The Competitive Enterprise Institute and Heritage Foundation are co-hosting an event on December 9th (see event details, here and below), which highlights the Department of Labor’s absurd enforcement of the Fair Labor Standards Act that puts volunteering at for-profit businesses in its cross-hairs. As a result many family and community businesses have, unknowingly, run afoul of the law.
A prominent example of the DOL’s overreaching enforcement, is its investigation into Rhea Lana Riner’s clothing consignment business—Rhea Lana’s. In 2013, the DOL’s Wage and Hour Division began an investigation into her business and then declared it had violated the FLSA.
First, before getting into the DOL charge, below is a description of Rhea Lana’s business model from an article in the Kansas City Star:
An owner — usually someone who has bought into one of several different franchises selling support mechanisms for the sales — finds a venue. Depending on the sale’s size, that venue could be anything from a modest, empty retail space or a church basement to a large event space.
The franchisees solicit consignors by grass-roots fliers and signs, Facebook, word-of-mouth or other low-cost marketing efforts. Consignors, usually moms with growing families, go online, pay a modest fee, get a bar code that identifies them to print from home. They start pricing their used children’s clothing and other items from home in their spare time. When the sale approaches, consignors line up to drop off their items.
A volunteer labor force, whose main perk is the chance to shop first and sometimes get extra money back on the items they sell, hand-check each item to make sure nothing is stained, torn or too worn. They sort and hang clothing in gender and size categories so shoppers can easily access the items they want. Gear and toys are sorted by type. Volunteers run the sale, handle checkout and help sort at the end of the sale in order to return unsold items to the owners.
Thousands of shoppers from pregnant moms to those with preteens and up to high school-age children spend three to four days sifting through the racks looking for bargains.
Despite all parties involved benefit from the business model, the DOL Wage and Hour Division ruled that Rhea Lana “volunteers” are really “employees” covered under the FLSA and are “entitled to back wages in accordance with FLSA minimum wage and overtime provisions.”
The absurdity of the DOL’s regulatory enforcement is not lost on Mrs. Riner, “With this logic, Build-a-Bear Workshop employs child labor by letting young customers assemble their own teddy bears.” Likewise, Riner points out she gives her customers the same opportunity as eBay does with its resellers.
Thankfully, Rhea Lana has been able to remain open, and continue to provide significantly discounted used clothes to families, because of Cause of Action, an advocacy organization, that filed a lawsuit challenging the DOL.
In addition, my colleague Aloysius Hogan, a panelist at the event, notes that recently Rep. Tim Griffin and Sen. John Boozman have introduced the Children’s Consignment Event Recognition Act to exempt volunteers from the FLSA who help set up used children’s clothes consignment sales.
Date: Tuesday, Dec 09, 2014
Time: 12:00 PM – 1:00 PM
Venue: The Heritage Foundation 214 Massachusetts Ave NE Washington DC 20002
Speakers: The Honorable Tim Griffin (R-AR), Member, U.S. House of Representatives, and Arkansas Lieutenant Governor-Elect, William Westover Smyth, California Vintner, Alex Passantino, Senior Counsel, Seyfarth Shaw, LLP Former Acting Administrator, Wage & Hour Division, U.S. Department of Labor, J. Aloysius Hogan, Esq. Senior Fellow, Competitive Enterprise Institute