News and Articles

When Your Intern is Really an Employee: Avoiding Triple Liability After Glatt v. Fox Searchlight Pictures, Inc.

Erin Lloyd - Friday, October 02, 2015

Many businesses work with interns at one point or another, using them for special projects or hiring them on an annual or other regular basis to work side by side with traditional staff members. Often, businesses do not pay their interns, reasoning that it is an educational experience and, in fact, students sometimes get school credit or even compensation from their school for an unpaid internship. In a landmark case this summer, a Federal court for the Second Circuit (which covers New York) clarified the circumstances in which an interns is excluded from basic employee protections, and all businesses should take note of the new rules that apply to unpaid interns.

Generally speaking, with the exception of “professional” and other highly compensated, salaried workers, most employees must be paid at least minimum wage for every hour worked up to 40 hours in a week, and must also be paid overtime for all hours worked beyond 40 in any given week, at a rate of time and a half of their usual hourly rate. These requirements are mandated by both the Federal Fair Labor Standards Act (“FLSA”) and New York Labor Law (“NYLL”), and employees cannot waive these statutory rights.

In the past, there has been much disagreement about whether “interns” qualify as “employees”—and thus, whether the FLSA and NYLL even apply to interns. The U.S. Supreme Court, in 1947, held that individuals participating in a training program were not employees and the FLSA did not apply to them because they did not displace regular workers, were not promised employment after the training program, which was similar to training offered by a vocational school, and the employer did not receive any immediate advantage to its business from the work performed by the trainees. (Walling v. Portland Terminal Co., 330 U.S. 148). Based in part on this decision, the U.S. Department of Labor published guidance setting for six criteria which, if all were met, allowed for the trainee/worker to be treated as exempt from FLSA.

However, while the DOL required all six criteria to be met, courts—and specifically, the district court in Glatt v. Fox Searchlight Pictures, Inc., No. 11 Civ 6784 (WHP) (SDNY June 11, 2013)—employed more of a balancing test, evaluating whether most of the factors, on balance, indicated the individual was an employee or an intern/trainee.

On appeal, the Second Circuit declined to adopt either the DOL’s strict six-factor test or the lower court’s balancing test and, instead, adopted its own balancing test which it referred to as the “primary beneficiary test”. The Court wrote, “The primary beneficiary test has two salient features. First, it focuses on what the intern receives in exchange for his work. Second, it also accords courts the flexibility to examine the economic reality as it exists between the intern and the employer.” Glatt v. Fox Searchlight Pictures, Inc., Nos. 13-4478-CV, 13-4481-CV at p. 14 (2d Cir. July 2, 2015) (internal citations omitted).

The Court set forth a list of “non-exhaustive factors” that it said courts (and therefore, employers) should evaluate and consider when determining whether an intern should be considered an employee for purposes of the FLSA (and NYLL), including:

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 noted that “[t]he purpose of a bona-fide internship is to integrate classroom learning with practical skill development in a real-world setting,” and the non-exhaustive list of considerations is thought to reflect that purpose as well as balance it with economic realities of today’s workforce. The overarching concern for employers, based on Glatt, should be to develop an internship program that clearly provides the primary benefit to the student-intern and has the student-intern’s educational and experiential experience at its core.

It is important to note that if an intern is not paid—or is paid less than minimum wage, or is not paid for overtime pursuant to the law—and a court later determines that the intern should have been classified as an employee, a violation of the FLSA and NYLL will likely be found. In that case, courts can award back pay based on what the employee should have been paid, as well as up to 100% of that amount under each of those statutes. In other words, in the worst-case scenario, employers could be forced to pay three times what they should have paid in the first instance. On top of that, in most cases the employer is responsible for paying the employee’s attorneys’ fees, which can be in the tens of thousands for even a simple case. For these reasons, it is essential that employers and interns take a hard look at the Glatt factors and their own internship program to ensure compliance and seek legal guidance, when appropriate. Our attorneys can help you if you have not been properly paid as an intern, or if you are an employer who wants to maintain or develop a strong internship program that will steer clear of any legal liability.

