SDNY Rules in Favor of Unpaid Interns

Wage and Hour laws exist to ensure that employees receive a fair day’s wage for a fair day’s work, and set standards for how employees should be properly paid so that they are neither overworked nor underpaid. Some job positions, such as those involving volunteer work or internships, are typically unpaid and are therefore not generally subject to Wage and Hour laws. Recently, however, courts have been delving into the question of whether employers have unlawfully hired interns to perform work tasks generally assigned to paid employees under the guise of “unpaid internship” positions. While unpaid internships are legal in certain circumstances, when employers hire unpaid interns to elicit free labor that they would usually pay employees for, then such employers are in violation of federal and state Wage and Hour laws, unless an exception applies.

In Glatt et al., v. Fox Searchlight Pictures, Inc., No. 11 Civ. 6784, 2013 U.S. Dist. LEXIS 82079 at *1 (S.D.N.Y. June 11, 2013), Plaintiffs argued that they were wrongly classified as unpaid interns instead of paid employees, in violation of New York Labor Law (“NYLL”), and Federal Fair Labor Standards Act (“FLSA”), and should have been entitled to wages. Plaintiffs worked on the production set of the film, Black Swan, as assistants, bookkeepers, secretaries and janitors.

First, the court needed to determine whether Glatt and Foreman were considered “employees” under the FLSA and NYLL, and secondly, whether the “trainee” exception applied. The decision in Glatt, an issue of first impression, held favorably for the Plaintiffs; on June 11, 2013, Judge Pauley ruled that Glatt and Foreman were indeed considered “employees” under the FLSA and NYLL, thus holding that the trainee exception did not apply and the Plaintiffs were entitled to paid wages. The judge also certified a class action for interns who worked for Fox Entertainment Group, the parent of Fox Searchlight.

Until the decision in Glatt, the Second Circuit had not addressed the “trainee” exception to the FLSA. Glatt, 2013 U.S. Dist. LEXIS 82079, at *32. While the Defendants argued that the factors set forth by the Department of Labor (“DOL”) were not the applicable standard and urged that the court apply the “primary benefit test,” which questions whether the internship‘s benefit to the intern outweighed the benefits to the engaging entity, the court held that the beneficiary test is too subjective and unpredictable. Id. Instead, the court relied on the DOL criteria for whether an internship may be unpaid: (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. Id. at 30.

Judge Pauley reasoned that while Glatt and Footman did receive benefits from their internships, such as getting an understanding of how a production office works, job references and a resume booster, such benefits are “not the result of internships intentionally structured to benefit them” and are merely “incidental” because “resume listings and job references result from any work relationship, paid or unpaid, and are not the academic or vocational training benefits.” Id. at 37. The court further held that “even under Defendants’ preferred test [the primary beneficiary test], the Defendants were the ‘primary beneficiaries’ of the relationship, not Glatt and Footman.” Id. at 34. Therefore, in weighing the totality of the circumstances, since they “worked as paid employees work, providing an immediate advantage to their employer and performing low-level tasks not requiring specialized training… [and] not of internships designed to be uniquely educational to the interns and of little utility to the employer. Id. at 40-1. They received nothing approximating the education they would receive in an academic setting or vocational school,” and were not in the exception of being “trainees.” Id.

Thus, the court strongly emphasizes that unpaid internships must benefit the interns greater than the employers. Resume listings and job references are not sufficient to constitute “benefits” conferred by the interns, and in order to be unpaid, interns should be provided educational/vocational-type skills, not work that paid employees would generally be doing. While this court set more clear definitions for what constitutes an unpaid internship in the Second Circuit, employees should be wary about how the media represents the future of unpaid internships. The case may very well have a large impact as Intern Bridge, a research firm, reports that one million undergraduate students are interns each year. Many news reports have been indicating that this case could be the “end-all” of unpaid internships– while it is true that anything can happen in the future, it should not be misconstrued that all unpaid internships are illegal by the ruling in this case. Rather, the holding in this case suggests unpaid internships should be used in more limited circumstances. It is also important to note that a representative of Fox has stated they will likely be pursuing an appeal on this matter. Therefore, while this holding is the most authoritative judicial pronouncement on the matter to date, an appeals process could yield different results. Stay tuned for updates.