We have repeatedly cautioned that employers who are prepared to take on unpaid interns should enter into these arrangements with their eyes fully open.  New developments emphasize this yet again.

The Fox Searchlight Litigation

We reported in March 2012 that Fox Searchlight Pictures had been sued under the federal Fair Labor Standards Act and New York law by unpaid interns who were claiming to be due wages and other sums.  The court has now ruled (link to decision below) that at least two of these individuals were indeed "employees" for purposes of the FLSA and state law.

The judge concluded among other things that these interns:

♦   Received nothing approximating the education they would receive in an academic setting or in a vocational school;

♦   Received no benefits from the relationship other than those that were "incidental to working in the office like any other employee and were not the result of internships intentionally structured to benefit them"; and

♦   Performed "essential" unpaid work that would otherwise have been done by paid employees.

Furthermore, the court was not swayed by the facts that:

♦   The interns were not, and did not think themselves to be, entitled to a job at the conclusion of their internships; and

♦   The interns understood that they would not be paid for their activities.

It is noteworthy that the judge reached his decision in granting the interns' summary-judgment motion.  Essentially, he was saying that the answer is so clear as to leave no need for a jury trial.

And Yet Another High-Profile Lawsuit

Moreover, a former unpaid intern has now filed a federal-court lawsuit (link to copy below) against prominent fashion designer Norma Kamali and her companies.  The former intern alleges violations of both the FLSA and New York law.

One of the assertions is that her circumstances were "part of a broader trend where formerly entry level employees are being misclassified as unpaid 'interns' or 'apprentices' in an effort by employers to avoid paying [the required] wages . . .."  The intern asks for an unspecified award of minimum wages, overtime compensation, and other sums.

*    *    *

It has been clear for some time now that a new "hot issue" in wage-hour law is the employment status of unpaid interns.  The Fox Searchlight ruling is likely to spur even more claims of this kind.

One must wonder how much longer those who have been willing to provide unpaid internships will continue to do so in this environment.  We suspect that educational institutions, students, and others seeking these opportunities will find few of them available by next summer, if not before then.

Glatt v. Fox Searchlight Order.pdf (1.74 mb)

Van Rabenswaay v. Kamali.pdf (7.42 mb)

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We have warned for some time now that businesses and other organizations should think carefully if they are considering the possibility of permitting unpaid internships.  What might be described as the internship "season" is fast-approaching, so the time to consider whether and under what circumstances to get involved in these relationships is now.

The Current Landscape

The latest big-splash lawsuit surfaced last week.  A former unpaid intern filed a collective-action/class-action complaint for "at least $50 million" against Elite Model Management Corporation under the federal Fair Labor Standards Act and similar New York state laws.

This comes in the wake of an agreement by Charlie Rose and his show's production company to pay around $250,000 to settle an internship-related lawsuit brought last March.  A developing cottage-industry among lawyers is now on the lookout for opportunities to assert claims on behalf of unpaid interns, "even if [the intern] received school credit for the internship . . .."

Those who are in a position to provide unpaid internships should also recall the thinking exemplified in last year's advice given by "The Ethicist" at the New York Times in response to a reader who asked, "Is there anything I can demand of this company in exchange for my slave labor?"  This "ethicist" saw it as being laudable to "take the internship and then call the Labor Department — something you or your colleagues can do confidentially."

And indeed there are signs that educational institutions, vocational-training organizations, and similar entities are finding it harder to place their enrollees in unpaid internships.  This is hardly surprising, because word is spreading that making these opportunities available entails vulnerability to wage-hour claims.

It Is Wise To Be Cautious

There is neither a simple checklist nor any concise, all-encompassing legal test for reliably knowing whether a particular unpaid internship is consistent with the FLSA.  Nevertheless, prudence suggests keeping in mind our prior observations.  Whether an unpaid internship would occur under the auspices of an educational institution or otherwise, ask yourself this:  If there is a later FLSA claim, will the circumstances clearly, provably, and readily show (i) that the relationship was for the purpose of providing education, instruction, and training that imparted significant, substantive, transferrable knowledge of a broadly-applicable kind; and (ii) that what actually occurred was consistent with and carried out this purpose?

If the intern's activities establish instead that the idea and/or the outcome was to have the person perform work, then the risks of FLSA liability are likely to be substantial.  For example, if management's motivation is along the lines of, "We could sure use a summer intern," this does not bode well for successfully defending against an unpaid intern's later FLSA claim.

