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The Legal Rollercoaster of Unpaid Internship Lawsuits

by Ryan Anderson

on 18 November, 2016

Imagine a landlord calling an up-and-coming twenty-something living in New York, California, or DC.  “Hey, I haven’t seen your rent check yet.”

Oh, don’t worry,” she answers. “I’m paying that by giving you experience!

“What?”

And exposure! Just help me out with my work for the day, and you’ll make some killer connections.

“But the rent–”

You’re getting a foot in the door,” replies the exuberant tenant, and proceeds to dictate a list of menial tasks around the house for him to do, before going to buy her groceries and pay her phone bill with similar goodies from the Intern Industrial Complex.


Thought experiments aside, while many young people and students get their ‘pay’ in experience, exposure, and connections, they still live in a boring old money-based economy. Now a series of lawsuits are asking the question: are these summertime stints critical classrooms for learning street-smarts, or just widespread and publicly sanctioned wage theft?

In the last few years, the courts have tried to answer this question with a series of decisions (each one probably xeroxed and stapled by their own unpaid interns). We’ll ride the rollercoaster of ups and downs of unpaid internship lawsuits in the article that follows, and analyze where the ride spits us out, in the current moment.

No Money Some Problems

Ivanka Trump’s unpaid interns aren’t alone, and they know it. That’s why they published their friendly advice blog: How to Survive an Unpaid Internship (which Ivanka tweeted out, graced with the cringe-worthy hashtag #nomoneynoproblems). In a moment of bipartisanship, those desperately googling these survival tips may be Hillary Clinton’s unpaid interns.

Or it could be any of the hundreds of thousands of other unpaid interns each year. The figures are hard to pin down (since many workplaces don’t report their interns), but some estimates put it at around 750,000 people each year, working for no pay. Some of those have valuable experiences that teach them the skills they need to learn and connect them to a supportive community. For others, it’s just a lot of free labor.

It goes beyond working for free, though. By not being labeled as employees, unpaid interns aren’t covered by workplace protections against sexual harassment and discrimination. Though the internships are touted as extra-curricular education, many interns report doing menial labor for months on end — and find at the end that the internship has brought them no closer to a real job, and actually made their starting salary statistically lower. Considering that women make up 77% of the interns doing work without pay, this raises real questions about the gender gap and the value accorded to women’s work.

As Ross Perlin, author of Intern Nation: How to Earn Nothing and Learn Little in the Brave New Economy put in in the New York Times: “Lucrative and influential professions — politics, media and entertainment, to name a few — now virtually require a period of unpaid work, effectively barring young people from less privileged backgrounds.”

But whether or not you think the system is morally dubious, is it illegal?

The Interns Revolt: Early Wins

It was called “the case that could end unpaid internships for good.” The Occupy Internship crowd celebrated and business moguls cowered. In Glatt v. Fox Searchlight Pictures Inc. (293 F.R.D. 516 (S.D.N.Y. 2013)), a Federal District court judge in Manhattan ruled that Fox Searchlight Pictures violated state and federal minimum wage laws by not paying interns for the production of Oscar-winning “Black Swan.”

During the filming of the eerie, surreal piece, interns hurried about doing a variety of menial and repetitive tasks. Glatt even walked a mile to get director Aronofsky a special hypoallergenic pillow. But though the film grossed more than $300 million, the production company didn’t pay even minimum wage for several of its interns.

The company had argued that the judge should use the ‘primary benefit test’ to determine whether the interns were employees. Sure, the production company had benefited from all this free labor — they even got a precious pillow out of it – but the judge should look at whether the interns benefited even more from this hands-on experience.

But in a partial summary judgment, Judge William H. Pauley III ruled that the primary benefit test was too subjective and unpredictable, and determined instead that the the Department of Labor set out the right criteria in 2010. The DOL guidelines boil down to some pretty stringent rules. In order to not pay interns, companies must ensure the experience is for their benefit, and the work they do doesn’t give immediate advantage to the employer — in fact, it may even impinge on their regular functioning. In addition, it needs to be similar to vocational training they’d receive in an educational environment, and it must not displace the work done by regular employees. If any of these guidelines doesn’t fit, then the interns are in effect employees, and deserve to be paid accordingly.

Judge Pauley clarified that it was insufficient to point to college credit received by unpaid interns — by and large the practice should be allowed only in very limited circumstances.

(These DOL guidelines only explicitly apply to for-profit industries. The government site notes: “The FLSA makes a special exception under certain circumstances for individuals who volunteer to perform services for a state or local government agency and for individuals who volunteer for humanitarian purposes for private non-profit food banks. WHD also recognizes an exception for individuals who volunteer their time, freely and without anticipation of compensation for religious, charitable, civic, or humanitarian purposes to non-profit organizations. Unpaid internships in the public sector and for non-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible. WHD is reviewing the need for additional guidance on internships in the public and non-profit sectors.”)

Many celebrated this judicial support for the DOL’s strict criteria, but perhaps more crucially, Judge Pauley’s ruling also granted class action status to other Fox Entertainment Group interns from September 2008-September 2010, finding evidence that “interns were victims of a common policy to replace paid workers with unpaid interns.”

With this strong support of class actions, lawyers grew more eager to fight against unpaid internships. It would take a very disciplined (or manic) attorney to litigate an unpaid-intern claim on the hopes of getting a commission from one person’s summer minimum wages, but bundle enough poverty-wages together, and attorneys can make a decent contingency fee.

