UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

ROBERT B. REICH, SECRETARY OF
LABOR, UNITED STATES
DEPARTMENT OF LABOR,
Plaintiff-Appellee,

v.
                                                               No. 95-2765
SHILOH TRUE LIGHT CHURCH OF
CHRIST, d/b/a Shiloh Vocational
Training Program; JAMES ROMMIE
PURSER; GARY LEON YORK,
Defendants-Appellants.

Appeal from the United States District Court
for the Western District of North Carolina, at Charlotte.
Robert D. Potter, Senior District Judge.
(CA-92-444-3-P)

Argued: April 1, 1996

Decided: May 7, 1996

Before WILKINSON, Chief Judge, and WILKINS and LUTTIG,
Circuit Judges.

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Affirmed by unpublished per curiam opinion.

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COUNSEL

ARGUED: David Carl Cordes, Allen A. Bailey, BAILEY, PATTER-
SON, CADDELL, HART & BAILEY, P.A., Charlotte, North Caro-
lina, for Appellants. Anne Payne Fugett, UNITED STATES
DEPARTMENT OF LABOR, Washington, D.C., for Appellee. ON
BRIEF: Thomas S. Williamson, Jr., Solicitor, Gail V. Coleman, Dep-
uty Associate Solicitor, William J. Stone, Counsel for Appellate Liti-
gation, UNITED STATES DEPARTMENT OF LABOR,
Washington, D.C., for Appellee.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

Appellant Shiloh True Light Church of Christ's members hold a
religious belief that their children should receive meaningful voca-
tional training. This belief is effectuated through the Shiloh Voca-
tional Training Program (SVTP). The issue in this case is whether
SVTP participants under the age of sixteen are "employees" entitled
to the protections of the Fair Labor Standards Act. The Church argues
that those children are not employees, and that at any rate, application
of the FLSA would violate both the Free Exercise Clause and Depart-
ment of Labor administrative policy.

The district court entered partial summary judgment against the
Church, rejecting its free exercise and administrative defenses. Then,
following a two-day bench trial, the court concluded that the under-
sixteen participants in the SVTP qualified as employees under the
FLSA. Finding no error, we affirm the judgment of the district court.

I.

Church youth perform a variety of construction projects through
the SVTP, and customers pay the Church for the work. We have
upheld application of the FLSA to the SVTP once before. Brock v.
Wendell's Woodwork, Inc., 

(4th Cir. 1989). After the

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trial in Wendell's Woodwork, the Church reorganized the program. A
principal modification was that children under the age of 16 would no
longer receive a wage for their work. The SVTP also decided to seg-
regate its work crews by age, but has since discontinued that practice
-- children under and over 16 now work together in combined work
crews, performing largely the same tasks.

The SVTP's projects formerly consisted mostly of subcontract
work at construction sites. Representative projects include installing
a fireplace, constructing a carport, adding a room, laying a foundation
under a garage, and building concrete retainer walls. Since 1990, the
program has also been in the business of constructing entire new
houses -- the SVTP built 15 new homes between 1990 and 1993.
Children under 16 participate in all aspects of new home construction,
including roofing, building the foundation, mixing mortar, laying
bricks, and installing drywall.

The SVTP charges labor costs, material costs, other general
expenses, and also an administrative fee and an interest fee for its new
home construction. The labor charge does not include the work of
children under the age of 16, in furtherance of the policy barring pay-
ment of wages to under 16 participants. But while children under 16
do not receive a wage, they have not been completely free of financial
inducement. They have received lump sum payments in the past, with
the amount depending on the child's degree of experience and
achievement in the program -- the Church characterizes these awards
as "gifts." The under 16 participants also earn "imaginary" raises on
top of "imaginary" wages as a mechanism for determining their actual
wage upon turning 16.

The Department of Labor filed suit against the SVTP on December
3, 1992, contending that the program violates FLSA provisions gov-
erning child labor, minimum wage, and record-keeping. The SVTP
initially admitted that all of the children were employees subject to
the FLSA, but then adopted a position that the children under 16 were
not employees under the Act. It also challenged application of the
FLSA on free exercise grounds. Finally, it asserted defenses based on
the Department of Labor's no-enforcement policy with respect to
some vocational programs and the Department's failure to promulgate

                    3
regulations under 29 U.S.C. § 214(d) exempting certain student
employment.

