Search results for: intern

Authored by Robert Whitman

Seyfarth Synopsis: The Department of Labor has scrapped its 2010 Fact Sheet on internship status and adopted the more flexible and employer-friendly test devised by Second Circuit.

In a decision that surprised no one who has followed the litigation of wage hour claims by interns, the US Department of Labor has abandoned its ill-fated six-part test for intern status in for-profit companies and replaced it with a more nuanced set of factors first articulated by the Second Circuit in 2015. The move officially eliminates agency guidance that several appellate courts had explicitly rejected as inconsistent with the FLSA.

The DOL announced the move with little fanfare. In a brief statement posted on its website on January 5, it said:

On Dec. 19, 2017, the U.S. Court of Appeals for the Ninth Circuit became the fourth federal appellate court to expressly reject the U.S. Department of Labor’s six-part test for determining whether interns and students are employees under the Fair Labor Standards Act (FLSA).

The Department of Labor today clarified that going forward, the Department will conform to these appellate court rulings by using the same “primary beneficiary” test that these courts use to determine whether interns are employees under the FLSA. The Wage and Hour Division will update its enforcement policies to align with recent case law, eliminate unnecessary confusion among the regulated community, and provide the Division’s investigators with increased flexibility to holistically analyze internships on a case-by-case basis.

The DOL rolled out the six-part test in 2010 in a Fact Sheet issued by the Wage and Hour Division. The test provided that an unpaid intern at a for-profit company would be deemed an employee under the FLSA unless all six factors—requiring in essence that the internship mirror the type of instruction received in a classroom setting and that the employer “derive[] no immediate advantage from the activities of the intern”—were met. The upshot of the test was that if the company received any economic benefit from the intern’s services, the intern was an employee and therefore entitled to minimum wage, overtime, and other protections of the FLSA.

Spurred by the DOL’s guidance, plaintiffs filed a flurry of lawsuits, especially in the Southern and Eastern Districts of New York. But despite some initial success, their claims were not well received. The critical blow came in 2015 from the Second Circuit, which in Glatt v. Fox Searchlight Picture Searchlight emphatically rejected the DOL’s test, stating, “[W]e do not find it persuasive, and we will not defer to it.” Instead, it said, courts should examine the internship relationship as a whole and determine the “primary beneficiary.” It crafted its own list of seven non-exhaustive factors designed to answer that question. Other courts soon followed the Second Circuit’s lead, capped off by the Ninth Circuit’s ruling in late December.

For the new leadership at the DOL, that was the final blow. In the wake of the Ninth Circuit’s decision, the agency not only scrapped the six-factor test entirely, but adopted the seven-factor Glatt test verbatim in a new Fact Sheet.

While the DOL’s action marks the official end of the short-lived six factors, the history books will note that the Glatt decision itself was the more significant event in the brief shelf-life of internship litigation. As we have noted previously in this space, the Glatt court not only adopted a more employer-friendly test than the DOL and the plaintiffs’ bar had advocated; it also expressed grave doubts about whether lawsuits by interns would be suitable for class or collective action treatment. The DOL’s new Fact Sheet reiterates those doubts, stating, “Courts have described the ‘primary beneficiary test’ as a flexible test, and no single factor is determinative. Accordingly, whether an intern or student is an employee under the FLSA necessarily depends on the unique circumstances of each case.”

That aspect of the ruling, more than its resolution of the merits, was likely the beginning of the end for internship lawsuits. In the months and years since Glatt was decided, the number of internship lawsuits has dropped precipitously.

At this point, only the college student depicted recently in The Onion  seems to be holding out hope. But as we’ve advised many times, employers should not get complacent. Unpaid interns, no matter how willing they are to work for free, are not a substitute for paid employees and should not be treated as glorified volunteer coffee-fetchers. As the new DOL factors make clear, internship experiences still must be predominantly educational in character. If not, it will be the interns (and their lawyers) giving employers a harsh lesson in wage and hour compliance.

Authored by Robert Whitman

Seyfarth Synopsis: The Second Circuit has upheld summary judgment against magazine interns seeking payment as “employees” under the FLSA.

