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Federal Court Rules That Work Program for NYC Homeless Individuals Violated Minimum Wage Laws

In a significant victory for workers struggling for a foothold in the labor market, a federal court in New York has ruled that homeless individuals working in administration, maintenance, food service, outreach, and recycling positions through a program run by a New York City Business Improvement District and associated non-profits are entitled to be paid the minimum wage for their work. The court found that the defendants violated federal and state minimum wage laws by paying the homeless workers only $1.00 to $1.50 an hour for their work and ordered the defendants to pay back wages and damages. The case, Archie v. Grand Central Partnership, was decided on March 18, 1998 by Judge Sotomayor of the United States District Court for the Southern District of New York.

In reaching its decision the court rejected the defendants’ argument that they did not have to pay minimum wage because the workers were “trainees” rather than “employees.” Although the case did not involve a workfare program, that is, work in exchange for welfare benefits, the court’s analysis and conclusion that the workers were “employees” for purposes of the federal Fair Labor Standards Act (FLSA) has important implications for welfare recipients engaged in workfare. Some states may try to avoid minimum wage requirements in their workfare programs by claiming that workfare is training. Last year the U.S. Department of Labor (DOL) issued helpful guidance indicating that for purposes of federal minimum wage law, welfare recipients would most likely be considered employees in many, if not most work activities, although an individualized assessment of the economic realities of the situation is required. Despite this helpful statement, reports from advocates indicate that advocacy is likely to be necessary to assure that workfare assignments are subject to minimum wage requirements. For example, California is reportedly taking the position that FLSA does not apply to work experience and community service activities. The DOL has said that this is wrong because under FLSA the state should look at the what the worker is doing and the economic realities and not just at the title of the program.

The decision in Archie is a signal to states and localities running workfare programs that despite the label they might attach to a workfare program, a court will look carefully at the nature of the work and the working relationship. Archie provides useful guidance to advocates on how to show in a particular case that the economic reality is that a workfare job is employment, especially on how to show that the workfare worker provides an economic benefit to the employer. (On the other hand, in 1995 a federal appellate court ruled in a poorly reasoned decision that Utah General Assistance workfare participants were not “employees” for FLSA. While the court cited the economic realities test, it did not apply the test to the facts of the case and instead viewed workfare as part of an overall public assistance program.)

The work program in Archie, which was part of an overall program to provide various services to homeless individuals, required participants to work 40 hours a week for a total of 700 hours, with some working for a longer period. Participants worked in activities such as kitchen work for the drop-in kitchen and office work that enabled the defendant’s overall program to operate. Indeed, participants did just about all the maintenance work for the defendant’s offices. Some individuals did outreach and recycling work to fulfill the defendant’s outside contracts. This work resulted in significant revenue for the defendant which was able to underbid its competitors who paid their employees more.

In deciding that the workers were “employees” the court looked to the “economic reality” of the workers’ situation and applied the six-part U.S. Department of Labor test for determining whether workers are trainees. Under that test, workers are trainees only if all of the following criteria are met: 1) the training is similar to that provided by a vocational school; 2) the training is for the benefit of the trainees; 3) the trainees do not displace regular employees but work under their supervision; 4) the employer does not benefit from the trainees’ activities; 5) trainees are not necessarily entitled to a job after the training period; and 6) the employer and trainees understand that the trainees are not entitled to wages for the training.

The court reviewed extensive evidence about the nature of the workers’ activities and testimony of experts. This record clearly showed, for example, that workers received no training needs assessment and no training even close to that provided by vocational school, even though plaintiffs received some benefits from the program. Plaintiffs often worked with no supervision, assumed the work of regular employees and sometimes supervised other participants. The workers clearly perceived their work as a job for which they received compensation and the defendants’ administration of the program with practices including payroll sheets, shifts, overtime, and clocking in and out requirements supported this perception. The court rejected as unpersuasive an agreement that some participants signed purporting to reflect their understanding that work was voluntary and not for wages. It concluded that defendants benefitted substantially from plaintiffs’ work which enabled defendants to run their program, fulfill their contract with the city, and provide recycling and other services to others for below market rates. Describing plaintiffs’ evidence as “voluminous” the court found that since plaintiffs performed productive work, expected payment for their services, and produced more benefits for the defendants than they received, the economic reality is that they were employees for FLSA. Plaintiffs were also found to be employees for purposes of the state minimum wage law.

The Welfare Law Center continues to work with advocates in other states to address minimum wage and other workfare issues and is prepared to participate in litigation with local advocates (see e.g. March 2, 1998 Welfare News, p. 2).

Related Information:

Archie v. Grand Central Partnership, Inc. et. al, 95 Civ. 0694 (SS), 1998 WL 122589 (S.D.N.Y.), March 18, 1998

Johns v . Stewart, 57 F. 3d 1544 (10th Cir. 1995)

U.S. Dep’t of Labor Guidance: How Workplace Laws Apply to Welfare Recipients, Daily Lab. Rep. (BNA), No. 103, at E-3 (May 29, 1997).