Labor Day Update for Non-profits: Classification and the Rights of Workers

While most primarily associate it with the end of summer and a three-day weekend, 2022 is an excellent year to recognize Labor Day for what it is:  a celebration of workers and their power to organize. 

With the erosion of labor law by politicians and the courts that began in the 1970s and continued through the last administration, it is hard to believe that in 1894, this country believed in unions enough to declare Labor Day a federal holiday.  Review the sweeping rights of workers introduced by the National Labor Relations Act in 1935 and consider just how far the mainstream left has retreated from economic justice – Congressional Democrats today could never pull this off.

But, if you will indulge a fleeting moment of optimism, consider the viral success of organizing efforts at Starbucks, Amazon, and other mega-corporations, the 500-Day Warrior Met coal strike that continues as we speak, the sectoral bargaining that (subject to Governor Newsom’s signature) would be created in California to regulate wages and practices in the fast food industry under AB 257, and a new Gallup poll showing a record high in terms of the public support of unions (71%!  Think of how many matters of objective fact fail to get that high of a consensus!).  It is possible that the decline in union membership, which closely parallels the stagnation and decline of the true wages of the working and middle class, may be reaching a turning point.

So….what does this all have to do with non-profit law?  I’m glad you asked. 

Non-profits, even progressive non-profits, can be just as bad as for-profits when it comes to workers’ rights, sometimes worse. 

Here are some labor sins that seem quite common in the non-profit sector:  

(A)  paying poverty wages, whether on their own or by accepting government contracts that make it impossible to deliver the required services while also paying a fair wage, given the amount of the contract and its limitations (the labor sins of government actors is another post);

(B) opposing unionization efforts with the same propaganda used by for-profit employers, such as “captive audience” presentations where the employer uses company time to express their view on a union, even though the employers do not get a vote and, when these presentations are sufficiently coercive, they can represent a labor violation (e.g., threatening to shut down a non-profit if people unionize is just as much of a labor law violation as when a for-profit does it); and

(C) tolerating an abusive CEO or management team because the Board is “captive” to the CEO or just asleep at the wheel – in my experience, for-profit boards consisting of shareholders often have more leverage and incentive to address these sorts of problems than non-profit boards, which are too often a cast of rotating volunteers who think of themselves as a mere ‘fundraising board’ and are unwilling to pay enough attention to notice, much less call out or remedy, bad behavior.

Having charitable purposes does not excuse this behavior.  On the contrary, I would argue that engaging in these practices should be considered a betrayal of those purposes and a good reason to take away that organization’s tax-exempt status (if I got to make my own tax law, anyway – this is unfortunately not actually a cause for revocation).  How can you provide relief to the “needy and distressed” when your own employment practices create need and distress?

To that end, in the spirit of Labor Day, allow me to be a legal scold on behalf of non-profit workers’ rights, specifically on the topics of (1) employee vs. contractor classification and (2) the myriad rights of employees under federal labor law.

Employee Classification is a Big Deal – Do It Correctly!   There are many articles on this topic written by actual employment lawyers, and you should talk to them to get hard advice.  But let me share this illustration of how things seem to be going in California in terms of proper classification (and the situation is not all that much different outside of California, honestly).

Please do not take anything in this post as legal advice, but that ESPECIALLY applies to this chart.

The default classification for someone being paid for their services is an employee.  And if your organization pays “volunteers” for their services, they generally stop being volunteers, so we mean “paid volunteers” too.

In order for someone you pay for services to be classified as an independent contractor, the relationship needs to “pass” an A-B-C test.  To dramatically oversimplify how that test works (go talk to an employment lawyer), that means someone is only your organization’s independent contractor if ALL of the following are true:

A.      The worker operates outside of your organization’s direction and control

B.      The worker is performing services that are outside the scope of services provided or business conducted by your organization; and

C.      The worker is engaged in this trade or business (i.e., they have clients other than you and/or are holding themselves out as available for hire for these services).

Take a close look at A, B, and C and honestly ask whether all of those are true for each worker in your organization. In particular: 

• Is that worker doing something that is outside the main activity of your organization?  If you’re a charity and the worker is running a charitable project or all of your activities, and you answered “Yes”, please try again.

• Does that worker have any other clients for the same services?  Or are they only working for your organization?  Just because you pay them hourly or on a very part-time basis, that does not make them a contractor – they would actually have to be using their other time to offer similar services to other organizations.

My guess is that if all organizations conducted the above exercise honestly, the orange wedge in my chart above would be a lot smaller and the blue wedge would be a lot bigger.

But My Employees WANT to be Contractors...   I’m sorry to hear that, but:

• If they understood how employment status protects and benefits work, the employee, including giving them all of the labor rights below and having the employer cover one-half of their social security taxes, and if they were acting rationally, probably would not want to be an independent contractor; and

• It does not matter what they want – the protections of employment law are not something that an employee can waive. 

