The Heat is On this Summer

Author: William P. Keith

     In 2013, a federal judge ruled in Glatt v. Fox Searchlight Pictures, Inc., that Fox Searchlight Pictures violated federal and state labor laws when it didn’t pay its production interns on the movie set of "Black Swan."   Fox Searchlight joined a long list of employers being sued by their interns for unpaid work which list includes the Hearst Corporation, designer Norma Kamali, Elite Model Management, and the Charlie Rose Show.  As a result of this upswing in high profile lawsuits filed by unpaid interns, the U.S. Department of Labor (DOL) is stepping up its regulation of unpaid internships this summer.

     The concept of an unpaid internship is attractive to both interns and employers—the individual gains valuable experience useful in building his or her resume, and the employer benefits from free labor and the presence of ambitious students.  But, depending on the nature of the internship, failing to pay the individual can result in employment lawsuits for back pay and other damages, as well as steep fines from government agencies.

     The federal Fair Labor Standards Act (FLSA) requires employers to pay workers minimum wage and overtime unless an exception applies.  Contrary to common belief, there is no specific exception for interns and an intern’s agreement to work without pay is irrelevant to whether the intern must be paid under the FLSA.  Therefore, employers must pay interns minimum wage and overtime if the intern qualifies as an “employee” under the FLSA.

     The FLSA defines "employee" broadly to include any individual employed by an employer.  The term "employ" is also broadly defined and means to "suffer or permit to work."  Despite these expansive definitions, the U.S. Supreme Court has held that not every individual who performs work for his or her own benefit is the employee of the person helping or instructing the individual.

     In light of the U.S. Supreme Court's decisions on this subject, the DOL developed a six-part test to determine whether an intern is an employee under the FLSA.  According to the DOL, an intern is not an employee and thus not covered by the FLSA if all the following factors are satisfied:

  1. The training, even though it includes actual operation of the employer's facilities, is similar to that which would be given in a vocational school; 
  2. The training is for the benefit of the trainees or students;
  3. The trainees or students do not displace regular employees, but work under their close observation;
  4. The employer derives no immediate advantage from the activities of trainees or students and, on occasion, the employer’s operations may be actually impeded;
  5. The trainees or students are not necessarily entitled to a job at the conclusion of the training period; and
  6. The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.

(See, Wage and Hour Opinion Letter, 2004 WL 3177877 (Oct. 19, 2004) and DOL Fact Sheet #71: Internship Programs under the Fair Labor Standards Act)

     Federal cases analyzing whether an individual falls within the FLSA's definition of employee largely involve unpaid training programs.  Authority discussing student internships is slim.  In the cases that do exist, federal courts have taken various approaches in applying the six DOL criteria.  Some courts strictly apply the six criteria.  Some analyze whether the employer or individual is the primary beneficiary of the internship.  Still, others take a somewhat middle position and look at the totality of the circumstances. 

     Like the federal scheme, there is no California statute or regulation expressly exempting interns from minimum wage and overtime requirements.  The Division of Labor Standards Enforcement (DLSE) has traditionally followed federal interpretations that recognize the status of interns performing work as part of an educational or vocational program.  A 2010 DLSE Opinion Letter provides an informative example of how the DLSE analyzes internship programs under California's wage and hour laws.  

      In light of the similar approach taken by the DOL and DLSE regarding internships, California employers can take several steps to avoid trouble down the road, such as:

  • Assume strict compliance with the six DOL factors is necessary.  While the DLSE purports to apply a totality of the circumstances approach, it nevertheless thoroughly examines each criterion.  Additionally, it is unclear whether state or federal courts in California would apply a more stringent standard and require each element to be present.
  • Set parameters for the internship.  Before the internship begins, determine the length of the internship, the nature of work and level of responsibility of the intern, and whether the intern’s work will conflict with the rights of existing employees. 
  • Consider engaging interns only through a college or university program that pairs the practical work with classroom instruction for academic credit.  Such programs typically are more conducive to meeting the DOL factors.
  • Enter into a learning contract with the intern. Obtaining a written agreement with the intern, sometimes referred to as a "learning contract," is useful in memorializing the employer-intern relationship, and can be important evidence should a disagreement over the intern’s classification later arise. 

All parties involved in the internship process stand to gain from the experience, whether it is paid or not.  Despite the willingness of interns to work without wages, failure to comply with FLSA and California wage and hour laws can result in costly employment lawsuits and government agency action.  Taking steps to ensure you can demonstrate compliance with the DOL's six-part test will help if litigation breaks out; such foresight will often prevent litigation from happening in the first place.  If you’d like to discuss your internship programs, feel free to contact me.

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