Velarde v. GW GJ, Inc.
Opinion of the Court
In Glatt v. Fox Searchlight Pictures, Inc. ,
In the case at bar, we consider the applicability of this test to individuals enrolled in a for-profit vocational academy who are preparing to take a state licensure examination and who must first fulfill state minimum training requirements. These individuals fulfill those requirements by working under Academy supervision for a defined number of hours, without pay. We determine that the Glatt test governs in the for-profit vocational training context, and we further conclude that here, the plaintiff, former student of the Academy was the primary beneficiary of the relationship, thus excusing the latter from potential compensation obligations under FLSA or NYLL related to plaintiff's limited work there as a trainee.
BACKGROUND
On April 18, 2011, desiring to become a cosmetologist in New York state,
*782Having become a licensed cosmetologist in 2012, Velarde sued the Academy for unpaid wages in 2014-three years after completing the program. He alleged that the Academy violated FLSA and several sections of NYLL by failing to pay him for the work that he did in the Salon while he was enrolled at the Academy. In his operative complaint,
For Salon services, the Academy charges clients "discounted prices," with prices "vary[ing] according to student [skill] level." Am. Compl. ¶¶ 25-26, App'x 12. The Salon's rates are lower than those of nearby salons employing only cosmetologists who are already licensed. The Academy-which is, as mentioned, a for-profit enterprise-derives some of its revenues from the fees paid by the Salon's clients. Velarde would receive tips for his work, but any gratuities were nominal in amount. The Academy also derives revenue directly from students, of course: over the course of his thirty-week course of study, Velarde paid the Academy $12,823 for "tuition, books, kits, and other fees." Am. Compl. ¶ 18, App'x 10.
To offer commercial cosmetology services in New York, an individual must obtain and maintain a State cosmetology license.
In his suit, Velarde sought unpaid hourly minimum wages including tips and overtime for his work in the Salon. He contended that, for purposes of FLSA and NYLL, he and other Academy students were employees of the Academy while they performed services in the Salon.
This appeal followed.
DISCUSSION
We review de novo a district court's decision awarding judgment on the pleadings. Mantena v. Johnson ,
The federal Fair Labor Standards Act requires, among other things, that employers pay "[e]mployees engaged in commerce" an hourly minimum wage.
We have observed elsewhere that FLSA and NYLL define "employee" in "nearly identical terms." Glatt ,
On de novo review, we first conclude that the District Court was correct to analyze whether Velarde was an "employee" of the Academy by using the "primary beneficiary" test established in Glatt . Applying that test, we then determine that Velarde was not an employee of the Academy when enrolled there and working in the Salon, because he was the primary beneficiary of his relationship with the Academy, including with respect to his work in the Salon.
I. Primary beneficiary test
In Glatt , we considered the employment status of unpaid interns who "were enrolled in or had recently completed a formal course of post-secondary education" and who were working temporarily in a commercial concern.
We looked for guidance to the Supreme Court's decision in Walling v. Portland Terminal Co. ,
The Portland Terminal decision addressed whether unpaid "trainees" in a railroad's program for prospective brakemen were employees for FLSA minimum wage purposes.
If accepted for the training course, an applicant is [assigned] to a yard crew for instruction. Under this supervision, he first learns the routine activities by observation, and is then gradually permitted to do actual work under close scrutiny. His activities do not displace any of the regular employees, who do most of the work themselves and must stand immediately by to supervise whatever the trainees do. The applicant's work does not expedite the company business, but may, and sometimes does, actually impede and retard it.
Id . An applicant who successfully completed the weeklong training course would be added to the list of potential hires "from which the company can draw when their services are needed." Id . at 150,
Distilling the import of Portland Terminal in the context of interns temporarily performing work in a commercial enterprise, we held in Glatt that "the proper question [with respect to a purported 'employment' relationship] is whether the intern or the employer is the primary beneficiary of the relationship." Glatt ,
Velarde argues that the District Court erred in applying Glatt 's primary beneficiary test in his situation because he was not an "intern"; in his view, the District Court should have focused solely on what he identifies as the economic reality of his relationship with the Academy. Velarde contends that one need ask only whether the putative employer received an "immediate advantage" from a putative employee's work to define the "economic reality" of this relationship. From this, he argues that the Academy must have been his "employer" because it derived revenue by providing Velarde's services to the public; any training that Velarde received and the skills that he developed by virtue of his supervised work experiences in the Salon are, in Velarde's view, besides the point.
