United States District Court, N.D. Illinois, Eastern Division
VENITIA HOLLINS, Individually and on behalf of all others similarly situated, Plaintiff(s)
REGENCY CORPORATION, et al., Defendant(s)
Venitia Hollins, Plaintiff: Leon Marc Greenberg, LEAD
ATTORNEY, Leon Greenberg, Las Vegas, NV; Christian James
Gabroy, Robert Orman & Associates, Chicago, IL; Robert Orman,
Law Office of Robert Orman, Chicago, IL.
Regency Corporation, Hayes Batson, Defendants: Samuel S
Shaulson, LEAD ATTORNEY, O'Melveny & Myers, New York, NY;
Christopher Joseph Boran, Sari M. Alamuddin, Morgan, Lewis &
Bockius LLP, Chicago, IL; Meredith E Riccio, Morgan Lewis &
Bockius, Chicago, IL.
OPINION AND ORDER
Tharp, Jr., United States District Judge.
plaintiff Venitia Hollins was a cosmetology student enrolled
at the Regency Beauty Institute, which is owned and operated
by defendant Regency Corporation (" Regency"
). Hollins sues individually and on
behalf of a class seeking to recover unpaid wages under the
Fair Labor Standards Act, 29 U.S.C. § 201 (FLSA) and
related Illinois and Indiana wage payment statutes. As the
curriculum required, while enrolled at Regency Beauty
Institute, Hollins performed various cosmetology services for
paying customers. She alleges that performing these services
transformed her from Regency's student to Regency's
" employee" within the meaning of the FLSA, and
that she is thus entitled to compensation. Regency moves for
summary judgment arguing its students do not fall within the
purview of the FLSA. For the following reasons, Regency's
motion is granted.
operates state licensed and accredited cosmetology schools
throughout the country, including in Illinois and Indiana.
DSOF ¶ 1. Regency's stated educational goals are to
prepare students to pass the required state cosmetology exams
and to teach them the entry-level skills needed to work in a
professional salon. DSOF ¶ 17. Regency is a fully
accredited for-profit, private cosmetology school.
accredited cosmetology school, Regency is governed by
detailed state regulations and the National Accrediting
Commission of Career Arts & Sciences (" NACCAS" ).
DSOF ¶ ¶ 7-15. In both Indiana and Illinois, these
regulations require that Regency's curriculum comprise
at least 1500 hours of " clock time" and cover the
chemical treatment of hair, hair styling, nail technology,
shop management, and other cosmetology-related subjects. 68
Ill. Admin Code § 1175.530; 820 Ind. Admin Code §
§ 4-4-4; DSOF ¶ ¶ 14-15. These regulations
also require that students receive instruction on proper
sanitation techniques and best practices. 620 Ill. Admin Code
§ 1175.505 (c); 820 Ind. Admin Code § § 3-1-1;
DSOF ¶ 13. Both the NACCAS and state law require that
this instruction take the form of both classroom and
practical learning methods. DSOF ¶ 59. As such, Regency
requires that students practice sanitizing all instruments
before and after each use, using clean towels on each model,
and ensuring that the floors, walls, and furniture are kept
clean at all times. Examples of appropriate practical
learning methods listed by the NACCAS include " student
salon activities," and much of Regency's practical
training occurs in such an environment. DSOF ¶ 59.
comply with these statutory requirements and to accomplish
its teaching objectives, Regency divides its 1500-hour
curriculum into three periods: the workshop phase, the
rehearsal phase, and the performance phase. DSOF ¶ 20.
The workshop phase consists of 320 hours of introductory
education on the various subjects Regency is required to
teach under Indiana and Illinois state law. DSOF ¶ 22.
To move from the workshop phase into the rehearsal phase,
students must successfully pass a battery of written and
performance-based tests. After successfully completing the
exams, students then rotate between the rehearsal
phase--which consists of additional classroom
instruction--and the performance phase.
the workshop phase, students spend the first two days of the
week in classroom for the rehearsal phase, where they study
the principles of hair design, hairstyling, haircutting,
professional development, and business building. DSOF ¶
25. For the remaining three days of the week, the students
are on Regency's " performance floor" for the
performance phase. DSOF ¶ 29. Regency admits that the
performance floor is designed to replicate a modern salon,
but contends that it is not in fact an actual salon. DSOF
¶ 29. In many ways, however, the performance floor is
indistinguishable from a fully licensed commercial salon. The
students perform cosmetology services on paying customers,
describe and recommend products and services to the same
customers, and book their appointments. They are also
required to conduct safety and sanitation practices, which
often requires the students to clean the salon areas,
including the salon restrooms. PSOF ¶ 18. Although the
students are not paid, for each minute they spend on the
floor during the performance phase, students receive "
practical service" credit toward graduation. DSOF ¶
39. Oftentimes the students are required to be on the
performance floor on weekends, or they face a monetary
penalty. PSOF ¶ 28.
charges customers a fee for the student provided services.
