The Uncertainty of Unpaid Internships
As published in the Califf & Harper, P.C. August 2013 Newsletter
Every year, thousands of students, many college or graduate level, accept unpaid internships to gain work experience and bolster resumes.  Unpaid, temporary positions are common and can serve as a springboard for paid employment following graduation.  On June 11, 2013, a federal judge's ruling put the future of many unpaid internships in jeopardy.  For employers currently offering or planning on offering unpaid internships, the ruling has significant potential implications.

In Glatt v. Fox Searchlight Pictures Inc., known as the "Black Swan" case, the legal issue focused on whether Fox Searchlight Pictures owed two interns compensation for their work involving the movie "Black Swan."  The interns performed various entry-level tasks such as making copies, running errands, tracking purchase orders, etc.  The intern plaintiffs alleged they were employees because they received no educational or vocational training, but rather performed menial tasks that provided a greater benefit to the employer rather than the interns.  The defendant urged the court to adopt a "primary benefit test" and argued the interns' benefits of work experience, resume building, and references outweighed the defendant's benefits.  The court utilized six criteria set forth by the U.S. Department of Labor to determine the interns were in fact employees and the defendant owed the interns back pay for the work performed.

Thecriteria reviewed by the court are exclusively for for-profit businesses and include whether:

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;

2. The internship experience is for the benefit of the intern;

3. The intern does not displace regular employees, but works under close supervision of existing staff;

4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;

5. The intern is not necessarily entitled to a job at the conclusion of the internship; and

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

The court's decision may have far reaching effects on for-profit employers.  While not binding on federal courts in other circuits, the "Black Swan" case will serve as persuasive authority as other courts address this issue.  Further, as many employers continue to recover from financial downturns and market instability, they will likely hesitate to bring on unpaid interns if it means risking costly litigation down the road.  Thus, it is reasonable to believe that for-profit employers may leave many positions once filled by eager, unpaid interns may remain vacant to avoid paying interns or possible future litigation.

For employers with unpaid internship programs or for those considering such programs, it may be helpful to become familiar with the six (6) criteria issued by the U.S. Department of Labor to determine whether interns at for-profit businesses are actually employees.  With the plaintiff's success in the "Black Swan" case, numerous similar lawsuits have already arisen among various industries.  Employers should keep a close eye on these suits, as they may ultimately have a binding effect on their employment practices.  While federal courts might come to similar conclusions, there is also a real possibility of a patchwork-like result among the federal circuits.
For more information on this topic please contact Califf & Harper, P.C. by calling 309-764-8300 or 1-888-764-4999. This article is intended to provide general information regarding the topic discussed herein but is not intended to constitute individual legal advice.