Court Opinion

ID: 4329539
Source: CourtListenerOpinion
Date Created: 2018-11-09 17:00:27.974035+00
Date Added: 2024-06-11T14:20:15.724046
License: Public Domain

FILED
                                                                United States Court of Appeals
                                     PUBLISH                            Tenth Circuit

                      UNITED STATES COURT OF APPEALS                 November 9, 2018

                                                                    Elisabeth A. Shumaker
                             FOR THE TENTH CIRCUIT                      Clerk of Court
                         _________________________________

 RHONDA NESBITT, individually, and on
 behalf of all others similarly situated,

       Plaintiff - Appellant,

 v.
                                                           No. 17-1084
 FCNH, INC.; VIRGINIA MASSAGE
 THERAPY, INC.; MID-ATLANTIC
 MASSAGE THERAPY, INC.; STEINER
 EDUCATION GROUP, INC.; STEINER
 LEISURE LTD.; SEG CORT LLC, d/b/a
 Steiner Education Group,

       Defendants - Appellees,

 and

 NATIONAL EMPLOYMENT LAWYERS
 ASSOCIATION AND
 ECONOMICS/BUSINESS PROFESSORS
 (WILLIAM H. KAEMPFER, NADELLE
 GROSSMAN, PAULA COLE, and
 MIRIAM CHERRY),

       Amici Curiae.
                         _________________________________

                     Appeal from the United States District Court
                             for the District of Colorado
                           (D.C. No. 1:14-CV-00990-RBJ)
                       _________________________________

David H. Miller (and Adam Harrison of Sawaya & Miller Law Firm, on the briefs),
Denver, Colorado, for Plaintiff - Appellant.
Todd Wozniak of Greenberg, Traurig, L.L.P., Atlanta, Georgia (and Jeffrey M. Lippa of
Greenberg, Traurig, L.L.P., Denver, Colorado, with him on the brief), for Defendants -
Appellees.

Scott A. Moss of Moss Law Practice and Hunter A. Swain of King & Greisen, L.L.P.,
Denver, Colorado, for Amici Curiae.
                       _________________________________

Before McHUGH, KELLY, and MORITZ, Circuit Judges.
                  _________________________________

KELLY, Circuit Judge.
                        _________________________________

       Plaintiff-Appellant Rhonda Nesbitt is a former massage therapy student who

attended a for-profit vocational school operated by Defendants-Appellees (“Steiner”).

Ms. Nesbitt, on behalf of a class of former students, brought suit claiming the students

qualified as employees of Steiner under the Fair Labor Standards Act (FLSA), 29 U.S.C.

§§ 201–219, and alleging Steiner violated the FLSA by failing to pay minimum wage.

The district court granted summary judgment in favor of Steiner, holding that the students

were not employees of the schools under the FLSA. See Nesbitt v. FCNH, Inc., 217 F.

Supp. 3d 1288, 1298 (D. Colo. 2016). Our jurisdiction arises under 28 U.S.C. § 1291 and

we affirm.

                                       Background

       Steiner operated for-profit vocational schools in multiple states. 1 Aplt. App. 6–7;

2 Aplt. App. 129. Steiner schools’ curriculum included classroom and clinical education

required for one to become licensed as a massage therapist. 2 Aplt. App. 130–31. The

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clinical component included approximately 100, fifty-minute massages, which counted

toward the minimum clinical hours necessary for students to acquire their state licenses.

Id. at 131–32. The massages were performed at Steiner facilities on members of the

public, who paid discounted rates for the massages. Id. at 132. Because the Steiner

facilities did not have rooms dedicated to massage training, the students would clear

classrooms of desks and chairs and erect massage tables surrounded by privacy curtains

for clinical training. 4 Aplt. App. 474–75, 482–83. Each student would lead his or her

client to a booth that included a massage table and chair with enough space for the

student to make a circuit around the massage table and perform the massage. Id. at 475–

76. While the massages took place, there ostensibly were clinic managers and teaching

assistants on site to supervise the students and provide feedback on their massages. 2

Aplt. App. 131–32. In theory, these supervisors were available to answer questions from

students and to facilitate the clinic’s operations. Id. The parties dispute the extent to

which these supervisors actually provided feedback or answered questions during the

clinic.1 Compare Aplt. Br. at 24–26, with Aplee. Br. at 24–26. After the students

