Thursday, August 11, 2016
The "Tea Party" application controversy continues to take a toll on the IRS, even as the Service implements the congressionally enacted notice requirement for section 501(c)(4) social welfare organizations. First, the IRS suffered setbacks in two of the cases pending against it that grew out of the controversy:
- In Freedom Path, Inc. v. Lerner, the U.S. District Court for the Northern District of Texas rejected the government's motion to dismiss a First Amendment claim against the IRS, finding that the plaintiff's concerns regarding future curtailment of speech was sufficient to establish injury and that the case still presented a live controversy despite changes in the Service's processing of applications. Coverage: Bloomberg BNA Daily Tax Report.
- In True the Vote, Inc. v. IRS and Linchpins of Liberty v. United States, decided together although argued separately, the U.S. Court of Appeals for the District of Columbia Circuit reversed the lower court's dismissal of actions for injunctive and declaratory relief as against the government, concluding that those claims were not moot. (The appellate court did, however, affirm the lower court's dismissal of Bivens actions and statutory claims against individual government officials and the Service.) Coverage: Wall Street Journal. For blog posts discussing the opinion, see The Surly Subgroup (Philip Hackney) and The Volokh Conspiracy (Eugene Volokh).
Second, many Republicans in the House of Representatives continue to call for the impeachment of IRS Commissioner John Koskinen, not satisfied with his earlier censure by the House Oversight and Government Reform Committee on a party-line vote. (Coverage: The Hill; Politico; Roll Call.) Third, new documents relating to the controversy continue to trickle out from various sources, at a minimum providing an excuse to reassert claims against the Service and its (mostly now gone) officials. For example, see this Judicial Watch press release in the wake of it gaining access to approximately 300 pages of FBI documents relating to the FBI's investigation of the controversy.
And yet life still goes on, which in this instance means implementation of the new section 506 notice requirement for section 501(c)(4) organizations. That implementation has taken the form of Revenue Procedure 2016-41 and related final and temporary regulations (T.D. 9775). These documents detail how the notice requirement applies both to new section 501(c)(4) organizations formed after December 18, 2015 (the date of enactment for section 506) and to previously existing section 501(c)(4) organizations that had not yet either filed an application for recognition of exemption or an annual return. The required form is Form 8976, which can be submitted electronically here.
Since 9/11 the relationships between charities and government anti-terrorism agencies have been strained, with government officials wary that the cross-border movements of money and people that many charities facilitate were vulnerable to being used as vehicles for the support of terrorist activity. Charities have responded with efforts to both tighten controls over such movements and to educate government officials regarding how charities can and do minimize the risk of such diversions. Earlier this summer those efforts bore fruit with the decision by the global Financial Action Task Force to change its guidance regarding charities (known as Recommendation Eight) to clarify that they are not inherently at risk of terrorist abuse, as reported by Third Sector (UK). The revised Recommendation Eight now reads:
Countries should review the adequacy of laws and regulations that relate to non-profit organisations which the country has identified as being vulnerable to terrorist financing abuse. Countries should apply focused and proportionate measures, in line with the risk-based approach, to such non-profit organisations to protect them from terrorist financing abuse, including:
(a) by terrorist organisations posing as legitimate entities;
(b) by exploiting legitimate entities as conduits for terrorist financing, including for the purpose of escaping asset-freezing measures; and
(c) by concealing or obscuring the clandestine diversion of funds intended for legitimate purposes to terrorist organisations.
Unfortunately, just last week the news broke that Israel has charged the manager of World Vision's Gaza branch with infiltrating the charity on behalf of Hamas and diverting tens of millions of dollars to Hamas' military wing. (Coverage: NPR; NY Times; Washington Post/AP.) While Israeli officials emphasized that there was no evidence that World Vision was aware of the diversion, and World Vision is still reviewing the charges and the evidence supporting them and has expressed skepticism about the alleged amount at issue, the situation casts a cloud over the international work of the well-known charity.