DSOF ¶ 44. But Regency sets the prices for the services
at a rate that is considerably lower than the rates offered
by licensed cosmetologists. PSOF ¶ 32. It is undisputed
that from these below-market fees Regency generated total
revenue of $9,651,580 in 2011; $10,725,731 in 2012; and
$10,700,000 in 2013. PSOF ¶ 3. This accounted for
roughly 10% of all of the company's revenue during the
same periods. PSOF ¶ 3. The amount of profit made by the
Regency from the salons is subject to dispute, however. The
plaintiffs contend that performance floor sales accounted for
76.36% of Regency's profits. PSOF ¶ 10. But Regency
argues that in calculating this figure the students are
comparing the total revenue
obtained from performance floor sales (which does not deduct
expenses) with Regency's total profit (which is
revenue, less expenses) made during the same three-year
period. Id. Regency further asserts that operating
expenses from the performance floors actually exceeded the
total guest-service and product-sales revenues. PSOF ¶
Hollins' Enrollment at Regency
January 2011, Hollins enrolled as a full-time cosmetology
student at Regency's Merrillville, Indiana location; she
later transferred to Regency's school in Tinley Park,
Illinois location, where she graduated in April 2012. DSOF
¶ 3. Hollins completed the curriculum discussed above
and, after passing the requisite licensing exam, began
working as a cosmetologist. She has continuously worked in
two salons and runs her own separate cosmetology business on
the side. Hollins testified that she was very satisfied with
her overall experience at Regency " relative to her
expectations" and that her education there prepared her
for employment in the cosmetology industry. She added that
the skills taught at the Regency are portable to a variety of
different jobs within the field. DSOF ¶ 78. DSOF ¶
respect to her time on the performance floor, Hollins stated
she understood that she would not be compensated for her time
spent working with paying customers. DSOF ¶ ¶
79-80. She even went as far as saying that, to her, it was a
matter of " common sense" that she would not be
paid by Regency. DSOF ¶ 80. She also acknowledged that
Regency did not guarantee that she would be employed upon
graduation. DSOF ¶ ¶ 79-80. She now contends,
however, that while they were practicing the techniques
learned in the rehearsal phase--and earning credit hours
required by state law--she and her peers were not
Regency's students, but were rather Regency's
employees and, accordingly, should have been paid for their
work on the performance floor.
claim relates to the time she spent on the Regency
performance floor practicing cosmetology techniques on paying
customers. She contends these activities entitled her to
wages under the FLSA. Regency now moves for summary
judgment, arguing that Hollins and other students were not
" employees" within the meaning of the FLSA and
related state law. To prevail on a summary judgment motion,
the movant must demonstrate that there is no genuine dispute
as to any material fact and that she is entitled to judgment
as a matter of law. Fed.R.Civ.P. 56(a). In deciding
Regency's motion for summary judgment the Court construes
all disputed facts and draws all reasonable inferences in
favor of the students, who are the nonmoving party. Love
v. JP Cullen & Sons, Inc., 779 F.3d 697, 701 (7th Cir.
Although there are a number of disputed facts on the record
presented, they are largely immaterial because whether
Regency's students are " employees" as defined
by the FLSA is a legal question. See, e.g., Sec.
of Lab., U.S. Dept. of Lab. v. Lauritzen, 835 F.2d 1529,
1535 (7th Cir. 1987) (finding that " employee"
status under the FLSA is a question of law). Ultimately,
Regency's motion requires the Court to weigh competing
interpretations of the term " employee" within the
meaning of the FLSA. Arguing for an application of the "
economic realities" test, Regency contends that the
totality of the circumstances illustrates that the students
received the primary benefit of their relationship with
Regency, and thus were not the school's employees. In
response, Hollins offer two arguments that are articulated in
a variety of ways throughout her opposition brief. She
contends that by charging performance floor customers
below-market rates for student provided services, Regency is
displacing licensed cosmetologists who charge full price for
that same service. Pls.' Resp. to Def.'s Summ. J.
Mot. at 5-11. Hollins argues that because one of the purposes
of the FLSA is to prevent " unfair competition,"
classifying the students as employees is necessary to prevent
" displacement," and to further that purpose.
Id. She also contends that because the school
allegedly incurred an economic benefit from the students'
performance floor activities, the students were necessarily
employees. Id. at 13-19. For the reasons stated
below, the Court finds her arguments unpersuasive.
Although the text of the statute is the starting point for a
determination of whether Hollins and her fellow students
qualify as employees under the FLSA, the statute itself does
not provide an answer because its definition of employee is
circular: an employee is one who is employed by an employer.
29 U.S.C. § 203(e). To determine whether someone is an
FLSA " employee," then, the Seventh Circuit has
instructed district courts to assess the " economic
reality" of the relationship between the proffered
employee and his alleged employer. Vanskike v.
