Are Unpaid Interns Really Employees?

[authors: Rebecca Aragon; Anthony Ly]

The Glatt v. Fox Searchlight Pictures, Inc., decision continues to add fuel to the fire as the trend of class-action lawsuits by unpaid interns against their employers grows.

In Glatt, the interns performed administrative office duties for a production company that incorporated to create the film “Black Swan.” The federal court ruled that the interns were employees entitled to wages under the Fair Labor Standards Act and New York labor laws. The court also determined that Fox Searchlight was a joint employer of the production company’s employees since it retained the authority to control key elements of the work relationship.

According to the court, the plaintiffs could be classified as unpaid interns only if all six of the following factors established by the U.S. Department of Labor were met:

  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 plaintiffs were considered to be employees by the court because no training or education was provided other than basic on-the-job training of low-level administrative tasks. They also performed routine office tasks that would have been performed by regular employees, which provided an immediate benefit to the production company.

The use of unpaid interns is a familiar practice in the entertainment industry. Glatt is an important reminder that the mere labeling of a worker as an intern does not automatically remove the worker from the protections of wage and hour laws. Employers should carefully review their internship programs with legal counsel to ensure that they satisfy the applicable intern classification test in their jurisdiction. In California, for example, the Division of Labor Standards Enforcement has adopted the six-factor test used by the U.S. Department of Labor.

While enrollment in educational-type courses is not clearly required to validate an unpaid internship, an example of an internship recognized by the U.S. Department of Labor is a university-sponsored externship where: (1) the students shadow employees in various experiences designed to benefit the students; (2) the students generally do not perform work; 3) the training is a practical application of materials taught in a classroom; (4) the employer does not benefit from the short duration of the externship, and (5) the students are informed that they will not receive a job or compensation as a result of the externship.

If an employer suspects its current interns may qualify as employees, the first step should be to review options with legal counsel. Thereafter, one option may be to modify the internship program so that it meets the applicable intern classification test. Alternatively, the employer may convert the interns to employees and treat them as employees for all purposes under state and federal laws.

The employer may also choose to simply end the internship and eliminate similar future internships.

To address potential liability for past wage and hour violations, an employer may consider providing the interns with compensation or some other form of consideration in exchange for a voluntary release of their wage and hour claims. However, there may be certain requirements that must be satisfied for a release of claims to be valid in the employer’s jurisdiction. For example, a release may not be effective if the interns are undisputedly misclassified and should be treated as an employee under applicable wage and hour laws.

An employer may need to conduct a very careful review of each of its intern’s tasks and activities to determine whether there is a basis to assert that each intern was not entitled to wages. Unfortunately, this is not an easy or certain task as the applicable intern classification test in the employer’s jurisdiction may be relatively unclear and subject to differing interpretation.

If wages are due, the employer may choose to make the interns whole by paying them all wages and applicable premium pay and/or penalties that they would have been entitled if they were classified as an employee. While this may not be an easy calculation and may be a costly option, it will limit the possibility of future lawsuits, liability for attorneys’ fees and costs, and negative publicity.

The employer may request the interns to enter arbitration agreements: a mutual agreement to arbitrate where both the employer and the intern agree to arbitrate their claims against each other, and possibly, the continuing internship or employment. To limit the potential for future class actions, the employer should consider including an optional provision in the arbitration agreement prohibiting litigation of any claims on a class, collective or representative basis.

While this will not prevent interns from bringing a wage and hour lawsuit against the employer, the class action waiver may deter future lawsuits and/or limit the costs of litigation. Employers should also consider including arbitration provisions and class action waivers in voluntary releases of claims entered into with interns as discussed above.

While it remains to be seen if courts in other jurisdictions will follow Glatt, it is certain that courts will be forced to more closely scrutinize internships in light of the increasing number of wage and hour lawsuit filed by unpaid interns. Employers must proceed with caution in this developing area of the law.

Rebecca M. Aragon is a shareholder with Littler Mendelson P.C., an employment and labor law firm representing management. She represents corporations in a variety of compliance and employment litigation matters.
raragon@littler.com | 310-772-7283;
Anthony Ly is an associate with Littler Mendelson, P.C.. He also represents employers in many areas of compliance and employment litigation matters. aly@littler.com | 310-712-7322