As Velarde points out, it is true that in Portland Terminal the Supreme Court counted as one factor relevant to its holding that the railroad received no "immediate advantage" from the trainees' work. Portland Terminal ,
In Glatt and in subsequent decisions, we have described the primary beneficiary test as a "way to distinguish employees from bona fide interns." Xuedan Wang v. Hearst Corp. ,
We therefore conclude that the District Court was correct to apply the primary beneficiary test in determining whether Velarde was a student or an employee of the Academy.
II. Velarde was the primary beneficiary of his relationship with the Academy
As set forth above, the primary beneficiary test seeks to assess the relative dominance in the relationship between host institution and the individual claiming employee status of (1) the benefits of a relationship to the individual, (2) the benefits derived from that relationship by the putative employer, and (3) the expectations of the parties. In Glatt , we listed several considerations that may, with others, be useful in determining which party is the "primary" beneficiary of a relationship considering the totality of the circumstances.
Others of the Glatt factors, however, provide insight for determining which party is the primary beneficiary of the vocational school relationship-a determination that is likely to vary in different school settings and possibly in different state regulatory environments. For example, a vocational school is more likely to be found to "employ" its students if it does not have a "formal education program" with "integrated coursework," and instead exclusively requires students to perform tasks that are the same as those done by regularly compensated employees. (See Glatt factor 3.) Similarly, a vocational school that runs a training program whose duration far exceeds "the period in which the [program] provides the [student] with beneficial learning" may well be the primary beneficiary of that relationship. (See Glatt factor 5.) See also Marshall v. Baptist Hosp., Inc. ,
We provide these examples and counter-examples not to limit future courts' consideration of some or all of the Glatt factors in particular circumstances, 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.
Here, evaluating the totality of the circumstances presented by the parties' pleadings and keeping in mind that the goal of the primary beneficiary test is to balance flexibly the benefits received by the student and the economic realities of the student-entity relationship, Glatt ,
Several observations are key to our reasoning.
To begin, Velarde obtained significant benefits from his work in the Academy's Salon: he was required to complete 1,000 hours of coursework in specific practical areas to qualify for taking the cosmetology license examination. See
To rebut the inference that we draw, Velarde suggests, rather, that he should have been allowed to allocate his time differently among the various areas of study that the school required and that he should have been able to avoid performing clerical and janitorial work that he views as without instructional benefit to him. But "practical skill may entail practice, and a [student] gains familiarity with an industry by day to day professional experience" that may include relatively menial or repetitive tasks. Wang ,
Furthermore, although Velarde faults the Academy for charging customers fees for his cosmetological services that exceeded the Academy's relevant operating costs (as he calculated them), the Academy has no obligation not to turn a reasonable profit on its operations. The Academy's enrollment agreement and catalogue advised that coursework would include both classroom and practical or "salon area" components, and Velarde was aware that he would pay the Academy, a for-profit entity, for his participation in both components, as necessary for him to meet New York's licensure requirements.
It is undoubtedly true that the Academy-a for-profit institution-derived financial value from Velarde's work in the Salon. That Velarde provided "tangible benefits" to the Academy in this way (and in addition to his tuition payments) is not dispositive of the question before us, however. The sixth Glatt factor considers "the extent to which the intern's work complements, rather than displaces, the work of paid employees." Glatt ,
Our conclusion is consistent with those of other courts to have addressed this issue. The Seventh Circuit recently concluded in a closely parallel setting that "the fact that [cosmetology] students pay not just for the classroom time but also for the practical-training time is fundamentally inconsistent with the notion that during their time on the [salon floor] the students were employees." Hollins v. Regency Corp. ,
Similarly, the Sixth Circuit has held that vocational "[s]tudents engage[d] in courses of study that have been considered and approved of by the state accrediting agency" were not employees of the eldercare facility in which they worked. Solis v. Laurelbrook Sanitarium & Sch., Inc. ,
For these reasons, we are persuaded that the District Court correctly granted judgment on the pleadings to the Academy on Velarde's FLSA and NYLL claims.
