Jul 08, 2015

The Second Circuit Rules on When an Intern is a Paid “Employee” Under the Fair Labor Standards Act

The United States Court of Appeals for the Second Circuit (covering New York, Connecticut and Vermont) released its long-awaited decision and squarely addressed the issue of when an unpaid intern at a for-profit employer is entitled to compensation as an employee under the Fair Labor Standards Act (“FLSA”).  Significantly, the Court adopted the legal standard advocated by the employer, and rejected both the interns’ proposed test and the six-factor test set forth in the Department of Labor’s Intern Fact Sheet.

The case involved unpaid interns who worked for Fox Searchlight and Fox Entertainment Group during the production of the film Black Swan.  The interns’ responsibilities included various administrative functions such as copying, scanning and filing documents, running errands, arranging lodging for cast and crew, setting up and breaking down office furniture, making travel arrangements, and making deliveries.  Certain of the interns, but not all, were enrolled in degree programs and offered credit for the internship.

After their internships ended, the interns filed suit under the FLSA and the New York Labor Law, and claimed unpaid minimum wages and overtime for themselves and all others similarly situated.  The district court found that the interns had been improperly classified as unpaid interns instead of employees.  On appeal, the Second Circuit disagreed with the district court and held that the analysis turns on “whether the intern or the employer is the primary beneficiary of the relationship.”  According to the Court, the “primary beneficiary” test focuses on what the intern receives in exchange for his work, and also allows courts to be flexible and examine the economic reality between the intern and the employer.

To aid the analysis of whether a worker is an employee for FLSA purposes, the Court provided a list of “non-exhaustive factors.”  All of the circumstances should be weighed and balanced, not every factor must point the same way to conclude that the intern in not an employee, and no one factor is dispositive.  The factors listed by the Court are:

1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.

2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands‐on training provided by educational institutions.

3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.

4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.

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 while providing significant educational benefits to the intern.

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 remanded the case to the district court to apply the newly-formulated test.  Employers who engage, or are considering engaging, unpaid interns should also apply this test when considering potential liability under the FLSA and state law for unpaid wages and overtime.

To learn more or if you have any questions regarding these issues, please contact your labor and employment counsel at Smith, Gambrell & Russell, LLP.

This client alert is intended to inform clients and other interested parties about legal matters of current interest and is not intended as legal advice.

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