Using an "economic realities" test, the 9th Circuit has decided that students at Marinello Schools of Beauty are not "employees" under the Fair Labor Standards Act (FLSA). Therefore, they are not entitled to minimum and overtime wages. Benjamin v. B & H Education (9th Cir 12/19/2017).
The students 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.
All of this gets the students ready to take state licensing exams.
The school operates salons – open to the public – that are staffed with unpaid students.
The 9th Circuit applied a distinction that has developed between students, or interns, on the one hand and employees on the other. Courts and the Department of Labor have developed various tests that consider four, six, or seven factors. (The outcomes tend to be the same no matter what list of factors is used.) In any event, the court shied away from the DOL's analysis (which uses six factors) as being too rigid, and applied what it calls the "primary beneficiary" test (which uses seven).
Using the "primary beneficiary" test, the court easily found that the students were not FLSA employees. The students, not the schools, were the primary beneficiaries of their own labors because at the end of their training they qualified to practice cosmetology. Students knew they would not get paid or be considered for employment positions, their clinical work corresponded to their academic requirements, they stayed in the program no longer than necessary to qualify for state exams, and they did not displace any of the school's employees.
I've known students in similar programs. It's a tough road to hoe. And the schools do well because they get "free" labor. Everyone understands the system. Students pay tuition, learn, and work in the salons.