In an end-of-semester decision that may represent the final grade for unpaid interns seeking minimum wage and overtime pay under the FLSA, the Second Circuit has firmly rejected claims by Hearst magazine interns challenging their unpaid status.

The interns served on an unpaid basis for various magazines published by Hearst Corporation, either during college or for a few months between college and graduate school. They sued, claiming they were employees because they provided work of value to Hearst and received little professional benefit in return.

Following discovery, District Judge J. Paul Oetken rejected the interns’ claim of employee status and granted summary judgment to Hearst. On appeal, the Second Circuit framed the question succinctly: “whether Hearst furnishes bona fide for‐credit internships or whether it exploits student‐interns to avoid hiring and compensating entry‐level employees.” If the former were true, the interns would be deemed trainees, who could permissibly be unpaid; if the latter were true, the interns would be entitled to minimum wage and overtime pay.

In support of their appeal, the interns argued that many of the tasks they performed were “menial and repetitive,” that they received “little formal training,” and that they “mastered their tasks within a couple weeks, but did the same work for the duration of the internship.” These points, they contended, outweighed their receipt of college credit and other indicia of an academic flavor to their experience.

The appeals court, in Wang v. Hearst Corp., appeared to have little trouble upholding the grant of summary judgment in favor of Hearst. Applying its test for assessing whether interns are employees or trainees, the court held that the factual record favored non-employee status on six of the seven pertinent factors, enough to sustain the judgment in the company’s favor.

Those seven factors, as loyal blog readers will recall from prior posts, first appeared in the court’s 2016 decision in Glatt v. Fox Searchlight, in which the court held that the “primary beneficiary” test governed whether interns were considered employees or trainees. The Glatt court rejected the Department of Labor’s multi-factor test and devised its own:

  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 internʹs formal education program by integrated coursework or the receipt of academic credit;
  4. The extent to which the internship accommodates the internʹs academic commitments by corresponding to the academic calendar;
  5. The extent to which the internshipʹs duration is limited to the period in which the internship provides the intern with beneficial learning;
  6. The extent to which the internʹs 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.

The factors are non-exhaustive, and as the Second Circuit reiterated in the current case, need not all point in the same direction to support a conclusion of non-employee status.

The “heart of the dispute on appeal” was factor two — whether the interns received “training that would be similar to that which would be given in an educational environment.” The plaintiffs argued that, in order for this factor to weigh in favor of non-employee status, the internships would have to provide “education that resembles university pedagogy to the exclusion of tasks that apply specific skills to the professional environment.”

The court was not convinced. It recognized that the Hearst internships varied in many respects from classroom learning. But as it had said earlier in Glatt, this was precisely the point. “The [plaintiffs’] tacit assumption is that professions, trades, and arts are or should be just like school; but many useful internships are designed to correct that impression…. [P]ractical skill may entail practice, and an intern gains familiarity with an industry by day to day professional experience.”

Perhaps the most significant part of the ruling comes at the end, where the court discusses the propriety of summary judgment. The interns, and various amici curiae (unions, advocacy groups, and professors) who advocated on their behalf, argued strenuously that various “mixed inferences” on the seven internship factors precluded a grant of summary judgment. While acknowledging that application of the factors required some weighing of evidence, the court nonetheless said this did not mean the case required a trial.

“Status as an ‘employee’ for the purposes of the FLSA is a matter of law,” the court said, “and under our summary judgment standard, a district court can strike a balance on the totality of the circumstances to rule for one side or the other.” It continued: “Many of our FLSA tests that are fact‐sensitive and require the judge to assign weight are routinely disposed of on summary judgment [citing cases]. The amici contend that summary judgment is inapposite in all unpaid intern cases that turn on competing factors. Such a rule would foreclose weighing of undisputed facts in this commonplace fashion.”