Peters, 974 F.2d 806, 808 (7th Cir. 1992) (citing
Goldberg v. Whitaker House Coop., Inc., 366 U.S. 28,
33, 81 S.Ct. 933, 6 L.Ed.2d 100 (1961)). But what are the
" economic realities" that distinguish whether one
should be subject to the minimum wage? In some sense, this
instruction is no more helpful than the FLSA's circular
definition of employer; it merely begs the question.
Solis, 642 F.3d at 522-23. It does not help much to
add that the economic reality analysis is a pragmatic inquiry
that depends on the " totality of the circumstances
rather than any technical label." Id.
effort to focus the inquiry on factors that distinguish an
employee from an independent contractor for FLSA purposes,
the Seventh Circuit has endorsed the " six-factor
test" set forth in Lauritzen, 835 F.2d at
1534-35. See also Estate of Suskovich v. Anthem
Health Plans of Virginia, Inc., 553 F.3d 559, 565 (7th
Cir. 2009). The Circuit Court's embrace of
the Lauritzen six-factor test appears tentative,
however, as evidenced by the fact that Lauritzen
actually posited a seven-factor test and because despite
its endorsement of the test in Estate of
Suskovich, the Court of Appeals did not apply it,
opting instead to employ a ten factor test set forth
in the Restatement (Second) of Agency because the case also
presented narrower common law and ERISA claims. See
553 F.3d at 565-66. And in Vanskike, the Court
appeared to disdain formal consideration of the
Lauritzen factors in concluding that the unique
relationship between the state and prisoners so completely
removed the question from the normal context of private
consensual economic relationships as to render the FLSA
inapplicable. 974 F.2d at 812 (" Yanskike was
not in a true economic employer-employee relationship with
the DOC, so the statutory language does not cover him."
). Thus, although the Seventh Circuit has clearly directed
district courts to consider the economic realities of the
relationship in assessing whether a worker is an employee
covered by FLSA, it does not appear to have provided a
definitive analytical framework by which district courts must
conduct that analysis.
as Vanskike 's treatment of the issue suggests,
the context of the relationship under examination is
critical. Here, as in Vanskike, the context is not a
conventional economic relationship in which one party
provides a service and the other pays for it; although the
comparison may make Regency squirm, there is an analogy to be
drawn between the work performed by prisoners and by students
because in both cases that work is a component of required
training for the workers. That component--the need for
training--further complicates the analysis of the "
economic reality" of the relationship between vocational
students and a school or business that uses their services.
Seventh Circuit has not had occasion to consider the economic
realities of the relationship between student trainees and a
business that makes use of their services, but as both
parties suggest in their briefs, that assessment should begin
with the Supreme Court's seminal opinion Walling v.
Portland Terminal Co., 330 U.S. 148, 67 S.Ct. 639, 91
L.Ed. 809 (1947). In Portland Terminal, the Court
held that unpaid trainees who participated in a brakeman
training program, offered by the defendant railroad company,
were not employees within the meaning of the FLSA.
Id. at 149. The program, which lasted approximately
one week, consisted of the trainees performing the actual
work of brakemen under the instruction and supervision of the
defendant's permanent yard crew. Id. The court
indicated that " [w]ithout doubt the [FLSA] covers
trainees, beginners, or learners if they are employed to work
for an employer for compensation." Id. at 151.
But in finding the trainees were not employees within the
meaning of the FLSA, the Court observed that the FLSA was
" obviously not intended to stamp all persons as
employees who, without express or implied compensation
agreement, might work for their own advantage on the premises
of another." Id. at 152. Because the railroad
received " no immediate advantage" from any of the
work done by the trainees, the Court determined the railroad
should not be penalized for providing free vocational
instruction that most benefited the trainee, rather than the
trainer. Id. at 153. Put differently, the Court
found that a student who attends a program to learn a skill
or trade that they could take to gain employment elsewhere,
while providing little or no benefit to the trainer, is the
primary beneficiary of the relationship and cannot be the
trainer's " employee." See
id. at 152-53.
in Glatt v. Fox Searchlight Inc., the Second Circuit
applied Portland Terminal to a class of unpaid
student interns who argued they were employees under the
FLSA. 791 F.3d 376, 383 (2d Cir. 2015). The students, some of
whom were receiving academic credit for the internship,
worked on the defendant's movie set performing various
production-related tasks for no pay. Id. at 379-380.
Recognizing that the Supreme Court has not yet addressed the
status of student workers under the FLSA, the Second Circuit
aptly recognized that Portland Terminal was the most
analogous federal precedent to the modern student
[Entire Page Contains Footnote]
Id. at 381-82. Yet, it also recognized that it did
not accurately " reflect a central feature of the modern
internship--the relationship between the internship and the
intern's formal education." Id. at 385. In
order to align Portland Terminal with the modern
learning experience, the Second Circuit identified a set of
factors for lower courts to consider when determining when