Wednesday, August 10, 2016
Election 2016: Nonprofit Spending to Date; and Clinton, Trump, and the Perils of Personal Philanthropy for Politicians
Lost a bit in the continual "he/she said what?!?" news stories is the continued steady spending by nonprofits to influence this year's elections. The Center for Responsive Politics reports that spending by outside groups (groups other than candidates or party committees) reported to the Federal Election Commission is already approaching $600 million and so is on pace to more than double the level of such spending in the 2011-12 cycle. While the overall amounts are still relatively modest compared to aggregate candidate and party spending, at least for federal offices, that spending is more significant than the proportion of total spending suggests for several reasons.
One reason is that unlike candidates and to some degree political parties, nonprofits can concentrate their spending on a relatively few, close races, sometimes even allowing them to spend more in those races than the candidates and parties. Another reason is a small portion of those reported funds - about $50 million to date - are from groups that do not disclose their donors and so the public cannot learn the original sources of those funds (this is the so-called "dark money"). A third reason is that this figures reflect only spending that groups are required by law to report to the FEC; there are many expenditures that relate to federal elections but are not reached by federal election law, as well as of course much spending aimed at state and local races (see the National Institute on Money in State Politics for data on the latter). It is therefore clear that absent some significant legal changes political spending by nonprofits is not going away anytime soon, although some states are enhancing state-level required disclosure of political spending. See, for example, the recent Delawareonline report on a federal appellate court decision upholding Delaware's expansive Elections Disclosure Act against constitutional challenge, the expansive New York lobbying bill awaiting the governor's signature (see TimesUnion article), and the recent paper by Linda Sugin (Fordham) titled "Politics, Disclosure, and State Law Solutions for 501(c)(4) Organizations," 91 Chicago-Kent Law Review (forthcoming 2016).
But lest nonprofit legal practitioners and scholars become bored with this "just more of the same political spending," this year's election has also given us a host of allegations of wrongdoing relating to the philanthropic activities of both Hillary Clinton and Donald Trump. For those trying to keep score, here is a brief summary of where things stand (for previous recent coverage, see previous posts relating to charitable "gifts," possible private benefit, and possible support of the presidential campaign):
- Clinton Foundation: Alleged conflicts of interest while Clinton was Secretary of State (see this week's NY Times story for the latest); a (almost certainly routine) IRS referral of GOP lawmaker allegations of public corruption to an audit group (see this Politico story); and a possible FBI probe (according to The Hill). For a detailed consideration under federal tax law of the accusations raised by the GOP lawmaker, see the July and August blog posts by Philip Hackney (LSU) (spoiler alert: he concludes that even if the alleged facts are taken as true they simply do not rise to a level that could plausibly threaten the Foundation's tax-exempt status).
- Trump Donations & Foundation: Journalists have been hammering away at Trump's claims to have made substantial charitable contributions, none more assiduously than the now-banned-at-Trump-events Washington Post; see, for example, stories raising questions about general claims of giving millions to charity, whether Trump fulfilled pledges to donate the profits from various ventures, and an alleged $20 million gift to St Jude Children's Research Hospital. Of course boasting about phantom charitable contributions is generally not illegal. More troubling from a federal tax perspective are therefore the fact that the Trump Foundation made an admitted contribution to a political organization (a taxable expenditure under Internal Revenue Code section 4945 as well as a violation of section 501(c)(3)) and allegations that Trump may have personally benefitted from certain Foundation expenditures, such as the purchase of a signed Tim Tebow helmet (which, if true, would constitute prohibited self-dealing under section 4941).
It remains to be seen how these various allegations shake out, but they underline the fact that politicians and potential politicians who engage in personal philanthropy risk having those philanthropic activities haunt them on the campaign trail.
And one last question: what will happen to their respective foundations if either candidate is elected President? To date, neither campaign has said, although Bill Clinton has publicly acknowledged the issue.