On February 24, 1995, the district court entered partial summary
judgment in favor of the Department. The court rejected the SVTP's
free exercise defense, finding it indistinguishable from the free exer-
cise claim denied in Wendell's 

. The court
also rejected the SVTP's administrative defenses. In the court's view,
though, trial was necessary to examine whether the under 16 children
were employees under the FLSA.

The district court held a bench trial to answer that question on May
15 and 16, 1995. Based on the evidence presented at trial and on the
154 findings of fact set forth in its opinion, the court determined that
SVTP participants under 16 were employees subject to the protections
of the FLSA. As a result, the court concluded, the Church had vio-
lated the Act's child labor, minimum wage, and record-keeping
requirements with respect to those employees. This appeal followed.

II.

The SVTP contends that the district court erred in concluding that
the children under 16 are employees under the Act. We do not agree.
The district court's ruling was based on extensive factual findings
developed with the benefit of a two-day bench trial, findings that we
must not lightly second-guess on appeal.

The FLSA defines an "employee" as "any individual employed by
an employer," 29 U.S.C. § 203(e)(1), and"employ" as "to suffer or
permit to work," 29 U.S.C. § 203(g). In some circumstances, trainees
are not considered employees. See Walling v. Portland Terminal Co.,

(1947). In this circuit, "the general test used to deter-
mine if an employee is entitled to the protections of the Act is
whether the employee or the employer is the primary beneficiary of
the trainees' labor." McLaughlin v. Ensley , 

, 1209 (4th
Cir. 1989). The inquiry is by nature a fact-intensive one. See 

SVTP agrees that the "primary beneficiary" test should govern
this case, but disputes the district court's application of it. In our

                     4
view, however, the district court's conclusion that the Church is the
primary beneficiary of the under 16 labor finds support in the factual
record. The Church admits that children over 16 are employees under
the Act, and thus presumably that it is the primary beneficiary of their
labor. But the children under 16 perform essentially the same tasks
as their older counterparts, suggesting that they, too, are employees:
An SVTP instructor, Richard Allen Bush, testified that children under
16 and children over 16 often do precisely the same work, and that
age is not determinative of the work assigned.

Although the under 16 participants may not receive wage compen-
sation, they have received substantial lump sum awards in the past (as
high as $5,500). While the Church evidently has discontinued these
payments, the record suggests that it has continued to seek ways to
compensate the children without running afoul of the FLSA. More-
over, workers under the age of 16 still receive"imaginary" raises that
directly translate into a higher rate of pay upon turning 16. And the
SVTP expert who testified as to the non-financial benefits of the pro-
gram was viewed by the district court as lacking credibility. Given all
of this, we cannot question the district court's finding "as a fact that
the . . . church policy to not pay the minors under 16 is an attempt to
label them students rather than employees."

The court also concluded that the Church benefits greatly from the
work of children under 16. In the past, although the under 16 labor
was not charged, the SVTP informed customers that they could make
a "donation" in an amount approximating the value of the work; such
a donation normally was made. While the donation practice has been
discontinued, the Church still gains significant financial benefit from
projects in which under 16 children participate. Between 1990 and
1993, the SVTP finished 97 construction projects and 15 complete
houses with the help of children under the age of 16, producing sub-
stantial financial returns. Three of the houses, for instance, were sold
for $134,000, $124,750, and $213,456. By using children under 16 to
complete these projects, the district court found, the SVTP enjoyed
the benefit of experienced labor without incurring any cost in wages.
"Clearly," the court concluded, "the program has been converted into
a commercial enterprise competing with other contractors."

In short, substantial evidence in the record supports the district
court's conclusion that the Church was the primary beneficiary of the

                    5
under 16 labor, and that the children under 16 are thus employees
entitled to the protections of the FLSA.

III.

The SVTP also contests the district court's rejection of its free
exercise claim. According to appellant, the district court failed to rec-
ognize that this was a "hybrid" claim involving both free exercise
rights and other fundamental rights. See Employment Division v.
Smith, 

, 882 (1990). The court, however, plainly under-
stood that it was dealing with a hybrid claim, and also that after the
Religious Freedom Restoration Act, 42 U.S.C. § 2000bb et seq,
hybrid claims and "pure" free exercise claims both must be analyzed
under the compelling interest test.

