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  • Working for 'free'

    All, I apologize in advance if I've posted this in the wrong forum or if this question has assuredly been asked/answered many times.

    I have a question regarding "volunteers" working for a for-profit business. The business is in media, a website to be precise. It's a registered LLC in the state of Ohio. My understanding is that the only time it's OK to have people work for free is for an NPO, public sector or through a legitimate internship that is largely beneficial to the intern.

    This business is relying mostly on free labor to function and requiring hard deadlines and a minimum level of contribution from the 'volunteers.' It was recently brought to their attention that what they're doing is probably not legal, though they're now saying it's just an 'independent contractor' relationship with a client, and they're being compensated with "exposure" to help their careers.

    What is the legality of this? They cited the enterprise exemption in the FLSA ($500,000 a year) as asserting that because they're not making that, they're not in violation of any state or federal laws. But my understanding is that the minimum wage laws apply to everyone regardless and if a contractor is working for free, he or she aren't really a contractor. The contractor argument is shaky ground because the independent contractor test would, by some peoples' estimations, show these people are being treated more like employees. Nonetheless, they're not being compensated regardless.

    Any input on this? Is it legal, generally speaking?

  • #2
    You are raising a lot of fairly unrelated issues. They need to be look at one at a ime, and not try to mix them together.
    - The $500K test you mention for FLSA is the "Enterprise Test". It is one way for a firm to be subject to FLSA. It is not the only way. I am not saying it is 100% imposible for a firm to not be subject to FLSA but it is very unlikely. Basically what is left is the Individual Test, where each employee is examined one at a time to see if that employee is engaged in interstate commerce. Make a phone call on company business, or drive on an interstate highway or use material manufactured out of state? That is interstate commerce and any employees who do such things are engaged in interstate commerce. It is very difficult for an employee to not be covered by FLSA, not impossible, but say on the order of probability of being hit by lightning or winning a big lottery prize.
    http://www.dol.gov/whd/regs/compliance/whdfs14.pdf
    - Interns is a very specific and narrowly defined excpetion with a bunch of rules that have to be followed to the letter.
    http://www.dol.gov/whd/regs/compliance/whdfs71.htm
    - If you are talking about volunteers only, there is no such thing as a volunteer for a for-profit firm. It is possible to have volunteers for non-profits and governmental employers, but those entities have very specific rules that they have to follow.
    - Under statutory law, all workers are defined as being either employees or independant contractors. The default is employee. There by law are actual tests that have to be passed for the payor to claim that the payee is an independant contrator.
    http://www.dol.gov/whd/regs/compliance/whdfs13.pdf
    Last edited by DAW; 06-24-2012, 05:23 AM.
    "Reality is that which, when you stop believing in it, doesn't go away".
    Philip K. **** (1928-1982)

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    • #3
      Excellent post, DAW!
      Too often we underestimate the power of a touch, a smile, a kind word, a listening ear, an honest compliment, or the smallest act of caring, all of which have the potential to turn a life around. Leo Buscaglia

      Live in peace with animals. Animals bring love to our hearts and warmth to our souls.

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      • #4
        Originally posted by DAW View Post
        You are raising a lot of fairly unrelated issues. They need to be look at one at a ime, and not try to mix them together.
        - The $500K test you mention for FLSA is the "Enterprise Test". It is one way for a firm to be subject to FLSA. It is not the only way. I am not saying it is 100% imposible for a firm to not be subject to FLSA but it is very unlikely. Basically what is left is the Individual Test, where each employee is examined one at a time to see if that employee is engaged in interstate commerce. Make a phone call on company business, or drive on an interstate highway or use material manufactured out of state? That is interstate commerce and any employees who do such things are engaged in interstate commerce. It is very difficult for an employee to not be covered by FLSA, not impossible, but say on the order of probability of being hit by lightning or winning a big lottery prize.
        http://www.dol.gov/whd/regs/compliance/whdfs14.pdf
        - Interns is a very specific and narrowly defined excpetion with a bunch of rules that have to be followed to the letter.
        http://www.dol.gov/whd/regs/compliance/whdfs71.htm
        - If you are talking about volunteers only, there is no such thing as a volunteer for a for-profit firm. It is possible to have volunteers for non-profits and governmental employers, but those entities have very specific rules that they have to follow.
        - Under statutory law, all workers are defined as being either employees or independant contractors. The default is employee. There by law are actual tests that have to be passed for the payor to claim that the payee is an independant contrator.
        http://www.dol.gov/whd/regs/compliance/whdfs13.pdf
        Thanks, DAW, for your input. Much appreciated.

        That is mostly what I believed, although I suppose I'm still a little unclear on the extent of 'interstate commerce' on the employee level. Even from what you're describing, I'm not sure it would apply to a website covering news or sports, although maybe it's a much more broad definition than I'm gathering.

        The legal position seems to be these workers are 'independent contractors' working for 'exposure.' However, the IRS independent contractor test seems to show behavioral and relationship type points that suggest more of an employee-employer relationship. My understanding is that there's no hard-and-fast threshold for how many points have to go one way or another, it seems if the onus is to prove there was an independent contractor relationship, their classification is paper thin.

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        • #5
          Talking about the worker classification only, today is not the frist day in the history of the world. We have not only the general rules, but many decades of court and administrative decision. Some people think a clever argument mens that they win. Maybe, but it would be more accurate to say that the jude/ALJ will listen to both sides, then make their own decision based on past decisions with similar facts. Also, I cited federal DOL rules only. IRS has their own similar but somewhat different rules and each state has their own rules.

          Talking about FLSA coverage only, the FLSA law was passed in 1938. The "Enterprise rule" was not even created until maybe 1960. Prior to then everything was Individual coverage only, meaning that (today) we first check to see if the entire firm is subject to FLSA under the Entierprise rule. If not, then each employee is checked ONE AT A TIME. In theory, some employees would be subject to FLSA and others would not. In practice, it is very difficult today to find an employee, any employee for any firm, not engaged in intersate commerce. Do any of these supect workers use computers? And if so, did they start with sand and make the computers from scratch? If they are using computers with ANY parts manufactured out of state, or using the Internet for that matter (which crosses state lines), then they are engaged in interstate commerce. The firm can argue otherwise (everyone needs a hobby), but a huge number of court decisions, including U S Supreme Court decisions are going the other way.
          "Reality is that which, when you stop believing in it, doesn't go away".
          Philip K. **** (1928-1982)

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