In many ways, the Wang decision may be the epilogue to a textbook that has already been written. After the Glatt decision in 2016, the number of lawsuits filed by interns seeking unpaid compensation dropped precipitously. That may have been due to Glatt’s highly-employer-friendly resolution, both as to the merits of the employee-or-intern question and its pronouncements on the high threshold for collective/class certification on the question. Or perhaps it was due to the decisions by employers, reacting to the onslaught of intern lawsuits seeking pay under the FLSA and state law, to curtail or limit their internship programs or to pay interns compensation at or above minimum wage. Whatever the reason, the Wang decision cannot be heartening for plaintiffs’ lawyers, and the days of widespread lawsuits by interns are likely over.

Still, companies who remain interested in sponsoring unpaid interns should not get complacent. Paying minimum wage, of course, remains a fail proof antidote to the possibility of FLSA claims by these individuals. But if that is not an option, companies should take care to ensure that their programs have primarily educational aims and coordinate wherever possible with the interns’ educational institutions to ensure they meet the factors articulated by the court. Otherwise, the interns may be the ones teaching them a lesson.

Authored by Rob Whitman

Seyfarth Synopsis: Unpaid interns for Hearst magazines have been rebuffed again in their effort to be declared eligible to receive wages under the FLSA and the New York Labor Law.

In an August 24, 2016 ruling, Judge J. Paul Oetken of the Southern District of New York held that six interns, who worked for Marie Claire, Seventeen, Cosmopolitan, Esquire, and Harper’s Bazaar, were not employees as a matter of law and granted summary judgment to Hearst. After reviewing each of their circumstances individually, the court held:

These interns worked at Hearst magazines for academic credit, around academic schedules if they had them, with the understanding that they would be unpaid and were not guaranteed an offer of paid employment at the end of the internships. They learned practical skills and gained the benefit of job references, hands-on training, and exposure to the inner workings of industries in which they had each expressed an interest.

The six named plaintiffs were the only ones remaining after the Second Circuit, in July 2015, denied their bid for class and collective certification. The court in that decision also articulated a new set of factors for determining whether unpaid interns at for-profit companies are “trainees” (who are not entitled to compensation) or “employees” (who must receive minimum wage and overtime premiums).

The Second Circuit’s decision adopted the “primary beneficiary” test to determine internship status—i.e., whether the “tangible and intangible benefits provided to the intern are greater than the intern’s contribution to the employer’s operation.” Applying that test to the Hearst interns, Judge Oetken concluded, “[w]hile [the six plaintiffs’] internships involved varying amounts of rote work and could have been more ideally structured to maximize their educational potential, each Plaintiff benefited in tangible and intangible ways from his or her internship, and some continue to do so today as they seek jobs in fashion and publishing.”

Among the factors he relied on: the relatively brief duration of the internships, typically limited to college semesters or summer breaks; the interns’ opportunities for observation and learning, such as “Cosmo U,” a program in which senior editors spoke about their career paths; and the receipt of or opportunity for academic credit.

Aside from its detailed discussion of the facts of the plaintiffs’ internships, the court’s decision, Wang v. The Hearst Corporation, is notable for two reasons:

  1. It shows the practical impact of a denial of class and collective certification. Although the court addressed the six named plaintiffs’ claims in a single opinion, it was effectively a series of rulings on each intern’s individualized circumstances. As the court noted, some of the factors—such as the receipt of college credit for the internships—weighed differently for the different plaintiffs. But in the end, the result for each of them, given the “totality of the circumstances” in their particular cases, was the same.
  2. The court’s decision applied equally to the plaintiffs’ claims under the FLSA and the NY Labor Law. This issue was left somewhat unsettled after the Second Circuit’s 2015 decision, which noted the similarities in the definitions of “employee” under the two statutes but did not explicitly say that the ruling pertained to both. Judge Oetken, following the earlier lead of a Southern District colleague, held that his ruling decided the claims under federal and NY law.

The Hearst decision is not the first to grant summary judgment under the Second Circuit’s factors. In March 2016, a Southern District Judge found that an intern for the now-late Gawker website was properly treated as such and was not entitled to wages. Despite the positive trend, these cases are highly fact-driven and do not foreclose the possibility that interns will be deemed to be employees, nor should they make for-profit employers complacent about not paying interns. But they signal that, where interns have a bona fide learning experience in coordination with their academic pursuits, they need not be paid as a matter of law.

