With the dramatic national increase in the filing and prosecution of overtime claims under the Fair Labor Standards Act (FLSA), the protections afforded to non-profit entities are being tested.
The FLSA provides for individual coverage and enterprise coverage. Generally, coverage of individuals under the FLSA is determined by the nature of the employee’s work. Employees engaged in commerce or the production of goods for commerce are considered covered. “Commerce” includes transportation, transmission or communication among several states or between any state and any entity outside of the state. For an employee to be covered as an individual, he or she must engage in interstate commerce on a regular and recurring basis. (Thorne v. All Restoration Services, Inc.) For enterprise coverage to attach, two or more employees must be performing related activities for a common business purpose in interstate or foreign commerce. The threshold level of FLSA coverage is gross revenue of $500,000 on a 12-month basis. Courts have held that non-profit entities are not subject to enterprise coverage because the services they provide do not constitute “commerce.” In the pivotal case on the issue, the 2nd Circuit found that former employees of a non-profit organization providing foster care, adoption and family services and related programs to children were properly denied overtime. Jacobs v. New York Foundling Hospital. The court relied on the fact that non-profit organizations generally do not engage in ordinary commercial activities or serve the general public in competition with ordinary commercial enterprises. Further, as non-profits do not operate with a business purpose, they are therefore not enterprises subject to the FLSA’s overtime provisions.