What Interns Do May Determine What They Are Due

By Monica Levine Lacks

What Interns Do May Determine What They Are Due

What are interns doing in your business?

For college students, summer often means the temporary retirement of books and backpacks, and the chance to “play grown-up” with a resume-building internship. And for the businesses and institutions who retain and train these future “grown-ups,” summer may bring an opportunity to utilize low-cost or no-cost labor to accomplish outstanding tasks, while grooming potential members of their future workforce. Or maybe not. Lawsuits challenging the legality of unpaid and “underpaid” internships under the Fair Labor Standards Act, and a six-factor test issued by the U.S. Department of Labor, raise questions as to whether interns must be paid in accordance with U.S. wage and hour laws, and their state equivalents (in Ohio, R.C. 4111.01 et seq). Among the factors that may present the greatest hurdle for employers are that the internship – which must be “similar to training which would be given in an educational environment” – also be “for the benefit of the intern” and that that the employer derive “no immediate advantage” from the intern’s activities.

These and other factors have formed the basis for a number of class actions against employers utilizing summer and longer-term interns. In April 2010, the U.S. Wage and Hour Division published Fact Sheet No. 71, articulating six factors to help “for-profit” sector employers determine whether interns must be paid under the minimum wage and overtime provisions of the Fair Labor Standards Act (FLSA). The criteria include:

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

To show that an employment relationship does not exist (and that the FLSA’s minimum wage and overtime requirements do not apply to the intern), all six of the factors must be met. Notably, the Wage and Hour Division has pointed out that the requirements do not apply to internships in the public sector and for non-profit charitable organizations.
Granting in part the plaintiff’s motion for summary judgment, and conditionally certifying a class of plaintiffs under the FLSA, the United States District Court in Glatt v. Fox Searchlight Pictures, Inc., S.D.N.Y. No. 11-06784, 6/11/13, rejected the employer’s position that its unpaid interns met the six-factor test. As a result, the court found that two interns working on the set of the movie “Black Swan” were misclassified as unpaid interns and were entitled to damages under the FLSA and its New York state equivalent. As to the first factor, the court emphasized that, while classroom training is not a prerequisite, “internships must provide something beyond on-the-job training that employees receive.” In Glatt, the subject interns “did not acquire any new skills aside from those specific to the [the employer’s] back office, such as how it watermarked scripts or how the photocopier or coffee maker operated.” Addressing the second factor, the “benefit of the intern,” the court pointed out that while the plaintiffs received some benefits from their internships, such as resume listings, job references, and an understanding of how a production office works, those benefits were “incidental” to working in the office like any other employee. Because the employer received the benefits of their unpaid work, which would otherwise have required paid employees, the employer, not he plaintiffs, primarily benefited from the relationship.

The court found that the third factor – regarding the displacement of regular employees – was not met because the interns performed administrative tasks that might otherwise have been done by paid employees, such as reconciling invoices, drafting cover letters, organizing file cabinets, making photocopies, and running errands. For these reasons, the employer obtained an immediate advantage from the interns’ work (the fourth factor). The fifth factor – that the interns knew they were not entitled to a job at the end of the internship – was satisfied by the employer.

The undisputed fact that the interns knew they would not be paid (the sixth factor) may be of particular interest to employers. The court observed that this fact added little, “because the FLSA does not allow employees to waive their entitlement to wages.” In short, an understanding between the employer and the intern that the internship is unpaid will afford an employer little if any protection.

The Glatt court distinguished the facts before it from the “trainee” exception established in Walling v. Portland Terminal Co., 330 U.S. 148 (1947). In Walling, the United States Supreme Court held that “trainees” attending a week-long course for prospective railroad breakmen were not employees covered by the FLSA. The program in that case was used purely as a training device for the trainees’ benefit; did not expedite company business; and occasionally impeded it. Accepting the “unchallenged findings” that the railroads obtained no “immediate advantage” from the trainees’ work, the Supreme Court concluded that they were not employees under the FLSA. Walling, 330 U.S. at 153.

In November 2013, the Glatt defendants’ interlocutory appeal of the trial court’s summary judgment order was certified by the United States Court of Appeals for the Second Circuit. Significantly, in February 2014, the court of Appeals denied appellants’ motion to stay pending appeal the district court’s ordering permitting issuance of notice to putative class members, creating further challenges and costs for the appellants. While the district court’s conclusions remain subject to change, its findings suggest that employers will be closely scrutinized under the six factor test regardless.

Such was the case in the Northern District of New York, where another putative class of interns sought damages under the FLSA and its New York equivalent. The plaintiff in Kozik v. Hamilton College, C.A. No. 6:12-cv-1870 (LEK/TWD), brought an FLSA action alleging that interns in Hamilton College’s athletic department were working long hours – sometimes 80 or more hours per week – with the college’s varsity sports programs, performing the same jobs as fully paid assistant coaches. The interns, who were not students at the college, alleged that they received flat pay at monthly or other intervals at a rate well below minimum wage and overtime provisions. During their “in season” varsity sports, interns allegedly were required to travel with their assigned teams, often working ten hours or longer at a time. During the off-season, they were required to perform “game management duties” (arguably enabling the college to avoid hiring workers for games), as well as participating in recruiting activities and showcases and camps. The lead plaintiff maintained that the interns’ salaries of $1100 per month or $275 per week resulted in an effective hourly wage of as little as $2.60 in some weeks, and that they never received overtime pay. Kozik settled in January 2014, while the plaintiff’s motion for conditional collective action certification was pending, and four months before trial.

A number of other lawsuits have been brought by putative classes of interns – all alleging that they were unpaid or underpaid in violation of the FLSA. While the litigation stems primarily from the state of New York, the federal coverage of the FLSA potentially exposes employers nationwide to litigation and potential damages resulting from alleged misclassification of interns. Employers – many of whom seek to create relationships of mutual benefit by hiring student interns for the summer or longer terms – are well advised to scrutinize those arrangements to determine their wage and hour obligations, if any, under the FLSA and their analogous state laws.

Monica Levine Lacks is a Cleveland attorney. She has an extensive background in labor and employment law, as well as ERISA denial of benefits litigation. She annually participates in the CMBA Bench-Bar Run for Justice. She has been a member of the Cleveland Metropolitan Bar Association since 2006. Monica can be contacted at monica.lacks@gmail.com

**Printed by permission of the Cleveland Metropolitan Bar Association**

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