Unpaid internships are back in the spotlight after a federal appeals court reversed a ruling classifying a movie company’s unpaid interns as employees entitled to compensation. The Second Circuit Court of Appeals decision in Glatt et al. v. Fox Searchlight Pictures, Inc. et al. casts doubt over the Department of Labor’s (DOL) restrictive view of this issue and may set the stage for a more practical and employer-friendly test to determine the right script for an internship.
Old Standard
The DOL has had a longstanding requirement that the following six tests all had to be met before a true internship could be found:
1. The internship is similar to training that might be provided in an educational environment;
2. The internship experience is for the benefit of the intern;
3. The intern does not displace regular employees;
4. The employer derives no immediate advantage from the intern’s activities, and on occasion its operations may actually be impeded;
5. The intern is not necessarily entitled to a job after the internship and
6. The parties mutually understand that wages are not expected.
While courts are not absolutely bound by DOL regulations, they often look to them for guidance on interpreting the law.
The Second Circuit viewed things through a different lens, setting out a new test focusing primarily on who is the “primary beneficiary” of the internship. If the intern is the star of the show, the relationship can be billed as an unpaid internship even if the employer gets some benefit from the intern’s efforts.
New Standard
This new approach looks to the practical, economic realities of the relationship and requires a balancing of all relevant factors, including those that the DOL previously identified, such as:
1. The extent to which the parties clearly understand that is, or is not, expected;
2. The extent to which the internship provides training similar to what might be given in an educational environment, including clinical and hands‐on training;.
3. How much the internship is tied to the formal educational program through integrated coursework or the receipt of academic credit for the experience;
4. Whether 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 a specific period for beneficial learning (rather than continuing on with no prescribed agenda);.
6. The extent to which the intern’s work complements the work of paid employees instead of displacing them; and
7. The extent to which there is an understanding that there is no promise of a paid job when the internship ends.
The fate of the individual interns in the case remains up in the air since the matter was remanded to the lower court to evaluate the claims under the new Second Circuit test.
Bottom Line
This decision comes after another large entertainment company, Viacom, recently settled the wage and hour claims of several unpaid interns who argued they should have been classified as paid employees, as we reported on June 5.
Make no mistake – the DOL intends to apply their rigid six-factor test when claims are filed with them, and they will certainly advocate their test in the courts. However, employers defending those claims now have a new argument for the validity of internships even if they don’t meet all of the DOL factors. It remains to be seen how other courts (especially the Eighth Circuit which encompasses Minnesota) intend to handle this issue. Until we know, use caution in setting up unpaid internships to make sure there is a happy ending to the story.