UPDATE 05/08/13:   The lawsuit parade continues.  A former photography intern for the "Pittsburgh Power" Arena Football League team has now sued the team and two owners, claiming that he was not paid for his internship activities (link to complaint below).  He is alleging among other things that there was "a corporate policy or practice of minimizing labor costs by knowingly misclassifying certain employees as unpaid interns in order to deny them compensation in violation of the FLSA and the [Pennsylvania] Minimum Wage Act."  He is also raising his claims as collective-action and class-action ones on behalf of, he contends, "more than 60" interns.

Boyle v. Swann, Inc.pdf (198.28 kb)

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As we reported earlier, a former Harper's Bazaar unpaid intern is pursuing a lawsuit against publisher The Hearst Corporation in which she claims (among other things) to have been an "employee" under the federal Fair Labor Standards Act who was not compensated in compliance with that law.

A New York federal judge has now conditionally approved the case as a "collective action".  This means that the lawsuit will proceed as the FLSA's version of a class action, including that court-authorized notice of the complaint will be sent to potential class members to let them know that they may join the lawsuit if they choose to do so.

The court ruled that Xuedan Wang had presented enough evidence to justify allowing the case to move forward on this basis for the time being.  Among the allegations of which the court took note are that Hearst decided that all interns working at 19 magazines were non-employees but used them to complete tasks necessary to its operations, such as answering telephones, making deliveries, and organizing clothing and accessories.  Wang also asserts that Hearst required interns to submit "credit letters" from colleges, some of which, she says, required the intern to make a payment to his or her college in order to receive the credit.  She contends that she and other interns were essentially entry-level employees who performed commensurate work with little supervision.

Of course, these are simply Wang's claims.  And after further factual development, Hearst can try to convince the court that treating the case as a collective action is not warranted after all.  Nevertheless, this litigation bears watching, because it might well serve as a template for similar FLSA lawsuits across the nation.

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A few readers were surprised by our April 3 post's caution that, in some scenarios, a volunteer performing work for a federal Fair Labor Standards Act-covered non-profit organization might be an "employee" subject to that law's compensation requirements.

One observed that many non-profits are staffed in whole or in part by volunteers and described a longstanding sector-wide impression that non-profits may use volunteers for work with what the commenter described as "near-complete liberty."

FLSA principles do not as a general proposition prevent non-profits from using non-employee volunteers under the right circumstances.  But, whatever the conventional wisdom or prevailing practice might be, one should not simply assume that non-profits may do so with near-complete liberty.

As the U.S. Labor Department says, "There is no special provision in the FLSA which precludes an employer-employee relationship between a religious, charitable or nonprofit organization and persons who perform work for such an organization."  Section 10b03(a), Field Operations Handbook (U.S. Labor Department, October 10, 1993).

There are far too many different factual settings in which the FLSA's principles might be in play to articulate a one-size-fits-all rule about non-profit volunteerism.  Our point is that at least some such situations might well involve FLSA-covered employment, so it is wise to keep this possibility in mind.

And remember that, until relatively recent times, the conventional wisdom also was that unpaid internships presented no potential FLSA problems.

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A reader of our March 14 post relating to unpaid internships at non-profit organizations asks whether non-profits can avoid the intern debate by offering "volunteer" opportunities to engage in charitable or public-service activities.  But this simply changes the nature of the potential problem.

"Volunteer" Activities Can Be FLSA Employment

Considering someone to be a "volunteer" does not necessarily mean that he or she is a non-employee for federal Fair Labor Standards Act purposes.  This is true even if (i) the person is not otherwise employed by the organization; (ii) the individual's activities are said to be of a charitable or public-service nature, and (ii) the activities are carried out for or on behalf of a non-profit organization.

There is some overlap between the considerations relevant to who is and is not a true "intern" or "volunteer" so as not be an FLSA employee, but the two concepts are fundamentally different.  A principal distinction is that the underlying motivation for being a volunteer is not the same.  Perhaps one of the most important characteristics of volunteerism is whether the individual undertakes the activity for his or her own, personal civic, humanitarian, charitable, religious, or public-service reasons.

Some of the other factors include whether the activities are of a kind typically associated with volunteer work; are less than a full-time occupation for the individual; do not involve replacing regular employees or impairing employment opportunities; are subject only to "nominal" or "minimal" control by the recipient of the person's efforts; and tend to occur at times suiting the individual's own convenience, whether by schedule or otherwise.

Some Volunteers Fall Within Specific Exceptions

The FLSA itself excludes individuals who volunteer to perform services under certain circumstances for a state, a political subdivision of a state, or an interstate governmental agency.  29 U.S.C. § 203(e)(4).  These exceptions explain why, in the proper situations, volunteers at public schools and in some other settings are not viewed as being engaged in FLSA employment.