The NY Times is running a series of articles on the influence donors, particularly large corporations, appear to have over research conducted by some prominent think tanks. As its front page articles on August 8th and August 9th detail, many researchers associated with think tanks are paid consultants or lobbyists for corporate clients, and many think tanks also receive contributions directly from corporations that have an interest in the research the think tank is conducting. Some of the think tanks identified have either admitted to lapses in oversight or adopted more stringent conflict of interest and disclosure policies, but it is not clear how widespread such admissions or changes are within the think tank community.
While in theory reaching research conclusions that are helpful to donors or clients could constitute providing prohibited private benefit on the part of the think tanks, which are generally tax-exempt under Internal Revenue Code section 501(c)(3), the connections detailed in the articles seem too tenuous to support such a claim. This is especially true given both that proving a solid link between a donation and research results is difficult and that the think tanks identified generally engage in a broad range of research projects, only a small portion of which may be tainted by donor influence. Similarly, while some think tanks then arrange for meetings or conferences centering on their research and attended by government policy makers that might constitute lobbying for federal tax purposes, most such events likely fall outside of the technical definition of lobbying and the few that may not are almost certainly within the limited amount of lobbying permitted for tax-exempt charitable organizations such as think tanks.
Nevertheless, the stories are troubling because they throw into question the ability of government policymakers to rely on such research, as noted by Senator Elizabeth Warren in a video the NY Times posted with these stories. In its regular Room for the Debate feature, the NY Times therefore invited a number of commentators to suggest possible ways to address the concerns raised in its stories. Suggestions ranged from greater transparency about possible conflicts (including a certification process), better internal procedures to ensure unbiased research results, greater skepticism regarding those results on the part of journalists and others who report or rely on those results, and a diversification of funding sources (including ensuring various governmental funding sources) to support such research. I frankly am skeptical of transparency, certification, and internal procedure improvement if only because it may be too difficult for busy lawmakers, much less journalists and other members of the public, to shift through various disclosures or to determine what certification schemes or particular think tanks are reliable. I believe the diversification of funding sources idea has more promise, particularly if there are (nonpartisan) ways for government agencies to provide such funding conditioned on accurate, unbiased results. Bottom line, this strikes me as not a narrow federal tax issue but a larger issue about how to incentivize truth telling in public policy research.
Following up on David Brennan's previous blog post and thanks to a comment from a reader, I can now report that a conference committee of the Massachusetts legislature removed the provision in a pending economic development bill that would have kept property acquired by nonprofits on the property tax rolls for four years if the property had been taxable before the nonprofit's acquisition. The provision at issue in what was then Bill H.4483 read as follows:
SECTION 127. Chapter 59 of the General Laws is hereby amended by inserting after section 2D the following section:-
2E. Any charitable organization or educational institution otherwise exempt from the payment of property taxes pursuant to section 5 of chapter 59, or any nonprofit charitable corporation or public charity otherwise exempt from the payment of property taxes, that purchases real property that was subject to taxation under said chapter 59 at the time of the purchase, shall pay property taxes on the assessed value of said property for a period of 4 years after the purchase, the amount of said property taxes paid to be phased out as follows: in the first year, 100 per cent of the property tax; in the second year, 75 per cent of the property tax; in the third year, 50 per cent of the property tax; and in the fourth year, 25 per cent of the property tax.
In the final bill, renumbered as Bill H.4569 and currently pending before the governor, this section has been deleted.
Tuesday, August 9, 2016
For those interested in state oversight of nonprofits, the National Association of Attorneys General (NAAG) and the National Association of State Charity Officials (NASCO) will be holding their annual meeting focused on such oversight on October 17 thru 19 in Washington, DC. While for two days the conference is only open to state regulators, the first day is open to the public. Here are the topics for the public session agenda:
Welcome and Introductions
Non-Traditional Models of Philanthropy
Donor Advised Funds, Endowments and Donor Restrictions
Board Education: Top 10 Ways to Get Investigated and How Board Education Can Help Prevent It
New Tools for the Nonprofit Setor
CyberSecurity/Data Privacy Issues
Multistate Litigation: Cancer Fund of America
NAAG Charities Committee: Meet the AGs
The full public session agenda, including the names of moderators and panel members, is available here.
