Despite all of California's advantages, such as geography, weather, population and resources, the Golden State has lost its competitive edge. For several years now, business leaders have consistently lamented the fact that California is no longer considered a viable option for businesses looking to start up, expand, or relocate. Instead of California, businesses have been looking to other Western states -- such as Arizona, Texas and Nevada. This can be mostly attributed to the fact that, by a large margin, California's regulatory environment is the most costly, complex, and uncertain in the nation.
In no area of California's regulatory environment is this unfortunate reality more evident than in the area of overtime rules. It is clear that for California's business climate to become competitive again, at least in part, overtime rules must become clear, flexible, and easier to comply with for both employers and employees. While there are a number of significant changes that need to be made in the current overtime rules, the first and easiest place to start would be to provide employees and employers with greater flexibility in developing mutually beneficial work schedules. This can be accomplished, at least minimally, through making overtime applicable to any hours worked beyond 40 in a week (current law, which is unlike the federal requirement and the requirements in most other states is very restrictive in that it requires overtime for any hours worked beyond 8 in a day). The remainder of this report will provide the history of overtime in California, detail the current overtime rules, discuss other states' overtime regulations, discuss the problems with these regulations, and the potential benefits of the minimal change (discussed above) to current law.
History of Overtime in California:
Pre-AB 60 (Knox, 1999): On January 1, 1998, under the leadership of Governor Pete Wilson, the Industrial Wage Commission (IWC) modified the overtime requirements for the following five wage orders: 1 - Manufacturing industry; 4 - Professional, technical, clerical, mechanical and similar occupations; 5 - Public housekeeping industry; 7 - Mercantile industry; and, 9 - Transportation industry. The modifications conformed overtime requirements to federal law by requiring the payment of overtime for any hours worked beyond 40 in a week. Prior to this modification, overtime (time and a half) had to be paid in these industries for any hours worked beyond eight in a day.
Post-AB 60 (Knox, 1999): In 1999, Governor Gray Davis signed AB 60 (Knox), which nullified the IWC's actions with regard to the five wage orders mentioned above. Additionally, it did the following: 1) Specified that any work in excess of eight hours day, in excess of 40 hours a week, and the first eight hours on the seventh day of work must to be compensated at no less than one and one-half times the regular rate of pay; 2) Specified that any work in excess of 12 hours a day and in excess of eight hours on the seventh day of work must be compensated at no less than twice the regular rate of pay; 3) Specified that employees covered by collective bargaining agreements are exempt from these daily overtime rules. These include all state, county and city employees, such as those employed by school districts, water districts and a multitude of other governmental agencies; and, 4) Specified that employees working in the mining, construction and logging industries are also exempt from these daily overtime rules.
The collective bargaining carve-out to overtime rules provides unions with a way to maintain relevancy and an upper hand in organizing efforts.
Difficulties in Establishing the Minimal Flexibility Currently Allowed:
AB 60 allowed employers to institute alternative work schedules only if all affected employees agree to the arrangement in writing and by secret ballot. Employers must hold discussion meetings at least 14 days prior to voting. Two-thirds of the company's employees must agree to the change and all must follow it. Any deviation from the rigidly controlled process voids the election. The rules also state that daily work schedules are limited to a maximum of 10 hours per day, with a daily minimum of four hours. Moreover, variances in schedules or the use of more than one schedule is prohibited without repeating the voting process. This effectively eliminates most employers and employees from choosing schedule options such as flextime, part-time, job sharing, telecommuting and compressed workweeks. AB 60 also permitted an employee, upon written request, to make up lost work time during the same workweek without incurring daily overtime. This process is also restrictive and burdensome which makes it an unviable option. Employers who are offering a flexible work schedule without going through the election process are operating in violation of the law.
