Over the past year, several big companies have forked over big bucks to settle class-action lawsuits filed by interns alleging that they should have been paid for the time they spent getting a firsthand look at how the business world works. Employers felt compelled to settle following a string of high-profile lawsuits that went interns’ way, as well as the very clear Department of Labor (DOL) rules on intern pay.
But now the 2nd Circuit Court of Appeals has issued a decision that may show the employers were a bit hasty in capitulating.
According to the decision, a federal court used the wrong standard in 2013 when determining whether interns who worked on the movie “Black Swan” could be certified as a class.
The interns claimed the movie’s maker, Fox Searchlight Pictures, violated the Fair Labor Standards Act () when it treated them as employees for every purpose except pay. Deferring to the DOL’s longstanding six-point standard, the trial judge certified the interns as a class in a class action filed against Fox.
The DOL’s test requires the internship to be similar to training provided in an educational setting, to be for the intern’s benefit and to not displace regular employees. Additionally, the employer is not to receive any immediate advantage from the intern’s activities. The employer and intern have an understanding that no pay is involved and the intern is not entitled to a job at the end of the internship.
The 2nd Circuit called the DOL’s test outdated and not binding on federal courts. Instead, the court ruled jurists should look to a “primary beneficiary test” where the benefits to the employer are weighed against the educational benefits the intern receives.
Because this standard requires an individualized analysis, it creates much higher barriers to class actions.
This is good news for employers, but it may not be the last word. The decision is only binding in the 2nd Circuit states of Connecticut, New York and Vermont. Unpaid interns may find more sympathetic ears in other jurisdictions.
Final note: Employers that use unpaid interns should consult with their attorneys to determine how to structure internships.