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Regulatory Issues: NTA/USTOA on Exempt/Nonexempt Employees

June 30th, 2003

Tammy D. McCutchen
Administrator
Wage and Hour Division
Employment Standards Administration
U.S. Department of Labor
Room S-3502
200 Constitution Ave., NW
Washington D.C. 20210

Re: Comments of NTA and USTOA on Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees [19 C.F.R. Part 541; Federal Register Notice March 31, 2003 (Vol. 68, No. 61, Pp. 15559-15597)]

Dear Administrator McCutchen:

The following letter represents the collective comments of the National Tour Association (NTA) and the United States Tour Operators Association (USTOA) on the U.S. Department of Labor, Employment Standards Administration's (DOL's) proposed rulemaking referenced above. Your rulemaking seeks to clarify and update existing standards for determining the exempt or non-exempt status of employees for wage and hour requirement purposes.

Together, USTOA and NTA represent nearly all travel professionals in the packaged travel industry. The NTA is the premier association for travel professionals who have a keen interest in the packaged travel sector of the industry. The association, which is made up of nearly 4,000 members, brings together those who package travel - group as well as individual trips - with suppliers and destinations who represent the various components of a trip. Although based in North America, our membership spans the globe. The USTOA is comprised of more than 800 of the leading companies. According to a recent survey, USTOA companies move more than 10 million passengers annually and account for an annual sales volume of more than $8 billion.

NTA and USTOA begin these comments with a round of applause for DOL. We thank DOL for tackling what is both a monumental and historical task in brining the FLSA into the 21st century. Your proposed rule offers the best chance in a half century to reform standards existing when the U.S. workforce was divided between those who wore ‘white' or ‘blue' collar shirts. And the world has changed dramatically since then. New industries, new business models, and an explosion the growth of the skilled service industry have revolutionized labor.

The tour operator industry alone has seen phenomenal growth. Defined in SIC E4725 and NAICS 561520, tour operators "comprise establishments primarily engaged in arranging and assembling tours." The number of tour operators increased 16.4%, receipts 49.2%, payroll 49.9%, and employees 26.4% over the five year period immediately preceding September 11, 2001. In the U.S., there are now approximately 2,700 separate businesses that could be classified as tour operators (SBA), and more than 3,500 establishments [an establishment is a single physical location at which business is conducted]. According to the 1997 Economic Census, tour operators earned in that year more than 2.7 billion in receipts [which includes the total sales, shipments, receipts, revenue, or business done by establishments within the scope of the economic census], had a payroll of $1.034 billion, and engaged more than 38 thousand employees (www.census.gov/epcd/ec97/industry/E56152.HTM). Secondary economic effects of the business on travel agents, bus operators, localities and destinations, lodging facilities, airports and air carriers and other industries involved in the travel and tourism industry are many times the sales volume for the operators themselves.

That there exists a paucity of legislative direction underpinning the FLSA is a mixed blessing for DOL. While the lack of legislative history makes it difficult to define the principles to which the rule must adhere; the lack of legislative history implies a large delegation of authority that better enables DOL to delineate between exempt and non-exempt employees.

Few industries understand the need to draw a brighter and fairer line better than NTA and USTOA. Our members have suffered first-hand the consequences of anachronistic, unfair, uncertain, and obscure rules when seeking to classify "tour directors" as exempt employees. Set back by an economic downturn and reduced consumer demand for travel, we are plagued with litigation over the appropriate classification of the travel-related occupation of a tour director - litigation that intensive, costly and wasteful.

NTA and USTOA are supportive of the efforts towards simplification and consolidation. We welcome DOL's exploration of alternative standards. We compliment your exemplary adherence to the many procedural requirements so often ignored by other agencies. However, we caution DOL not to "clarify" the standards by making it more likely tour directors will be reclassified as non-exempt. We support standards clarifying that the occupation of tour director - a vital and necessary component of all packaged tours -- is precisely the type of employee that ought to be exempt.

In this comment, we raise several problems with the potential application of the rule to tour directors. We also criticize the phraseology of the new standards, and suggest several means to improve those standards, paying special regard to Subpart C. In summary:

1. We discuss the role and responsibilities of tour directors both in relation to the customers they serve and their employers.
   
2. We assert tour directors should qualify for exempt status on the basis of legislative history, statutory interpretation, economics and the principles of the FLSA as expressed by the courts.
   
3. We suggest DOL has a compelling need to address what is an ubiquitous classification problem. An unfavorable ruling that classifies tour directors as non-exempt employees would injure an already beleaguered tour operator industry by altering industry practice and imposing an unrealistic wage model. Failure to clarify the law would unnecessarily increase litigation as courts struggle to understand DOL's interpretation.
   
4. We note that treating tour directors as non-exempt would frustrate the objectives of the FLSA by ensuring fewer tour directors are employed. Tour operators function on thin margins dependent on certainty of price. They can neither bear additional costs nor push them forward.
   
5. We stress that -- while tour directors ought to be exempt as a matter of law -- the proposed rulemaking fails to ensure that construction with any degree of confidence; rather, under the proposed rule -- as under current law -- the occupation of tour director fall within the interstices of the standards.
   
6. We assert that the occupation of tour director has clearly defined boundaries, with well established roles, duties and responsibilities. Because the unusual nature of the occupation escapes present classification as an executive or administrative employee, DOL should clarify the treatment of tour directors by specific reference or factual illustration.
   
