In this tight job market, many students over the last decade have turned to unpaid internships to get their feet in the business door and gain some real-world job experience for their light resumes. Some even solicit employers to try to convince them to take on unpaid interns at their companies. At first blush, it seems like a fine concept: the student gets job experience and makes networking connections while the employer enjoys some free labor. In a down economy with lean company budgets and fierce job competition, this is a win-win situation. Right?
Not so, according to the courts and the Department of Labor.
Most of the time, employees cannot agree to forego receiving the minimum wage as compensation for work performed. Scores of interns are now suing and winning back pay for “unpaid” internships and many of these lawsuits reach back as far as six years in the past.
Mushrooming in 2013, groups of former unpaid interns banded together to sue former employers for failing to pay minimum wages during their supposedly unpaid internships. Among the headline grabbers were lawsuits against such giants as Condé Nast, Atlantic Recording, Fox Searchlight, NBC Universal, Viacom, Sony, Donna Karan, and Charlie Rose, just to name a few.
The latest big company to settle an unpaid intern lawsuit is NBC, which, according to a court filing it made on October 22, has settled a purported class action brought by unpaid interns who worked for Saturday Night Live.[i] If the settlement gets approved by the Court,—as Court approval for FLSA settlements is sometimes required—NBC will pay $6.4 million to thousands of former unpaid interns, estimated at about $500 per intern.
How can an intern who reaped the benefit of working for a universally-known TV show with a 40-year history like SNL sue for back pay for an UNPAID internship? It all has to do with the Fair Labor Standards Act (“FLSA”) and state equivalents, which require employers to pay minimum wages to “employees” no matter what the employees agree to. These laws were enacted to protect unwitting employees from being taken advantage of in the often-unequal playing field of the employer-employee relationship. However, for decades, these workers were not classified by employers as “employees” but instead as non-employee unpaid interns given their student status or in-training status. But, groups of interns are now crying “foul!” and courts are disagreeing with the long-held employer classification. Repeatedly, big employers are shelling out millions of dollars to settle these lawsuits, like the one this month for the SNL interns.
The FLSA defines the term “employ” very broadly as “to suffer or permit to work.”[ii] Most internships you might think of would be classified as “employment” under the judicial interpretations that have been issued recently in cases like that in New York against Fox Searchlight. In the Fox Searchlight case—one of the few employers that has decided to litigate the issue instead of settling out of court—the unpaid and underpaid interns from mega movies Black Swan and 500 Days of Summer sued for back pay.[iii] In June of 2013, the District Court for the Southern District of New York sided with the interns by ruling that they were in fact “employees” entitled to protection and payment under the federal and state wage payment laws. This ruling is now on appeal awaiting decision from the Second Circuit Court of Appeals in what is sure to be a much-discussed and potentially far-reaching opinion when it comes out.
What is a concerned employer to do? Aside from consulting an employment attorney about your specific situation and your state’s employment laws, employers can start with the Department of Labor’s website and its helpful fact sheets. The DOL fact sheet on unpaid internships lays out a six-part test[iv] for determining whether an internship meets the exclusion for minimum wage payment.
The crux of the DOL test is that the internship must truly be for training and educational purposes. Stated another way, if the internship is for the benefit of the intern, and the employer derives no immediate benefit from it, the internship probably qualifies for the exclusion.
But of course, some states have more stringent labor laws than the federal FLSA and some state laws also have different timing cut-offs for these lawsuits. The reason almost all of the touted unpaid intern class actions have been coming out of New York State is because that state allows these cases to reach back six years from the date of suit, while the federal statute only allows plaintiffs to go back three years. That is one of the reasons the SNL class includes more than 8,000 interns reaching back to 2007. (Deadline.com obtained a copy of the SNL settlement memorandum and posted it here.)
Employers should beware of these unpaid internships. Even those with the best of intentions can run afoul of the wage and payment laws. Always consult with an employment attorney in your state before hiring unpaid or underpaid interns. Also, be sure to check back here for updates on the cases discussed, including the pending appeal against Fox Searchlight.
[i] Monet Eliastam, Alexander Vainer, and Rheanna Behuniak, et al. v. NBC Universal Media, LLC, Case 1:13-Cv-04634, in the United States District Court For The Southern District Of New York.
[ii] 29 U.S.C. § 203(g).
[iii] Eric Glatt, Alexander Footman, Eden Antalik, and Kanene Gratts, et al. v. Fox Searchlight Pictures Inc., et al., Case 1:11-Cv-06784-WHP-AJP, in the United States District Court
For The Southern District Of New York.
[iv] The DOL test includes the following factors:
1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
2. The internship experience is for the benefit of the intern;
3. The intern does not displace regular employees, but works under close supervision of existing staff;
4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
