workers today (An Overview of the Fair Labor Standards Act, 2005). According to the OPM, "Included in the Act are provisions related to child labor, equal pay, and portal-to-portal activities. In addition, the Act exempts specified employees or groups of employees from the application of certain of its provisions" (An Overview of the Fair Labor Standards Act, 2005, p. 2). OPM's current FLSA regulations are published in part 551 of title 5, Code of Federal Regulations; changes to the Code of Federal Regulations are published in the Federal Register.

According to Marcus, Minifie, Natarajan, and Wilson (1997), the FLSA was enacted in 1938 to help eliminate conditions that were detrimental to the nation's commerce and the general welfare of workers. It was reasoned that by vesting the Secretary of Labor with broad investigative and enforcement powers, it would be possible both to prevent employee subrogation and to improve labor relations and the flow of commerce (Marcus et al., 1997).

Broadly speaking, the FLSA prohibits an employer from:

• Failing to pay minimum wage or overtime compensation to an employee;
• Failing to keep individual work records for each employee;
• Discriminating on the basis of sex by paying different wages for equal work;
• Using oppressive child labor;
• Discharging or discriminating against an employee due to the employee's filing of a FLSA complaint or institution of a FLSA proceeding;
• Transporting or selling products manufactured by employees subjected to certain unlawful practices; and
• Purchasing goods from an establishment where a FLSA violation has occurred (the FLSA's "hot goods" ban), unless the purchase was made in good faith and without knowledge of the violations, or unless the purchaser is the ultimate consumer (Marcus et al., 1997).

Furthermore, a cause of action brought under the protections of the FLSA preempts all other criminal statutes; as a result, the prosecution of employers for violations covered by the FLSA may proceed only under FLSA provisions, and only penalties provided in the statute may be sought. However, Marcus and colleagues add that state wage statutes are enforceable if they are not in conflict with the applicable FLSA provisions. In addition, the FLSA stipulates that its minimum wage provisions represent the floor rather than the ceiling, and its provisions do not in any way excuse an employer who violates a state or federal law that may set a higher minimum wage or a shorter workweek (Marcus et al., 1997).

While most American workers take their present five-day, 40-hour weekly schedule for granted, this regimen was first introduced in the United States during the 1920s. The concept of a 40-hour week received support in 1926 when Henry Ford decided to convert his automobile plants from a six-day to a five-day week. The eight-hour day, which Ford employees had received a decade earlier along with the $5-per-day minimum wage, remained in effect. Such progressive thinking was, however, short-lived. In response to the worst depression in U.S. history and the demands of social movements that government provide substantive help, policymakers in the New Deal era looked to assist the type of American citizen President Franklin Roosevelt had called the "forgotten man at the bottom of the economic pyramid." This assistance was to be provided in the form of regulatory labor policies and redistributive social policies that would previously have been forbidden within institutions of the national government (Mettler, 1998). Perhaps no other period in American history would have resulted in such a set of progressive — and in many cases largely unconstitutional — federal initiatives targeted at the nation's most marginalized citizens.

The Fair Labor Standards Act of 1938 (hereinafter, FLSA or the "Act") was enacted by Congress as a response to the enormity of the economic conditions that existed in the midst of the Great Depression. The purpose of the FLSA was to help protect workers from substandard wages and oppressive working hours and conditions that were detrimental to the "health, efficiency, and general well-being of workers." In this regard, the FLSA was "designed to give specific minimum protection to individual workers and to ensure that each employee covered by the Act would receive [a] fair day's pay for a fair day's work and would be protected from the evil of 'overwork' as well as 'underpay'" (Walter, 2002, p. 79). The Act was targeted at protecting the most vulnerable workers, such as children and low-paid "sweatshop" employees; however, the Act did not apply to public agencies, and the FLSA regulations initially issued by the United States Department of Labor did not envision the Act being applied to public agencies (Walter, 2002).

For the purposes of enforcement, the FLSA defines an employer as "any person acting directly or indirectly in the interest of an employer in relation to an employee . . ." (29 U.S.C. § 203(d)). In United States v. Rosenwasser (323 U.S. 360, 363), the Supreme Court further defined "employer" for purposes of FLSA jurisdiction as encompassing the "broadest . . . [definition] that has ever been included in any one act" (1945, n. 3). Therefore, for the purposes of FLSA enforcement, an employer can be considered any "individual, partnership, association, corporation, business trust, legal representative, or any organized group of persons" (Marcus et al., 1997, p. 459). Further, besides a corporation itself, a corporate officer with operational control is also considered an employer and can be held jointly and severally liable under the FLSA for unpaid wages; these corporate officers are liable in their individual rather than their representative capacities (Marcus et al., 1997).

