Second Circuit Rejects the Department of Labor Test for the Lawful Employment of Unpaid Interns

In a much anticipated decision in Glatt v. Fox Searchlight Pictures, Inc., the United States Court of Appeals for the Second Circuit recently adopted the “primary beneficiary” test for determining whether individuals performing services for no compensation have been properly classified as “unpaid interns” or are, in fact, “employees” who have been improperly denied wages mandated by the Fair Labor Standards Act (FLSA). The district court, in an opinion that received a great deal of attention, had ruled that the plaintiffs were employees for FLSA purposes, applying the factors enumerated in the test proposed by the U.S. Department of Labor (DOL). The Second Circuit rejected the DOL’s test and, accordingly, reversed the district court’s order granting the plaintiffs’ motion for partial summary judgment and their motion to certify a collective action.

The primary beneficiary test adopted by the Second Circuit provides employers with considerably more leeway than does the DOL test to establish that unpaid interns have been properly classified as such. Nevertheless, regardless of the test a given court will apply, employers should approach the use of unpaid interns with caution and only after careful legal analysis.

Background
Plaintiffs were three individuals who had worked as unpaid interns on the film Black Swan, distributed by Fox Searchlight, or at Fox’s corporate offices in New York. The DOL appeared as amicus curiae in the case, supporting the plaintiffs’ claims for compensation. The plaintiffs’ responsibilities included, among other things, copying and filing documents, tracking purchase orders, maintaining employee personnel files, making deliveries, setting up office furniture, maintaining up-to-date takeout menus, making travel arrangements, admitting guests to the office, compiling lists of local vendors, and running errands.

The district court ruled that under the FLSA and New York law, two of the plaintiffs should have been treated as paid employees rather than as unpaid interns. In so ruling, the court applied the following six-factor test proposed by the DOL:

  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.

The district court did not adopt the DOL’s position that the employer had to establish that all six factors were in its favor before it could properly classify someone as an unpaid intern, but ruled that, on balance, most of these factors supported the plaintiffs’ position that they were employees entitled to compensation for their work.

The court did not rule on the employment status of the third plaintiff, but did grant her motion for conditional certification of a nationwide collective action and for class certification under New York law with regard to Fox’s New York interns.

The Second Circuit’s Opinion
The Second Circuit concluded that it was not required to give deference to the DOL test. Noting that the DOL derived its test from the Supreme Court’s decision in Walling v. Portland Terminal Co., a case that involved individuals training to become railroad brakemen, the Second Circuit found that the DOL’s attempts to fit the particular facts of Portland Terminal to all workplaces resulted in a test that was too “rigid.” The Court concluded that a more “nuanced” approach was required and that a district court’s role is to determine whether the intern or the employer is the primary beneficiary of the relationship. The Court identified the following non-exhaustive factors that the district court should balance when making that determination:

  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.
  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.

Because the district court did not apply the primary beneficiary test, the Second Circuit vacated the district court’s order granting partial summary judgment to two of the plaintiffs and remanded the case for further proceedings. For the same reason, the Court also vacated the district’s court’s orders conditionally certifying a nationwide collective action and certifying a class action for Fox’s New York interns.

It should be noted that the Court limited its decision to for profit employers, which suggests the Court might apply a more employer-friendly test for not-for-profit companies or other not-for-profit organizations.

Conclusion
Employers who use unpaid interns must keep in mind the following: First, there is no bright-line test to determine whether someone has been lawfully classified as an unpaid intern. Second, although some courts, such as the Second Circuit, have adopted the primary beneficiary test, other courts have relied on the DOL test, while still other courts have employed variations of those tests. Thus, unless and until the U.S. Supreme Court addresses the issue, it is important for employers to determine the test the courts in its jurisdiction are applying and to conduct a painstaking analysis of the relevant factors to determine if it is lawfully not paying its interns.

For answers to any questions regarding this blog or with regard to wage and hour issues generally, please feel free to contact an attorney in the Gibbons Employment & Labor Law Department.

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