As reported by Accounting Today and Bloomberg BNA Daily Tax Report (subscription required), the IRS yesterday issued Revenue Procedure 2016-42 (available through Bloomberg BNA) to provide some relief for donors desiring to create a charitable remainder annuity trust (CRAT) but frustrated because low interest rates make it difficulty to do so. The articles explain that CRATs are subject to a "probability of exhaustion" test (described in Revenue Rulings 70-452 and 77-374) that requires there be no more than a 5 percent chance that there is no remainder to go to the designated charity or charities. When interest rates are low, as they are now, it can be difficult to satisfy this requirement and also the requirement under Internal Revenue Code section 664(d) that a CRAT pay out a minimum 5 percent annuity to the trust beneficiary. The Revenue Procedure permits CRATs to include an early termination provision that ends the CRAT and causes the distribution of the remainder to the designated charity or charities when the trust corpus minus the annual payment and multiplied by a discount factor falls below 10 percent of the initial trust corpus; if the sample provision is included in a CRAT, then the probability of exhaustion test will not apply.
The Revenue Procedure will be published in Internal Revenue Bulletin 2016-34, which will be dated August 22nd.
Monday, August 8, 2016
Oonagh B. Breen (University College Dublin) has posted "Guardians of the Charitable Realm: Charitable Trust Supervision Practice and Procedure in the Common Law World" on SSRN (European Review of Private Law, forthcoming). Here is the abstract:
This article examines the control framework for the supervision and oversight of charitable trusts in the common law world. It outlines the fundamental differences between private and public trusts that necessitate a separate enforcement regime for charitable trusts and explores the historical and political powers and duties of the Attorney General as parens patriae of charities. In light of the limitations of the Attorney General’s effective scrutiny, Part II considers the emergence of alternative charity regulators - from tax authorities to independent charity commissions - comparing the relative regulatory achievements of these agencies with that of the AG. Part III turns its attention to the role of the courts and tribunals in the enforcement of the interests of donors, beneficiaries and charitable entities. The article concludes in Part IV with a discussion of the merits and demerits of the charitable trust vis-à-vis the public benefit foundation.
Damian Bethke has published "Charity Law Reform in Hong Kong: Taming the Asian Dragon?" in the International Journal of Not-for-Profit Law. Here is the abstract:
The number of charitable organizations in Hong Kong has increased significantly despite unclear and lax regulation. A legislator has identified flaws in the present law and recommended changes. The proposed recommendations, however, do not consider the unique characteristics of Hong Kong. If implemented, they would not address the existing problems adequately. In order to tame the Asian Dragon, this article proposes an alternative model: self-regulation, which relies on the work of charity watchdogs.
Blog contributing editor Susan N. Gary (Oregon) has published "Values and Value: University Endowments, Fiduciary Duties, and ESG Investing" at 42 Journal of College and University Law 247 (2016). While the JCUL published version is not readily available online, here is the SSRN posting of the article. Here also is the abstract:
The trustees managing university endowment funds must comply with fiduciary duties that require the trustees to act in the best interests of the university and to act as prudent investors when managing the funds. This article shows that these fiduciaries may adopt investment policies that consider material environmental, social, and governance (ESG) factors as part of an overall investment strategy. The article explains why older arguments that fiduciaries should avoid “social investing” are no longer relevant and how the prudent investor standard has evolved to include ESG investing. The article discusses the changes in socially responsible investing since the anti-apartheid era and reviews a significant number of empirical studies that show that ESG investing has had a neutral or positive effect on financial return. Based on the empirical work, evidence of the financial industry’s growing use of extra-financial factors in investment analysis, and recent guidance from the Department of Labor, the article concludes that a trustee responsible for a university endowment will not breach the duty of loyalty or the duty to act as a prudent investor by directing the endowment’s use of ESG investing as part of an overall financial investment strategy.
