Seyfarth Synopsis: Courts across the country have frequently weighed in on the unpaid interns/ trainees versus paid employee debate. Now, the 10th Circuit has jumped into the fray with a decision affirming that a massage therapy student was not an employee under the FLSA and thus need not be paid.
The issue of whether interns and trainees must be paid under the Fair Labor Standards Act ("FLSA") is a hot topic among companies. Over the years, courts hearing these suits, and agencies enforcing and interpreting the law, have applied different tests and reached different answers in determining the nature of the employment relationship and the circumstances under which interns must be paid. Figuring out which test applies and how it applies has been for many employers a pain in the neck for which massage therapy is needed.
Fortunately, in steps a massage therapy school.
This month, in Nesbitt v. FCHN Inc., et al., the 10th Circuit affirmed the District of Colorado's grant of summary judgment holding that massage therapy students were not employees under the FLSA and thus not entitled to payment. As part of the curriculum to become a licensed massage therapist, the plaintiff-student was required by the defendant massage therapy school to complete both classroom and clinical education requirements. The clinical education component included approximately 100 massages to the public, each lasting about 50 minutes.
The schools charged the public discounted rates for the massages because they were being performed by students. The massages took place at the school where clinic managers and teaching assistants were on site to supervise and provide feedback (the extent of that supervision was disputed by the parties).
In its decision, the district court applied a six-factor totality of the circumstances test. The six-factor test was originally set out in the landmark Supreme Court case of Walling v. Portland Terminal and later applied by the 10th Circuit in Reich v. Parker Fire Protection District. The district court applied that test to find the students to not be employees. It specifically held as follows:
Factor One: The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school. Here, the students received vocational training from the school.
Factor Two: The training is for the benefit of the trainees. Here, the training primarily benefitted the students because they were required to complete these clinical hours to obtain their licenses
Factor Three: The trainees do not displace regular employees, but work under close observation. Here, the students did not displace regular employees and they worked under the supervision of school instructors.
Factor Four: The employer that provides the training derives no immediate advantage from the activities of the trainees and on occasion its operations may actually be impeded. Here, there was no dispute regarding the profit that the company made from operating its school.
Factor Five: The trainees are not necessarily entitled to a job at the completion of the training period. Here, the students were not entitled to employment upon completion of their training.
Factor Six: The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training. Here, the students and Defendant both understood that they were not entitled to wages for time spent training.
The student appealed the district court's decision on two bases. First, the student argued that the district court applied the wrong test and instead should have used the "primary beneficiary test." Notably, the primary beneficiary test has been adopted in the 2nd, 6th, and 9th Circuits. Additionally, on January 5, 2018, the United States Department of Labor ("DOL") announced that going forward, it would utilize the primary beneficiary test. The DOL's updated Fact Sheet #71, explains the test, which examines "the 'economic reality' of the intern-employer relationship to determine which party is the 'primary beneficiary of the relationship." The 10th Circuit, however, felt bound to follow its prior Reich precedent.
Second, the student argued that even if the Reich test is applied, the factors weigh in favor of an employee-employer relationship, particularly because the massages were not carefully supervised. But in affirming the district court's decision, the Court explained that one factor alone is not sufficient to weigh in favor of an employer-employee relationship. As the district court had stated, "I look at the forest, not just the trees."
The Takeaway for Employers: Employers interested in establishing or maintaining an unpaid internship or trainee program should ensure that the program is connected to a formal educational program. And although no single factor is dispositive, certain factors can and should be clarified in a written agreement between the intern, the employer, and the employee with an eye toward the various tests courts use to decide whether an intern or trainee must be considered an employee, and thus whether the intern or training must be paid minimum wage and overtime.
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