A few readers were surprised by our April 3 post's caution that, in some scenarios, a volunteer performing work for a federal Fair Labor Standards Act-covered non-profit organization might be an "employee" subject to that law's compensation requirements.

One observed that many non-profits are staffed in whole or in part by volunteers and described a longstanding sector-wide impression that non-profits may use volunteers for work with what the commenter described as "near-complete liberty."

FLSA principles do not as a general proposition prevent non-profits from using non-employee volunteers under the right circumstances.  But, whatever the conventional wisdom or prevailing practice might be, one should not simply assume that non-profits may do so with near-complete liberty.

As the U.S. Labor Department says, "There is no special provision in the FLSA which precludes an employer-employee relationship between a religious, charitable or nonprofit organization and persons who perform work for such an organization."  Section 10b03(a), Field Operations Handbook (U.S. Labor Department, October 10, 1993).

There are far too many different factual settings in which the FLSA's principles might be in play to articulate a one-size-fits-all rule about non-profit volunteerism.  Our point is that at least some such situations might well involve FLSA-covered employment, so it is wise to keep this possibility in mind.

And remember that, until relatively recent times, the conventional wisdom also was that unpaid internships presented no potential FLSA problems.

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A reader of our March 14 post relating to unpaid internships at non-profit organizations asks whether non-profits can avoid the intern debate by offering "volunteer" opportunities to engage in charitable or public-service activities.  But this simply changes the nature of the potential problem.

"Volunteer" Activities Can Be FLSA Employment

Considering someone to be a "volunteer" does not necessarily mean that he or she is a non-employee for federal Fair Labor Standards Act purposes.  This is true even if (i) the person is not otherwise employed by the organization; (ii) the individual's activities are said to be of a charitable or public-service nature, and (ii) the activities are carried out for or on behalf of a non-profit organization.

There is some overlap between the considerations relevant to who is and is not a true "intern" or "volunteer" so as not be an FLSA employee, but the two concepts are fundamentally different.  A principal distinction is that the underlying motivation for being a volunteer is not the same.  Perhaps one of the most important characteristics of volunteerism is whether the individual undertakes the activity for his or her own, personal civic, humanitarian, charitable, religious, or public-service reasons.

Some of the other factors include whether the activities are of a kind typically associated with volunteer work; are less than a full-time occupation for the individual; do not involve replacing regular employees or impairing employment opportunities; are subject only to "nominal" or "minimal" control by the recipient of the person's efforts; and tend to occur at times suiting the individual's own convenience, whether by schedule or otherwise.

Some Volunteers Fall Within Specific Exceptions

The FLSA itself excludes individuals who volunteer to perform services under certain circumstances for a state, a political subdivision of a state, or an interstate governmental agency.  29 U.S.C. § 203(e)(4).  These exceptions explain why, in the proper situations, volunteers at public schools and in some other settings are not viewed as being engaged in FLSA employment.

The FLSA also contains a special exception for individuals who volunteer their services to private, non-profit food banks and who receive groceries from the food banks.  But even this provision applies only if the person does so "solely for humanitarian purposes."

The point is that, just because a neighbor is a non-employee volunteer at the county's middle school, for example, one should not assume that "volunteers" of all sorts are seen in the same light.

Think Things Through Carefully

It is wise to be cautious in evaluating even non-profit "volunteer" relationships under the FLSA.  One illustration of the possible uncertainty is that the U.S. Labor Department's Office of Enforcement Policy has said that volunteers who staffed a non-profit hospital's gift shops were instead performing compensable work for FLSA purposes (see link to reproduction below).

Note too USDOL's position that individuals may not "volunteer" to do things for their employer which are the same as or are similar or related to their normal work duties.  Instead, it says, this is compensable FLSA worktime.  USDOL might also take the same view regarding time an employee spends even in arguably dissimilar services of a public or charitable nature, if this occurs at the employer's request, under its direction or control, or during the employee's normal working hours.  See, e.g., 29 C.F.R. § 785.44.  "Volunteering" by an organization's employees is beyond the scope of this post, but it is a "go slow" matter where the FLSA is concerned.  Compare Opinion Letter of Acting Wage-Hour Administrator FLSA2006-18 (June 1, 2006)(volunteering to chaperone cultural and sporting field trips provided under employer's auspices) with Opinion Letter of Acting Wage-Hour Administrator FLSA2001-18 (July 31, 2001)(status of certain activities engaged in by nurses employed at non-profit hospital).

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USDOL OEP Hospital Opinion 06 28 96.pdf (22.02 kb)

Our earlier post prompted questions about whether federal Fair Labor Standards Act principles are different for unpaid internships at non-profit organizations or for those sponsored by educational institutions for which the intern receives academic credit.  The short answer is:  No, they are not.

