RICHMOND, Va. (CN) — A Fourth Circuit panel heard arguments Wednesday over whether a North Carolina-based charity can pay disabled workers participating in a government rehabilitation program less than minimum wage.
Gregory Armento, a homeless veteran, filed a lawsuit in the Western District of North Carolina in 2017 against Asheville Buncombe Community Christian Ministries (ABCCM), claiming that a homeless shelter run by the organization violated federal labor laws by forcing him to perform unpaid labor in exchange for room and board.
The non-profit organization, which is in charge of a program for homeless veterans at the Veterans Restoration Quarters (VRQ) in Asheville, provided housing for Armento from 2015-2017 through funds administered by the U.S. Department of Veterans Affairs.
Armento worked at the facility’s front desk during that time, but his attorneys say the organization only paid him for some of the hours he worked.
According to the organization, the unpaid hours were part of the program’s service hour requirement aimed at preparing homeless veterans for the job force by increasing their skills.
Armento’s attorneys, however, labeled the requirement “economic coercion,” claiming he feared being kicked out if he did not complete free service hours for the organization.
Judge Diana Motz, a Bill Clinton appointee, was joined on Wednesday’s Fourth Circuit panel by Henry Floyd, a George W. Bush appointee and Allison Rushing, a Donald Trump appointee.
The trio weighed arguments from both sides over whether Armento was an employee or a volunteer under the state’s Wage and Hour Act. Jonathan Dunlap, who represents the charity, said that the hours Armento worked were part of the government program.
“What makes it different from a traditional employment relationship? First, this is an artificial job market created specifically for participants of the work rehabilitation program or, in times of shortage, community volunteers,” he said.
Additionally, he said, “a difference between this job and a normal job” is that VRQ residents had the option to carry out their service hours by volunteering with another organization.
Dunlap asked the panel to uphold the district court’s ruling that favored the organization.
“The question we would submit is much broader than whether or not Mr. Armento was working as a volunteer, the question is whether or not he had an employer-employee relationship with ABCCM,” he said.
Central to ABCCM’s argument, he said, is Steelman v. Hirsch, a Fourth Circuit case which involved two romantic partners who operated a business together. The defendant in that case was the sole proprietor and the plaintiff worked full-time for the business.
When the relationship ended, Steelman sued, claiming that she was entitled to back pay under the Fair Labor Standards Act.
Dunlap argued that the district court properly applied Steelman v. Hirsch, which found that Steelman did not count as an employee, when ruling in his client’s favor.
Clermont Ripley of the North Carolina Justice Center, who represented Armento during arguments on Wednesday, told the panel the district court had used the wrong test when determining that Armento was not an employee.
Echoing a definition established by the Supreme Court in the 1985 case Tony & Susan Alamo Found. v. Secretary of Labor, Ripley said “a volunteer is an individual who, without promise or expectation of compensation but solely for his personal purpose or pleasure, works in activities carried on by other persons be it for their pleasure or profit.”
She and her co-counsel Carol Brooke argued that Armento’s unpaid work was conducted under the expectation of shelter, disqualifying him from the “volunteer” label.
“Once they’ve entered into this economic relationship with Mr. Armento, they have to comply with the rules and under Alamo Foundation. Mr. Armento was their employee,” Ripley told the panel.
When Judge Motz asked Dunlap how he would characterize Armento’s relationship to the organization, he responded, “I would characterize it as a work rehabilitation program, your honor.”
“Yeah, yeah, yeah, yeah, yeah, that’s not the answer to my question,” Motz interrupted, “You’re the employer, what’s the person on the other side if he’s not a volunteer, not an independent contractor?”
“He’s a participant in this program. He’s a voluntary participant in this program,” Dunlap said, adding that he does not need to specifically define the relationship.
“As long as the answer is that it is not the employer-employee relationship, then the act does not apply,” he said.
Ripley told the court that there is no exception from the Wage and Hour Act for work done for the purpose of rehabilitation.
“He could work for another organization,” Brooke said responding to a question from Judge Motz concerning the program’s option to volunteer elsewhere “but if he had done so, he would not have been in an employment relationship with ABCCM.”
“The fact is that he did work for them,” she argued, “and he worked to further the mission of the organization.”
Dunlap told the judges that applying the minimum wage protections of the North Carolina Wage and Hour Act to the program would “reverse incentives.”
“By paying participants to stay in these sheltered positions, participants are more likely to remain outside of the enfranchised workforce and be marginalized from the general public. This directly contradicts the larger goal of empowering homeless participants to become self-sustaining members,” he said.
He told the judges that if his client had to start paying people for this type of work, the organization would reduce the services it provides to the homeless veterans, including its shuttle service.
Additionally, Dunlap said, the organization would have to rely on the work of outside volunteers, creating a “surplus of idle time among the least employable residents of the VRQ.”
This idle time would exacerbate the mental health and substance abuse issues of the residents, he said.
“Trying to force this situation into the definition of employment under the North Carolina Wage and Hour Act is like trying to fit a square peg through a round hole. In other words, to say that the economic realities of this situation amounts to employment, is really to disregard reality to a great extent,” Dale Curriden, who also represented ABCCM on Wednesday, told the panel.
In her closing, Brooke noted that “Its admirable that ABCCM is a charitable organization that provides important services to the veteran community in Asheville, but what matters as a matter of economic reality is that Mr. Armento was their employee.”