Non-Monetary Job Benefits Example

The other day I wrote about non-monetary job benefits.  Here is an example:

A small-time vintner's use of volunteer workers has put him out of business after the state squeezed him like a late-summer grape for $115,000 in fines -- and sent a chill through the wine industry.

The volunteers, some of them learning to make wine while helping out, were illegally unpaid laborers, and Westover Winery should have been paying them and paying worker taxes, the state Department of Industrial Relations said.

"I didn't know it was illegal to use volunteers at a winery; it's a common practice," said winery owner Bill Smyth.

State law prohibits for-profit businesses from using volunteers.

Before the fine, volunteer labor was common at wineries in the nearby Livermore Valley, said Fenestra Winery owner Lanny Replogle.

...

About half the people the state considered Westover employees were taking a free class at the Palomares Canyon Road winery. Students learned about growing vines, harvesting and blending grapes and marketing the finished product.

"This was an incredible opportunity for me," said Peter Goodwin, a home winemaker from Walnut Creek who said he dreams of opening a winery with some friends. "I got to learn from someone who knows the business."

The winery sometimes asked Goodwin if he wanted to assist in different tasks.

"That's what I wanted, to be as involved as much as possible -- it was all about learning," he said. "I don't understand the state's action. It was my time, and I volunteered."

I have mixed feelings on this.  On the one hand, this demonstrates the appalling violation of individual freedom that minimum wage laws create -- not just for the employer, but for the employee as well.  Minimum wage laws mean that you are not allowed to perform labor for less than that minimum, even if you choose to and get non-monetary benefits that you feel fully compensate you for the time.

On the other hand, you have to be particularly clueless, especially in California, to claim ignorance on this.  I work in an industry that 10 years ago routinely accepted volunteer labor (illegally) and I was never lulled by the "everyone else is doing it in the industry" excuse.  I will say that it is irritating to try to run a business in compliance with the law and to find yourself undercut by folks who are avoiding the more expensive parts of the law.  Years ago there used to be a couple of non-profits who competed against me running campgrounds.  They were really for profit - they just paid their president a large salary rather than dividends - but used the non-profit status** as a dodge to try to accept volunteer labor.  Eventually, they were stopped by several courts from doing so.

Yes, I know this is kind of odd.  You might ask yourself, why are there so many people willing to take their volunteer position when you are offering paid jobs?  It turns out here are a lot of non-monetary benefits to this job such that people will do it for free.  In fact, that huge fountain of hypocrisy that is the Federal Government exempts itself from paying minimum wage and accepts volunteers to run its campgrounds where I must pay them.

 

** the non-profit status helped them in one other way.  We take over operation of recreation areas under concession contract from the government.  Many government employees hate this sort of outsourcing partnership, and really find it - for the lack of a better word - dirty to sully themselves interacting with a profit-making entity.  The non-profit status helped my competitors seem friendlier -- ie less capitalistic -- than I.  California recently passed a law allowing lower cost third party operation of certain parks functions but only if this was performed by a non-profit.   I had a US Forest Service District Ranger in Kentucky tell me once that he was offended that I made money on public lands, providing services in the National Forest.  I answered, "Oh, and you work for free?"  I said that I did not know how much he made but I guessed $80-100 thousand a year.  I said that would be over double what my company made in profit in the same forest operating and paying for hundreds of camp sites.  Why was I dirty for making money in the Forest but he thought he as "clean"?

  • herdgadfly

    The non-profit dodge is alive and well and living in the larger healthcare facilities throughout the country . . . and then there are the professional sports leagues, MLB and NFL for sure. Want more? How about credit unions, farmers cooperatives and our big union buddies. And the beat goes on . . .

  • NL7

    He trusts himself to not be avaricious and thieving, so his salary is merely a modest way to sustain himself. But he doesn't understand the motives or thinking of people who would want to run a business.

    Of course, a non-profit is no different from a for-profit, except that it submits to more oversight and it's not allowed to make profit distributions beyond reasonable salaries (or engage in similar transactions that achieve the same effect). So they have salaries and expenses, they seek capital infusions and they make investments. Non-profit is not the same thing as charitable, nor is charitable terribly different from a for-profit business. The charity is selling the idea that you can make a difference with a donation.

  • Onlooker from Troy

    Because he's just another brain-washed, economically ignorant product of our public schools (most likely) who can't think. But you know that. :-)

  • Onlooker from Troy

    It's just another of the many ways the govt dispenses privileges to it's favored ones.

  • joe

    Your point on non-profits is on point. For many, if not most, non-profits they are in reality for profit enterprises operating under the tax code as enitities not subject to taxation on the net income (absent the tax on unrelated business income)
    A prime example is Planned Parenthood. The primary reason Planned fights for abortion rights so strongly is that segment of their business is the single biggest profit center (yes a non profit has profit centers)

  • Mike Powers

    On the one hand, he got a lot of labor for free. On the other hand, how much was that labor actually worth? Some kid who's never even seen a wine grape is not going to get a lot done.