The FLSA provisions also apply to both individual employers and to employers that represent any type of "enterprise" (Marcus et al., 1997). Here, the commerce clause becomes relevant for enforcement of the Act's provisions when the employers are involved in interstate commerce. Congress has sought to expand the interstate commerce concept to include virtually anything that involves a business transaction; therefore, the provisions of the FLSA are applicable to individual employers in those "industries engaged in commerce or in the production of goods for commerce" (Marcus et al., 1997). Liability applies to individual business entities if they constitute an "enterprise" — when related activities are performed through a unified operation or where there exists common control for a common business purpose. The authors report that a significant amount of litigation has been devoted to determining which businesses constitute enterprises within the meaning of the Act (Marcus et al., 1997).

As discussed further below, the definition of employer for the purposes of FLSA enforcement also encompasses public agencies, but labor organizations are not included, except when acting in their capacity as an employer or when any person acts as an officer or agent of a labor organization (Marcus et al., 1997). Like the situation with monopolies and professional baseball leagues in the United States, the situation with labor organizations and the FLSA is unique in that criminal, but not civil, remedies may be sought against them. Marcus et al. report that section 216(a) provides for criminal penalties for willful violations by "any person," while section 216(b) provides for a civil action for monetary damages against "any employer"; the FLSA therefore does not provide for private actions by employees against a labor union (Marcus et al., 1997). The FLSA provides for enforcement against labor organizations through either injunctive proceedings instituted by the Secretary of Labor under section 217 or by criminal prosecutions for willful violations under section 216(a) (Marcus et al., 1997).

In addition, under the Fair Labor Standards Act of 1938, children under the age of 16 are prohibited from being employed in most occupations, and in hazardous industries, children under 18 are banned outright from employment (Marcus et al., 1997). According to Marcus and colleagues, these specific factors, as subsequently amended, were originally included in the FLSA in response to both the exploitative nature of the early 20th-century workplace and the enormity of the economic forces at play. Willis J. Nordlund (1997) reports that "During the decade immediately preceding the Great Depression and the nine years prior to the passage of the Fair Labor Standards Act, the American economy went through a wrenching experience. Contrary to a widely held belief, the decade of the 1920s was not a period of exuberant economic growth that resulted in a higher standard of living for all Americans" (p. 3). In fact, unemployment had been high throughout the 1920s, and the distribution of income remained uneven (Nordlund, 1997).

According to Howard D. Samuel (2000), "Historical events show that opposition within the labor movement had prolonged passage of legislation relating to minimum wages and maximum hours, contained in the Fair Labor Standards Act of 1938" (p. 32). Despite the opposition, the Fair Labor Standards Act eventually passed. President Roosevelt commented, a few days after he signed it on June 28, 1938, that "I do think that next to the Social Security Act it is the most important Act that has been passed in the last two to three years." However, it required three more sessions of Congress and an enormous effort on the part of the legislation's advocates to get it passed, in no small part because of the divisions within the labor movement (Samuel, 2000).

The provisions of the FLSA also established a Wage and Hour Division in the Department of Labor to enforce its provisions. According to Benjamin Kline Hunnicutt (1988), the legislation was supposed to cover workers in interstate commerce and set minimum wages at 25 cents per hour in 1938 and 30 cents in 1939; maximum hours were set at 44 in 1938, 42 in 1939, and 40 for 1940 and the following years (Hunnicutt, 1988). The issue of a minimum weekly wage increase was resolved by the formula set forth in Table 1 below.

Table 1. FLSA Early Minimum Weekly Wage Formula.

Source: Hunnicutt, 1988.

Advocates in the federal administration at the time maintained that millions of American workers would be covered by the initiatives; however, opponents — including labor representatives — were virtually unable to find anyone to whom the bill actually applied, particularly in the provision on hours. Hunnicutt advises that "Certainly some southern textile mills were covered. But since the average workweek was at 40 hours in industry, the bill was recognized for what Roosevelt had meant it to be: a cap to 'overlong hours' and not a method to reduce unemployment" (p. 247). While the FLSA may not have been intended to reduce unemployment, as the 20th century progressed, many labor advocates became fearful that the net impact of the legislation and newly introduced workplace innovations would be to reduce working hours and therefore wages and benefits.