Co-authored by Robert Whitman and Adam J. Smiley

Seyfarth Synopsis: Fox Searchlight and Fox Entertainment Group have reached a preliminary settlement with a group of former unpaid interns, possibly resolving the lawsuit that resulted in a Second Circuit decision that redefined the test used to evaluate whether interns are properly classified under the FLSA.

As this blog has previously reported [here, here], former unpaid interns who worked on Fox film productions sued the studio in 2010, alleging that they were misclassified and entitled to minimum wage and overtime compensation. In a 2013 decision, Judge William Pauley of the Southern District of New York granted summary judgment to two of the interns, holding that they should have been treated as employees, and held that a third intern could pursue his related claims as a class and collective action under the FLSA and New York Labor Law. Fox appealed to the Second Circuit, which in July 2015 held that that the “primary beneficiary” test, rather than the Department of Labor’s stricter six-factor test, should be used to evaluate the classification of unpaid interns. The court sent the case back to Judge Pauley for resolution under its newly articulated standard.

Under the proposed agreement, any intern who served for at least two weeks from 2005-2010 will be entitled to a $495 payment. That amount is within the payout range that we’ve seen in other internship lawsuits. Three of the lead plaintiffs, Erik Glatt, Alexander Footman, and Eden Antalik, will receive service awards of $7,500, $6,000, and $3,500, respectively.

The settlement would resolve claims in two lawsuits before Judge Pauley: Glatt v. Fox Searchlight, which concerns New York interns, and Mackown v. Fox Entertainment Group, which concerns California interns. The total monetary value of the settlement, covering both lawsuits, is approximately $600,000, of which $260,000 is for attorneys’ fees.

In papers supporting the proposed settlement, the plaintiffs noted that the Second Circuit’s ruling presented “significant risk to [them] on the merits and with regard to certification.” They also acknowledged their “extreme challenge” in obtaining class and collective action certification, especially given that the interns “were engaged in various divisions, performing different duties, and reporting to different supervisors,” such that the Court “could conclude that [their differences] exceed their similarities.” While still professing the strength of their case, the plaintiffs admitted that they faced litigation risks because the Second Circuit’s standard was “largely untested.”

The deal is not final: it still must be preliminarily approved by Judge Pauley, which will trigger the issuance of a notice informing class and collective members of their rights under the settlement. Putative class members will then have an opportunity to object to the settlement or opt out, and the deal must be finally approved by the Court after conducting a fairness hearing.

We’ll keep you posted as the settlement approval process moves forward, as well as any developments regarding the motion for summary judgment filed by the Hearst Corporation in a similar lawsuit, currently pending before Judge J. Paul Oetken, also in the Southern District of New York.

On a related note, the Wall Street Journal recently reported on a study conducted by the National Associate of Colleges and Employers, which found that paid interns are more likely to receive a job offer after graduation—and earn more money—then their fellow students who had an unpaid internship. The article also discusses important issues regarding income inequality and diversity between paid and unpaid interns, and employers may be well-served by reviewing the cited data when contemplating whether to offer paid or unpaid internship programs.

Co-authored by Rob Whitman, Adam Smiley, and Nadia Bandukda

A federal judge has sided with Gawker in the media company’s legal battle with a former unpaid intern who claimed that he should have been compensated as an employee. On March 29th, Judge Alison Nathan in the Southern District of New York granted Gawker’s motion for summary judgment and found that the Second Circuit’s “primary beneficiary” test tipped in favor of Gawker, meaning that the plaintiff, Aulistar Mark (“Mark”), was a “bona fide” intern not entitled to compensation under the FLSA. The Court also denied Mark’s motion for class certification as moot.

Mark interned with the company’s videogame blog, and assisted in “taking photos and videos, editing images, researching, writing and editing posts and articles, and conducting interviews” for the blog’s editors and writers. The blog published 34 articles written by Mark.

