Hendren Plastics, DARP liable in suit involving minimum wage law, ruling shows

A federal judge recently ruled against two Benton County companies in a civil lawsuit that involved workers in a rehabilitation program who received free housing, food and personal necessities instead of a paycheck. Sen. Jim Hendren, R-Gravette, who is president pro tempore of the Senate, owns one of the companies named as a defendant in the class-action suit.

U.S. District Judge Timothy Brooks on Friday (Sept. 27) ruled in favor of the complainants in that they should be treated as employees under the law and receive minimum wage and overtime pay. The amount in damages has yet to be set, but Little Rock attorney Timothy Steadman, who represents the complainants, said it’s expected to be about $1.2 million.

Brooks also denied the defendants’ motion for summary judgment. The defendants are DARP Inc., a drug and alcohol recovery center in Decatur, and Gravette-based plastics manufacturer Hendren Plastics Inc., which Hendren owns.

Mark Fochtman and Shane O’Neal initially filed suit Oct. 23, 2017, in Benton County Circuit Court. The case was moved Nov. 6, 2017, to U.S. District Court, Western District of Arkansas, in Fayetteville. It became a class action lawsuit Jan. 31, 2019, and the class includes about 180 people who were in a DARP program and worked for Hendren Plastics between Oct. 23, 2014, and October or November 2017, when Hendren Plastics stopped using workers in the program, Steadman said.

DARP gave the workers housing, food and necessities such as toothbrushes and razors, and Hendren Plastics paid DARP based on the number of hours they worked, court documents show. The defendants argued the complainants were not employees under the Arkansas Minimum Wage Act. Hendren Plastics noted that if they were deemed employees under the law, they agreed to give their wages to DARP or for it to withhold their pay based on court orders from Arkansas drug courts.

In his ruling, the judge said the workers were not paid directly for their work, and the defendants didn’t think the workers weren’t entitled to receive any pay. The defendants said the workers in the DARP program were told they would not be paid when they entered the program and that they all signed documents showing they were not employees and voluntarily gave up their employee rights.

The judge cited the Supreme Court case Tony and Susan Alamo Foundation v. Secretary of Labor, regarding workers who considered themselves volunteers but received food, shelter, clothing, transportation and medical benefits. While they might not have been paid, the workers expected to receive the previous benefits. Workers who expected such benefits would be considered an employee under the law.

Those who were in the DARP program and worked at Hendren Plastics received room, board and other necessities, according to the ruling. The agreement those in the program signed shows the pay they would have received for their work at Hendren Plastics would go toward the services they received in the program.

The judge said the complainants didn’t receive cash as compensation for their work but “wages in another form.” This included a bed in which to sleep, the opportunity to participate in drug rehabilitation meetings, transportation to and from Hendren Plastics, meals and necessities such as toothpaste, shampoo, toothbrushes and razors.

“The class members in this case were employees,” the judge said. “They were therefore entitled to receive minimum wage and overtime compensation due to the economic reality of their situation and the level of control DARP and Hendren had over their work.”

DARP and Hendren Plastics had agreed to a fixed rate of pay for the work the complainants completed. DARP is an employer based on the law, and Hendren Plastics is a joint employer by definition, according to the ruling. “The companies agreed to share the workers’ services to their mutual benefit,” the judge said. “They also shared control over the workers’ daily duties, since DARP assigned them to work certain shifts at Hendren, and Hendren provided all tools, supplies and training to the workers. Finally, the companies shared the ability to hire and fire DARP’s residents.”

Hendren Plastics claimed it was not involved in a “scheme to obtain low-cost labor for an indefinite period in an effort to obtain a competitive advantage…The evidence proves otherwise.” The agreement between DARP and Hendren Plastics shows the company paid those in the DARP program less than the company’s entry-level employees and “significantly less” than workers from temporary agencies. The company paid DARP $9.20 per hour for the work the complainants completed. Hendren Plastics employees received $10 per hour for the same work, and workers with a temporary agency received $13.70 hourly. Hendren Plastics also benefited from those in the DARP program by not having to pay Social Security taxes, Medicare taxes and federal and state unemployment insurance and worker’s compensation insurance, according to the ruling.

Workers who entered the program had to sign admission forms showing that they wouldn’t be paid but would receive benefits for their work, according to the ruling. The workers also were required to sign a form that they weren’t employees under the law.

“On top of all that, DARP held all the power in the employment relationship — even more so than in the average employment situation — because these particular workers faced a return to drug court and possible imprisonment if they failed to comply with DARP’s work requirements,” the judge said. “Finally, the undisputed facts reveal that DARP’s power was jointly held with Hendren, as Hendren also held the keys to the prison cell, so to speak, through its ability to notify DARP whenever a worker performed unsatisfactorily and would not be permitted to return to work.”

Those in the DARP program were charged with felony drug crimes but had yet to be convicted on those crimes, the ruling shows. As a result, they should receive their rights under the law.

“Obviously, being subject to the jurisdiction of the state drug courts is not the same as being in prison,” the judge said. “The court also observes that the defendants were not operating as charities. They were businesses that manipulated the labor market and skirted compliance with the labor laws for their own private ends.” The businesses are liable for failing to provide minimum wage and overtime pay to the complainants, the ruling shows.

The judge deferred ruling on how much the defendants owe to the complainants. An issue with determining the amount relates to the value that DARP can claim with regard to the benefits and services it provided to the workers. State law allowed for a cap of 30 cents per hour that can be claimed against wages for providing benefits and services. The judge ordered the complainants to file a response by Oct. 4 on whether the value of the benefits and services DARP provided qualified for the full 30-cents-per-hour credit against the wages owed or if it should be less than that amount. Steadman expects the value of the benefits to be about $45,000, and the complainants are expected to concede to the 30-cents-per-hour credit.

Also, the judge ordered the complainants to explain whether stipends for completing the DARP program should be deducted from the damages owed to the complainants.

Hendren provided the following statement about the judge’s ruling:

“We are very disappointed with the judge’s ruling. It is especially shocking that he would not even allow us an opportunity to present our case to a jury. We will be appealing this decision not only because our attorneys have told us it is clear that it conflicts with the law and with numerous precedents across the country, but also because I continue to believe that rehabilitation and recovery efforts are preferable to filling our prisons with nonviolent drug and alcohol offenders. Rather than obtaining help recovering from addictions as well as workforce training and employment opportunities, this ruling will ensure offenders will fill our already full prisons and jails where they will be far more likely to become career criminals. I do not regret trying to help when asked by Arkansas Drug Courts to assist people wanting to turn their lives around. It is an undisputed fact that Hendren Plastics paid more than minimum wage for every hour worked. I do regret that our justice system has been so abused. However, we are confident justice will prevail in the end.”

Following is a statement from Steadman on the ruling:

“We are incredibly gratified with Judge Brooks’ decision in this important case. Although Arkansas drug courts are an important tool to help vulnerable Arkansans who are battling addiction, it is important to note that DARP admits it did not provide drug and alcohol treatment, and it was not licensed to provide any such treatment. The Arkansas Minimum Wage Act exists to protect Arkansas’s citizens and prevent unfair competition among businesses. Participants in drug court should not be turned into an unpaid labor source for ‘unashamedly for-profit’ manufacturers like Hendren Plastics. We look forward to continuing to fight to make sure that justice is done for our clients and the class members.”