USDOL Statements Sound Encouraging

It is of course true that Deputy Wage and Hour Administrator Nancy Leppink's ominous quote referred to "for-profit" entities, and this is the sector upon which Fact Sheet # 71 focuses.  Furthermore, a Fact Sheet footnote says that unpaid internships are "generally permissible" for a non-profit charitable organization in the right circumstances.  The publication further implies that the relationship is more likely not to be viewed as FLSA employment if it is "structured around a classroom or academic experience . . . ," such as "where a college or university exercises oversight over the internship program and provides educational credit . . .."

Perhaps this reflects a Labor Department preference for encouraging what it believes to be the inherently-nobler pursuits of charities or educational institutions.  There might even be a degree of Executive Branch self-interest involved.  For example, full-time, unpaid White House interns are expected to:

◊   Perform tasks such as "conducting research, managing incoming inquiries, attending meetings, writing memos, and staffing events"; and

◊   Engage in their activities at least 4½ days a week, Monday through Friday, from 9 a.m. until 6 p.m.

This looks a lot like being "engaged in the operations of the employer or . . .  performing productive work," activities which the Fact Sheet says would be viewed as FLSA employment where a "business" is concerned.  But this does not mean that everyone else gets to do the same thing.

Don't Be Lulled To Sleep

Non-profit organizations permitting internships, and entities considering participating in student internships, should not simply assume clear-sailing where the risk of FLSA claims is concerned.

For one thing, it is unlikely that USDOL sees such unpaid internships as being "generally permissible" in each situation, or for non-profits of every kind, or for all school-sponsored arrangements.  Even USDOL does not consider the Fact Sheet to be an authoritative or binding official position.   Moreover, the Fact Sheet itself says that USDOL "is reviewing the need for additional guidance" on internships in the non-profit sector.  So notwithstanding the Fact Sheet's statement about what is "generally" the case, do not doubt that USDOL will assert FLSA liability for a particular unpaid internship, even one undertaken with a non-profit or in conjunction with a school, when it deems this to be warranted.

And even were it otherwise, USDOL is not the only potential source of a challenge.  Interns are perfectly free to assert their own FLSA claims in court should they decide to do so, without regard to what USDOL thinks or does.

The Bottom Line

Whether an unpaid internship occurs under the auspices of an educational institution, in a non-profit organization, or at a for-profit business, in the end the FLSA question still gets down to some version of this:  Do the circumstances clearly show that the relationship is for the purpose of generalized learning, education, and training that imparts to the participant significant knowledge of a broadly-applicable kind, or do they instead indicate that the idea is to have the person perform work?  In other words, if the motivation is something like, "We could sure use help from an intern this summer," that is a danger sign – whether the setting is for-profit, not-for-profit, school-related, or any other.

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For awhile now, unpaid internships have been a hot topic under the federal Fair Labor Standards Act.  We noted some time ago that the U.S. Labor Department was taking a skeptical view of these relationships.

In conjunction with the April 2010 release of Fact Sheet # 71, the U.S. Wage and Hour Division's Deputy Administrator Nancy Leppink announced what appears as a practical matter to be a rebuttable presumption that many such internships violate the FLSA:  "If you're a for-profit employer or you want to pursue an internship with a for-profit employer, there aren't going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law."

Since that time, lawsuits against The Hearst Corporation and Fox Searchlight Pictures (links to copies below) and others show that the prospects for FLSA claims by current or former unpaid interns are by no means merely hypothetical.

Reports suggest that, with summer approaching, and in the context of continued high unemployment, more people than ever are beseeching organizations of various kinds to take them on as unpaid interns.  But in the current wage-hour environment, it should surprise no one that, as USA Today recently reported, many organizations are doing away with these internships altogether.  Perhaps this represents an unfortunate reduction in learning opportunities, but it is also an entirely foreseeable reaction by those who are in a position to permit them.

The answer to the question, "Are unpaid internships worth the risk?" is that only the organization being asked to provide one can decide this in the context of its own circumstances, capabilities, and philosophy.  In thinking about it, management will want to take into account the mindset exemplified by a recent endorsement by "The Ethicist" at the New York Times of the suggestion that an inquirer should both "take the internship and then call the Labor Department . . .."

If management concludes that is willing to allow unpaid internships, then it should plan, structure, and supervise them very carefully, bearing in mind the ambiguous criteria that will be applied should an intern later decide to claim that he or she should have been treated as a paid employee under the FLSA.  Remember also that, if an intern under the age of 18 is later deemed to have been an employee for FLSA purposes, there is also the potential for the assertion of child-labor violations and substantial penalties in addition to liability for back-pay and other sums.

