Last week, satellite radio giant SiriusXM settled a class-action lawsuit filed on behalf of over 1,800 former unpaid interns for up to $1.3 million. This settlement comes in the wake of what many perceived to be a pro-employer ruling in the Second Circuit Court of Appeals. Many unpaid interns mistakenly believe that, as long as the intern can receive compensation in the form of school credit toward graduation requirements, unpaid internships are legal. While the law is developing in this area as we speak, let’s take a look at how courts will evaluate these types of claims.
Why Might Unpaid Internships be Illegal?
The Fair Labor Standards Act (FLSA) generally requires employers to pay at least a specified minimum wage to all employees. Employees are generally considered those employed, suffered, or permitted to work by an employer.
In 1947, the Supreme Court ruled on unpaid internships in the case of Walling v. Portland Terminal Co. In Portland Terminal, the Court identified four factors that they considered in their decision: (1) whether the intern displaced any paid employees; (2) whether the intern expected compensation or a job offer at the end of the internship; (3) whether the internship was similar to one offered by the intern’s school; and (4) whether the employer received an immediate advantage from the work performed by the intern.
In 1967, the Department of Labor modernized and issued informal guidance with a new series of factors, which were formally published in 2010. These factors are:
- 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;
- The internship experience is for the benefit of the intern;
- The intern does not displace regular employees, but works under close supervision of the existing staff;
- 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;
- The intern is not necessarily entitled to a job at the conclusion of the internship; and
- The employer and intern understand that the intern is not entitled to wages for the time spent in the internship.
Under this test, each and every one of these factors must be met before an employer can establish an unpaid internship. Notably absent from both tests is whether the intern can receive academic credit. While Department of Labor guidelines are highly persuasive legal authority, they are not binding, and every now and then, a Court will choose not to follow them.
The Second Circuit Approach
In Glatt v. Fox Searchlight Pictures, Inc., the Second Circuit Court of Appeals chose not to follow the Department of Labor’s guidelines, and instead promulgated its own test. In Glatt, the Court stated that the proper question is whether the intern or the employer is the primary beneficiary of the relationship. In answering this question, the Court will consider the following non-exhaustive factors:
- 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.
- 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.
- The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
- The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
- The extent to which the internships duration is limited to the period in which the internship provides the intern with beneficial learning.
- 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.
- The extent to which the internship is conducted without entitlement to a paid job at the conclusion of the internship.
Under this test, there is no requirement to meet all, or even some, of these factors. Instead, the Court will simply focus its inquiry on whether the intern or the employer was the primary beneficiary of the relationship. Furthermore, the Second Circuit includes several new factors, including things like academic credit and scheduling around coursework.
Unpaid Interns in Florida
In Florida, which is part of the Eleventh Circuit, federal courts have applied a loose test based on a combination of Portland Terminal and the Department of Labor guidelines, which has been termed the “economic reality” test. This test seeks to answer the question of whether the primary benefit of the internship flowed to the employer or employee, and uses the Department of Labor guidelines, not the Second Circuit guidelines, as factors to evaluate the claim.
This means that the law in Florida is currently in a state of flux, and courts will be more receptive to alternative approaches. For questions about this article or whether you are entitled to wages for a current or former internship, please feel free to contact us for a consultation.