UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

ROBERT B. REICH, SECRETARY OF

LABOR, UNITED STATES

DEPARTMENT OF LABOR,

Plaintiff-Appellee,

v.

No. 95-2765

SHILOH TRUE LIGHT CHURCH OF

CHRIST, d/b/a Shiloh Vocational

Training Program; JAMES ROMMIE

PURSER; GARY LEON YORK,

Defendants-Appellants.

Appeal from the United States District Court

for the Western District of North Carolina, at Charlotte.

Robert D. Potter, Senior District Judge.

(CA-92-444-3-P)

Argued: April 1, 1996

Decided: May 7, 1996

Before WILKINSON, Chief Judge, and WILKINS and LUTTIG,

Circuit Judges.

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Affirmed by unpublished per curiam opinion.

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COUNSEL

ARGUED: David Carl Cordes, Allen A. Bailey, BAILEY, PATTERSON, CADDELL, HART & BAILEY, P.A., Charlotte, North Caro-
lina, for Appellants. Anne Payne Fugett, UNITED STATES

DEPARTMENT OF LABOR, Washington, D.C., for Appellee. ON

BRIEF: Thomas S. Williamson, Jr., Solicitor, Gail V. Coleman, Deputy Associate Solicitor, William J. Stone, Counsel for Appellate Litigation, UNITED STATES DEPARTMENT OF LABOR,

Washington, D.C., for Appellee.

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Unpublished opinions are not binding precedent in this circuit. See

Local Rule 36(c).

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OPINION

PER CURIAM:

Appellant Shiloh True Light Church of Christ's members hold a

religious belief that their children should receive meaningful vocational training. This belief is effectuated through the Shiloh Vocational Training Program (SVTP). The issue in this case is whether

SVTP participants under the age of sixteen are "employees" entitled

to the protections of the Fair Labor Standards Act. The Church argues

that those children are not employees, and that at any rate, application

of the FLSA would violate both the Free Exercise Clause and Department of Labor administrative policy.

The district court entered partial summary judgment against the

Church, rejecting its free exercise and administrative defenses. Then,

following a two-day bench trial, the court concluded that the undersixteen participants in the SVTP qualified as employees under the

FLSA. Finding no error, we affirm the judgment of the district court.

I.

Church youth perform a variety of construction projects through

the SVTP, and customers pay the Church for the work. We have

upheld application of the FLSA to the SVTP once before. Brock v.

Wendell's Woodwork, Inc., 867 F.2d 196 (4th Cir. 1989). After the

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trial in Wendell's Woodwork, the Church reorganized the program. A

principal modification was that children under the age of 16 would no

longer receive a wage for their work. The SVTP also decided to segregate its work crews by age, but has since discontinued that practice

-- children under and over 16 now work together in combined work

crews, performing largely the same tasks.

The SVTP's projects formerly consisted mostly of subcontract

work at construction sites. Representative projects include installing

a fireplace, constructing a carport, adding a room, laying a foundation

under a garage, and building concrete retainer walls. Since 1990, the

program has also been in the business of constructing entire new

houses -- the SVTP built 15 new homes between 1990 and 1993.

Children under 16 participate in all aspects of new home construction,

including roofing, building the foundation, mixing mortar, laying

bricks, and installing drywall.

The SVTP charges labor costs, material costs, other general

expenses, and also an administrative fee and an interest fee for its new

home construction. The labor charge does not include the work of

children under the age of 16, in furtherance of the policy barring payment of wages to under 16 participants. But while children under 16

do not receive a wage, they have not been completely free of financial

inducement. They have received lump sum payments in the past, with

the amount depending on the child's degree of experience and

achievement in the program -- the Church characterizes these awards

as "gifts." The under 16 participants also earn "imaginary" raises on

top of "imaginary" wages as a mechanism for determining their actual

wage upon turning 16.

The Department of Labor filed suit against the SVTP on December

3, 1992, contending that the program violates FLSA provisions governing child labor, minimum wage, and record-keeping. The SVTP

initially admitted that all of the children were employees subject to

the FLSA, but then adopted a position that the children under 16 were

not employees under the Act. It also challenged application of the

FLSA on free exercise grounds. Finally, it asserted defenses based on

the Department of Labor's no-enforcement policy with respect to

some vocational programs and the Department's failure to promulgate

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regulations under 29 U.S.C. § 214(d) exempting certain student

employment.

