Facts About Nonprofit Labor Laws
At their core, labor laws are a collection of laws that govern the relationship between employees, employers, and unions. Labor laws are created from federal, state, and sometimes, local statutes regarding the activities of the aforementioned. Labor laws tend to cover things like employee rights, minimum wage, working hours, and safety standards on behalf of the employee, and hiring, payment, and rest breaks on behalf of the employer.
Despite being a kind of business entity, most nonprofits are not exempt from these labor laws. And, in fact, most exist to further a mission through the effort of compensated or volunteer labor. Thus, knowing, and complying with, labor laws relating to your employees ensures that you can focus on your mission while reinforcing your nonprofit’s good reputation .
As an example, the Fair Labor Standards Act (FLSA) is the federal labor law that regulates things like minimum wage, overtime pay, recordkeeping, and youth employment. In the nonprofit sector, a major distinction for determining whether or not your nonprofit is subject to FLSA is if it engages in interstate commerce. In other words, if your nonprofit accepts checks or donations from other states, your nonprofit legally engages in interstate commerce, and thus is subject to FLSA.
Although, in general, states have labor laws similar to, or greater than, federal labor laws, a common exception to this generalization is the overtime exemption. Under federal FLSA, employees are entitled to overtime based upon the duties of their position. However, some states, like California, have their own overtime exemption with different criteria for being exempt from overtime.
Exceptions and Special Treatments
Most of the sections of labor law that apply to businesses also apply to nonprofit entities that have employees. However, there are some major exemptions from labor law that nonprofits should be aware of.
First, we should note that any entity that can be classified as a "religious" entity is exempt from the National Labor Relations Act. A religious entity is not bound by labor law, but may choose to accept such law. Although this exemption comes up most often in the context of religious schools and churches, it may in theory be asserted by any entity that is religious in nature. Labor and employment attorneys warn that employers looking for any loophole they can find to protect them against labor law claims is probably not going to be a viable defense. These cases are very personal to people and judges usually give little credence to claims of religious entity status.
More commonly, nonprofit entities are exempt from most wage and hour laws under FLSA. Nonprofit entities are exempt from many of the record-keeping requirements in that the records are not deemed necessary for the operation of nonprofit organizations. However, nonprofits must still comply with all regulations that relate to the salary of workers and general public such as minimum wage and child labor laws.
The age of the employees may determine whether an entity is classified as a nonprofit. For instance, if your for-profit day care center hires only children under 18 years of age to participate in the operations of the day care, they may opt to be considered a nonprofit for the purposes of wage and hour laws. FLSA sets forth a special exemption for employees under the age of 21 by allowing the employer to pay them 85% of the minimum wage for the first 90 days they are employed. After 90 days, the employees must be paid the federal minimum wage. This can be a good option for not-for-profit entities.
Even though a nonprofit entity may be exempt from wage and hour laws, if it acts like a for-profit entity (for instance, the CEO is highly compensated and annually goes on a company sponsored trip to a resort), then the protections that apply to for-profit entities are likely to interfere with the employer’s operations.
Nonprofits may also be organized as a professional corporation under state law. This law establishes a floor for the obligations of any for-profit entity, most of which do not apply to nonprofit entities. But these exemptions may also not apply to a nonprofit that has been organized as a professional corporation; nor will the professional corporation statutes affect its classification under state law.
In summary, the general rule is that the labor laws that apply to for-profit entities also apply to nonprofit entities, though those who organize their operations as a nonprofit in order to obtain exemptions from certain labor laws may find themselves stuck under those laws.
Employment Standards for Non-Profits
By following the employment standards set out in the province’s Employment Standards Act (ESA), nonprofits ensure that they are respecting a wide range of protections that promote the well-being of their employees. The ESA sets out standards on matters such as minimum wage, overtime pay, vacation pay, public holidays, job-protected leaves of absence, and workplace safety. For instance, ESA standards require that employees be paid at least the current minimum wage (currently $15.50 per hour in Ontario) for all hours worked. Additional compensation is required for overtime and for other types of premium pay. Failure to pay employees properly is one of the most common areas in which nonprofits find themselves on the wrong side of ESA compliance.
The ESA sets minimum standards, which means that an employer can adopt or accept more employee-friendly policies, but not less. For example, employers are permitted to provide more time off than required by the ESA. In general, the ESA is designed to give employees minimal rights, although in the case of pregnancy and parental leave, employees have a much stronger right to protections and benefits.