According to McCarthy and McGaughey (1989), "Back in the late 1950s, the public became aware of a long-term threat to jobs from a phenomenon for which the word 'automation' had recently been coined. The idea of shortening the workweek through amendment of the Fair Labor Standards Act was among the suggestions offered then to deal with this problem" (p. 11). Generally, that was the recommendation of organized labor. Some unions were advocating a 35-hour workweek, others a 32- or 30-hour week, but all were making essentially the same point: that new labor-saving technologies were destroying jobs held by their members. "At a lower level of hours, however, those jobs might be saved. This point of view did not prevail. The business community was opposed to the shorter-workweek idea. When academic and government economists joined in the opposition, the proposal was doomed" (McCarthy & McGaughey, 1989, p. 12).

Then, as now, the objective of public policy was to encourage economic growth, and the Cold War was no time to be thinking about cutting back on economic output: "The U.S. economy needed to grow rapidly, it was argued, so that the nation could honor its global commitment to fight communism, build hospitals and schools, and provide a continually rising standard of living for American workers. Many believed that cutting work hours would put the economy in a straitjacket, so to speak. It would freeze industry at a particular level of development" (McCarthy & McGaughey, 1989, p. 12). Further, many economists at the time suggested that the idea that shorter hours might create jobs was based on a fallacy they called the "lump of labor" theory. Paul Samuelson suggested in his popular economics textbook that "The lump-of-labor argument implies that there is only so much useful remunerative work to be done in any economic system, and that is indeed a fallacy. . . . There is no doubt that drastic shortening of hours would imply lower real earnings than a full-employment economy is capable of providing at a longer workweek" (McCarthy & McGaughey, 1989, p. 12).

John Diebold advised the Joint Economic Committee of Congress in 1960 that "Unlimited demand for goods and services will prevent unemployment from automation. Since human wants are unlimited, increased productivity and production will find a market in satisfying these wants. Through greater productivity earnings will increase to such an extent that there will be a tremendous rise in our standard of living" (McCarthy & McGaughey, 1989, p. 13). This observation was made more than 45 years before the time of writing, and the choice it implied was clear: "Either we could take the pessimistic expedient of shortening work time and so abort part of our economic future, or we could continue upon the upward glide-path to new heights of prosperity. Of course we chose the latter" (McCarthy & McGaughey, 1989, p. 13). Clearly, the United States elected to produce goods and services over more leisure for its workers in the firm belief that the two were connected.

While it is not possible to assess the impact of shorter hours on the nation's standard of living because work hours failed to decline substantially, it is possible to track the progress in living standards given the decision to renounce shorter hours in favor of more production. An analysis of the statistical data concerning the tradeoff between leisure and living standards is provided in the tables and figures that follow.

Table 2. Average Hours Worked per Week in the U.S. Civilian Economy, 1860–1987.

Source: McCarthy & McGaughey, 1989, p. 12.

As can be seen in Table 2, the average workweek in the U.S. civilian economy declined more rapidly in the earlier part of the century than in the years after World War II. During the period between 1900 and 1940, the average workweek dropped from 60 to 44 hours, a decline of 4 hours per week per decade. During the period between 1940 and 1980, the average workweek further declined from 44 to 38.5 hours, representing a decline of 1.4 hours per week per decade (McCarthy & McGaughey, 1989). The period between 1940 and 1960 accounted for 3.5 hours of the 5.5-hour decline since 1940, and the period after 1960 for 2.0 hours. Since 1980 there has, in fact, been a slight gain in average hours (McCarthy & McGaughey, 1989), a trend that continued into the 1990s (Edwards, 1993).

In terms of living standards, the average real hourly wage in the United States more than doubled in the quarter century between the two world wars. The average real hourly wage increased by an additional 50% from the end of World War II until 1970. The increase in real earnings subsequently stalled and even began to decline. Table 3 below shows the median money income of U.S. families in constant dollars between 1960 and 1985; there was an increase of $7,991 in annual earnings during the first thirteen years, followed by a decrease of $1,829 during the last twelve years (McCarthy & McGaughey, 1989).

Table 3. Median Money Income of U.S. Households in Constant 1986 Dollars.

Source: McCarthy & McGaughey, 1989, p. 14.