7. We recommend that, if DOL does not explicitly reference tour directors as exempt administrative employees, DOL redefine the overall standard of an administrative employee to incorporate their unique attributes.
   
8. Finally, NTA suggests that certain procedural steps might improve the rule. If DOL cannot resolve the tour director classification problem within the present rulemaking, then DOL should resolve it within a Fact Sheet or other lesser pronouncement. Also, we recommend DOL take the time to hold an extensive hearing over these rules. The rule is one of the most significant rules advanced by the administration this year, and simply too important not to fully develop the record.

These and other points are more fully explicated below.

DOL proposed this rule because it recognizes the dire need for modernization of outdated FLSA standards. Title 29 U.S.C. 213(a)(1) and the regulations thereunder have engendered considerable confusion regarding who is and is not exempt. While the vagueness of the FLSA is an economy-wide problem, the classification of a tour director offers an outstanding example of just how blurry, fact-intensive and virtually undecipherable this legal distinction can be.

For a tour operator, determining whether a tour director is "exempt" or "non-exempt" under the FLSA is a bit like splitting hairs with a butter knife. Current guidance - guidance fashioned largely for large manufacturers in a smoke-stack economy -- fails to establish workable standards for our dynamic industry. The standards that do exist are too complicated, inconsistently applied, and a hazard to an employer's health. The "wrong" decision subjects firms to great peril from overzealous regulators and plaintiffs and requires tour operators to expend huge sums of money for attorney's fees, and management time as they embroiled themselves in legal semantics. This, at a time when tour operators are fighting for survival in an unprecedented downturn.

B. The Lack of Guidance Results in Costly Litigation
DOL correctly recognizes the high cost of litigation as a compelling justification for clarifying the standards. DOL recognizes that a major benefit of such clarification will be a reduction in litigation costs associated with determining the exempt status of employees. It is particularly wasteful and costly then when a federal agency requires courts to define standards that the agency could and should have clarified. In citing Executive Order 12988, DOL states "the rule was ... written to minimize litigation." On page 15564 of the proposed rules, DOL "specifically invites comments on occupations the exempt status of which has been the subject of ... litigation."

The litigation costs to the tour operator industry are exemplified, and painfully, in the recent case of Scherrer vs. Group Voyagers, Inc. (Case No. C 99 4834 SI Class Action, April 27, 2001), which is in the process of settlement. In Scherrer, two separate classes of plaintiffs (the "California Class" and the "FLSA Class") sued defendant Group Voyagers (GVI), the GVI Pension Fund and 401(k) plan under FLSA. Although there were certain peripheral issues, the central thrust of the case was that GVI failed to pay tour directors overtime or include them in the pension funds as they were non-exempt "employees."

On a web cite recounting settlement of the entire action, lawyers for the plaintiffs gleefully "extend[ed] a special thanks to those tour directors who gave depositions or otherwise helped [them] in this case." That settlement included overtime for each tour day retroactively, including local tour and meet and greet work, based on a 12.6 hour work day retroactive overtime, participation in the GVI pension and 401(k) plans, attorneys fees and reasonable compensation for the Class Representatives for their work, and cost of administration of the settlement.

The case was prosecuted because the plaintiffs were able to take advantage of vague and anachronistic tests. At least nine other class action lawsuits are now pending. Lawsuits will continue to be advanced until clarification of these standards is provided.

anticipates that the final rule will include additional provisions on the application of the exemptions to ... borderline occupations, but requires more information about the particular job duties and responsibilities generally found in such occupations. We invite comments on which occupations should be included in the final rule and whether such occupations should be treated as exempt or nonexempt, including detailed information about job duties in such occupations.

A good starting point for understanding how the rule should accommodate tour directors, therefore, is to describe the role of tour directors within the travel and tourism industry. The occupation of tour director is an established one, well known to the industry, with well understood roles, duties, expectations, relationships and responsibilities.

1. Relationship to Customers
A tour director is defined by NTA's Glossary of Terms (from the textbook used in conjunction with its Certified Tour Professional (CTP) program) thusly:

Also called tour manager, tour conductor, and tour escort. The person who is responsible for a group on tour and for most aspects of a tour's execution. The tour director does not assemble the various components of a passenger's trip. Decisions regarding where a group stays, where they eat, and arrival/departure arrangements are all made by the tour operator. However, the tour director is the tour operator's "field representative" with the group. The tour director has the responsibility of serving as the tour operator's liaison to the various tour suppliers and makes sure that all components of a trip are satisfactory.

The latter sentence bears repeating. A tour director is the tour operator's "field representative" -- a responsibility bearing directly on the tour director's exempt status. Under proposed Sec. 541.204 , the phrase "work requiring a high level of skill or training' means administrative work requiring specialized knowledge or abilities, as demonstrated by "assignments performed away from their employer's place of business if the employee serves as a ‘field representative' for the employer [emphasis added]."