For more information, employees and employers can contact us here

August 2015 Newsletter

Yogi Patel - Tuesday, August 04, 2015

Dear valued clients and supporters: This month's newsletter will focus on: (1) the EEOC’s declaration that workplace discrimination based on sexual orientation is illegal; (2) the New York State Wage Board's unanimous vote to raise the minimum wage for restaurant workers in the fast food industry to $15 an hour; and (3) the Second Circuit's decision in Glatt v. Fox Searchlight Pictures, Inc., providing valuable clarity on the question of whether interns are "employees" -- and therefore entitled to minimum wage and overtime pay under the Federal Fair Labor Standards Act and New York Labor Law.

 

Sexual Orientation and the Workplace
Title VII of the Civil Rights Act of 1964 is at the heart of Federal anti-discrimination law. It prohibits employers with at least fifteen employees from discriminating on the basis of race, color, religion, sex, or national origin. Sexual orientation discrimination is not expressly included on the list and several federal courts, both at the district court and appellate level, have previously held that the statute’s ban on sex discrimination did not encompass sexual orientation discrimination. But on July 15, 2015, the Equal Employment Opportunity Commission (EEOC) issued a ruling finding that sexual orientation discrimination is “associational discrimination on the basis of sex.” Thus, adverse actions taken by employer on account of an employees sexual orientation will now be considered illegal by the EEOC and LGBT employees will have an independent, stand-alone basis to lodge a discrimination complaint before the EEOC under Title VII. It is too early to know how courts will view this new development, and of course most employers are also governed by State and local laws that may already prohibit discrimination on the basis of sexual orientation.


Minimum Wage and Fast Food Industry Workers
The New York State Wage Board recently recommended raising the minimum wage for restaurant workers in the fast food industry to $15 an hour. In the event the Wage Order is accepted by the Commissioner in its current recommended form, the mandate would apply to all workers in fast-food restaurants that are part of chains with at least 30 outlets. More specifically, the change will apply to workers who cook, clean, serve customers, make deliveries, or perform routine maintenance work as part of their day-to-day duties. The proposed Wage Order, if implemented as is, will apply to all fast food restaurants associated with a chain of 30 or more outlets, irrespective of how many restaurants the individual employer owns. The proposal, once officially published, will then be followed by a 15-day public comment period. Comments will be accepted online and by mail. Based on those comments, the Commissioner may accept, reject or modify the Board's recommendations and file a Wage Order. The Wage Order must be filed within 45 days once the report is filed. The Order is then subject to an additional regulatory process thereafter. We will continue to monitor the situation and provide updates as the process progresses, but if you have specific questions about how this may affect you as an employee or an employer, please contact us.


Interns v. Employees
In Glatt v. Fox Searchlight Pictures, Inc., the action was brought by former production interns who worked on the Oscar-winning movie Black Swan, as well as a publicity intern at the company’s New York corporate office, all of whom were unpaid. The interns argued they should have been classified as employees and, thus, should have been compensated for their efforts. The law surrounding this issue has been unclear for several decades due to the guidance offered by the U.S. Department of Labor and conflicting interpretations by courts across the country, making it difficult for an employer to know how to comply. The Second Circuit, which covers New York, observed in Glatt that the question of an intern’s employment status is a highly individualized inquiry and not subject to a bright line rule. To assess whether interns are “trainees” under the Fair Labor Standards Act (“FLSA”) (and therefore “exempt” from overtime and minimum wage rules) or “employees" (and therefore entitled to the laws’ protections), the court adopted what it calls the “primary beneficiary” approach. Under the "primary beneficiary" test, there are at least seven independent factors that should be analyzed under the new approach to determine whether the position is truly an internship or an employment situation. Employers are advised to fully understand their obligations under Glatt prior to hiring an intern.


A more in-depth article on this issue, including the seven factors under the primary beneficiary approach will be posted here on our website shortly and readers are encouraged to follow us on Twitter (@lloydpatelllp) and Facebook to receive updates on this and other issues throughout the month.


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