Can You Pay Your Workers in Chicken Nuggets?

Poyner Spruill LLP

Poyner Spruill LLP

On July 26, 2022, a Chick-fil-A franchise in Hendersonville, NC put up a Facebook post saying, “We are looking for volunteers for our new Drive Thru Express! Earn 5 free entrees per shift (1 hr) worked. Message us for details.” Predictably, this kicked off a firestorm on social media, with many responses accusing the restaurant of violating the Fair Labor Standards Act (FLSA), which requires, among other things, a $7.25 per hour minimum wage. The store took down the post, and it is not clear it ever paid “volunteers” with combo meals instead of money, but the story raises an interesting question: can a restaurant compensate its workers only with food and not with cash?

The first issue is whether a for-profit fast food restaurant can use “volunteers” to take orders from customers. The answer to this question is clearly no. Under the FLSA, workers cannot volunteer services to for-profit private sector employers that would otherwise have to be performed by paid employees. The U.S. Department of Labor (DOL) guidance limits permissible volunteers as follows: “Individuals who volunteer or donate their services, usually on a part-time basis, for public service, religious or humanitarian objectives, not as employees and without contemplation of pay, are not considered employees of the religious, charitable or similar non-profit organizations that receive their service.” So, someone taking and filling orders at a for-profit restaurant cannot be legally treated as a volunteer.

Leaving aside the “volunteers” phrasing in the Chick-fil-A post, could the store have legally paid employees in chicken sandwich combo meals? That is a more interesting question. The FLSA does allow employers to take a credit against cash wages owed for the value of lodging and meals provided to employees. Section 3(m) of the FLSA allows an employer to, under certain circumstances, count as wages “the reasonable cost … to the employer of furnishing such employee with board, lodging, or other facilities.” 29 U.S.C. § 203(m). DOL guidance on this topic says, “the section 3(m) credit may be the sole payment an employee receives, provided it is sufficient to cover the employer’s minimum wage obligation.” Employers would need to be careful to separately account for and pay required payroll taxes.

The examples provided by the DOL for how the value of the credit could meet or exceed the full cash wages owed use the value of housing, which makes sense because housing typically has a much higher fair market value than meals provided to workers. However, if an employer provided meals sufficiently valuable to exceed minimum wage for every hour worked – such as, for example, 40 Chick-fil-A combo meals for an eight-hour work shift –could the employer argue it had provided all wages owed? Perhaps, although the DOL – and federal courts – would likely be hostile to the arrangement, and it would be open to attack by arguing the value of the meal credit should not exceed the value of food an employee can actually consume in a reasonable time period.

While we are not advocating employers aggressively try to avoid wage liability through creative means, the Chick-fil-A story, in addition to its entertainment value, is a good reminder to employers to consider where they might be able to take a permissible 3(m) credit against cash wages owed when they are already providing food or lodging to their employees. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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