1
  This is one of many factual issues about which the parties disagree. While Steiner
alleges the supervisors were available to answer questions from students and observe
students’ work, Ms. Nesbitt contends the opposite. Ms. Nesbitt alleges that the students
were told they were never to leave their stations (thus precluding them from seeking
guidance), and that the supervisors did not observe the students’ work because the
students were required to keep their privacy curtains drawn throughout the massages
(thus precluding any observation). See Aplt. Br. at 21–22, 24–26. Ultimately, it is
unnecessary to resolve these factual disputes about the efficacy of Steiner’s supervision
and observation. As we discuss below, the other factors we consider and the nature of
this arrangement compel a conclusion that Ms. Nesbitt and the class she seeks to
represent were not employees, they were students on the path to a career.
                                              3
completed their massages, the clients were asked to provide feedback on the massages

they received, id. at 132, though the parties dispute how often these clients actually

completed their feedback forms and how often feedback was given to students. Compare

Aplt. Br. at 28, with Aplee. Br. at 27. Following each massage, students would lead their

client out and prepare their workspace for the next client. See, e.g., 4 Aplt. App. 438,

442–43, 447. They would typically repeat this process for five clients each clinical day.

See, e.g., id. at 443, 447, 454. Ms. Nesbitt alleges Steiner profited from the clinics with

the students as free labor. Aplt. Br. at 31.

       Rhonda Nesbitt brought her class-action suit under the FLSA in the District of

Colorado on April 7, 2014.2 1 Aplt. App. 1. Steiner moved to compel arbitration of the

claims and to prohibit litigation of the issues as a class. Id. at 39–53. The district court

denied that motion, Nesbitt v. FCNH, Inc., 74 F. Supp. 3d 1366, 1375 (D. Colo. 2014),

and this court affirmed. Nesbitt v. FCNH, Inc., 811 F.3d 371, 381 (10th Cir. 2016).

       On remand, the district court addressed the issue of whether Ms. Nesbitt and the

students she seeks to represent qualified as employees under the FLSA. The district court

found they did not. Nesbitt, 217 F. Supp. 3d at 1298. The district court determined that

the six factors announced in Reich v. Parker Fire Protection District, 992 F.2d 1023 (10th

Cir. 1993), when considered in their totality, resulted in a finding that the students were

not employees of Steiner. Nesbitt, 217 F. Supp. 3d at 1294. The district court came to

2
  In addition to her FLSA claim, Ms. Nesbitt brought a number of state-law claims not at
issue on appeal. The district court dismissed the state-law claims, concluding that this
court’s decision on Ms. Nesbitt’s FLSA claim would be dispositive. 9 Aplt. App. 834–
35.
                                               4
that conclusion because (1) the students received vocational training from Steiner, (2) the

training primarily benefited the students because they were required to complete hours of

clinical time for their licenses, (3) the students did not displace regular employees and

worked under supervision of Steiner instructors, (4) there was no genuine issue of

material fact regarding the profit Steiner made from operating its schools, (5) the students

were not entitled to employment upon completion of their training, and (6) the students

and Steiner both understood that the students were not entitled to wages during their time

spent training. See id. at 1294–98. Accordingly, the district court granted summary

judgment in favor of Steiner on the question of Ms. Nesbitt’s FLSA claim. Id. at 1298;

see also Nesbitt v. FCNH, Inc., No. 14-cv-00990-RBJ, 2017 WL 916453 (D. Colo. Mar.

2, 2017). This appeal followed.

                                        Discussion

       We review a district court’s grant of summary judgment de novo. Birch v. Polaris

Indus., Inc., 812 F.3d 1238, 1251 (10th Cir. 2015). The legal determination whether an

individual is an “employee” under the FLSA is also reviewed de novo. Reich, 992 F.2d

at 1025.

       The FLSA requires that — subject to certain exceptions — every employer pay its

employees a specified minimum wage and time-and-a-half for hours worked over forty in

a workweek. See 29 U.S.C. §§ 206–207. The FLSA defines an employee as “any

individual employed by an employer.” Id. § 203(e)(1). In 1947, the Supreme Court

distinguished between employees, who are entitled to wages under the FLSA, and

                                             5
trainees, who usually are not. See Walling v. Portland Terminal Co., 330 U.S. 148, 153

(1947). In that case, the Court held that prospective railroad brakemen who received on-

the-job training, but were not paid during the training period, were not entitled to wages

under the FLSA. Id. From Portland Terminal, the Department of Labor (DOL)

developed a six-part test for determining whether trainees qualified as employees under

the FLSA,3 and we adopted that test in part in Reich v. Parker Fire Protection District,

992 F.2d 1023 (10th Cir. 1993).

       Under Reich, a court assesses: (1) whether the training received is similar to that

which would be given in a vocational school; (2) whether the training is for the benefit of

the trainee or the employer; (3) whether the trainees displace regular employees, or rather

work under close observation or supervision; (4) whether the employer that provides the

training derives an immediate advantage from the activities of the trainees; (5) whether

the trainees are necessarily entitled to a job at the completion of their training period; and

