Failing Motel Turns Nonprofit and Stops Paying Workers

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November 23, 2010; Source: Times Free Press | The U.S. Department of Labor will investigate the Town and Country Inn and restaurant in Chattanooga, Tenn., after it received complaints from former workers that the organization laid off 14 workers who had been being paid minimum wage ($7.25/hour) and room and board. It then asked them to sign papers formalizing their transition from employee status to “residency volunteer status” with the newly formed Town and Country Foundation. The Motel apparently has organized a nonprofit foundation under which this program will be housed.

Town and Country co-owner David Bernstein says, “We’ve started a foundation and [the former employees have] been invited to be residents there. The understanding is that they would be given some chores to do.” He says that some of the former employees encouraged him to make the transition and that a few now sit on the board but he declined to reveal the name of the board chairman. He says this is a way to maintain the facility. “I was being hit with all kinds of taxes. The place wasn’t making enough to support the payroll. And the [homeless] folks who were there, I talked to them and they didn’t want it to shut down. They didn’t want to be put out . . . so after their consent, at least 90 percent of them were willing to work for the foundation in order to stay there, understanding that, if there was any money after paying the bills, that they would be offered grants.”

Allen McCallie, a corporate law attorney with Miller & Martin in Chattanooga says that the situation is likely to raise questions with the IRS as well as the Department of Labor. “To one day be a commercial restaurant and the next day say that you are a nonprofit providing room and board for homeless folks and nothing else changes, that’s a very difficult transition.” McCallie said that one question the IRS form asks is whether the new entity is the successor of an old entity and, if it is, the business must explain that.

This is a new one on us. One of the complainants calls it slave labor – any comments?—Ruth McCambridge

  • Jayne Cravens

    Let’s see the name of the board of the directors, the operating budget for the first year of operation as a nonprofit, the mission statement for the organization AND the mission statement for the volunteer program, and the program’s goals — until then, this is exploitation, not volunteerism.