Benjamin v. B&H Educ., Inc.

Headline: The Ninth Circuit affirmed the district court’s summary judgement which found in favor of a cosmetology school, B&H Education, Inc. (“B&H”), in an action brought by students under the Fair Labor Standards Act (“FLSA”), California and Nevada state law holding that the students are not defined as employees under the FLSA, California or Nevada laws.

Areas of Law: Labor Law

Issues Presented:

Whether students of a cosmetology and hair design school are defined as employees under the FLSA, California and Nevada laws, when the students are working for no pay and are the primary beneficiaries of their own labor.

Whether the District court abused its discretion by striking the witness declarations by the students under Rule 37(c)(1) of the Federal Rules of Civil Procedure when the students did not disclose the witnesses to B&H pursuant to Rule 26.

Brief Summary: The Ninth Circuit found that under the FLSA, California and Nevada laws, the students of B&H are not entitled to compensation for their time and money spent on salon supplies. The Ninth Circuit applied the “primary beneficiaries” test to determine whether the students or the school received the benefits of the students’ labor in order to ascertain whether the students are employees of B&H. Because the students would qualify to practice cosmetology at the end of their training, the Ninth Circuit held that the students were the primary beneficiaries of their labor, and thus not employees entitled to compensation under the FLSA, California and Nevada state law.

Significance: Students of the cosmology school were not entitled to pay because they were not found to be defined as employees under the FLSA, California or Nevada laws. As such, the Ninth Circuit granted summary judgement for defendant, B&H.

Extended Summary: Plaintiffs in this case are Jacqueline Benjamin and Taiwo Koyejo of Marinello School of Beauty (“Marinello”) in California, and Bryan Gonzalez of Marinello in Nevada. They are students of the for-profit, cosmetology and hair design school, Marinello, owned and operated by defendant B&H in California and Nevada.  B&H provides classroom instruction and clinical experience to its students without compensation. In California and Nevada, it is required for cosmetologists to take and pass a licensing exam to practice cosmetology professionally. To take the exam a student must complete certain training which includes instruction, observations of demonstrations, and practical training. During practical training, students must perform services on a person or mannequin. The plaintiffs claim that B&H exploited the students for their unpaid labor, left the students unsupervised to work, and had the students perform services they already knew how to do rather than services the students needed to learn for the licensing exam. Because of these allegations, the students believe they are defined as employees under the FLSA, and state laws, and are thus owed compensation for their time and money they have spent on supplies.

The students moved for summary judgement on the assertion that the students are employees under the FLSA and state law. B&H filed a cross-motion for summary judgement which stated the students were not employees but rather students who did not meet the definition of an employee under the FLSA. The students, in response to B&H, relied in part on three witness declarations. The witnesses were undisclosed to B&H pursuant to Rule 26 of the Federal Rules of Civil Procedure. The District Court therefore ordered the declarations stricken pursuant to Rule 37 and decided the students were not employees under the FLSA or state law.

The Ninth Circuit relied in large part on Walling v. Portland Terminal Co., 330 U.S. 148 (1947) (“Portland Terminal”) to analyze the distinction between employees and students, or interns. Portland Terminal involves trainees working alongside railroad workers. The trainees sought compensation for their work claiming to be employees forcing the Supreme Court to interpret the provisions of the FLSA. The Supreme Court defined an employee as “any individual employed by an employer” and to employ was defined as “to suffer or permit to work.” 29 U.S.C. § 203(e)(1), (g). Because the railroad was providing training benefits to the trainees that would, after the training, qualify the trainees to serve and be compensated as employees, the court found that the trainees were the direct beneficiaries of the program and thus not employees.

The court in Portland Terminal stated that trainees were comparable to students in an educational setting and emphasized that students are not employees; “had the trainees taken a course in railroading in a public or private vocational school, wholly disassociated from the railroad, it could not reasonably be suggested that they were employees of the school within the meaning of the [FLSA].” 330 U.S. at 152-53.

In 2010, based on Portland Terminal, the Department of Labor (“DOL”) released informal guidance to determine whether unpaid interns are considered employees under the FLSA: (1) the internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment, (2) the internship experience is for the benefit of the intern, (3) the intern does not displace regular employees, but works under close supervision of the existing staff, (4) the employer that provides the training derives no immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded, (5) the intern is not necessarily entitled to a job at the conclusion of the internship, and (6) the employer and the intern understand that the intern is not entitled to wages for the time spent in the internship. Wage & Hour Div., U.S. Dep’t of Labor, Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act (Apr. 2010), https://www.dol.gov/whd/regs/compliance/whdfs71.pdf.

