Want to Help Someone Rebuild Her Business? Better Lawyer Up!

Neighbors and people across the nation were appalled when local shops in Ferguson, Missouri, burned down during the recent disturbances there. Thankfully, family, friends, and some kind-hearted strangers have pitched in to help local entrepreneurs rebuild their businesses. Unfortunately, some obscure, Great Depression-era federal and several state laws prohibit such acts of generosity, by making it illegal to help at a for-profit business.

The original source of these laws is the Fair Labor Standards Act (FLSA) of 1938, which introduced among other things the minimum wage and statutory overtime. It bans the use of volunteers by for-profit businesses making over $500,000 in annual gross sales or whose employees engage in interstate commerce—which can be something as simple as running a credit card that is part of a national network that counts as interstate commerce. Only immediate family members are allowed to volunteer.

Most people don’t know about this provision because it has rarely been enforced, and thankfully hasn’t been enforced in Ferguson, but that is beginning to change.

Westover Winery in California, a small operation run by retired physician Bill Smyth and his wife, makes $200,000 in annual sales and after 30 years has made a profit only in the last year, when he earned $11,000. While productive, the winery essentially functions like Bill’s retirement hobby. On busy days, however, he has had volunteers help him sort grapes, stomp wine, and attend to customers in the tasting room.

Sounds like a good deal for everyone—customers get to enjoy wine, volunteers do something they enjoy, and Bill Smyth gets help running his winery. Unfortunately, this win-win situation did not meet with the approval of California bureaucrats, who visited his vineyard and without warning fined him $130,000 for the illegal use of volunteers.

Westover, run on a shoestring budget, cannot afford to hire even one employee at minimum wage, so the fine has put the winery out of business—it will close at the end of the year. And all the volunteers who enjoyed helping out have had their hobby curtailed by the authorities. One 82-year-old retiree who volunteered did so to keep himself busy. On being told he could no longer do so, he burst into tears.

The wishes or intentions of volunteers are of no help in getting around the law. A 1985 Supreme Court case from 1985 found that some former drug addicts and homeless who had gotten their lives together with the help of a nonprofit foundation had to be paid minimum wage at local business where they volunteered—even though many of them preferred compensation from the nonprofit in the form of food and a place to sleep.

There are myriad small businesses that could be caught up in a bureaucratic crackdown on this practice, including many wineries and consignment shops like Rhea Lana’s, whose founder noted, “We feel moms are co-venturing with us because they have a desire to use their personal time for their benefit.” Then there are the residential facilities and hospitals that rely on volunteer photographers, entertainers, and the like to give their residents and patients a bit of extra cheer (the FLSA has a “humanitarian” exemption, but its application has been uneven and its interpretation remains unclear).

Even with the FLSA in place, volunteering has grown in recent decades—and no one has complained of being exploited by their local neighborhood mom-and-pop florist shop. Nor has anyone lost a job due to volunteers, who work short, irregular hours.

The Fair Labor Standards Act needs to be reformed to allow volunteers to help out their neighbors, family, and friends without fear of bringing down fines and other legal penalties on them. Rep. Tim Griffin, (R-Ark.), who is retiring at the end of his current term, has introduced legislation to that would implement limited reform in relation to consignment sales. It’s a good start, but much more needs to be done.

In the new Congress, like-minded reformers need to pick up Rep. Griffin’s baton and liberate the thousands of small businesses that are threatened by overzealous bureaucrats.

Alexis de Tocqueville noted that one of the great features of American democracy was the willingness of its citizens to work together on a voluntary basis. Nothing could be more un-American than laws that punish that volunteering spirit.