Second Circuit Deals a Blow to Unpaid Intern Classes

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In a pair of closely watched decisions (see links below), the Second Circuit Court of Appeals overturned a federal trial court decision that granted class and conditional collective action certification to claims brought by a former unpaid intern claiming employee status, and also upheld a ruling that denied such certification. In so doing, the Second Circuit panel adopted the “primary beneficiary test” in determining employee status under the Fair Labor Standards Act (FLSA): When the employer, rather than the intern, is the primary beneficiary of the relationship, the worker should be considered an employee, not an intern who need not be paid.

The court departed from the 2010 Intern Fact Sheet of the U.S. Department of Labor (DOL) and instead announced a non-exhaustive set of factors that courts can use to answer this question as it pertains to for-profit employers.

In Glatt v. Fox Searchlight Pictures, Inc., the Second Circuit considered this issue of first impression: “when is an unpaid intern entitled to compensation as an employee under the FLSA?” The Glatt plaintiffs worked as unpaid interns either on the film Black Swan or at the Fox corporate offices in New York. They claimed Fox failed to pay them as employees under New York and federal wage and hour laws. Adhering strictly to the DOL’s six-part test (which requires all six factors be present before an employer can evade its obligation to pay the worker), the district court concluded that two of the plaintiffs were misclassified as interns, rather than employees, and permitted the third to proceed with a class and collective action.

Notwithstanding the broad definition of “employee” under state and federal law, the Second Circuit found the DOL approach “too rigid,” too limited to the facts of a 1947 Supreme Court decision involving unpaid railroad brakemen trainees, and out of keeping with modern economic realities as they exist between interns and businesses. Instead, the Second Circuit announced the more flexible “primary beneficiary” test, which reflects a central feature of today’s internship—an intern’s formal education. This new approach balances the following factors:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

Importantly, the Second Circuit held that the most important issue for class certification—whether common questions predominate over individual ones—could not be answered with generalized proof. “As our previous discussion of the proper test indicates,” the Second Circuit wrote, “the question of an intern’s employment status is a highly individualized inquiry.” For similar reasons, the court also found that the plaintiffs in the proposed nationwide collective action were not similarly situated and vacated the district court’s conditional certification of that proposed collective action.

In Wang v. The Hearst Corp., the Second Circuit affirmed denial of class certification and elaborated on the individual nature of the analysis required to determine employment status of interns.

In both cases, the Second Circuit refused to express any opinion on the outcome of any renewed motions for summary judgment that may follow from its new primary beneficiary test. Upon remand to the Glatt and Wang trial courts, the court allowed the parties to submit additional evidence relevant to the interns’ employment status and, in particular, their formal education.

Employers should be aware of this new focus on the educational aspects of the internship, at least in the Second Circuit (Connecticut, New York, and Vermont), and that the DOL six-factor test is no longer valid in that jurisdiction. And while it appears that the Second Circuit’s revised standard is beneficial to employers in their efforts to challenge the viability of class or collective FLSA actions relating to unpaid interns, it remains to be seen whether such renewed motions will ultimately succeed.

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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