Over the past several years, employment lawyers have cautioned their clients with regard to legal risks involved with unpaid internships. As these internships rose in popularity, many of the arrangements failed to meet Department of Labor guidelines for avoiding minimum wage and overtime liabilities. DOL adopted a six-point test for determining when an internship can be unpaid. These factors include a requirement that the internship mirror training provided in an academic environment, that the work not displace work otherwise performed by employees, and that the employer derive no immediate benefit from the intern’s activities. Taken as a whole, these guidelines limit unpaid internships to largely observational activities.
Earlier this month, the Second Circuit Court of Appeals rejected this six-point test in favor of a more nuanced one. In Glatt v. Fox Searchlight Pictures, an intern who worked on The Black Swan filed a collective action FLSA claim seeking pay for unpaid interns used by Fox on the movie. The plaintiff contended that the interns made copies, delivered coffee, and performed other tasks of limited educational value. The district court held that the interns’ activity did not meet the DOL test for unpaid work.
The Second Circuit reversed this decision, remanding the matter for additional proceedings. In its opinion, the court concluded that the six-part test was too rigid, and ignored the key issue in distinguishing whether or not the internship should be paid. The Second Circuit characterized this issue as whether the intern or the company is the primary beneficiary of the intern relationship. This question requires a careful, holistic analysis of the economic realities of the situation. What is the understanding between the parties as to compensation? How does the internship advance the intern’s academic commitments? Does the intern’s work complement or displace work performed by paid employees?
The court noted that none of these questions is dispositive, and that the ultimate determination depends on a weighing and balancing of the circumstances. This decision does not mean that Fox will prevail in the litigation. It simply gives the company the ability to defend its failure to pay the interns even if it failed to meet one or more of the DOL factors. If followed by other federal appellate circuits, this decision could expand situations where companies can use unpaid interns. Unpaid internships will still be restricted to students enrolled in school, but companies may be able to provide a more hands-on learning experience without fearing possible claims for pay.
