Date: 08-17-2017

Case Style: Venita Hollins v. Regency Corporation and Hayes Baton

Case Number: 15-3607

Judge: Wood

Court: United States Court of Appeals for the Seventh Circuit on appeal from the Northern District of Illinois (Cook County)

Plaintiff's Attorney: Leon Greenberg, Chris Gabroy, Rob Orman

Defendant's Attorney: Sari M. Alamuddin, Christopher Joseph Boran, Meredith E Riccio, Samuel S Shaulson

Description: Regency Corporation operated forprofit
cosmetology schools in 20 states. Each Regency Beauty
Institute offered both classroom instruction and practical
instruction in a “Regency Salon,” where members of the
public could receive cosmetology services at low prices.
Venitia Hollins was a Regency student, first at its Merrillville,
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Indiana, location, and later at its Tinley Park, Illinois, facility.
In this case, Hollins asserts that the work she performed in the
Salon was compensable for purposes of the Fair Labor
Standards Act (FLSA), 29 U.S.C. § 201; she also asserts that
Regency violated various state laws, including the Illinois
Minimum Wage Law, 820 ILCS 105/1 et seq., the Illinois Wage
Payment and Collection Act, 820 ILCS 115/1 et seq., and the
Indiana Wage Payment Statute, Ind. Code § 22‐2‐5‐1 et seq.,
among many others. Her complaint indicates that she wanted
to bring her suit as a collective action under the FLSA and a
class action under the state statutes, but the district court
denied her motion conditionally to certify the FLSA action
and never certified a class action under Federal Rule of Civil
Procedure 23. Instead, it addressed the individual merits of
her case on summary judgment and ruled in Regency’s favor.
Hollins has appealed. She now argues that this court lacks
jurisdiction over her own appeal, because the claims of other
putative members of her collective and class actions are still
before the district court. In the alternative, she contends that
she and her fellow students should have been recognized as
employees entitled to proper payment under the relevant
statutes.
I
Regency, which has since closed its doors, at one time operated
nearly 80 cosmetology schools around the country. Its
students were required by state law to complete 1,500 hours
of a combination of classroom and “hands‐on” work. They accomplished
the latter task by working in the school’s salon, at
which they provided services—at discounted prices—for customers.
Regency gave them credits for hours worked at the
salon, which it also called the “Performance Floor,” but it did
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not otherwise pay them for their work. Believing that she and
her fellow students were entitled to wages, Hollins sued under
the FLSA and state‐law wage statutes to recover the monies
she believed were owed.
Hollins filed her initial complaint on October 25, 2013,
against Regency and Hayes Batson, its owner and chief executive
officer (we refer to them collectively as Regency); three
days later she filed a motion for class certification under Federal
Rule of Civil Procedure 23 and for conditional certification
of the FLSA collective action, 29 U.S.C. § 216. The district
court took no action on either part of her motion. Instead, the
parties filed a proposed case‐management plan, in which they
suggested that the court rule first on the liability issues for the
named plaintiff (Hollins), and then decide any class or collective
certification issues. Over the next year, discovery proceeded.
During that time, a number of people filed consent
forms indicating that they wanted to opt in to the FLSA collective
action. The district court did nothing with those forms.
Instead, on October 27, 2015, it granted summary judgment in
favor of Regency and denied as moot Hollins’s pending motions
for conditional certification of the FLSA collective action
and class certification on the other theories. (The issues presented
in the motions were not really moot, since they still
could be affected by our ruling. The most one can say is that
by not granting them, the district court effectively limited the
case to Hollins’s individual claims.)
Hollins filed a notice of appeal on November 20, 2015, well
within the 30 days provided by Federal Rule of Appellate
Procedure 4(a)(1)(A). But she became worried about appellate
jurisdiction because of the presence of the people who had
expressed an interest in opting into the FLSA action. To
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resolve that question, she moved on May 23, 2016, to dismiss
the appeal or to confirm appellate jurisdiction. At our request
Regency responded, and in an order issued on December 21,
2016, we decided to carry the jurisdictional issue with the
case.
II
Federal litigants normally must wait for a final judgment
before they can bring a matter to the court of appeals. See
28 U.S.C. § 1291; Mohawk Indus. v. Carpenter, 558 U.S. 100, 106–
07 (2009). Although there are some exceptions to that rule, see,
e.g., 28 U.S.C. § 1292(a)(1) (preliminary injunctions), 28 U.S.C.
§ 1292(b) (questions of exceptional importance), FED. R. CIV. P.
23(f) (class‐certification decisions), none of those exceptions
applies to the present case. The question before us instead is
whether the judgment that Hollins wants to challenge is truly