  • joe

    At one point in time, non profit status was appropriate (sort of appropriate) for those entities, MLB, NFL, credit unions.
    Though each of those entities have morphed into mega businesses and those excemptions should be done away with. At least taxable on the unrelated business income which is the primary business.

  • pegr

    He wasn't using volunteer labor. He was teaching a class on wine making.

  • randian

    "Why was I dirty for making money in the Forest but he thought he as "clean"?"

    The same argument could be directed at people (especially doctors) who think transplant donors shouldn't be compensated.

  • Matthew Slyfield

    The justification used for prohibiting compensation for organ donors is not just that poor people might feel compelled to sell their organs, but that it would encourage organ theft (assaulting a third party to take their organs for sale).

    I'm not claiming that this is necessarily rational, but it's a bit more complicated than the situation in the OP.

  • randian

    Rational? It's rather irrational. You can steal now, though there is a notable lack of that happening. Why steal what you can buy? Also, how does a market for good organs create a market for stolen ones? I would assume you could only sell your own organs, so there would be no market for stolen ones.

  • KPP

    This. Create a syllabus, charge people $30, outline the requirements to receive some made-up certificate of completion and let the students go to town. Better yet, set up a non-profit and work with other vineyard owners to arrange educational excursions. "Learn the inner workings of a modern vineyard! Gain hands-on experience in the wine producing industry! Low tuition cost for our industry-approved certification program!"

  • John_Schilling

    Is there a reason the wineries don't just classify the jobs in question as "internships"? Because this seems to be almost exactly the sort of thing the unpaid-internship exemption to minimum-wage laws was intended for.

    OK, presumably there is paperwork that has to be filled out in advance and Westover didn't understand that so they are fined out of business. But it is suggested in the cited article that the Westover case has caused other wineries in the area to abandon a once-common practice, rather than just file the right papers. Two possibilities occur to me, but I don't know enough to make even an educated guess:

    1. The absence of a college or other formal educational institution to formally bless the activities as training/education makes this impractical, or

    2. Hands-on production of material, rather than intellectual, property for commercial sale is impractical to spin as "primarily beneficial to the intern, not the company".

    When I was co-running a company in California, we paid our interns minimum wage or a bit more (we rather explicitly wanted them to transition seamlessly to full-time employees when they graduated), so we never had to deal with this particular issue.

  • LoneSnark

    The black market price for organs is very high. The legal market price for organs in countries that allow such things are very low. A stolen organ sold on the black market sells for just as much as a donated one. A stolen organ is worthless on a legalized white market. By legalizing the white market for non-stolen organs, the black market of stolen organs will be obliterated by the low price of legal organs.

  • LoneSnark

    I don't believe there is an unpaid internship exemption available to for-profit businesses anymore.

  • Arrian

    Which is part of why he wasn't paying for it, and why he'll probably stop if he has to start paying for "labor." Teaching dabblers might not be profit maximizing, but sharing your passion is very likely utility maximizing.

  • NL7

    A business that relies on the interns for performing the bulk of operations and sales would probably find it difficult to argue that the internship program serves the interests of interns and not of the business. It's sort of a hazy area, but it's pretty clear that under federal rules (and generally under the states) interns are supposed to be engaged in learning the business (i.e. not just getting coffee and making copies) and are not supposed to be revenue supporting (i.e. they learn the business, they don't form its backbone). A state could allow this, but you'd still need to get around federal minimum wage law.

  • Not Sure

    "A business that relies on the interns for performing the bulk of operations and sales would probably find it difficult to argue that the internship program serves the interests of interns and not of the business."
    Not that difficult to argue, I'd think. If prospective interns don't think it serves their interests, they won't join the program, will they?

  • Mike Powers

    The problem is that there are huge thick books of regulations regarding "teaching a class", to the point where he'd have to charge a lot more than $30 to make it break even (not even worrying about making a profit).

  • NL7

    That's a logical and simple standard, but it's not the one the government applies. A program that serves both of them is just a job and a number of regulatory regimes will expect compensation, minimum wage, unemployment payments, withholding tax, etc. A program that benefits interns WITHOUT doing the main business of the company is going to fit within more of these regimes, and they are less likely to require wages and payments.

    I think you were eliding the second half of my sentence when you read it. If a business is relying on interns to do the bulk of its business, such as the main tasks of producing goods, delivering services, administering paperwork, or closing sales, then those will look like unpaid employees rather than interns in training. It's less like an internship if the intern is making coffee rather than learning about wineries. But to many regulatory systems, it's also less like an internship if the interns are doing things that are so valuable and important the winery can use interns rather than paid staff. Their vision is that interns benefit but the company does not benefit (or at least does not displace paid staff).

