Second Circuit Adopts Unpaid Internship vs. Employee Test

Following the trial court victory in 2013 of unpaid interns of Fox Searchlight Studios, who argued that the studio had in fact treated them as employees (and therefore the interns were entitled to overtime and other employee benefits), the Second Circuit on the studio’s appeal has recently upended the trend towards restricting the use of unpaid internships.

The Second Circuit (which covers Vermont, New York, and Connecticut) rejected both the interns’ argument that a worker should be deemed an employee whenever the business derives an immediate advantage from work done by the intern, as well as the U.S. Department of Labor’s argument (made in an amicus brief to the court) that interns should be deemed employees whenever the employer fails to satisfy any of the six factors from the DOL’s Intern Fact Sheet (relied upon by the trial judge in making the initial determination in the case), which include:

– the internship is similar to training given in an educational environment

– the 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 derives no immediate advantage from the intern’s work, and the employer’s operation may occasionally be impeded by the internship

– the intern is not necessarily entitled to a job at the conclusion of the internship

– the inter and employer understand that the intern is not entitled to wages or benefits

Instead, the Second Circuit adopted a “primary beneficiary test”, which instead focuses on the benefits received by the intern, while also examining the reality of the nature of the relationship between the intern and employer. The Second Circuit enumerated several non-exclusive factors to consider, including:

– the extent to which intern and employer understand there is no expectation of compensation; any promise of compensation, express or implied, suggests an employment relationship, while the lack of promise suggests an internship

– the extent to which intern and employer understand that there is no expectation of a paid position at the end of the internship

– the extent to which the internship provides training similar to that provided in an educational environment

– the extent to which the internship is related to the intern’s formal education program through integrated coursework or the receipt of academic credit

– the extent to which the internship accommodates the intern’s academic calendar and obligations

– the extent to which the internship is limited in duration to the period in which the intern receives beneficial learning

– 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

While the Second Circuit’s factors largely track those of the DOL’s Fact Sheet, there appears to be a greater acceptance for interns performing work that benefits the employer, so long as paid employees are not displaced and the work provides educational benefits for the intern.

It remains to be seen whether similar suits in other federal circuits are ruled upon similarly by those courts. If not, the circuit split will ultimately have to be resolved by the Supreme Court. In addition, different states have adopted different laws and tests relating to unpaid internships, so unpaid interns in some states may have viable state wage law claims. In any event, employers looking to bring on unpaid interns should consider both the U.S. DOL’s as well as their state DOL’s guidelines regarding unpaid internships.

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