Summer brings an annual invasion, in thousands of businesses and in nearly every line of work, of a horde of talented, eager new interns. They’re eager to pad resumes and make contacts. Their new bosses are glad to impart life’s real world lessons and to know that there will always be someone around to pick up lunches or reserve a softball field. This exchange of networking for photocopying is distinguished by the absence of any money exchanging hands. Interns happily sign up for the unpaid experience and businesses happily don’t pay them.
In Glatt v. Fox Searchlight Pictures, the U.S. District Court for the Southern District of New York focused the harsh light of reality on this long established business practice when it ruled that interns on two film production crews, including one involved in the production of Academy Award winning Black Swan, were employees of the companies for whom they worked and entitled to payment with actual money. Those companies’ failure to pay the interns was, consequently, a violation of the Fair Labor Standards Act and the New York Labor Law.
The Court analyzed whether interns were employees entitled to pay by noting, first, that employment and employee are both very broadly defined terms under the FLSA. These laws are intended, the Court said, to broadly reach the employment relationship. There is, however, a narrow “trainee” exception to the FLSA and NYLL that permits unpaid interns to gain experience at a firm for their own benefit and without compensation. The Supreme Court of the United States set out a six factor test for the trainee exception in Walling v. Portland Terminal Company. In considering those factors in the Black Swan case, the Court reasoned that interns in these film productions were not trainees exempt from the FLSA’s payment requirements:
1. The internship, even though it includes actual operation of the facilities of the employer, was not similar to training which would be given in an educational environment.
The interns’ general, on-the-job experience was not the functional equivalent of training in an educational environment. That the interns learned about the “function of a [movie] production office” was not the sort of training that might fall within the trainee exception. After all, the Court reasoned, that sort of training the interns received “simply by being there, just as … paid co-workers did, and not because [the] internship was engineered to be more educational than a paid position.”
2. The internship experience was not for the primary benefit of the intern.
The Black Swan case interns received some benefits, like resume enhancement and job references, but so did the paid employees. Moreover, the employers received the benefit of unpaid work for which they would have otherwise been required to hire someone.
3. The intern displaced regular employees, even though they worked under close supervision of existing staff.
The interns did the sort of work many interns do: filing, delivering documents, tracking purchase orders, assembling furniture, answering phones, and taking lunch orders. All these were the sort of thing that, if the intern had not done them for free, a paid employee would have had to do. Again, that suggested the interns were doing employee work, not trainee work.
4. The employer that provided the training derived an immediate advantage from the activities of the intern; and its operations were impeded by hiring unpaid interns.
That the interns were beginners at their work did not mean they were bad at it or that the employers derived no benefit from having the interns do the work. In the Black Swan case, as noted above, the interns did work that otherwise would have had to have been done by paid employees.
5. The interns were not necessarily entitled to a job at the conclusion of the internship.
In this case, there was no evidence that the interns were entitled to a job at the end of their internship. That suggests they were trainees, and not employees, but the Court gave this factor little weight.
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
In this case, all parties agreed that the interns understood, at the time they did their work, that they were not going to be paid for the work. But, the Court noted, “the FLSA does not allow employees to waive their entitlement to wages.” That is for the plaintiffs’ own protection and to avoid unpaid employees from “‘exert[ing] a general downward pressure on wages in competing businesses.’”
We first wrote about the Black Swan case when it first surfaced and provided some additional helpful tips that remain applicable: Don’t Let Your Internship Turn into a Black Swan (Nov. 2, 2011)
The ruling in this case, coming as kids are leaving school, came at a good time to remind businesses to review their intern programs. If you run an unpaid intern program, it should be for the benefit of the intern, not primarily for the benefit of the business. If your interns are doing work that you would otherwise pay employees to do, then you should know that you are running dangerously close to violating the Fair Labor Standards Act. The lesson your interns take away from the summer should not be that your business is an attractive target for a lawsuit.