Another Nonprofit Lawsuit Involving Unpaid Wages

April 16, 2017; Penn Record

The nonprofit therapy center Northern Children’s Services is under fire for allegedly failing to pay overtime wages to its hourly therapy staff. Tanea Pratt of Philadelphia, who has been working at the center for four years, filed the lawsuit on behalf of herself and other “similarly situated” colleagues. Unfortunately, it’s a story we’ve seen too frequently at NPQ. Last year, we featured an article in the face of the new proposed overtime rules —appropriately entitled “Is Exploiting Workers Key to Your Nonprofit Enterprise Model?”—that encouraged nonprofit leaders to really consider their treatment of employees.

Although the FLSA changes were blocked by a federal court, letting some nonprofit leaders across the country breathe a sigh of relief, the conversation must continue. The proposed overtime rules shone a spotlight on the pervasive issue of nonprofit organizations classifying staff as exempt, particularly direct service workers, and overworking and underpaying them. While the drive to serve as much as possible comes from a good place, the reality is that mistreatment of staff leads to high turnover and more time spent training new employees as opposed to focusing on programming that serves constituents. It can also lead to pricey lawsuits, as Northern Children’s Services is finding out now. In the end, it’s the beneficiaries of the nonprofit’s service that suffer the consequences.

Moreover, nonprofit operations that do not account appropriately for overtime needed to serve constituents leads to a decrease in funding and a perpetual cycle of underpaid staff—or, for Northern Children’s Services and other similar situations, possibly stiffing employees altogether. If a nonprofit is not considering overtime hours, even for salaried staff, the cost to the organization for the services it provides is grossly underestimated.

For instance, let’s say a therapist can serve 10 clients a week, but they are working 60 hours a week to do so. If the additional 20 overtime hours are not factored into the equation, it looks as if the nonprofit only needs funding for 40 hours of work to serve every 10 clients. That is, funding for one full-time staffer as opposed to also needing an additional half-time staff worker. When the time comes for the nonprofit to ask for more funding, the precedent is now set that in 40 hours, a therapist can serve 10 clients. The nonprofit’s hands are tied to only request that amount of funding in the future. Generally, small increases in funding require significant increases in deliverables to justify the money.

It’s possible that this is how some nonprofit organizations that now face unpaid wage lawsuits ended up no longer able to pay staff the amount they were owed. Miscalculations led to a budget that was inadequate to provide for staff salaries and benefits. Although there is currently not much activity regarding the overtime rule change, owing in part to a federal appeals court granting time for Trump administration officials at the U.S Department of Labor “adequate time to consider the issues,” nonprofit leaders should continue to evaluate their operations to avoid getting into a situation that could warrant a lawsuit.— Sheela Nimishakavi