On February 24, 1995, the district court entered partial summary

judgment in favor of the Department. The court rejected the SVTP's

free exercise defense, finding it indistinguishable from the free exercise claim denied in Wendell's Woodwork, 867 F.2d at 196. The court

also rejected the SVTP's administrative defenses. In the court's view,

though, trial was necessary to examine whether the under 16 children

were employees under the FLSA.

The district court held a bench trial to answer that question on May

15 and 16, 1995. Based on the evidence presented at trial and on the

154 findings of fact set forth in its opinion, the court determined that

SVTP participants under 16 were employees subject to the protections

of the FLSA. As a result, the court concluded, the Church had violated the Act's child labor, minimum wage, and record-keeping

requirements with respect to those employees. This appeal followed.

II.

The SVTP contends that the district court erred in concluding that

the children under 16 are employees under the Act. We do not agree.

The district court's ruling was based on extensive factual findings

developed with the benefit of a two-day bench trial, findings that we

must not lightly second-guess on appeal.

The FLSA defines an "employee" as "any individual employed by

an employer," 29 U.S.C. § 203(e)(1), and"employ" as "to suffer or

permit to work," 29 U.S.C. § 203(g). In some circumstances, trainees

are not considered employees. See Walling v. Portland Terminal Co.,

330 U.S. 148 (1947). In this circuit, "the general test used to determine if an employee is entitled to the protections of the Act is

whether the employee or the employer is the primary beneficiary of

the trainees' labor." McLaughlin v. Ensley , 877 F.2d 1207, 1209 (4th

Cir. 1989). The inquiry is by nature a fact-intensive one. See id. at

1209-10.

The SVTP agrees that the "primary beneficiary" test should govern

this case, but disputes the district court's application of it. In our

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view, however, the district court's conclusion that the Church is the

primary beneficiary of the under 16 labor finds support in the factual

record. The Church admits that children over 16 are employees under

the Act, and thus presumably that it is the primary beneficiary of their

labor. But the children under 16 perform essentially the same tasks

as their older counterparts, suggesting that they, too, are employees:

An SVTP instructor, Richard Allen Bush, testified that children under

16 and children over 16 often do precisely the same work, and that

age is not determinative of the work assigned.

Although the under 16 participants may not receive wage compensation, they have received substantial lump sum awards in the past (as

high as $5,500). While the Church evidently has discontinued these

payments, the record suggests that it has continued to seek ways to

compensate the children without running afoul of the FLSA. Moreover, workers under the age of 16 still receive"imaginary" raises that

directly translate into a higher rate of pay upon turning 16. And the

SVTP expert who testified as to the non-financial benefits of the program was viewed by the district court as lacking credibility. Given all

of this, we cannot question the district court's finding "as a fact that

the . . . church policy to not pay the minors under 16 is an attempt to

label them students rather than employees."

The court also concluded that the Church benefits greatly from the

work of children under 16. In the past, although the under 16 labor

was not charged, the SVTP informed customers that they could make

a "donation" in an amount approximating the value of the work; such

a donation normally was made. While the donation practice has been

discontinued, the Church still gains significant financial benefit from

projects in which under 16 children participate. Between 1990 and

1993, the SVTP finished 97 construction projects and 15 complete

houses with the help of children under the age of 16, producing substantial financial returns. Three of the houses, for instance, were sold

for $134,000, $124,750, and $213,456. By using children under 16 to

complete these projects, the district court found, the SVTP enjoyed

the benefit of experienced labor without incurring any cost in wages.

"Clearly," the court concluded, "the program has been converted into

a commercial enterprise competing with other contractors."

In short, substantial evidence in the record supports the district

court's conclusion that the Church was the primary beneficiary of the

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under 16 labor, and that the children under 16 are thus employees

entitled to the protections of the FLSA.

III.

The SVTP also contests the district court's rejection of its free

exercise claim. According to appellant, the district court failed to recognize that this was a "hybrid" claim involving both free exercise

rights and other fundamental rights. See Employment Division v.

