Court Rejects Classification of Employee as Trainee

July 10, 2017 by Stephanie Platenkamp

A California appellate court has issued a decision that emphasizes the narrow circumstances under which a worker may be treated as an unpaid “trainee” and confirms that nonmonetary benefits may not be attributed to employee salary for purposes of determining whether an employee is exempt from overtime requirements. (Ming-Hsiang Kao v. Joy Holiday, 2017 WL 2590653 (Cal. Ct. App. June 15, 2017).)

The case involved a Taiwanese national, Kao, who came to the United States to work for a tourism company. Kao was promised an H-1B visa, which is available to employ noncitizen workers in the United States on a temporary basis in specialty occupations requiring highly specialized knowledge. During the 11 months Kao waited for his H-1B visa, the tourism company gave him a “stipend” as a “student” or “trainee.” After receiving his visa, Kao continued to perform the same duties.

The appellate court concluded that a noncitizen working while waiting for an H-1B visa to be processed is an employee entitled to the protections of state and federal wage and hour laws. The court affirmed the longstanding principle that noncitizens without work authorization are “employees” for purposes of state and federal labor protections.

Additionally, the court saw through the flimsy defense raised by the employer’s argument that Kao was a non-employee “trainee” during the period he waited for his visa. A trainee is a person who receives training and no salary and whose work serves only his or her own interest. Kao performed tasks that employees would normally perform, including website management, sales calls, and distribution of travel brochures. The court found these tasks to be dissimilar to those in an “educational environment,” and instead concluded they were commercial tasks benefitting the employer.

Lastly, the court reversed the erroneous inclusion of nonmonetary benefits in calculation of Kao’s salary. To be exempt from overtime and certain other labor code requirements, employees must earn twice the minimum wage. Kao’s compensation included lodging, which the employer had included in his salary to argue he was an “exempt employee.” The court found this improper, ruling employees must receive a base minimum salary rate exclusive of any benefit, and thus that the lodging benefits could not be included when determining whether Kao earned a sufficient salary to qualify as exempt. Because Kao earned less than the salary threshold ($2,733 per month), he was not an exempt employee and therefore entitled to overtime.

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