The court concluded that Mark, and not Gawker, was the primary beneficiary of his internship. Several factors were key to this decision:

  • Mark received academic credit and his internship was tied to a formal education program, in that his university required that he take a class to accompany his internship, write several papers about the internship, submit a “learning agreement” regarding the internship, and that his intern supervisor submit evaluations of Mark’s performance.
  • Mark’s editor at the blog provided mentorship and various opportunities to learn journalism skills that were not offered to full-time employees, who were expected to already possess such skills. In particular, the editor worked with Mark over many weeks editing a large-scale reported story that was the “capstone” of his internship. Mark even admitted that his relationship with this editor was similar to his relationship with his journalism school editor.
  • While Mark’s research and written work had the potential to displace paid employees for “part of the time,” there was no evidence that Gawker “in fact used interns to displace paid employees, that interns had skills comparable to…expected employees, or that [without interns], Gawker would have hired more employees.”

In reaching its conclusion, the court focused on “the benefits to the student while still considering whether the manner in which the employer implements the internship program takes unfair advantage or is otherwise abusive towards the intern.” It found that Gawker did not take unfair advantage of Mark, and that Mark’s work benefitted him as an intern “as least as much” as it did Gawker by giving him the opportunity to practice the job he was training for and gave him published articles for his portfolio.

One other notable aspect of the decision: the court declined to exercise supplemental jurisdiction over another intern’s claims under the New York Labor Law and dismissed these allegations without prejudice. This leaves open the possibility that a New York State court would apply a standard other than Glatt (e.g. the NYSDOL 11-factor test), although we think state courts will give Glatt significant if not conclusive deference.

Co-authored by Robert Whitman and Adam Smiley

Spring is around the corner, with summer not far behind, so thoughts naturally turn to the obvious topic: internships.

Although the volume of new lawsuits by unpaid interns challenging their status has abated significantly since the Second Circuit issued its decision in July 2015 announcing a new legal standard and rejecting the Department of Labor’s “six factor” test, there was lingering doubt about whether the decision would stand given a long-pending petition by the plaintiffs for en banc review by the full court. In January 2016, the three-judge panel that issued the decision modified its opinion. While that unusual step signaled that en banc review would likely be denied, the issue stubbornly persisted for several weeks without resolution.

The court has now denied the plaintiffs’ request. This means that the amended decision is now officially the “law of the land” in the Second Circuit. Unless the plaintiffs seek Supreme Court review and the Court accepts the case, this puts to bed any lingering employer concerns that the decision might be reversed.

As we have previously reported, the Glatt v. Fox Searchlight decision held that the “primary beneficiary” test governs whether unpaid interns are employees or trainees. The court also held that this test requires highly individualized inquiries—a conclusion that may deal a blow to plaintiffs’ abilities to obtain class or collective certification in these cases. Although the court’s amended decision made clear that the “primary beneficiary” applies only to intern cases, courts within the Second Circuit are still required to take a holistic view of an internship program, and the hurdles to class and collective certification remain in place.

In other intern-related news, an Indiana District Court dismissed the claims of former members of the University of Pennsylvania track and field team, who alleged that they were employees of the University under the FLSA and entitled to minimum wage for the time they spent as student athletes. The students argued that the question of whether student athletes are employees is governed by the DOL’s internship factors. The court rejected this approach, finding that this test “was not designed to apply to student athletes” and that appellate courts have refused to adopt it, specifically citing Glatt. The court ultimately held that the economic realities of the student athletes’ relationship with the University demonstrated that an employment relationship does not exist.

The DOL, for its part, recently ordered a venture capital firm in California to pay over $300,000 in back wages to former workers allegedly misclassified as unpaid interns. In a statement, the DOL’s Wage and Hour Division said that the interns performed “high-level jobs,” displaced regular employees, and performed duties that benefitted the firm directly. Given the intense focus by the DOL on alternative workplace arrangements, including unpaid interns, this order serves as a cautionary tale to all employers that the structure and operation of unpaid internship programs must be thoughtfully crafted and routinely monitored to ensure compliance with applicable law.

internship blog image 8.jpgCo-authored by Robert Whitman and Adam Smiley

While most New Yorkers rode out last weekend’s blizzard by binge watching television or enjoying playoff football, three Second Circuit judges apparently spent their time more productively, as the court on Monday issued an amended decision in its landmark ruling from last summer on unpaid internships.

