In a recent lawsuit, former production interns for the film Black Swan claimed that Fox Searchlight Pictures violated labor laws by classifying them as unpaid interns instead of paid employees. A federal judge agreed in June 2013's Glatt v. Fox Searchlight Pictures Inc., saying that internships must provide "something beyond on-the-job training that employees receive," and ruling that the interns could file a class-action against the studio.The decision paved the way for a wave of litigation. Last year, 21 internship-related lawsuits were filed, compared to just seven in 2012, according to investigative journalism group ProPublica. Between June and August 2013, the targets of unpaid interns' lawsuits included Conde Nast Publications, Warner Music Group, Gawker Media, Fox Entertainment Group, NBCUniversal, Viacom, Sony and Universal Music Group.
As summer internship season approaches, businesses should make sure their unpaid intern programs do not become a liability. Businesses that do not adequately address these exposures could be liable for thousands of dollars in legal defense and possible settlement costs, and may face extensive reputational damage in the process.
PBS talk show host Charlie Rose and his production company, for example, agreed to pay about $110,000 to settle a lawsuit brought by former unpaid interns. Rose's attorney estimated his client would end up paying about $60,000 to former interns and another $50,000 to their lawyers.
Passing the FLSA Six-Point Test
Businesses only began offering formal internships in the late 1960s. By 2013, 63% of graduating undergraduates had taken part in an internship or cooperative education assignment, according to a survey by the National Association of Colleges and Employers. Of those internships, 48% were unpaid. However, unpaid internships offered by for-profit companies are subject to the Fair Labor Standards Act (FLSA), which establishes minimum wage and overtime standards, while those offered by nonprofits and government agencies are exempt. Internship programs that offer an educational experience for the intern's benefit may also be exempt under the "trainee" exception established by a 1947 Supreme Court case.
The Department of Labor offers a six-point test to determine if an intern should be paid. The criteria are:
- Even though it includes actual operation of the employer's facilities, the internship is similar to training that 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 providing 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 end of the internship.
- The employer and the intern understand that the intern is not entitled to wages for the time spent interning.
If all these factors are met, an employment relationship does not exist and minimum wage and overtime provisions do not apply. Internship programs structured around a classroom or academic experience rather than employer operations are more likely to be viewed as educational. But even internships that offer academic credit in exchange for work may not be exempt from the FLSA.
Review and Revamp
To minimize litigation risk, businesses should evaluate unpaid internship programs to ensure they meet the DOL criteria and any applicable state laws. Unpaid internship programs should be designed to provide an educational experience. When interns engage in employer operations or perform productive work, the employer is not excluded from FLSA requirements because they benefit from that work. This is true regardless of whether interns are acquiring or improving skills for the future.
After thorough review, businesses may find that they have to make changes to bring their program into compliance. Companies that consider discontinuing an internship program should think twice, however: doing so may suggest that it did not meet the standards in the first place and expose the organization to litigation.
Formalize Programs to Forgo Risk
Formalizing an internship program may help minimize risk. Companies should look to human resources and general counsel to develop a concise description of the internship program, including the type of training experience interns will receive and an acknowledgement of compliance with labor laws. An orientation program can offer a forum for interns to ask questions and discuss concerns, further reducing misunderstandings that could lead to litigation.
Internships can be a great opportunity for students to get experience that is impossible to acquire in the classroom. Companies that work to ensure a strong educational focus may be able to limit the risks while continuing to offer these valuable programs to emerging talent.