The Intern Debate: Who primarily benefits from internships?

By: Jessie Farrell

The debate over unpaid internships is not a new topic of contention. “Unpaid internship programs have come under heightened scrutiny in recent years by the Department of Labor, the Internal Revenue Service, and other regulatory agencies, as well been the subject of a number of high-profile lawsuits.”[1] In Glatt v. Fox Searchlight Productions, three unpaid interns who worked on the film “Black Swan” or in Fox’s corporate office, sued Fox Entertainment Group, alleging they should have been considered employees and paid for their work over the course of their internships, and filed a class action for unpaid wages.[2] In District Court, the plaintiffs prevailed on the merits and certifying a class.[3] However, in July of 2015, the Second Circuit Court of Appeals vacated the decision, remanding the case back to district court providing the court with a new primary beneficiary test, and reversing the class action certification.[4]

Throughout these unpaid internship cases, the Supreme Court has “yet to address the difference between unpaid interns and paid employees.”[5] By the Fair Labor Standard Act, an employee is defined as “to suffer or permit to work.”[6] For determining whether interns are employees, this definition is not helpful. In 2010, the DOL issued a set of factors to help determine an intern’s status as an unpaid intern or paid employee, which was greatly influenced by the Supreme Court’s deciding factors in a 1947 decision.[7] In Glatt v. Fox, the Second Circuit rejected the DOL’s six factor test to determine intern’s status.[8]

The Second Circuit Court of Appeals’ new primary beneficiary test, instead, asks: whether the intern or the employer is the primary beneficiary of the relationship.[9] The primary beneficiary test has two features: (1) “it focuses on what the intern receives in exchange for his work;” (2) “it accords courts the flexibility to examine the economic reality as it exists between the intern and the employer (employment for FLSA purposes is ‘a flexible concept to be determined on a case-by-case basis by review of the totality of the circumstances’).”[10] Through a non-exhaustive set of considerations, the Second Circuit’s primary test includes: the understanding between parties of no expectation of wages; the internship providing educational training; the internship accommodating academic commitments and/or intern receiving academic credit; the length of the internship; whether the intern’s work displaces or complements paid employee’s work; and the intern’s expectation of a job.[11] The court “requires weighing and balancing all of the circumstances.”[12]

The Second Circuit Court of Appeals’ factors seem to emphasize the understanding that the intern and the employer have with each other. While these factors point to the broader feature of “accord[ing] courts the flexibility to examine the economic reality as it exists between the intern and the employer,” these factors may fail to place a proper emphasis on the reality of the intern’s work. Even if the intern and employer reach an understanding, the internship fits within the academic constructs and calendar, and benefits the intern’s education – the intern could still supplement the work of paid employees beyond the reasonable expectations of an “internship” and deserve compensation as an employee. This kind of test awards the court with too much discretion, and may lead to unpredictable results.

After Glatt v. Fox, the second-circuit has given a different outlook on the intern debate. “Although the “primary beneficiary” test applies only in the Second Circuit at this time (which includes Connecticut, New York, and Vermont), the decision provides helpful guidance to employers regarding how to structure internship programs to minimize FLSA exposure.”[13] However, after the 2013 intern filings against major companies, like Conde Nast, Harper’s Bazaar, and Fox – can the damage done to internship programs be repaired by the Second Circuit Court of Appeal’s primary beneficiary test?[14] Whereas the DOL’s intern fact sheet may be too rigid in determining intern’s status, the primary beneficiary test may be too subjective. If the primary beneficiary test is too subjective, companies may continue to sacrifice internship programs to avoid future litigation.[15]

[1] Laura Lawless Robertson, Unpaid Intern or Employee? Recent Decision Announces New Test for Intern Misclassification Cases, National Law Review (July 8, 2015), http://www.natlawreview.com/article/unpaid-intern-or-employee-recent-decision-announces-new-test-intern-misclassificat-0#sthash.k1Z2E1fz.dpuf.

[2] Glatt v. Fox Searchlight Pictures, Inc., 791 F.3d 376 (2d Cir. 2015).

[3] Id. At 380-81.

[4] Id.

[5] Id. at 381.

[6] 29 U.S.C. § 203(g) (2012).

[7] Glatt, 791 F.3d at 382, 383; U.S. Dept. of Labor, Wage and Hour Division, Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act (Apr. 2010), http://www.dol.gov/whd/regs/compliance/whdfs71.pdf.

[8] Glatt, 791 F.3d at 382-83.

[9] Id. at 383.

[10] Id. at 383-84.

[11] Id. at 384.

[12] Id.

[13] Laura Lawless Robertson, Unpaid Intern or Employee? Recent Decision Announces New Test for Intern Misclassification Cases, National Law Review (July 8, 2015), http://www.natlawreview.com/article/unpaid-intern-or-employee-recent-decision-announces-new-test-intern-misclassificat-0#sthash.k1Z2E1fz.dpuf.

[14] Cara Buckley, Sued Over Pay, Conde Nast Ends Internship Program, N.Y. Times (Oct. 23, 2013), http://www.nytimes.com/2013/10/24/business/media/sued-over-pay-conde-nast-ends-internship-program.html?_r=0.

[15] See id.

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