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“I helped you start your business, and I deserve to get paid for my hard work,” said Karen, an insurance sales representative who had agreed to work for Steve to help launch his residential care business.
“You knew perfectly well that I couldn't pay you,” Steve said. “You volunteered to help me with the company because we were in a relationship. Now that we are over, you are changing your tune.”
FACTS: A year after having met the owner of a business, an insurance sales representative helped him establish a residential care company.
The worker attended residential care training classes, cleaned and bought items for the facility, established and administered payroll, participated in hiring and marketing activities, and appeared in court on behalf of the facility's clients.
Although the worker had agreed to defer compensation until the for-profit facility took on clients, the worker had expectations of compensation from the start, the worker claimed.
After two years, compensation was not offered and the worker sued the business owner for unpaid minimum wages, liquidated damages, interest, and attorneys' fees under the Fair Labor Standards Act.
The owner did not dispute the worker's help but said the assistance was voluntary and performed without the expectation of compensation and thus not covered by the FLSA.
ISSUE: Was the worker an employee entitled to compensation under the FLSA or a volunteer?
DECISION: The worker, who expected to be paid for services that benefited the business, was entitled to compensation as an employee under the FLSA, a federal district court said.
The work was not voluntary because a business meant to generate a profit “cannot engage unpaid volunteers,” the court said.
FLSA minimum wage provisions apply to those who fall within its definition of employee. A six-factor test is used to identify if a worker is an employee or an independent contractor, the court said. Lacking a similar test to identify if a worker is an employee or a volunteer, the court said it applied a “reasonableness standard that takes into account the totality of the circumstances.”
The standard factored in the economic reality of the situation, as well as “whether the employer received an immediate advantage from any work done by the individual, the relationship of the parties, and the goals of the FLSA,” the court said.
The company had “reaped a direct and immediate benefit” from the services that the worker had provided, which were “undeniably of substantial assistance,” the court said.
In a 2002 Opinion Letter, the Labor Department said that a worker can be considered a volunteer when working for a nonprofit, religious, or humanitarian organization, but not when working for a for-profit company because “employers who engage unpaid 'volunteers' gain an unfair competitive advantage from the payment of substandard wages, or, as here, no wages at all,” the court said. The Labor Department shifted to a general interpretation of FLSA laws and regulations in 2010 instead of opinion letters.
The court, which stopped short of saying that “one cannot under any circumstances volunteer for a for-profit entity,” said it had not found regulations addressing when one could do so without the resulting work falling under FLSA provisions. Allowing a for-profit company to benefit from free labor when compensation was expected would not mesh with the FLSA's “remedial and humanitarian” purpose, the court said.
The court ruled that the worker was an employee entitled to compensation for services performed under the FLSA. The amount of compensation for the work, however, would have to be determined at a trial, the court said (Okoro v. Pyramid 4 Aegis, E.D. Wis., 11-00267, 4/23/12).
POINTERS:A key factor in the court's determination that the worker was an employee and not a volunteer was the for-profit nature of the company.
The FLSA broadly defines employment as “suffering or permitting to work.” But the Labor Department has said that it follows Supreme Court guidance with respect to volunteers. Under such guidance, a person who offers services for a religious, charitable, or nonprofit organization can be considered a volunteer, but an employee cannot volunteer services to a for-profit private-sector employer.
The Labor Department has noted that the Supreme Court explained in its only decision directly addressing the status of volunteers under the FLSA that if an exception were to be made to the rule that employees may not volunteer services to for-profit employers, “such exceptions to coverage would affect many more people than those workers directly at issue in this case and would be likely to exert downward pressure on wages in competing businesses.”
For more information, see PAG's “Fair Labor Standards Act: General Rules and Principles” chapter.
The preceding case discussion illustrates how courts resolve pay-related disputes. The names and dialogue are fictitious.
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