To further show the established nature of the occupation, DOL might take note of the marketing materials schools which train tour directors. One of the best examples is the International Tour Management Institute (ITMI). Many tour companies will use only graduates of training schools like IMTI. In answering the question "What exactly is [the] role [of] a Tour Director?," ITMI offers prospective candidates for training the following response (see, http://www.itmitourtraining.com/):

You generate enthusiasm. It is your job to help people enjoy their vacation. You motivate people to do things that they might not do without your suggestion. You encourage them to try new foods, learn a few words of a new language and participate in the customs or culture of a foreign land. This is where you put your "signature" on the tour by being creative. You are a congenial host. Your priority is to meld the group together into a happy family of travelers. You help everyone become part of the group. You set the mood. Each tour has a certain theme or focus. Whether it is the relaxation and leisure of a Hawaiian vacation or the wildlife adventure of an African Safari, it is your job is to get the group into that mood. You are a source of information. You prepare commentary and briefings that are well organized, interesting, and relevant. You know when to talk, what to talk about and when to be quiet. You provide a balance of information and entertainment. You are a ready for a multitude of questions from "Can I drink the water?" to "What time is the midnight buffet?" You are the Business Agent. You are there to see that the tour company gets what they contracted for and the tour clients get what they paid for. You represent the company in "the field." Life skills, maturity and diverse experiences are respected in tour management. You are hired because of your abilities not your age or gender.

Like NTA, ITMI refers to a tour director as a "field representative," and stresses the role of leadership, personality, creativity and judgment.

Beyond these preexisting definitions we add the following. Tour directors must constantly demonstrate detailed knowledge of their itinerary in order to provide the narration and interpretation that is a major component of the packaged travel experience. Tour operators simply don't put groups on motorcoaches to ride in silence to their different tour components. The tour director provides information on climate, geography, history, architecture, anecdotes, etc. that are a vital part of the group travel experience. In addition, tour directors are responsible for the "care and feeding" of the tour group. If a medical emergency occurs, or there is a transportation delay, or any situation that affects the group, its participants and their ability to proceed on the written itinerary, the tour director must exercise his or her independent judgment, and deal with the situation in a professional, well-informed and timely manner.

2. Relationship to Operators
IMTI's description of a tour director is accurate, and provides some sense of the vital diplomatic role tour directors serve for operators. Tour directors are, next to the CEO, one of the most important assets to the company. As the field representatives of the tour operators, tour directors are the alter ego of the operator in the field. A tour director role is to oversee every facet of the customer's travel experience.

Serving as the tour operator's liaison between the various tour suppliers and customers, directors perform an absolutely essential public relation role. They must be able to answer questions participants may have about the company, handle complaints and deal with suppliers on problems/questions that arise during a tour. A director's actions, judgment, and customer interaction literally make or break a tour operator. If a director is disliked, the company isn't utilized again. If the director is liked, the company is referred not only those clients but others to whom they broadcast. A director is not just relevant to the financial loss or gain; he or she is integral to an operator.

They are part COO, part project director, part ombudsman, part organizer, part historian, part cultural expert, part naturalist, part sociologists, part teacher, part translator, part entertainer and part salesperson. They provide information on climate, geography, history, architecture, anecdotes that add to the group travel experience, narration and interpretation. More than the location itself, the director defines the very product of the organization.

While their role is key, often director's work for more than one employer, especially the good ones. If they have an area of expertise (e.g. marine biology), or a geographical familiarity (e.g. China) then they are in greater demand. Director's market themselves to operators, based on their satisfaction levels with other operators. And their judgment is constantly evaluated through surveys. Operators rely upon these surveys in determining whether to utilize tour directors.

B. The Occupation of a Tour Director Fits the Policy Rationale for the FLSA As noted, unless an employee is exempted, the FLSA generally requires employers to pay that employee time-and-one-half the regular rate of pay for all hours worked over 40 in a work week. Employee exemptions from the minimum wage and overtime requirements include any employee employed in a bona fide "executive," "administrative," or "professional." capacity as defined and delimited from time-to-time by regulations. The FLSA does not define the terms "executive," "administrative," or "professional." While Congress' grant of rulemaking authority to defining the scope of the section 13(a)(1) exemptions is wide and legislative, legislative history to guide DOL in defining the employee exemptions contained in section 13(a)(1) adds little color of interpretation.

However, what we do know about the legislative history supports the view that tour directors ought to be exempt. Exemption is not only consistent with the original purpose of the FLSA, but advances that purpose.

In particular, section 13(a)(1) was included in the original FLSA (enacted June 25, 1938) to address problems associated with substandard working conditions by establishing a floor on wages and a ceiling on hours. A key purpose of the overtime provision was to shorten the work-week to a more reasonable 40 hours. This was expected to result in reduced employee fatigue, fewer accidents, higher productivity and efficiency, and more employee time for education and family duties. By requiring overtime premium pay, it was expected that employers would hire more workers to avoid the extra wage costs, and that workers would be assured additional pay to compensate them for the burden of a work-week of more than 40 hours.

The Minimum Wage Study Commission of 1981 justified the exemption of executives, administrators, and professionals partly because these employees were characterized by higher base pay and greater fringe benefits, distinguishing them from hourly employees. Moreover, the nature of their jobs precluded the potential for the job expansion desired in other types of employment (by hiring more workers to perform the additional hours of work).

Within these rationales lies the justification for exempting tour directors. In fact, DOL would not only fail to advance the principles of the FLSA by treating tour directors as non-exempt, it would frustrate those principles.

First, tour directors are neither clerical nor production staff, nor do they perform the type of autonomous functions that are the hallmark of non-exempt employees the FLSA was designed to protect. The tour director performs non-manual work, directly related to the general business operations of the employer, and as the sole company representative on the tour, must exercise discretion and independent judgment. They hold positions of responsibility. They exercise a great deal of unsupervised and delegated independent judgment - judgment that reflects expertise and skill in public relations and problem solving - and judgment which reflects directly on the tour operator. Precisely these duties and responsibilities define non-exempt employee status.

