To Pay or Not to Pay: Should Interns be Considered Employees under the Fair Labor Standards Act

Author: Brynn Stylinski Contributing Member University of Cincinnati Law Review

The Fair Labor Standards Act (FLSA) requires employers to pay every employee a minimum wage and to pay overtime for any hours worked over forty hours per week. However, whether a worker qualifies as an employee has been debated for years.[1]  Earlier this year, the Second Circuit reversed a New York district court’s finding that a group of unpaid interns were employees under the FLSA and thus entitled to minimum wage and overtime payments (employee wages).[2]  

The three named plaintiffs had worked as unpaid interns for the defendant, Fox Searchlight Pictures (Fox), in New York City in its corporate offices and on the filming and post-production of the movie, Black Swan, between 2009 and 2010.[3]  Each of the plaintiffs had internship duties related to running errands, ordering food, making copies, filing, and helping to set up work spaces among other duties.[4] None of the plaintiffs received educational credit for their unpaid work.[5]  The interns brought suit, claiming that they were entitled to employee wages under the FLSA for their work as interns. The district court agreed with them, granting their motion for partial summary judgment on the issue and certifying both a statewide and a national class of Fox employees.[6]  The Second Circuit disagreed, and in doing so undermined the Department of Labor while reducing the number of workers protected under the FMLA.

Whether an Intern is an Employee: The Department of Labor Test

The Department of Labor issued a Fact Sheet in 2010 which laid out a list of the factors to be considered in determining whether an unpaid intern actually qualifies as an employee.[7]  These factors are: (1) whether the internship “is similar to training which would be given in an educational environment;” (2) whether the internship “is for the benefit of the intern;” (3) whether the intern does not displace regular employees and is closely supervised by existing staff; (4) whether the employer derives no immediate advantage from the intern’s work (its work may be impeded); (5) whether the intern is “not necessarily entitled to a job at the conclusion of the internship;” and (6) whether the employer and intern both understand that the intern is not entitled to wages during the internship.[8]  Under the Department of Labor’s test, all of these factors must be met for an unpaid intern to be considered a non-employee. Otherwise, the intern is entitled to the protections of the FLSA.[9]

These factors are taken directly from those created by the Supreme Court, in Walling v. Portland Terminal Co., when it held that railroad trainees undergoing a practical course of training fell into a very narrow exception to the FLSA and were not considered employees.[10]  The Supreme Court emphasized the need for a narrow exception since the workers were receiving the benefit of instruction free of charge, had no expectation of payment, gave no benefit to the employer and were possibly a detriment, did not displace regular employees and were not guaranteed a job following the training.[11] The court emphasized the presence of all of these factors without finding any of them dispositive, but it also repeatedly stressed that the training was for the sole benefit of the trainees.[12]

The District Court’s Approach

The district court looked to the language of Portland Terminal when it applied the Department of Labor’s test, using a totality of the circumstances approach. The court rejected the defendant’s argument for a primary beneficiary test—in which the intern is considered an employee only if the benefit to the employer outweighs the benefit to the intern. It based this rejection on the fact that Portland Terminal did not weigh the benefits to each side, but relied on the fact that the trainees solely benefited from the arrangement.[13]

The district court found that some of the Department of Labor factors weighed in favor of the defendant, but those in favor of the plaintiffs outweighed them under the totality of the circumstances—the test only required that one of the factors side with the plaintiffs. The plaintiff Footman did not gain any education or training that would not have been equally available to paid employees, and thus was not similar to training in an educational environment, though this factor was inconclusive for the plaintiff, Glatt.[14]  While the plaintiffs did benefit from the internships in a general way, Fox benefitted to a greater extent by gaining the benefits of an employee without payment.[15]  The plaintiffs displaced regular workers by performing tasks that would otherwise have gone to paid employees and thus the defendant obtained an immediate advantage from the internships. Although the plaintiffs knew that they were not entitled to jobs following the internship, and understood that they would not be paid, the court found this understanding was inconsequential.[16]  Under the FLSA, employees may not waive the right to a minimum wage.[17]  Thus the understanding that a position is unpaid does not indicate that an intern is not an employee unless the other factors are met as well.[18]  The Second Circuit rejected the district court’s approach and its result.

The Second Circuit’s Primary Beneficiary Test

The Second Circuit viewed the Department of Labor’s test, as applied by the district court, as unnecessarily restrictive and too rigid.[19]  It rejected the authority of the Department of Labor’s test, saying that it was merely a distillation of the facts of Portland Terminal, and not an interpretation of an ambiguous statute or its own regulation which would be entitled to deference.[20]  The facts of Portland Terminal, it found, could not be compared to those of every case. Instead, the Second Circuit applied a primary beneficiary test, as advocated by Fox, to determine whether unpaid interns qualify as employees under the FLSA.[21]

Under the much broader primary beneficiary test, the court looks to a non-exhaustive list of factors to determine whether the intern or the employer is the primary beneficiary of the arrangement. [22]  The court’s seven factors are similar to those used in the Department of Labor’s test, but focused more on what the intern receives from the relationship than what the employer receives, and with greater emphasis on the understanding of the parties. The analysis also highlighted the ties to the intern’s formal education program.[23]  The Circuit’s primary beneficiary test is a balancing test. If, based on all of the factors, an intern is found to benefit more from the relationship than the employer, then the intern is not an employee under the FLSA and is not entitled to employee wages. If the employer is found to have benefited more from the arrangement, then the intern is considered an employee and entitled to the protections of the FLSA.[24]  The Second Circuit remanded the case to decide whether there was sufficient evidence for summary judgment under the new, broader test.

