Intern or Employee in Disguise? The Rise of the Unpaid Internship and the Primary Beneficiary Test.

• Author: Knott, Morgan

Benjamin v. B&HEducation, Inc., 877 F.3d 1139 (9th Cir. 2017)

1. INTRODUCTION

   When people imagine an internship, they usually think of someone getting coffee or running errands. In today's competitive job market, however, internships are much more likely to reflect the job of an entry-level employee. (1) Employers seek to hire people who have completed an internship because they value the skills and practical experience gained from an internship. (2) Employers especially like to use unpaid interns so they can observe and train their prospective employees while simultaneously benefitting from the free labor. (3) Many students see an internship as a "way of getting one's foot in the door" with the hope of receiving a job offer at the end of the internship. (4) The frequency with which unpaid internships are made available by employers is increasing, particularly in highly competitive fields, because employers know the job market is tough and students are willing to work for free in the hopes of obtaining an offer of employment or--at the very least--a compelling addition to their resume. (5) The number of unpaid internships being offered is rising in all fields, but they are "especially prevalent in high-prestige creative fields like music, media, and fashion." (6) Additionally, in areas such as law, government, and nonprofits, unpaid internships are "replacing many traditional entry-level positions." (7) With this rise in unpaid internships comes a corresponding rise in unpaid internship lawsuits. (8) Interns who perform menial tasks have claimed that they are actually employees within the meaning of the Fair Labor Standards Act ("FLSA") and thus are entitled to minimum wage and overtime payments. (9)

   Courts use a variety of tests to decide if an unpaid intern should actually be classified as an employee under the FLSA. (10) The Department of Labor ("DOL") created one test ("DOL Test") based on its interpretation of the 1947 United States Supreme Court case of Walling v. Portland Terminal Co. (11) However, many circuits have chosen not to apply the DOL Test and have instead created their own unique tests. (12) In Benjamin v. B&H Education, Inc., a case involving cosmetology students, the U.S. Court of Appeals for the Ninth Circuit became one such circuit. (13) The Ninth Circuit, when ruling in Benjamin, expressly rejected the DOL Test because it was too strictly based on the facts of Portland Terminal. (14) Instead, the Ninth Circuit adopted the "primary beneficiary test." (15) If the intern is the primary beneficiary of his or her own work at the internship, then the intern will be classified as an intern and will not be entitled to minimum wage; however, if the employer receives the primary benefit of the intern's work, then the intern will be classified as an employee under the FLSA and will be entitled to minimum wage and overtime payment. (16) In response to the Ninth Circuit's decision in Benjamin, the DOL changed its test to reflect the primary beneficiary test, which may lead to a rise in the number of unpaid internships being offered by employers across the nation. (17)

   This Note discusses the effect the Ninth Circuit's decision has on the future of unpaid internships in the United States. Part II discusses the facts and holding of the Ninth Circuit's decision in Benjamin. Part III explains the law regarding unpaid internships and the different tests that the circuit courts have adopted to determine if the intern should be classified as an intern or as an employee under the FLSA. Part IV describes the Ninth Circuit's holding in Benjamin. Part V analyzes the effects that holding had on the law regarding unpaid internships and discusses the need for the United States Supreme Court to adopt a uniform test.

2. FACTS AND HOLDING

   Jacqueline Benjamin, Taiwo Koyejo, and Bryan Gonzalez (collectively, "Plaintiffs") are cosmetology and hair design students who sued the operator of their school, B&H Education, Inc. ("B&H"). (18) The name of the for-profit beauty school is Marinello School of Beauty, and it holds licenses in Nevada and California. (19) The school includes both classes and clinical work. (20) It provides reduced salon services to customers because students work at the salon as part of their clinical training. (21) Students must complete certain requirements before being allowed to work in the clinic, and they do not get paid for working in the salon. (22) Marinello students attend lectures, take tests, and get practical experience by working in the clinic. (23) In return, they receive academic credit. (24) In California and Nevada, cosmetologists must have a license, which they obtain by taking the state licensing exam. (25) In order to qualify to take the exam, students must have completed a required number of clinical and classroom hours, during which they learn cosmetology skills along with sanitation procedures. (26)

   Plaintiffs filed a class action suit in the U.S. District Court for the Northern District of California, accusing B&H of using them to get free labor and not actually teaching them skills they would need for the licensing exam. (27) They claimed that B&H did not supervise them in the salon as required and unlawfully kept profits from the salon, fees incurred from charging students for being late or absent from the salon, Plaintiffs' tuition money, and money Plaintiffs spent on products for the salon. (28) Plaintiffs sought a declaratory judgment stating B&H's practices were unlawful. (29) They also sought payment for minimum and overtime wages, payment for premium wages for unused breaks, restitution for fines they received, payment for their supply purchases, and civil penalties for violating wage laws. (30) Plaintiffs moved for summary judgment, contending that they were employees under both state and federal law. (31) Defendants also moved for summary judgment, claiming the students were in fact students--not employees--and thus not entitled to be paid minimum wage. (32)

   The district court relied on Glatt v. Fox Searchlight Pictures, Inc., a case decided by the U.S. Court of Appeals for the Second Circuit, and followed its use of the primary beneficiary test to determine whether Plaintiffs were employees of Marinello. (33) The district court held Plaintiffs were students, not employees, because they received the primary benefit of the school in that they received an education required for the state licensing exam. (34) The court also held that Marinello did not use the clinic to sacrifice the students' education in favor of making a profit. (35) Accordingly, the district court denied Plaintiffs' motion for summary judgment and granted B&H's motion. (36) Plaintiffs appealed to the Ninth Circuit. (37)

   To determine whether Plaintiffs were interns or employees, the Ninth Circuit relied on the same primary beneficiary test from Glatt that the district court used. (38) The Ninth Circuit affirmed the district court's decision and held that the "students were the primary beneficiaries of their labors." (39) Consequently, Plaintiffs were not employees under the FLSA and were not entitled to compensation for their work in the salon. (40)

3. LEGAL BACKGROUND

   The FLSA was enacted in 1938 as a part of the New Deal. (41) Congress determined that labor conditions not sufficient to support minimum standards for living "burden[ed]... the free flow of goods in commerce" and led to unfair competition. (42) Congress enacted the FLSA to correct these conditions "without substantially curtailing employment or earning power." (43) Over the years, many lawsuits have arisen under the FLSA. One typical dispute concerns who is covered under the FLSA because the FLSA includes only vague definitions. For example, "employer" is defined as "any person acting directly or indirectly in the interest of an employer in relation to an employee...," and "employee" is defined as "any individual employed by an employer." (44) This Note focuses on one area of the FLSA in particular: whether or not interns are considered employees under the FLSA. This Part discusses the development of the definition of "employee" under the FLSA and the different tests that have been used to decide who falls within the definition of "employee."

   1. Test for "Employee" in the United States Supreme Court

      The United States Supreme Court has not yet addressed the issue of when unpaid interns should be classified as employees under the FLSA, but it has decided other cases involving unpaid workers (e.g., trainees and volunteers) and whether they arc employees under the FLSA. (45) The first United States Supreme Court case to interpret who was considered an "employee" under the FLSA was Walling v. Portland Terminal Co. (46) Portland Terminal concerned an eight-day practical training course offered by a railroad company for those who wanted to learn how to become a yard brakeman. (47) The trainees first observed current employees and then were closely supervised while they performed some of the work. (48) They did not displace any regular employees and in some cases actually slowed down the railroad's business because of the close supervision they required. (49) Once the trainees completed the training, their names were put onto a list from which the railroad could draw when it needed to hire more people. (50) The trainees were not paid for the training. (51) However, in 1943, because of the war, the railroad and the collective bargaining agent agreed to pay the trainees four dollars per day in retroactive pay if they successfully completed the training and were put on the list of available workers. (52)

      The issue in the case was whether the trainees were considered "employees" under the FLSA and were thus entitled to minimum wage for the days they trained. (53) The Court ruled that the old common law categories of employees and other statutes defining an "employer-employee" relationship were no longer relevant because the FLSA...