Alicia Plerhoples (Georgetown) has posted "Nonprofit Displacement and the Pursuit of Charity Through Public Benefit Corporations" on SSRN. Here is the abstract:
Nonprofits dominate the charitable sector. Until recently, this statement was tautological. Charity is increasingly being conducted through for-profit entities, raising concerns about the marketization of the charitable sector. This article examines for-profit charity conducted through the public benefit corporation, a new corporate form that allows its owners to blend mission and profit in a single entity. Proponents of public benefit corporations intended it as an alternative to a for-profit corporation and largely ignored its impact on the charitable sector. While public benefit corporations are ripe for conducting charity because they can pursue dual missions, they lack the transparency and accountability mechanisms of charitable organizations.
This article chronicles the supply and demand for public benefit corporations that conduct charity (i.e., “charitable public benefit corporations”) and hypothesizes the micro and macro level harms caused by them. At the micro level, the harm is fraud or “greenwashing”, i.e., deceiving unwitting stockholders, customers, or other stakeholders into investing or spending their time and money in the negligent or fraudulent enterprise. At the macro level, the more pernicious harm is that “market-based charity” injects individualistic and autocratic business values and methods into charitable work. To mitigate these harms, this article proposes that charitable public benefit corporations be required to grant or sell shares to a group of stakeholders sufficient to give such stakeholder-stockholders standing to bring a derivative suit against the public benefit corporation should it fail to pursue its charitable public benefit. These stakeholder-stockholders are akin to impact investors, or investors who value charitable returns above, or concomitantly with, financial returns. The derivative suit offers the rare stick to guard against greenwashing. More importantly, stakeholder-stockholders can (i) guide the founders and boards of a charitable public benefit corporation in pursuing charity as an ordinary business decision, and (ii) import the participatory and democratic values of the charitable sector to public benefit corporations.
Friday, August 5, 2016
Twin Cities Pioneer Press reports that two private colleges alone in Minnesota have combined endowments of over $1.5 billion. This seems wonderful in a time where education budgets are on the chopping block. However, critics of the colleges and universities contend the institutions need to be less scrooge-like and spread the wealth to meet the financial needs of their students. “Private foundations with nonprofit status must spend five percent of their fund’s value each year under federal law.” But, this requirement does not apply to colleges and universities.
As of 2013, there were 138 educational institutions with over $500 million in endowment. A study of 67 private schools revealed that just over half of those schools did not meet the 5 percent mark required by other nonprofits. With an estimated 40 percent of college students receiving Pell grants, it is clear that there remains unmet financial needs for students.
An official from one of the colleges studied said “it’s unfair to expect colleges to spend their endowments at the same rate as charitable nonprofits. If a college’s endowment earns 7 percent but they spend 5 percent, it won’t grow fast enough to keep up with inflation.”
Time will tell if the Legislature will require colleges and universities to meet the five percent mark as their nonprofit peers must. With the rising cost of education, one can assume debate will arise sooner than later.
Thursday, August 4, 2016
A recent post on Non Profit Quarterly by Ruth McCambridge explains tensions between nonprofits in big cities (Such as D.C. in this article) and the legislature. In Washington D.C., nonprofits occupy over $10 billion worth of real estate, which could generate over $111 million per year in tax revenue. Instead, the district collects nothing from them.
Two universities in the district alone account for $48 million in uncollectable property tax revenue. The District is considering the idea of making a change requiring payments in PILOT form, but has been pondering this idea for nearly fifty years.
Undoubtedly, these institutions bring an immense amount of revenue to the District, through research, attracted talent, and general expenditures by students and faculty. However, it is not clear if these benefits outweigh the costs of not receiving property taxes.