UPDATE 03 15 12:  Another high-profile lawsuit has been filed by a person claiming to have been an unpaid intern.  This one is brought by an "Editorial Intern" against PBS talk-show host Charlie Rose and Charlie Rose, Inc. under New York wage-hour law (link to copy below).  The named plaintiff also seeks to assert claims on behalf of a class of such interns.

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Glatt v. Fox Searchlight.pdf (1.37 mb)

Wang v. Hearst.pdf (1.81 mb)

Bickerton v. Rose.pdf (836.47 kb)

The U.S. Labor Department continues to expand the number of jurisdictions and agencies with which it is collaborating to end what it has called "the business practice of misclassifying employees [as independent contractors] in order to avoid providing employment protections."  The most recent additions are the Colorado Department of Labor and Employment and the Louisiana Workforce Commission.

The list of those with whom USDOL has memoranda of understanding also includes:

◊   California, Connecticut, Maryland, Massachusetts, Minnesota, Missouri, Utah, and Washington,

◊   State labor officials in Hawaii, Illinois, and Montana, and

◊   New York's Attorney General.

The Colorado memorandum (link to copy below) exemplifies the nature of this cooperation.  Among other things, the state's Labor Department and USDOL pledge to:

◊   Conduct joint investigations periodically,

◊   Coordinate enforcement activities and provide mutual assistance,

◊   Refer potential violations of statutes enforced by the other,

◊   Develop "methodologies" for exchanging investigative leads and complaints, and

◊   Otherwise share information "as appropriate".

Companies and other organizations might as well assume that any investigation of independent-contractor status by one of these participants will result in the disclosures and referrals the memoranda call for.  Keep in mind also that USDOL has entered into a similar arrangement with the U.S. Internal Revenue Service.

This attention to the "misclassification" issue is unlikely to subside anytime soon.  For instance, there is reason to believe that USDOL's focus upon large homebuilders last fall is now turning outward to many of those companies' subcontractors and vendors.

The wise move for every organization relying even in part upon a contingent of independent contractors continues to be this:  Evaluate right now whether there is any vulnerability to a successful claim that those workers are instead employees.

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USDOL-Colorado DOLE Agreement.pdf (79.04 kb)

The holiday spirit moves many to volunteer for activities of a benevolent nature.  An organization to which such individuals donate services should consider the possibility that they might be "employees" under the federal Fair Labor Standards Act.  Getting this wrong could result in liability for back-wages, child-labor penalties, and other remedies.

General Principles

The U.S. Labor Department says that, under certain circumstances, the FLSA permits people to donate their time as non-employees for humanitarian, religious, charitable, or other public-service reasons.  However, the person must do this on a genuinely voluntary basis and without expecting or receiving wages.  DOL has also said that, in all but "rare" situations, its policy is to limit volunteer status to qualifying activities for non-profit entities.

Relevant factors can include things like whether the person's services:

♦   Are truly done for altruistic motives;

♦   Are of a kind typically associated with volunteer work;

♦   Are less than a full-time occupation for the person;

♦   Do not displace employees or impair employment opportunities;

♦   Involve only "nominal" or "minimal" control by the recipient of the services; and/or

♦   Typically occur at times convenient to the person.

DOL maintains that the FLSA does not allow employees to volunteer to their employer unpaid services which are the same as, similar to, or related to their normal duties.  With limited exceptions, DOL takes the same position even when an employee provides different services of a public-service or charitable nature that are done at the employer's request, under its direction or control, or during the employee's normal working hours.

Holiday Activities As FLSA "Employment"

A U.S. Wage and Hour Division opinion letter (reproduction linked below) illustrates that unpaid efforts donated even by people who are not otherwise employees can sometimes run afoul of the FLSA.  A company planned to offer gift-wrapping services to customers during the weeks leading up to Christmas.  This was to be done on the company's premises.

The services had previously been provided by temporary employees.  However, non-profit community and church groups said that their members would volunteer to wrap gifts in the hope that the company would donate money to the groups.  The company would not control the members' hours; would not supervise them directly; would maintain only general conduct rules; and would permit the volunteers to use its restrooms and breakrooms.

The Division concluded that the members would be FLSA employees rather than volunteers.  The Administrator observed that the individuals' efforts would be rendered to a profit-seeking entity, rather than to any community or religious program.  In her view, the members intended to contribute money to their organizations and were simply selling their services to the company in order to earn those sums.

