Today, Cause of Action presented oral argument before the U.S. Court of Appeals for the D.C. Circuit in the case of Rhea Lana, Inc. v. Department of Labor (Case No. 15-5014).
Rhea Lana is an organizer of children’s clothing consignment events; it was founded by a stay-at-home mother in Conway, Arkansas and has since expanded into a franchise with 80 locations in 24 states. In Rhea Lana’s business model – consistent with other businesses in the consignment industry – consignors provide items to be sold, and have the option of “volunteering” at the sales event. Participating in the sale in that way helps ensure that consigned items sell, and consignors who choose to do so have the opportunity to shop early in order to get the best deals. What Rhea Lana provides is the organization, branding, and technology to help consignors make their sales.
Notwithstanding the obvious benefits of this arrangement for all concerned, the Department of Labor sent Rhea Lana a letter determining that the model violates the Fair Labor Standards Act (FLSA): specifically, that the participating consignors are actually Rhea Lana employees entitled to minimum wage and overtime. Although the agency did not initiate an enforcement action, it encouraged Rhea Lana’s consignors to sue for back wages (none did) and threatened Rhea Lana with civil monetary penalties if Rhea Lana doesn’t conform to the agency’s views. Rhea Lana filed suit under the APA seeking injunctive and declaratory relief, but to make matters worse, the district court dismissed the complaint for lack of any reviewable “final agency action.”
On appeal, Cause of Action has argued that the Department of Labor’s decision is indeed final and reviewable. First, the agency’s decision changes Rhea Lana’s legal status. In order to extract civil monetary penalties from Rhea Lana in a future enforcement action, the agency must prove that Rhea Lana either (1) is a repeat FLSA offender, or (2) violated the statute willfully. See 29 CFR 578.3. Under the text of the agency’s regulations, notice from the agency has an important legal role in satisfying those requirements. Notice from the agency is an element of repeatedness, which the letter facially appears to satisfy. Furthermore, notice will allow the agency to argue that Rhea Lana acted willfully not just factually, but as a matter of law. By sending Rhea Lana a letter, the agency thus created legal liabilities that wouldn’t have existed otherwise – one of the hallmarks of reviewable agency action. See, e.g., Sackett v. EPA, 132 S. Ct. 1367 (2013). Second, as the Supreme Court also recently reaffirmed in Sackett, when an agency demands a party’s compliance, the party can go to court instead of waiting for the hammer of enforcement to drop.
We await the Court of Appeals’ decision. If we are successful, the case will return to the district court for consideration on the merits of Rhea Lana’s claim that the Fair Labor Standards Act allows businesses and individuals to collaborate for their mutual benefit.