As we have previously reported, the court’s July 2015 decision in Glatt v. Fox Searchlight held that the “primary beneficiary” test should be used to decide whether unpaid interns should be deemed employees or trainees. The court also held that this test requires highly individualized inquiries—a conclusion that may deal a blow to plaintiffs’ abilities to obtain class or collective certification in these cases.

In its amended decision, the Court added a third “salient feature” to the primary beneficiary test, holding that the “intern-employer relationship should not be analyzed in the same manner as the standard employer-employee relationship because the intern enters into the relations with the expectation of receiving educational or vocational benefits that are not necessarily expected with all forms of employment.” The court also inserted a statement that its analysis of the intern v. trainee question is limited to internships and not to “training programs in other contexts.”

Later in the amended opinion, after the listing of the seven non-exhaustive factors that determine the “primary beneficiary” of an internship, the court noted that the “touchstone” of its analysis was the economic reality of the relationship. In light of this, the court said, it is relevant to consider evidence “about an internship program as a whole rather than the experience of a specific intern.” This is an important addition because it may render the specific experiences of a named plaintiff less important in the overall “primary beneficiary” analysis and make it easier for an employer to satisfy the test even if a particular manager did not administer a compliant program.

The court also modified its analysis of the previously vacated Rule 23 claims under New York law. It deleted the prior reference to “individualized” inquiries driving the denial of class certification, and replaced it with “highly context-specific” inquiries regarding an internship program as the barrier to a finding of commonality. The holding now reads as follows: “[T]he question of an intern’s employment status is a highly context-specific inquiry. [E]vidence that the defendants received an immediate advantage from the internship program will not help to answer whether the internship program could be tied to an education program, whether and what type of training the internship program provided, whether the internship program continued beyond the primary period of learning, or the many other questions that are relevant in this case.”

After the court issued its first decision in Glatt last July, the plaintiffs filed a petition for en banc review. Despite the denial of en banc review in Wang v. Hearst Corp., the companion case involving Hearst interns, the Glatt petition has remained pending. We suspect that this amended opinion reflects a compromise by the court’s judges to avoid a potentially contentious review by the full court. We now expect a decision on the en banc petition to be issued soon.

Although the court has now revised the “primary beneficiary” to apply only to intern cases, the Glatt decision still has broad implications for employers that use unpaid interns. In particular, courts within the Second Circuit are still required to take a holistic view of an internship program, and the hurdles to class and collective certification remain in place. As always, however, employers should conduct a careful analysis of their internship programs to ensure full compliance with any wage and hour obligations and protect themselves from future litigation.

Co-authored by Robert Whitman and Meredith-Anne Berger

Blog readers who have been following the recent wave of wage and hour lawsuits by interns will recall that the Second Circuit, in a major decision issued in early July, held that the “primary beneficiary” test should govern whether interns were properly classified as such or should have been treated as full-fledged employees.

In the first appellate decision since then, the Eleventh Circuit agreed with the reasoning underlying that ruling. Rejecting the Department of Labor’s six-factor test and adopting the Second Circuit’s “non-exhaustive set of considerations,” the Eleventh Circuit held that courts evaluating interns’ claims should “focus on the benefits to the student while still considering whether the manner in which the employer implements the internship program takes unfair advantage of or is otherwise abusive towards the student.”

The plaintiffs in Schumann v. Collier Anesthesia, P.A. were interns in an anesthesia practice that provided training for student-registered nurse anesthetists. The clinical training, which required experience in 550 different patient cases, was mandatory to obtain both a master’s degree in the specialty and the professional license required to practice as a registered nurse anesthetist. They sued the owners of the practice and the for-profit college where they were enrolled, arguing that they were unlawfully denied minimum wage and overtime during their clinical internships.

The District Court granted summary judgment in favor of the defendants, holding that the students were not employees under the FLSA and thus not entitled to minimum wage or overtime pay. The appellate court vacated that decision and remanded with instructions to evaluate the interns’ claims under the factors listed by the Second Circuit in Glatt v. Fox Searchlight Pictures, Inc.:

  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.

