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Interns: To Pay or Not to Pay?

Summer interns bring the advantage of additional staff resources — often free of compensation. However, employers should be wary of offering unpaid internships. Before proceeding with intern programs, employers should consider a recent federal court decision in which unpaid interns were re-categorized as compensated employees.

Several cases have been filed in the past few years in which unpaid interns have claimed that they should have been compensated as employees under the Fair Labor Standards Act (“FLSA”). For example, the Charlie Rose Show settled a federal court claim with a group of 189 unpaid interns in December 2012. In February 2013, an unpaid intern sued Elite Model Management. In February 2012, a former Harper’s Bazaar intern sued Hearst Magazines, asserting that she regularly worked 40 – 55 hours per week without pay. This case has evolved into a collective action of all unpaid interns working for Hearst since February of 2009.

Most recently, a New York federal court decided a similar case brought by several unpaid interns in the movie industry. After evaluating both the state and federal claims, the judge found that some of the unpaid interns qualified as employees of Fox Searchlight Studios and should have been compensated accordingly. The judge also permitted the plaintiffs to proceed with a class action under the Fair Labor Standards Act.

Structured Training or Menial Lackey?

In Glatt v. Fox Searchlight Pictures, Inc., the District Court for the Southern District of New York found that two unpaid interns—Eric Glatt and Alexander Footman—should have been classified as employees and compensated under the FLSA and the New York Labor Law. After finding that Fox Searchlight Pictures, Inc. (“Searchlight”) was a joint employer with Lake of Tears, the production company for Black Swan, the court focused on Searchlight’s treatment of Glass and Footman during their unpaid internships. The court found that Glatt and Footman were employees because: (1) they performed the same work as paid employees;(2) they provided an immediate advantage to Searchlight;(3) they performed low-level tasks not requiring specialized training;(4) they received the same career benefits that they would have received by having worked as an employee;(5) the internships were not designed to be uniquely educational and of little utility to the employer;(6) they received nothing approximating an education that they would have received in an academic setting; and (7) their presence did not impede the ultimate goal of Searchlight.

Searchlight unsuccessfully attempted to classify Glatt and Footman as “trainees” not subject to the FLSA compensation requirements. However, the court first determined that Glatt and Footman did not fall under the “trainee exception”. An employee will not qualify as a trainee if he/she “displace[s] any of the regular employees, who do most of the work themselves, and must stand immediately by to supervise whatever trainees do.” Additionally, trainees must “not expedite the company business, but may, and sometimes . . . actually impede and retard it.” The court focused on a Department of Labor Fact Sheet that enumerates six criteria for determining whether an internship may be unpaid: (1) is the internship similar to training which would be given in a classroom; (2) is the experience for the benefit of the intern; (3) does the internship displace regular employees and do the interns work under close supervision of existing staff; (4) does the employer derive any immediate advantage from the intern or are the operations actually impeded by the intern; (5) is the intern entitled to a job at the conclusion of the internship; and (6) does the intern understand that he/she is not entitled to wages for time spent in the internship. The court also rejected Searchlight’s argument that an intern falls under the “trainee” if he/she is the primary beneficiary of the internship.

Was Training Similar to an Educational Environment?

The court first noted that internships must provide something beyond the on-the-job training that employees normally receive. Rather, an internship must be a training program that teaches skills which may be applied to other positions within the same industry. For example, Footman did not receive any formal training or education during his internship. Although Footman “learned what the function of a production office was through experience,” his only training was how to watermark a script, and how to operate the photocopier and coffeemaker. Because no formal training or education was offered to either Footman or Glatt, the court found that this requirement under the trainee exception was not satisfied.

Was the Internship Experience for the Benefit of the Intern?

Glatt and Footman received certain professional benefits, such as job references, resume building, and a general understanding of how a production office works. However, the benefits were not structured specifically to benefit the interns. Rather, the court reasoned that those benefits were incidental to working in an office like any other employee of Searchlight. The court specifically noted that job references and resume listings can result from any work relationship and are not considered academic or vocational training.

Moreover, Searchlight reaped the benefits of Glatt’s and Footman’s unpaid work. If Glatt and Footman were not present to make copies, make coffee, deliver lunches, and perform other menial tasks, Searchlight would have been required to hire and pay additional employees. Thus, Searchlight was the primary beneficiary of the internship, not Glatt or Footman.

Did the Plaintiffs Displace Regular Employees?

The court found that the tasks performed by Glatt and Footman would have been performed by other paid employees if the Plaintiffs had not been engaged as unpaid interns. Glatt obtained documents for personnel files, picked up paychecks, tracked and reconciled purchase orders and invoices, and traveled to the set to get manager signatures. Glatt also drafted cover letters, organized filing cabinets, made photocopies, and ran errands. Footman assembled office furniture, arranged travel plans, took out the trash, took lunch orders, answered phones, watermarked scripts, and made deliveries. If Glatt and Footman had not performed their respective tasks for free, additional paid employees would have been hired or current paid employees would have been required to work additional hours.

Did Searchlight Obtain an Immediate Advantage?

Surprisingly, Searchlight did not dispute that it obtained an immediate advantage from work performed by Glatt and Footman. Searchlight admitted that these tasks otherwise would have been performed by paid employees. Additionally, Searchlight did not prove that Glatt or Footman impeded work at Searchlight. As the court stated, “Menial as it was, their work was essential.”

Were the Plaintiffs Entitled to a Job at the End of Their Internships?

The court similarly found that there was no evidence that Glatt and Footman were entitled to jobs at the end of their internships.

Did the Interns Understand Whether They Were Entitled to Wages?

Glatt and Footman stated that they understood that they were not entitled to wages. However, the court placed very little weight on this factor because an employee cannot waive their rights under the FLSA. Thus, even if an employee understands that he/she will not be paid, the right to payment still exists.

The Takeaway

In light of the trend of “intern or employee” cases, employers that use unpaid interns should re-evaluate their internship programs. Employers should consider the following questions:

  • Is there an educational component to the internship?
  • Are there clear educational goals for the interns?
  • Do the interns learn more than any other employee?
  • Do the interns receive a career advantage different from any other employee?
  • What benefits can the interns derive from their experience?
  • How does the employer benefit from the presence of the intern?
  • Is the ultimate goal of the employer impeded by the presence of the internship?
  • Do the interns perform tasks that otherwise would be performed by employees?
  • If there were no interns, would additional employees be hired to perform the intern’s tasks?
  • If there were no interns, would other employees be required to work longer hours to perform the intern’s duties?
  • How much supervision do the interns receive?
  • Is the intern entitled to a job at the end of the internship?
  • Does the intern learn skills that are transferable to other jobs within the industry?
  • Were the intern’s tasks essential to the overall goal of the employer?
  • Were the tasks performed by the intern low-level or did they require specialized training?
  • Did the skills gained during the internship equate to an education received in a classroom setting?

It is important to remember that Glatt v. Fox Searchlight Pictures, Inc. only represents the opinion of a New York district court judge. However, Searchlight has indicated that it will appeal, which could result in a more influential decision. More importantly, the decision demonstrates clear reasoning supported by binding precedent. It also indicates the direction that other federal courts might take if presented with similar issues and facts. Employers should view this decision as a warning to be heeded and prepare accordingly.

If you have any questions regarding this article, please contact your Davis & Kuelthau attorney.