Co-authored by Robert S. Whitman and Adam J. Smiley

The Second Circuit heard arguments this morning in two cases that raise critical issues for the fate of internships in for-profit businesses: Fox Searchlight’s appeal of the decision granting summary judgment and class certification to interns who worked on film productions, and the appeal by former Hearst Corporation interns whose motion for class certification was denied.

Lawyers from both sides, and from the U.S. Department of Labor, sought to persuade the Court of the appropriate test to evaluate whether interns are employees, subject to the minimum wage and overtime provisions of the FLSA, or “trainees” who are not entitled to compensation.  Under the common law “primary benefit” test advanced by the companies, if the internship primarily benefits the intern rather than the employer, the intern is properly deemed a trainee.  The interns and the DOL voiced support for the DOL’s strict 6-factor test, which provides that if each factor is not satisfied, the intern is entitled to compensation.

The panel of Judges Walker, Jacobs, and Wesley peppered the lawyers with questions, at times joking about the lack of internships when they were students in the “stone age.”  Overall, they were critical of the application of the rigid DOL test, with Judge Wesley candidly noting that the three judges are “skeptics” of the 6-factor approach.

Here are the highlights of the arguments:

• The panel focused on the utility of the primary benefit test for judges who are accustomed to conducing balancing inquiries.  The primary benefit test, they said, allows for such a balancing analysis, with consideration of all the key issues, while the DOL test is rigid and does not allow for the consideration of important issues such as the receipt of academic credit, the brevity of internships, or the fact that an internship may end at the same time as the academic semester.
• In further challenging the rigidity of the 6-factor test, Judge Jacobs wondered what a reference letter for an intern would look like if the program fully conformed with the DOL test – suggesting that such a letter would be an “absurd” read that would not paint the intern in a favorable light.
• In response to this tough questioning, the DOL made what appeared to be an important admission:  that its test is not absolutely rigid, and that under certain circumstances, an intern may properly be deemed a trainee even if the internship did not meet all 6 of the DOL factors.  Lawyers for Fox jumped on this statement as an additional indication that the DOL test is facially contradictory and is in essence encompassed by the primary benefit test.
• The panel also commented that an intern’s decision to accept no compensation, and no expectation of a future job, suggests that the intern was in fact gaining a benefit from the program – because there would be no reason to accept such a position without other benefits.  Lawyers for the interns countered that, since the 2008 recession, students are desperate to get their feet in the door and are willing to take internships with no benefits in exchange for the remote possibility of a job down the road.
• The panel, picking up on the interns’ argument, questioned how an intern could gain an educational benefit from performing menial tasks, such as getting coffee and running errands.  The employers argued that being immersed in a particular industry’s work environment and evaluating a type of job are tangible benefits that should be considered under the primary benefit test.  While he acknowledged that this was just one part of the analysis, Judge Wesley expressed disagreement with the proposition that simply “[learning] to co-exist in a work environment” is educational.
• The panel, and Judge Jacobs in particular, seemed persuaded that the grant of academic credit by an educational institution was an important consideration in favor of finding that an internship had a valid educational component.  Judge Jacobs also criticized the interns’ suggestion that the payment of minimum wage was an easy fix, suggesting that the slew of other legal protections that come with employee status might make it impossible to fire an intern – an observation that drew laughter from the audience.
• The panel seemed to believe that any internship would necessarily require interns to perform some “real work.”  Judge Jacobs, in fact, gave an example of law school clinic programs where law students clamored for “real work” in writing briefs and meeting with witnesses, and how this is what makes internships desirable.

It may be months before the court issues its decision, and we will provide an update as soon as that happens.  In the meantime, employers should continue to carefully scrutinize their internships to ensure that, at a minimum, the interns are the primary beneficiaries of the program.  We also recommend that employers at least look to the DOL factors as a guide in this analysis, as some of those factors may be adopted by the Court as part of a balancing test, even if it rejects the strict 6-factor approach.