The Implications of Glatt and the New Primary Beneficiary Test

Though the Second Circuit claims that its new test of employment is a more balanced approach, it is in fact a victory for employers. Prior to Glatt, the FLSA exception for unpaid interns was extremely narrow. The Department of Labor and earlier courts had reiterated time and again how broad the definition of employee is under the FLSA and how many different types of workers it was meant to encompass.[25]  Applying the primary beneficiary test to interns has the potential to instead broaden the exception exponentially. Where employers once needed to prove that they had met every requirement of the Department of Labor and the Portland Terminal court to avoid paying their interns, they now need only prove that the interns benefit slightly more than they do.

The Second Circuit dismissed the Department’s test for whether an intern is an employee, saying that it merely interpreted a Supreme Court opinion.[26]  This fails to take into account that the test itself is, in fact, an interpretation of an ambiguous statute─ the type of interpretation to which the Second Circuit admits it must defer to the Department.[27]  The term employee is defined ambiguously under the FLSA,[28] thus leading to the debate over whether an intern may be considered an employee. The failure to defer to the Department of Labor on the classification of an employee under the FLSA is a part of a recent trend among the courts of undermining the interpretations of the Department of Labor.[29]  When courts undercut agency rules designed to protect workers, it encourages employers to take the rules laid by those agencies less seriously and opens up workers to the very dangers the rules were designed to prevent.

Conclusion

The Eleventh Circuit has already adopted the new test as well as the Second Circuit’s lack of deference toward the Department of Labor.[30]  If the courts continue along the path embodied by Glatt, it is likely that the number of people who qualify as employees under the FLSA will shrink considerably. Thus the number of people protected by the FLSA requirements will decrease. This will put many of those who are already at a distinct disadvantage when bargaining for wages, such as college students and recent graduates, in an even worse position. Work that would otherwise be given to paid employees will be saved for those interns, not entitled to payment. Although at first glance the decision in Glatt may seem to find a middle ground, it is likely to make things much easier for employers, and much more difficult for those looking for employment.

[1] 29 U.S.C. §§203, 207.

[2] Glatt v. Fox Searchlight Pictures, Inc., 791 F.3d 376 (2d Cir. 2015).

[3] Id. at 379.

[4] Id.

[5] Id. at 379-80 (Eric Glatt was not offered credit from his non-matriculated (non-degree) graduate program, Alexander Footman was not enrolled in a degree program at the time of his internship, and Eden Antalik was supposed to receive credit from her undergraduate degree program which required an internship for graduation, but she never received the credit).

[6] Id. at 380-81.

[7] U.S. Dep’t of Labor Wage and Hour Division, Fact Sheet 71: Internship Programs Under the Fair Labor Standards Act (April 2010) [hereinafter Fact Sheet 71] available at http://www.dol.gov/whd/regs/compliance/whdfs71.htm.

[8] Id.

[9] Id.

[10] 330 U.S. 148 (1947).

[11] Id. at 151-3.

[12] Id.

[13] Glatt v. Fox Searchlight Pictures Inc., 293 F.R.D. 516, 531-2 (S.D.N.Y. 2013) on reconsideration in part, No. 11 CIV. 6784 WHP, 2013 WL 4834428 (S.D.N.Y. Aug. 26, 2013) and motion to certify appeal granted, No. 11 CIV. 6784 WHP, 2013 WL 5405696 (S.D.N.Y. Sept. 17, 2013) and vacated and remanded, 791 F.3d 376 (2d Cir. 2015).

[14] Id. at 532.

[15] Id. at 533

[16] Id. at 534

[17] Id.

[18] Id.

[19] Glatt, 791 F.3d at 383-4.

[20] Id.

[21] Id.

[22] Id. at 384.( “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….

  1. 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.
  2. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  3. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  4. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  5. 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.
  6. 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.”)

[23] Id. at 384.

[24] Id. at 385.

[25] Fact Sheet 71 (“This exclusion from the definition of employment is necessarily quite narrow because the FLSA’s definition of “employ” is very broad.”); Glatt, 293 F.R.D. at 532 (citing United States v. Rosenwasser, 323 U.S. 360, 362 (1945)).

[26] Glatt, 791 F.3d at 383.

[27] Id.

[28] 29 U.S.C. §203(e)(1).

[29] Earlier this year, a D.C. district court attempted to overturn a Department of Labor Regulation which narrowed the FLSA’s exception for home healthcare workers. Home Care Ass’n of Am. v. Weil, 78 F. Supp. 3d 123 (D.D.C. 2015) rev’d sub nom. Home Care Ass’n of Am. v. Weil, No. 15-5018, 2015 WL 4978980 (D.C. Cir. Aug. 21, 2015). Though this decision was later overturned, it still points to a pattern among the courts when viewed alongside the Eleventh Circuit’s rejection of the Department of Labor’s test. Schumann, 2015 WL 5297260 at *1; but see Alexander v. FedEx Ground Package Sys., Inc., 765 F.3d 981 (9th Cir. 2014)(finding that under California law, FedEx drivers were considered employees, not independent contractors).

[30] Schumann v. Collier Anesthesia, P.A., No. 14-13169, 2015 WL 5297260, at *1,8-10 (11th Cir. Sept. 11, 2015)(“ with all due respect to the Department of Labor, it has no more expertise in construing a Supreme Court case than does the Judiciary.”).

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