To Pay or Not To Pay: The Second Circuit Rules on Unpaid Interns

In addressing a matter of first impression, the Second Circuit Court of Appeals set out a new standard to determine when an unpaid intern is deemed an employee for purposes of the Fair Labor Standards Act (“FLSA”) and thus entitled to compensation, including minimum wage and overtime, under the FLSA.  Two appeals were argued in tandem on this issue with the Second Circuit issuing an Opinion on July 2, 2015 in Glatt v. Fox Searchlight Pictures, Inc., and a Summary Order in Wang v. Hearst Corp.

According to the Second Circuit, to answer the question of unpaid intern versus FLSA employee status, a court must determine whether the employer, rather than the intern, is the primary beneficiary of the relationship.  In adopting this “primary beneficiary test,” the Second Circuit declined to follow the U.S. Department of Labor’s six-factor test, explaining that the test was simply the DOL’s analysis of a Supreme Court decision from 1947 and was therefore not entitled to deference.  Instead, the court provided a non-exhaustive set of considerations that should be weighed and balanced when deciding whether the employer or intern is the primary beneficiary of the relationship:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation.
  2. The extent to which the internship provides training that would be similar to that which would be given in an education environment.
  3. The extent to which the internship is tied to the intern’s formal education program through receipt of academic credit or coursework that is integrated with the internship.
  4. The extent to which the internship accommodates the intern’s academic commitments.
  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.
  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 made clear that no one factor is dispositive and that every factor need not point in the same direction to conclude that the intern is not an employee.

Just as significant as the announcement of a new test for determining whether an unpaid intern can in fact be unpaid is its impact on class certification.  In the Fox Searchlight appeal, the Second Circuit vacated the lower court’s decision certifying a class and collective action.  The court explained that when applying its newly announced test, “the question of an intern’s employment status is a highly individualized inquiry.”  Fox Searchlight, at p. 19.  The court concluded that the “common evidence cited by the plaintiff would not help answer the questions of whether a given internship was tied to an education program, whether and what type of training the intern received, whether the intern continued to work beyond the primary period of learning, or the many other questions that are relevant to each class member’s case.” Id.  The court echoed that sentiment in the Hearst order, affirming the denial of class certification.  Hearst, at p. 7-8.  Both cases were remanded for further proceedings in light of the new legal standard set out by the court.

Thus, while the Second Circuit decisions in Fox Searchlight and Hearst will not put an end to those cases or other litigation over the unpaid intern question, it will be more difficult for plaintiffs in the Second Circuit to litigate these types of cases on a class or collective basis.