Rhea Lana Finds Silver Linings in Changes

Rhea Lana Finds Silver Linings in Changes
By Christmastime in 2019, Rhea Lana Riner, here at her home in Conway, had proven that a new business plan forced by a federal appeals court ruling would work. (Karen E. Segrave)

Rhea Lana Riner would like you to know this: Her company is surviving and even thriving despite a painful loss in a long-running wage-and-hour dispute that forced fundamental changes in the business plan she developed and sells to franchisees.

And she doesn’t regret fighting the U.S. Department of Labor even as she has begun to appreciate some advantages of hiring employees rather than relying on “volunteers” for her signature children’s consignment sales.

The losers, Riner said in a recent interview at her Conway home, are consignors who now must pay a larger commission to Rhea Lana franchisees and the mothers who gladly spent a few hours helping set up and staff the consignment sales in exchange for first dibs on bargain-priced secondhand clothing, toys and baby gear.

“No one had ever complained,” Riner said, underscoring the most frustrating part of the exhausting eight-year odyssey through state and federal labor regulations.

Ultimately, the U.S. Court of Appeals for the District of Columbia determined that Riner and her franchisees must pay minimum wage to anyone working for their for-profit companies because they did not meet the legal definition of volunteers.

Ironically, the test for whether a laborer can be considered a volunteer grew out of another Arkansas case in which the mistreatment of workers was clear-cut: Tony & Susan Alamo Foundation v. Secretary of Labor. In 1985, the U.S. Supreme Court ruled that anyone who exchanges work for compensation by a business enterprise is subject to wage-and-hour laws, even if they considered themselves to be volunteers. That applied to the room and board that the Alamos provided to members of their religious cult in exchange for work in their for-profit businesses, the Supreme Court said. And the D.C. Court of Appeals applied it to the early shopping opportunity that induced women (almost exclusively) to work at Rhea Lana sales.

After the Appeals Court ruling in June, Riner scrambled to bring her business plan and her scores of franchisees into compliance in time for the fall 2019 sale season. Riner continues to operate two sales a year in Conway and Little Rock, and she called the first sales using only paid employees the most successful events in her business’ 22-year history.

Volunteers or Employees?

Riner conducted her first consignment sale in Conway in 1997. She was a stay-at-home mother, and her husband, Dave, had taken a voluntary pay cut when he decided to leave a corporate job to work in a nonprofit ministry. Riner persuaded 11 friends to consign children’s items for her first sale, which she saw as more ministry than business opportunity.

From the beginning, 70% of the sale price of every item went back to the consignor, allowing families to realize residual value from merchandise they already owned. But Dave Riner had an idea for streamlining the laborious process of pricing merchandise and tracking sales. Before his wife’s second sale, he used his computer skills to create simple bar coding software that would apply the purchase price of each item to the consignor’s account and calculate the commission Rhea Lana would collect.

A business, originally called Children’s Clothing Exchange, was born. As the number of consignors, the volume of merchandise and the crowds of eager shoppers grew, so did the labor needed to set up and staff each sale. Like other consignment sale operators, Riner recruited helpers who would commit to up to four shifts of five hours each in exchange for the opportunity to shop before the sale opened to the public. They were scheduled and supervised by paid employees, and Rhea Lana Inc. called them “the lifeblood of their sales events,” according to the Court of Appeals.

And so it continued until 2011. During that time, Riner experimented with franchising and incorporated a separate company, Rhea Lana’s Franchise Systems Inc., to sell the franchise rights to her name, software and business plan in specific territories.

Riner isn’t positive how her use of unpaid helpers came to the attention of the Arkansas Department of Labor, but she suspects it was from a flyer shared by email or social media in advance of a sale. She knows there was never a complaint filed by anyone who traded labor for the opportunity to shop early.

In 2011, she entered into a consent agreement with the state in which she agreed that only consignors — that is, people who would be getting a check at the end of a sale — could also sign up to work in exchange for early shopping privileges. Since hardly any non-consignors worked at her sales anyway, this was an easy fix.

Unfortunately, the federal DOL didn’t share the state’s satisfaction with the consent agreement. In 2013, the feds determined that workers at the sales should properly be categorized as employees under the Fair Labor Standards Act, meaning they had to be paid minimum wage or more. Only two categories of workers are exempt from the FLSA, volunteers and independent contractors, and the USDOL determined that the workers at Rhea Lana sales were neither.

Arkansas Business asked the USDOL whether the investigation of Rhea Lana’s was initiated as a result of a complaint, but Edwin Nieves, a public affairs officer, said he couldn’t answer that question. “While the [Wage & Hour Division] does not typically disclose the reason for an investigation, many investigations are initiated by complaints. All complaints are confidential. The name of the worker who lodges a complaint, the nature of the complaint, and even the existence of a complaint may not be disclosed,” Nieves said in an email.

