Employment Status of Cosmetology Students is not so cut and Dry

The issue of whether "interns" are employees entitled to wages has been at the forefront of employment litigation over the past couple of years. Similar to interns, cosmetology students are now filing suits against their schools, claiming entitlement to wages for hours spent performing cosmetology services as a part of their curriculum and in order to obtain their state licenses. Not surprisingly, courts across the country have reached different results in this dispute. 

Just last week, the U.S. District Court for the Eastern District of New York found that students who were required to participate in a clinic through their school in order to fulfill their curriculum requirements and in order to obtain their state licenses, were, in fact "employees" under the Fair Labor Standards Act (FLSA) and corresponding state provisions, such that they were entitled to minimum wage for the hours worked.

In Winfield v. Babylon Beauty School of Smithtown, Inc., No. 13-cv-6289 (E.D.N.Y. March 7, 2015), the student plaintiffs attended the defendant cosmetology schools and were required to participate in clinics and perform personal cosmetology services on consumers. The consumers would pay the school a fee for their services. The school retained those fees, and the students received academic credit for their services, but no money. The students also claimed that in addition to performing cosmetology services, they were required to perform other work-like functions, including selling products to the consumers, perform janitorial and clerical functions, and provide services in a different area of cosmetology than they were practicing.

The students filed suit claiming violations of the FLSA, New York law, and Florida law, seeking unpaid wages and overtime wages. The schools sought to dismiss the claims, and the district court denied this request.

The court first looked to the FLSA, which requires that an employer pay employees for all hours worked at the prevailing minimum wage, as well as overtime for hours worked in excess of 40 in a week. To determine whether an entity is an "employer" for the purposes of the FLSA, the court looked at the individuals' activities to determine whether an employment relationship exists.

The economic realities of the situation, the court found, weighed in favor of a finding of an employment relationship. The schools are not salons, so the students have no expectation of employment upon graduation, and the students do not displace regular employees. Those two factors typically suggest a lack of an employment relationship. The factor given the most weight, however, is whether the student or the school derives the most benefit from the students' work. Here, there is no question that while the students received credit for their work, the salon received a substantial profit and competitive advantage over other salons (with employees who must be paid minimum wage), and thus, the primary benefit likely ran to the schools.

At a minimum, the court found that the allegations in the complaint were sufficient to show that the schools were employers subject to the FLSA, and allowed the students to proceed with their claims against the presumptive employers.

The U.S. District Court for the Central District of California ruled similarly in the matter of Ford v. Gary Yasuda, No. 13-01961 (C.D. Cal. July 30, 2014).  There, the student plaintiffs performed cosmetology services for the school's paying clients. They also performed clerical and janitorial services, as well as marketing and sales of the retail products. Like in the New York case, the students received no compensation for their work at the salons. The students sued under the FLSA and corresponding California law for their unpaid wages.

The California court similarly agreed that the complaint passed muster and that the students had plead sufficient facts to demonstrate the existence of an employment relationship. The court first looked to the statutes regarding licensure of cosmetologists and, similar to the New York laws, individuals must be licensed to perform cosmetology-type services, and in order to obtain a license, students are exempted from these rules if they are undergoing their practical training through an approved school.

The court also looked to the wage orders applicable to the personal care industry and found that the allegations of the complaint supported a finding that the school exercised control over the students' wages (or lack thereof) and that the school suffered or permitted the students to perform work.

The court ultimately concluded that the students are covered by California's wage and hour laws. The Legislature, the court held, already specified two categories of individuals who can perform cosmetology services and not be paid -- unpaid externs and individuals working outside licensed establishments without compensation. The Legislature could have carved out students performing services within their schools for consumers who pay if it wanted to, but it did not, thereby suggesting that the wage and hour laws are applicable to the students.

Seems pretty cut and dry then, right? Cosmetology students performing services for pay as a part of their school program are employees and must be paid minimum wage.

Not so fast.

Less than six months ago, the U.S. District Court for the District of New Jersey held differently. In Atkins v. Capri Training Center, No. 13-06820 (D.N.J. October 1, 2014), the court expressly stated that the beauty school students were not "employees" and were not entitled to minimum wage.

Like the two cases discussed above, the plaintiff students filed suit under the FLSA and corresponding state statutes, seeking unpaid wages for the time they spent performing services for the paying public at their school's salon.

Not surprisingly, like California and New York, New Jersey also has a law that prohibits an individual from performing cosmetology services unless he or she is licensed to do so, and to become licensed, an individual must attend a licensed school and complete clinical and instructional coursework. The statute specifically references student work in a clinic and the fees associated with such work. Services may be performed in "a designated portion of a licensed school in which members of the general public may receive cosmetology and hairstyling services from registered students in exchange for a fee which shall be calculated to recoup only the cost of materials used in the performance of those services." N.J. Stat. Ann. §45:5B-3(h).

The court looked to the FLSA to determine whether the students could be classified as employees. The students claimed that the economic realities test supported a finding of an employer/employee relationship because the enterprise is "for profit" and that their labor is an essential part of those operations. The court considered the revenues derived and the expenses of the facility and concluded that the clinical program was not an entity that exists primarily for the creation of profit, and even if there was profit, that alone was not indicative of an employment relationship.

Like in the cases above, these students similarly claimed that they were required to clean and sell products and perform services that they were not qualified to perform, attempting to demonstrate that the primary benefit was for the clinic, not for the students. The court disagreed, and found that the clinical program was statutorily-mandated and allowed students to train under professional instruction and that they are the same sorts of duties the students would have to perform at a real salon. Thus, the students primarily benefited from the program.

The court ultimately reasoned that the students did not rely upon the program for continued employment or to earn a living, which were factors that had to be considered in determining whether a relationship existed. The statutory scheme that creates the program prevents the creation of an employment relationship, the court found.

Three different states, and two different outcomes. The New Jersey statute had specific language in it that seemed to suggest the lack of an employment relationship. It seems that without that specific language, the outcome may have been different. Cosmetology schools in California and New York should, at a minimum, take immediate note of these decisions and ensure that they have policies and practices in place to determine whether the circumstances support the finding of an employment relationship, and if so, to ensure that students providing services to the public for fee are receiving minimum wage. Cosmetology schools in other states are cautioned to review their licensure statutes to determine whether similar claims can be made in their states. Hinshaw attorneys are available to assist schools in determining these critical practices.

If you have questions about these cases or your own wage and hour policies, please contact your Hinshaw employment attorney.