Complex and Inflexible Flexibility:
Union representatives argue that change in California's overtime rules are unnecessary because existing law prescribes a process by which employers and employees can enter into a flexible workweek and because it allows for makeup time. However, as mentioned above, the process in existing law is entirely too difficult to be a viable option for establishing work schedule flexibility for a vast majority of employers. To prove this, one need only consider the fact that only a relatively small number of employers have implemented a flexible work schedule.1 Proof can also be seen in the large number of employers and employees who are pleading for overtime flexibility. If the existing process were viable, there would be no support for reform. The fact that the process is intentionally burdensome, complex and inflexible demonstrates that it was never meant to be a viable option. If it were, it would undermine the ability of union organizers to use their collective bargaining carve-out to these rules as a bargaining tool and a bargaining advantage.
A Competitive Disadvantage with our Neighbors:
Under federal law, in California's bordering states, and in nearly every other state, it is simple for employers and employees to adopt "alternative workweeks" such as 4/10's, or 3/12's. In Oregon, employees working overtime must be paid at 1.5 times their regular rate of pay after working 40 hours in a single week. In Washington, most employees paid hourly are entitled to 1.5 times their regular rate of pay for any time worked over 40 hours in a seven-day workweek. Arizona does not have state-set overtime rules and instead requires employers to use the 40-hour requirements set out in the federal Fair Labor Standards Act. In Nevada, an employer must pay 1.5 times an employee's regular rate of pay whenever an employee works more than 40 hours in a week or more than eight hours in any workday, unless the employee and employer have made a specific agreement providing for a scheduled 10-hour day with a four-day workweek.
Employer & Employee Win/Win:
Providing scheduling flexibility would be a win/win for both employers and employees. Most employers want to help their employees balance work and life demands and flexible scheduling can facilitate this. When this balance can be achieved, employees have healthier home lives and more productive and attentive work lives, unscheduled absenteeism and the resulting disruptions diminish, morale improves, company loyalty increases, and businesses become more productive and competitive. Working a compressed four-day workweek provides for up to 50 extra days each year for the average full-time employee. That will be time for the employee to spend with family, attend children's school activities, take care of dependent elders, go to medical appointments, go back to school or attend to other private matters that usually cannot be accomplished on a weekend.
Allowing more employees to work a flexible work schedule would also result in more employees working different hours than the standard 8:00am to 5:00pm. This would in turn mean far fewer cars on the road during peak rush hour, less traffic congestion and less automobile emission (i.e. alleged global warming gases) from idling cars. A reduction in commute time and pollution would improve the quality of life for all.
Further, California law regarding hours and overtime is complex and unclear, which is part of the reason there are so many work hours and overtime class action lawsuits. This simple change may help to reduce the number of lawsuits that are a result of the confusion surrounding overtime laws.
Finally, in the current economic environment, many employers cannot afford to provide raises, bonuses and enhanced benefits. It makes sense to allow employers to provide flexible work schedules as an employee benefit to increase morale and allow employees reap the benefit of an extra day off per week. This may allow employers and employees to agree to work schedules that account for the down turn in the economy as an alternative to layoffs.
In a broad sense, enacting a flexible workweek would send a message that California is a place where political leaders understand how jobs are created and maintained. It would give investors, businesses and entrepreneurs more confidence to create, invest in and grow businesses right here in California instead of doing so in bordering states and/or other nations that have more friendly business climates. Given the current economic and fiscal crises facing the state, there is no better time to send such a message.
For more information on this report or other election issues , contact Cory Botts, Senate Republican Office of Policy at 916/651-1501.
1 According to the Division of Labor Standards Enforcement's (DSLE) alternative workweek elections database, only a handful of employers in California, approximately 10,000 of over 800,000 employers, are currently trying to operate flexible work schedules under the restrictive process. It is important to note that at first glance, DSLE appears to list a greater number of employers as having implemented alternative workweeks. This is due to the fact that DSLE lists all approved alternative work schedules for every work unit, irrespective of the employer. This means that the same employer can be listed several times if it has several work units working under an alternative work schedule.