final—that is, does it dispose of all claims of all parties? See
FED. R. CIV. P. 54; see also Gelboim v. Bank of Am. Corp.,
135 S. Ct. 897, 902 (2015).
The analysis that applies to the putative Rule 23 class differs
somewhat from that which applies to the FLSA collective
action, but those differences are not material for our purposes.
The critical question for both is whether the existence of the
unnamed Rule 23 class members, or the aspiring members of
the collective action who have signaled their interest in participating,
defeats the finality of the district court’s judgment
for purposes of appeal. In other words, are those people additional
“parties” whose claims have not yet been resolved? If
so, then we do not have a final judgment. If not, then we may
proceed.
No. 15‐3607 5
Looking first at the Rule 23 part of the case, we see a
common situation: a person files an action on behalf of herself
and others similarly situated, but the district court dismisses
the individual case before ruling on class certification (either
because there is no pending motion for certification, or
because the district court chooses not to reach that issue). In
such a case, the Supreme Court has said that “no one [is]
willing to advance the novel and surely erroneous argument
that a nonnamed class member is a party to the class‐action
litigation before the class is certified.” Smith v. Bayer Corp.,
564 U.S. 299, 314 (2011) (quotation marks and citation
omitted); see also Standard Fire Ins. Co. v. Knowles, 568 U.S. 588,
593 (2013) (“[A] plaintiff who files a proposed class action
cannot legally bind members of the proposed class before
the class is certified.”). This does not mean that the rights of
the unnamed putative class members are unaffected by the
filing of the action. For example, the statute of limitations on
their claims is suspended during the pendency of the putative
class action. Am. Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974).
And if an unnamed member wants to appeal the denial of
class certification, the Supreme Court has said that she may
do so without first formally intervening in the district court.
Devlin v. Scardelletti, 536 U.S. 1 (2002). But neither of these
cases even hints that appellate review is impossible without
some kind of order from the district court disposing of the
claims of the unnamed members of an uncertified class.
We conclude that the same result should follow for the
claims of potential members of an FLSA collective action, if
the collective action has never been conditionally certified
and the court has not in any other way accepted efforts by the
unnamed members to opt in or intervene. (Hollins did not argue
that the outsiders’ efforts to opt into her case should have
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been construed as motions to intervene under Federal Rule of
Civil Procedure 24, nor is it clear that intervention of right under
Rule 24(a), rather than permissive intervention under
Rule 24(b), would have been correct. We have no need to pursue
this line of analysis further.)
Even though the statute, 29 U.S.C. § 216(b), does not spell
out any process for conditional certification, the Supreme
Court has endorsed this practice—indeed, it has gone further
and characterized it as an important step in these cases. In
Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013), the
Court addressed FLSA collective actions in some detail. Its
central holding was that a potential collective action is no
longer justiciable when the lone plaintiff’s individual claim
becomes moot. Id. at 1526. In the course of explaining this decision,
the Court noted:
Under the FLSA … “conditional certification” does not
produce a class with an independent legal status, or
join additional parties to the action. The sole consequence
of conditional certification is the sending of
court‐approved written notice to employees, … who in
turn become parties to a collective action only by filing
written consent with the court, § 216(b).
Id. at 1530. The Court never said, however, that an unnamed
and un‐joined member of the FLSA collective action could become
a party by filing a consent before the court even conditionally
certified the group.
The role of the district court in defining the scope of the
potential FLSA collective action is more than ministerial. The
named plaintiff is free to allege whatever she wants for her
group, but the court must assess that proposed definition and
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assure itself that the employees identified are raising similar
FLSA claims. In exercising this power, district courts do not
hesitate to pare down the group or to deny conditional certification
altogether. See Laura L. Ho, Collective Action Basics,
10 EMP. RIGHTS & EMP. POL’Y J. 427, 429 & n. 12 (2006) (citing
cases). This implies that, just as in Rule 23 class actions, the
members of an uncertified group are not the type of parties
whose presence would block a judgment against the named
plaintiff from being final, unless they have otherwise gained
full party status. Our decision in Epenscheid v. DirectSat USA,
LLC, 688 F.3d 872 (7th Cir. 2012), supports this conclusion.
There we wrote the following:
Collective actions are certified and decertified just
like class actions, unaffected by the absence of a governing
rule of procedure. And “when a collective action
is decertified, it reverts to one or more individual
actions on behalf of the named plaintiffs,” Alvarez v.
City of Chicago, 605 F.3d 445, 450 (7th Cir. 2010)—which
is just what happens when a Rule 23 class is decertified:
the unnamed class members go poof and the
named plaintiffs’ claims revert to being individual
claims. If the denial of class certification is reversed, the
suit will proceed with the plaintiffs as representatives
of the opt‐ins. There is no relevant difference between
the collective, consisting of opt‐ins, and the class, consisting
of class members minus the opt‐outs.
688 F.3d at 877.
All of this persuades us that we do have a final judgment,
and that the unaccepted opt‐in notices that the district court
received do not stand in the way of that conclusion. The col8
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lective action was never conditionally certified, and those notices
did not, of their own force, make the filers “parties”
whose unresolved claims would defeat finality. This is not to
say that class actions and FLSA collective actions are identical
for other purposes. For instance, unnamed members of a Rule
23 class benefit from American Pipe’s tolling rule, whereas the
claims of potential members of an FLSA collective action are
not tolled until they file opt‐in notices. See 7B CHARLES ALAN
WRIGHT & ARTHUR R. MILLER, FED. PRAC. & PROC. § 1807 (3d
ed. 2005). But tolling is not an issue in this case. It is enough
to say nothing about the claims of the people who either did
signal their interest in opting into Hollins’s FLSA claim, or
those who might later wish to do so, defeats appellate jurisdiction.
We therefore are free to proceed to the merits of Hollins’s
individual case.
III
In assessing whether Hollins was an “employee” for purposes
of the FLSA, we would like to be able to rely on the statute.
But, as we noted in Vanskike v. Peters, 974 F.2d 806 (7th Cir.
1992), it is of little use: it “defines the term ‘employee’ in a circular
fashion, as ‘any individual employed by an employer,’
29 U.S.C. § 203(e)(1) … .” 974 F.2d at 807. The Supreme Court
has added that we must construe the terms “employee” and
“employer” expansively, see Nationwide Mutual Ins. Co. v.
Darden, 503 U.S. 318, 326 (1992). This, we said in Vanskike, requires
us to “examine the ‘economic reality’ of the working
relationship.” 974 F.2d at 808. The Department of Labor has
offered a six‐factor “test” that (it thinks) enables a court to distinguish
between an employee and an unpaid trainee. See
DOL, Wage & Hour Div., Fact Sheet # 71, Internship Programs
Under The Fair Labor Standards Act (April 2010)
No. 15‐3607 9
https://www.dol.gov/whd/regs/compliance/whdfs71.pdf
(last visited Aug. 14, 2017). It instructs that “[i]f all of the factors
listed [below] are met, an employment relationship does
not exist under the FLSA”:
1. The internship, even though it includes actual operation
of the facilities of the employer, is similar to
training which would be given in an educational
environment;
2. The internship experience is for the benefit of the
intern;
3. The intern does not displace regular employees, but
works under close supervision of existing staff;
4. The employer that provides the training derives no
immediate advantage from the activities of the intern;
and on occasion its operations may actually be
impeded;
5. The intern is not necessarily entitled to a job at the
conclusion of the internship; and
6. The employer and the intern understand that the
intern is not entitled to wages for the time spent in
the internship.
Id. Numerous other multi‐factor tests have also been used by
courts. See, e.g., Estate of Suskovich v. Anthem Health Plans of Va.,
Inc., 553 F.3d 559, 565–66 (7th Cir. 2009) (ten factors, adapted
from the ALI’s Restatement (Second) of Agency § 220); Sec. of
Labor v. Lauritzen, 835 F.2d 1529, 1534–35 (7th Cir. 1987) (six or
seven factors).
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The district court was rightly skeptical about the utility of
this plethora of “factors.” It decided instead to turn to the Supreme
Court’s decision in Walling v. Portland Terminal Co., 330
U.S. 148 (1947), for guidance on the substance of the distinction
that the statute is trying to draw. The question in Portland
Terminal was whether unpaid people who participated in a
course of practical training for prospective yard brakemen
were “employees” for purposes of the FLSA. This training, the
Court said, was “a necessary requisite to entrusting them with
the important work brakemen must do.” Id. at 149. The course
required the trainees to perform the actual work of brakemen,
under the supervision of the permanent crew. Even though
the trainees were performing some useful function for the employer,
and they were doing work identical to that of the ordinary
employees, the Court concluded that they were not
“employees” as the FLSA uses the term.
It came to this conclusion despite its recognition that
“[w]ithout doubt the Act covers trainees, beginners, apprentices,
or learners if they are employed to work for an employer
for compensation.” Id. at 151. Nevertheless, the record
showed that the railroads received no immediate advantage
from any work done by the trainees. Id. at 153. The Court
stressed that this was not a case “in which an employer has
evasively accepted the services of beginners at pay less than
the legal minimum without having obtained permits” from
the government. Id.
In an attempt to make sense of all this, the Second Circuit
confronted the question whether unpaid interns who were
working for Fox Searchlight and Fox Entertainment Group
were employees. Glatt v. Fox Searchlight, Inc., 811 F.3d 528 (2d
Cir. 2015). It reviewed much of the same material we have just
No. 15‐3607 11
discussed, and then turned to the question of the correct legal
test to use. The plaintiff‐interns urged that a person should
qualify as an employee “whenever the employer receives an
immediate advantage from the interns’ work.” 811 F.3d at 535.
The Department of Labor, as amicus curiae, urged the court to
adopt the six‐factor test it had developed. The court rejected
both of those suggestions and instead adopted the defendants’
proposed test, which asks “whether the intern or the employer
is the primary beneficiary of the relationship.” Id. at
536. It identified “three salient features” of its primary‐beneficiary
test: (1) it focuses on what the intern receives in exchange
for his work; (2) it is flexible enough to permit the
court to take into account the economic reality of the situation;
and (3) it reflects the fact that the intern‐employer relationship
differs meaningfully from the standard employee‐employer
relationship. Id.
The Eleventh Circuit found the Glatt approach persuasive
in its own case dealing with interns, Schumann v. Collier Anesthesia,
P.A., 803 F.3d 1199 (11th Cir. 2015). It found significant
the fact that the training involved in Portland Terminal was not
“a universal requirement for a particular type of educational
degree or for professional certification or professional licensure
in the field.” Id. at 1210. In addition, just as the Supreme
Court had done in Portland Terminal, the Eleventh Circuit
acknowledged “the potential for some employers to maximize
their benefits at the unfair expense and abuse of student
interns.” Id. at 1211. It suggested an approach that focuses on
the benefits the student receives, while still considering
whether the employer is receiving some unfair advantage or
otherwise abusing the relationship. Id. (At that point, it turned
to a seven‐factor test, which we omit.)
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In our case, time on the Professional Floor was a statemandated
requirement for graduation from the cosmetology
program—i.e. a universal requirement for professional licensure.
Hollins was actually paying Regency for the opportunity
to receive both classroom instruction and supervised
practical experience, both of which were necessary for her degree.
Regency was in the educational business (indeed, for
profit), not in the beauty salon business. Hollins did not need
to go out and find a place where she could serve as an intern
or an extern; Regency took care of that. We conclude that the
fact that students pay not just for the classroom time but also
for the practical‐training time is fundamentally inconsistent
with the notion that during their time on the Performance
Floor the students were employees. It is also notable that Regency
structured things to minimize competition with ordinary
beauty salons: it forbade licensed cosmetologists from
working in the Regency Salon, and the students received not
money, but licensing hours and academic credit for their time
and effort.
Hollins resists this conclusion by pointing out that the students
were also required to perform various menial tasks,
such as acting as receptionists, cleaning and sanitizing the
floor, selling salon beauty products, and restocking those
products as needed. Regency could have concluded, however,
that these tasks are also part of the job of the cosmetologist,
and that the students needed to learn time‐management
skills. Moreover, as the district court pointed out, “Salon
Safety and Sanitation” is the most heavily tested subject area
on the Illinois and Indiana cosmetology licensing exam. Regency
was required by the National Accrediting Commission
of Career Arts & Sciences to use “practical learning methods”
throughout its curriculum. That is enough to show that the
No. 15‐3607 13
incidental tasks to which Hollins points are not enough to tip
the balance over to the “employee” side of the line.
The district court’s careful opinion goes into more detail
about these and other considerations that demonstrate why
Hollins was not entitled to compensation for her time in the
salon. See Hollins v. Regency Corp., 144 F. Supp. 3d 990 (N.D.
Ill. 2015). These cases normally turn on the facts of the particular
relationship and program, and so we should not be understood
as making a one‐size‐fits‐all decision about programs
that include practical training, or internships, or tasks
that appear to go beyond the boundaries of a program. On the
present record, however, we conclude that the district court
correctly granted summary judgment for Regency Corporation,
and we therefore AFFIRM its judgment.

Outcome: Affirmed

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Defendant's Experts:

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