As this shows, it can be unclear whether a relationship is one of volunteerism rather than FLSA employment.  Practically speaking, the organization receiving a person's services bears the risk of being incorrect in viewing activities as noncompensable volunteerism.  This might seem to be unfair, but it reflects a philosophy that the FLSA does not allow the risk to fall upon individuals whom the law is intended to protect.

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Holiday Volunteer Opinion 07 18 96.pdf (24.11 kb)

We wrote previously about the announcement of a cooperative alliance between the U.S. Labor Department and the U.S. Internal Revenue Service aimed at ending what the Secretary of Labor called "the business practice of misclassifying employees [as independent contractors] in order to avoid providing employment protections."

If that news was not enough to get everyone's attention, the terms of the "Memorandum of Understanding" between these agencies (link to copy below; copy courtesy of CCH) should cause all employers to take notice.  DOL and IRS have agreed to implement their agreement "through enhanced information sharing and other collaboration" led by a "joint IRS-DOL team".

Some Of The Details

Among other things, DOL will "refer to the IRS .  .  . Wage and Hour Division investigation information and other data that DOL believes may raise Internal Revenue employment tax compliance issues related to misclassification."  DOL will also share "Wage and Hour Division training materials and opportunities with the IRS .  .  .."

For its part, IRS "will evaluate and classify employment tax referrals provided by the DOL and .  .  . [will] conduct examinations to determine compliance with employment tax laws."  And in at least some instances IRS is prepared to "share the employment tax referrals provided by the DOL with state and municipal taxing agencies .  .  .."

The two agencies have also committed to "coordinate national outreach activities."  This will include such steps as "joint national press releases" and "joint messages to national stakeholder organizations."  The Memorandum does not identify any of these "stakeholder organizations", but one may hazard an educated guess as to what the identities of at least some of them might be.

The administration's "transparency" mantra has been suspended where the Memorandum is concerned.  For example, the document asserts "a need for the government to provide information to other law enforcement bodies without making a public disclosure."  DOL and IRS say that they intend to preserve their "legal privileges or other legal protections against disclosure" to outsiders, and they contend that information exchanges between them will not be a "public disclosure" under the federal Freedom of Information Act.

Points To Consider

The many take-aways include these:

◊   Once again, every company or other organization relying even in part upon a contingent of independent contractors should immediately evaluate whether there is any vulnerability to a successful claim that those workers are instead employees.

◊   Every such company or other organization being investigated by DOL should assume that information provided about independent contractors will be given to IRS and, potentially at least, to analogous state or local agencies and officials.

◊   Employers must of course abide by their legal obligations in DOL and IRS investigations and audits.  But, within those parameters, management should be careful in deciding (i) what documents and other information to provide, and (ii) how, under what circumstances, and with what caveats to disclose them.  DOL and IRS say that they intend to protect certain confidential or private information and trade secrets that are covered by federal laws and regulations.  However, an employer cannot be sure whether DOL or IRS will agree with the employer (or even with one another) that each document or item of information is protected against disclosure to some other person or entity, or that a court will agree with DOL's or IRS's views in some later third-party legal action to compel disclosure.  And the best of intentions cannot preclude an erroneous, mistaken, or inadvertent release of information to the public.

◊   While the Memorandum's principal focus appears to be worker misclassification, it does not say that the collaboration is restricted to this topic.  For instance, the "joint outreach" is said also to encompass "other issues of mutual interest."

DOL IRS Memodandum of Understanding.pdf (216.50 kb)

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The U.S. Labor Department announced today that it has entered into a cooperative alliance with the U.S. Internal Revenue Service and others aimed at ending "the business practice of misclassifying employees [as independent contractors] in order to avoid providing employment protections."  As the IRS's involvement might suggest, this collaboration has as much to do with enhancing the inflow of tax revenues and other sums to various governments as it does with "employee protections".

The arrangements' other signatories include:

◊   Connecticut, Maryland, Massachusetts, Minnesota, Missouri, Utah, and Washington,

◊   State labor officials in Hawaii, Illinois, and Montana, and

◊   New York's Attorney General.

The Labor Department says that these arrangements will permit it to "share information and coordinate law enforcement with" the participants.

None of this should be a surprise, arising as it does from a federal "Misclassification Initiative" that began to gather steam last year.  Nevertheless, every company or other organization with an operational model based even in part upon a contingent of independent contractors should anticipate renewed enforcement energy, activity, and assertiveness.  Management should immediately evaluate whether there might be any vulnerability to a successful claim that those workers are instead employees, including for purposes of federal and state wage-hour laws.

And where the federal Fair Labor Standards Act is concerned, remember that its definition of "employee" has been characterized as being the broadest among all federal employment laws.  In considering a worker's FLSA status, think through the answers to questions like these:

◊   Are the individual's services an integral part of the organization's activities?
 
