Department of Labor Issues New Guidance Concerning
Employees Who Volunteer For Their Employer

The Department of Labor (DOL) recently issued new guidance on regulations governing public sector employees who also provide volunteer services to their employer. The scenario is common: a nonexempt employee volunteers to assist at an employer-sponsored health fair, community activity or sporting event - or to coach a school's athletic team. To show its appreciation, the employer provides the employee with a small fee or a stipend. Later, that employee sues claiming that compensation, which may include overtime, is due for time spent volunteering.

Under DOL regulations, public sector employees may provide volunteer services to their employer. However, the regulations state that if an employee receives "compensation" for volunteering, the time spent volunteering must be counted as time worked for purposes of calculating and paying overtime. Historically, there has been no clear guidance from the DOL as to the dividing line between a permissible nominal fee and an impermissible payment. Many, including plaintiffs' attorneys, argue that any payment destroys the employee's status as a bona fide volunteer.

In a recent opinion letter, the DOL confirmed that, under certain conditions, a nonexempt employee may receive some type of payment and still meet the definition of a "bona fide volunteer." The guidance provides valuable insight into how a public employer, such as a public school, public hospital or municipality, must structure its relationship with volunteers.  Most notably, the guidance sets a new black and white standard for determining whether a stipend falls within the definition of a permissible nominal fee.

Taking steps now to ensure that your stipends fall within these guidelines will preclude an adverse finding by the DOL - and provide a valuable defense against private lawsuits.  Although the new “$64,000 Question” centers around what the market rate for a job, such as a full-time high school coach, might be, there are ways to develop a statistically reliable answer.

A Litigation Explosion

Over the last three years, public school systems have paid tens of millions of dollars to settle lawsuits seeking unpaid overtime under the Fair Labor Standard Act ("FLSA"). Over 40% of all FLSA lawsuits filed in 2002 involved public school systems. In Mississippi alone, 105 of the state's 152 school systems were sued for unpaid overtime under the FLSA, and as a result, are expected to pay in excess of $20 million dollars to settle the cases. A group of plaintiffs' attorneys called the School Litigation Group has filed multi-plaintiff FLSA lawsuits against public schools in 10 states through the south, including Mississippi. Recently, multi-plaintiff FLSA lawsuits have been filed or threatened against schools in Ohio, Illinois and Kentucky.

The Culprit

A good portion of this litigation arises from the practice of allowing nonexempt employees to volunteer. Problems may arise when the volunteer is provided with a stipend or fee. While the practice long went unchallenged, plaintiffs’ attorneys recently began to argue that time spent volunteering for duties such as coaching or advising an extra-curricular activity should be counted as time worked for purposes of calculating overtime. When faced with litigation, schools have almost uniformly chosen to settle the lawsuits and abandon the practice of allowing nonexempt employees to coach or advise. Recently, the Akron Public School System, with a student enrollment of over 27,000 students, decided to discontinue the practice of allowing nonexempt employees to coach or serve as advisors altogether due to overtime liability concerns.

Few Alternatives

When challenged, schools have looked to avoid liability under the theory that their coaches are acting as volunteers. A special provision of the FLSA allows public employers to avoid overtime liability for time an employee spends volunteering, but only if the employee performing the volunteer services meets the definition of a bona fide volunteer. To meet the definition of a bona fide volunteer, a coach or advisor must, among other things: (1) volunteer the time for civic or charitable reasons; (2) without the promise, expectation or receipt of compensation; and (3) without pressure or coercion from the employer. Although a volunteer may not receive compensation, a volunteer may receive: (1) payment for expenses; (2) reasonable benefits; (3) a nominal fee; or (4) any combination thereof. Thus, so long as a stipend or other type of payment falls within the definition of a nominal fee, the volunteer exception to overtime may be available. However, payments cannot be meant to serve as a substitution for compensation – and if a stipend does not fall within the definition of a nominal fee, then overtime may be due.

Until now, the DOL has not provided schools with any guidance on the dividing line between a permissible nominal fee and an impermissible payment. The question of whether a $1,000 stipend is considered nominal has remained a mystery left exclusively for the courts to decide. Consequently, when schools have been faced with litigation on the issue of whether their stipend falls within the definition of a nominal fee, they have tended to settle out of court rather than incur expensive legal fees and risk an adverse decision.

The New Guidance

In November, the DOL issued an opinion letter examining the question of whether a nonexempt employee of a public school can volunteer as a coach or advisor, and if so, whether the payment of a stipend will destroy the volunteer status. In answer to the first question, the DOL indicated that employees may volunteer to coach if the arrangement is structured in a way that meets the definition of a bona fide volunteer.

The 20% Rule

Notably, the DOL provided black and white guidance that can be used to determine whether a stipend falls within the definition of a permissible nominal fee. In this particular case, the DOL stated that it will presume that a coaching stipend is nominal when it does not exceed 20% of the prevailing wage for a full-time coach. The DOL suggests that employers use some form of market data to determine the market rate for a particular job.

The good news is that, according to this new guidance, public employers may avoid overtime liability so long as the relationship is structured properly under the FLSA and the stipend falls within the 20% rule. This includes public schools that have long allowed nonexempt employees to volunteer as coaches or supervisors of extra-curricular activities. And while Department of Labor opinion letters are not binding upon the courts, judges often look to them when interesting regulations and statutes under the FLSA

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice.  The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.

©2005 Ice Miller