Consider, for instance, the requirements for rest periods and meal breaks. For most workers, the ESA requires that the employer give an employee "a period of at least 11 consecutive hours off work each day," and "two unpaid eating periods of at least 30 minutes each in a work day." Because the language of the ESA is ambiguous with respect to whether time off must be a 24-hour period, it’s common for employers to require a full overnight shift to pass before taking time off.
In that case, a 6 a.m. to 2 p.m. or 9 a.m. to 5 p.m. shift, with 30 minutes for lunch, and a 10-minute morning break and a 15-minute afternoon break would be acceptable. Although giving your telephone support staff an hour-long lunch and two 15-minute coffee breaks, but allowing them to work from 10 a.m. until 6 p.m., would be a common "best practices" work schedule, under the letter of the ESA, a charity that allowed 7 consecutive hours would be violating the minimum requirements of the ESA.
Clearing up those kinds of ambiguities ahead of time in a clear work policy can help avoid unnecessary staff complaints or grievance issues. Otherwise, if an employee files an Employment Standards Complaint or chooses to use his or her time as a sick day, an auditor will take the letter of the law literally and interpret "at least 11 consecutive hours" to mean exactly that, even if no employee would ever complain that 7 hours of consecutive work was unacceptable.
Many employers have successfully challenged strict application of the letter of the law on a case-by-case basis. In one case, an arbitrator determined that a temporary emergency extension of time to provide an ESA- and collective agreement-required statutory holiday off was de minimis (insignificant), and therefore, did not result in any entitlement to pay. However, to avoid unnecessary disputes, it is helpful to think through the policy carefully and draft it in a way that allows for temporary extensions without permission from the union or the employer.
In addition, particular nuances in the needs of the vulnerable population served by charities may also necessitate different policies. For example, if it is a serious problem that clients will press unwanted physical contact in the form of a hug on a paid staff member, then written policies requiring more distance in the form of a soft offer, "Would you like a hug?" would also assist in clarifying expectations up front.
Workplace safety and injury prevention policies may be governed by occupational health and safety legislation that sets standards specific to particular workplaces. These standards apply to some degree regardless of whether your union has negotiated around them.
Nonprofit Volunteers v. Employees
In a nonprofit context, employees are protected by labor and employment laws in the same manner as any for-profit sector employee. This can cause confusion when coworker relationships such as harassment occur – is it mere "internal spousal conflict" that falls outside the remit of discrimination laws or "gender-based" discriminatory behavior? – but those issues are outside the scope of this blog post. Nonprofit employees are not exempt from labor laws even if the business model or mission of the organization is "not very profitable."
Volunteers as a category of laborers are a distinct group and the legal definition of volunteers is based not only on the federal Fair Labor Standards Act, but also case law from the National Labor Relations Act, Title VII, Internal Revenue Code and state statutes. Volunteers are, of course, not entitled to pay, although they are covered by costs incurred – reimbursement for mileage or childcare, for example; and sometimes, by interim disability insurance or workers compensation if injured while volunteering .
As with all labor issues and industries, however, the law on volunteer-treatment is not straightforward. Is the unpaid individual performing tasks bootstrapped from duties performed by paid staff? Does the organization displace a paid worker with a volunteer? The Department of Labor has, in fact, issued guidance on some of these issues, but the facts and law on the interplay between regulation, common law, and statute is still evolving and concurrent with labor’s holistic approach to its development.
This means that misclassification of a volunteer as an employee (or conversely, of an employee as a volunteer) may be a more slippery issue than misclassification of an employee as an independent contractor. While independent contractors are subject the IRS’s thirty point test and separately are examined under traditional Section 530 safe harbor requirements, volunteers are not classified under either of these tests since the IRS does not accept volunteers as independent contractors.
Examples of Nonprofits in Labor Cases
The following are examples of real world cases in which nonprofit organizations faced challenges or penalties for failing to comply with labor laws. Please note that the facts of these cases are not necessarily representative of situations all nonprofits face, and that each situation is different and should be analyzed in light of the specific circumstances. Different state and federal agencies and prosecutors are taking increasingly aggressive views on enforcement and compliance with labor laws.
