Adjustment of Civil Money Penalties for Inflation

DEPARTMENT OF LABOR

Wage and Hour Division

29 CFR Parts 578 and 579

RIN 1215-AB20

Adjustment of Civil Money Penalties for Inflation

AGENCY: Wage and Hour Division, Employment Standards Administration,

Department of Labor.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document proposes adjustments in the civil money

penalties that may be assessed under the Fair Labor Standards Act

(FLSA) for repeated or willful violations of the minimum wage or

overtime provisions of the FLSA, and for violations of the child labor

provisions of the FLSA. These adjustments are being made to meet

requirements of the Federal Civil Penalties Inflation Adjustment Act of

1990, as amended by the Debt Collection Improvement Act of 1996,

[[Page 71406]]

which requires that Federal agencies issue regulations that make

inflationary adjustments in their civil money penalties pursuant to a

specified formula and make periodic adjustments after the initial

increase at least every four years thereafter, in accordance with the

guidelines set forth in the amended Federal Civil Penalties Inflation

Adjustment Act.

DATES: Written comments must be submitted on or before January 27,

1999.

ADDRESSES: Submit written comments on this proposed rule to Richard M.

Brennan, Deputy Director, Office of Enforcement Policy, Wage and Hour

Division, Employment Standards Administration, U.S. Department of

Labor, Room S-3510, 200 Constitution Avenue, N.W., Washington, DC

20210. If you want to be notified that we have received your comments,

please include with your comments a self-addressed, stamped postcard or

submit your comments by certified mail, return receipt requested. As a

convenience, you may transmit your comments by facsimile (``FAX'')

machine to (202) 219-5122, which is not a toll-free number. If you

transmit your comments by FAX and also submit them by mail, please

indicate on the mailed copy that it is a duplicate copy of your FAX

transmission.

FOR FURTHER INFORMATION CONTACT:

Richard M. Brennan, Deputy Director, Office of Enforcement Policy, Wage

and Hour Division, Employment Standards Administration, U.S. Department

of Labor, Room S-3510, 200 Constitution Avenue, N.W., Washington, DC

20210. Telephone (202) 693-0745 (this is not a toll-free number). You

may obtain a copy of this proposed rule in alternative formats by

telephoning (202) 693-0745, (202) 219-4634 (TDD); the alternative

formats available are large print, electronic file on computer disk,

and audio tape.

Questions of interpretation and/or enforcement of final regulations

issued by this agency or referenced in this proposed rule may be

directed to the nearest Wage and Hour Division District Office listed

in most telephone directories under United States Government, Labor

Department.

SUPPLEMENTARY INFORMATION:

I. Paperwork Reduction Act

This proposed rule contains no new information collection

requirements which are subject to review and approval by the Office of

Management and Budget under the Paperwork Reduction Act of 1995 (44

U.S.C. 3501, et seq.).

II. Background

The Debt Collection Improvement Act of 1996 (Pub. L. 104-134, 110

Stat. 1321) amended the Federal Civil Penalties Inflation Adjustment

Act of 1990 (Pub. L. 101-410, 104 Stat. 890) to require Federal

agencies to regularly adjust certain civil money penalties (CMPs) for

inflation. As amended, the law requires each agency to make an initial

inflationary adjustment for all covered civil money penalties, and to

make further inflationary adjustments at least once every four years

thereafter. The adjustment prescribed in the amended Act is determined

by a cost-of-living formula equal to the amount by which the Department

of Labor's Consumer Price Index (CPI) for all urban consumers for June

of the calendar year preceding the adjustment exceeds the June CPI for

the calendar year in which the CMP amount was last set or adjusted. The

statute provides for rounding the penalty increases. Once the

percentage change in the CPI is calculated, the amount of the

adjustment is rounded according to a table provided in the Federal

Civil Penalties Inflation Adjustment Act, which is scaled based on the

dollar amount of the current penalty. A cap is then applied which

limits the amount of any increase in penalty to 10 percent of the

current penalty amount (for the initial adjustment only). Any increase

under the Act will apply only to violations that occur after the date

the increase takes effect. The Act provided that the first such

increase should have been made no later than 180 days after the date of

enactment of the Debt Collection Improvement Act of 1996, or by October

23, 1996.