Like the Second Circuit, the Schumann court said the DOL’s six factors were entitled to limited deference and concluded that the Glatt factors were a better reflection of the “modern internship.” In particular, it noted that students’ willingness to work as unpaid interns “drive[s] the need for the internships to exist,” as opposed to employers’ business need for interns. It also cited the public interest in promoting clinical internships in order to obtain professional licenses and the risk that an anesthesiology practice would face in hiring inexperienced students.

The court then examined the interns’ experiences under the Glatt factors, noting the following facts that supported a finding that the students were bona fide interns rather than employees: the dates of the internships corresponded to the academic calendar; and the length of the program was not excessive (although the court acknowledged that if the students were required to work “grossly excessive hours,” that would weigh in favor of employee status). The court was not persuaded by a Medicare rule, on which the plaintiffs relied, that allowed the clinic to be reimbursed for the students’ work in place of full-time nurses, although it did advise the District Court to take a closer look at that factor.

In a related development, the DOL recently released a guide for employers that encourages them to establish programs for interns as a way to transition students into the workplace. While the focus of the guide is on students with disabilities, much of the DOL’s text could be read to apply to internships more generally. Of particular note, the DOL states that, while pay may not be a “central motivation” for interns, payment is considered a “best practice” to attract a “wider array of candidates.” The guide directs employers to the six-factor test to determine whether interns must be paid the minimum wage. (See the discussion of the DOL guide on our Employment Law Lookout blog here.)

The fate of those six factors remains to be seen. For now, two federal appellate courts have rejected them in favor of a more flexible approach. Other courts will surely register their views soon as well.

Co-authored by Robert Whitman, Adam J. Smiley, and Meredith-Anne Berger

As this blog previously reported, a three-judge panel of the Second Circuit ruled against two separate groups of interns in early July, applying the “primary beneficiary” test—to evaluate whether unpaid interns are trainees not entitled to wages or employees who must be paid—and stating that conditional and class certification in internship lawsuits could be exceedingly difficult for plaintiffs to achieve.

On August 14, the interns in Glatt v. Fox Searchlight and Wang v. Hearst Corp. asked the Second Circuit for reconsideration of the July ruling or, alternatively, for review en banc by the full court. They argue that categorizing unpaid interns differently than other employees is contrary to Supreme Court and Second Circuit precedent and creates a category of “quasi work” that would allow private employers to receive free labor. They urge the court to adopt a test that allows unpaid internships only where employers receive no ‘immediate advantage’ from any work done by” the interns.

The plaintiffs also took issue with the panel’s ruling on their class certification motion. In addition to arguing that the interns’ claims in Glatt were substantially similar, they said the panel should not have commented on the likelihood of class certification more generally and should instead have simply remanded the issue to the trial court to have the panel’s new test applied.

If en banc review is granted, the entire roster of 13 active judges on the Second Circuit (i.e., those not on senior status) would rehear the case. Such requests are very rarely granted. In addition to the plaintiffs, a coalition of organizations such as the National Employment Law Project and Intern Worker Alliance also appear to be supporting the request for further review of the panel’s decision.

The Glatt decision is already being relied on at the District Court level. Pop culture website Gawker recently filed a motion for summary judgment in its case against several former interns and argued that, under Glatt, the interns’ claims could not survive because the interns had “precisely the sort of hands-on, educational internships that the Second Circuit endorsed in Glatt.”

While Glatt appeared to throw cold water on potential internship claims, the trend of new lawsuits continues. Most notable is the recently filed class action against Dualstar Entertainment Group, the entertainment company owned by twins Ashley and Mary-Kate Olsen of Full House fame, in which the plaintiff alleges that the company violated the New York Labor Law by failing to pay its interns.

There is no timetable for the Second Circuit’s decision on the en banc request, but watch this blog for further developments.

Co-authored by Robert Whitman, Adam Smiley, and Meredith-Anne Berger

In a closely watched case affecting the viability of unpaid internship programs at for-profit employers, the Second Circuit held that the “primary beneficiary” test should be used to decide whether interns should be deemed employees or trainees. The court also held that this test requires highly individualized inquiries — a conclusion that may deal a blow to plaintiffs’ abilities to obtain class or collective certification in these cases.

