Some drug rehabilitation center patients sued for, get this, unpaid overtime. And they may win!

The Fair Labor Standards Act (FLSA) is the federal wage and hour law that protects all covered workers from substandard wages and oppressive working hours by requiring that employers pay employees minimum wage and overtime when they work more than 40 hours in a workweek.

Determining who counts as an employee is a fact-specific. The ultimate determination turns on the “economic reality” of the relationship between the parties involved.

Against that backdrop, let’s discuss this Fifth Circuit decision I read yesterday. The defendant is a nonprofit rehabilitation center assisting individuals with alcohol and drug addiction. At issue was an adult long-term inpatient treatment program (“the Program”) it ran, in which patients (a/k/a the plaintiffs) were assigned jobs and required to work.

Part of the Program was “vocational therapy,” which involved patients receiving work assignments at outside businesses. The patients were not paid for their work during the primary treatment phase. Instead, the defendant billed the outside businesses, including an overtime premium when patients worked more than 40 hours in week. The outside businesses then paid the defendant directly.

Additionally, the defendant determined patient assignments, and if an outside business wished to change the job duties of a patient, it needed the defendant’s permission. If a patient refused a work assignment, the defendant would discipline them, up to and including termination from the Program and removal from the facilities.

The patients who participated in the Program agreed to work for the outside businesses and receive in-kind benefits, such as housing, food, medical care, and clothing. However, the patients acknowledged that they wouldn’t get paid. This arrangement was designed to offset the cost of treatment services.

This is starting to sound to me a lot like an employer-employee relationship. But I don’t wear a robe and bang a gavel.

The Fifth Circuit Court of Appeals, however, does. And they agreed.

The appellate court stressed the district court’s finding that although the rehabilitation patients may have known they would not be paid money for their services, they understood they would receive in-kind benefits, effectively wages in another form. Thus, it agreed that the district court did not abuse its discretion in determining that the patients were “employees” under the FLSA because “they worked in expectation of compensation.”

The FLSA is a comprehensive wage-and-hour scheme with very few exceptions. Covered nonexempt workers are entitled to minimum wage and overtime when they work more than 40 hours.

Even those whom you’d least expect.