Dive Brief:
- Rhea Lana, a company that holds children's clothing consignment events, must pay individuals who volunteered at sales in exchange for early access to the events, a federal judge has ruled.
- The ruling may be a major blow to the company's model, as well as other companies who operate in a similar manner.
- The judge upheld a U.S. Department of Labor (DOL) determination against the company, which found that the volunteers were actually employees entitled to minimum wage and overtime under the Fair Labor Standards Act (FLSA).
Dive Insight:
Rhea Lana has been waging a public fight against DOL's determination for years. The owner sued the agency and, while the suit was pending, also testified before Congress, asking lawmakers to take legislative action to ensure that franchise owners aren't held liable for the actions of franchisees.
The judge's decision in the volunteer case turned on two major factors:
- The volunteers, who priced merchandise and operated cash registers, said that they worked in order to obtain early shopping access, not for personal pleasure or out of the goodness of their hearts; and
- Rhea Lana received an “immediate advantage” from its volunteers’ labor and that labor was integral to the business.
Rhea Lana had argued that its actions were consistent with consignment industry standards. The judge, however, said that was irrelevant; "industry standards are not one of the economic reality factors that courts have traditionally turned to in their analysis."
It has long been considered risky for private, for-profit employers to use volunteers, as DOL's regulations only discuss volunteers at public and nonprofit entities. And informally, the agency says it's never ok. Employers also must ensure that true employees aren't "volunteering" to work extra hours without pay; the FLSA requires that all nonexempt employees be paid for all hours worked.
