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[author: Bill Pokorny]
If you are a fellow tech junkie, you may already have heard about the flap over a marketer's use of homeless people as Internet hotspots at the South by Southwest (SXSW) Interactive technology conference in Austin, Texas.
According to the New York Times, BBH Labs, a unit of international marketing agency BBH, recruited 13 people from a local homeless shelter to serve as human 4G wireless hotspots at the conference as part of its Homeless Hotspots project. The "volunteers" were provided with mobile wi-fi devices, business cards and personalized t-shirts stating "I'm [Name], a 4G Hotspot." They were directed to go to crowded areas of the conference, where conference attendees could use the wireless hotspot service in exchange for donations. The project participants were paid $20 for the day, and were allowed to keep any donations received in exchange for the wireless service.
Leaving aside the debate about whether this project is blatant exploitation or a brilliant effort to bring the problem of homelessness into the public eye (or both),* many have questioned whether BBH violated the FLSA by only paying its program participants $20 per day instead of the federal minimum wage of $7.25 per hour. So, did it?
Employee or Independent Contractor?
The first question that seems pertinent here is whether the program participants were "employees" as defined by the FLSA. Under the FLSA, an "employee" is "any individual employed by an employer." The Act provides that the term "employ" "includes to suffer or permit to work." Perhaps there is more here than is apparent from the news accounts. However, leaving the financial arrangement with the participants aside for the moment, it seems difficult to argue with the idea that giving someone a wireless hotspot and directing them to go stand in a crowded conference venue to provide wi-fi service to frustrated smartphone users would fall within the definition of "suffer or permit to work." That, in turn, would arguably make the Homeless Hotspots participants "employees" under the FLSA.
Perhaps BBH Labs could argue that the participants are not in fact volunteers, but independent contractors in business for themselves. That is the model used by "street paper" organizations like Streetwise, which helps homeless individuals earn income by selling newsletters or magazines. (And, for that matter, by many for-profit newspapers.) Of course, some newspapers (for example, the Orange County Register) have paid large settlements to newspaper carriers alleging that they were misclassified as independent contractors.
So what is the difference between an employee and an independent contractor? Under the FLSA, courts apply an "economic realities" test, which requires a case-by-case analysis of several non-exclusive factors, including:
It is difficult to tell from published news reports (or, at least, the ones I've seen so far) exactly how much control BBH exercised over the program participants' work, beyond directing participants to go to the most crowded areas of the conference. It seems clear that the only "investments" at issue were by BBH, which supplied the equipment, t-shirts, and business cards. Opportunity for profit or loss, on the other hand, could arguably be determined by the efforts of the program participants to engage conference attendees and sell their product. Obviously the job required no special skills, though arguably some "initiative" was required to drive sales. The articles do not seem to discuss how permanent this arrangement might be, but so far I have seen no indication that it will last beyond the end of SXSW.
In short, there are factors pointing both ways, some favoring independent contractor status, others weighing in favor of employee status. As usual in these cases, the deciding factor would likely be the level of control exercised by BBH. The more direction BBH provided regarding working hours and the method in which the program participants sold their wireless service, the more likely that participants would be seen as BBH employees.
Do Donations Satisfy The Minimum Wage?
Supposing for the moment that the program participants were employees, what if anything would BBH owe them beyond the $20 already paid, and could it count donations received from SXSW attendees against any obligations it might have to pay minimum wage?
Under the FLSA regulations, it appears that the donations would likely be regarded as "tips," which the regulations define as a "gift or gratuity presented by a customer in recognition of some service performed for the customer." Under certain conditions, the FLSA permits employers to credit tips received by employees against their minimum wage obligations. However, the tip credit is only available to employees engaged in an occupation in which they "customarily or regularly" receive more than $30 a month in tips. Here, there is a definite question as to whether the program participants would meet this standard, at least initially, because until last week their "occupation" arguably did not exist, and there is certainly nothing "customary" or "regular" about it - which is exactly why we are talking about it here.
Insights for Employers
Obviously most employers will not run into this particular issue in the course of their daily operations. However, there are occasions when employers will hire or contract with individuals on a temporary basis to perform odd jobs, like handing out flyers or standing outside of a store wearing a giant sandwich costume. Don't assume that just because the arrangement is temporary or the work is novel that the the FLSA and state wage and hour laws won't apply.
*Wired.com's Epicenter blog offers some additional backstory on this project and nicely sums up the concerns of those who criticize it, with links to some alternative viewpoints.
Administrative Agency Updates, Labor & Employment Updates