Scott Holland Oct. 30, 2015, 6:05pm

Aspiring beauticians aren’t entitled to salaries from payments their educators collect from customers, a Chicago federal judge has ruled.

U.S. District Judge John J. Tharp Jr. issued an opinion Oct. 27 in a class action lawsuit from cosmetology students of Regency Beauty Institute who argued the work they did for paying customers classified them as, not just students, but employees under the federal Fair Labor Standards Act. Regency moved for summary judgment in its favor, and Tharp agreed.

The lawsuit’s named plaintiff is former Regency student Venitia Hollins, who enrolled in January 2011 in the for-profit school’s Merrillville, Ind., location, later transferring to its Tinley Park campus and graduating in April 2012. From there, she has worked two salon jobs and had a cosmetology business on the side, court documents said.

According to Tharp’s opinion, Hollins said “she understood that she would not be compensated for her time spent working with paying customers. 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. She also acknowledged that Regency did not guarantee that she would be employed upon graduation. 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.”

Regency charges customers below market prices for the services its students provide, generating about $10 million in annual revenue in 2011, 2012 and 2013. That accounts for about 10 percent of Regency’s revenue during those years. But while Hollins contends “performance floor sales accounted for 76.36 percent of Regency’s profits,” the school said “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.”

Those and other disputed facts, Tharp notes, are largely immaterial because the main concern is whether students are employees per FLSA rules. The school argues students “received the primary benefit of their relationship with Regency,” and thus are not employees. Hollins contends the school displaces licensed cosmetologists who charge full prices for the services Regency students provide. She also said the school’s economic benefit from the performance floor necessarily defines students as employees.

As Tharp noted, the way to determine employee status under the FLSA is, per the Seventh Circuit, “to assess the ‘economic reality’ of the relationship between the proffered employee and his alleged employer. In this case, the value of the training Regency provides is the significant factor.

“The context is not a conventional economic relationship in which one party provides a service and the other pays for it,” Tharp wrote. “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.”

Tharp granted Regency’s motion for summary judgment, ultimately deciding, while the school does benefit economically from the arrangement, “the work performed by the student is primarily performed for the benefit of the student, not the school.”

Hollis and the class were represented in the matter by the law firms of Robert Orman & Associates, of Chicago, and attorney Leon Greenberg, of Las Vegas.

Regency was defended by the firms of Morgan, Lewis & Bockius, of Chicago, and O’Melveny & Myers, of New York.

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Organizations in this Story

Morgan, Lewis and Bockius LLP
77 West Wacker Drive
Chicago, IL 60601

O'Melveny & Myers
7 Times Square, New York, NY, United States
New York, NY 10036

Robert Orman & Associates
1 North LaSalle Street
Chicago, IL 60602

Law Offices of Robert Orman
1 N. LaSalle St.
Chicago, IL 60602

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