To determine the primary beneficiary in the present case, the Ninth Circuit applied the “primary beneficiary” test set forth in Glatt v. Fox Searchlight Pictures, Inc. (791 F.3d 376 (2d Cir. 2015), amended and superseded by 811 F.3d 528 (2d Cir. 2016), and Schumann v. Collier Anesthesia, P.A., 803 F.3d 1199 (11th Cir. 2015). The test employs the following seven non-exhaustive factors: (1) the extent to which the intern and the employer clearly understand that there’s no expectation of compensation. Any promise of compensation, express or implied, it suggests that the intern is an employee- and vice versa, (2) the extent to which the internship provides training that would be similar to that which would be given an educational environment, including the clinical and other hands-on training provided by educational institutions, (3) the extent to which the internship is tied to the intern’s formal education program by integrative coursework or the receipt of academic credit, (4) the extent to which the internship accommodates the interns academic commitments by corresponding to the academic calendar, (5) the extent to which the internships duration is limited to the period in which the internship provides the intern with beneficial learning, (6) the extent to which the intern’s work compliments, rather than displaces, the work of paid employees while providing significant educational benefits to the intern, (7) the extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship. Id. at 536-37.

Under the first factor, the students of Marinello signed on with the knowledge that they would not receive compensation during the program.

Regarding factors two and three, the students were given hands-on training in the clinic and received credit for the hours they worked.

The work, under the fourth factor, corresponded with the students’ academic commitments because the students needed a certain number of hours to be eligible to sit for the licensing exam.

In regards to the fifth factor, there is nothing stated in the facts that would have suggested the students were required to stay in the program longer than necessary to sit for the licensing exam.

The sixth factor, the students did not displace the work of the employees at the school. The staff was hired to instruct the students, run the clinics where the students practiced their skills, operate the front desk, take inventory, stock the dispensary, take care of the logistics of the clinic, and perform janitorial services at night.

Lastly, under the seventh factor, the facts do not state that the students had an expectation of being employed by Marinello at the end of the program.

At the end of the educational program, the students would be eligible to take the licensing exam. If they pass, the students will be able to practice cosmetology and hair design, thus making the students the primary beneficiaries of the program. The Ninth Circuit agreed with the District Court and found that, based on the “primary beneficiary” test, the students were not employees entitled to compensation.

The students claimed that even if the FLSA did not define a student as an employee, the students should be compensated under Nevada and California state laws. Nevada law follows the FLSA so the “primary beneficiary” test was applied. California, however, is a bit different, but the court concluded that the California Supreme Court would not apply the DOL factors that the federal courts deemed to be “too rigid.” The Ninth Circuit held that a test most resembling the “primary beneficiary” test would be applied as it is best applied in an occupational training setting, such as the present case, as opposed to the DOL factors. Under both California and Nevada state law, the Ninth Circuit held that the students are not employees entitled to compensation.

The last issue addressed was the discovery dispute over the three declarations the students offered to support their motion for summary judgement. One of the three witnesses in the declarations was listed in an interrogatory response as “other current and former Student-Employees of Marinello.” However, the catchall phrase does not satisfy Rule 26. The declarations were struck as sanctions under Rule 37(c)(1). The Ninth Circuit held this was not an abuse of discretion.

To read the full opinion, please visit: http://cdn.ca9.uscourts.gov/datastore/opinions/2017/12/19/15-17147.pdf

Panel: Mary M. Schroeder and Richard C. Tallman, Circuit Judges, and Robert H. Whaley, District Judge.

Argument: September 11, 2017

Date of Issued Opinion: December 19, 2017

Docket Number: 3:13-cv-04993-VC

Decided: Affirmed the decision of the district court.

Case Alert Author: Kianna Woods

Counsel: Bryan J. Schwartz (argued) and Logan Talbot, Bryan Schwartz Law, Oakland, California; Leon Greenberg and Dana Sniegocki, Law Office of Leon Greenberg, Las Vegas, Nevada; Chaya M. Mandelbaum and Michelle G. Lee, Rudy Exelrod Zieff & Lowe LLP, San Francisco, California; for Plaintiffs-Appellants.

Robert Lane Morris (argued), Soltman Levitt Flaherty & Wattles LLP, Thousand Oaks, California, for Defendants-Appellees.

Author of Opinion: Judge Schroeder

Circuit: Ninth Circuit

Case Alert Supervisor: Professor Philip Merkel

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