In 2011, a pair of unpaid interns who worked for Fox Searchlight Pictures on the 2010 film Black Swanfiled suit against Fox claiming they should have been compensated as “employees” under the US Fair Labor Standards Act (FLSA) and New York labor law. Shortly thereafter, another Fox intern joined the case and filed a class and collective action against the company alleging the entire Fox unpaid internship program violated federal and state law. In June 2013, the district court granted the interns' motion for summary judgment, certified the class, and conditionally certified the collective action. These rulings led to a cascade of other lawsuits filed against media and entertainment companies, including a similar class action filed against The Hearst Corporation. There, the lower court granted the interns' motion for summary judgment, but denied their motion for class certification on the grounds that there was no common internship program at issue amongst the plaintiffs.

On July 2, 2015, the Second Circuit Court of Appeals reversed the lower court decisions against Fox and The Hearst Corporation, rejecting their reliance on the United States Department of Labor's (DOL) six-factor test1 often used for determining when an intern is an “employee” under the FLSA. Instead, the Second Circuit adopted the “primary beneficiary” test; a test followed in large part by the Fourth, Sixth and Eighth Circuits.2 Contrary to the DOL's rigid six-part test, under the “primary beneficiary” test, the critical inquiry becomes whether “the intern or the employer is the primary beneficiary of the relationship.” To reach that conclusion, the Second Circuit suggests courts weigh a variety of non-exhaustive factors, including:

  1. the extent to which the internship is tied to a formal education program,
  2. the extent to which the intern's work complements, rather than displaces, the work of paid employees, and
  3. the extent to which the intern and employer understand that the internship is conducted without being entitled to pay or the expectation of employment at the conclusion of the internship.

The Second Circuit has remanded both cases back to the district court for further proceedings. Several commentators have suggested that the plaintiffs will most likely be able to satisfy the primary beneficiary test and move forward with their class certification efforts. The Second Circuit's opinion, however, calls that analysis into question. For example, the Second Circuit recognized that the question of an intern's employment status under the primary beneficiary test is a “highly individualized inquiry[.]” And individualized inquiry requirements are usually fatal to class and collective action certification efforts.

Regardless of how these cases are ultimately resolved, there are two important takeaways for employers:

  • There remains an open question as to whether the primary beneficiary test applies nationwide. Although other circuits may choose to follow the Second Circuit's guidance, they are not required to do so. Moreover, the DOL's six-factor test remains its official guidance, and therefore may apply in any DOL enforcement proceedings.
  • To avoid confusion, and because the DOL's test and the Second Circuit’s primary beneficiary test apply similar factors, employers should audit their current unpaid internship programs so as to comply with both. This could include not having unpaid interns displace regular employees, ensuring that the unpaid internship is tied to a formal educational program, and entering into a written agreement with the intern to memorialize the understanding that there is no expectation of remuneration during the course of the internship, nor is there a promise of permanent employment following the end of the internship.

The US employment and labor team at Dentons is ready to help you navigate this complicated area of the law, and audit your current unpaid internship programs. We will also continue to monitor these unpaid intern cases for future developments.