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Minimum Wage and Overtime

New York court rules Episcopalian church custodian not entitled to overtime or minimum wage under FLSA.

Key point 8-08.2. The Fair Labor Standards Act mandates that employers pay the minimum wage, and overtime compensation, to employees who work for an enterprise engaged in commerce. There is no exception for religious organizations, but there are exceptions for certain classifications of employees.
Key point 8-08.3. The Fair Labor Standards Act mandates that employers pay the minimum wage, and overtime compensation, to employees who are engaged in commerce or in the production of goods for commerce. There is no exception for religious organizations, but there are exceptions for certain classifications of employees.

* A federal district court in New York ruled that a custodian who worked for an Episcopal church was not entitled to minimum wage or overtime pay under the Fair Labor Standards Act since the church was not an "enterprise" and the custodian did not qualify for individual coverage. In 1982, a church hired a new custodian (the "plaintiff") to clean the church. The plaintiff worked seven days a week. On Sundays, he worked from 7 a.m. until services ended. On all other days he worked from 8 a.m. to 5 p.m., though he often cleaned the church after evening services. His custodial duties included sweeping, mopping, and vacuuming the buildings and bathrooms, removing garbage, flushing the air conditioner, maintaining the boiler, and clearing the sidewalks of trash, leaves, and snow. The plaintiff was on-call at all hours if a problem arose with the electricity, plumbing, air conditioner, or boiler. When a new pastor was hired by the church in 1999, he increased the hours the plaintiff worked by requiring him to turn off the building's alarm at 7 a.m. and turn on the alarm after church functions concluded every evening.

The plaintiff paid the electrical, plumbing, and oil vendors on behalf of the church, purchased cleaning supplies, picked-up church vestments and the pastor's personal clothing from the dry-cleaners located across the street, delivered mail to the post office, and folded 800 church bulletins each week or took the bulletins to a local printing shop. The church reimbursed the plaintiff by check for these church-related purchases.

From 1982 until 2007 the plaintiff lived in the two-bedroom apartment located in a church building. Beginning in 1982, he earned $70 per week in wages and lived in the apartment rent-free. In 1986, the church's finance committee began requiring the plaintiff to pay $250 per month in rent for the apartment. In 2000, the church increased the plaintiff's bi-weekly wage to $519.76. In 2002, the church increased his bi-weekly wage to $625, an amount the pastor believed to be adequate compensation for forty hours of work per week. In addition to his wages, the plaintiff received $50 per event for helping during each event and cleaning afterward. He also received Christmas bonuses, though not every year. No one at the church recorded the hours the plaintiff worked. In 2004, the church paid two additional people to clean the buildings.

In September 2005, the plaintiff requested medical leave to undergo surgery and receive treatment. Throughout his convalescence, he continued to turn the alarm off and on every day and perform some of his custodial duties, such as shoveling snow and vacuuming the church, and the church continued to pay him. In February 2006, he provided the church with a letter from his doctor stating that he could return to work full-time in March 2006. On February 10, 2006, the pastor and an associate pastor met with the plaintiff and terminated his employment because the church "could no longer afford to wait for him and decided instead to let him go." The church offered the plaintiff several severance packages, but he rejected them all.

The pastor and an associate pastor met with the plaintiff and terminated his employment because the church "could no longer afford to wait for him."

In 2007, the plaintiff sued the church to recover unpaid minimum wages and overtime compensation pursuant to the federal Fair Labor Standards Act (FLSA) and the New York Labor Law (NYLL). The plaintiff also complained that the church failed to maintain adequate written records for hours worked and wages earned in violation of the FLSA and NYLL. The church asked the court to dismiss the case on the ground that the FLSA does not cover the church as an "enterprise" or the plaintiff as an individual employee.

the Fair Labor Standards Act

The FLSA requires that an employer pay minimum wages and an overtime wage of not less than one-and-a-half times the regular rate for hours worked in excess of 40 hours in a single work week if an employee is either (1) employed by an enterprise engaged in commerce or in the production of goods for commerce, or (2) engaged in commerce or in the production of goods for commerce. The two categories are commonly referred to as "enterprise" and "individual" coverage, respectively.

