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Labor for Lodging – Can They be Exchanged?

Apr. 2019

O’Brien v. The Travelers Inn, LLC, Cir. Ct. No. 2018SC182

Appeal No. 2018AP1483 – Decision Dated March 21, 2019

Background:  O’Brien was an employee of Travelers Inn (Travelers) from July 1, 2016 through August 10, 2016.  She worked 54.5 hours during that period and received free lodging in lieu of a monetary wage.  The lodging was valued at $500.00 per month.  O’Brien filed a wage claim against Travelers Inn, alleging they failed to pay her the minimum wage of $7.25 per hour.  Because the lodging provided was valued at $500.00 per month, the circuit court prorated that over the period worked, finding the value of the lodging to be $662.00.  Therefore, Travelers “paid” O’Brien the equivalent of $12.17 per hour for her 54.5 hours of work. The circuit court concluded that Travelers paid more than the required minimum wage and dismissed the claim.  The applicant appealed the circuit court decision.

The Court of Appeals (CoA) determined that, to resolve this dispute, the Wisconsin and federal minimum wage statutes, along with applicable Wisconsin and federal administrative regulations, needed to be interpreted and applied to undisputed facts.

Wisconsin law states that every wage paid by an employer … shall be not less than the applicable minimum wage established under Wis. Stat. § 104.035.  Additionally, Wis. Stat. § 104.02 states that failure to pay, offering to pay, or agreeing to pay an employee lower or less in value than the applicable minimum wage is a violation of the statute.  The minimum wage for this matter is undisputed at $7.25 per hour.  Further, Wisconsin law specifically addresses lodging in exchange for labor in Wis. Stat. § 104.03 5(1)(b)1, which says if an employer furnishes an employee with lodging, the employer can deduct up to $58 per week or $8.30 per day.  Therefore, Travelers owed O’Brien a minimum wage of $395.13 and was able to deduct a maximum of $331.50 from the wage owed.  Therefore, Travelers owed O’Brien an additional $63.63 [$395.13 – $331.50] in some form other than lodging (i.e., cash).

Because Travelers failed to meet this obligation, it violated Wisconsin law.  The CoA rejected Travelers Inn’s argument that the value of the lodging exceeded the applicable minimum wage, because the contention “sidesteps” the Wisconsin lodging deduction restrictions.  It also rejected their argument that O’Brien would be able to contract around the provisions for the same reason.  Travelers also argued that the Department of Workforce Development (DWD) provisions regarding the value of lodging as it applied to employer contributions to unemployment insurance (UI) demonstrated the value can exceed the amounts listed in Wis. Stat. § 104.03 5(1)(b)1.  The CoA rejected this argument as well, stating that those provisions did not apply outside the context of employer contributions to UI.

Federal law via the Fair Labor Standard Act (FLSA), together with the Department of Labor’s administrative regulations interpreting the FLSA, established the minimum wage under federal law.  This is equal to the minimum wage under Wisconsin law.  The FLSA also states that, if an employer furnishes lodging to an employee as part of wages owed, the wages are to include the reasonable cost of the lodging.  “Reasonable cost” cannot be more than the actual cost to the employer.  Importantly, to claim a lodging deduction, employers must satisfy various FLSA requirements that were established with the intent of prohibiting the use of such a payment to avoid the federal minimum wage law. These requirements include keeping records regarding the lodging deduction;  therefore, employers cannot claim a lodging deduction if they did not comply with the record-keeping requirement (Travelers did not).

Conclusion:  Travelers failed to satisfy its obligation to pay O’Brien the minimum wage under both Wisconsin and Federal laws.

What does this mean?  To claim a lodging deduction, Wisconsin employers must comply with both federal and state minimum wage and record-keeping requirements.  Further, if labor is exchanged for lodging, the value of that exchange is capped and additional wages beyond that cap are owed to any employee working in that capacity.  Employees also cannot enter into contracts that seek to circumvent minimum wage requirements.

What is the Practical Takeaway?  As an employer, if you wish to enter into this type of an arrangement with an employee, make sure you keep adequate records detailing the amount deducted for lodging and review your payment policies to ensure compliance with the applicable state and federal regulations.  If you have any questions about compliance or how the regulations apply to your business, contact our office to discuss.