Barbara Petroski, et al v. H&R Block Enterprises, et al

Filing

OPINION FILED - THE COURT: Roger L. Wollman, Diana E. Murphy and Raymond W. Gruender AUTHORING JUDGE: Roger L. Wollman (PUBLISHED) [4149956] [13-2076]

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 13-2076
___________________________
Barbara Petroski; Cathy Camden; Carla Collins; Stacey Oyer, individually and as
representatives of the Rule 23 and 29 U.S.C. Section 216(b) classes certified by the
U.S. District Court
lllllllllllllllllllll Plaintiffs - Appellants
v.
H&R Block Enterprises, LLC; H&R Block Eastern Enterprises, Inc.; Does 1-50
lllllllllllllllllllll Defendants - Appellees
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Appeal from United States District Court
for the Western District of Missouri - Kansas City
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Submitted: March 11, 2014
Filed: May 2, 2014
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Before WOLLMAN, MURPHY, and GRUENDER, Circuit Judges.
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WOLLMAN, Circuit Judge.
The plaintiffs filed suit against H&R Block, Inc., H&R Block Enterprises LLC,
and H&R Block Eastern Enterprises, Inc. (collectively, H&R Block), alleging that the
Fair Labor Standards Act (FLSA) requires H&R Block to compensate tax
professionals for the time spent completing twenty-four hours of rehire training. The

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district court1 held that the tax professionals were not employees under the FLSA and
thus were not entitled to compensation. The plaintiffs appeal from the grant of
summary judgment in favor of H&R Block. We affirm.
I.
H&R Block is a tax preparation service provider. It employs tax professionals
who are primarily responsible for preparing tax returns for H&R Block’s clients. The
tax season begins in late December or early January and lasts until mid-April. H&R
Block refers to the time of year that is not tax season as the “off-season” or the “preseason.” Due to the seasonal nature of the tax services industry, H&R Block requires
the majority of its workforce only during the tax season.
A tax professional employed by H&R Block who seeks to work at H&R Block
the following tax season must complete an employment application and participate in
an interview. If hired to work the following tax season, the tax professional submits
an I-9 Form regarding employment eligibility and enters into an employment
agreement. The employment agreement sets forth the term of employment, which
typically lasts only for the duration of the tax season. After the period set forth in the
employment agreement ends, the tax professional is under no obligation to return to
H&R Block for the following tax season, and H&R Block is under no obligation to
hire the tax professional to work for H&R Block in the future. During the off-season,
tax professionals are eligible to collect unemployment, and many work other jobs.
From 2008 to 2012, H&R Block rehired approximately 268,804 of the tax
professionals and did not rehire approximately 20,357.

1

The Honorable Dean Whipple, United States District Judge for the Western
District of Missouri.
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H&R Block requires current and former tax professionals to complete certain
training to be eligible for rehire for the following tax season. The company
handbooks explain that tax professionals must complete continuing professional
education (CPE) to be eligible for rehire, but that meeting the CPE requirement is not
a guarantee of future employment with H&R Block. During the time period at issue
in this litigation, H&R Block required tax professionals to complete twenty-four hours
of CPE.
Tax professionals are able to meet the rehire training requirement by taking
courses offered by H&R Block or by taking courses offered by any other qualified
provider. H&R Block offers both live and web-based courses on various topics,
including adjustments, property income, corporations, estate planning strategies,
investment income, and itemized deductions. Although some of the courses refer to
its internal systems and software programs, most of the courses H&R Block offers are
purchased from Commerce Clearing House, an entity unrelated to H&R Block. None
of the courses entail working on actual client tax returns or meeting with actual
clients. H&R Block charges twenty dollars for access to the courses it offers, and a
tax professional may take as many courses as he or she likes.
H&R Block does not compensate tax professionals for the time they spend
meeting the rehire training requirement. Prior to 2012, H&R Block did not
communicate in writing to the tax professionals that they would not be paid for the
CPE time, nor did it obtain written acknowledgment from the tax professionals that
there would be no compensation for the rehire training. During the time period at
issue in this litigation, no federal regulation required tax professionals to complete
continuing education courses to prepare tax returns.
This lawsuit began as three separate actions. Named plaintiffs Barbara Petroski
and Cathy Camden filed a purported collective action under the FLSA in the Western
District of Missouri. Thereafter, two related cases were voluntarily transferred from
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federal district courts in California and New York to the Western District of Missouri,
where the district court granted the parties’ joint motion to consolidate. The district
court conditionally certified a FLSA collective action pursuant to 29 U.S.C. § 216(b),
which consisted of persons who: (1) were currently or previously employed by H&R
Block as tax professionals; (2) were not paid for the time spent completing mandatory
rehire training after a tax season in order to be eligible to prepare returns for the next
tax season; and (3) completed any of the required training on or after April 15, 2007.2
Eligible tax professionals were required to opt in to the FLSA collective action.
As set forth above, the district court granted summary judgment in favor of
H&R Block. The court rejected the plaintiffs’ argument that their employment
continued from one tax season to the next, instead concluding that the plaintiffs were
trainees and not employees when they completed the twenty-four hours of rehire
training. “[A]s trainees, Plaintiffs are not entitled to be compensated for their time
spent at rehire training under the FLSA or California and New York law.” D. Ct.
Order of Apr. 8, 2013, at 17.
II.
We review de novo the district court’s grant of summary judgment, viewing the
evidence and the inferences that may be reasonably drawn from the evidence in the
light most favorable to the nonmoving party. Rakes v. Life Investors Ins. Co. of Am.,
2

