Second Circuit Applies “Primary Beneficiary” Test to Distinguish “Employees” from “Bona Fide Students” in For-Profit, Vocational Training Context, Upholding Dismissal of Former Cosmetology Student’s Claims for Compensation for Services Performed in Student Salon During Training

Case Name: Velarde v. GW GJ, Inc., et al.

Date of Opinion: February 5, 2019

Opinion by: Judge ­­­­­Carney

Summary:

The Second Circuit considered whether Glatt’s “primary beneficiary” test, used to distinguish “employees” from “bona fide interns” under state and federal wage laws, applies 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.

In 2014, Plaintiff-Appellant Patrick Velarde sued the Academy, a for‐profit cosmetology training school operated by the individual defendants, for unpaid wages in violation of the Fair Labor Standards Act (“FLSA”) and Articles 6 and 19 of the New York Labor Law (“NYLL”). Velarde had enrolled in defendants’ program in April 2011, completed the 1,000-hour course of study in November of that year, and became a licensed cosmetologist in New York in 2012. In his suit, Velarde alleged he was required to perform cosmetology services without compensation in the Academy’s student salon as a part of his vocational training at the Academy for becoming a licensed beautician, and that this requirement violated state and federal wage laws.

The United States District Court for the Western District of New York granted judgment on the pleadings to the Academy, reasoning under the test established in Glatt v. Fox Searchlight Pictures, Inc, 811 F.3d 528 (2d Cir. 2015) that Velarde was not an “employee” entitled to compensation under the FLSA and NYLL statutes because he was the “primary beneficiary” of his relationship with the Academy. On appeal to the Second Circuit, Velarde argued the district court erred in applying Glatt’s primary beneficiary test in his situation as he was not an intern. Instead, he reasoned, he was an “employee” entitled to compensation based on the “immediate advantage” that the Academy received from his labor in the form of customer payments for the salon services.

Although the Second Circuit agreed with Velarde that the Academy’s benefits from his work during his time in the program was relevant to determining if it “employed” him for FLSA purposes, it reiterated its holding in Glatt that this was merely one factor bearing on the analysis. It agreed with the district court that Glatt’s primary beneficiary test, developed as a way to distinguish between “employees” and “bona fide interns,” properly applies to distinguishing between “employees” and “bona fide students” in the vocational training context. The court reasoned that interns and vocational students both enter a course of study with “the expectation of receiving educational or vocational benefits that are not necessarily expected with all forms of employment.” In both contexts, according the Second Circuit, 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,” which is key to determining if a trainee is acting primarily as an employee or as a student for FLSA purposes.

Having found the Glatt test applicable in the vocational training context, the Second Circuit then considered the primary beneficiary test’s seven, non-exhaustive factors in light of the totality of the circumstances. The factors, none of which are dispositive, assess the extent to which: (1) the parties clearly understand there is no expectation of pay; (2) the internship or training program provides formal training similar to what might be provided in an educational environment; (3) the internship or training program is tied to a formal educational program or earns academic credit; (4) the internship or training period corresponds to the intern or trainee’s academic calendar and accommodates his or her academic commitments; (5) the internship or training program’s duration is limited to the period in which it provides beneficial learning; (6) the intern or trainee’s work complements, rather than displaces, the work performed by paid employees while simultaneously providing a significant educational benefit; and (7) it is clearly understood that the intern or trainee is not entitled to a paid position after the internship concludes.

The Second Circuit relied on the following key facts in holding that Velarde was the “primary” beneficiary of his relationship with the Academy: that the state required 1,000 hours of course work to qualify for the licensing examination, and the Academy required that Velarde complete exactly—and not more than—the required number of hours; that Velarde performed services at the student salon under the supervision of Academy’s instructors, particularly in the absence of any claim that their supervision was insufficient or their instruction unrelated to the training; that the Academy’s enrollment agreement indicated enrollees’ responsibility for paying the Academy for coursework which included both classroom and practical components; and the absence of any allegation that Velarde displaced paid employees at the Academy, notwithstanding that the Academy derived a financial benefit from Velarde’s labor.  Concluding Velarde was the “primary” beneficiary vis-à-vis the Academy, the Second Circuit held he was not an “employee” entitled to compensation under FLSA and NYLL.

Summary Prepared By: Amanda Brody

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