Lily is now working as secretary to the multiply divorced and wealthy socialite Mrs. Hatch at the Emporium Hotel. Hatch is the head of her social group, which includes Mr. Melville Stancy, Silverton, and Freddy Van Osburgh.
Selden visits Lily at the Emporium; he is uneasy and makes inappropriately defensive comments. He stridently offers to take Lily away from Mrs. Hatch and the Emporium. He tells her to room with Gerty until Lily's inheritance is paid. Lily tells Selden that she owes every penny of her inheritance. Selden is firm in recommending that Lily depart Mrs. Hatch's employ, but this firmness stiffens Lily's determination to stay.
In Chapter X, Gerty recommends millinery work to Lily — a position for which she seems suited as she has remarked that she can trim hats. Also, wanting to help Lily, Carry approaches Judy. Judy reacts violently, which baffles Carry. Carry gets Lily work at Mme. Regina millinery shop, but Lily refuses to work on the sale floor modeling hats for fear of being seen by her former social circle; she instead goes to work constructing the hats. She is chastised by the forewoman, Miss Haines, for crookedly sewing spangles on a hat, but is comforted by the kindliness of Miss Kilroy, a co-worker.
Lily has begun to use Mrs. Hatch's prescription for chloral (chlorinated ethyl alcohol) in order to sleep. The pharmacist warns her not to increase the dosage. While filling the prescription, she encounters Rosedale. Rosedale and Lily go for tea, and Lily tells Rosedale her reasons for leaving the employ of Mrs. Hatch: She did not want to be perceived as assisting Mrs. Hatch's romantic designs on the wealthy Van Osburgh. Because Rosedale admits he has heard rumors of Lily's involvement, Lily expresses that she might as well have stayed employed with Mrs. Hatch.
Lily tells Rosedale that she is working for Mme. Regina, a revelation that shocks the wealthy financier. She also tells him that she owes her entire legacy to Trenor and others. Before he can offer to help her, Lily excuses herself from the table. Rosedale walks her back to her boarding room and asks to see her again. Lily graciously agrees.
Alone in her room, Lily contemplates using her inheritance from Mrs. Peniston to set up her own millinery establishment. From the proceeds, she reasons, she can pay back Trenor. Such a plan, however, she knows will take years. She blames Bertha for her misfortune, and wonders how long she can continue to resist the temptation to use the letters against her. She drugs herself and falls into a deep sleep.
Wharton casts her satire toward the newly rich denizens of the Emporium Hotel. Wharton writes that Mrs. Hatch's daily life was a "jumble of futile activities" that, to Lily, has no rhyme or reason.
Because of Mrs. Hatch's unfamiliarity with the manners and customs of the New York social elite, Lily underestimates her as ignorant of social convention. In fact, Mrs. Hatch will eventually turn on Lily in much the same fashion as Bertha.
The narrator views the meeting between Selden and Lily as a lost opportunity for both characters. Had either of them risen above their social training to express their feelings, the narrator believes their differences could be put aside. Selden also displays his blinkered and superficial view of the world when he castigates Lily for working for Mrs. Hatch, which he calls "unconsciously placed in a false position." Wharton uses Lily's resolve to stay with Mrs. Hatch to display Lily's recognition of the hypocrisy of a social class that exiles its own but presumes to tell the exiled what they must do afterward.
Selden's conversation with Lily has served to do more harm than good in that his approach caused Lily to stiffen her resolve rather than see the wisdom of his message. The narrator states that Lily stayed in the employ of Mrs. Hatch several weeks beyond the time she should have left simply as a resistance to Selden's advice. However, Lily's attitudes toward the wealthy social class are becoming drastically altered, which she reveals when she tells Rosedale that she feels Van Osburgh "is not in the least too good for" Mrs. Hatch. Recognizing that her decision to quit the job was based more on her fear of societal opinion than on more practical financial concerns, Lily realizes that there was no real need to leave Mrs. Hatch.