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Rhea Lana Allowed to Challenge DOL’s Action that Its ‘Volunteers’ Are Employees

WASHINGTON – After a three-year legal battle with the Department of Labor, Rhea Lana Inc., a consignment store franchise, has received a favorable ruling from an appeals court allowing the franchisor to challenge the DOL's finding that the company's "volunteers" are employees who must be paid for their work.

The Labor Department's Wage and Hour Division issued Rhea Lana a letter in 2013 saying that it was violating the Fair Labor Standards Act because only nonprofits can have volunteers working in a business. While the DOL did not fine the company, it did issue it a warning that any "repeated or willful violations" would result in penalties "not to exceed $1,100 for each such violation." Court records state that the department's letter also cautioned that it was searching for people to make complaints against Rhea Lana stating, "Letters have been sent to the consignors/volunteers informing of their private right under the FLSA to bring an independent suit to recover any back wages due."

Arkansas-based Rhea Lana's, self-described as the "national premier children's consignment event venue," was founded by Rhea Lana Riner in 1997 with 11 consignors. As the business grew, the owner began franchising the concept in 2008. The company now has 80 locations in 25 states. Riner's goal was to give "moms a place to buy and sell gently loved children's clothing and toys." According to legal documents, Riner's business idea and organizing software allowed her to give other women the chance to run their own businesses organizing consignment sales. The franchisees organize sales events and give volunteer consignors a venue for buying and selling their used children's items. In exchange for helping run the shows, the volunteer consigners get early access to the sale and the chance to purchase popular items and sizes.

The International Franchise Association has been a big supporter of Rhea Lana's in its court battle against the Labor Department. Last October IFA filed an amicus curiae brief asserting that Rhea Lana Riner has been unfairly targeted, and the DOL's action also threatens other similarly situated businesses. The friend of the court brief explains that the case is important to IFA and its members because it raises issues regarding the Labor Department's "pattern and practice of avoiding enforcement mechanisms by issuing coercive administrative letters without due process of law." In this case, the association says the administrative letter, and another that was sent to consignor volunteers, threatens Rhea Lana's business and negated the company's ability to franchise its business model. IFA expressed that "all businesses are owed the due process guaranteed them by the United States Constitution, including protections provided through the Administrative Procedure Act."

IFA also chastises the DOL for "circumventing its authority by taking official actions outside its authority in transparent attempts to escape judicial review." And it expresses that the Labor Department's action reflects a political agenda targeting franchise businesses.

District of Columbia Circuit Court of Appeals overturned the lower court's decision that prevented Rhea Lana Inc. from challenging the department's action. IFA president and CEO Robert Cresanti announced on June 6, 2016, "Rhea Lana's case is yet another example of the Department of Labor's coordinated agenda against franchise small businesses and the hard working entrepreneurs who are innovating, giving back to their communities, creating opportunities." He then stated, "It was clear the DOL didn't want to give Rhea Lana the opportunity to challenge their actions, which meant she would be stuck in legal limbo," added Cresanti. "But rather than surrender, as many small-business owners might, when threatened with the formidable power of the federal government, Rhea Lana fought back, demanded a judge review the facts of her case, and won the first step in her fight to protect her business."  

The Washington Examiner reported last week that what is interesting about the case is that while the government has accused Rhea Lana of violating the Fair Labor Standards Act, it cannot point to anyone who has been damaged by the company's policies. Not even after the DOL reached out to people who had worked in the system. The article states that the Labor Department, under Secretary Tom Perez, has tried to reinterpret "old rules to expand its reach, an approach that allows it to bypass Congress. "The department has updated rules on overtime, investor legal advice and 'persuaders,' lawyers who advise management on union-related issues, all with the intent of removing who it saw as loopholes exploited by employers," the Examiner explained.

Alfred J. Lechner Jr., president of Cause of Action, a nonprofit law firm that is representing Rhea Lana said, "The outcome of this case will set an important precedent about the right to judicial review, the scope of the government's control over U.S. commerce and whether individuals are free to volunteer their time for their own benefit."

In closing, the Examiner said, "The Rhea Lana case represents the kind of gray-area practice that Labor Department lawyers have been keen to shut down: It is a for-profit company that relies on volunteers."

Rhea Lana Riner pleas for support

Rhea Lana Riner, founder/CEO of Rhea Lana's consignment franchise is now seeking support in fighting the Arkansas Department of Labor on webpage. She still needs 7,792 signatures to make the necessary 25,000. On the site she pleads, "Moms who want to sell their items and volunteer at consignment events are now facing potential Department of Labor regulations that make it almost impossible for the events to continue."

As history, Riner tells that in 2011 she worked with the Arkansas DOL, and that resulted in a consent agreement for her to continue operating in her home state. But she says, "That's not stopping the U.S. Department of Labor from hurting my business." The agency investigated her company and now says that the moms who help her set up and run the event must be her employees. "This would hurt moms since the cost of taxes and red tape would cut the mom's profits and event organizers would probably decline to hold consignment events any more out of fear of government intervention," Riner explains.

But she says what is worse is that "with this new Department of Labor classification, they could feasibly shut down the consignment event in your community this fall—just as parents are getting much needed clothes for the school year!" Riner said families across the nation depend on the children's consignment industry for quality clothing and other essentials in this very tough economy.

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