California Department of Fair Employment and Housing v. Good Samaritan Hospital (2016) In California, the Department of Fair Employment and Housing (DFEH) enforces the state fair employment and housing act, which prohibits discrimination, harassment, and retaliation in employment and housing. If a DFEH complaint is filed against an organization and the organization ignores the request to respond to the complaint and/or appear for an investigative interview, the DFEH may take enforcement steps without going through the normal process, including filing a civil lawsuit in court. In this case, Good Samaritan hospital ignored a request to investigate a complaint by an African-American African nurse after she was assigned to the night shift for the good portion of the work-week. Because the hospital ignored the investigation process, DFEH sued and obtained a $35,000 fine, as well as attorney’s fees and costs. Good Samaritan’s failure to comply was even more costly than the fine, as it lost the respect of those who believed that it should have been a good employer and champion of equality and diversity.
CDA v. Tichacek (2014) The Department of Consumer Affairs (DCA) licenses and regulates California’s medical professionals. Under its enabling legislation, it has the authority to cite and fine licensees who have filed to comply with their legal obligations. In this case, four physicians and two health care entities were investigated because they had failed to ensure that their employees’ non-physician assistants (NPA) were appropriately certified. Proper certification would ensure that the NPAs have met the minimum requirements of training and testing, and properly registered with the Board of Medical Quality Assurance. A DCA inspector visited several of the physician offices and received documentation indicating that the physicians’ NPA’s did not have proper certifications. As a result, the DCA fined the physicians a total of $18,500. Lesson: Proper training of all personnel and ensuring their certifications is key for compliance with licensing and other rules.
Moses v. State of Texas (Texas Employment Commission 1992) Under a law passed in 1988, the Texas Workforce Commission may impose an administrative penalty against an employer if an unemployment insurance administrative judge finds that the employer violated the requirement to post information regarding unemployment insurance claims and benefits. In this case, the employer engaged in repeated violations by failing to post information regarding unemployment insurance claims and benefits. The employer paid $75,000 in penalties after an administrative judge upheld the imposition of penalties.
Stevens and other v. Prime Therapeutics Inc. (North Dakota District Court 2018) The Seventh Circuit Court of Appeals has held that unauthorized text messages can violate the TCPA. In this case, plaintiff employees filed suit against their employer, a pharmaceutical company, alleging that the company sent unsolicited text message advertisements to them, which violated the TCPA. After a jury award of $20,000, the appellate court upheld the judgment and affirmed the award. Lesson: Ensure compliance with the TCPA.
United States v. Federal Express Corp (10th Cir. 2007) The 10th Circuit Court of Appeals upheld a district court ruling that Federal Express owed over $13 million in overtime under the overtime exemption for computer programmers. The court upheld the lower court’s consideration of pay records that showed that drivers with similar job responsibilities and duties were paid overtime. This provided evidence to the court that the defendants did not treat other employees in the same manner as the plaintiffs. More generally, this case demonstrates that courts may reject exemptions in light of evidence indicating that employees were not consistently categorized and treated according to the applicable laws.
Nonprofit Best Practices
There are many tools available to help ensure that nonprofit organizations are compliant with state and federal labor laws. One of the most effective ways is to utilize certified payroll software. This can be done through a third-party service, or can be done in-house if you are prepared for the task. Cloud-based certified payroll services are also an option that provide a full service record-keeping ability. I have had some experience with the latter and have found it to be a user-friendly way to approach the task, but again not right for all.
A thorough employee handbook, both in paper and electronic form, is a necessary component to being compliant. Your handbook should provide each employee with a list of your policies and procedures, as well as a notice explaining the appropriate use of the handbook. The handbook should include an acknowledgment form that each employee will return, confirming receipt of the handbook. It is advisable to remain up-to-date on changes in the law, be they at the federal, state, or local level , as they will need to be incorporated into your handbooks as needed. Annual reviews of the handbooks are also a good way to check for overall compliance. If your organization utilizes an attorney for matters outside of litigation, they can perform audits of employment procedures and assist with the incorporation of changes into the handbooks. An attorney can keep your organization up-to-date on new laws and regulations, which will not only assist with the lawful administration of your organization, but it may also protect you in the event that you need to rely on the advice of counsel in the future.
The best way to ensure that you are compliant is to carefully manage your human resources by being proactive. This involves taking a close look at all of your written policies as well as your procedures. Understand where your organization is lacking, and try to be ahead of any changes that may lead to complaints or legal challenges. If you can manage your organization in compliance with the law, you will be less likely to face costly litigation down the road.