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Tread Carefully with Internship Programs, An Update

By Emma Schuering

In 2013, the U.S. District Court for the Southern District of New York held that two employees were improperly classified as unpaid interns, relying on the Department of Labor’s six-factor test (previously discussed here), and granted another unpaid intern’s motions for class and conditional certification in Glatt et al. v. Fox Searchlight Pictures, Inc. et al.  Last week, a three-judge panel of the Second Circuit Court of Appeals rejected the six-factor test, vacated the district court’s orders, and remanded the case.

The Second Circuit rejected the DOL’s six-factor test as too rigid and not persuasive because the factors resulted from the agency’s attempt to interpret case law, as opposed to statutory language or its own regulations.  In its place, the Second Circuit adopted a version of the defendant’s proposed “primary beneficiary test,” where “the proper question is whether the intern or the employer is the primary beneficiary of the relationship.”  The Court articulated the following “non-exhaustive set of considerations” for this new test:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation.  Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa. 
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit. 
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar. 
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. 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.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.      

The Court reasoned that the primary beneficiary test focuses on what the intern receives in exchange for his or her work, while according courts the flexibility to examine the economic reality as it exists between the intern and the employer. 

The recent decision has been criticized for placing too much value on the internship’s association with academic programs and institutions and for replacing the Department of Labor’s six factors with a novel test supported by minimal legal authority.  However, while not foreclosing the possibility of successful motions for class or conditional certification, it seems that this new test will make it more difficult due to its requirement that courts “consider individual aspects of the intern’s experience.”  For now, the intern’s case heads back to the district court for evaluation of the plaintiff’s internship program under new Second Circuit standard.  The ruling demonstrates how the law concerning intern compensation is constantly evolving and why it is critical for employers to be cognizant of how their internship programs are structured and administered.