Addressing for the first time the employment status of interns and vocational students under the FLSA, the Ninth Circuit has adopted the Second Circuit’s “primary beneficiary” analysis and eschewed the DOL’s standard for determining whether student trainees are in fact covered employees, concluding that “the primary beneficiary test best captures the Supreme Court’s economic realities test in the student/employee context and that it is therefore the most appropriate test for deciding whether students should be regarded as employees under the FLSA.” Applying this approach, the appeals court held that cosmetology and hair design students at beauty schools in California and Nevada were not statutory employees. Nor were they employees under California or Nevada law, the court further held, affirming summary judgment in the beauty school’s favor on the students’ minimum wage, overtime, and related claims (Benjamin v. B & H Education, Inc., December 19, 2017, Schroeder, M.).
Wage suit. Prospective cosmetologists require hundreds of hours of clinical training in order to become licensed in the field. The defendant beauty schools operate clinics where students perform hairstyling and other services for paying customers. The students are not paid, though—the money goes to the schools. Three students contended that they should have been compensated for their efforts and filed a putative collective and class action on behalf of a nationwide class of cosmetology students, as well as a California class of students and a Nevada class for their respective state law claims.
Applying the primary beneficiary test set forth by the Second Circuit in its 2015 Glatt v. Fox Searchlight Pictures, Inc., decision and subsequently adopted by the Eleventh Circuit in Schumann v. Collier Anesthesia, P.A, a federal district court in California, also in a 2015 decision, held that the students were not employees under federal or state law because the students were the primary beneficiaries of the educational program, and there was only “meager” evidence at best that the school “subordinated the educational function of its clinics to its own profit-making purposes.” The Ninth Circuit agreed.
The case law. The appeals court reviewed the significant case law on the issue, starting with the Supreme Court’s 1947 decision in Walling v. Portland Terminal Co.—”the guiding source of the principles governing cases involving claims of both trainees and students to be treated as employees,” it noted. A key takeaway: the High Court had expressly contrasted the plaintiffs in that case, railroad trainees who worked alongside railroad employees, with students in an educational setting, and emphasized that students of this sort were not statutory employees.
Ostensibly on the basis of Portland Terminal, the DOL in 2010 issued informal guidance regarding whether unpaid interns are FLSA employees. In Glatt, the Second Circuit rejected the guidance as “too rigid” and instead crafted the primary beneficiary test now gaining favor among its sister circuits, including the Ninth. (The appeals court also gave props to the Sixth Circuit which, four years before Glatt, issued Solis v. Laurelbrook Sanitarium & Sch., Inc., and discussed factors for courts to consider when analyzing “which party derives the primary benefit from the relationship.”).
Primary beneficiary test applied. Applying Glatt’s primary beneficiary test and its non-exhaustive list of seven factors, the appeals court found the cosmetology students were the primary beneficiaries of their labors, despite that they spent a fair amount of time performing menial and unsupervised tasks. Specifically:
- The students signed on knowing they would not get paid, and had no expectation of compensation;
- They received hands-on training in the clinic and academic credit for the hours they worked;
- Their clinical work corresponded to their academic commitments, as it allowed students to clock the hours needed to be able to sit for the state licensing exams;
- There was no evidence students were required to participate in the clinical program for longer than was necessary to complete their hour requirement to qualify for the state exams;
- The students did not displace paid employees (in fact, the school maintained staff to train the students, operate the clinics and the front desks, handle the logistical needs of the clinics, and perform nighttime janitorial services);
- The students had no expectation of employment with the cosmetology school upon graduation.
All of the relevant factors supported a finding that the students were not covered employees under the FLSA. In the end, the students were the primary beneficiaries of their efforts, not the beauty school, because they were qualified to practice cosmetology at the conclusion of their training. (Also, while the court had rejected the plaintiffs’ plea that it apply the DOL guidance, the appeals court found that even under this approach, the students lose.).
“Right of control” test of no use. The students were not covered employees under California or Nevada law, either. (Nevada was easy: In 2014, the state supreme court in Terry v. Sapphire Gentlemen’s Club held that the FLSA’s test of employment status applies, so the students’ claims under Nevada law likewise fell short.) As for California, the definition of “employment” provided under the operative wage order differs from the FLSA’s, and the putative employer’s “right of control” holds considerable sway. Consequently, the students argued that they were employees under California law because the cosmetology school controlled what they did. But the control test was a poor fit in this context, the Ninth Circuit said, since “schools typically exercise significant control over their students, but that does not make them employees.” In support of their assertion to the contrary, the students cited a litany of cases, but none involved student trainees.
The Ninth Circuit went one step further, concluding that even the California Supreme Court would reject the DOL factors in the educational context, and instead favor the primary beneficiary test, as it is “better adapted to an occupational training setting than the DOL factors.”
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