alleging violations of the FLSA and California state labor laws arising from a program operated by CorePower Yoga, LLC. The case hinged on the following basic fact: for years, CorePower had operated a program in which it engaged individuals to assist with the maintenance and cleaning of its yoga studios in exchange for reduced-cost membership at the studios. Subsequently (possibly at the insistence of counsel?), CorePower changed this program to pay its laborers a minimum wage — but required that they pay back a significant portion as part of their membership fee. In each case, the individuals provided 1-3 hours of labor per week. Most were quite happy to have done this and enjoyed the arrangement. The limited labor was a small price for them to pay in order to get to participate in their weekly yoga sessions at the studios. But for whatever reason, one individual didn’t stay happy with this arrangement. That individual brought the lawsuit on behalf of himself and all other individuals who had been part of this program. He didn’t win the case at trial. But he really didn’t have to win it. CorePower — staring down potential damages equal to several times the maintenance and cleaning costs it had saved over the years by operating the program, quickly settled the case for total payments to the plaintiff class members (and the law firm that brought the case) in the amount of $1.65 million. Three things are worth noting here. First, as I mentioned many — possibly even most — of the individuals that had participated in the CorePower program were happy to have done so. They liked their yoga and thought the price was right. They may even have felt good about providing the cleaning and maintenance services to their local yoga studio and considered it doing something good for their community. But none of that mattered in the case and it doesn’t matter under applicable law. They were entitled to receive wages for their work — and once it began paying those wages, CorePower could not legally require them to pay them back in the form of membership fees. Doing that was a violation of state and federal law. Secondly, even if the individuals were willing to provide the services for free or repay their wages, they made that decision on the basis of an assumption about the likely amount of those wages. A volunteer today who understands that she is giving up $10 per hour in minimum wage for her efforts today may feel very
differently about that interaction a year later if she learns that she’s now entitled to receive $20 per hour for her work that day — simply because the distillery didn’t pay her the minimum wage at the time. Which brings me to my third and final point. If a distillery decides to accept volunteer or intern labor and in so doing mischaracterizes employees and fails to pay wages, what the business is actually doing is creating a contingent and hidden liability. That liability, although not reflected on the business’ balance sheet, will exist and will remain hanging over the business’ head until the relevant statute of limitations has expired. For claims brought under the FLSA, that means that the distillery has potential exposure for a period of two years from the last date on which it received the benefits of the labor but failed to pay wages. If the employer’s actions were willful, the period is extended back three years. And since a successful claim carries with it a right to recover attorney’s fees and interest from the date that the wages should have been paid, the amount of that liability increases with every day that passes until it is extinguished — either by payment or the lapse of the statute. Creating and allowing that liability to linger does not benefit a business over the long term. Rather, it creates a fiscal sword of Damocles. The sword may not fall today. It may not fall ever. But if it falls, it will be painful. The business that experiences this misfortune will wish it had simply paid workers the minimum wage for their efforts. This is because a claim is made or because a prospective buyer of the business, upon reviewing the employment records of the business, discovers the potential for liability and reduces the price it is willing to pay. Many of those workers would have probably turned around and bought a bottle or two at the end of the day. I know I would.
Brian B. DeFoe is a business lawyer at Lane Powell, where he focuses his practice on helping companies in the customer-facing industries of hospitality and retail. Brian can be reached at email@example.com, via phone at (206) 223-7948, or on Twitter @BrianBDeFoe. Visit www.hoochlaw.com for more thoughts on spirits and the laws that govern them. This is intended to be a source of general information, not an opinion or legal advice on any specific situation, and does not create an attorneyclient relationship with our readers.
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Published on Dec 14, 2017