The prospects for American for profit businesses to get free help have taken a turn for the better. In the case of Glatt v. Fox Searchlight Pictures, Inc., 13-4478, slip opinion filed July 2, 2015, the United States Court of Appeals for the 2nd Circuit lowered the bar for classifying certain work as an unpaid internship. The Court held that if the individual is the "primary beneficiary of the relationship" then the for profit employer is not required to pay minimum wage or overtime.
In Glatt, the interns worked on the Fox Searchlight distributed film, Black Swan. They performed duties such as copying, scanning, and filing documents; tracking purchase orders; transporting paperwork and items to and from the set; maintaining employee personnel files; answering questions about the accounting department; moving office furniture; arranging lodging for cast and crew; taking out the trash; taking lunch orders; answering phone calls; photocopying; making coffee; etc. In doing so, they worked more than forty hours per week.
They later filed suit, claiming compensation for minimum wage and overtime as employees under the Fair Labor Standards Act ("FLSA") and New York Labor Law. They were partially successful at the District Court level, but the District Judge's partial summary judgment holding that they were FLSA employees recently was reversed by the Second Circuit.
The Second Circuit rejected both the Department of Labor's ("DOL") six-part test (which is discussed in the DOL's Fact Sheet #71, Internship Programs under the Fair Labor Standards Act, available here), as well as the District Judge's less stringent version of the six factor test.
Instead, the Second Circuit held that the proper question is whether the intern or the employer is the "primary beneficiary" of the relationship. The Court focused on what the intern receives in exchange for his or her work and applied a facts and circumstances test based on a non-exhaustive set of considerations, which includes:
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.
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 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 duration of the internship is limited to the period in which it 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.
According to the Court, "[t]hese considerations require weighing and balancing all of the circumstances. No one factor is dispositive and every factor need not point in the same direction for the Court to conclude that the intern is not an employee entitled to the minimum wage." The case ultimately was remanded back to the lower court for the District Judge to reassess the evidence in light of the new test.
The primary beneficiary test was previously adopted by the Sixth Circuit in the case of Solis v. Laurelbrook Sanitarium & School, Inc., 642 F.3d. 518 (6th Cir. 2011), in the context of a training situation for vocational students in a religious and vocational school. In that case, the Court rejected the school's argument that vocational students were never employees, but also rejected the DOL's six-factor test. The Seventh-Day Adventist boarding school sued by the DOL required students to provide medical assistance to patients in the sanitarium as part of a vocational training program. The Court upheld a lower court decision that the students were not employees for purposes of the FLSA. According to the Court, the students received tangible and intangible benefits which outweighed the financial benefits derived by the sanitarium from their services.
We previously addressed this issue in our article entitled, Volunteers of America: The Other FLSA Classification Issue, posted March 26, 2013. At the time, the DOL's six-part test remained authoritative. Although the Second Circuit is but one of thirteen Courts of Appeal in the federal system, it includes what, perhaps, should be considered the capital of internships (i.e., New York City). Therefore, in the absence of any opinion on the subject by the Supreme Court of the United States, we expect the Court's opinion in Glatt to be very influential.
To combat exploitation of young people, regulation of internships is beginning to take shape at the state level. Oregon, Connecticut, and New York have passed laws protecting interns from discrimination and harassment. It has been suggested that state legislation on intern pay may be on the horizon as well—a movement that may get more impetus in the wake of the Black Swan intern case. As always, the attorneys at Ward and Smith, P.A. will continue to monitor this issue and update you accordingly.
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