What Nonprofit Employers Owe Their Employees Under Federal and State Law
In 1938, Congress passed the Fair Labor Standards Act, the first Federal law to set a national minimum wage, establish the 40-hour workweek, and restrict child labor. At the time, many employers assumed the law was aimed at the factories and mills driving the industrial economy. They were only partly right. The FLSA applied to anyone paying wages, including the growing number of nonprofits, hospitals, and universities delivering services the government had neither the capacity nor the appetite to provide.
Nearly ninety years later, the same assumption persists: employment law is a concern for corporations, not causes. For executive directors managing lean staffs in service of a mission, the legal architecture governing the employment relationship can feel remote, but liability may be lurking.
The Framework
Employment law in the United States operates on three levels: Federal, state, and local. Each layer adds obligations, and they do not always align. Federal law establishes a floor by prohibiting discrimination on the basis of race, sex, religion, national origin, age, and disability; guaranteeing unpaid family and medical leave for eligible employees; and setting minimum wage and overtime standards. State and local laws frequently go further, covering smaller employers, adding protected classes, mandating paid leave, and imposing notice requirements that Federal law does not.
For nonprofits operating in Massachusetts and DC, the picture is particularly detailed. Massachusetts prohibits employment discrimination against employers with six or more employees — well below the Federal threshold of fifteen. The DC Human Rights Act is among the broadest in the country, extending protections to cover, among other things, political affiliation and personal appearance. The Massachusetts Paid Family and Medical Leave law imposes both employer and employee contributions and requires careful coordination with Federal FMLA when both apply. As we've discussed in prior editions, the choice of where and how to organize your nonprofit has downstream consequences, and the breadth of applicable employment law is one of them.
Where Nonprofits Run Into Trouble
The issues that surface most often are not the dramatic ones. They are the quiet, structural gaps that accumulate until something goes wrong:
Worker classification. The temptation to engage workers as independent contractors, whether for budget reasons or administrative simplicity, is understandable. But the test for contractor status focuses on the economic reality of the relationship, not the label in the agreement. Misclassification triggers liability for unpaid wages, taxes, and benefits, often retroactively.
Unpaid internships. The legal standard for an unpaid internship is narrower than most organizations realize. If the work primarily benefits the organization rather than the intern's training, the arrangement likely requires compensation, mission notwithstanding (we’ll address volunteers in the next edition).
Leave administration. Federal FMLA, Massachusetts PFML, DC's various leave laws, and an organization's own PTO policies must be administered in coordination. The interactions between them are technical, and errors are common.
Documentation. Employment disputes, whether resolved informally or in litigation, turn on records. Performance reviews, disciplinary conversations, and the reasoning behind personnel decisions should be documented consistently, not just when termination is on the horizon.
The Deeper Point
As we've explored in earlier editions, nonprofits exist because citizens recognized that neither government nor the market could meet every public need. But stepping into that role comes with obligations to the people doing the serving, in addition to the organizations serving the community.
Executive directors are the stewards of both. Employment law is not a distraction from the mission. It is part of the infrastructure that makes the mission sustainable. Organizations that treat legal compliance as an afterthought tend to discover its importance at the worst possible moment — when a dispute, a claim, or a regulatory inquiry forces the issue.
The good news: most employment law risk is manageable with clear policies, consistent practices, and counsel engaged early rather than reactively.
This article is for general informational purposes only and does not constitute legal advice. Reading this article does not create an attorney-client relationship. For advice specific to your organization's situation, contact Commonlight Legal LLP.