◊   Does the individual have any significant investment in facilities or equipment?

◊   Does the individual have an opportunity for profit and loss in a business sense?

◊   Does the individual exercise a businessperson's initiative, judgment, or foresight?

◊   Is the relationship is permanent or indefinite, rather than for a determinable time?

◊   Does the individual have meaningful and predominant control over the work's details?

◊   How much control does the organization retain over the work's details?

Fisher & Phillips' 2010 article published in the Bureau of National Affairs' Daily Labor Report (linked below) provides additional perspective on the independent-contractor question.

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Independent Contractor Article 05 20 10.pdf (62.50 kb)

News that some of the nation's preeminent homebuilders have received information demands from the U.S. Labor Department under the federal Fair Labor Standards Act has drawn a variety of unhappy reactions.  But whatever one thinks about the wisdom, appropriateness, timing, or manner of DOL's move, the fact is that the administration has had the construction industry in its FLSA sights for some time now.

As we reported in May 2010, even then DOL had identified construction as being among what it calls "fissured" industries.  Officials use this term to refer to business arrangements that in DOL's view cloud the realities of the employment relationship so as to dilute the responsibility for FLSA compliance.

It is therefore likely that one important purpose of DOL's homebuilder initiative is to develop a baseline of industry- and company-specific structural information that is relevant to FLSA compliance.  For instance, investigators will no doubt be looking into whether ostensibly-separate corporations, partnerships, sole-proprietorships, and the like serving as different components in or layers of construction projects are truly independent businesses, or whether they are instead so integrated with one another as to be a single, overall enterprise.

DOL will also be delving into the extent to which even truly distinct and separate entities nevertheless collaborate about or exercise control over the workers on construction projects.  It will be doing this to judge whether each such entity is a "joint employer" of some or all of those workers so as to share individual and collective responsibility for complying with the FLSA where those workers are concerned.  This can be the case if, for example, a worker's efforts simultaneously benefit those entities under circumstances in which:

◊   There is an arrangement between or among the entities to share or interchange the worker's services;

◊   One entity is acting directly or indirectly in the interests of one or more others in relation to the worker; or

◊   The entities "are not completely disassociated with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with" one or more others.

See 29 C.F.R. Part 791.  Courts tend to evaluate the joint-employment question under factors that mostly boil down to variations on these themes.

Obviously, DOL will also be investigating whether the targeted employers have been following the FLSA's minimum-wage, overtime, recordkeeping, and child-labor requirements and restrictions.  This will include evaluations of whether these employers have erroneously treated some employees as being exempt or have misclassified employees as being "independent contractors".

Construction contractors subject to federal prevailing-wage and fringe-benefits requirements should also assume that investigators will be alert for any non-compliance with the Davis-Bacon Act or the Contract Work Hours And Safety Standards Act.

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Latest reports suggest that the already-anemic economy has stalled in recent months.  And the hard times seem to be fueling a continued wave of lawsuits by current and former employees over issues like minimum wages and overtime.  A number of these lawsuits seek to hold certain individuals personally responsible for claims for unpaid wages under the federal Fair Labor Standards Act.

The FLSA applies only to employment relationships, so a million-dollar question (sometimes literally) is – who qualifies as an "employer"?  The FLSA says that the term includes "any person acting directly or indirectly in the interest of an employer in relation to an employee."  29 U.S.C. § 203(d).  Thus, in certain circumstances, courts hold that an individual is an FLSA employer so as to be liable – along with any other entity or individual meeting the definition of "employer" – for any back-pay, liquidated damages, attorneys' fees, penalties, costs, or other relief awarded in an FLSA lawsuit.

Whether an individual qualifies as an employer is decided on a case-by-case basis, and the factors considered might vary somewhat from one jurisdiction to another.  Generally speaking, the more control an individual has over the employment relationship, the more likely it is that he or she will be deemed to be an employer.   For instance, an individual who controls the nature, structure, or economics of the employment relationship is likely to be an employer within the meaning of the FLSA.  If an individual maintains a significant level of financial control over a company and/or has a significant role in making personnel decisions and in establishing pay policies, that person is more likely to be deemed an employer under the FLSA.  Consequently, owners, officers, and even managers and HR personnel can find themselves to be the individually-named targets of an FLSA lawsuit.

The bottom line is that individuals can be personally liable for unpaid wages and other remedies under the FLSA, which also means that an individual's own assets could be used to satisfy violations.   Further, as employers continue to struggle financially, naming individuals as defendants might become an increasingly common tactic – suing more defendants means that there could be more pockets from which to collect a judgment.