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The Fox Searchlight Ruling and What It Means for Unpaid Internships

By Kristine Sova

On June 11th, U.S. District Judge William H. Pauley III ruled that two interns who worked on a movie produced by Fox Searchlight Pictures Inc. (Fox Searchlight) were improperly classified as unpaid interns under federal and New York laws, and were actually employees who should have been paid. The case is Glatt v. Fox Searchlight Pictures Inc., Civil Action No. 11 Civ. 6784, pending in the Southern District of New York.

Reports from the non-legal press cast the decision as the death knell for unpaid internships. Yet is it? Technically, no (at least for the time being). However, practically, for any business taking notice, particularly those that have long relied on internship programs for staffing, the answer could very well be yes.

In reaching his decision, Judge Pauley applied the six criteria for determining whether an internship at a for-profit institution may be unpaid under the Fair Labor Standards Act. The six criteria are as follows: (1) the internship is similar to training that could 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 rather, works under closer supervision of staff; (4) the entity derives no immediate advantage from the intern (and, on occasion, the entity's operations may actually be impeded); (5) the intern is not necessarily entitled to a job at the conclusion of the internship; and (6) the intern has been notified, and understands, that he or she is not entitled to wages for time spent participating in the internship.

However that is not the test that Judge Pauley applied - it's the test that he did not apply - that ended up being the game changer for Fox Searchlight. In reaching his decision, Judge Pauley rejected the request of Fox Searchlight and the other defendants to also apply a "primary benefit test," deeming the test "subjective" and "unpredictable." Had the court applied the primary benefit test, Judge Pauley would have also determined whether "the internship's benefits to the intern outweigh the benefits to the engaging entity." If they do, then arguably the internship was properly an unpaid one.

Significantly, only five weeks earlier, another district court judge in the same district (Judge Harold Baer Jr.), albeit in a different case, denied the plaintiff interns summary judgment on the same issue. The case is Wang v. The Hearst Corporation, Civil Action No. 12 Civ. 0793. While the facts and circumstances of the underlying internships are not the same, the arguments made were. What was Judge Baer's view of the primary benefit test? It is a key consideration, and one that should be considered in addition to the six criteria.

So where does the Fox Searchlight decision leave us? When considered in conjunction with Judge Baer's, it is without a definitive test for unpaid internships in the Southern District of New York.

The good news for employers is that Judge Pauley's decision is just one opinion that may be overturned on appeal. (Representatives for Fox Searchlight have indicated that the company intends to pursue an appeal.) The bad news for employers is that Judge Baer's decision may be overturned instead. (The plaintiff interns in Wang have requested leave to appeal Judge Baer's decision.) Other bad news for employers is that unless a higher court steps in and resolves this split, other judges in the Southern District of New York might follow Judge Pauley's lead.

In the meantime, while certainly not a death knell for unpaid internships, Judge Pauley's decision might be the tipping point in the battle over this subject, particularly as more intern lawsuits are filed by the plaintiffs' bar. Indeed, only two days after Judge Pauley rendered his decision, the firm representing the plaintiff interns in both Fox Searchlight and Wang filed a lawsuit on behalf of two former interns against Condé Nast.

For some employers, this increased risk of getting sued over an unpaid internship program will be incentive enough to simply hire interns as workers and pay them the minimum wage. For other employers, it will not be, and there's nothing wrong with that. Unpaid internships are not illegal so long as they are structured correctly. Any employers who utilize them, and who have not already done so, should be making sure that they meet the most rigid reading of criteria required for internships to be unpaid under applicable federal and state laws. For New York employers, this means meeting all six criteria under the federal test, as well as five more criteria under a state test.

Kristine Sova is a solo practitioner focusing on the representation of employers in labor and employment law matters. She can be found at www.sovalaw.com.

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This page contains a single entry from the blog posted on June 15, 2013 1:32 PM.

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