A Tale of Two Interns: The Challenges of Unpaid Internships

by BakerHostetler

As the number of unpaid interns at healthcare facilities continues to grow, two recent decisions issued by the U.S. District Court for the Southern District of New York involving claims brought by putative classes of unpaid interns -- one case, a cautionary tale, and the other, a potential exemplar -- both shed light on practices that will help healthcare providers avoid liability under the Fair Labor Standards Act (FLSA) and similar state laws.

The first case, Wang v. The Hearst Corporation, Case 12-CV-793 (May 8, 2013), involved unpaid interns working for the publisher of magazines, including Harper's Bazaar, Marie Claire and Cosmopolitan. In accordance with Hearst policy, the interns were all in college and eligible to receive academic credit for their internships.

The work performed by the interns varied from developing story ideas and selecting fashion items for inclusion in magazines to picking up and returning clothing, managing the beauty closet and hanging clothing on racks. There was no dispute that some of the work performed by the interns was the work of paid employees. But the employer offered evidence that each plaintiff received some supervision and training, and that there was some benefit to the individual interns and some impediment to Hearst from using unpaid interns.

In 2010, the U.S. Department of Labor (DOL) issued guidance, including six factors to determine whether interns must be paid. The factors, described in Fact Sheet #71, require analysis of the interns' work, including whether the interns receive training that is similar to what they would receive in an educational environment, whether they displace regular employees and whether they work under close supervision of existing staff. Further, the factors explore the nature of the relationship and the parties' expectations, such as whether the intern is entitled to a job at the end of the relationship, whether the parties understand that the intern is not entitled to be paid and whether the employer derives "immediate advantage" from the work of the intern or whether the employer suffers some impediment from having the interns on its staff.

The primary dispute in Wang centered on the application of the DOL guidance to the facts at issue. The plaintiffs sought partial summary judgment under the "trainee" exception established by Walling v. Portland Terminal Co., 330 U.S. 148 (1947), on the theory that Hearst gained an "immediate advantage" from the interns and therefore the interns should have been paid. The defendant's contention was that the DOL factors controlled, and that the court must apply a "facts and circumstances" test that considered all of the factors.

The court agreed with Hearst, giving deference to the DOL's factors, developed by the agency that administers the FLSA. Because of the posture of the case, the court did not make any definitive findings. But the decision did offer some insights as to how to develop and implement an unpaid internship program. In particular, the court said that the six-part guidance is not "winner-take-all," and that with a showing of "some" educational training, supervision, benefit to the individual interns and impediment to the employer's operations, a trier of fact could find that interns were properly unpaid.

Glatt v. Fox Searchlight Pictures, Case 11-CV-6784 (June 11, 2013), puts an exclamation point at the end of Wang. In a decision that has received much ink, unpaid interns working on the film "Black Swan" obtained summary judgment finding that they were "employees" covered by the FLSA and state law and thus entitled to be paid for their work.

Unlike Hearst, the employers in Glatt argued that the court should reject the use of the six DOL factors. Rather, they urged the use of a "primary benefit test" under which the court would consider whether the benefits to the intern outweigh the benefits to the party using the intern.

The court rejected the defendants' argument, finding, again, that the DOL's guidance, having been formulated by the agency responsible for administering the FLSA, should be given deference. Moreover, the court found that the DOL factors have support in Walling.

Applying the DOL factors to the work performed by some of the plaintiffs, the court found that they were entitled to be paid. Specifically, they had performed the work of regular employees, with no educational component. The fact that they were "beginners" and thus might not have performed their work, even menial tasks not requiring specialized training, as quickly or as efficiently as paid employees did not rise to the level of an impediment to the employer. Finally, the court gave little weight to the fact that the interns had no expectations that they would be paid because "the FLSA does not allow employees to waive their entitlement to wages."

In Wang and Glatt, the court also considered motions for class certification. (The Glatt court certified a class of plaintiffs, but the Wang court did not.) While beyond the scope of this article, these motions do underscore what is at stake when interns should be paid but are not.

At least one commentator has described Glatt as signaling the end of the unpaid internship in the private sector. Wang shows that this is likely a bit of hyperbole. Nonetheless, healthcare providers that regularly rely on unpaid interns should be careful not to use unpaid interns solely in the place of paid employees. Unpaid internship programs should be designed with the applicable law and DOL guidance in mind, and quality control must be implemented to make sure managers and supervisors follow the programs.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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