The FLSA also contains a special exception for individuals who volunteer their services to private, non-profit food banks and who receive groceries from the food banks.  But even this provision applies only if the person does so "solely for humanitarian purposes."

The point is that, just because a neighbor is a non-employee volunteer at the county's middle school, for example, one should not assume that "volunteers" of all sorts are seen in the same light.

Think Things Through Carefully

It is wise to be cautious in evaluating even non-profit "volunteer" relationships under the FLSA.  One illustration of the possible uncertainty is that the U.S. Labor Department's Office of Enforcement Policy has said that volunteers who staffed a non-profit hospital's gift shops were instead performing compensable work for FLSA purposes (see link to reproduction below).

Note too USDOL's position that individuals may not "volunteer" to do things for their employer which are the same as or are similar or related to their normal work duties.  Instead, it says, this is compensable FLSA worktime.  USDOL might also take the same view regarding time an employee spends even in arguably dissimilar services of a public or charitable nature, if this occurs at the employer's request, under its direction or control, or during the employee's normal working hours.  See, e.g., 29 C.F.R. § 785.44.  "Volunteering" by an organization's employees is beyond the scope of this post, but it is a "go slow" matter where the FLSA is concerned.  Compare Opinion Letter of Acting Wage-Hour Administrator FLSA2006-18 (June 1, 2006)(volunteering to chaperone cultural and sporting field trips provided under employer's auspices) with Opinion Letter of Acting Wage-Hour Administrator FLSA2001-18 (July 31, 2001)(status of certain activities engaged in by nurses employed at non-profit hospital).

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USDOL OEP Hospital Opinion 06 28 96.pdf (22.02 kb)

Our earlier post prompted questions about whether federal Fair Labor Standards Act principles are different for unpaid internships at non-profit organizations or for those sponsored by educational institutions for which the intern receives academic credit.  The short answer is:  No, they are not.

USDOL Statements Sound Encouraging

It is of course true that Deputy Wage and Hour Administrator Nancy Leppink's ominous quote referred to "for-profit" entities, and this is the sector upon which Fact Sheet # 71 focuses.  Furthermore, a Fact Sheet footnote says that unpaid internships are "generally permissible" for a non-profit charitable organization in the right circumstances.  The publication further implies that the relationship is more likely not to be viewed as FLSA employment if it is "structured around a classroom or academic experience . . . ," such as "where a college or university exercises oversight over the internship program and provides educational credit . . .."

Perhaps this reflects a Labor Department preference for encouraging what it believes to be the inherently-nobler pursuits of charities or educational institutions.  There might even be a degree of Executive Branch self-interest involved.  For example, full-time, unpaid White House interns are expected to:

◊   Perform tasks such as "conducting research, managing incoming inquiries, attending meetings, writing memos, and staffing events"; and

◊   Engage in their activities at least 4½ days a week, Monday through Friday, from 9 a.m. until 6 p.m.

This looks a lot like being "engaged in the operations of the employer or . . .  performing productive work," activities which the Fact Sheet says would be viewed as FLSA employment where a "business" is concerned.  But this does not mean that everyone else gets to do the same thing.

Don't Be Lulled To Sleep

Non-profit organizations permitting internships, and entities considering participating in student internships, should not simply assume clear-sailing where the risk of FLSA claims is concerned.

For one thing, it is unlikely that USDOL sees such unpaid internships as being "generally permissible" in each situation, or for non-profits of every kind, or for all school-sponsored arrangements.  Even USDOL does not consider the Fact Sheet to be an authoritative or binding official position.   Moreover, the Fact Sheet itself says that USDOL "is reviewing the need for additional guidance" on internships in the non-profit sector.  So notwithstanding the Fact Sheet's statement about what is "generally" the case, do not doubt that USDOL will assert FLSA liability for a particular unpaid internship, even one undertaken with a non-profit or in conjunction with a school, when it deems this to be warranted.

And even were it otherwise, USDOL is not the only potential source of a challenge.  Interns are perfectly free to assert their own FLSA claims in court should they decide to do so, without regard to what USDOL thinks or does.

The Bottom Line

Whether an unpaid internship occurs under the auspices of an educational institution, in a non-profit organization, or at a for-profit business, in the end the FLSA question still gets down to some version of this:  Do the circumstances clearly show that the relationship is for the purpose of generalized learning, education, and training that imparts to the participant significant knowledge of a broadly-applicable kind, or do they instead indicate that the idea is to have the person perform work?  In other words, if the motivation is something like, "We could sure use help from an intern this summer," that is a danger sign – whether the setting is for-profit, not-for-profit, school-related, or any other.

