At what point does a volunteer firefighter who receives some nominal compensation for his services become an underpaid employee entitled to at least minimum wage?

That question was recently put to the test in Key Largo, Florida when Corey Freeman filed suit claiming that because he was paid $5 per hour to serve as a volunteer firefighter he was actually an employee who was wrongly denied minimum wage.

The case, Freeman v. Key Largo Volunteer Fire & Rescue Department et al, 2012 U.S. App. LEXIS 22392 (11th Cir. 2012), was decided on October 31, 2012 but has more recently found its way into management and legal blogs, as well as the conventional media.

Freeman began with Key Largo VFRD in 2006, at which time he signed an agreement acknowledging his status as a volunteer and indicating he would receive $5 per hour, subject to a $1200 per month maximum. The department also employed paid employees who received $16.83 and $20.04 per hour.

The department was funded and under the umbrella of the Key Largo Fire and Emergency Services District. The hiring of paid department employees had to be approved by the district, who ultimately funded the positions.

Freeman filed suit in Federal court in 2010 claiming he was an employee of the department and/or the district, and that under the Fair Labor Standards Act (FLSA) he was entitled to minimum wage for all hours worked. The trial court ruled that he was not an employee under the FLSA, and Freeman appealed to the 11^th Circuit.

The appeals court agreed with the trial court and applying  an “economic reality” test concluded that Freeman was not an employee. Central to the court’s ruling were the following:

• Freeman signed the agreement accepting his status as a volunteer;
• Volunteers received $5.00 per hour while employees received $16.83 and $20.04 per hour;
• The KLVFRD needed permission from KLFESD to hire paid employees and Freeman never alleged that the department requested or that the district gave permission to hire him;
• The days and shifts Freeman worked were not assigned and varied depending on his availability;
• Freeman typically worked only two shifts per week;
• The KLFESD did not supervise the firefighter and it did not mandate standard operating guidelines for the volunteer firefighters;
• The firefighter’s individual rate of pay was not set by the KLVFRD or by KLFESA; and
• Besides a W-2, the KLVFD provided no other employment records to the firefighter.

Oddly, the court did not consider nor even mention the 20% rule that is often used to evaluate when a volunteer’s compensation goes beyond a “nominal fee”.

As explained by the US DOL, the 20% rule states “As a general rule, the Department finds that a fee paid is (apart from expenses) nominal as long as it does not exceed 20 percent of the amount that otherwise would be required to hire a permanent employee for the same services.”

There are a number of issues associated with the 20% rule that the court might have tried to address, including:

• Does the 20% rule apply to hourly pay, monthly pay, or annual pay?
• If the 20% rule is applied solely on hourly pay, then $5/hour does indeed exceed 20% of $16/hour or $20/hour, in which case Freeman would satisfy his initial burden. The monthly and annual analysis would depend on total hours worked (40, 42, 48, 56 etc.) by the paid firefighters, at the applicable hourly rate. We could also consider it this way:  Does $1200/month (or $14,400 annually) exceed 20% of the monthly or annual compensation of the paid firefighters? If the firefighters receive more than $6,000 per month or $72,000 per year, then Freeman would lose based on the 20% rule. If they do not, then Freeman would have at least satisfied his burden under the 20% rule.
• Should benefits factor into the evaluation of 20% or is it based on pay only?

Interesting questions that the court avoided having to address.

Here is a link to the US Department of Labor’s fact sheet discussing the economic reality test. Here is a link to a DOL opinion letter explaining the 20% rule.

Here is the court’s ruling: Freeman v Key Largo

Here is a management oriented blog about the decision, which incidentally fails to comment upon the absence of a discussion of the 20% rule.