NY Court Refuses To Extend FLSA Enterprise Liability to Nonprofits
June 2007
A nonprofit organization that provides foster
care and adoption services pursuant to municipal contracts is not an "enterprise
engaged in commerce." As such, the entity is not subject to the overtime requirements
of the Fair Labor Standards Act (FLSA).
by Paul
J. Siegel, Esq.
Jackson Lewis
LLP
This is true even when those services are provided pursuant to a contract
with a public body, according to a decision from the Eastern District of New
York. The court held, however, that fact issues still remain as to whether individual
employees may be covered by the FLSA. (Jacobs v. N.Y.
Foundling Hospital, E.D.N.Y., No. 04-0895).
An employer is covered by the FLSA if either the employer is an enterprise
engaged in commerce or its employees are individually engaged in commerce, commonly
referred to, respectively, as either "enterprise" coverage or "individual" coverage.
The FLSA defines an "enterprise" as activities performed by various entities
for a common "business purpose." The Act specifically identifies certain entities
as meeting the "business purpose" test, such as hospitals and institutions primarily
engaged in the care of the sick, the aged, and the mentally ill who reside on
the premises of such an institution (regardless of whether the institution is
a nonprofit). 29 U.S.C. Section 203(r)(1).
In NY Foundling, services were not provided
to individuals who were sick or mentally ill, rendering inapplicable this language.
Instead, the plaintiffs argued that due to Foundling providing all of its services
pursuant to a contract with the New York City Administration for Children Services
(the public agency charged with the administration of all child welfare services
in New York), a separate section of the FLSA applied. That section provided
that activities performed "in connection with the activities of a public agency"
satisfy the business purpose test. These arguments were rejected.
The court first noted the issue had not been decided previously by any court
and the language of the statute was ambiguous. Since there was no judicial precedent,
the court examined the legislative history and found it showed no intent to
cover nonprofit organizations simply because they contract with a public agency.
Further, the court held that only those nonprofit organizations specifically
identified in the statute (e.g., hospitals) are covered. In so ruling, the court
cited Congress's explicit inclusion of specific
nonprofits as evidence that Congress intended to exclude others not specifically identified.
The court added that extending overtime requirements to all nonprofits that
act in conjunction with city and state agencies would have serious financial
or economic repercussions for a multitude of nonprofits.
The decision is consistent with a 2005 Department of Labor opinion letter
that also held the FLSA did not cover a private nonprofit institution providing
care for neglected children unless that
institution is operated as a hospital, an institution primarily engaged in the
care of the sick, the aged, or the mentally ill who reside on the premises of
such institution. U.S. Department of Labor,
Wage and Hour Division Opinion Letter No. FLSA 2005-8NA (9/02/05).
While dismissing the plaintiff's enterprise liability claim, the court refused
to dismiss individual coverage claims because too little discovery had taken
place on that issue.1
As a result, nonprofit employers should examine whether the FLSA's enterprise
coverage exclusion applies to their organizations.
1Individual employees are engaged in commerce
"when they are performing work involving or related to the movement of persons
or things (whether tangibles or intangibles, and including information and intelligence)"
between states. 29 C.F.R. Section 779.103. Courts utilize a fact-specific inquiry
into the employment actions of each and every employee asserting a claim under
the FLSA to determine whether he or she was engaged in the performance of work
involving or relating to the movement of persons or things between the states.
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