Can For-Profit Businesses Use Volunteers?
by Arina Shulga, founder of Shulga Law Firm, P.C.
It may be tempting for a business that is trying to minimize its operating expenses to accept free help from unemployed persons who are simply looking to get the right experience. However, businesses that are using unpaid volunteers should be careful: misclassifying employees as volunteers and not paying them at least the minimum wage can turn into a costly mistake that can lead to bankruptcy.
Who are volunteers? Based on the Supreme Court decisions and the federal Department of Labor interpretations, volunteers would be those who:
- work without an expectation or receipt of compensation or benefits,
- are not economically dependent on this position,
- work on a less than full-time basis,
- perform services of the kind typically associated with volunteer work (charitable purposes, such as help to minister to the comfort of the sick, elderly, indigent, infirm, or handicapped, and retarded or disadvantaged youth) and
- who would not be displacing any paid workers.
A general rule emerges based on the criteria above: a “for profit” business (as opposed to a charity or a government employer) cannot use unpaid volunteers.
Consequences for misclassifying employees as volunteers can be grave. If the relationship sours, a volunteer can claim that employer-employee relationship existed and ask for unpaid wages and overtime pay. Businesses may also be liable for unpaid taxes (Social Security, unemployment and workers’ compensation and payroll taxes) and fines for failure to withhold income tax.
For example, in 2010, America Online, Inc. settled a class action suit brought against it by thousands of former volunteers (community leaders who during the 1990s spent approximately 2-4 hours per week hosting and moderating AOL chat rooms, reporting offensive behavior, answering questions from other subscribers and reviewing bulletin board postings), claiming that they were employees and not volunteers and should have been paid at least minimum wages for the work they performed for AOL. What started as a two-person lawsuit was later certified into a class action and resulted in America Online reportedly paying $15 million to settle the litigation.
Correctly classifying employees is important for any business, whether it is a start-up or an established enterprise. The amount of money that may be saved by using volunteers may pale in comparison to all the back wages, legal fees, fines and penalties that a business may have to pay later if sued by the disgruntled volunteers and/or investigated by the Department of Labor.
In my next post, I will write about interns and when you can - and can’t - use them in your for-profit business.
Arina Shulga is the founder of Shulga Law Firm, P.C., a business law firm that focuses on representing small and growing businesses (www.shulgalaw.com).Arina conducts a monthly free legal clinic at NYC Business Solutions office in Brooklyn. She writes a blog www.businesslawpost.com and is active on Twitter (@Businesslawpost). If you have a question or comment for Arina, email her at arina@shulgalaw.com. And, please share this blog entry with your colleagues on Facebook and Twitter.
Note that this blog is for informational purposes only and should not be relied upon as a legal advice.
The views, opinions, or expressions provided by Arina Shulga do not necessarily represent the views, opinions, or expressions of the City of New York, the New York City Department of Small Business Services, and/or NYC Business Solutions.