CONCLUSION
The primary beneficiary test articulated in Glatt applies to the relationship between students who attend vocational schools and those schools. Patrick Velarde was the primary beneficiary of his relationship with the Academy, including with respect to his supervised work in the Salon. Velarde was thus not an "employee" of the Academy under FLSA and NYLL. The judgment of the District Court is AFFIRMED .
We review de novo a district court's decision under Federal Rule of Civil Procedure 12(c) to grant a defendant's motion for judgment on the pleadings. In doing so, we accept all factual allegations in the complaint as true and draw all reasonable inferences in the plaintiff's favor. L-7 Designs, Inc. v. Old Navy, LLC ,
The New York State Division of Licensing Services advises that "cosmetology" means:
providing services to the hair, head, face, neck or scalp of a human being, including but not limited to shaving, trimming, and cutting the hair or beard either by hand or mechanical appliances and the application of antiseptics, powders, oils, clays, lotions or applying tonics to the hair, head, or scalp, and in addition includes providing, for a fee or any consideration or exchange, whether direct or indirect, services for the application of dyes, reactive chemicals, or other preparations to alter the color or to straighten, curl, or alter the structure of the hair of a human being.
https://www.dos.ny.gov/licensing/cosmetology/cosmetology.html (last visited Jan. 9, 2019); see also
Velarde filed his original complaint on August 22, 2014, and filed an amended complaint on August 26, 2014. References to the "complaint" in this opinion are to the amended complaint.
Velarde also pursued a claim for quantum meruit against the Academy in the district court proceedings. The District Court dismissed that claim. On appeal, Velarde has withdrawn his challenge to the dismissal, and we therefore treat the challenge as waived.
NYLL sets its minimum hourly wage at an amount higher than FLSA's floor. See
The parties do not dispute that our resolution of Velarde's FLSA claim is dispositive of his NYLL claim.
In Glatt , we enumerated the following seven factors as relevant to the determination:
1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, 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 in 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 integrated coursework or the receipt of academic credit.
4. The extent to which the internship accommodates the intern's academic commitments by corresponding to the academic calendar.
5. The extent to which the internship's 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 complements, 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.
Glatt ,
See Meredith Kolodner & Sarah Butrymowicz, A $21,000 Cosmetology School Debt, and a $9-an-Hour Job , N.Y. Times, Dec. 26, 2018, at https://www.nytimes.com/2018/12/26/business/cosmetology-school-debt-iowa.html (last visited Jan. 9, 2019) (describing widely varying state requirements for the number of school hours for a cosmetology license and efforts by for-profit schools to prevent their reduction).
Velarde offered conclusory allegations related to his now-abandoned quantum meruit claim, see n. 4, supra, that he "had a reasonable expectation of receiving payment at an appropriate wage rate for the hours [he] worked for Defendants," Am. Compl. ¶ 69, App'x 21. The only allegation that he made in support of the objective reasonableness of any such expectation, however, was that the Academy "never told [him that] ... [he] would be forced to work without pay," Am. Compl. ¶ 46, App'x 17. This allegation, however, misses the point: Velarde does not allege that the Academy told him that he would be paid for his time in the Salon. We determine objectively whether a purported employee had a reasonable expectation of payment. See Brown v. N.Y.C. Dep't of Educ. ,
Reference
- Full Case Name
- Patrick VELARDE, on Behalf of Himself and All Others Similarly Situated v. GW GJ, INC. d/b/a the Salon Professional Academy of Buffalo, Margaret Grenauer, and Paul Grenauer
- Cited By
- 26 cases
- Status
- Published