Fox Searchlight Decision Brings Risks of Using Unpaid Interns Out of the Dark
By Ruder Ware Alumni
May 20, 2014
Recently, a federal court in New York concluded that a group of workers (production workers who worked on production of the film Black Swan) classified as “unpaid interns” by a motion picture distribution company should have been classified as employees for purposes of federal wage and overtime laws. The case is Glatt v. Fox Searchlight Pictures, Inc., Case No. 11-CV-6784, “F.R.D.”, 2013 WL 2495140 (S.D.N.Y. June 11, 2013). In Fox Searchlight Pictures, Inc., the Court addressed the application of the so-called “trainee” or “unpaid intern” exemption from the minimum wage and overtime requirements under the federal Fair Labor Standards Act. Under the right circumstances, this “trainee” or “unpaid intern” exemption permits unpaid interns to work for “for profit” business organizations. The factors to be considered under the “trainee” or “unpaid intern” exemption are explained in detail in a federal Department of Labor (DOL) Factsheet No. 71 (April 2010). According to the “unpaid intern” test, the following six factors must be considered in determining whether a worker may lawfully perform services as an unpaid intern, and not an employee:
- 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;
- The internship experience is for the benefit of the intern;
- The intern does not displace regular employees, but works under close supervision of existing staff;
- 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;
- The intern is not necessarily entitled to a job at the conclusion of the internship; and
- The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
According to the DOL, each of the six factors, above, must be satisfied to properly classify a worker as an unpaid intern. In Fox Searchlight Pictures, Inc., the Court carefully examined each of the six factors and determined, based upon “the totality of the circumstances,” that the production workers could not be classified as unpaid interns, but should have been classified as compensated employees. It should be noted that each factor carries with it its own set of special considerations that have been developed through judicial decisions, some of which are not intuitive based upon the way the factors are described by the DOL. The risks of improperly utilizing unpaid interns is considerable, including back pay, unpaid overtime, penalties, liquidated damages, attorney’s fees and costs and undesirable media coverage. Therefore, a fact-specific, case-by-case analysis is strongly recommended before a company begins to utilize unpaid interns.
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