The employee bears the burden of establishing either enterprise or individual coverage. The burden then shifts to the employer to establish a specific exemption.

enterprise coverage: combining the church and diocese

The FLSA covers an enterprise engaged in commerce or in the production of goods for commerce if:

  1. employees engaged in commerce or in the production of goods for commerce, or employees handled, sold, or otherwise worked on goods or materials that have been moved in or produced for commerce by any person, and
  2. the enterprise has no less than $500,000 in annual gross volume of sales made or business done.

The plaintiff conceded that the church did not meet this definition of an enterprise, but he claimed that the combination of the church and local diocese did meet the definition. The court conceded that two entities can be combined in applying the definition of an enterprise if (1) the entities engage in related activities performed through unified operation or common control, (2) for a common business purpose. To support the claim of unified operation or common control, the plaintiff described the hierarchical structure of the Episcopal Church where parishes financially support the dioceses and in return receive administrative and financial support and the right to perform religious activities.

(1) related activities performed through unified operation or common control

However, the court stressed that the diocese was not a party to this lawsuit, and that if the plaintiff claims that separate entities perform related activities through unified operation or common control, then he must "name each entity as a defendant in the action." Since he did not do so, the court "cannot consider the diocese in determining whether the church constitutes an enterprise because the diocese is not a party to this action. Even if the plaintiff had named both the church diocese as defendants, the court concluded that they could not be combined in determining enterprise coverage:

Even if the plaintiff had sued the diocese, the court would not reach the merits of whether the diocese constitutes an enterprise because summary judgment would be granted in favor of the diocese on the threshold question of FLSA coverage. The FLSA applies only to an "employer" who "suffers or permits" an "employee" to work. If the plaintiff sued the diocese and church, then he would have the burden of proving that he constitutes an employee of the diocese or an employee of both the diocese and church as joint employers. [A federal appeals court] has identified nonexclusive factors to aid the courts in determining the "economic reality" of the relationship between an individual and an alleged employer, such as whether the alleged employer (1) had the power to hire and fire the individual, (2) supervised and controlled employee work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records. Where an individual alleges that two entities constitute joint employers, courts must also consider whether both entities have "functional control over workers even in the absence of the formal control measured by the [preceding] factors."
Considering all factors and facts to ascertain the economic reality here, the plaintiff constituted an employee of the church alone. Employees of the church had the power to hire and fire the plaintiff; the pastor hired the plaintiff in 1982 and his successor fired him in 2006. [The pastors] supervised and controlled the plaintiff's work schedule and conditions of employment; [one of the pastors] required the plaintiff to work seven days a week from eight in the morning until at least five in the evening and his successor increased the hours the plaintiff worked to include turning off the building's alarm at seven every morning and turning on the alarm after church functions concluded every evening. The pastors determined the rate and method of payment …. Checks used to pay the plaintiff for all wages and reimbursements were printed with the account name and address of the church and signed by church employees. Neither the diocese nor the church maintained employment records. There is no evidence that the diocese had any control over the plaintiff's work as a custodian for the church. He could not prove that the diocese and church constitute joint employers. The diocese is not relevant in this action or in theory.

(2) common business purpose

The second factor that must exist for two entities to be combined in determining enterprise coverage is a common business purpose. The court noted that a Department of Labor ("DOL") regulation provides nonprofit organizations with an exemption from the definition of an "enterprise." 29 C.F.R. § 779.214. An organization that performs religious, educational, or charitable activities "does not perform these activities for a business purpose, and thus does not constitute an enterprise, unless the activities compete in the marketplace with ordinary commercial enterprises."

The court noted that in only two cases had a religious organization been found to have a business purpose:

  • Tony & Susan Alamo Foundation v. Secretary of Labor, 471 U.S. 290 (1985). A church operated 33 businesses, including service stations, retail clothing and grocery outlets, hog farms, roofing and electrical construction companies, a recordkeeping company, a motel, and companies engaged in the production and distribution of candy, in three states. The United States Supreme Court found that the church constituted an enterprise because the businesses engaged in ordinary commercial activities that competed with other commercial enterprises, even though employees were "spreading the gospel."
  • Boekemeier v. Fourth Universalist Society, 86 F.Supp.2d 280 (S.D.N.Y. 2000). A New York church employed a staff to solicit, through monthly mass mailings, press releases, and advertisements, intrastate and interstate renters for events. The court found that the church constituted an enterprise because the extent and result of the church's efforts to secure rental activity competed directly with other commercial landlords and rental facilities. The court also highlighted the fact that income from the rental activity supplemented church operations, as rental fees constituted 80 percent of the church's income.

