After concluding that it had jurisdiction over a plaintiff’s appeal despite the fact that claims of other putative class members were still before a district court, the Seventh Circuit concluded that a cosmetology student was not an employee of a cosmetology school, and was not entitled to compensation for time spent working in a beauty salon operated by the school. The fact that students pay for practical training as well as for classroom instruction was fundamentally inconsistent with the notion that during their time on the “performance floor” the students were employees, the appeals court concluded (Hollins v. Regency Corp., August 15, 2017, Wood, D.).
Classroom and practical instruction. Regency Corporation operated for-profit cosmetology schools in 20 states. Each Regency Beauty Institute offered both classroom instruction and practical instruction in a “Regency Salon,” where members of the public could receive cosmetology services at discount prices. Regency students were required by law to complete 1,500 hours of a combination of classroom and “hands-on” work. They accomplished the latter task by working in the salon, providing services for customers. Regency gave credit for hours worked at the salon, but did not otherwise pay the students for their work.
Wage suit. Asserting that the work she performed in the salon was compensable, a Regency student filed suit against Regency and its owner under the FLSA and various state laws. Three days after filing suit, she filed a motion to certify her state law claims under Rule 23, and for conditional certification of an FLSA collective action. The district court denied her motion for conditional certification and never ruled on Rule 23 class certification. Instead, it addressed the individual merits of her case on summary judgment, and ruled in Regency’s favor.
Jurisdiction. On appeal, the plaintiff first argued that the appeals court lacked jurisdiction of her own appeal because the claims of other putative class members were still before the district court. Federal litigants normally must wait for a final judgment before they can bring a matter to the court of appeals. The question here was whether the judgment that the plaintiff wants to challenge was truly final—whether it disposes of all claims of all parties. The critical question was whether the existence of unnamed Rule 23 class members or the aspiring members of the collective action who signaled their interest in participating defeated the finality of the district court’s judgment for purposes of this appeal. In other words, are those individuals additional “parties” whose claims have not yet been resolved?
Class certification lacking. Here, the plaintiff filed a class action, but the court dismissed her individual case before ruling on class certification. Under such circumstances, the Supreme Court has held in Smith v. Bayer Corp., it is an erroneous argument that an unnamed class member is a party to the class action litigation before the class is certified. The same result should follow for the claims of potential members of an FLSA collective action, if the collective action has never been conditionally certified, and the court has not in any other way accepted efforts by the unnamed members to opt in or intervene.
The role of district courts in defining the scope of the potential FLSA collective action is more than ministerial, the appeals court observed. The court must assess the proposed class definition and assure itself that the employees identified are raising similar FLSA claims. As in Rule 23 class actions, this implies that members of an uncertified group are not the type of parties whose presence would block a judgment against the named plaintiff from being final, unless they have otherwise gained full party status. Consequently, the appeals court concluded that there was a final judgment, and that the unaccepted opt-in notices that the district court received did not stand in the way of that conclusion. Therefore, the appeals court was free to proceed to the merits of the plaintiff’s individual case.
Employee status. The plaintiff contended that she and her fellow students should have been recognized as employees entitled to proper payment under the relevant statutes. Relying on its decision in Vanskike v. Peters, the Seventh Circuit noted that a determination of an individual’s employee status requires the court to examine the “economic reality” of the working relationship. Rather than apply the Department of Labor’s six-factor test for distinguishing between an employee and an unpaid trainee, the district court turned to the Supreme Court’s decision in Walling v. Portland Terminal Co. for guidance.
In this case, time on the professional floor was a state-mandated requirement for graduation from the cosmetology program. The plaintiff was actually paying Regency for the opportunity to receive both classroom instruction and supervised practical experience, both of which were necessary for her degree. Regency was in the educational business, not in the beauty salon business. The plaintiff did not need to go out and find a place where she could serve as an intern or an extern—Regency took care of that. The fact that students pay not just for classroom time, but also for practical training, was fundamentally inconsistent with the notion that they were employees during their time on the “performance floor,” the appeals court concluded.
Moreover, Regency was required to use “practical learning methods” throughout its curriculum by its accrediting commission. That was enough to show that the incidental tasks that students were required to perform—acting as receptionists, cleaning and sanitizing the floor, selling salon beauty products, and restocking products as needed—were not enough to tip the balance over to the “employee” side of the line. Rather, “Salon Safety and Sanitation” was the most heavily tested subject area on the licensing examination. Accordingly, the district court correctly granted summary judgment in favor of the employer.
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