(6) whether the employer and trainees understand that the trainees are not entitled to

wages for the time they spend in training. See id. at 1026. These six criteria are all

3
  On January 5, 2018, the Department of Labor announced that it was abandoning its six-
factor test in favor of the more flexible “primary beneficiary” test. See News Release,
U.S. Dep’t of Labor, U.S. Department of Labor Clarifies When Interns Working at For-
Profit Employers Are Subject to the Fair Labor Standards Act (Jan. 5, 2018),
https://www.dol.gov/newsroom/releases/whd/whd20180105; see also U.S. Dep’t of
Labor, Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act (Jan.
2018), https://www.dol.gov/whd/regs/compliance/whdfs71.pdf. As we have said before,
however, we consider the DOL’s interpretation of the FLSA embodied in its
nonregulatory guidelines merely for its persuasive authority under Skidmore v. Swift &
Co., 323 U.S. 134 (1944). See Reich, 992 F.2d at 1026–27; cf. United States v. Mead
Corp., 533 U.S. 218 (2001).
                                              6
relevant but not conclusive to the determination whether a trainee is an employee — the

determination must be made under the totality of the circumstances and no one factor is

dispositive. Id. at 1026–27.

       The district court applied Reich and it determined that Ms. Nesbitt and the other

students were not employees. See Nesbitt, 217 F. Supp. 3d at 1294–98. On appeal, Ms.

Nesbitt first argues that the district court erred when it applied Reich as the governing

framework. She contends that the court should have applied the test in Marshall v. Regis

Educational Corp., 666 F.2d 1324 (10th Cir. 1981), where the court held, after looking at

the totality of the circumstances, that student resident hall assistants working for a college

were not employees under the FLSA. Id. at 1328. According to Ms. Nesbitt, Regis

Educational Corp. specifically addresses whether students working for a school are

employees by looking at the full educational context, rather than looking at an exclusive

set of factors.

       At the district court, it does not appear that Ms. Nesbitt contended that Regis

Educational Corp. constitutes a stand-alone test distinct from Reich. See generally 4

Aplt. App. 336–55. Regardless, Regis Educational Corp. is merely another application of

the totality of the circumstances test first articulated in Portland Terminal and later relied

upon in Reich to examine the economic reality of the relationship between the entity

providing training and the plaintiffs.

       Ms. Nesbitt next invites us to apply the “primary beneficiary” test set forth by the

Second Circuit in Glatt v. Fox Searchlight Pictures, Inc., 811 F.3d 528 (2d Cir. 2015), a

case involving unpaid college interns, not a mandatory clinical training program leading

                                              7
to a state-licensed profession.4 We see no need to do so given the breadth of our test,

which relies on the totality of the circumstances and accounts for the economic reality of

the situation.5 As the district court stated:

       I have found that at least four and arguably more of the six Reich factors
       suggest that plaintiffs were not defendants’ employees. But at bottom I look
       at the “totality of the circumstances” and of the “entirety of the economic
       realities” of the parties’ relationship. Put another way, I look at the forest,
       not just the trees.

Nesbitt, 217 F. Supp. 3d at 1298. Indeed, even if we were inclined to adopt Glatt,

“[u]nder the doctrine of stare decisis, this panel cannot overturn the decision of another

panel of this court.” United States v. Meyers, 200 F.3d 715, 720 (10th Cir. 2000). Reich

remains applicable here.

       Finally, Ms. Nesbitt argues that even if Reich is the correct test, the district court

erred in its application of the Reich factors and its assessment of the totality of the

circumstances. She primarily focuses on two factors from the Reich test: the adequacy of

the observation and supervision provided by Steiner over the students, and the profit

Steiner allegedly received from having students perform massages without pay.

       First, Ms. Nesbitt and Steiner disagree about the level of supervision and

observation required under Reich. Ms. Nesbitt argues that merely having an instructor on

4
  To date, four circuits have adopted the primary beneficiary test. See Benjamin v. B&H
Educ., Inc., 877 F.3d 1139 (9th Cir. 2017); Schumann v. Collier Anesthesia, P.A., 803
F.3d 1199 (11th Cir. 2015); Glatt v. Fox Searchlight Pictures, Inc., 811 F.3d 528 (2d Cir.
2015); Solis v. Laurelbrook Sanitarium & Sch., Inc., 642 F.3d 518 (6th Cir. 2011).
5
  See Robert J. Tepper & Matthew P. Holt, Unpaid Internships: Free Labor or Valuable
Learning Experience?, 2015 BYU Educ. & L.J. 323, 334–35 (suggesting that such an
analysis is required by Supreme Court precedent).
                                                8
premises during the clinics is not sufficient to satisfy Reich’s “close observation” factor.