Section 16(e) of the FLSA authorizes CMP assessments for the

following violations: (1) any person who violates the child labor

provisions (section 12 or section 13(c)(5)) of the FLSA or any

regulation thereunder may be subject to a CMP of not to exceed $10,000

for each employee who was the subject of such a violation; and (2) any

person who repeatedly or willfully violates the minimum wage (section

6) or overtime provisions (section 7) of the FLSA may be subject to a

CMP of not to exceed $1,000 for each such violation. In determining the

amount of any such penalty in a particular case for either type of

violation, the size of the business of the person charged and the

gravity of the violation must be taken into consideration, among other

appropriate factors.

The child labor CMP amount was last adjusted by the Congress in

1990 pursuant to the Omnibus Budget Reconciliation Act of 1990, Public

Law 101-508 (November 5, 1990), which raised the former $1,000 maximum

child labor CMP amount to $10,000 and directed that the amounts be

deposited into the general fund of the U.S. Treasury. The $1,000 CMP

amount for repeated and willful violations of the minimum wage and

overtime provisions was established by the Congress under the 1989 FLSA

Amendments, Public Law 101-157 (November 17, 1989). Due to Inflation

since these CMP amounts were last set in law or adjusted by the

Congress, the first increase will be the maximum 10 percent initially

permitted under the Debt Collection Improvement Act amendments to the

Federal Civil Penalties Inflation Adjustment Act. The adjusted CMP

amounts will apply only to violations occurring after the proposed

regulations become effective.

III. Summary of Rule

The $1,000 maximum penalty amount in Section 578.3 for repeated or

willful violations of the minimum wage or overtime requirements of the

FLSA is increased to $1,100. The $10,000 maximum penalty amount in

Section 579.5 for violations of the child labor provisions of the FLSA

is increased to $11,000. Conforming changes are also made in other

affected sections of the regulations to discuss the inflationary

adjustment provisions of the Federal Civil Penalties Inflation

Adjustment Act of 1990, as amended by the Debt Collection Improvement

Act of 1996.

Executive Order 12866 and Significant Regulatory Actions

This rule is not a ``significant regulatory action'' within the

meaning of Executive Order 12866. The rule proposes to adjust for

inflation the maximum civil money penalties under Section 16(e) of the

Fair Labor Standards Act. The adjustments and the formula for

determining the amount of the adjustment are mandated by the Congress

in the Federal Civil Penalties Inflation Adjustment Act of 1990, as

amended by the Debt Collection Improvement Act of 1996. Congress has

required that the Department promulgate the amendments proposed in this

rule, and provided no discretion to the Department regarding the

substance of the amendments. Moreover, for the three Fiscal Years 1995

through 1997, the Department collected a total of $6,169.771 in CMPs

for repeated or willful minimum wage or overtime violations that were

assessed in 1,157 cases, for an average of $2,056,590 collected per

year (less than $5,333 per case, on average). Over the same three-year

period, the

[[Page 71407]]

Department collected a total of $12,496,180 in CMPs for child labor

violations that were assessed in 3,772 cases, for an average of

$4,165,393 collected per year (approximately $3,314 per case, on

average). With the initial increase in the maximum CMP limited to the

statutory 10 percent cap, the total economic impact of the rule is

estimated at less than $623,000 per year. Thus, this action will not:

