RisksEmployment/Labor Law Compliance
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Employment and Labor Law Risks

Overview

Farmers markets need to be aware of how employment laws affect their business or organization. Many markets do not sufficiently understand the complexity of employment law. Confusing though it may be, not knowing the law is not an excuse for violating it. Further, employment law focuses on the facts of a situation, not on titles. For example, a farmers market might use “intern” as a job title and operate on the assumption that that person is not an employee. Yet, under the law, an intern might be an employee and employment laws apply, regardless of the job title.

The bottom line is that every farmers market must research and understand employment laws in detail. These rules are detailed, and enforcement by workers, state regulators, and federal regulators is not uncommon.

Farmers markets have very few ways to manage the risks of legal violations. This section explores a few steps to reinforce compliance.

How to Manage this Risk

Employment Classification Risks

Properly classifying workers as volunteers, interns or apprentices, independent contractors, and employees can be very complex. The sections below introduce the basics and offer a few resources with more information. For comprehensive information, farmers markets will want to speak with an employment law attorney licensed to practice in their state.

Volunteers

Legally speaking, for-profit businesses (including for-profit farmers markets) cannot have “volunteers.” Under the law, a volunteer is a person who gives his or her time to government or charitable purposes. For this reason, if a person is “volunteering” for a for-profit business, he or she does not meet the legal definition of a volunteer. Rather, the law will see anyone who does the work of a for-profit business as a worker. Under the law, to “employ” someone is to allow a person to do work for a business, so even those who agree not to accept money for their labor are still employees. Technically, the worker could be an employee or an independent contractor, depending on the circumstances (see the section on independent contractors below).

There are legal limits on the ways nonprofits can use volunteers as well. Volunteers should not be an essential feature of a nonprofit’s workforce and should not be dependent on the organization for a living. For more details on the specific risks of using interns and volunteers at for-profit and nonprofit businesses, see Farm Commons’ guide Managing Risks of Interns and Volunteers.

Interns and apprentices

Legally, when farmers markets hire “interns” or “apprentices,” they are offering an educational experience in exchange for lower wages or benefits. Most markets treat interns differently from other employees in terms of payroll and employment procedures. Legally speaking, at for-profit businesses, all interns and apprentices are employees and meet the same legal requirements as any other employee. This means a market would likely need to pay interns at least the minimum wage and workers’ compensation, among other requirements of employment law.

An exception occurs if the internship meets the six criteria laid out by the federal Department of Labor (detailed in Fact Sheet 71), which include that the business may not benefit from the labor of the intern and that if the intern were not present, no one would need to be hired instead. At least one court decision has taken a broader view of when workers can be considered interns. It considered several factors like those in the Department of Labor fact sheet, but its analysis emphasized whether the focus of the internship was on education and whether the intern, not the employer, was the primary beneficiary of the work relationship. This area of law is somewhat in flux—for questions specific to your market, consult an attorney licensed in your state.

Interns at nonprofit operations are different. In that case, the individual may legally be considered a volunteer, as discussed above. For more details on the specific risks of using interns and volunteers at for-profit and nonprofit businesses, see Farm Commons’ guide Managing Risks of Interns and Volunteers.

Independent contractors

Legally speaking, an independent contractor is a small business owner who provides his or her own tools and resources, is paid a flat fee, and is in control of when and how the work is accomplished. The more control the farmers market has over when and how a worker does his or her job, the more likely the person would legally qualify as an employee, not as an independent contractor.

Businesses and nonprofits that hire independent contractors do not need to cover payroll taxes, workers’ compensation insurance, or unemployment insurance for the independent contractors. As such, many businesses and nonprofits are motivated to hire independent contractors. What many don’t realize is that there are strict rules defining who is and is not an independent contractor.

For extensive details on classifying workers as volunteers, interns, and independent contractors as opposed to employees, see Farm Commons’ resource Classifying Your Workers: Employees, Interns, Volunteers, or Independent Contractors?

Employment Classification Implications

Many farmers markets discover at some point that their volunteers, interns, and independent contractors are actually employees under the law. What does this mean? This means the market is obligated to follow all employment laws. The section below discusses the requirements of three aspects of employment law.

