Last week, a New York federal district court ruled that unpaid interns working for a film production company were employees under the Fair Labor Standards Act (FLSA) and New York wage and hour law. Glatt v. Fox Searchlight Pictures, Inc., No. 11-cv-6784 (S.D.N.Y. June 11, 2013). The court also conditionally certified a related FLSA class action and certified a related class claim under New York law.

Workers Did Not Satisfy "Unpaid Intern" Test

The court granted partial summary judgment in favor of two individuals who alleged that they were improperly classified as unpaid interns instead of employees while working on films produced by Fox Searchlight Pictures, Inc. (Fox) in violation of the FLSA. Those individuals have not yet moved to certify a class of similarly situated production interns.

In reaching its decision, the court first determined that Fox, along with the production companies that originally hired the interns, was a joint employer of the interns because it had the power to hire and fire the interns, supervise intern work schedules, determine whether interns were paid, and maintain employment records.

The court next considered whether the interns could be classified as exempt 'trainees'. Rejecting the "primary beneficiary" test adopted by other jurisdictions, the court applied the Department of Labor's (DOL) six-factor test on whether interns at for-profit businesses may be unpaid. (DOL Intern Fact Sheet.) The court reasoned that the DOL was entitled to deference and that the test was supported by a decades-old decision by the U.S. Supreme Court in Walling v. Portland Terminal Co., 330 U.S. 148 (1947).

Pursuant to the DOL guidance, the following factors should be considered when determining whether an internship may be unpaid:

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;

2. The internship experience is for the benefit of the intern;

3. The intern does not displace regular employees, but works under close supervision of existing staff;

4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;

5. The intern is not necessarily entitled to a job at the conclusion of the internship; and

6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

The court determined that the unpaid interns did not fit within the six-factor test and were improperly classified. Specifically, the court found that the interns (1) received nothing approximating an education they would have received in an academic or vocational setting; and (2) performed routine tasks that would have been performed by regular employees. Additionally, the court ruled that the employers were the primary beneficiaries of the relationship and obtained an immediate advantage from the interns' work. Further, although the interns knew they would not be paid, the court held that this alone could not support a finding of unpaid status because the FLSA does not allow parties to waive their entitlement to wages.

Class Claims

The court also conditionally certified a related FLSA class claim filed by an individual seeking to represent unpaid interns who worked in Fox's corporate offices (not on film productions) and certified the class under New York law. (A fourth intern's California state law claims were dismissed pursuant to a four-year statute of limitations.) Applying a Rule 23 class certification analysis to the intern's New York law claim, the court determined that the numerosity, commonality, typicality, adequacy, superiority, and predominance requirements were all satisfied and certified the proposed class of unpaid interns. The court also conditionally certified the intern's FLSA claim because the intern provided generalized proof that interns were subjected to a common policy to replace paid workers with unpaid interns.

Lessons for Employers

This decision comes on the heels of another New York district court decision in Wang v. The Hearst Corporation, No. 12-cv-0793 (S.D.N.Y. May 8, 2013), that denied summary judgment to interns who also asserted that they have been misclassified, though on different facts than in the Fox case.

The recent attention to this issue suggests that employers with unpaid internship programs should review their programs carefully to ensure compliance with applicable law. Now more than ever, employers should be mindful of the risks associated with misclassification of unpaid interns under state and federal wage and hour laws.