Employment Law Alerts

July 10th, 2013

Courts Scrutinize Summer Internship Programs for Payment Errors

In Glatt v. Fox Searchlight Pictures, Fox Searchlight asserted, among other things, that it did not employ plaintiff Eric Glatt or any other production interns and that all interns worked for the single-purpose production companies that produced the films. Following a period of discovery from Fox Searchlight and a handful of companies that produced its films, the court concluded that Fox Searchlight exercised sufficient control over the interns to be considered a joint employer.

Having determined that Fox Searchlight employed the interns, the court then applied the six criteria set forth in a United States Department of Labor fact sheet to determine whether interns working at for-profit businesses qualify as "trainees" rather than "employees." (Interns who qualify as "trainees" are exempt from wage and overtime requirements.) In a 36 page decision that will change the way employers run intern programs, the court made findings about each factor, and concluded that plaintiffs Glatt and Footman had been classified improperly as unpaid interns and were "employees" covered by the federal Fair Labor Standards Act  and New York Labor Law. Here are the key findings:

Criterion #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."

The court determined that plaintiff Footman did not receive any formal training or education during his internship. He did not acquire any new skills aside from those specific to Black Swan's back office, such as how it watermarked scripts or how the photocopier or coffee maker operated.  It was not enough that Footman "learned what the function of a production office was through experience."  He accomplished that simply by being there, just as his paid co-workers did, and not because his internship was engineered to be more educational than a paid position.

Criterion #2: "The internship experience is for the benefit of the intern."

The court determined that Fox Searchlight was the "primary beneficiary" of the relationship as it received the benefits of unpaid work, while Glatt and Footman received only the benefits of any other employee such as resume listings and job references. According to the court, "those benefits were incidental to working in the office like any other employee and were not the result of internships intentionally structured to benefit them."

Criterion #3: "The intern does not displace regular employees, but works under close supervision of existing staff."

The court found that the tasks performed by the interns, such as tracing and reconciling purchase orders and invoices, photocopying, organizing files, running errands and taking lunch orders, would otherwise have been done by paid employees.

Criterion #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."

Here the court was not convinced by arguments that Glatt and Footman were "beginners" and found an "immediate advantage" as the interns performed work that would otherwise have been done by paid employees. The court also noted the lack of evidence in the record that the interns ever impeded work at their internships.

Criterion #5: "The intern is not necessarily entitled to a job at the conclusion of the internship."

Here, there was no evidence that the plaintiffs thought they would be entitled to jobs at the ends of their internship.

Criterion #6: "The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship."

According to the court, this factor "[a]dds little, because the FLSA does not allow employees to waive their entitlement to wages."

In addition to its ruling on the individual intern claims, the court also certified a "class" of plaintiff interns across all Fox entities. While any potential damages for misclassifying Glatt and Footman are restricted to those individuals' wage and hour claims, the potential damages in a class action could be much more significant. As a result of the Glatt decision, interns working at NBC Universal, Gawker Media, and Conde Nast have also filed proposed class action wage suits.

Analysis:

Although the Glatt decision analyzed only the specific internship experiences of Glatt and Footman, the case contains important guidance for all  employers that run internship programs. For example, employment references, job-specific new skills, and professional connections won't by themselves justify a decision not to pay an intern the minimum wage. While we do not know for sure what kind of formal educational training will satisfy a judge, we do know that the training must differ from what a new hire would receive. If, in the absence of an intern, a paid employee would otherwise perform the task, courts are more likely to classify your intern as an employee entitled to minimum wage and overtime pay under the labor laws. In short, given that most internships call for performance of at least some tasks that a full-time employee might perform, employers who wish to classify their interns as trainees should consult counsel to help determine an appropriate workload.