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.

By extension, non-profit employees who have attempted to assert individual coverage have also been denied overtime by courts based on the commerce issue. In Thorne, an employee asserted that he regularly used the defendant charity’s credit cards in the course of his employment. The court found that even if credit card transactions constituted interstate commerce, the employee could not establish that he corresponded with merchants outside the state of Florida using the mail, phone or fax, nor did he prove that he made purchases from out-of-state vendors.

Although the above cases and statutory provisions would imply that non-profits have a blanket exception to the FLSA’s overtime provisions, issues arise when non-profits engage in certain activities. For example, one charity entered into an informal joint venture with a local car dealership in order to participate in a fundraising program. The program tied funds to the charity to the number of vehicles sold in a particular month. The establishment of a joint venture resulted in an increased profit to the dealership. These actions resulted in overtime owed to the non-profit’s employees who participated in the program.

Additionally, the sale of items over the internet to support a charity also could give rise to a claim. For example, many non-profits sell T-shirts and related items to support their activities. Although in general it is not the non-profit’s business to sell shirts or other items, many FLSA plaintiff’s attorneys are raising claims for coverage in such cases.

The goal for non-profits seeking exemption from the FLSA’s overtime provisions is to maintain their role as a true charity or non-profit. Ancillary or unrelated commerce activities, although not substantial, could inadvertently give rise to coverage where it would not otherwise