Labor & Employment Law Daily Primary beneficiary test applies to vocational training; cosmetology students not covered as employees
Thursday, February 7, 2019

Primary beneficiary test applies to vocational training; cosmetology students not covered as employees

By Lisa Milam, J.D.

The Second Circuit’s “primary beneficiary” test, set forth in the context of college interns, also applies to vocational students who perform productive work as part of their training. Cosmetology students were not statutory employees under the FLSA or NYLL.

The “primary beneficiary” test of employee vs. trainee status, first introduced amid a spate of FLSA collective actions involving unpaid college interns, applies to vocational students as well, the Second Circuit held. The appeals court affirmed a district court’s use of the standard in holding that cosmetology students were not entitled to pay for the hours they spent working in the cosmetology academy’s for-profit salon. “As with interns, disentangling the threads of a complex economic fabric and teasing out the respective benefits garnered by students and their commercial training programs is key to determining whether, for FLSA purposes, a trainee is serving primarily as an employee of that school or training program—or is primarily a student,” the appeals court explained (Velarde v. GW GJ, Inc. dba The Salon Professional Academy of Buffalo, February 5, 2019, Carney, S.).

Cosmetology academy. The for-profit cosmetology academy provides training for students seeking to obtain a cosmetology license. The training includes classroom instruction as well as the requisite supervised practical experience in a student salon, pursuant to the state’s licensing requirements. Paying customers receive cosmetology services—”barbering and hair styling, skin and body treatments, [and] manicure and pedicure services”—from the academy’s students who, after completing eight weeks of classroom instruction, refine their skills in the salon under the close watch of the school’s licensed practitioners. Students don’t get to choose what services to perform for customers; they can’t choose to focus their efforts in the salon on those skills in which they needed additional training.

The plaintiff paid the academy $12,823 for his 30-week course of study. For 22 of those weeks, he worked at the salon without pay (except for nominal gratuities), providing whatever service the paying customer requested. He and his former classmates had to perform janitorial and clerical work at the salon in addition to the cosmetology services for which they were receiving training. He logged 34 hours per week at the salon—748 hours total—which combined with the classroom component, was precisely enough hours to fulfill the minimum training requirements for state licensing purposes.

Lawsuit. The former student filed suit for unpaid wages, contending that students were employees of the academy while they worked in the salon, and seeking to represent an FLSA collective and NYLL class of cosmetology students. The district court, applying the Second Circuit’s primary beneficiary test, held the students were not entitled to compensation as they were not statutory employees, awarding summary judgment to the academy.

On appeal, the plaintiff argued that the district court should not have applied the Glatt test here because he was not an intern; rather, the court should have focused on the economic realities of his relationship with the academy. In his view, the training he received and skills he developed in the salon were beside the point—the academy had gained an “immediate advantage” from his labors at the salon, as it derived revenue from his services to paying customers, and that was enough to deem him a statutory employee, citing the Supreme Court’s 1947 opinion in Walling v. Portland Terminal in support of his contention.

Primary beneficiary test. The Second Circuit considered whether college interns were “employees” while performing productive activities in a for-profit commercial setting. In Glatt v. Fox Searchlight Pictures, Inc., it eschewed the Department of Labor’s (now scrapped) test of “trainee” status under the FLSA and adopted a “primary beneficiary” test instead. Glatt had also rejected the “immediate advantage” test which the plaintiff favored, explaining that Portland Terminal does not mean that any entity that receives some immediate benefit from unpaid labor is automatically the “employer” of the individual from which the benefit is derived.

The primary beneficiary test certainly recognizes that the benefits derived by the academy are relevant, but they are just one of several factors informing the analysis, the appeals court explained here. The new test considers the benefits to the individual asserting “employee” status relative to the benefits derived by the putative employer. Which party has more to gain from the relationship? This is the measure of whether the individual is an employee under the FLSA (and the NYLL, which defines “employee” in near identical terms).