The district court also certified California and New York class actions pursuant
to Federal Rule of Civil Procedure 23. The California class included only tax
professionals who were employed in California and completed any of the required
training after March 4, 2006. The New York class included only tax professionals
who were employed in New York and completed any of the required training after
March 4, 2004. Eligible tax professionals were allowed to opt out of the California
and New York classes. The parties agree that the state law claims are virtually
identical to the federal claim. Named plaintiffs Carla Collins and Stacy Oyer
represent the California and New York classes, respectively.
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582 F.3d 886, 893 (8th Cir. 2009). Summary judgment is appropriate if there are no
genuine disputes of material fact and the moving party is entitled to judgment as a
matter of law. Fed. R. Civ. P. 56(a).
The FLSA requires that covered employees be paid at least minimum wage for
hours worked. See 29 U.S.C. § 201 et seq. It defines “employee” as “any individual
employed by an employer” and defines “employ” as to “suffer or permit to work.” Id.
§ 203(e)(1), (g). “Whether or not an individual is an ‘employee’ within the meaning
of the FLSA is a legal determination rather than a factual one.” Donovan v. Trans
World Airlines, Inc., 726 F.2d 415, 417 (8th Cir. 1984) (per curiam).
A.
The plaintiffs argue that the district court applied the wrong legal framework
to determine whether the tax professionals were employees. They contend that the
district court should have considered whether their employment with H&R Block
continued from one tax season to the next. They argue that “workers can retain their
‘employee’ status during the interval between the completion of one period of
employment and the commencement of another if, as a factual matter, they are
customarily continued in their employment with recognition of their preferential
claims to their jobs.” Appellants’ Br. 29. According to the plaintiffs, the district court
should have applied the following two cases, which were brought under the National
Labor Relations Act (NLRA): NLRB v. Waterman S.S. Corp., 309 U.S. 206 (1940),
and NLRB v. Labor Ready, Inc., 253 F.3d 195 (4th Cir. 2001).
“[I]n determining who are ‘employees’ under the [FLSA], common law
employee categories or employer-employee classifications under other statutes are not
of controlling significance.” Walling v. Portland Terminal Co., 330 U.S. 148, 150
(1947); see also Powell v. U.S. Cartridge Co., 339 U.S. 497, 528 (1950) (“Our
decisions have made one thing clear about the Fair Labor Standards Act: its
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applicability is not fixed by labels that parties may attach to their relationship nor by
common law categories nor by classifications under other statutes.”). While we
recognize that the NLRA and the FLSA were enacted as part of the same remedial
social legislation, see Rutherford Food Corp. v. McComb, 331 U.S. 722, 723 (1947),
we find Waterman and Labor Ready to be distinguishable and decline to apply them
to this case.3
In Waterman, the Supreme Court held that the employer violated the NLRA
when it replaced the crews of the ships “Bienville” and “Fairland” with crews
affiliated with a different labor union. The employer had laid up the ships for drydocking and repairs for less than a month. 309 U.S. at 209. According to the
employer, the crews’ tenure of employment ended when the ships were laid up, the
wages were paid, and the men had signed statutory articles, which released all claims
for wages for the past voyage. Id. at 211. The Supreme Court decided, as a factual
matter, that “a seaman’s tenure and relationship to his ship and employer are not
terminated by the mere expiration of articles when his ship lays up in dry dock or for
repairs.” Id. at 218. In Labor Ready, the United States Court of Appeals for the
Fourth Circuit invalidated the employment agency’s policy of barring union
solicitation by its incumbent temporary workers. 253 F.3d at 201. In doing so, it
applied Waterman and rejected the employment agency’s argument that “the
employment relationship [between the agency and an incumbent temporary worker]
is dissolved each evening and not renewed unless and until the worker receives
another assignment.” 253 F.3d at 199.