Second, the type of work tour directors perform is difficult if not impossible to standardize the role to any time frame. Imagine the difficulty tour operators would face in requiring time-testing for the activities they perform, hour-by-hour in a typical tour day. There is simply no "punch clock" in the industry; nor one equitably imposed. Each tour, each group on repetitive tours, each day on those tour, and each itinerary, is entirely different. There are times when the tour director is not performing any function, except perhaps to amuse themselves. However, there are other times -- in the middle of the night, perhaps -- where problems arise. "On again, off again," describes the daily and nightly routine. The tour director is the sole company employee on the tours; as such he or she cannot be off duty when the potential for problems arise. Because tracking hours are difficult, enforcement of the overtime provisions become problematic. Good faith compliance becomes a nightmare.

Wirtz v. Healy, 227 F. Supp. 123 (No. D. Ill 1964) shows the strain courts and tour operators are under to arbitrarily define hours. Laboring with the question of how to track a tour operator's hours, the Wirtz court literally guessed; and then extended its guess only to the specific case. It found that bona fide meal periods of 30 minutes or more and bona fide regularly scheduled sleeping periods of not less than 5 hours or more than 8 hours per day could be exempted, when an expressed or implied agreement is present and bona fide periods exist during which an employee is completely relieved from duty (provided they are long enough to enable him to use the time effectively for his own purposes). No universal standard was suggested.

Without a means of standardizing the time frame, how can the goals of the FLSA be fulfilled? Partly because of the difficulty operators face in tracking the hours worked, operators cannot escape premium time by spreading work beyond 40 hours to other workers.

Third, even if the time period of work were measurable, employers simply do not have the choice to hire more workers to avoid the extra wage costs. The main purpose of the overtime provision - to spread work - would never be accomplishable by characterizing tour directors as exempt. Because of the special relationship between the tour director and the customers, the work of the tour director is simply not fungible. Engaging another tour director merely to spell his co-worker in the event the co-worker worked more than 40 hours would impose large fixed costs. And that additional employee would not appreciably improve safety, make the operation more productive and efficient, nor give his spelled worker more time for education and family duties when the worker is already away from home. The workload of tour directors is spread more by the practical consideration that tour directors work in blocks of time. Tours range from 1-2 days to 3-4 weeks with the average being from 7-15 days, than government mandate. For example, many tour directors work 6-8 months straight and then take the rest of the year off.

Fourth, a rationale for exempt employees is that they earn salaries above the minimum wage and enjoy other compensatory privileges such as above average fringe benefits. In few other occupations, are the fringe benefits so intangible but so significant. Tour directors often choose their occupation because of these intangible benefits; lodging, meals and recreation, while they work.

Fifth, the benefit to be derived from making tour directors non-exempt will likely not be realized in the real world as an economic matter. DOL economists acknowledged the importance of economic incidence in determining the rulemaking costs. Who would pay the costs of increased overtime? Would the costs could be "passed on to consumers in the form of higher prices? Borne by business owners and shareholders in the form of lower profits? Passed on to workers in the form of fewer overtime hours?

We ask DOL to recognize that, in all likelihood, the costs of the rulemaking for tour operators will be shared by tour operators and directors, negating any beneficial effect of redistribution or wage increase.

Clearly, the travel and tour industry, and particularly tour operators, are disproportionately hurt by a confluence of recent events; including, terrorism, war, even global health threats. However, the tour operator industry has, almost by definition, extremely high elasticities. Even after a future recovery, the tour industry market will remain highly sensitive to price.

What this means from an economic perspective is that tour operators find it difficult to pass costs forward to consumers, even in good times but especially in bad. Tour operators do not sell insulin. They sell a consumption product which consumers need not purchase, let alone purchase from any single U.S. provider. Tour operators not only compete against each other, but against other forms of travel and other destinations and against Europe, Mexico, and Canada as travel destinations. And to make matters worse, the services are marketed to seniors on fixed incomes. The average age of an NTA tour participant is 62 years of age. The tour operator industry is a small business dominated industry, marketed to such a degree that the tours resemble commodity prices.

Worse, owners cannot absorb these cost. Tour operators are an example of a highly competitive industry that survives on thin profit margins (1-2% or less) by studies of the USTOA. And these costs are significant. Consider, for example, that tour directors have to be available around the clock. Application of time and one-half requirements could mean that each day of a tour could potentially result in wages of more than 300 percent increase over an 8 hour day. The reason tour operators are able to offer tours at a good price is that they can rely on pre-determined costs.

Rather than absorbing the estimated 20 percent increase in vital labor costs within the thin margins of profit or pushing these costs forward to price-sensitive consumers, tour operators must simply try to pass these costs along to employees who will be paid a lower base wage. In the rulemaking section entitled "Methodology for Estimating Costs," economists at DOL recognized that affected employers would have several choices concerning potential payroll costs. One such choice would be to convert salaried employees' basis of pay to an hourly rate (no less than the federal minimum wage) in a way that results in virtually no (or only a minimal) changes to the total compensation paid to those workers.

The uncertainty and risk imposed by the unclear laws adds to the cost because it prevents a reliable estimate of cost, which the tour operator must try to factor in; but clear laws that reach the wrong result are equally problematic.