Smith, 494 U.S. 872, 882 (1990). The court, however, plainly understood that it was dealing with a hybrid claim, and also that after the

Religious Freedom Restoration Act, 42 U.S.C. § 2000bb et seq,

hybrid claims and "pure" free exercise claims both must be analyzed

under the compelling interest test.

In the circumstances of this case, the district court's application of

the compelling interest test was appropriate. As the district court

noted, the free exercise defense is essentially indistinguishable in relevant respects from that presented by the SVTP (and rejected by this

court) in Wendell's Woodwork, 867 F.2d at 196. The SVTP has presented no new evidence that would warrant revisiting our conclusion

in that case. We do not suggest, however, that church-run vocational

programs are inevitably subject to the FLSA, or that they will always

fall outside the protection of the Free Exercise Clause. Instead, our

conclusion here, as was our analysis in Wendell's Woodwork, is based

on the particular facts and on the characteristics of the program at

issue.

IV.

Finally, the SVTP challenges the district court's rejection of its

administrative defense. The SVTP's administrative argument is based

in part on 29 U.S.C. § 214(d), which states:

The Secretary may by regulation or order provide that sections 206 and 207 of this title shall not apply with respect

to the employment by any elementary or secondary school

of its students if such employment constitutes, as determined under regulations prescribed by the Secretary, an

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integral part of the regular education program provided by

such school and such employment is in accordance with

applicable child labor laws (emphasis added).

According to the SVTP, the Department of Labor has failed to issue

regulations under this provision, and schools thus lack guidance on

whether their vocational programs violate the FLSA. As a result, the

SVTP asserts, the Department cannot prosecute actions against vocational programs for violations of the Act.

Plainly, however, the statute only says that the Secretary "may"

promulgate regulations; it nowhere requires the Secretary to issue regulations. The situation is thus far different from that in the case principally relied upon by appellant, Mayor v. Mathews , 562 F.2d 914 (4th

Cir. 1977), cert. denied, 439 U.S. 862 (1978). The discretionary

nature of the statute at issue here, as the district court appropriately

found, forecloses the SVTP's argument. The Secretary has not issued

regulations exempting certain categories of student employment, and

so the SVTP cannot benefit from any such exemption.

Appellant's administrative defense is also based on the noenforcement policy expressed in section 10b28 of the Department's

Wage and Hour Division's Field Operations Handbook. That provision reads in pertinent part:

(a) Until final regulations implementing the provisions of

Sec 14(d) are adopted, WH [the Wage and Hour Division]

will take no enforcement action with respect to MW[minimum wage] or OT [overtime] for private elementary or secondary students employed by any school in their school

district in various school-related work programs, provided,

that such employment is in compliance with applicable CL

[child labor] provisions. . . . (b) If such employment is not

in compliance with applicable CL provisions, the students

so employed must be paid MW and OT for all hours worked

. . . . Also, the employer will be subject to CL/CMP's [civil

money penalties].

According to the SVTP, it presumed under this provision that the

Department would not enforce the FLSA against it, and that under 29

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U.S.C. § 259, such good faith reliance should preclude application of

the Act.*

The no-enforcement policy, however, does not apply to the SVTP.

The policy is only implicated if the "employment is in compliance

with applicable [child labor] provisions." As the district court determined, the SVTP has violated child labor laws by allowing children

under eighteen to operate hazardous machinery, see 29 C.F.R.

§§ 570.52, 570.58, 570.65, and children under sixteen to work in construction during hours prohibited by federal regulation, see 29 C.F.R.

§§ 570.33(b), 570.33(f)(4), 570.35. See generally 29 U.S.C. § 203(l).

As a result, the SVTP's administrative defense must fail.

V.

For the foregoing reasons, the judgment of the district court is

hereby

AFFIRMED.

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*29 U.S.C. § 259 states in relevant part:

[N]o employer shall be subject to any liability or punishment for

or on account of the failure of the employer to pay minimum

wages or overtime compensation under the Fair Labor Standards

Act . . . if he pleads and proves that the act or omission complained of was in good faith in conformity with and in reliance

on any written administrative regulation, order, ruling, approval,

or interpretation, of the [Wage and Hour Division of the Department of Labor].

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