Velarde v. GW GJ, Inc.
914 F.3d 779 (2019)
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Rule of Law:
The 'primary beneficiary' test, which determines whether an intern is an employee under the Fair Labor Standards Act (FLSA), also applies to students at for-profit vocational schools. If the student is the primary beneficiary of the relationship, receiving necessary training for state licensure, they are not considered an employee entitled to wages, even if the school derives financial benefit from their work.
Facts:
- To become a licensed cosmetologist in New York, Patrick Velarde enrolled in the Academy, a for-profit training school.
- New York state law requires 1,000 hours of coursework to be eligible for the cosmetology license examination.
- Velarde paid the Academy over $12,000 in tuition and fees for its 1,000-hour program, which included both classroom instruction and practical training.
- The practical training component required Velarde to work unpaid for 34 hours per week for 22 weeks in the Academy's student salon.
- In the salon, Velarde provided cosmetology services under supervision to paying members of the public, from which the Academy derived revenue.
- Velarde's duties also included performing janitorial and clerical work at the salon.
- Upon completing the 1,000-hour program, Velarde became eligible for, and subsequently obtained, his state cosmetology license.
Procedural Posture:
- Patrick Velarde sued the Academy in federal district court, alleging violations of the Fair Labor Standards Act (FLSA) and New York Labor Law (NYLL) for unpaid wages.
- The Academy filed a motion for judgment on the pleadings.
- A Magistrate Judge issued a report recommending that the Academy's motion be granted.
- The U.S. District Court adopted the Magistrate Judge's recommendation, rejected Velarde's objections, and entered judgment in favor of the Academy.
- Velarde, as the appellant, appealed the District Court's judgment to the U.S. Court of Appeals for the Second Circuit, with the Academy as the appellee.
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Issue:
Does a student at a for-profit vocational school, who performs unpaid practical work on the public as part of a training program required for state licensure, qualify as an 'employee' entitled to minimum wage under the Fair Labor Standards Act (FLSA) and New York Labor Law (NYLL)?
Opinions:
Majority - Judge Susan L. Carney
No. A student at a for-profit vocational school performing work required for state licensure is not an 'employee' under the FLSA if the student is the primary beneficiary of the relationship. The court held that the 'primary beneficiary' test from Glatt v. Fox Searchlight Pictures, Inc., which was developed for unpaid interns, is the appropriate framework for analyzing the relationship between a vocational school and its students. The court reasoned that, like interns, vocational students enter into the relationship with the expectation of receiving educational benefits. Applying this test, the court concluded that Velarde was the primary beneficiary because the practical work he performed was a necessary component of the 1,000 hours of training mandated by New York state for licensure. The fact that the Academy is a for-profit entity and derived revenue from his work did not override the fundamental educational nature of the relationship, for which Velarde himself paid tuition. His work complemented, rather than displaced, paid employees, as it required supervision by licensed instructors.
Analysis:
This decision extends the 'primary beneficiary' test from the intern context to the vocational school setting, providing significant legal clarity and protection for such institutions. It establishes that the core purpose of the relationship—education and licensure eligibility—trumps the commercial aspects, such as the school being for-profit or charging clients for student work. The ruling creates a strong precedent that as long as a school's practical training program is structured around state-mandated requirements and provides the necessary hands-on learning, its students are unlikely to be classified as employees under the FLSA. This may reduce wage-and-hour litigation against vocational schools and reinforces the distinction between a student paying for training and an employee being paid for labor.
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