The precise damage of either outcome is difficult to quantify, but qualitatively significant. If tour operators cannot pass these costs along, the rule will have a chilling effect on the existing industry participants and start-ups. It will cause contraction among some existing firms. Tourist destinations, transportation companies and localities in marginal areas will suffer as the deleterious dynamic effects propagate. Directors who work in areas that are not considered "hot spots" for tourism activity will be disproportionately affected.

However it falls out, one thing is certain: the laws of man cannot ignore the laws of economics. If tour directors were considered exempt, they would be paid lower wages, fewer would be hired, or there would be fewer tour companies to hire them. The incidence of the rule will ensure the rule not only fails to stimulate potential job expansion by the FLSA's time-and-a-half overtime premium requirements, but will have a highly perverse effect. If directors are non-exempt, fewer not more will be employed.

Because exempt status is fully consistent with the admittedly scant legislative rationale for the FLSA, the agency should fill the gaps in interpretation. The wide grant of legislative authority clearly implies that the agency has wide room to maneuver. Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). The rulings and interpretations of the Administrator, Wage and Hour and Public Contracts Divisions, United States Department of Labor, are entitled to great weight and the Court may properly resort to them for guidance. United States v. American Trucking Associations, 310 U.S. 534 (1940).

III. The Rulemaking Still Does Not Adequately Clarify That Tour Directors are Exempt

DOL faces a dual Herculean task. DOL must not only clarify ambiguities, but at the same time, DOL must ensure the division between exempt and non-exempt employees is equitably drawn. Despite DOL's good effort, we remain concerned that the occupation of tour director still accomplishes neither of its stated objectives.

The problem with a tour director's job under your rulemaking is that it implicates elements of each proposed exempt classification without fitting squarely any one of them. This was aptly pointed out by lawyer-commenter Patrick J. Hoolihan, with whose comments we associate. For example, an employee is considered an "outside sales' employee if he customarily and regularly performs services away from the employer's place of business; however, tour directors do not make sales or take orders while away from the employer's premises - they ensure those orders are fulfilled. An employee with a high level of skill or training can be considered an administrative employee if customarily away from an employer's place of business; but while a principal duty of a tour director is non-manual work, recent class action lawsuits contended tour directors are non-exempt production workers. Likewise, the tour director shares attributes of an executive in that he or she is in sole charge of the tour at a physically separated establishment. However, a tour director operates alone and generally supervises no employees.

If the specific occupation of tour directors were a test case to gauge the improved functionality of the proposed standards for service sector, the standards would fail that test for tour directors. These problems are examined in greater detail below.

B. The Administrative Exemption
The administrative exemption is the most frustrating, if only because it is the closest analog to the true function of tour directors. Tour directors should generally be classified as administrative employees; but as proposed, the new standard does not resolve the status issue.

Proposed new section 541.201 retains the requirement that (1) an exempt administrative employee have a "primary duty" of "performing office or non-manual work related to the management or general business operations of the employer or the employer's customers," but replaces the "discretion and independent judgment" requirement with a new requirement that (2) the employee hold "a position of responsibility" with the employer.

The primary duty requirement is defined in new Sec. 541.201 which illustrates several types of work areas meeting this requirement; including, tax, finance, accounting, auditing, quality control, purchasing, procurement, advertising, marketing, research, safety and health, personnel management, human resources, employee benefits, labor relations, public relations, government relations and similar services.

The "position of responsibility" requirement is defined in new Sec. 541.202 to mean either (a) work of substantial importance, or (b) work that employs a high level of skill or training. What is considered work of substantial importance is illustrated by example to include formulating or interpreting management policies, providing consultation and expert advice to management, making or recommending decisions that have a substantial impact on business operations or finances, analyzing and recommending changes to operating practices, planning long or short-term business objectives, analyzing data, drawing conclusions and recommending changes, and handling complaints, arbitrating disputes or resolving grievances.

Consider these standards in reference to the described duties of a tour director. As outlined infra, tour directors perform a myriad of important duties that encompass work areas in the proposed list. For instance, tour directors:

1. perform finance, accounting and auditing functions because they facilitate payment of large hotel bills, attraction tickets, and other expenses, and validate all bills are correct and at the agreed-upon price. This primary responsibility is vital to the overall financial well-being of the tour operator's business.
   
2. conduct research (in that they recommend locations, events, activities to customers). The ITMI website description makes this clear.
   
3. are the point of contact for safety and health, and are expected to address any medical or health emergency that arises. This role takes on added importance when it is understood that two of the biggest consumers of group travel are students and seniors.
   
4. perform an essential public relations role, represent the tour company, answer questions about the company, arbitrate disputes or resolve grievances, handle complaints and deal with suppliers on problems and questions that arise during a tour.
   
5. interpret management policies. He or she is the only one in the field to which customers can normally turn.
   
6. provide consultation and expert advice to management, debrief management, and recommend decisions that have a substantial impact on business operations or finances.

We appreciate DOL illustrating the types of duties that indicate the administrative status of an employee. There is no task listed above that is of greater importance than another for tour directors; they are all "primary functions." However, while the tour director performs many of these duties, it is still unclear whether the central question is met. After the promulgation of the rule, can we say for certain that the administrative test is met? That a tour director holds "a position of responsibility" with the employer? After the rule, is it any clearer whether a tours director's duties relate to the management or general business operations of the employer or the employer's customers? Do the illustrations all have to apply? Is any one function enough? Will these new standards simply be new fodder for litigation and judicial interpretation? We submit that the new standards are a step in the right direction, but we raise the concern they only marginally fulfill the goal of the rule of reducing contentious litigation for our industry.

