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,
B & H Education, Inc. Defendant-Appellee.
and Submitted September 11, 2017 San Francisco, California
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.
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.
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.
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
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.
panel held that the students also were not employees entitled
to be paid under Nevada or California law.
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.
SCHROEDER, Circuit Judge
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.
and Procedural Background
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. §
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.
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.
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.
appeal, challenging the District Court's rulings under
both federal and state law, as well as the Rule 37 ruling.
I. Federal law under the FLSA
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
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, ...