U.S. Appeals Court deals setback to interns seeking to be paid for their work

The U.S. Court of Appeals for the Second Circuit has reversed a lower federal court decision holding that two unpaid interns hired by Fox Searchlight Pictures were entitled to back pay under minimum wage laws and certifying a class action on behalf of other interns hired by the company. The Second Circuit’s decision in Glatt v. Fox Searchlight Pictures, Inc.released today, is the latest development in a much-watched case about the employment rights of unpaid interns.

In 2013, a federal District Court in New York held that lead plaintiffs Eric Glatt and Alex Footman were employees for purposes of federal and state labor standards laws and thus entitled to compensation for their internships. The court also granted plaintiff Eden Antalik’s motion class certification under New York labor standards law and granted conditional class certification under federal labor standards law.

Primary beneficiary test

In reversing the District Court, the Second Circuit rejected the U.S. Department of Labor’s six part test for determining when private employers may be exempt from paying their interns the minimum wage. This test, among other things, considers whether or not the intern was providing an immediate benefit to the internship provider. Instead, the Court ruled that a “primary beneficiary” test should apply, examining “whether the intern or the employer is the primary beneficiary of the relationship.” The Court further offers its own set of factors to be applied toward this determination, heavily favoring intern providers and significantly discounting the work contributions of an intern.

In practical terms, the decision invites private employers and universities to collaborate on schemes that (1) create unpaid internships; and (2) charge students tuition for the “privilege” of doing unpaid work. Yes, that’s a strong characterization, but it’s pretty easy to read between the lines of this judicial opinion. However, the ruling also leaves vulnerable those employers who offer full-time unpaid summer internships not tied to a university educational program.

Class actions

The Second Circuit decision also makes it more difficult for interns to file class actions for unpaid wages. The practical downside here is that unpaid intern claims will be less appealing cases for lawyers, thus rendering this widespread practice more difficult to challenge in the courts.

Not the end of the case

This is not necessarily the end of the Glatt litigation. The Second Circuit did not dismiss the lawsuit; rather it “remanded” the case back down to the District Court for a potential decision in congruence with the new legal standards specified in this opinion. It is possible, for example, that Glatt and Footman could still be owed back wages under the more stringent, one-sided factors adopted by the Second Circuit.

The Second Circuit’s decision is a setback, albeit possibly only a temporary one, for an emerging movement challenging the widespread practice of unpaid internships. I’ll have more to say about the implications of this decision soon.

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