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Benjamin v. B & H Education, Inc.

United States Court of Appeals, Ninth Circuit

December 19, 2017

Jacqueline Benjamin, individually and on behalf of all others similarly situated; Bryan Gonzalez, individually and on behalf of all others similarly situated; Taiwo Koyejo, individually and on behalf of all others similarly situated, Plaintiffs-Appellants,
v.
B & H Education, Inc. Defendant-Appellee.

          Argued and Submitted September 11, 2017 San Francisco, California

         Appeal from the United States District Court for the Northern District of California Vince Chhabria, District Judge, Presiding D.C. No. 3:13-cv-04993-VC.

          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.

          Before: Mary M. Schroeder and Richard C. Tallman, Circuit Judges, and Robert H. Whaley, [*] District Judge.

         SUMMARY [**]

         Labor Law

         The panel affirmed the district court's summary judgment in favor of the defendant in an action brought under the Fair Labor Standards Act by students of cosmetology and hair design.

         The panel held that, under the "economic reality" test, the students were not employees under the FLSA even though they alleged that much of their time was spent in menial and unsupervised work. Agreeing with other circuits, the panel held that a "primary beneficiary" analysis, rather than a test formulated by the Department of Labor, applies in the specific context of student workers. The panel concluded that the students, not defendant's schools, were the primary beneficiaries of their own labors because at the end of their training they qualified to practice cosmetology.

         The panel held that the students also were not employees entitled to be paid under Nevada or California law.

         The panel further held that the district court did not abuse its discretion by striking declarations as a sanction under Federal Rule of Civil Procedure 37.

          OPINION

          SCHROEDER, Circuit Judge

         Plaintiffs are students of cosmetology and hair design at schools in California and Nevada operated by defendant B&H Education, Inc., under the name of Marinello Schools of Beauty. Plaintiffs claim that they are employees within the meaning of the Fair Labor Standards Act ("FLSA"), and under California and Nevada state law, on the ground that much of their time is spent in menial and unsupervised work, and that they are therefore entitled to compensation. The District Court granted summary judgment for B&H on the FLSA claim, holding that under the test applicable to such claims, the Plaintiffs, not the schools, are the primary beneficiaries of their own labors because at the end of their training they qualify to practice cosmetology. Moreover, state law requires clinical training that includes maintenance of a clean and sanitary work environment and does not require that all client work be supervised. The District Court also granted summary judgment for B&H on Plaintiffs' claims under California and Nevada state law. We affirm.

         Factual and Procedural Background

         Marinello Schools of Beauty is a for-profit school that offers discounted cosmetology services to the public through salons staffed by vocational students who do not receive compensation. Marinello is licensed to operate in California and Nevada, and provides both classroom instruction and clinical experience for students. Students must complete a minimum number of instruction hours before participating in the clinic and working on customers. See Cal. Code Regs., tit. 16, § 950.12; Nev. Rev. Stat. § 644.408.

         Cosmetologists are required under California and Nevada law to be individually licensed. Cal. Code Regs., tit. 16, § 976; Nev. Rev. Stat. § 644.190(2). State law requires that, before applicants may take the licensing exam, they must take part in hundreds of hours of classroom instruction, including observing demonstrations, and practical training that includes performing services on a person or mannequin. See Cal. Code Regs., tit. 16, §§ 950.2, 928(a); Nev. Rev. Stat. §§ 644.200, 644.204, 644.400(2). The state licensing exam tests sanitation and cleaning knowledge as well as cosmetology skills. Cal. Bus. & Prof. Code § 7338; Nev. Rev. Stat. §§ 644.240, 644.244. Students at Marinello attend lectures, review course materials, take tests, and practice cosmetology on customers in the clinic under some instructor supervision, thereby allowing them to earn academic credit toward qualifying them to take the state licensing exam. In the clinic, students not only practice cosmetology itself, including hair, skin, and nail treatments, but perform selected duties that include sanitizing their work stations, laundering linens, dispensing products, greeting customers, making appointments, and selling products.

         Plaintiffs in this case are Jacqueline Benjamin and Taiwo Koyejo, cosmetology students at Marinello in California, and Bryan Gonzalez, a hair design student at Marinello in Nevada. In January 2015, Plaintiffs filed a Second Amended Collective and Class Action Complaint in the District Court for the Northern District of California. Plaintiffs claimed that, rather than properly educate and train them in cosmetology, B&H exploited the Plaintiffs for their unpaid labor. B&H did this, Plaintiffs claimed, by not paying them for their work in Marinello's salons, by leaving them unsupervised in the salon, and by requiring them to perform services that they already could do as opposed to services that they needed to learn for the licensing exams. Plaintiffs also claimed B&H unlawfully kept the salon's profits, Plaintiffs' tuition fees, the money Plaintiffs spent when required to purchase Marinello's salon supplies to service paying customers, as well as heavy fines that B&H imposed on Plaintiffs for tardiness and absences during scheduled salon shifts. Plaintiffs sought payment for minimum and overtime wages, premium wages for missed meal and rest breaks, civil penalties for violating wage laws, restitution of fines, and reimbursement for supply purchases. Plaintiffs also requested declaratory judgment that B&H's practices violated federal and state law.

         Plaintiffs moved for summary judgment, asserting that the students were employees under federal and state law. B&H filed a cross-motion for summary judgment, contending the Plaintiffs were students, not employees. In response to B&H's cross-motion for summary judgment and to support the allegations of the complaint, Plaintiffs relied in part on witness declarations from three individuals who Plaintiffs had not disclosed to B&H pursuant to Federal Rule of Civil Procedure 26. The District Court therefore ordered the declarations stricken pursuant to Rule 37. The District Court then granted B&H summary judgment and denied Plaintiffs' motion for summary judgment. Applying 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 District Court held that Plaintiffs were not employees under federal or state law because Plaintiffs were the primary beneficiaries of the educational program and they had not shown that Marinello subordinated the educational function of its clinics to its own profit-making purposes.

         Plaintiffs appeal, challenging the District Court's rulings under both federal and state law, as well as the Rule 37 ruling.

         Discussion I. Federal law under the FLSA

         The essence of Plaintiffs' claim is that they should be treated as employees rather than students. Therefore, our analysis under federal law must begin with the distinction that has developed between students, or interns, on the one hand and employees on the other. The seminal case is Walling v. Portland Terminal Co., 330 U.S. 148 (1947) (Portland Terminal), involving trainees working alongside railroad workers, and it has remained the guiding source of the principles governing cases involving claims of both trainees and students seeking to be treated as employees.

          In Portland Terminal, the Supreme Court had to interpret bare bones provisions of the FLSA to determine whether railroad trainees were employees. 330 U.S. at 152-53. The FLSA defines an employee to be "any individual employed by an employer"; it defines "employ" as "to suffer or permit to work." 29 U.S.C. § 203(e)(1), (g). The United States Department of Labor ("DOL") sought an injunction against a railroad for failing to pay its trainees minimum wages under the FLSA. Because the trainees were performing work for the railroad, DOL contended they were required to be paid by the railroad as employees. See Portland Terminal, 330 U.S. at 149. The railroad responded that it was providing training that benefitted the trainees, because the training they were receiving would qualify them to serve and be compensated as employees. Id. at 149-50. After reviewing the factors it deemed relevant, ...


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