But I Can’t Afford to Pay Them as Employees…  Unfortunately, you do not have a choice.  If someone is properly classified as an employee, you have the legal obligation to pay payroll taxes on their behalf, make contributions to federal and state disability programs, and follow all of the applicable wages and hours laws, among other obligations.  It’s not optional, just like paying a minimum wage is not optional. 

The only sense in which you can “choose” not to follow the law for employers by just sending the workers a 1099 is in the sense that you can “choose” to walk out of a store with your groceries without paying.  You might feel you have a good reason, and you might not get caught*, but you’re still breaking the law and the other party to the transaction is still being harmed (and even if you’re not worried about Safeway or Whole Foods, I hope you hold your workers in higher esteem).

*While we are talking about getting caught, there are so many consequences here your organization should be aware of when that happens.  Just as a start:  the potential PERSONAL liability of directors and officers to the IRS for a non-profit’s failure to pay its payroll taxes for misclassified employees, direct and class-action lawsuits from employees, and enforcement actions by government regulations, which could lead to actual damages, punitive damages, penalties, and fines.

Now that we know just how many employees your organization probably has, let’s tie it back to the main theme and talk about some of the rights they have under federal labor law, including some that do not get talked about enough. Note that these rights apply to everyone in the orange and blue wedges in the chart — employees have the rights of employees even when misclassified.

Non-profit Employees Have The Same Rights As For-Profit Employees Under Federal Labor Law – And There Are a Lot of Them!

Large corporate employers, Republican politicians, and right-wing think tanks have spent a lot of time and money creating an environment that is hostile to unions.  There are also rampant labor law violations by employers that are well-publicized and going on all the time that have gone unaddressed.  As a result, there is a real misunderstanding of labor law by the general public. 

There are many people who think that an employer has a right to fire someone for trying to organize a union or expressing their displeasure regarding conditions of employment, that management gets a vote on whether or not there is a union, or that labor law only protects people in unions or union activity.  Those beliefs are all incorrect.

Here is just a sample of what the National Labor Relations Act (“NLRA”), as enforced by the National Labor Relations Board (the “NLRB”)*, gives to workers, generally speaking:

• Employees, whether or not in a union, have a right to talk to each other about their wages, including their benefits and bonuses.  It is unlawful for employers to prevent or punish this.

• Employees, whether or not in a union, can circulate petitions among their coworkers and band together to talk to their employer, a government agency, or even the media, as long as it is about labor conditions affecting the group.  It is unlawful for employers to prevent or punish this.

• Employees have the right to form a union.  If adopted by a majority of employees in the bargaining class, those employees have the right to have that union collectively bargain on their behalf.  It is unlawful for an employer to refuse to negotiate or to only negotiate in bad faith.

• Employees have the right to talk about unionization or concerted activity during non-work time (including breaks and before or after work), including in non-work areas like break rooms and parking lots.

• Employees, whether in a union or not, have a right to strike, at least under the right conditions (talk to a labor lawyer).

• File a complaint with the NLRB to address an unfair labor practice and be free from retaliation for doing so.

*Like the EPA, the NLRB is a federal agency that alternates being protective and waging war against its original purpose, depending on which administration is in office.  The Biden administration’s NLRB has been one of the most pro-union in decades and is a cause for real optimism, at least until the work starts being undone by a future NLRB.

This is just federal law, and it applies everywhere, even in those states that try to undercut labor rights.  And some states’ laws have additional rules protecting workers.  We hope that your organization is already strictly observing these rights and others, but take the opportunity to check in on whether that’s always true.  Not just because you have to, but because it is the right thing to do.

In conclusion:  my hope is that non-profit organizations return from their Labor Day holiday with a renewed appreciation for how their compliance with labor law and devotion to worker rights is truly a part of their charitable mission.  Non-profit workers are still workers, and all workers around the world need to be united in the common struggle against exploitation.  As progressive employers (non-profit and otherwise), our job is to support that however we can – not to make excuses.

Post-script:  Some Labor Day recommendations:

• Harlan County, U.S.A. is streaming on the Criterion Channel and a bunch of places.  One of the great documentaries in general, but also one of the most moving and inspiring depictions of the American labor struggle. 

• There are many great labor journalists – among them, Lauren Kaori Gurley and Kim Kelly.  (Kim’s book, “Fight Like Hell:  The Untold History of American Labor” is on its way to me now.)

• The nerdiest recommendation of them all: the Twitter Account of the NLRB General Counsel, Jennifer Abruzzo – this account regularly provides new (and promising) updates on the NLRB’s perspective on legal issues, including plans to revisit some long-problematic concessions by the NLRB in matters of union elections and “captive audience” presentations by employers, and current developments regarding unfair labor practices in connection with some of the most public labor campaigns (e.g., Starbucks and Amazon)