On Friday, January 5, 2018, the U.S. Department of Labor (“DOL”) posted a brief statement and updated its Fact Sheet on Internship Programs Under the Fair Labor Standards Act to clarify that going forward, it will use the “primary beneficiary” seven factor test for distinguishing bona fide interns from employees under the FLSA. The DOL’s approach is consistent with the test adopted by appellate courts such as the Second and Ninth Circuits.
In a closely watched case, Glatt v. Fox Searchlight Pictures, Inc. (decided July 2, 2015), the Second Circuit rejected the Department of Labor’s (“DOL”) intern test under the Fair Labor Standards Act (“FLSA”), and adopted a balancing test that focuses on whether the employee or the employer is the primary beneficiary of the relationship (“primary beneficiary test”). This is important because interns are not considered employees, and thus, are exempt from the minimum wage and overtime provisions of the FLSA.
Unpaid interns have increasingly become a hot topic among lawmakers and courts. Last week, New York Governor Andrew Cuomo signed into law legislation which prohibits New York State employers from discriminating against, or sexually harassing, unpaid interns. New York State enacted this legislation only a few months after New York City passed a law which prohibits discrimination against unpaid interns. New York City unanimously enacted its legislation in response to a district court ruling in October 2013, which found that an intern could not proceed with a sexual harassment claim because she was unpaid, and therefore, she was not entitled to protections under Title VII or the New York City Human Rights Law. (Wang v. Phoenix Satellite Television US, Inc., 976 F. Supp. 2d 527 (S.D.N.Y. 2013)). Although few jurisdictions currently offer unpaid interns protection from discrimination or sexual harassment (only New York, Oregon and Washington, D.C.), legislators in New Jersey and California have introduced bills which would grant unpaid interns these same protections. The California bill has already passed the State Assembly and is being reviewed by the State Senate.
Now that summer is here and the interns have arrived, it is important to consider whether your interns should be paid. A New York District Court has recently issued a decision highlighting this concern in its ruling against unpaid internships. In Glatt v. Fox Searchlight Pictures Inc. interns who worked on the set of Black Swan brought suit alleging that Fox Searchlight Pictures Inc. and Fox Entertainment Group, Inc. violated the Fair Labor Standards Act (“FLSA”) and the New York Labor Laws (“NYLL”) by classifying them as unpaid interns rather than employees. 11 Civ 6784 (WHP) (S.D.N.Y. June 11, 2013).
With a dearth of job openings for recent college graduates, many have pursued unpaid internships while continuing to search for fulltime employment. A 2008 survey found that half of all college students hold at least one internship before graduating. In light of the 18.8% March unemployment rate for American workers aged 16-24—nearly double the 9.7% unemployment rate for the workforce at large—this practice can be beneficial for interns, who gain experience and contacts, as well as for employers, who can benefit from having eager interns ready to learn and contribute.