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Aug 11, 2015

The unpaid intern trap Part II

By: Paul Ebeltoft

In May I told you to await the Second Circuit Court of Appeals ruling on whether or not your company will need to pay its interns minimum wage and overtime. Wait no more. The ruling is in. Now we just have to figure out what it means.

A quick refresher

The case is Glatt et al. v. Fox Searchlight Pictures Inc. Eric Glatt and other plaintiffs were unpaid interns on the feature film Black Swan. The film, about cutthroat competition among ballerinas for the lead in Swan Lake, did better at the box office than anyone expected. Glatt and the other plaintiffs claimed that Fox Searchlight Pictures Inc. (Fox) worked them 50 hours a week or more doing jobs that otherwise would have been done by paid employees, but for free. Glatt’s duties included obtaining documents for personnel files, picking up paychecks for co-workers, tracking and reconciling purchase orders, drafting cover letters, organizing filing cabinets, making photocopies, and running errands. He should have been paid an hourly wage and overtime, Glatt claimed. That he was not violated United States Department of Labor (DOL) internship rules promulgated the same year (2010) that the film was produced.

Fox Searchlight Picture’s lawyers argued that DOL’s six part test that unpaid internships must meet prohibits interns from performing any productive work at all. This, the lawyers claimed, was “antithetical to a meaningful internship.” They argued instead for the court to adopt a balancing test based upon whether the interns work is more for the benefit of the employer (and would need to be paid) or if the work benefited the intern more (in which event payment is not needed).

What was (and may still be) at stake?

Many thought that the DOL’s rules set the bar too high for employers, making it virtually impossible for companies to structure a compliant unpaid internship program. Unpaid internships were shut down after some large class-action lawsuit payments were made by big companies who ran programs like Fox did. The future of unpaid internships, including the interests of colleges and universities around the country in promoting them, hung on the Second Circuit Court of Appeals ruling.

What the Court said

The Second Circuit ultimately sided with employers. It rejected the Department of Labor’s rigid six factor test and instead created a multi-factored, non-exhaustive set of considerations by which an intern-employer relationship will be judged. The considerations are to help weigh and balance whether the employer or the intern is the “primary beneficiary” of the relationship; if the employer, then payment is to be made; if the intern, then the internship can be unpaid. Among the possible tests are:

1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation.

2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment.

3. The extent to which the internship is tied to the intern’s formal education program.

4. The extent to which the internship accommodates the intern’s academic commitments.

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.

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.

What it means

Commentators have praised the decision, saying that employers will find it easier to offer unpaid internships. These same pundits claim that interns will be able to enhance their education but not be exploited. Yet I am not sure.

The Court held that no single one its seven enumerated considerations are dispositive. The Court said that an unstated range and number of other considerations can be taken into account in “weighing and balancing all of the circumstances.” This is just the kind of “rule” in which employers are unlikely to place much stock. Adding to the uncertainty, an appeal may yet be taken, albeit delayed in view of other procedural rulings by the Court that are not relevant here. And, not surprisingly, intern groups have vowed to fight on.

The website reported that it “believes that the Second Circuit’s seven new criteria are arbitrary and fabricated to shift the burden of evidence in cases of exploitative internships away from employers and onto the backs of student workers. As [Suffolk University law professor David] Yamada stated in his recent blogpost on the ruling, ‘In practical terms, the decision invites private employers and universities to collaborate on schemes that (1) create unpaid internships; and (2) charge students tuition for the “privilege” of doing unpaid work.’ *** We would like to remind everyone that “Black Swan” earned over 300 million dollars while Glatt and Footman [another Plaintiff] were paid nothing. We continue to stand by them and all unpaid interns as they fight through all legal channels available.”

Rachel Bien, the lawyer who represents Glatt, said she was pleased the court created a “clear rule.” But the clarity she sees is not that unpaid internships will be easier to offer, but that "[m]any of the most abusive internships involving low-level tasks and grunt-type work are plainly illegal under this standard." In short, we can almost be certain that there will be more scrutiny of unpaid internship programs in the courts.

Perhaps the best advice if your company is considering an unpaid internship program is – stay tuned.

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Reprinted with permission from an article submitted for publication in the August, 2015 Southwest Area Human Resource Association newsletter.