Is Your Intern an Employee - Redux

In July 2015, we reported on the Second Circuit's decision in Glatt v. Fox Searchlight Pictures, Inc., 13-4478-cv (2d Cir. July 2, 2015). Glatt was the Second Circuit's seminal decision concerning the test to be applied in determining whether unpaid interns should be classified as employees and receive pay under the Fair Labor Standards Act and New York Labor Law. The court ultimately settled on a "primary beneficiary test," which involves a balancing of factors to determine whether the intern or the employer is the "primary beneficiary" of the relationship. The court provided a "non-exhaustive" list of factors to be considered in assessing the relationship, with the overarching instruction being that courts (and parties) must focus on the "central feature of the modern internship - the relationship between the internship and the intern's formal education," and that "[t]he purpose of a bona-fide internship is to integrate classroom learning with practical skill development in a real-world setting." If the relationship is a "bona fide internship" then the intern would not be considered an employee and the wage requirements under the Fair Labor Standards Act and New York Labor Law would not apply.

As is often the case with "balancing tests," however, Glatt did not so much provide clarity to the issue, but rather allowed parties to at least better assess the risks involved in litigation on the intern/employee issue. In this regard, the U.S. District Court for the Southern District of New York recently approved a class action settlement in excess of $1.6 million, Ojeda, et al. v. Viacom, et al., case no. 13-cv-05658. As in Glatt, the plaintiff in Ojeda asserted that he and others similarly situated were improperly classified as exempt from minimum wage requirements during their time as interns. The plaintiff asserted that he performed the same tasks as paid employees. The defendants asserted that the internship program primarily benefitted the interns as it provided them experience and networking opportunities, which ultimately helped the interns launch careers in the entertainment business and beyond.

In the wake of Glatt, the court agreed with the parties and approved the proposed class action settlement as fair and appropriate given the complexity of the law and the risks associated with litigation. The Ojeda case represents the type of fall-out to be expected when a court sets a subjective test as the standard for determining an issue. The Second Circuit's determination in Glatt that courts may look broadly at intern/employer relationships to determine which is the "primary beneficiary" of the relationship equates to extensive (and expensive) litigation of the particular circumstances of each particular case. Time will tell whether additional guidance from courts will be forthcoming to help narrow the application of the primary beneficiary test, or if parties will, as in Ojeda, choose to simply avoid the uncertainties of litigation. Additionally, it appears that many companies are revisiting their internship policies and practices to ensure that programs are properly designed to provide the intended "classroom learning with practical skill development in a real-world setting."