It is estimated that currently 28 different states have municipalities that collect PILOT payments; however these payments amount to far less than what the property taxes would have been worth.
It will be interesting to see if the legislature changes the current set up. Between the federally owned tax-exempt buildings, and those occupied by nonprofits, the district is missing out on over one billion dollars of tax revenue.
Tuesday, August 2, 2016
A recent development in California leaves the status of a local non-profit blood bank in question. However, Hemopet is not your typical blood bank, it is a blood bank for animals. Founded in 1986, Hemopet was the nation’s first 501(c)(3) non-profit blood bank and quickly grew to national scale. Currently, Hemopet supplies 40% of the nation’s emergency canine blood, and saves the lives of thousands of dogs each year.
In 1965, a law was enacted that exempted blood banks from taxation. Unfortunately, animal blood banks were not around at the time. A recent audit by state officials led to the conclusion that Hemopet should not be considered tax exempt, and that they owed over $80,000 in unpaid taxes. A bill is set to be presented to the California Assembly Committee on Appropriations on August 3rd that will clear up the status of the non-profit. Dr. Jean Dodds, president and founder of Hemopet, believes that if the bill passes requiring Hemopet to pay the $80,000 they will be forced to shut down. In addition to the potential shortage on emergency canine blood, closing Hemopet would leave over 200 Greyhounds homeless and 45 people would lose their jobs.
Hemopet officials are encouraging Californians to contact the Assembly Committee on Appropriations to voice their support for the organization.
Monday, August 1, 2016
Community Basics, a Lancaster, PA non-profit, is challenging the legality of a local zoning ordinance that effectively limits the ability of the Salisbury Township’s residents to obtain affordable multifamily housing. The proposed law would require the re-zoning of a 16.6-acre plot of land that is currently zoned for industrial use. The site would contain six buildings and 138 apartment units.
Currently, less than one percent of the township’s total land is zoned to allow multifamily housing. Township officials deny any wrongdoing and contend the zoning is necessary for critical industrial development. The Supreme Court has invalidated a zoning restriction before that only allotted 1.14 percent of a town’s land for multifamily housing. The Salisbury Township ordinance allows for .74 percent of the town’s land to be used for multifamily housing. To further limit the access to multifamily housing, the township requires four parking spaces per housing unit, an expensive barrier to building new housing units.
The challenge aims to curb the shortage of rental housing available to the Salisbury Township residents. Rent for the new units would be based on income, and would range from $315 to $945 monthly. The hearing for the ordinance is set for Aug. 24.
Sunday, July 31, 2016
Proposed legislation in Massachusetts would potentially shake-up the current state of their local non-profits. The proposal would make it necessary for current non-profits to begin paying property taxes, and continue to do so for the next four years (churches and houses of worship remain exempt). Currently, non-profit organizations are exempted from paying property tax, but occupy more than 13 percent of taxable property within the state. The proposal is a small part of an overall economic stimulus plan that seeks to provide over $700 million in assistance throughout the state.
Proponents of the legislation argue that aggressive land purchases by larger non-profits make it more difficult for smaller entities to find land. They also believe exempting the non-profits ultimately raises property taxes for others in the community. Opponents believe that taxing non-profits will make it necessary for them to cut back on their services provided, and could lead to employees being laid off. This could have a wide impact, as non-profit jobs are an estimated 17 percent of the state’s workforce (approximately 500,000 jobs), and pay more than $30 billion in wages.
Although both sides present compelling arguments, it is imperative for policy makers to thoroughly analyze the true impacts of their decisions. It will be interesting to see what how the good people of Massachusetts respond to this proposal.
Thursday, July 28, 2016
A recent post by Benjamin Leff on The Surly Subgroup highlights the 50+ year ban on 501(c)(3) organizations (here, specifically churches) “intervening” in a campaign for public office. Arguments for and against the ban range from an infringement of free speech, to churches using their power to distort the electoral process. However, the main issue discussed is that although churches want to get in to court to challenge the ban, they believe the IRS won’t let them. For a compelling read on how these organizations may be granted their “day in court” and some possible reform suggestions, read the above linked post.
