DoL vs Consignment Shop: Are Consignor-Volunteers Employees?

business_ethics_highlights_2This Wall Street Journal op-ed is an interesting illustration of the changing nature of employment and the disagreements emerging from the change. The writer is an entrepreneur who organizes consignment sales events for used baby clothes. Her business, Rhea Lana’s, collects a 30% commission on the sales of consigned clothing with consignors keeping 70% of sales. Consignors may volunteer to do set-up at the consignment sales, in return for which they collectively get a right of first refusal on consignment merchandise and, sometimes, preferential placement of their own consignment merchandise. The U.S. Department of Labor says these consignor-volunteers are employees of Rhea Lana’s and must be compensated in wages. That is, they are effectively like shelf-stockers at a clothing store. Rhea Lana’s says that the consignors are sellers and their voluntary labor enhances their (the consignors’) prospects of making sales. That is, they are effectively like eBay sellers who construct attractive listings and publicize links to their auctions or Buy-It-Nows. This op-ed and related news stories could be used to initiate an interesting discussion about the markers of employment (as against other commercial relationships) in the 21st Century. >>>

LINK: Franz Kafka in Footie Pajamas (by RHEA LANA RINER for Wall Street Journal)

For the last 34 months, I have found myself stuck between the Labor Department, which says [Rhea Lana’s] business model is illegal, and the federal courts, which refuse to clear the air.

Rhea Lana’s operations are similar to more than a thousand other consignment event businesses in the country. … Before a sale, consignors list their clothes and toys on our website, along with their asking prices. On the day of the event, they bring the items to the location and set them up for display. Consignors keep 70% of the proceeds.

But such mutually beneficial exchange is apparently a foreign concept to the federal government. In January 2013 the Labor Department audited our employment practices. Four months later the bureaucracy concluded that our volunteers are actually “employees.”

Three months later—and still before we had received written notice or had any official action taken against us—the department sent letters to our consignors and volunteers inviting them to sue us for back wages. Tellingly, not a single person did.

But the Labor Department would not be deterred. Later that month officials sent us a letter demanding that we begin paying our volunteers as employees. …

What do you think?

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