In the circumstances of this case, the district court's application of
the compelling interest test was appropriate. As the district court
noted, the free exercise defense is essentially indistinguishable in rele-
vant respects from that presented by the SVTP (and rejected by this
court) in Wendell's 

. The SVTP has pres-
ented no new evidence that would warrant revisiting our conclusion
in that case. We do not suggest, however, that church-run vocational
programs are inevitably subject to the FLSA, or that they will always
fall outside the protection of the Free Exercise Clause. Instead, our
conclusion here, as was our analysis in Wendell's Woodwork, is based
on the particular facts and on the characteristics of the program at
issue.

IV.

Finally, the SVTP challenges the district court's rejection of its
administrative defense. The SVTP's administrative argument is based
in part on 29 U.S.C. § 214(d), which states:

          The Secretary may by regulation or order provide that sec-
          tions 206 and 207 of this title shall not apply with respect
          to the employment by any elementary or secondary school
          of its students if such employment constitutes, as deter-
          mined under regulations prescribed by the Secretary, an

                     6
          integral part of the regular education program provided by
          such school and such employment is in accordance with
          applicable child labor laws (emphasis added).

According to the SVTP, the Department of Labor has failed to issue
regulations under this provision, and schools thus lack guidance on
whether their vocational programs violate the FLSA. As a result, the
SVTP asserts, the Department cannot prosecute actions against voca-
tional programs for violations of the Act.

Plainly, however, the statute only says that the Secretary "may"
promulgate regulations; it nowhere requires the Secretary to issue reg-
ulations. The situation is thus far different from that in the case princi-
pally relied upon by appellant, Mayor v. Mathews , 

(4th
Cir. 1977), cert. denied, 

(1978). The discretionary
nature of the statute at issue here, as the district court appropriately
found, forecloses the SVTP's argument. The Secretary has not issued
regulations exempting certain categories of student employment, and
so the SVTP cannot benefit from any such exemption.

Appellant's administrative defense is also based on the no-
enforcement policy expressed in section 10b28 of the Department's
Wage and Hour Division's Field Operations Handbook. That provi-
sion reads in pertinent part:

          (a) Until final regulations implementing the provisions of
          Sec 14(d) are adopted, WH [the Wage and Hour Division]
          will take no enforcement action with respect to MW[mini-
          mum wage] or OT [overtime] for private elementary or sec-
          ondary students employed by any school in their school
          district in various school-related work programs, provided,
          that such employment is in compliance with applicable CL
          [child labor] provisions. . . . (b) If such employment is not
          in compliance with applicable CL provisions, the students
          so employed must be paid MW and OT for all hours worked
          . . . . Also, the employer will be subject to CL/CMP's [civil
          money penalties].

According to the SVTP, it presumed under this provision that the
Department would not enforce the FLSA against it, and that under 29

                     7
U.S.C. § 259, such good faith reliance should preclude application of
the Act.*

The no-enforcement policy, however, does not apply to the SVTP.
The policy is only implicated if the "employment is in compliance
with applicable [child labor] provisions." As the district court deter-
mined, the SVTP has violated child labor laws by allowing children
under eighteen to operate hazardous machinery, see 29 C.F.R.
§§ 570.52, 570.58, 570.65, and children under sixteen to work in con-
struction during hours prohibited by federal regulation, see 29 C.F.R.
§§ 570.33(b), 570.33(f)(4), 570.35. See generally 29 U.S.C. § 203(l).
As a result, the SVTP's administrative defense must fail.

V.

For the foregoing reasons, the judgment of the district court is
hereby

AFFIRMED.
_________________________________________________________________
*29 U.S.C. § 259 states in relevant part:

          [N]o employer shall be subject to any liability or punishment for
          or on account of the failure of the employer to pay minimum
          wages or overtime compensation under the Fair Labor Standards
          Act . . . if he pleads and proves that the act or omission com-
          plained of was in good faith in conformity with and in reliance
          on any written administrative regulation, order, ruling, approval,
          or interpretation, of the [Wage and Hour Division of the Depart-
          ment of Labor].

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