The plaintiff insisted that the church was engaged in a business purpose because of the rental of its facilities for weddings and other social events, and that it was competing with commercial enterprises. The court concluded that the church's rental activities did not constitute a business purpose that competed with commercial enterprises, since (1) the church rented its facilities for weddings and social events only 10 times per year; (2) the church did not advertise or market its properties for events; (3) the church did not employ a staff to solicit renters; (4) rental fees constituted only 4 percent of the income raised by the church. The court concluded that "no reasonable inference can be drawn in favor of the claim that this activity competes with ordinary rental facilities to serve the general public or that the church relied on rental income to support church operations."

enterprise coverage: employees engaged in commerce

The FLSA covers an enterprise where "employees engaged in commerce or in the production of goods for commerce, or employees handled, sold, or otherwise worked on goods or materials that have been moved in or produced for commerce by any person." The court concluded that the plaintiff's handling of janitorial goods that had moved in commerce was more than sufficient to invoke enterprise coverage.

enterprise coverage: the $500,000 annual sales requirement

The court noted that the FLSA will not cover an entity that has less than $500,000 in annual gross volume of sales made or business done. Charitable contributions donated to a nonprofit "are not included in this calculation unless the organization solicited or used the contributions for the purpose of furthering commercial activities." The court concluded that the plaintiff had failed to prove that the church received business income of $500,000 or more.

In conclusion, the plaintiff "failed to prove two of the three essential elements of enterprise coverage with respect to which he has the burden of proof," and therefore the FLSA "does not cover the church as an enterprise engaged in commerce or in the production of goods for commerce."

individual coverage

The FLSA requires that an employer pay minimum wages and an overtime wage of not less than one-and-a-half times the regular rate for hours worked in excess of 40 hours in a single work week if an employee is engaged in commerce or in the production of goods for commerce. This is commonly referred to as "individual" coverage. The court noted that the FLSA can cover an employee "engaged in commerce or in the production of goods for commerce" regardless of whether the employer constitutes an enterprise.

The DOL provides custodial employees with a specific ground for individual coverage where the employee "performs maintenance and custodial work on the machinery, equipment, or premises where goods regularly are produced for commerce or from which goods are regularly shipped in interstate commerce." 29 C.F.R. § 779.116.

The plaintiff compared himself to the plaintiff in the Boekemeier case (summarized above) where the court found that the employee-custodian engaged in commerce by ordering cleaning supplies and equipment one to six times a year from out-of-state vendors by telephone and fax on behalf of the employer-church. The court reasoned that the employee purchased goods "important" to the employer in a "recurrent and frequent" manner.

The court conceded that the plaintiff purchased cleaning supplies in a recurrent and frequent manner, and regularly contacted (by telephone) electrical, plumbing, and oil vendors, paid for their services, and received reimbursement from the church. However, unlike the church custodian in the Boekemeier case, he did so exclusively from in-state vendors. The Boekemeier case "is distinguishable from this case because the employee was closely related to the movement of commerce by purchasing goods directly from out-of-state vendors, while [the plaintiff in this case] simply affected commerce by purchasing goods from local vendors."

The court conceded that the plaintiff delivered mail to the post office on a regular and recurrent basis. But, it noted that DOL regulations "make clear that this activity must be of an interstate nature to establish individual coverage." 29 C.F.R. § 779.102. There was no evidence in this case "that mail delivered by the plaintiff to the post office was of an interstate nature."

Application. This case is important because it is one of the most extended discussions of the application of the FLSA minimum wage and overtime requirements to a church employee. Few churches will meet the FLSA's definition of enterprise coverage. But of greater relevance is the court's interpretation of "individual" coverage. The court's conclusion that church custodians who order janitorial supplies from in-state vendors by phone or the mail are not "engaged in commerce" will make it more difficult for church employees to pursue a claim for minimum wage or overtime pay under the FLSA. Note, however, that such claims may be more likely to succeed under state employment laws. Locke v. St. Augustine's Church, 690 F.Supp.2d 77 (E.D.N.Y, 2010).

* See also "Compensation," Tarasi v. Jugis, 692 S.E.2d 194 (N.C. App. 2010), in the Recent Developments section of this newsletter.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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Posted:
  • July 1, 2011

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