Jan 18, 2008

Labor Audit a Nightmare Scenario for Farm Market

Abigail Jacobson didn’t want to spread doom and gloom, but she had a story to tell about Friday the 13th that would scare the pants off any farm marketer.

Jacobson’s business, Westview Orchards & Cider Mill in Romeo, Mich., was audited by the U.S. Department of Labor last July 13 – a Friday. The circumstances couldn’t have been much worse: An unannounced inspection in the middle of harvest. Needless to say, Jacobson, her family and her employees were unprepared for the ordeal they were about to go through.

And the scariest thing? Such a nightmare scenario could happen to any farm market at any time – so they’d better be prepared.

Jacobson conveyed that message in December, during a farm marketing session at the Great Lakes Fruit, Vegetable and Farm Market EXPO in Grand Rapids, Mich. She shared the podium with Craig Anderson, manager of Michigan Farm Bureau’s Risk Management Services. Anderson gave the audience some perspective on the federal labor department and how it operates.

Westview Orchards sits on 188 acres in Macomb County, about 25 miles north of Detroit. It grows and sells apples, peaches, pears, cherries, pumpkins, squash and other crops. Most of the produce is sold through the on-farm market or u-pick orchards. Agritourism activities cover 15 acres and include the cider mill, a bakery, a 6-acre corn maze, straw mountains and hay rides. For more information about the farm, visit www.westvieworchards.com.

Friday the 13th

It’s a typical July day at Westview Orchards. Fruit is being harvested. Suddenly, without warning, two auditors from the U.S. Department of Labor show up. One of them speaks English and the other speaks Spanish. They question Jacobson about her farm operation for two hours (they previously had visited the farm’s Web site). They inspect all the buildings and migrant housing. They interview six to eight migrant employees in Spanish – confidentially. They take lots of notes.

“In many cases, the department of labor can be pretty aggressive with your employees,” Anderson said.

Two or three weeks later, the English-speaking auditor returns to the farm to review employment records from 2005, 2006 and 2007. Jacobson has to provide a copy of every employee’s I-9 form and every minor’s work permit. She has to supply original punch cards and payroll stubs for each employee (they employ 125 people seasonally) from a two-month period in each of the three years. She has to give income records for each farm enterprise, including the cider mill, bakery, admissions area and farm market. A record of the amount of produce the farm has purchased from other sources – and when it was purchased – also is required.

Using information from the payroll records, the auditor conducts phone interviews with local employees. Apparently baffled by something as “unique” as an agritourism destination, the auditor even consults with an expert in Washington, D.C., according to Jacobson.

Exempt or non-exempt?

That “unique” label is a misnomer. Farm markets have been around for decades (Jacobson’s grandfather built Westview’s market in the 1920s), but the federal government doesn’t seem to have noticed.

“Agriculture is our main occupation,” Jacobson said. “We do agritourism to bring customers to our farm. It’s ancillary to our growing.”

The U.S. Department of Labor doesn’t see it that way.

Federal law defines the word “agriculture” in many ways, but none of those definitions include the sale of agricultural products. That’s where farm marketers run into a brick wall with the labor department, Anderson said.

“Our argument is that selling your product is farming, but the department of labor doesn’t accept that,” he said.

The department defines employees at a farm market like Westview Orchards as either “agricultural” or “non-agricultural.” Federal law exempts agricultural workers from overtime pay, but doesn’t exempt non-agricultural workers.

So, if some areas of your business are considered agricultural and other areas considered non-agricultural, the status of your employees can get complicated. Just ask Jacobson.

The labor department made several verbal determinations about her business: On-site employees at the retail segments – like the farm market, cider mill and bakery – are not exempt from overtime pay. Workers who handle agricultural products grown on the farm – jobs like picking and grading – are exempt.

The problem is, Jacobson has several “crossover” employees who do both exempt and non-exempt jobs. They might work on the grading line during the week (agricultural), but help to sugar donuts on the weekend (non-agricultural). If they spend even 15 minutes per week sugaring donuts and the rest of the week grading fruit, they are not exempt from overtime pay, she said.

“Even if they work one hour in the market and 60 hours on the farm, you have to pay them 21 hours of overtime,” Anderson said.

The lines between jobs at a business like Westview Orchards can get blurry. For example, what about the tractor drivers who take u-pickers out to the orchards? Is that considered farm work or retail work?

Buying produce from other sources leads to further complications. Any employees who touch off-farm produce are considered non-exempt, Jacobson said.

“That really impacted us.”

Westview’s migrant housing practices also were scrutinized. The farm provides free housing as part of a migrant laborer’s wages. The labor department determined that if that practice is to continue, Westview needs to make a clear contract with its employees indicating that rent and utilities are part of their wages, she said.

Jacobson said five other farms in Macomb County were audited along with Westview, but she couldn’t find a common thread between them. The other farms grow vegetables.

In the end, Westview paid several thousand dollars in back overtime wages to crossover employees.

“We will need to set up our farm differently,” Jacobson said. “I don’t know what that means, exactly. It may mean defining more jobs as non-exempt and limiting many jobs to 40 hours a week. In the past, our practice had been to let employees cross over and to use employees where we needed them.”

Many employees want to work as many hours as possible, she said.

What can you do?

Advocacy groups are the No. 1 cause of labor audits, which generally focus on employee safety, housing and wages, Anderson said.

The economic consequences of an audit can be costly. The primary penalty for a minor violation is $5,000. If the employer knowingly committed the violation, it’s $10,000. A willful major violation can garner a $70,000 penalty, he said.

Fighting the audit in court could be even more expensive. Not only would you have to pay thousands of dollars in legal fees; the labor department would really come after you, Anderson said.

So, what can you do? Lobby your congressmen to change federal labor laws regarding farm markets. Tell them selling your products should be considered “agricultural.” But it’s not going to be easy, according to Anderson.

“Both sides of the aisle believe we in agriculture are terrible about treating our employees.”