Hey Barter Barter: The Law Swings for Contractors

Employee vs. Contractor is a critical classification in California barter arrangements

By Judy Malmon, J.D. | Last updated on January 20, 2023

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The national yoga studio chain, CorePower Yoga, had a long-standing practice of providing membership to individuals who cleaned their studios, under their Yoga for Trade program. This arrangement appealed to those who weren’t in a position to cover the standard membership fee, which can run upwards of $150 per month. In 2013, the original program was phased out and replaced by one allocating an hourly wage to participants, then deducting the cost of a discounted membership to calculate a monthly paycheck. A participant in this program brought a class action lawsuit against the company, claiming that cleaners were required to purchase membership as a condition of their employment, and that the resulting net pay was less than the required minimum hourly wage. Walsh v. Core Power Yoga ended in a $1.65 million settlement, and illustrates that the case law on in-kind payment of employees can be a bit iffy. It gives rise to several questions regarding this type of barter, particularly under California law, which is more comprehensive than U.S. Government Federal wage laws.

What the Law Says

If you’re interested in a work-for-trade arrangement, the practice is legal, but there are a few things to keep in mind. If you barter services as an employee, Federal Government employment laws require compliance with wage and hour standards. Employers must keep strict records of all hours worked and payments made, providing itemized wage statements to employees. Under federal law, an employer may provide in-kind compensation that has equal value to the minimum wage per hour. However, under state government laws like California’s, there is no provision allowing for non-monetary hourly payment to employees. An important distinction lies in how workers are classified. The Fair Labor Standards Act applies to “employees,” and as such does not govern public sector independent contractor arrangements. To the extent that a barterer retains control of their schedule, location and other terms and conditions of work provided, they would not be an employee subject to wage and hour laws, but rather free to negotiate the terms of payment. If this is an in-kind exchange, the parties may so agree. Note that you may not, however, simply designate an employee as an independent contractor. This was one of the key issues in the CorePower lawsuit.

How to Comply

If you choose to go the barter route, cover your bases with a written agreement laying out the terms of the exchange and underscoring the independence of the contracting parties. Ensure that such independence is in fact the case. Make sure that all hours worked are provided an exchange whose value is equal to at least the minimum hourly wage. Finally, as a general rule, be sure that you are in compliance with tax laws related to in-kind payments and income. Ultimately, if you’re looking to barter your services, whether as an individual or on behalf of a business, consult with a law firm or knowledgeable employment law attorney. For additional information about this area, see our overview on labor law.

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