Former massage therapy students who attended a for-profit vocational school were not employees of the school under the FLSA, ruled the Tenth Circuit. Applying the six factors announced in Reich v. Parker Fire Protection District, the appeals court found that the students were required to complete a minimum number of clinical hours to acquire their state licenses, the students were not entitled to jobs upon completion of their program, and the students and the school understood that the students were not entitled to wages for their time spent in training. Accordingly, there was no doubt that the students understood they were entering an educational program that would not entitle them to wages (Nesbitt v. FCNH, Inc., November 9, 2018, Kelly, P.).
Steiner Education Group operates for-profit vocational schools in multiple states. The curriculum at the schools included classroom and clinical education required for one to become licensed as a massage therapist. The clinical component included approximately 100, fifty-minute massages, which counted toward the minimum clinical hours necessary for students to acquire their state licenses. The massages were performed at Steiner facilities on members of the public, who paid discounted rates for massages.
Massage training. Because the Steiner facilities did not have rooms dedicated to massage training, the students would clear classrooms of desks and chairs and erect massage tables surrounded by privacy curtains for clinical training. While massages took place, there ostensibly were client managers and teaching assistants on site to supervise the students and provide feedback on their massages. In theory, these supervisors were available to answer questions from students and facilitate the clinic’s operations. However, the parties dispute the actual extent to which these supervisors actually provided feedback or answered questions during the clinic.
After students completed their massages, the clients were asked to provide feedback on the massages they received. Again, the parties disputed how often clients actually completed their feedback forms and how often feedback was given to the students. Following each massage, students would lead their client out and prepare their workspace for the next client. They would typically repeat this process for five clients each clinical day. The plaintiff alleged that Steiner profited from the clinics with the students as free labor.
Students allegedly qualified as employees. The plaintiff was a former massage therapy student who attended a school operated by Steiner. She brought a collective action under the FLSA on behalf of a class of former students, claiming that the students qualified as employees of Steiner, and alleging that the school violated the FLSA by failing to pay minimum wage.
Steiner moved to compel arbitration of the claims and to prohibit litigation of the issues as a class. The district court denied the motion, and the Tenth Circuit affirmed. On remand, the district court addressed the issue of whether the students qualified as employees under the FLSA. It found that they did not. The district court determined that the six factors announced in Reich v. Parker Fire Protection District, when considered in their totality, resulted in a finding that the students were not employees of the school.
The district court came to that conclusion because (1) the students received vocational training from the school; (2) the training primarily benefited the students because they were required to complete hours of clinical time for their licenses, (3) the students did not displace regular employees and worked under supervision of Steiner instructors, (4) there was no genuine issue of material fact regarding the profit Steiner made from operating its schools, (5) the students were not entitled to employment upon completion of their training, and (6) the students and Steiner both understood that the students were not entitled to wages during their time spent training.
Application of Reich test. On appeal, the plaintiff first argued that the district court erred when it applied Reich as the governing framework. She contended that the court should have applied the test in Marshall v. Regis Educational Corp. However, the Tenth Circuit concluded that Regis Educational Corp. is merely another application of the totality of the circumstances test first articulated by the Supreme Court’s 1947 decision in Walling v. Portland Terminal Co. and later relied upon in Reich to examine the economic reality of the relationship between the entity providing training and the plaintiffs.
Next, the plaintiff argued that even if Reich is the correct test, the district court erred in its application of the Reich factors and its assessment of the totality of the circumstances. Primarily, the plaintiff focused on two factors from the Reich test: the adequacy of the observation and supervision provided by Steiner over the students, and the profit the school allegedly received from having the students perform massages without pay.
The parties disagreed about the level of supervision and observation required under Reich. The plaintiff argued that merely having an instructor on premises during the clinic was insufficient to satisfy Reich’s “close observation” factor. Here, the appeals court noted that the “close supervision” factor was meant to distinguish between regular employees and trainees. At no time did the students function as regular employees; they were students learning a trade on vocational school premises. The presence of supervisory licensed massage therapists and teaching assistants to oversee the students sets this case apart from situations where students all but carried out the duties of regular employees.
Primary beneficiary. Next, the plaintiff argued that the school—not the students—was the primary beneficiary of their arrangement. According to the plaintiff, the school was able to profit from an unpaid workforce while the students were left with almost no beneficial training. However, the appeals court pointed out that the hours spent performing massages as part of their curriculum allowed them to advance toward their minimum licensing requirements and provided them with an obvious benefit. Accordingly, the appeals court concluded that the district court did not err when it found that the students were not employees of the school.
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