The plaintiffs in Glatt v. Fox Searchlight Pictures, Inc., served as unpaid interns for the film production company, including on the movie Black Swan. In a 2013 decision, Judge William Pauley of the Southern District of New York granted summary judgment to two of the interns, holding that they should have been treated as employees entitled to compensation and held that a third intern could pursue his related claims as a class and collective action under the FLSA and New York Labor Law.

The Second Circuit vacated those rulings. On the question of employee status, the court declined to defer to the Department of Labor’s 6-factor test, holding that it is “too rigid” since it was based on a 68-year old Supreme Court decision involving railroad trainees and was not entitled to special deference. The court also declined to adopt the interns’ proposed test, under which employee status would exist whenever the employer receives an “immediate advantage from the interns’ work.”

Instead, the Second Circuit held that the primary beneficiary test provides a more appropriate framework by focusing on “what the intern receives in exchange for his work” and providing “the flexibility to examine the economic reality as it exists between the intern and the employer.”

Rather than using a rigid set of factors to evaluate the internship, the court fashioned a flexible, non-exhaustive set of considerations:

  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.

The court specifically noted that courts may consider relevant evidence beyond the specified factors in appropriate cases. Further, these considerations require a “weighing and balancing [of] all the circumstances,” no one factor is dispositive, and “every factor need not point in the same direction for the court to conclude that the intern is not an employee entitled to the minimum wage.”

At the heart of the decision is the notion that a legitimate internship program must “integrate classroom learning with practical skill development in a real world setting,” and that focusing on the academic aspect of an internship program is critical and better reflects the modern workplace. The court also appeared to recognize that for any meaningful internship experience, the intern must do some “work.” With this understanding, the court said that interns may perform work so long as it “complements” rather than “displaces” the work of the company’s regular employees.

On the question of class and collective certification, the court held that “the question of an intern’s employment status is a highly individualized inquiry” given the nature of the primary beneficiary test. Even under the FLSA’s more lenient standard, it said, the interns were not “similarly situated” to each other because of the “individualized aspects of [their] experience,” especially given the nationwide scope of the proposed collective action.

Through a summary order, the Second Circuit also upheld a Southern District of New York decision that denied class certification in Wang v. Hearst Corp., a tandem internship case.  Putting a finer point on the certification issue than in Glatt, the court held:

As we have framed the relevant inquiry, courts must analyze how the internship was tied to the intern’s formal education, the extent of the intern’s training, and whether the intern continued to work beyond the period of beneficial learning. Irrespective of the type of evidence used to answer them, these questions are individual in nature and will require individual analysis. . . . Therefore, because of variation in the proposed class and the need for individual analysis of each intern’s situation, common questions do not predominate over individual ones.

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So what does this all mean?

First, the DOL’s 6-factor test, at least in the Second Circuit, is no longer valid. As the court said, “[B]ecause the DOL test attempts to fit [the Supreme Court’s railroad decision’s] particular facts to all workplaces, and because the test is too rigid for our precedent to withstand, we do not find it persuasive, and we will not defer to it.”

Second, the decision makes clear that interns may perform some “work” so long as the work does not displace an employee. While no bright line exists, interns may likely be assigned projects that help current employees do their work more effectively. However, the amount of work should be weighed in the context of the entire intern program to ensure that the scale still tips toward the intern being the primary beneficiary of the program.

Third, the educational component of the internship is a critical factor. Companies’ programs should emphasize training and educational opportunities, such as speaker series, mock projects, information sessions, open door policies to ask questions about the industry, and attendance at industry conferences or events. The greater the educational component of the program, the more likely that the interns will be the primary beneficiaries.

Fourth, the recent wave of internship cases may have crested and crashed, based not only on the Second Circuit’s decision on the merits, but as much or more because class and collective certification has become more difficult. Plaintiffs’ lawyers may now decide to forego cases where the inherent individual inquires necessary to evaluate interns’ experiences mean that certification will be difficult or impossible.

Stay tuned for more developments as we see how courts in the Second Circuit implement this decision and how it affects lawsuits currently filed, as well as the frequency of new lawsuits.