(1) have an annual effect on the economy of $100 million or more or

adversely affect in a material way the economy, a sector of the

economy, productivity, competition, jobs, the environment, public

health or safety, or State, local, or tribal governments or

communities; (2) create a serious inconsistency or otherwise interfere

with an action taken or planned by another agency; (3) materially alter

the budgetary impact of entitlements, grants, user fees, or loan

programs or the rights and obligations of recipients thereof; or (4)

raise novel legal or policy issues arising out of legal mandates, the

President's priorities, or the principles set forth in Executive Order

12866. Therefore, no regulatory impact analysis has been prepared.

Executive Order 12875 and Section 202 of the Unfunded Mandates Reform

Act of 1995

For purposes of the Unfunded Mandates Reform Act of 1995, as well

as Executive Order 12875, this rule does not include any federal

mandate that may result in increased expenditures by either state,

local and tribal governments in the aggregate, or by the private

sector, of more than $100 million.

Regulatory Flexibility Analysis

This rule will not have a significant economic impact on a

substantial number of small entities. The proposed rule does no more

than ministerially increase certain statutory CMPs to account for

inflation, pursuant to specific directions of the Congress in the

Federal Civil Penalties Inflation Adjustment Act of 1990, as amended by

the Debt Collection Improvement Act of 1996, which specify the

procedures for calculating the inflation adjustments and do not allow

variations in the calculations to minimize the effects on small

entities. Nevertheless, in each case the amount of the penalty assessed

under Section 16(e) of the FLSA must take into consideration the size

of the business of the person charged with the violations, which will

further mitigate the ultimate effects of the rule on small businesses.

Moreover, only persons who have willfully or repeatedly violated the

minimum wage or overtime provision of the FLSA, or violated the child

labor requirements of the FLSA, will be affected by this rule. Based on

the average CMP amounts that the Department has collected for these

types of violations over the three fiscal years 1995 through 1997, we

estimate that the effect of the rule will be to increase the average

CMP collected for repeated or willful minimum wage or overtime

violations by $533 per case, and increase the average CMP collected for

child labor violations by $331 per case. Accordingly, the Department

has determined that this proposed change in the rules will not have a

significant economic impact on a substantial number of small entities.

The Department has certified to this effect to the Chief Counsel for

Advocacy of the U.S. Small Business Administration. Therefore, no

Regulatory Flexibility Analysis is required.

Small Business Regulatory Enforcement Fairness Act

This proposed rule is not a ``major rule'' under the Small Business

Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. Sec. 801 et seq.)

because it is not likely to result in (1) an annual effect on the

economy of $100 million or more; (2) a major increase in costs or

prices for consumers, individual industries, Federal, State or local

government agencies, or geographic regions; or (3) significant adverse

effects on competition, employment, investment, productivity,

innovation, or on the ability of United States-based enterprises to

compete with foreign-based enterprises in domestic or export markets.

Document Preparation: This document was prepared under the

direction and control of John R. Fraser, Deputy Administrator, Wage and

Hour Division, Employment Standard Administration, U.S. Department of

Labor.

List of Subjects

29 CFR Part 578

Employment, Labor, Law enforcement, Penalties.

29 CFR Part 579

Child labor, Law enforcement, Penalties.

For the reasons set forth above, 29 CFR parts 578 and 579 are

proposed to be amended as set forth below.

Signed at Washington, D.C. on this 21st day of December, 1998.

John R. Fraser,

Deputy Administrator, Wage and Hour Division.

PART 578--MINIMUM WAGE AND OVERTIME VIOLATIONS--CIVIL MONEY

PENALTIES

1. The authority citation for part 578 is proposed to be revised to

read as follows:

Authority: Sec. 9, Pub. L. 101-157, 103 Stat. 938; sec. 3103,

Pub. L. 102-508, 104 Stat. 1388-29 (29 U.S.C. 216(e)); Pub. L. 101-

410, 104 Stat. 890 (29 U.S.C. 2461 note), as amended by Pub. L. 104-

134, section 31001(s) 110 Stat. 1321-358, 1321-373.

2. Section 578.1 is proposed to be revised to read as follows:

Sec. 578.1 What does this regulation cover?