Even if it the tour director is considered to meet these administrative tests (most likely as interpreted through litigation) the rule fails to address another problem -- the arbitrary application of payment periods. As has been noted by other commenters, an administrative employee must be paid a salary no less frequently than weekly. This arbitrary rule does not represent the market-driven convention to pay tour directors on a daily basis. If a tour lasts fifteen (15) days, would the tour director have to be paid for a minimum of three (3) weeks to qualify for the exemption?

This aspect of the rule would impose a pernicious market distortion. Most likely, seasonal or part-time tour directors who lend flexibility to the industry would be replaced by full time tour directors. Larger tour companies with sufficient work to allow the continuity of employment the exemption requires would benefit; smaller companies that cannot afford to reshuffle employment resources would be disproportionately disadvantaged.

C. Executive Tests
The executive exemption is frustrating as well. It may be argued that tour directors should be classified as executives under a laymen's understanding of that term. However, the proposed the new standard does no better at resolving the status of a tour director as an executive employee, than it does at resolving a director's status as administrative.

More specifically, the proposed standard duties test in new Sec. 541.100. would provide that an exempt executive employee must (1) have a primary duty of managing the enterprise in which the employee is employed, (2) customarily and regularly direct the work of two or more other employees and (3) have particular weight given to suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees.

Tour directors meet this description in certain respects. They clearly assume the primary duty of managing the enterprise in which they are employed. They have to. They are the sole field representatives for the tour operator. The tour operators do give weight to suggestions and recommendations made by the tour director as to personnel.

However, tour directors seldom supervise two employees; so this requirement alone imposes an insurmountable hurdle.

According to 541.105, the phrase "two or more other employees" means two full-time employees or their equivalent. Also, "an employee who merely assists the manager of a particular Department and supervises two or more employees only in the actual manager's absence does not meet this requirement."

Moreover, the provision had wide effect because it ensures the executive exception is simply inapplicable to the vast majority of U.S. firms - those with fewer than 3 employees. The Report of the President (1999-2000) [Table A.17 Characteristics of the Private Sector Work Force by Employment, Size of Firm, 1999], shows that there were an estimated 117 million employees in 1999, 19 million of whom were employed in firms with fewer than 10 employees. Nearly three-quarters of all U.S. business firms have no payroll. According to the 1997 Economic Census (Table 2a. Employment Size of Employer Firms, 2000) the total number of firms employing workers were 5,652,544, and the number of firms with 1 to 4 employees were 2,669,870. According to Census statistics (Table 2.1. Selected Travel and Lodging Services) there were 2,904 tour operators classified.

Mirroring the size distribution of the economy at large, the vast majority of tour operators are small. According to the 2000 Wage & Benefit Survey, 34 percent of tour operators have between one and three full-time employees. Slightly fewer, 28 percent, have between four and six full-time employees. Twenty-one percent have between 7 and 15, and 3 percent have between 15 and 19 full-time employees. By limiting the executive standard to firms with traditional business models and with more than 3 employees, the rule eliminates one-third to one-half of all business for no apparent reason.

We doubt DOL would defend the two-employee requirement as a large firm safe harbor (large firms which incidentally have a greater capability to pass employee costs on to consumer), or choose to create a standard that elevates design over performance specifications, but the restrictive nature of the two-employee hurdle has this practical effect.

Indeed, the exemption appears to benefit only large firms functioning in a traditional business model in other respects. Sec. 541.104 distinguishes a department or subdivision from a "mere collection of employees assigned from time to time to a specific job or series of jobs." as one with a "permanent status." The example provided is that of a "large employer's human resources department" with "subdivisions for labor relations, pensions and other benefits," or an enterprise with "more than one establishment."

In a small firm, brick and mortar bureaucratic segmentation is neither possible nor useful. Small firms resemble family structures more than an organizational chart - and as noted the tour operator industry is dominated by small entities. Would a tour director that who is really the project manager in "charge" of a specific tour be considered an executive? Should it make a difference when DOL considers that the tour director the sole field representative with the autonomy to make decisions removed from headquarter's interference? Would that same tour director be considered an executive if the tour operator were to develop an organization chart establishing regional tour directors with all the semblance, regalia and accouterments of that title? Is the management of two employees more important than the management of dozens of tourists? Hundreds of thousands or million of dollars? The public relations of the employer? The employer's reputation?

We ask DOL to reference tour directors as a specific example of an occupation that is exempt. Explicitly referring to tour directors within the body of the rule is the cleanest way to ensure the occupation is established as exempt and to avoid revising the standard to encompass a unique industry. Explicitly referring to a tour director will avoid the guesswork of developing overall changes to the standards that may snare more occupations inadvertedly.

Not only are there precedents for such specific references, but several likely spots for inclusion. For instance, the purpose of DOL's proposed Sec. 541.203(b)(4) is to define work of "substantial importance," which in turn defines a "position of responsibility" under Sec. 541.202 that satisfies the requirements of Sec. 541.200(a)(3). To incorporate tour directors in the simplest way, we suggest renumbering existing proposed rule 541.203(b)(4) as (b)(5). We specifically suggest DOL include tour directors in a new Sec. 541.203(b)(4). The language of the new proposed section 541.203(b)(4) could then read as follows:

(4) An employee who functions as a tour director, who is responsible for a group on tour and for most aspects of a tour's execution, who serves as the liaison to tour suppliers and who functions as the tour operator's field representative is exempt.

