Velarde v. GW GJ, Inc., Docket No. 17-330

• Decision Date: 05 February 2019
• Docket Number: Docket No. 17-330,August Term, 2017
• Citation: 914 F.3d 779
• Parties: Patrick VELARDE, on Behalf of Himself and All Others Similarly Situated, Plaintiff-Appellant, v. GW GJ, INC. d/b/a the Salon Professional Academy of Buffalo, Margaret Grenauer, and Paul Grenauer, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

914 F.3d 779

Patrick VELARDE, on Behalf of Himself and All Others Similarly Situated, Plaintiff-Appellant,

v.GW GJ, INC. d/b/a the Salon Professional Academy of Buffalo, Margaret Grenauer, and Paul Grenauer, Defendants-Appellees.

Docket No. 17-330

August Term, 2017

United States Court of Appeals, Second Circuit.

Argued: March 8, 2018

Decided: February 5, 2019

Robert Wisniewski, Esq., New York, NY, for Plaintiff-Appellant.

James W. Grable, Jr. (Terrence M. Connors on the brief), Connors LLP, Buffalo, NY, for Defendants-Appellants.

Before: Cabranes and Carney, Circuit Judges, and Caproni, District Judge.^*

Susan L. Carney, Circuit Judge:

In Glatt v. Fox Searchlight Pictures, Inc. , 811 F.3d 528 (2d Cir. 2015), we addressed the application of certain federal and state employment laws to activities performed in a commercial setting by temporary "interns." We applied a "primary beneficiary" test: if, under certain enumerated circumstances, the intern is the "primary beneficiary" of the relationship, then the host entity is not the intern’s employer and has no legal obligation to pay compensation under those laws; if, on the other hand, the host entity is the "primary beneficiary" of the relationship, then the entity is an employer and federal and state employment laws—in particular, the Fair Labor Standards Employment Act, 29 U.S.C. §§ 201 et seq. ("FLSA"), and Articles 6 and 19 of the New York Labor Law §§ 190, 650 et seq. ("NYLL")—impose compensation obligations.

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.

BACKGROUND¹

On April 18, 2011, desiring to become a cosmetologist in New York state,² Patrick Velarde enrolled in the Academy, a for-profit cosmetology training school operated by the individual defendants and located in the City of Tonawanda, in Erie County, New York. On November 16 of that year, he finished the Academy’s program, having successfully completed what the Academy’s diploma describes as a "1000 hour course of study in [c]osmetology [a]pproved by the state of New York." App’x 96. The Academy’s course included both classroom instruction and supervised practical experience in its student salon (the "Salon"), in which members of the public could receive cosmetology services and the Academy’s students could practice and refine their skills. Velarde provided such services, under supervision, as generally described by his enrollment agreement and course catalogue.

Having 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,³ he charged that, "under the terms of the students’ enrollment agreement," he and all students enrolled in the Academy were unlawfully required to work without pay in the Salon as part of their course of instruction. Am. Compl. ¶ 4, App’x 8; Enrollment Agt., App’x 98. After finishing eight weeks in the classroom, Velarde worked at the Salon, logging 34 unpaid hours per week for 22 weeks and practicing under the supervision of licensed practitioners. During those 22 weeks, he performed "barbering and hair styling, skin and body treatments, [and] manicure and pedicure services," for the public. Am. Compl. ¶¶ 4, 19, App’x at 8, 11. He and other Academy students were also obligated to perform janitorial and clerical work at the Salon. Students in the Salon segment of the vocational program were further required, he complains, to provide "whatever cosmetological service was demanded by a customer": they could not "choose what services they wanted or needed additional training in." Am. Compl. ¶ 37(c), App’x at 15. Velarde sought relief both on his own behalf and on behalf of other former and present students.

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. N.Y. Comp. Codes R. & Regs. tit. 19, § 160.2. New York requires license applicants to have completed 1,000 hours of coursework in defined subject areas, including safety and health, hair styling, and nail care. Id. § 162.4. Aspiring cosmetologists must also pass the state’s licensure examination, which has both written and practical components. N.Y. Gen. Bus. Law §§ 406(2)(b), 407(1).

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.⁴ In 2016, after the Academy filed its Answer, the assigned Magistrate Judge (Schroeder, Jr., M.J. ) filed a report and recommendation concluding that the Academy’s motion for judgment on the pleadings should be granted. In a 2017 text order, the District Court rejected Velarde’s objections, accepted the Magistrate Judge’s report and recommendation, and entered judgment for the Academy.

This appeal followed.

DISCUSSION

We review de novo a district court’s decision awarding judgment on the pleadings. Mantena v. Johnson , 809 F.3d 721, 727 (2d Cir. 2015).

The federal Fair Labor Standards Act requires, among other things, that employers pay "[e]mployees engaged in commerce" an hourly minimum wage. 29 U.S.C. § 206(a). Similarly, the New York Labor Law requires state employers to pay their "employees" a set minimum wage.⁵ N.Y. Lab. Law § 652. As described above, Velarde’s action calls for us to decide whether students at a for-profit vocational school completing state-mandated training hours in preparation for (and to qualify for) a state licensure exam are correctly treated as "employees" of their respective schools with respect to the "work" that they do as they are training.

We have observed elsewhere that FLSA and NYLL define "employee" in "nearly identical terms." Glatt , 811 F.3d at 534. Accordingly, "we construe the NYLL definition as the same in substance as the definition in the FLSA."⁶ Id. FLSA’s definition of "employee," however, is far from a model of clarity: it offers the unenlightening tautology that an "employee" is an "individual employed by an employer." 29 U.S.C. § 203(e)(1). FLSA advises further that to "employ" means "to suffer or permit to work." Id. § 203(g).

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. 811 F.3d at 537. As we observed there and have observed in the past, the concept of "employment"—pivotal to FLSA’s application—is "a flexible [one] to be determined on a case-by-case basis by review of the totality of the circumstances" while emphasizing the "economic reality" of the parties’ relationships. Barfield v. N.Y.C. Health & Hosps. Corp. , 537 F.3d 132, 141–42 (2d Cir. 2008) ; see also Glatt , 811 F.3d at 536.

We looked for guidance to the Supreme Court’s decision in Walling v. Portland Terminal Co. , 330 U.S. 148, 67 S.Ct. 639, 91 L.Ed. 809 (1947). There, the Supreme Court instructed that FLSA, enacted in 1938, "covers trainees, beginners, apprentices, or learners if they are employed to work for an employer for compensation. " Id. at 151, 67 S.Ct. 639 (emphasis added). The Court cautioned, however, that "a person whose work serves only his own interest" does not necessarily become "an employee of another person who gives him aid and instruction." Id. at 152, 67 S.Ct. 639.

The Portland Terminal decision addressed whether unpaid "trainees" in a railroad’s program for prospective brakemen were employees for FLSA minimum wage purposes. 330 U.S. at 149–50, 67 S.Ct. 639. The "course of practical training" that constituted the railroad’s program had the following features:

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

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