Wage & Hour Claims Against Nonprofits?

Throughout the year, people in need rely on the important work of nonprofit organizations. Many worry that their nonprofits will be subject to onerous wage and hour claims under the Fair Labor Standards Act and similar laws.

For ordinary businesses, wage and hour laws can create large monetary exposures, since collective actions often provide relief to all the company's similarly-situated employees. In addition, most EPL insurance policies do not provide coverage for wage and hour claims. See Weimer et al., Employment Practices Liability, Second Edition, p. 125 (National Underwriter).

Fortunately for nonprofits, they are seldom subject to such wage and hour exposures. The FLSA and similar laws only apply to enterprises that are conducted for a "business purpose."

Generally, non-profit organizations that do not “engage in ordinary commercial activities,” or “serve the general public in competition with ordinary commercial enterprises,” operate without a “business purpose” and therefore are not covered business "enterprises" under the FLSA. Malloy v. Association of State and Territorial Solid Wast Management Officials, 955 F.Supp.2d 50, 55 (D.C. 2013).

The fact that non-profits “compete” with for-profits by offering particular goods of services, standing alone, is not sufficient to trigger the FLSA. “Although transportation services, cellular telephone services, food, lodging, and clothing are all made publically available for purchase by commercial businesses, where those same goods and services are provided by a non-profit organization free of charge and not made available to the general public, courts have consistently found that the non-profit organization is not engaging in commercial competition … under the FLSA.” Benton v. Laborers’ Joint Training Fund, 121 F.Supp.3d 41, 52 (D.C. 2015).

In determining whether a non-profit entity operates with a business purpose, courts examine whether the non-profit is “primarily” engaging in competition in the public with commercial enterprises. Reagor v. Okmulgee Cnty. Family Res. Ctr., 501 Fed.Appx. 805, 809 (10th Cir. 2012).

Analyzing these issues of competition and business purpose is often fact-intensive. Weimer et al., Employment Practices Liability, Second Edition, p. 125 (National Underwriter). Legal advice may be a good investment on this issue.

Brit Weimer represents nonprofit organizations in litigation and litigation-prevention. He practices with Weimer & Weeding in Minnesota, Colorado and Wisconsin.