As an alternative, as new Sec. 541.204 seeks to define the phrase "substantial importance" the occupation of tour director could provide a good example.

To eliminate doubt that the tour director is considered exempt by specific reference, we also recommend additional verbiage to Sec. 541.201(b). After the phrase "government relations," for example, DOL could include the phrase, "tour directing." In the alternative, DOL could include the following language after the last sentence contained in Sec. 541.201(c):

Also, tour directors who work directly with a tour operator's customers for the substantial duration of a tour may be exempt.

We recognize that DOL considers employees qualified if the employee performs work relating to the "management" or "general business operations" of the employer's customers. We would point out that the enjoyment of a customer's holiday is the management of the employer's customers.

We note that in the rulemaking, DOL asks whether "hotel sales and catering managers" is appropriate for expansion or analogy. Tour directors have occupations that are equally as established as hotel sales and catering managers and equally as deserving of unique treatment given the difficulty of altering general rules to satisfactorily accommodate them.

B. Impose More Accommodating Language in the Administrative and/or Executive Standards
If the Department does not expressly designate tour directors as exempt administrative employees, it would have to carefully accommodate the occupation in the general standards to reach the same result.

The Department has opened the doors to re-crafting the standards in several respects. DOL seeks comment, for example, on whether or not it should delete the "discretion and independent judgment" requirement and replace it with the requirement that an employee hold a "position of responsibility." The Department seeks comment on whether the "discretion and independent judgment" requirement should be fully deleted, retained as an alternative for meeting the "position of responsibility" requirement, or modified to provide better guidance on distinguishing exempt administrative employees. Moreover, the Department invites commenters to submit alternative proposed regulatory language implementing the "discretion and independent judgment' or "position of responsibility" tests. DOL is particularly interested in determining whether individuals currently exempt would continue to be exempt under the new "position of responsibility" requirement.

If the overall standard must be modified, the main question becomes how to do so without snaring unintended occupations in too wide a net. To develop more accommodating language, we must examine the special combination of functions that make the tour director eligible for exemption. In sum, a tour director:

1. regularly makes significant decisions or judgments affecting the employer's core business
   .
2. makes these decisions and performs his or her tasks away from the employer's situs of business and free of direct supervision from higher management.
   
3. advises the employer on suppliers, personnel and core business functions.
   
4. acts as the direct customer interface, and deals with customers both en masse and one-on-one over an extended duration as the field representative for the employer.
   

One way of altering the overall standard would be to weave these special considerations into the verbiage surrounding the definition of the "position of responsibility" in Sec. 541.202 or in a new subsection 203(b) (renumbering 203(b) as (c), et seq.). We suggest the following language:

An employee has a position of responsibility if he or she regularly makes significant decisions or judgments affecting the employer's core business away from the employer's place of business and is not monitored in the performance of specific tasks.

We associate our comments with those of attorney-commenter Patrick J. Hoolihan in this regard. As he stated, such a standard would be consistent with the statement in Cooke v. General Dynamics Corp. 993 F. Supp. at p. 60 that the person have "authority to make an independent choice safe from immediate direction or supervision with respect to matters of significance." If a person merely advising on business operations, changes or practices, or other business matters causes that person to be an administrative employee, then surely one who performs these functions, free of direct supervision from higher management should be presumed exempt.

On a tour there is no immediate supervision.

In the alternative, "work related to management or general business operations" should include work performed by an employee independent of "on site" supervision; of importance to the ultimate product or services of the employer; and involving discretion or judgment to achieve the employer's objectives. For this reason, we would retain the discretion and independent judgment test. While that standard has been difficult to apply as the lynchpin of the status issue, it does add a useful criterion that sheds more light on an administrative employee. It is particularly relevant in the context of an employee who, away from the business situs of the employer, makes unsupervised decisions of great moment to that employer.

We would note that the Department invited comments also on whether the supervision of "two or more employees" required for the executive level exemption should be modified to include "the customary or regular leadership, alone or in combination with others, of two or more other employees." We believe that this standard, like the administrative standard fails to address the central problem for an approximate 50% of employers. We would modify the standard to create an alternative to the "two or more employees" requirement that is not prejudicial towards small employers. We would revise the rule to allow employees to qualify as executive if their duties involve "the customary or regular leadership, of a discrete, business segment away from the situs of the business." What makes an employee an executive is not the number of employees he or she supervises, but the degree of autonomy and responsibility in core business decisions.

C. Provide Clarification in External Publications
The NTA and USTOA are aware that DOL has, from time to time, issued bulletins, such as Fact Sheet No. 17, which describe the "Exemption for Executive, Administration, Professional and Outside Sales Employees under the Fair Labor Standards Act" (www. Dol.gov/esa/complioance/whd). NTA and USTOA believe fact sheets are a useful way for DOL embellish the exemption and further describe new rules, especially for small firms. In comments to this rulemaking, the Office of Advocacy of the U.S. Small Business Administration encouraged DOL to publish small entity compliance assistance materials in conjunction with the final rule. Executive Order 13272 also requires agencies to give every appropriate consideration to any comments provided by Advocacy.