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For awhile now, unpaid internships have been a hot topic under the federal Fair Labor Standards Act.  We noted some time ago that the U.S. Labor Department was taking a skeptical view of these relationships.

In conjunction with the April 2010 release of Fact Sheet # 71, the U.S. Wage and Hour Division's Deputy Administrator Nancy Leppink announced what appears as a practical matter to be a rebuttable presumption that many such internships violate the FLSA:  "If you're a for-profit employer or you want to pursue an internship with a for-profit employer, there aren't going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law."

Since that time, lawsuits against The Hearst Corporation and Fox Searchlight Pictures (links to copies below) and others show that the prospects for FLSA claims by current or former unpaid interns are by no means merely hypothetical.

Reports suggest that, with summer approaching, and in the context of continued high unemployment, more people than ever are beseeching organizations of various kinds to take them on as unpaid interns.  But in the current wage-hour environment, it should surprise no one that, as USA Today recently reported, many organizations are doing away with these internships altogether.  Perhaps this represents an unfortunate reduction in learning opportunities, but it is also an entirely foreseeable reaction by those who are in a position to permit them.

The answer to the question, "Are unpaid internships worth the risk?" is that only the organization being asked to provide one can decide this in the context of its own circumstances, capabilities, and philosophy.  In thinking about it, management will want to take into account the mindset exemplified by a recent endorsement by "The Ethicist" at the New York Times of the suggestion that an inquirer should both "take the internship and then call the Labor Department . . .."

If management concludes that is willing to allow unpaid internships, then it should plan, structure, and supervise them very carefully, bearing in mind the ambiguous criteria that will be applied should an intern later decide to claim that he or she should have been treated as a paid employee under the FLSA.  Remember also that, if an intern under the age of 18 is later deemed to have been an employee for FLSA purposes, there is also the potential for the assertion of child-labor violations and substantial penalties in addition to liability for back-pay and other sums.

UPDATE 03 15 12:  Another high-profile lawsuit has been filed by a person claiming to have been an unpaid intern.  This one is brought by an "Editorial Intern" against PBS talk-show host Charlie Rose and Charlie Rose, Inc. under New York wage-hour law (link to copy below).  The named plaintiff also seeks to assert claims on behalf of a class of such interns.

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Glatt v. Fox Searchlight.pdf (1.37 mb)

Wang v. Hearst.pdf (1.81 mb)

Bickerton v. Rose.pdf (836.47 kb)

A spate of recent developments signals potential trouble for organizations allowing unpaid internships, particularly profit-seeking entities. The kickoff was an April 2, 2010 New York Times piece, the tenor of which was that many such internships amount to illegal unpaid employment.  The article quoted the U.S. Wage and Hour Division's Deputy Administrator Nancy J. Leppink as saying, "If you're a for-profit employer or you want to pursue an internship with a for-profit employer, there aren't going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law." 

This was followed by the April 5 release of a similarly-toned report from the labor-side Economic Policy Institute.  And, on April 7, California's Division of Labor Standards Enforcement issued a letter opinion outlining its views about under what circumstances these relationships are permitted by that state's laws. 

Then last week, the U.S. Wage and Hour Division released its Fact Sheet # 71 in which it listed six criteria that it said "must" be applied, "all" of which must be met, in order for an unpaid internship not to violate the federal Fair Labor Standards Act where for-profit, private-sector organizations are concerned.  These factors, which have not been the subject of notice-and-comment rulemaking, are (with some editing):

•  The internship is similar to training given in an educational environment, even if it includes actual operation of the employer's facilities,

•  The internship is for the intern's benefit;

•  The intern does not displace regular employees but instead works under the existing staff's close supervision;

•  The employer derives no immediate advantage from the intern's activities, and its operations might occasionally actually be impeded;

•  The intern is not necessarily entitled to a job at the internship's end;and

•  The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

Whether public-sector and non-profit internships will be viewed with skepticism similar to that running through this document remains to be seen (although the Fact Sheet implies that they might not be).  The Wage and Hour Division says that it is "reviewing the need for additional guidance" in these areas.  Even those sectors should therefore proceed with caution. 

Maybe all of this is remarkable happenstance.  Or maybe instead it reveals a focused coordination of efforts aimed at coming enforcement initiatives.  Either way, any for-profit organization that is still willing to take on unpaid internships should structure and handle them so as to maximize the chances that they will be found not to create employment relationships for wage-hour purposes.

UPDATE 05/25/10:  Fisher & Phillips Partner Joel W. Rice has published observations and recommendations relating to internships in Workforce Management Online.