Regulation of Compensation

Adkins: Congress can regulate the “character, methods, and time for payment of wages,” and can fix “hours of labor” where a particular employment, when too long pursued, is injurious to the health of employees. But Congress cannot interfere with freedom of contract by prescribing a minimum wage.

• Mutuality exists in relationship between employer and employee: “The right of a person to sell his labor upon such terms as he deems proper is, in its essence, the same as the right of the purchaser of labor to prescribe the conditions upon which he will accept such labor. *** Employer and employee have equality of right, and any legislation that disturbs that equality is an arbitrary interference with liberty of contract.”

West Coast Hotel: Adkins overruled; it is in the public interest to end “the exploitation of a class of workers who are in an unequal position with respect to bargaining power and are thus relatively defenseless against the denial of a living wage” and Congress may due so without violating the due process clause.

Darby: Congress has affirmative authority, under the commerce clause, to “prohibit the shipment in interstate commerce of products manufactured by employees paid less than minimum wage” and “to prohibit the employment of workers engaged in the production of goods for interstate commerce” for less than minimum wage.

• It is Congress’s policy that interstate commerce should not be made the instrument of competition in distribution of goods produced under substandard labor conditions

FLSA Background Materials: FLSA establishes a minimum wage, requires premium pay for overtime work (work over forty hours a week must be paid at a rate of 1.5 times regular pay), and restricts the ability of employers to employ children. Children below the age of 14 cannot be hired at all; restrictions on their employment until they are 18.

• FLSA only applies when there is an employer-employee relationship; does not apply to independent contractors.

• FLSA’s overtime provisions were primarily intended to spread work. They were also intended to protect individual employees from employers who might require them to work unreasonably long hours.

  • Why do firms nonetheless require overtime? Because many of the costs of employment are quasi-fixed; once an employee is hired they do not increase as the number of hours worked increases. An employer may have employees work overtime because the quasi-fixed costs of hiring anew employee are greater than the amount of the wage premium that needs to be paid current employees to have them work overtime

Card and Krueger: Evidence is not singularly agreed that increases in minimum wage decrease employment; minimum wage increases accrue disproportionately to individuals in low-income families; minimum wage may lead to ripple effect, such that workers who previously earned wages above the new minimum also receive pay increases.

• Minimum wage is nonetheless a blunt instrument for reducing poverty, since many minimum wage earners are not in poverty, and many of those in poverty are not connected to the labor market.

Selected Provisions of the FLSA:

29 U.S.C. § 206(a): Every employer shall pay to each of his employees who in any workweek is engaged in commerce … or is employed in any enterprise engaged in commerce … wages at the following rates: not less than $7.25/hour.

29 U.S.C. § 207(a)(1): … no employer shall employ any of his employees … for a workweek longer than forty hours unless such employee receives compensation for his employment in excess of [forty hours] a rate not less than 1.5 times the regular rate at which he is employed…

29 U.S.C. § 207(e) [highlighted provisions are creditable towards wages required for overtime payment or minimum wage payment]

Regular rate includes all remuneration but shall not be deemed to include:

1. gifts (not dependent or measured by hours worked, production, or efficiency)

2. payments made for occasional periods when no work is performed (e.g., vacation, holiday, illness, traveling expense payments);

3. bonuses not pursuant to contractual obligation, payments made pursuant to a bona fide profit-sharing plan, or talent fees

4. irrevocable contributions to insurance or similar benefits;

5. excess compensation provided by a premium rate paid:

   1. for...

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