Because Fact Sheet No. 17 will no longer be relevant, DOL has not only the opportunity to republish that bulletin but the need. We note that DOL is also revising the Wage and Hour Division's Field Operations Handbook. In the event, DOL neither sites tour directors directly in the rule nor changes the standards to encompass their unique qualifications for exemption, we recommend DOL use the Fact Sheet, its Handbook or other bulletins to incorporate similar language.

In such publications, DOL could either employ the language discussed above, or develop a safe harbor for tour operators. Under such a safe harbor, a tour director could be exempt if a majority of the working time of the tour director is devoted to the management and direction of tours away from the employer's place of business, his or her salary is paid on a daily or less frequent basis, the tour director is in full charge and control of the tour, the working time of the tour director is substantially at the discretion of the tour director, and the tour director is the primary contact for direct customer interface. We believe strongly that the rulemaking should contain similar language, or the language discussed in sections "A" and "B" above, but we offer this suggestion as an inferior alternative.

Finally, we raise one additional point. When the Internal Revenue Service is presented with questions of interpretation that present unique problems, they have developed a Private Letter Ruling (PLR) or Revenue Ruling process. Under these processes, parties can request that guidance be provided of particular interest to them. A Revenue Ruling is of wider applicability, has precedential value, but is not subject to the notice or comment provisions of the Administration Procedure Act. A PLR is technically authority only for the requesting party whose factual scenario is kept confidential by redacting the published advice. If DOL utilized a similar system to promulgate ruling under the FLSA, it might serve as another mechanism for outreach and clarification.

D. Enunciate Clearly That Written Guidelines Should Not Be Cited To Attempt to Establish That the Administrative Employee Does Not Exercise Discretion
DOL sets forth in its summary that "adherence to precise written guidelines" is not a proper distinction between exempt and nonexempt workers. However, Sec. 541.205, seems to be inconsistent with that statement. Sec. 541.205 would ensure that the administrative exemption is not denied to a highly trained and skilled employee who performs administrative functions "merely because the employee uses a procedures manual, so long as the manual contains information that can only be interpreted properly by someone with a high level of specialized skills or training, as opposed to a manual in which the employee simply looks up the correct answer for a particular set of circumstances."

Tour directors sometimes function with written manuals. Adherence to them is needed for safety reasons as well as to insure that the clients receive what they bargained for. Written guidelines are essential for quality controls and are consistent with the realities of the modern work environment. Using such guidelines as proof that a tour director is following a prescribed itinerary is a device in litigation, and should be quashed by DOL policy as wrongheaded. Adherence to written guidelines or manuals is necessary for executive or administrative employees. DOL should make clear that manuals should not be cited to attempt to establish that an administrative employee does not exercise discretion and independent judgment or hold a "position of responsibility."

E. Do Not Distinguish Between Nonprofit and For-Profit tour operators.
Nonprofit tour operators pose a very important threat to for-profit, tax-paying tour operators. Travel and tourism is one industry where nonprofits from the Sierra Club to National Geographic to university alumni organizations offer services virtually identical to those offered by the private sector - displacing would-be competitors. In fact, the only salient differences between the trips they market often lies less in the destination chosen or the marketing methods, and more in the fact that nonprofits market them to the wealthiest, most educated customers. They also pay no tax, and either pass the tax savings along to subsidize the elite traveler or they enjoy a competitive advantage partly financed by their competitors.

This problem is well documented (http://www.tcfc.net/) and has been the topic of extensive Congressional hearings, IRS administrative hearings, media coverage, even law review articles. While there is no sound policy reason to distinguish between for-profit tour operators and their nonprofit competitors, particularly educational institutions the proposed rule may exacerbate this problem by exempting tour directors from the FLSA simply because they are affiliated with educational institutions. The Department should take care not to compound this problem by treating similarly situated tour operators, differently. The best means to achieve parity, of course, is to exempt all tour directors.

Conclusion

Vagaries in the current standards have certainly not helped the tour operator industry; although they have created a robust industry in litigation. DOL has within its power the ability to rectify these inequities. We urge you to improve the rule through greater clarity that ensures the proper treatment of tour directors as exempt employees. Clarification in regulatory language now can prevent million of dollars in later wasteful litigation to interpret that language.

We read the proposed rule as a work in progress, given the vast number of earnest queries the Department has advanced. As of our writing, the DOL has more than 75,000 comment letters. We make these recommendations in the hope that DOL will recognize the special needs of tour operators, most of whom are small.

Eliminating needless uncertainty and confusion will have many salutary effects. DOL will ensure more robust competition by ensuring small and medium-sized tour companies are not forced out of business. It will ensure that tours serve the very valuable public purpose they do, especially for students and for the elderly. It will preserve economic benefits not only for the tour companies, but also for the communities and facilities which receive the benefit of the traveling public. Perhaps most importantly given the policy of the FLSA, clarity will enhance employment opportunities for tour directors, who enjoy the freedom of the traveling lifestyle.

Finally, if DOL exercises the degree of flexibility the rulemaking suggest, the agency will help to fulfill its requirements under Executive Order 12866, issued September 30, 1993, which mandates that regulations be tailored to impose the least burden on society, including on businesses of differing sizes.

We would be more than happy to provide additional information, clarification, or details or to engage in any further dialogue concerning these proposals.

We respectfully request and opportunity to testify at the administrative hearing.

Sincerely yours,

Hank Phillips, CTP
President
National Tour Association National Tour Association

Bob Whitley
President
United States tour operators Association

cc: Matt Grayson, Director, Government & Industry Relations
Honorable James D. Santini, Santini Chartered