Key Provisions and Definitions Under the FLSA

According to Jeffrey D. Pollack (2001), the FLSA today requires employers to pay their employees for all hours worked and to pay overtime for hours in excess of forty per week. Understanding the definition of "hours worked" therefore becomes essential to ensure compliance with current FLSA provisions. Pollack notes that there are a variety of statutory and regulatory sources for this definition, as well as several liability and remedies provisions under the FLSA. The FLSA does not specifically define "hours worked"; instead, it defines "employ" as "to suffer or permit to work" [29 U.S.C. § 203(g)].

Work has been defined as "physical or mental exertion (whether burdensome or not) controlled or required by the employer and pursued necessarily and primarily for the benefit of the employer and his business" [Tennessee Coal, Iron & R.R. Co. v. Muscoda Local No. 123, 321 U.S. 590, 598 (1944)] (Pollack, 2001). Black's Law Dictionary (1990) advises that "work" is "to exert oneself for a purpose; to put forth effort for the attainment of an object; to be engaged in the performance of a task, duty or the like. The term covers all forms of physical or mental exertions, or both combined, for the attainment of some object other than recreation or amusement" (p. 1605). These definitions taken together provide a fairly comprehensive picture of what "work" means in terms of the FLSA, but today it is also necessary to expand the analysis to the regulations in 29 CFR Part 785, as well as the Portal-to-Portal Act (29 U.S.C. § 251 et seq.).

The precedents established by 29 CFR Part 785 and the Portal-to-Portal Act stipulate that employers must pay for all hours an employee works — even if the employer did not request the work; the employer bears the burden of preventing unwanted work. In fact, the "mere promulgation of a rule" is insufficient for this purpose, and the employer must "make every effort" to enforce the rule (29 CFR § 785.13). The defense that the employee could have completed the work in less time is not viable, nor is the employee's failure to claim the hours (Pollack, 2001). Furthermore, if the employer "knows or has reason to believe" the employee is working, the employer must pay for that time pursuant to 29 CFR § 785.11. Under appropriate circumstances, constructive knowledge will be imputed; nevertheless, "[w]hile an employer must pay for [all] work it suffers or permits, an employer cannot suffer or permit an employee to perform services about which the employer knows nothing" (Pollack, 2001, p. 56).

The FLSA was also applied to employees of the United States federal government in 1974; section 3(e)(2) of the Act authorized the provisions of the Act to be applied to any person employed by the government of the United States, as specified in that section (An Overview of the Fair Labor Standards Act, 2005, p. 3). The Congressional Accountability Act of 1995, as amended, sections 1301 et seq. of title 2 of the United States Code, also expanded the rights and protections of the FLSA to those employees working for the following U.S. federal government entities:

• The United States House of Representatives;
• The United States Senate;
• The Capitol Guide Service;
• The Capitol Police;
• The Congressional Budget Office;
• The Office of the Architect of the Capitol;
• The Office of the Attending Physician; and
• The Office of Compliance (Who Does What, 2005, p. 2).

While the definition of employer for the purposes of FLSA enforcement encompasses the above public agencies, labor organizations are not included today, except when acting in their capacity as an employer or when any person acts as an officer or agent of a labor organization (Marcus, 1997). The situation of the labor organization is unique in that criminal, but not civil, remedies may be sought against it: section 216(a) allows criminal penalties for willful violations by "any person," while section 216(b) provides for the maintenance of a civil action for monetary damages against "any employer." Therefore, the FLSA does not provide for private actions by employees against a labor union. Nevertheless, the Act does provide for enforcement against American labor organizations through either injunctive proceedings instituted by the Secretary of Labor under section 217 or by criminal prosecutions for willful violations under section 216(a) (Marcus, 1997).

Conclusion

The past 75 years have witnessed some fundamental changes in the way most American workers are treated by their employers, and one of the reasons for these changes was the Fair Labor Standards Act, as amended, of 1938. The research showed that the FLSA of 1938 was the first federal minimum wage legislation in the United States. The research also showed that this Act first codified and institutionalized the concept that living standards and workers' needs were relevant issues in the debate over established wages in the United States. While the impact of the FLSA on all American workers has been mixed, the benefits of having such regulatory guidance in place for as many workers as possible became quickly clear as the research progressed.

Finally, while the OPM and Congress have attempted to refine the FLSA to meet the changing nature of the American workplace, the recent changes failed to envision the rapidity with which computer-based innovations would sweep the country and the world. There is a clear need for further refinements in the very near future.

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