Sixth Circuit Rejects DOL Guidelines on Determining Employee Status in a Training or Educational Setting

The Secretary of Labor sued Laurelbrook Sanitarium and School, Inc. (“Laurelbrook”) for potential child labor violations.  Laurelbrook is a nonprofit corporation located in Dayton, Tennessee which observes the Seventh-Day Adventists philosophy and teachings which include the view that children are to receive an education with a practical training component.  The DOL sued contending that the students are really employees and being worked in violation of the child labor requirements.

The principal issue the court addressed (which makes the decision more relevant than it otherwise would be) was the test to apply in this type of situation.  The DOL wanted the court to apply guidelines it established in the DOL Field Operations Handbook and in a publication available on its website: Employment Relationship Under the Fair Labor Standards Act, WH Pub. 1297 (Rev. May 1980).  The publication set out minimum requirements (all of which must be met) for determining whether a student or trainee was not an employe:

1. the training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school;
2. the training is for the benefit of the trainees or students;
3. the trainees or students do not displace regular employees, but work under their close observation;
4. the employer that provides the training derives no immediate advantage from the activities of the trainees or students, and on occasion his operations my actually be impeded;
5. the trainees or students are not necessarily entitled to a job at the conclusion of the training period; and
6. the employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.

The Sixth Circuit, however, rejected application of this test saying it was "a poor method for determining employee status in a training or educational setting.  For starters, it is overly rigid and inconsistent with a totality-of-the-circumstances approach, where no one factor (or the absence of one factor) controls." Furthermore, the court said, the DOL test is inconsistent with the Supreme Court's decision in Walling v. Portland Terminal Co., 330 U.S. 148, 152 (1947), which "suggests that the ultimate inquiry in a learning or training situation is whether the employee is the primary beneficiary of the work performed. While the Secretary’s six factors may be helpful in guiding that inquiry, the Secretary’s test on the whole is not."

The proper inquiry (the one the district court used) is to focus on "which party receives the primary benefit of the work performed by Laurelbrook students."   The court went into considerable detail (by discussing the facts in a separate court decision) about the considerations for this test. I won't repeat them here.  The following explanation will suffice for present purposes:

If a purported employer receives the primary benefit from a working relationship with a child, it is likely that the child is in competition with adults, whom the employer cannot employ without complying with the FLSA’s costly and burdensome requirements. If, however, a child receives the primary benefit of the work performed for a purported employer, and the child’s presence does more harm to the purported employer’s operations than good (or no good at all), it is unlikely that the child is competing with adults for the opportunity to hinder the employer’s operations.

To conclude, we hold that the proper approach for determining whether an employment relationship exists in the context of a training or learning situation is to ascertain which party derives the primary benefit from the relationship. Factors such as whether the relationship displaces paid employees and whether there is educational value derived from the relationship are relevant considerations that can guide the inquiry. Additional factors that bear on the inquiry should also be considered insofar as they shed light on which party primarily benefits from the relationship.