Is 'free' labor worth it?

The U.S. Court of Appeals for the Second Circuit, whose decisions control New York employers, recently ruled on whether an individual who performed unpaid work for a nonprofit from which he received training and services can be considered an employee under the Fair Labor Standards Act (FLSA) for wage purposes. The new Second Circuit case, which builds on an earlier case involving unpaid interns, is a win for employers. The case could have turned out differently, however, based on other factors. Read on to understand what factors the appellate court thought were important to decide for the employer.

Background

In 2014, Mark Vaughn sued drug treatment facility Phoenix House New York, alleging he was not properly compensated for his work under the FLSA and the New York Labor Law (NYLL).

Vaughn entered the residential drug and alcohol treatment facility in July 2009 as part of his criminal sentence in lieu of incarceration and faced jail time if he failed to follow through with court-ordered treatment. He worked at Phoenix House from April 2011 through January 2012 and claimed he was required to work eight hours per day, six days per week without compensation.

After his first two complaints were dismissed by the district court, Vaughn filed a third complaint, which was again dismissed. He appealed to the Second Circuit.

Analysis