Former cosmetology students are not employees entitled to pay under the FLSA and various state laws, the Seventh Circuit holds, rejecting the Department of Labor’s six-factor test but declining to adopt any bright-line test. Hollins v. Regency Corporation, 2017 U.S. App. LEXIS 15076 (7th Cir. Aug. 14, 2017).

The plaintiff was a student enrolled at one of 80 cosmetology schools, known as Regency Beauty Institutes. Each school offered both classroom and practical instruction, the latter consisting of discounted cosmetology services to the public, as well as performing various administrative and janitorial tasks at a school-operated salon.  Seeking to recover on behalf of both herself and a class of former students, the plaintiff alleged that she was an employee and thus entitled to minimum wage under federal and state law.  The district court granted summary judgment to the employer, finding the plaintiff was not engaged in compensable work and on appeal, the Seventh Circuit affirmed.

After first determining that a “final judgment” existed to create a proper appeal, the Seventh Circuit moved onto determining whether the plaintiff was properly classified as an unpaid trainee and not an employee. In resolving the issue, the Court first noted the circular, and practically meaningless, definition of “employee” found in the FLSA (“any individual employed by an employer”).  It then considered whether to adopt the DOL’s six factor “test” or some other multi-factor analysis, including those used by the Second and Eleventh Circuits and in earlier Seventh Circuit decisions, to distinguish between an employee and an unpaid intern.  While clearly expressing skepticism of the DOL’s test and appearing to be more amenable to those factors adopted by the other courts of appeal, the Seventh Circuit ultimately concluded that it could not make “a one-size-fits-all decision” about programs that include practical training or internships, and held that regardless of what factors are used, the overarching determination is “the economic reality of the working relationship.”

Here, the Seventh Circuit found particularly compelling the fact that the practical instruction implemented by the defendant was a state-mandated requirement for graduation from the cosmetology program and therefore was part of the instruction the plaintiff was paying to receive. The Court of Appeals further found compelling that the defendant did not operate salons independently of those used to train its students and prohibited licensed cosmetologists from working in its salons.  In addition, the students were awarded licensing hours and academic credit, not pay, for the services they performed.  Finally, the fact that some of the services the students were required to perform included janitorial or other menial tasks did not alter the analysis because these very types of tasks were part of the job of cosmetologists; in fact, the Seventh Circuit noted, “Salon Safety and Sanitation” comprises the greatest percentage of the state cosmetology examinations in both Illinois and Indiana.

The Seventh Circuit’s opinion in Hollins does not establish a clear-cut test for employers seeking to distinguish between employees and non-employees, instead allowing the law flexibility depending on the particular relationships at issue, which may be welcome news as the “gig” economy grows.