Aplt. Br. at 56–61. In particular, she alleges that the students were unable to leave their

posts to seek guidance from clinical instructors and that the instructors on premises never

actually observed students during their massages — making the supervisors’ physical

presence illusory. Id. Steiner counters that it has always satisfied state supervision

requirements for clinical instruction, and that the supervision here is sufficient. Aplee.

Br. at 48–49; 54–55. Whatever the minimal supervision necessary to mark one’s status

as a trainee may be, and recognizing that the facts here were controverted, we can say

that floor was met. The “close supervision” factor is meant to distinguish between

regular employees and trainees. At no time did the students function as regular

employees; they were students learning a trade on vocational school premises. The

presence of supervisory licensed massage therapists and teaching assistants to oversee

them sets this case apart from situations where students all but carried out the duties of

regular employees. In any event, given a totality of the circumstances test, the presence

of some supervision when combined with the other factors weighs in favor of finding that

the students were trainees. Moreover, there is no need for each and every one of the six

factors to point toward the same outcome. See Reich, 992 F.2d at 1029 (noting that one

of the six factors pointed toward a finding the plaintiffs were employees, but holding that

a single factor cannot carry the weight under a totality inquiry).

       Second, Ms. Nesbitt argues that Steiner — not the students — was the primary

beneficiary of their arrangement. According to Ms. Nesbitt, Steiner was able to profit

from an unpaid workforce while the students were left with almost no beneficial training.

                                              9
See Aplt. Br. at 56–58, 61–62. However, the hours students spent performing massages

as part of their Steiner curriculum allowed them to advance toward their minimum

licensing requirements and provided them an obvious benefit. For example, in order to

receive her Colorado license, Ms. Nesbitt was required to graduate from an accredited

massage therapy school with a combined 500 hours of classroom and clinical training,

and Steiner’s 100-hour minimum clinical requirement clearly provided her a material

benefit. See Colo. Rev. Stat. § 12-35.5-107. This is true regardless of the profit, if any,6

that Steiner may have made from the students’ unpaid work. We agree with the district

court that “the clinics had an obvious benefit for [the students].” Nesbitt, 217 F. Supp. 3d

at 1295.

       The other factors also weigh in favor of finding that the students were trainees, not

employees. First, we agree with the district court that the training received by the

students was similar to training in vocational school because their training was “literally

‘vocational school’ training.” Id. at 1294. Ms. Nesbitt and the other students were

required to complete a minimum number of clinical hours to acquire their state licenses.

The training they received at Steiner schools was instrumental to that goal, and the

classroom and clinical components prepared them to be massage therapists. This

distinguishes Ms. Nesbitt’s case from her preferred comparison Glatt, where the unpaid

interns in question alleged they replaced paid employees and any training received was

6
  Steiner, for its part, asserts it made no profit from the operation of the massage therapy
program given its overhead and other operational costs. See Aplee. Br. at 27–28; see also
2 Aplt. App. 133.
                                             10
unrelated to their formal education. Cf. Glatt, 811 F.3d at 532–33, 535–36. Second, we

agree with the district court that the students clearly were not entitled to a job upon

completion of their program with Steiner. Nesbitt, 217 F. Supp. 3d at 1298. Students

were aware that Steiner operated schools, not massage therapy businesses, and therefore

there could not be any expectation of full-time employment following completion of their

training. Steiner was not an employer of massage therapists, and after the students

completed their educational program they would have to seek employment elsewhere.

And finally, we agree with the district court that both the students and Steiner understood

that the students were not entitled to wages for their time spent training. Id. Not only did

the students receive and sign enrollment agreements that confirmed they were enrolling

in vocational programs that would not provide them with wages, 2 Aplt. App. 150–51,

but it would be illegal to pay the unlicensed students a wage before they completed their

training and state licensing requirements. See Nesbitt, 217 F. Supp. 3d at 1298; see, e.g.,

Colo. Rev. Stat. §§ 12-35.5-106, 12-35.5-115. Given that background, there can be no

doubt the students understood they were entering an educational program that would not

entitle them to wages.

        For the foregoing reasons, the district court did not err when it found that Ms.

Nesbitt and the students she seeks to represent are not employees of Steiner under the

FLSA.

        AFFIRMED. The motion of the National Employment Lawyers Association et al.

for leave to file a brief as amici curiae is GRANTED.

                                             11