Are Unpaid Internships Legal? Understanding the Court’s Recent Rulings

By Camille A. Olson and Christopher A. Nelson

It’s now summer, which means internship season is in full swing. Candidates have done their research and landed positions, hoping to develop their professional skills or add a credential to their resume.

Internships are commonly considered to be temporary, unpaid positions that do not constitute an “employee-employer” relationship. In recent years, however, the economic recession has made the job market smaller and more competitive. With companies interested in lower costs and job candidates desperate for any opportunity, previously assumed distinctions between “employee” and “intern” have become increasingly challenged.

Recent developments

Within the last 18 months, several lawsuits have been filed on behalf of current and former interns against companies including Hearst Corp. and Fox Searchlight Pictures. The complaints generally allege that summer workers classified as “interns” are actually “employees” under the Fair Labor Standards Act (FLSA) and other state employment laws, and, as such, are entitled to minimum-wage and overtime compensation for their hours worked.

Recent developments in Wang v. Hearst Corp. and Glatt v. Fox Searchlight Pictures Inc. illustrate the difficulty faced by both employers and Courts in determining the legality of unpaid internships. In Wang, the Court ruled against certifying a proposed class of interns, concluding that genuine issues of fact existed as to whether the Plaintiffs were employees. In Glatt, the Court landed on the opposite side of the same coin, reasoning that the Plaintiffs were employees and certifying a class of office-based interns. The Court in Glatt determined that common facts predominated, and one determination based on those common facts would be appropriate to resolve the issue of the status of all of the interns at issue.

Although they reached different conclusions, Judge Harold Baer, of the Wang case, and Judge William Pauley III, of Glatt, used the same legal standards to determine employment status: the FLSA, Walling v. Portland Terminal Co. 330 U.S. 148 (1947), and the Department of Labor’s (DOL) April 2010 “Fact Sheet # 71: Internship Programs Under The Fair Labor Standards Act” (“DOL six-factor test”).

The Courts in both cases particularly relied on the DOL six-factor test as the framework to interpret the facts. The six factors are relevant because, as explained by Judge Baer, “they emanate from the agency that administers the laws under which Plaintiffs brought this lawsuit,” and “suggest a framework for an analysis of the employee-employer relationship.” (Wang Order at 6)

How did two judges using the same legal framework reach such different conclusions? One explanation lies in how they applied “total consideration” of the facts as they relate to the DOL six-factor test. Judge Baer and Judge Pauley agree that Walling established a standard of “total consideration” of the employer-employee relationship to determine employment status. Judge Baer denied summary judgment and class certification for Plaintiffs because Hearst displayed “some” training, benefit to individual interns, and impediment to Hearst's regular operations, and that a “totality of circumstances” approach would require individual interpretation of each intern’s experience with regard to those factors. (Wang Order at 7) Judge Pauley, on the other hand, concluded that although some of the factors leaned toward “intern” status, the “totality of circumstances” indicated that Plaintiffs were classified improperly and ruled as such. (Glatt Order at 26)

What does it all mean?

First, it is worth noting that the Plaintiffs in Wang filed an appeal on Judge Baer’s ruling, and that the Defendant in Glatt may choose to do the same. If the Second Circuit grants review, the decision from the appellate court may have far reaching implications, particularly in whether the plaintiffs’ bar decides to pursue similar unpaid internship cases.

Second, although Judge Pauley’s ruling has received much attention as being a ruling that could “end” the unpaid internship, it is important to note that the ruling applies to different Plaintiffs. Judge Pauley granted summary judgment determining that two production side Plaintiffs were misclassified as interns, however, no determination has yet been made on the employee status of the office-based, certified class. Applying the DOL six-factor test to a broader class could prove too subjective for Court to ultimately grant employee status in Glatt and other comparable cases.

Companies can still minimize risk

Finally, while the Court continues to eke out the details, here are some tips to keep in mind for minimizing litigation risk while using interns:

• The safest approach for most companies is to treat interns as employees by paying them in compliance with FLSA minimum-wage law.

• Working with local universities or colleges could help decrease risk, both through granting interns academic credit, and by establishing different credit requirements, policies, or internship handbooks for programs based on the intern’s academic interest.

• Tailoring internship programs to include training that emphasizes individual development, such as matching interns with mentors for informal training meetings, will help ensure that interns benefit proportionally from their internship, further diminishing potential litigation risk.

Camille Olson is an equity partner and the National Chair of the Complex Litigation Department at Seyfarth Shaw LLP. She often represents national companies in challenges to employment and operational practices, internal investigations of highly sensitive matters, and high-consequence litigation through trial and appellate phases. Chris Nelson is a graduate of Denison University and a member of the 2013 entering class at the University of Illinois College of Law.