Internships have long been considered a great source of development—and the Department of Labor (DOL) has certain requirements in place to ensure that “interns” are properly classified. However, a recent court case indicates that the DOL’s test may not cut it anymore—BLR® Legal Editor Jasmin Rojas, JD, has the facts of the case and what it may mean for the future of internships.
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The movie Black Swan has a young ballerina struggling between two forces—her inner white and black swans. In real life, the movie has set the scene for another type of conflict—one between the DOL’s interpretation of who really qualifies as an unpaid intern versus a new test adopted by the 2nd Circuit (which covers Connecticut, New York, and Vermont). In fact, this conflict may affect how employers decide to classify their unpaid interns.
As background, a couple of interns who “worked” on the Black Swan movie and/or at the Fox corporate offices in New York City sued Fox Searchlight and Fox Entertainment Group (collectively Fox). The interns claimed that Fox violated the Fair Labor Standards Act (FLSA) and New York state law by failing to pay them as employees during their internships as required by both laws’ minimum wage and overtime provisions.
The interns argued that they were indistinguishable from regular employees, tasked as they were with fetching coffee, taking phone calls, handling paperwork, and in one case apparently buying a nonallergenic pillow for one of the directors. One of the interns also sought to establish a class action suit on the same grounds. The interns did not receive academic credit for their internships.
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The federal district court in New York agreed with the interns that they were really employees and also agreed that it was appropriate to certify a class, meaning that previous interns who were in the same boat would have benefited from this decision.
The court mainly relied on the DOL’s six-factor test, which says that workers are owed a paycheck if their employer gets an “immediate advantage” from their labor. For those who are not familiar, according to the DOL, an employment relationship does not exist if the following factors apply:
- The internship, even though it includes actual operation of the employer’s facility, is similar to training that would be provided in an educational environment;
- The internship experience is for the benefit of the intern;
- The intern does not displace regular employees, but works under close supervision of existing staff;
- The employer that provides the training derives no immediate advantage from the intern’s activities; and on occasion, its operations may actually be impeded;
- The intern is not necessarily entitled to a job at the conclusion of the internship; and
- The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
This six-factor test was developed by the DOL as in interpretation of a pre-FLSA 1947 Supreme Court decision, where the Court was asked to decide whether unpaid railroad brakemen trainees should be treated as employees.
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New (and Improved?) Primary Beneficiary Test
On appeal, the Court of Appeals for the 2nd Circuit disagreed with this test.
Why?
The 2nd Circuit found that the DOL’s test was outdated and did not reflect the economic reality of the modern internship. The DOL is primarily concerned with the exploitation of free labor. However, the court recognized that currently, when properly designed, internships greatly benefit interns (even if they somewhat benefit the employer). Indeed, the court further recognized the importance of internships in career placement.
Therefore, the court reasoned that a much more practical approach would be to adopt a more flexible “primary benefit” test.
In tomorrow’s Advisor, Rojas presents the new internship test outlined by the 2nd Circuit … and what it means for employers.