SDNY Says to Pay Your Interns if You Aren't Teaching Them

June 18, 2013

Unpaid interns in "for-profit" private sector internships may have cause for celebration. After the Southern District of New York denied Xuedan Wang her class action certification against the Hearst Corporation for failing to pay unpaid interns last May, this week, Judge William H. Pauley III decided to permit Eric Glatt, Alexander Footman, Kanene Gratts, and Eden Antalik to bring their putative class action under the Fair Labor Standards Act ("FLSA") and New York and California state labor laws against defendants Fox Searchlight Pictures Inc. and Fox Entertainment Group, Inc. Plaintiffs contended that Searchlight and Fox Searchlight violated federal and state and state labor laws by classifying them as unpaid interns instead of paid employees for their work on the production of the films "Black Swan" and "500 Days of Summer." It's the first time a major U.S. court has ruled that work without pay or education is illegal.

Unbeknownst to most, there are only limited circumstances under which individuals who participate in "for-profit" private sector internships may do so without compensation. This typically applies to interns who receive training for their own educational benefit and at their employers' detriment, but only if the training meets the following six criteria:

1.) The internship 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.

If all of the factors listed above are met, an employment relationship does not exist under the FLSA, and the Act's minimum wage and overtime provisions do not apply to the intern.

Judge Pauley decided:

Considering the totality of the circumstances, Glatt and Footman were classified improperly as unpaid interns and are 'employees' covered by the FLSA and NYLL. They worked as paid employees work, providing an immediate advantage to their employer and performed low-level tasks not requiring specialized training. The benefits they may have received -- such as the knowledge of how a production or accounting office functions or references for future jobs -- are the results of simply having worked as any other employee works, not of internships designed to be uniquely educational to the interns and of little utility to the employer.

According to Ross Eisenbrey, vice president of the Economic Policy Institute, there are up to 1 million unpaid internships in the United States and about 11.8 million unemployed persons. It is unknown how many new jobs could be added to the economy if employers consistently followed the FLSA's criteria.

Unpaid internships, in our experience, are illegal if they are not primarily for the interns' benefit. If this sounds familiar, give us a call.