Employment Law Obligations and Risks

Minimum wage

Generally speaking, every employee must be paid at least the minimum hourly wage under state law. In some states, farm operations are an exception to this rule. This exception does not extend to farmers markets. Farmers markets are regular businesses that must follow minimum wage rules. Nonprofits are also held to minimum wage requirements and nonprofit employers must pay their employees at least the minimum wage, just like for-profit businesses.

Workers’ compensation

Workers’ compensation is a program that provides coverage for individuals injured in the course of employment. It works much like an insurance policy. The employer pays the premiums and injured workers are eligible to make claims for coverage. Workers’ compensation programs are established by state law, and the procedures for purchasing and using workers’ compensation are set by statutes and regulations.

The original purpose of workers’ compensation was to protect employers just as much as employees. Prior to the creation of workers’ compensation programs, employees who were injured could sue their employers for the unsafe working conditions that caused their injuries. Employers had to spend a lot of money to defend themselves in lawsuits or deal with unpredictable outcomes and jury awards. Workers’ compensation solves this problem faced by employers. Now, where workers’ compensation is available, an injured employee is prohibited from suing his or her employee regardless of the circumstances that caused the injury. In exchange, businesses must provide safe working conditions. These conditions are regulated through the Occupational Safety and Health Act rather than through individual lawsuits, by and large.

Nearly every business and nonprofit is required to carry workers’ compensation coverage. Some states have limited exceptions for small businesses or nonprofit businesses. Workers’ compensation is different in each state, and each farmers market will need to investigate obligations in their own state. State departments of labor and private insurance agents are good sources of more information.

Unemployment insurance

Unemployment insurance is a tax collected by the government from employers through the payroll process. The business is responsible for paying this tax, not the employee. The money collected goes into a fund to compensate workers who have lost their jobs through no fault of their own. Both the federal government and the states run unemployment insurance programs. The amount of tax paid by a business depends on several factors. The current resources of the total fund and the level of unemployment at the time are major factors. An individual employer’s history also affects the business’s tax rate. Businesses whose former employees utilize the unemployment insurance program pay a higher tax rate. Generally, all businesses including nonprofits must pay unemployment insurance tax. Small farms are not required to pay for unemployment insurance, but this exception does not extend to farmers markets.

The Small Business Administration (SBA) helps businesses understand how to comply with employment laws, and they have offices throughout every state. (Find one near you at www.sba.gov.) Of course, state departments of labor and employment are also good resources.

Risk Management Tools

Governance

Governance does not provide an effective risk management tool for the risks of an employment law violation. First, these are business liabilities and business assets are always available to satisfy business liabilities; thus, forming an LLC or corporation does not help the situation. In many states, business owners or directors can be held personally responsible for the failure to secure workers’ compensation or comply with other employment laws, even if the business is incorporated.

To learn more about Governance as a risk management tool, click here.

Insurance

Insurance is not available to manage the risks of noncompliance with employment laws. Insurance is available to cover the costs of defense or liability in an employment practices dispute, such as discrimination or wrongful termination of an employee. But, such policies do not cover the back wages, back taxes, and penalties levied by governments for minimum wage, payroll tax, or misclassification noncompliance or mistakes.

To learn more about Insurance as a risk management tool, click here.

Market Rules

Solid internal procedures that ensure board members or staff are properly hiring workers can be useful to avoid accidental non-compliance with employment laws. However, in most businesses and organizations, it’s assumed that the person in charge will research and follow the laws relevant to hiring workers. So, it can be difficult to find templates or model internal procedures that directly require it.

To learn more about Market Rules and Procedures as a risk management tool, click here.

Recordkeeping

Most employment-related laws already have very specific recordkeeping obligations, and failure to keep mandatory records is a separate non-compliance issue by itself. For example, minimum wage laws require that timesheets be kept, and the timesheets generally must state the date and exact hours worked, including any lunch breaks. State departments of labor, attorneys, and local Small Business Administration offices are excellent sources of more information on employment recordkeeping compliance.

To learn more about Recordkeeping as a risk management tool, click here.

Farmers Market Legal Toolkit