Section 9 of the Fair Labor Standards Amendments of 1989 amended

section 16(e) of the Act to provide that any person who repeatedly or

willfully violates the minimum wage (section 6) or overtime provisions

(section 7) of the Act shall be subject to a civil money penalty not to

exceed $1,000 for each such violation. The Federal Civil Penalties

Inflation Adjustment Act of 1990 (Pub. L. 101-410), as amended by the

Debt Collection Improvement Act of 1996 (Pub. L. 104-134, section

31001(s)), requires that inflationary adjustments be periodically made

in these civil money penalties according to a specified cost-of-living

formula. This part defines terms necessary for administration of the

civil money penalty provisions, describes the violations for which a

penalty may be imposed, and describes criteria for determining the

amount of penalty to be assessed. The procedural requirements for

assessing and contesting such penalties are contained in 29 CFR part

580.

3. The section heading and paragraph (a) of Sec. 578.3 are proposed

to be revised to read as follows:

Sec. 578.3 What types of violations may result in a penalty being

assessed?

(a) A penalty of up to $1,000 per violation may be assessed against

any person who repeatedly or willfully violates section 6 (minimum

wage) or section 7 (overtime) of the Act; Provided, however, that for

any violation occurring on or after the effective date of the final

rule the civil money penalty amount will increase to up to $1,100. The

amount of the penalty will be determined by applying the criteria in

Sec. 578.4.

* * * * *

[[Page 71408]]

PART 579--CHILD LABOR VIOLATIONS--CIVIL MONEY PENALTIES

4. The authority citation for part 579 is proposed to be revised to

read as follows:

Authority: 29 U.S.C. 203, 211, 212, 216; Reorg. Plan No. 6 of

1950, 64 Stat. 1263, 5 U.S.C. App.; secs. 25, 29, 88 Stat. 72, 76;

Secretary of Labor's Order No. 1371, 36 FR 8755; Sec. 3103, Pub. L.

101-508; Pub. L. 101-410, 104 Stat. 890 (28 U.S.C. 2461 note), as

amended by Pub. L. 104-134, section 31001(s), 110 Stat. 1321-358,

1321-373.

5. The section heading of Sec. 579.1 is proposed to be revised,

paragraph (b) of Sec. 579.1 is proposed to redesignated as paragraph

(c) of that section, and a new paragraph (b) is proposed to be added,

to read as follows:

Sec. 579.1 What does this regulation cover?

(a) * * *

(b) The Federal Civil Penalties Inflation Adjustment Act of 1990

(Pub. L. 101-410), as amended by the Debt Collection Improvement Act of

1996 (Pub. L. 104-134, section 31001(s)), requires that Federal

agencies periodically adjust their civil money penalties for inflation

according to a specified cost-of-living formula. This law requires each

agency to make an initial inflationary adjustment for all covered civil

money penalties, and to make further inflationary adjustments at least

once every four years thereafter. Any increase in the civil money

penalty amount will apply only to violations that occur after the date

the increase takes effect.

* * * * *

6. The section heading and paragraph (a) of Sec. 579.5 are proposed

to be revised to read as follows:

Sec. 579.5 How is the amount of the penalty determined?

(a) The administrative determination of the amount of the civil

penalty, of not to exceed $10,000 for each employee who was the subject

of a violation of section 12 or section 13(c)(5) of the Act relating to

child labor or of any regulation issued under that section, will be

based on the available evidence of the violation or violations and will

take into consideration the size of the business of the person charged

and the gravity of the violation as provided in paragraphs (b) through

(d) of this section; Provided, however, that for any violation

occurring on or after the effective date of the final rule the civil

money penalty amount will increase to not to exceed $11,000 for each

employee who was the subject of a violation.

* * * * *

Sec. 579.9 [Removed]

7. Section 579.9 is proposed to be removed.

[FR Doc. 98-34243 Filed 12-24-98; 8:45 am]

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