Rhea Lana Inc. took the USDOL to court on the grounds that the determination was arbitrary and capricious, arguing that its unpaid helpers were in fact volunteers. Rhea Lana’s case was complicated by questions of whether the USDOL’s decision was final and therefore subject to review by a federal court and whether explanatory documentation that the DOL prepared after the lawsuit was filed could be considered as evidence.

During the five-year odyssey in federal court, members of Arkansas’ congressional delegation tried to help Rhea Lana. U.S. Sens. John Boozman and Tom Cotton and U.S. Rep. French Hill introduced the Children’s Consignment Event Recognition Act of 2017, which would have exempted volunteers at children’s consignment events from the Fair Labor Standards Act. It went nowhere.

In the end, both the district court and the Court of Appeals took the USDOL’s side: The regulators properly applied the Alamo decision and the documentation from the USDOL was properly considered. “The Department’s determination that Rhea Lana’s workers are employees rather than volunteers therefore was not arbitrary or capricious,” Judge Sri Srinivasan wrote in the opinion.

In a concurring opinion, Judge Gregory G. Katsas suggested that Rhea Lana Inc. may have made the wrong argument. “In an appropriate case, I would be open to the argument that workers like Rhea Lana’s are not employees for a different reason: because they are independent contractors. ... Nevertheless, Rhea Lana failed to argue that their workers are independent contractors, so I agree that we must affirm.”

Riner said she appreciated Katsas’ encouraging words, “but that’s a fight for another day.”

Standing Ovation

The bad news came in June, during Rhea Lana’s annual conference for franchisees. “It really felt like we got the worst news at the worst time,” Riner said. And it was the result that she had feared most — less for her well-established sales events than for her franchisees.

She and her lawyers had worried that franchisees — who had, after all, paid for the rights to a time-tested business plan — would sue if it turned out that the business plan was illegal. “I had been just terrified that if that happened, it would kill us,” she said.

But the opposite happened.

After she broke the news to gathered franchisees, “one by one they stood up and gave me a standing ovation.” Riner said she had never cried in front of her business partners before, but she did that day.

The number of Rhea Lana’s franchisees reached 100 in 2019, a new milestone. With their input, Rhea Lana’s flipped its business model in time for back-to-school sales staffed by paid employees by the end of July.

The revenue to pay the workers comes from two additional revenue streams: First, the commission that Rhea Lana Inc. and the franchisees keep from each item sold was raised from 30% to 35% — “and we’ve grieved it,” Riner said. Second, they now sell tickets for early shopping to the public; admission is still free after the ticketed early-shopping events.

Rhea Lana Inc. and Rhea Lana’s Franchise Systems Inc. have four full-time, year-round employees and about 30 employees who do seasonal work as part of the administrative team. Riner hired about 150 people to work specifically at the fall sales in Conway and Little Rock — the work formerly performed by consignors who wanted to shop early — and paid them minimum wage.

Unlike the unpaid moms, who could work as few as five hours, the new employees had to work at least eight hours during the weeklong sales. And Riner discovered the first of several silver linings: “I was surprised by just how grateful people were to get jobs,” she said. “I didn’t realize how much I would enjoy blessing people with jobs.”

Rhea Lana’s has created training plans for the employees that franchisees must now find and hire, and there is another advantage to that involuntary change: “Now my expectations are higher because I am more responsible,” Riner said. With trained employees at sales across the country, “we think we can run better businesses,” she said.

She also discovered a new camaraderie and a new maturity in her company. “We’ve been through a war together. Our relationships are deeper. There’s more trust and more capacity.”

And because of all that, Riner said, “I don’t regret the fight. I think it was a fight worth fighting … but now we are going to get to a better place.”

When Your Name Is on The Business

When Rhea Lana Riner conducted her first consignment sales in Conway more than 20 years ago, her business had a descriptive but unmemorable name: Children’s Clothing Exchange.

Her husband, who designed the bar code software that set her company apart from other consignment operators, suggested that she put her name on it: Rhea Lana, pronounced REE-uh LAH-nuh.

Now her distinctive name is on her own consignment business, Rhea Lana Inc., and on a business that sold its 100th franchise last year, Rhea Lana’s Franchise Systems Inc. And it is on a federal court case that forced Riner to reimagine her business plan.

“I never expected it to become a national brand,” she said in a recent interview. “Sometimes it is hard, because I don’t have as much privacy. But because it is my name, I care a lot.”