Test applies to vocational students. The primary beneficiary test is equally suitable to the vocational school context, the appeals court held. Vocational students, like interns, have an expectation of educational or vocational benefit, which is not typically expected in the employment setting. And the primary beneficiary test “allows courts to measure the extent to which the school meets these expectations against the economic benefits received by the school in the form of free labor,” the court wrote. Therefore, the district court was correct in using the primary beneficiary test to analyze whether the plaintiff was an employee of the academy.

Wiggle room. Several of the Glatt factors aren’t all that useful in analyzing employee status in the vocational school setting, the appeals court conceded. For example, under Glatt, the court asks whether students would expect to be given a paid job upon graduation (this factor would seldom apply in vocational training settings) and whether the intern program is tied to an academic calendar and to academic credit (this criteria would almost always apply). But other prongs of the test will be telling: if a vocational school has students perform tasks done by regularly compensated employees, for example, or if the school’s training program exceeds the period of beneficial learning to a student.

“We provide these examples and counter-examples not to limit future courts’ consideration of some or all of the Glatt factors in particular circumstances,” the appeals court explained, “but to make plain that courts may reasonably give more weight to some considerations over others when applying the primary beneficiary test to vocational schools and their students.” The court noted, moreover, that the analysis presumably will vary in different vocational settings, and under different state licensing requirements and regulatory environments.

A student, not an employee. Applying the test here and considering the totality of the circumstances, the Second Circuit readily found the cosmetology student was the primary beneficiary of his schooling, and thus was not an employee during his salon stint. He gained significant benefits from working in the salon—most importantly, the hours of hands-on experience needed to qualify to take the cosmetology license examination. Here, the court was swayed by the fact that the academy required the exact number of salon hours from the plaintiff as required for licensure, and no more. He was supervised by the academy’s instructors in the salon, and there was no allegation in this case that the academy failed to supervise him or prepare him for the demands of the licensing exam (either its written or practical components).

As for the custodial and clerical duties he had to perform, assertedly of no instructional benefit to him, the court noted that even in day-to-day professional work, menial tasks are required. The appeals court also made the broader point: “That a vocational school does not provide the optimal learning experience for a student does not necessarily transform it into the primary beneficiary of the relationship.”

Profit is permissible. That the for-profit academy charged salon customers fees for the students’ work in excess of its operating costs, and thus derived some of its revenues from those fees, did not mean the students were employees. The academy “has no obligation not to turn a reasonable profit on its operations,” the court wrote. At any rate, the enrollment agreement and course catalogue made it quite clear that students were required to complete this practical (unpaid) component of their training in order to meet state licensure requirements, and the employee signed on willingly. Although he didn’t claim to be displacing paid employees through his salon work (indeed, the academy incurred the personnel costs of licensed professionals overseeing his work), he did contend that his unpaid labor gave the academy’s salon a competitive edge in the marketplace, further increasing its revenues.

Yet, while it was “undoubtedly true” the for-profit academic derived financial value from the plaintiff’s salon work, this admittedly tangible benefit to the defendant was not dispositive. “This is not a case in which a business uses the facade of a vocational school to deceive students into working unexpectedly long hours without compensation, replacing the labor of its paid employees, or working hours well beyond long-standing state requirements,” the appeals court concluded. Had that been the case, the analysis would surely yield a different result. However, based on the totality of the facts at hand, the cosmetology student was not an employee, the district court properly found.

Other circuits. The Second Circuit’s holding that the cosmetology students were not statutory employees under the primary beneficiary test aligns with several circuit court decisions, the appeals noted, citing the Sixth Circuit’s 2011 decision in Solis v. Laurelbrook Sanitarium & Sch., Inc., and the Seventh Circuit’s 2017 holding in Hollins v. Regency Corp.. And, although the appeals court didn’t cite it here, its decision was also consistent with the Ninth Circuit’s opinion in Benjamin v. B & H Education, Inc., a 2017 decision, in which even the purportedly employee-friendly circuit court adopted the Second Circuit’s primary beneficiary test, eschewed the DOL standard, and, applying the Glatt test to students attending beauty schools in California and Nevada, held they were not covered employees under the FLSA or the laws of those states.

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