Hunton Employment & Labor Perspectives

Now that summer is here and the interns have arrived, it is important to consider whether your interns should be paid.  A New York District Court has recently issued a decision highlighting this concern in its ruling against unpaid internships.  In Glatt v. Fox Searchlight Pictures Inc. interns who worked on the set of Black Swan brought suit alleging that Fox Searchlight Pictures Inc. and Fox Entertainment Group, Inc. violated the Fair Labor Standards Act (“FLSA”) and the New York Labor Laws (“NYLL”) by classifying them as unpaid interns rather than employees.  11 Civ 6784 (WHP) (S.D.N.Y. June 11, 2013).

Employee v. Trainee

In explaining its decision, the Court first recognized that in Walling v. Portland Terminal Co., the Supreme Court established trainees or unpaid interns as a “narrow exception to an expansive definition” based on Congress’ intention to include all employees within the scope of the FLSA.  In determining whether an individual falls within the trainee exception, the Court rejected the primary beneficiary test which focuses on whether the internship’s benefits to the intern outweigh the benefits to the entity.  Finding this test “subjective and unpredictable,” the Court instead relied on six criteria put forth in a fact sheet by the Department of Labor.  In applying this criteria, “[n]o single factor is controlling.”  Rather all circumstances should be considered.  The criteria require employers to consider whether:

1. The internship is similar to training given in an educational environment;
2. The internship is for the benefit of the intern;
3. The intern displaces regular employees versus works under the close supervision of staff;
4. The employer derives no immediate advantage from the activities of the intern (and in some cases the employer’s operations are actually impaired);
5. The intern is not necessarily entitled to a job at the end of the internship; and
6. The employer and intern understand that the intern is not entitled to wages

In applying each factor and considering the totality of the circumstances, the Court concluded that the plaintiffs were classified improperly as unpaid interns and were “employees” covered by the FLSA and NYLL.  This finding was based on the fact that the interns worked as paid employees work; provided an immediate advantage to their employer; received benefits that were not unique to the interns but simply were the result of having worked as any other employee; and in terms of education, did not receive anything that they would have received in an academic setting or vocational school.

Area Ripe for Litigation

Considering the popularity of internships for both employers and those seeking employment, the misclassification of individuals as trainees or unpaid interns rather than as employees is an area that is prime for litigation. It is a topic that is even more attractive because it could lead to class actions (in the Glatt case the Court also permitted one of the plaintiffs to move forward with class certification).  With these risks at stake, it is important to review internship programs with the above six criteria in mind and ensure that interns are properly compensated under both federal and state wage laws.