It has long been assumed that unpaid internships are an excellent way for people, particularly young people, to gain valuable experience and ultimately qualify for paid employment. The Labor Department, however, long ago provided a six-factor test to help determine whether “interns” were actually “employees” under the Fair Labor Standards Act and therefore were entitled to wages and overtime. And in recent years, the DOL has pursued for-profit companies that do not pay interns who should have been classified as employees for purposes of the FLSA. Recently, the Second Circuit set aside the DOL’S guidance used to make such determinations. The court declined to defer to the DOL and substituted seven, non-exhaustive factors to determine whether a for-profit’s interns are employees. Glatt v. FoxSearchlight Pictures, Inc., No. 13-4478-CV, 2015 WL 4033018, at *6 (2nd Cir. July 2, 2015). Although the Second Circuit’s decision is not controlling elsewhere, its challenge to the Department of Labor’s guidance is likely to be influential, opening a discussion regarding the legal basis for determining when an intern, working for a for-profit company, should properly considered a paid employee.
The appellants in Glatt, Eric Glatt and Alexander Footman, had worked as unpaid interns, either in Fox Searchlight’s corporate office in New York or on the set of the Black Swan, at various times from 2009 through 2010. Contending that they were improperly classified and were employees under the FLSA and New York state wage laws, they filed suit in 2012. The District Court determined in 2013 that Glatt and Footman had been employees and granted their motion for partial summary judgment. In reaching this conclusion, the District Court relied upon DOL’s mandatory six factors for determining that an intern or trainee is or is not an employee. Glatt at *7.
The Department of Labor relied on Walling v. Portland Terminal Co., 330 U.S. 148 (1947), a case brought by railroad brakeman trainees that determined they were not employees under the FLSA or entitled to minimum wages. DOL extrapolated from Walling the six criteria that would determine if an employment relationship exists in the case of intern trainees. If all six factors are present, an employment relationship does not exist. The six factors are:
1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
2. The internship experience is for the benefit of the intern;
3. The intern does not displace regular employees, but works under close supervision of existing staff;
4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship
U.S. Department of Labor, Wage and Hour Division, Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act (available at http://www.dol.gov/whd/regs/compliance/whdfs71.pdf , accessed 7/12/2015); see also Opinion Letter FLSA2004-5NA.
The Second Circuit in Glatt was troubled by the rigidity of the established test. Glatt, at *5. It rejected the mandatory six-rule test declaring that the Supreme Court in Walling had given no indication that the factors it considered for railroad brakeman trainees were appropriate for every trainee program or internship. Further, Glatt noted that it was typical for courts to provide a more flexible set of considerations, allowing the inquiry to be tailored to the specifics of the work in question. Id. at *6. The Second Circuit suggested, but did not require, that the following “considerations” be a part of the determination of whether a person is trainee or intern, or an employee, for purposes of the FLSA:
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.
Glatt, at *6 While these are not so very different from the DOL’S mandatory criteria, the emphasis is different. The proper question, the Second Circuit concluded, was “whether the intern or the employer is the primary beneficiary of the relationship.” Id. at *7.
The Second Circuit vacated the district court’s grant of partial summary judgment to Glatt and Footman and remanded the matter to the district court. It remains to be seen whether the application of the Second Circuit’s newly formulated standards, which resemble in the main the criteria articulated by DOL, will result in a different outcome for Glatt and Footman.
The greatest change introduced by the Second Circuit is flexibility. The Second Circuit requires that the specific facts of an intern’s work shape the inquiry and the conclusions, and that the court weigh and balance “all of the circumstances.” Id. at *7: “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.” Courts following the Second Circuit – and these may grow – will no longer be bound by the rigidity of the Department of Labor’s guidelines. It is a heady freedom that the Second Circuit has introduced, but it remains to be seen just how much the new flexibility will result in genuine benefits for interns.
This blog was written by Mary Kuntz.