Revisiting the Treatment of Unpaid Internships Under the Fair Labor Standards Act

Posted on Categories Labor & Employment Law, Public, U.S. Supreme Court

The extent to which the Fair Labor Standards Act (FLSA) applies to internships and other similar training programs was one of the cutting edge legal issues argued during last spring’s Jenkins Honors Moot Court Competition.  In the months since the Jenkins Competition concluded, both the Second Circuit and the Eleventh Circuit have issued rulings that clarify the legal issues addressed in the Jenkins Competition.  The treatment of interns under the Fair Labor Standards Act is once again making news.

The fictitious respondent in the Jenkins Competition was a law student who participated in an unpaid internship at a large, for-profit law firm.  As part of this program, the student primarily worked on pro bono matters under the supervision of a senior attorney.  The student was also able to participate in a mock trial and attend weekly training lunches.  However, the student also volunteered to work on a number of projects that were not attached to any pro bono cases or training.  They were more of an administrative or secretarial nature.  After an unceremonious dismissal from the program (which was the basis for another claim in the case), the law student brought a suit against the firm, claiming that she was owed compensation for the work she did under her summer internship program because she qualified as an employee under the FLSA.  The law firm, as one would expect, challenged this assertion, claiming that the student fell under the “trainee” exception carved out by the Supreme Court in Walling v. Portland Terminal Co. (1947).

The Court in Walling clearly meant to provide an opportunity for individuals to be trained without pay by a for-profit business in an industry the individual hoped to enter later.  In its ruling, the Court ruled that the FLSA’s definition of an employee as someone who is “suffer[ed] or permit[ed] to work” was “obviously not intended to stamp all [working] persons as employees.”  The Court saw the benefit of internship programs for both those seeking to be trained as well as the businesses seeking to develop their future workforce; classifying all such individuals as employees under the FLSA, and thus requiring payment, would limit training opportunities and hurt both groups.  The problem with the Court’s ruling in Walling is that it did not establish a clear test for determining whether an individual is an intern or whether she is an employee covered by the protections in the FLSA.

Without such guidance from the Supreme Court, lower courts were left to make their own determinations.  Some followed a six-point test developed by the Department of Labor (DOL) titled “Fact Sheet 71.”  Strict adherence to this test made it difficult for an individual to be classified as an intern if she worked at a for-profit business.  A “totality-of-the-circumstances” approach, which abandoned the DOL’s requirement that all 6 factors be met, sought to soften the strict application of Fact Sheet 71 by weighing all six factors in a balancing test.

Courts that did not apply the DOL six factor test, either in its strict all-or-nothing approach or in its tamer “totality-of-the-circumstances” approach, instead adopted a “primary beneficiary” test which looks at a number of considerations in order to determine which party–the intern or the business–is receiving the primary benefit of the internship program.  This interpretation made it easier to classify work done as part of training programs at for-profit firms as an “internship” and therefore not covered by the FLSA.

Playing a prominent role in the Jenkin’s Competition was Glatt v. Fox Searchlight, Inc. (2013), a case out of the Southern District of New York.  In Glatt, a group of interns who had worked on the filming of the movie Black Swan brought suit against the movie’s production company claiming that their work was that of an employee, and not an intern, and they were therefore owed back wages for their work.  The district court applied the “totality-of-the-circumstances” iteration of the DOL six-factor test, and granted the plaintiff’s motion for summary judgment, ruling that Glatt and his co-plaintiffs did not fall within the FLSA’s unpaid trainee exception.  As such, the court held that they should have been treated as employees.  This decision was seen as being very “anti-employer” and some feared that further adoption of this standard would severely curtail internship opportunities with for-profit companies.

Fox Searchlight appealed the district court’s ruling to the Second Circuit, and this past July, the Second Circuit vacated the ruling of the Southern District of New York and remanded the case to district court.  The court held that the district court judge erred in applying the DOL’s six-factor test, and that the appropriate test for determining whether someone falls within the unpaid trainee designation is the primary beneficiary test.  The court specifically held that the DOL’s six-factor test was too stringent (and, as mere administrative guidance, did not merit significant deference) and only the primary beneficiary test allowed for the nuance and individuality needed to accurately make such determinations.

The Eleventh Circuit, following the lead of the Second Circuit, recently further solidified the argument that the appropriate test for determining whether an individual falls under the unpaid internship exception to the FLSA is in fact the primary beneficiary test.  On September 11, 2015 in Schumann v. Collier Anesthesia, the court rejected the district court’s strict application of the DOL’s six-factor test, vacating the lower court’s decision and remanding the case for further action.  Furthermore, the Eleventh Circuit Court provided guidance on how the lower court should implement the primary beneficiary test.  In determining who received the greatest benefit from an internship program, the court adopted the wording of the Second Circuit by holding that such a determination should be made by looking at “a non-exhaustive set of considerations.”  The Eleventh Circuit Court directed lower courts to, amongst other issues, consider the length of the internship program (to ensure that the length wasn’t excessive and corresponded to the interns’ academic calendar) and whether the work was exploitative (to ensure that interns did not replace other employees and were given significant guidance).  The court acknowledged that “modern internships can play an important–indeed critical–role in preparing students for their chosen careers.”

Where do these recent court rulings leave us?  The treatment of unpaid interns under the Fair Labor Standards Act — at issue in last spring’s Jenkins Competition — has been clarified.  It appears that the primary beneficiary test is, and will be, the accepted method for determining whether an individual falls under the unpaid intern exception of the FLSA.  In addition to the Second and Eleventh Circuits, this approach has also been adopted by the Fourth, Fifth, Sixth, Eighth, and Tenth Circuits.  However, the application of the primary beneficiary test, seen as the more “employer friendly” test, does not mean that interns have lost all protections afforded by the FLSA.  Instead, the nearly universal adoption of a primary beneficiary test similar to the one spelled out in Schumann will meet the needs of both employees and interns.  Employer are able to develop a future workforce while also getting some benefit in the form of free labor.  Interns have the opportunity to learn their future trade, develop valuable skills, and network with those already a part of their chosen profession. The courts are very clear that this test requires each individual case be examined with the closest possible scrutiny to ensure that an intern is truly getting a training experience that will further their professional growth.

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