On Monday, November 2nd, a three judge panel of the Court of Appeals for the D.C. Circuit heard oral arguments in Rhea Lana Riner’s case against the Department of Labor (DOL). This court proceeding was the latest step in Rhea Lana’s fight against an overreaching federal agency that seems to be increasingly hostile towards employers.
Mrs. Riner founded Rhea Lana’s, a franchised children’s consignment business, in 1997. The premise was simple—provide consignors with a profitable way to sell their items by getting personally involved in setting up and running the sales. Consignors who volunteer make sure the event is successful and also get to shop the sales early, ensuring access to the most popular items and sizes.
Mrs. Riner’s consignment events were such a success, in 2008, she decided to expand her business to give other moms the chance to run their own consignment sales. Franchising provided that opportunity to scale even further. Today, Rhea Lana’s has franchise consignment sales events in 22 states and more than 60 locations.
Her business was growing steadily until the Department of Labor took aim at Rhea Lana’s in 2013. Despite the fact that not one of her volunteers has ever filed a complaint against her, DOL found fault with Rhea Lana’s business model. DOL arbitrarily declared that Rhea Lana’s volunteers are employees under the Fair Labor Standards Act. If this ruling stands, Rhea Lana’s may be forced to pay her volunteers minimum wage and overtime, destroying her business model. Although DOL declined to issue a penalty, in a letter to Rhea Lana it threatened significant future civil monetary penalties if she does not comply. DOL even sent letters to all of Rhea Lana’s volunteers notifying them of their right to sue the company for back wages, liquidated damages, and attorneys’ fees. Not one of her volunteers has heeded DOL’s advice.
Perhaps the worst part is the DOL claims the letter is not a final agency action and is therefore not reviewable by a judge. Thus, Rhea Lana is faced with a Hobson’s choice; either continue running her businesses and face significant potential monetary penalties or cease operating as she has for years even though she has done nothing wrong.
Rather than roll over as many small business owners might when threatened with the formidable power of the federal government, Mrs. Riner is fighting back. She filed a lawsuit against DOL challenging its abusive ruling and demanding a judge review the facts of her case.
Rhea Lana’s is represented by a public interest law firm, Cause of Action, and their lawyer argued her case in the circuit court of appeals, but the IFA submitted an amicus brief in support of her position asserting that the DOL’s actions posed severe legal consequences and continued the Obama Administration’s pattern of arbitrary enforcement actions against franchise businesses. While it is always difficult to predict the outcome of a circuit court case based on the questions posed by the judges, all three judges asked tough questions of the government and reacted with deep skepticism to the DOL’s argument that its letter to Mrs. Riner threatening fines and penalties did not constitute a final agency action with potential legal consequences. The chief judge of the circuit said the letter could show Rhea Lana had received notice from the DOL of a violation, which would open the company up to the increased fines stemming for a violation that is “willful” or “repeated.” Another judge stated the longer statute of limitations for willful violations also carries legal consequences. Both judges noted opinions in other circuit courts that have found this type of letter could have legal consequences. The questions raised mirrored the arguments the IFA raised in its amicus brief and it appears to have informed the judges’ thinking.
Rhea Lana’s case is yet another example of the Department of Labor’s coordinated agenda against franchise small businesses and the hard working entrepreneurs who are innovating, giving back to their communities, and creating opportunities. The IFA will continue to assist franchisees and franchisors in any way it can in the fight against government overreach.
Date: 2015-11-10
