In the face of a continuing trend of classifying all individuals who perform services for an entity as "employees," the Second Circuit recently took a presumptive step back in rendering its decision in Glatt v. Fox Searchlight Pictures, Inc., 13-4478-cv (2d Cir. July 2, 2015). Glatt specifically involved the issue of whether unpaid interns should have been classified as employees and received pay under the Fair Labor Standards Act and New York Labor Law. A district court initially granted summary judgment to the plaintiffs holding that they were "employees" as a matter of law under both the FLSA and the Labor Law. The district court also certified a New York State as well as a nation-wide class of similarly situated unpaid interns. The defendants were granted permission to immediately appeal the decisions to the Second Circuit, which vacated the district court's determinations.
The ultimate legal issue in the case – one which was an issue of first impression in the Second Circuit – was what legal test should be applied by the court in determining whether an unpaid intern was, in fact, an "employee" as that term is defined under the FLSA and the Labor Law. As the court recognized, the statutes' similar definitions of "employee" are of little help since both define the term somewhat meaninglessly as individuals who are "employed" or "suffered or permitted to work" by an employer. Thus, the parties, as well as the U.S. Department of Labor ("DOL"), which appeared as an amicus curiae, suggested different tests that the court should apply to resolving the issue. The DOL encouraged the court to adopt a test that the DOL issued as guidance in 2010. That test required that, for an employer to properly classify an individual as an unpaid intern, six criteria needed to be met. The plaintiff, on the other hand, urged the court to adopt a test that focused on only one of the factors in the DOL guidance, whether the employer received "an immediate advantage" from the intern's work. Lastly, the defendant argued that the court should apply a "primary beneficiary test" that would take into account the totality of the circumstances surrounding the intern and weigh the benefits provided to the intern versus the intern's contribution to the employer's operation.
The court rejected both the DOL and plaintiffs' arguments. With respect to the DOL, the court held that the 2010 guidance was not entitled to judicial deference because it was admittedly the DOL's interpretation of a prior Supreme Court decision rather than the DOL's interpretation of a statute or regulation which it is charged to enforce. The plaintiffs' position, based in part on the DOL guidance, failed for the same reason. The court instead agreed with the defendants that a "primary beneficiary test" was the appropriate means for purposes of reaching a determination of whether or not an employment relationship existed. The court then listed a "non-exhaustive" set of considerations to be balanced:
- 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.
- 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.
- The extent to which the internship is tied to the intern's formal education program by integrated coursework or the receipt of academic credit.
- The extent to which the internship accommodates the intern's academic commitments by corresponding to the academic calendar.
- The extent to which the internship's duration is limited to the period in which the internship provides the intern with beneficial learning.
- 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.
- 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.
As stated above, the court indicated that the list was non-exhaustive. Further, the court stated that no one factor was determinative, and that all of the factors, as well as any other relevant evidence, should be considered by a court in making a determination. In adopting the test, and in assessing any other factors that may be relevant, the court noted that it was important to 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."
Inasmuch as the district court did not apply the proper legal test, the Second Circuit remanded the matter to the district court for further consideration based on the "primary beneficiary test."
Although, the Second Circuit was very clear that its decision only applied to the issue of unpaid interns in the for-profit sector, the decision is a welcome guide to any employer that may utilize unpaid internship programs.
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