Following this ruling, unpaid interns filed nearly 40 similar suits, pestering glittering production companies and media moguls, including Conde Nast, Nickelodeon, Gawker, Atlantic Records, Harper’s Bazaar, Elite Model Management. The companies settled many of these suits with wages for their former interns, including those who worked at NBCUniversal, Lionsgate, Viacom, and ICM Partners.

In the meantime, Hollywood’s big production companies took a look at the legal liability, and started paying their interns.

The Intern Industrial Complex Strikes Back

But Fox Searchlight appealed and the U.S. Court of Appeals for the Second Circuit took up the case. Last summer, that court wrung out the lower ruling (Glatt v. Fox Searchlight Pictures, Inc., 811 F.3d 528 (2d Cir. 2016)).

For the appeal, the DOL filed an amicus curiae in support of the interns, saying its guidelines should be used to determine when interns should be treated as employees. After all, it’s the agency charged with administering the Fair Labor Standards Act, and should get some judicial deference. Also, they derived their test from the Supreme Court’s Portland Terminal case (Walling v. Portland Terminal Co., 330 U.S. 148 (1947), wherein brakemen-trainees were found not to be railroad employees.

In its findings, the Court flatly rejected the DOL’s guidelines, saying it had more power to interpret the judicial record than the DOL did, and that the DOL’s “test is too rigid for our precedent to withstand.” In its place, the Second Circuit court took up the company’s rubric for determining employee-hood: the ‘primary benefit test.’ With this new rubric, all of the lower court’s findings were vacated and remanded for further proceedings. (The same finding held for Xuedan Wang v. Hearst Corp., 617 F. App’x 35 (2d Cir. 2015)).

Recognizing the vagueness of ‘primary benefit,’ the Court set out a “non-exhaustive set of considerations” to determine employment status “in somewhat analogous contexts.” These 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.

With this sliding-scale list of factors, the successful litigation of unpaid internships becomes much fuzzier. Though the main takeaway seems to be a heavy emphasis on how the internships link up with an academic institution, for many cases it seems like determining ‘primary benefit’ is largely a matter of a judge’s or jury’s whim.

But the part of the ruling that might screw interns over the most is its denial of class status to the Fox interns, claiming that their work was too varied to be considered in a single ruling. This effectively leaves those interns without access to legal counsel.

The Uncertain Present

The upshot? The legality of unpaid internships remains ambiguous. Although the Second Circuit decision is likely to be influential on other courts, their finding is not binding on them. This circuit covers New York, Connecticut, and Vermont. Since the ruling, The Eleventh Circuit, covering Florida, Georgia, and Alabama, has also adopted this wording.

Many labor law experts are left scratching their heads — or pulling out their hair. Susan Adams, writing for Forbes, quotes Boston University labor law professor Michael Harper: “Its reasoning is made out of whole cloth,” while Suffolk University law professor David Yamada notes “All the factors they drew up were really without legal authority.” Noting that the judges cited no case law to create their checklist, he continues “They apparently decided to invent something new here, which is surprising at the appellate level.”

And those concerned with labor conditions see the ruling as bad news. Adams writes: “the ruling paves the way for employers to make deals with educational institutions for school credit, perpetuating a system that exploits student labor, takes jobs from would-be entry-level workers, favors the privileged who can afford to make no money and flouts the basic tenet of the FLSA, that people who work deserve to get paid at least a minimum wage.” (It’s also worth noting that when students receive course credit for internship, they usually have to pay the university for it, making a wageless job that much greater of an insult.)

She notes elsewhere: “I agree that the interns are learning and growing, but so are many paid employees. Just because a job is instructive doesn’t mean it’s not a job.”

Even after the disappointing ruling, the particular Black Swan interns named in the case still had a powerful position as their case returned to district court. Even under these more difficult guidelines, the company would be hard-pressed to prove they didn’t have to pay their menials. As Adams put it: “it’s clear that the primary beneficiary of their work was the production, not them as interns. It’s tough to argue that emptying the garbage and fetching a pillow is educational.”

And indeed, the company offered a settlement giving former interns payments ($7,500 for Glatt, but around $495 for the average unpaid intern). The law firm working on this issue (Outten & Golden) made around $220,000 in fees and services.

On the other hand, on August 24 of this year the Southern District of York court dismissed the Wang v. Hearst Corp case, which focused on unpaid labor done on a variety of national magazines.

Currently, labor lawyers are avoiding federal courts and fighting more cases in state courts (especially in New York, which has a more liberal view on what qualifies a ‘class’). Legal experts note this strategy could also make sense for California, which has more stringent labor laws.

There is some chance that another Circuit court could take up this issue, and make a finding markedly different from the Second Circuit’s, pushing the decision to the Supreme Court, which hasn’t looked at the question of internships since 1947.

Should the happen, the stakes will be significant for both young interns and plaintiff-side labor lawyers. If interns are denied the right to form a class, it’s unlikely they’ll be able to get much legal representation. And unless employers, courts, or congress grants them employee status, they also won’t be able to use worker protections in cases against sexual harassment and discrimination.

But for now the question remains in flux. Until the waters settle, it’s still worth noting that even in regions covered by the business-friendly Gatt test, there are still unpaid internship cases that can be successfully litigated. Particular areas to look for include internships that include frequent menial tasks, lack of educational experiences on the job, and lack of academic credit offered by an institution. It could also be worth going after lengthy internships (although the Wang decision found an internship as long as 6 months was permissible).

One way or another, the issue is unlikely to disappear soon. The unpaid internship is here to stay – unless legislation or litigation demands otherwise.