Hunton Employment & Labor Perspectives

In a closely watched case, Glatt v. Fox Searchlight Pictures, Inc. (decided July 2, 2015), the Second Circuit rejected the Department of Labor’s (“DOL”) intern test under the Fair Labor Standards Act (“FLSA”), and adopted a balancing test that focuses on whether the employee or the employer is the primary beneficiary of the relationship (“primary beneficiary test”).  This is important because interns are not considered employees, and thus, are exempt from the minimum wage and overtime provisions of the FLSA.

The DOL issued informal guidance to help courts and employers determine if a given worker is an intern or an employee.  Under the DOL’s test, a worker is an intern only if all of the following six factors exist:

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;

2. The internship experience is for the benefit of the intern;

3. The intern does not displace regular employees, but works under close supervision of existing staff;

4. The employer that provides the training derives no immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded;

5. The intern is not necessarily entitled to a job at the conclusion of the internship; and

6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

Applying this DOL guidance, the Southern District of New York found that the Fox interns in question were employees entitled to wage and hour protections – even though only four of the six factors were present.

The Second Circuit, however, rejected the DOL test and instead articulated the primary beneficiary test.  This primary beneficiary test provides a non-exhaustive list of seven factors that courts in the Second Circuit are supposed to consider when evaluating whether a worker is an intern or employee.  The Second Circuit stated that courts are not limited to the seven listed factors and may consider other relevant evidence as well. The Second Circuit reasoned that the shift from the DOL’s strict “six factors or nothing” test to a more nuanced balancing test provides flexibility and “reflects the features of a modern relationship—the relationship between the internship and the intern’s formal education.”

The Second Circuit’s factors include:

1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation (any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa);

2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions;

3. The extent to which the internship is tied to the intern's formal education program by integrated coursework or the receipt of academic credit;

4. The extent to which the internship accommodates the intern's academic commitments by corresponding to the academic calendar;

5. The extent to which the internship's duration is limited to the period in which the internship provides the intern with beneficial learning;

6. The extent to which the intern's work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern; and

7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

The Second Circuit remanded the case to the district court, where it will now apply the primary beneficiary test to the determine whether the workers in question are interns.

Whether a worker is an intern or employee is an issue that is being heavily litigated.  We will continue to follow this litigation and the other cases involving the issue.  We suggest that employers evaluate their internship programs as the law continues to develop.