3

We note that no court has applied Waterman or Labor Ready to a case brought
under the FLSA. Courts have considered whether the employment of seasonal
employees continued during the off-season in cases brought under the Selective
Training and Service Act of 1940 and under the Worker Adjustment and Retraining
Notification Act. See Bochterle v. Albert Robbins, Inc., 165 F.2d 942 (3d Cir. 1947);
United States ex rel. Stanley v. Wimbish, 154 F.2d 773 (4th Cir. 1946); Marques v.
Telles Ranch, Inc., 867 F. Supp. 1438 (N.D. Cal. 1994).
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Unlike the crewmen in Waterman and the incumbent temporary workers in
Labor Ready, the tax professionals are not trying to prevent the defendant company
from infringing upon the right to engage in union activity. Instead, they are seeking
to compel H&R Block to pay wages. While the decisions in those cases protected the
right to organize during the interval between the completion of one voyage or job and
the commencement of another, the plaintiffs here ask us to compel payment for
training completed during a time when they were doing no other work for H&R
Block. Moreover, unlike the short and often variable intervals between work
assignments in Waterman and Labor Ready, the tax off-season lasted most of the year.
From mid-April through late December or early January, the tax professionals were
free to engage in other employment or seek unemployment compensation, and the
plaintiffs concede that their employment agreements stated that “term of the
Agreement shall end” at the conclusion of the tax season. Then, before being rehired,
the tax professionals had to complete rehire training, submit an application, attend an
interview, and be offered a position. The legal and factual contexts of Waterman and
Labor Ready are thus very different than those in the present case. We hold that the
district court engaged in the appropriate inquiry when it considered whether, taking
the facts in the light most favorable to the nonmoving party, the plaintiffs were
employees or trainees when they completed rehire training.
B.
In Walling v. Portland Terminal Co., 330 U.S. 148 (1947), the Supreme Court
addressed the question whether an applicant being trained to fill a position met the
definition of “employee” under the FLSA. The railroad required prospective yard
brakemen to complete a training course before they could be considered for
employment. Id. at 149. Under the close supervision of the yard crew, a trainee first
observed the work of a brakeman and then was permitted to do the work. Id. The
Court explained:

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His activities do not displace any of the regular employees, who do most
of the work themselves, and must stand immediately by to supervise
whatever the trainees do. The applicant’s work does not expedite the
company business, but may, and sometimes does, actually impede and
retard it. If these trainees complete their course of instruction
satisfactorily and are certified as competent, their names are included in
a list from which the company can draw when their services are needed.
Unless they complete the training and are certified as competent, they are
not placed on the list.
Id. at 149-50. The Court concluded that those who “work for their own advantage on
the premises of another” are not “suffer[ed] or permit[ted] to work.” Id. at 152. The
Court accepted the unchallenged findings that the railroad received “no ‘immediate
advantage’ from any work done by the trainees” and held that the applicants were not
employees under the FLSA. Id. at 153. Portland Terminal has been interpreted as
“focusing principally on the relative benefits of the work performed by the purported
employees.” Solis v. Laurelbrook Sanitarium & Sch., Inc., 642 F.3d 518, 526 (6th
Cir. 2011); see id. at 528 (gathering cases that “apply a primary benefit test to
determine employment status”).
Portland Terminal is not meaningfully different from this case. H&R Block
receives no immediate advantage from the rehire training completed by the tax
professionals. As set forth above, tax professionals do not prepare tax returns or
complete any other work for H&R Block’s clients during the rehire training. The tax
professionals do not displace any regular employees, nor does their completion of the
training expedite H&R Block’s business. While the CPE requirement is no doubt
useful to H&R Block in that the training helps educate the tax professionals and keep
them current on tax issues, H&R Block does not reap the benefits until after the tax
professionals accept the company’s offer of employment. Indeed, H&R Block offers
courses on substantive tax topics, and tax professionals enrolled in those courses could
apply the training in a job with a different tax preparation service provider.