Thursday, July 7, 2016
The Guardian reports that under a proposal in San Francisco: “large tech employers in the city, potentially including Google, Twitter, Uber, Airbnb and Salesforce, would be required to pay a 1.5% payroll tax. The estimated $120m in annual revenue would be used to fund affordable housing and services for the city’s large homeless population." The effort is intended to help address that San Francisco is “one of the most unequal places in the US.”
The Nonprofit Times Reports that trust in charities in the UK has fallen to its lowest level, declining 10% over the past two years. The article cites concerns about aggressive fundraising practices, charities more concerned in sustaining themselves than in their mission, scandal, high compensation levels, and low expenditures all as leading to public revolt. The government is contemplating setting up a new fundraising regulatory body. The article notes that the crisis in confidence comes at a terrible time, because after the Brexit vote it is likely that British charities will have fewer resources (loss of EU funding) and face greater need. RC
Wednesday, June 29, 2016
Dept of Labor: Volunteers who Provide a Benefit to Organization Are Employees, Must Be Paid Minimum Wage
A church encourages its parishioners to volunteer for a fundraiser. More than 100 individuals heed the call and volunteer their time: some a few hours, some much more. The Department of Labor then sues for violations of federal labor law for failing to pay the workers—who DOL considers “employees”—a minimum wage as required by the Federal Labor Standards Act (FLSA).
Sound unlikely? Well, this exact scenario is playing out in Ohio in the case of Perez v. Cathedral Buffet. Ernest Angley, of televangelism infamy, runs a church and a buffet restaurant. According to court papers, the restaurant is organized as a for-profit organization owned entirely by the church, although the restaurant does not make and has not made a profit. Parishioners volunteer for the buffet—sometimes sporadically, sometimes regularly. 105 of the would-be employees signed affidavits indicating that they did not receive any economic advantage from volunteering, and they volunteered for the sense of community the opportunity provided. Department of Labor has sued Cathedral Buffet and the Ernest Angley for years of failing to pay volunteers.
In response to the argument that the volunteers do not need to be paid a minimum wage, the Department of Labor has taken the following position:
But even if the volunteers did not expect compensation, they certainly did not work solely for their own purpose or pleasure, without immediate benefit to the Buffet. Former Church member Roadman declared that she felt pressure to volunteer. (Roadman Decl. ¶6.) And although the Employers claim the volunteers received a “sense of community” or “satisfaction,” the benefit to them was vastly outweighed by the benefit received by the Buffet. The Buffet actively sought out volunteers to help staff the Buffet, and Angley even admitted that the use of volunteers was a cost-saving measure. (Angley Dep. 35:7-36:11, 50:21-25.) And unlike in Portland Terminal, the Buffet’s workers are not being trained or otherwise working under the close scrutiny of paid employees.
The Buffet cannot rely on the goodwill of the Church members to provide labor that would otherwise be done by paid employees and be compensable under the Act. And the Buffet cannot pressure individuals into providing free labor, then shield itself from FLSA liability under the guise of the Church’s religious mission.
In other words, DOL’s legal position seems to be that an organization MUST pay minimum wage to volunteers as employees if it 1) asked the individual to volunteer and 2) it receives a benefit from those volunteers. If this is the standard, then a lot of organizations are in trouble. After all, a lot of organizations depend on appeals to religious or moral duty to convince people to volunteer. And while some charities likely tolerate volunteers even if they don’t add value, many organizations depend on volunteers to make their operations successful. (Earlier in the case, DOL took the position that it was impossible to "volunteer" for a for-profit enterprise, although its latest briefing appears to have abandoned this position, which had been rejected by several other courts.)
Can Labor’s position possibly be right? Well… probably not, but maybe: