Applying a totality of circumstances test to examine the economic reality of the relationship between a for-profit vocational school and its students, the U.S. Court of Appeals for the Tenth Circuit found the students were not employees under the Fair Labor Standards Act.
In Nesbitt v. FCNH, Inc., the Tenth Circuit applied a six-factor totality of the circumstances test that it previously set forth in Reich v. Parker Fire Protection District: (1) whether the training received is similar to that which would be given in a vocational school; (2) whether the training is for the benefit of the trainee or the employer; (3) whether the trainees displace regular employees, or rather work under close observation or supervision; (4) whether the employer that provides the training derives an immediate advantage from the activities of the trainees; (5) whether the trainees are necessarily entitled to a job at the completion of their training period; and (6) whether the employer and trainees understand that the trainees are not entitled to wages for the time they spend in training. No one factor is dispositive under this test. The Tenth Circuit determined that the students were not employees under the test.
Of particular interest, the Tenth Circuit rejected the opportunity to adopt the “primary beneficiary” test set forth by the Second Circuit in Glatt v. Fox Searchlight Pictures, Inc. (as well as by the Sixth, Ninth and Eleventh Circuits in other cases) and now adopted by the Department of Labor. This test examines the “economic reality” of the relationship through the analysis of seven factors to determine which party is the “primary beneficiary.” The Tenth Circuit found there was no need to adopt the primary beneficiary test, as its own test similarly “relies on the totality of the circumstances and accounts for the economic reality of the situation.”