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The plaintiffs argue that H&R Block receives an immediate economic
advantage because it charges twenty dollars for access to its training courses and
because it holds itself out as having “the best trained and most qualified” tax preparers
in the industry. The twenty-dollar fee, however, is de minimis and offsets the cost to
H&R Block for purchasing or creating the CPE courses. Moreover, H&R Block
generates no income from tax professionals who satisfy the rehire training requirement
by taking courses offered by a different provider. We also find attenuated the
plaintiffs’ argument that “H&R Block takes advantage of the perceived value of its
tax professionals’ training to grow its business (i.e., make more money) and justify the
prices it charges clients for tax preparation services[.]” Appellants’ Br. 55. These
types of economic benefits—H&R Block’s collection of a nominal fee and its
promotion as having well-trained tax preparers—are not the type of immediate
advantage Portland Terminal envisioned and do not create a genuine issue for a jury
to resolve. Cf. Reich v. Parker Fire Prot. Dist., 992 F.2d 1023, 1028 (10th Cir. 1993)
(finding that the fire protection district did not derive an immediate advantage from
firefighter trainees where the trainees did not assume actual duties of career
firefighters during training and finding nondispositive that trainees made a financial
sacrifice to attend training).
Finally, the plaintiffs argue that the rehire training primarily benefits H&R
Block because the skills learned are not transferable. The plaintiffs contend that they
cannot apply the rehire training elsewhere because the courses refer to H&R Block’s
internal systems and proprietary software, because the tax professionals have entered
into confidentiality agreements with H&R Block, and because their employment
agreements prohibit them from soliciting or providing tax preparation services to
H&R Block’s clients for two years. The use of H&R Block’s internal systems and
software in training courses does not render the skills learned at the training courses
nontransferable. See Donovan v. Am. Airlines, Inc., 686 F.2d 267, 269, 272 (5th Cir.
1982) (holding that flight attendant trainees were not employees, even though the
company’s training taught American’s emergency procedures, American’s internal
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procedures, “American’s practices in preparing and serving food and liquor,
American’s customer service practices, American’s grooming requirements and, in
general, American’s ‘style’”). Moreover, the confidentiality agreement and two-year
noncompete clause do not “essentially side-line[]” the tax professionals, see
Appellants’ Br. 57, because the tax professionals are not prohibited from using the
knowledge learned in the CPE courses or from gaining employment elsewhere. We
agree with H&R Block’s argument that the plaintiffs “do not need to use H&R
Block’s trade secrets, or solicit its customers, to use information they learned during
CPE regarding tax preparation to engage in employment outside of H&R Block.”
Appellees’ Br. 30.
We hold that the tax professionals were not employees of H&R Block when
they completed rehire training. We find further support for this conclusion in the
Wage and Hour Division Field Operations Handbook, wherein the Wage-Hour
Administrator of the Department of Labor identified the following six criteria to aid
in determining whether trainees are employees: whether the training is similar to that
given in a vocational school; whether the training is for the benefit of the trainees;
whether the trainees displace regular workers; whether the employer derives an
immediate advantage from the activities of the trainees; whether the trainees are
entitled to a job at the conclusion of the training period; and whether the employer and
the trainees understand that the trainees are not entitled to wages for the time spent in
training.
The plaintiffs contend that there is a genuine dispute of material fact regarding
whether the trainees understood that they were not entitled to compensation for the
rehire training, particularly because H&R Block did not inform them in writing that
they would not be paid and because they did not acknowledge in writing that they
understood that they would not be paid. This evidence, however, does not create a
material factual dispute in light of the evidence that the company handbooks explained
that tax professionals must complete the training to be eligible for rehire, that doing
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so was not a guarantee of future employment, and that H&R Block charged twenty
dollars for access to its CPE courses.
III.
The judgment is affirmed.
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