    The regulatory goal isn't justice or fairness for the parties involved in the exchange. It's to apply the rules as interpreted and to bolster the payments made to the state unemployment and withholding funds. Unpaid staff reduces paid employment and sidesteps those payments. They may also suspect that de jure interns are paid under the table as de facto employees. Note also that rules are written with at most three or four business models in mind (e.g. factory, agriculture, maybe office or retail) and don't necessarily accommodate the sharing economy, volunteerism or other niche models.

    Obviously these rules are unfair infringements on the choices we make, and the result is a weakening of civil society and the criminalization of human cooperation. But then the rules weren't built to give a damn about that.

  • John_Schilling

    Their belief that it will serve their interests, in advance of their joining the program, may be inaccurate. In particular, it may be based on the malicious lies of their would-be employer. So no, if you plan to go into court (or even just a discussion with a bureaucratic enforcer) with nothing but the "argument" that since they took the job it must have been a benevolent, educational internship, you will likely lose and you will deserve to lose.

    Nor does the argument get much stronger if you postdate it and say "they will quit, won't they"; by the time they are in a position to know any better, they will likely have incurred real costs in initiating the internship.

    There is a great deal of actual fraud associated with unpaid internships, against victims who are poorly equipped to defend themselves. While Westover Winery seems like a legitimate application of the concept, we are not likely to see lassiez-fair and caveat emptor be the guiding principles in whether employers can demand their workers forgo wages altogether.

  • Not Sure

    " it's also less like an internship if the interns are doing things that are so valuable and important the winery can use interns rather than paid staff."
    How important can these things really be, if people are willing to do them for no pay?

  • NL7

    So a business could offer you an arrangement but with the terms and conditions misleadingly biased? I'm not sure why that's not a risk for any exchange between people - including paid employment, altruistic volunteerism, charitable donations, capitalist investment, friendship, marriage, religion, hobbyist clubs, or anything else. People could also lie or massage the truth, or worsen conditions not explicitly covered by an earlier promise. With an unpaid internship, obviously you lose out on other opportunities if you quit - but that applies as well to a job that's worse than you expected.

    Generally, a person who is in a position to take a training job for zero compensation is probably less needing of intervention, not more.

  • Not Sure

    "Their belief that it will serve their interests, in advance of their joining the program, may be inaccurate."

    You're absolutely right. They might get even more benefit than they originally imagined. And they can quit if/when they conclude that they're getting less, So, where's the beef? I mean, aside from wanting to stick your nose into the affairs of people who are willingly associating in ways they believe to be beneficial to themselves?

  • Not Sure

    "So a business could offer you an arrangement but with the terms and conditions misleadingly biased?"

    Sure they could. Just as easily, a person could mislead a business regarding any number of things related to the arrangement in question.

    "I'm not sure why that's not a risk for any exchange between people - including paid employment, altruistic volunteerism, charitable donations, capitalist investment, friendship, marriage, religion, hobbyist clubs, or anything else."

    Of course it's a risk. Life is full of them, but assuming that everybody is out to screw you is a sad way to live your life, if you ask me.

  • me

    Pretty much any law that comes with provision about how it doesn't apply to certain classes of folks should raise some very red flags.

  • Mike Powers

    "How important can these things really be, if people are willing to do them for no pay?"

    Be aware that this reasoning can be used to justify banning unpaid internships. "If people are willing to do these things, then they should get paid for them!"

  • NL7

    I agree, my point is that life is full of risks. I'm not sure why somebody would think we need special policing for certain circumstances of one sort of risk, when there are an infinite number of slightly different circumstances that carry the same risk.

  • NL7

    Agreed, it's a dumb and unjust rule. People should be allowed to work for zero or negative wages. But the rules aren't really for the sake of the people doing the work, so the state does not allow those workers to waive these rules.

  • Not Sure

    "Be aware that this reasoning can be used to justify banning unpaid internships. "If people are willing to do these things, then they should get paid for them!""

    The White House offers unpaid internships. If government feels that not paying people for services rendered is wrong, perhaps they could arrange to get their own house in order before dictating to others on the subject, you think?

  • Eric Hammer

    Considering CA's budgets, the fact that wineries do not pay taxes for volunteer labor used probably has a lot to do with it. How many millions of dollars are not going to the state because workers are not being paid?

  • Robert.

    I wonder if he would have been OK if he required people to pay for the class and the experience?

  • perlhaqr

    I had a US Forest Service District Ranger in Kentucky tell me once that he was offended that I made money on public lands, providing services in the National Forest. I answered, "Oh, and you work for free?" I said that I did not know how much he made but I guessed $80-100 thousand a year. I said that would be over double what my company made in profit in the same forest operating and paying for hundreds of camp sites. Why was I dirty for making money in the Forest but he thought he as "clean"?

    Did he answer?