In Glatt v. Fox Searchlight Pictures, the Second Circuit Court of Appeals (New York, Connecticut, and Vermont) defined and clarified the test under federal law for lawfully engaging unpaid interns.

Three unpaid interns who worked on the Black Swan film sued Fox claiming they were owed minimum wage and overtime for their work. At least two interns regularly worked overtime hours, and none received academic credit. In vacating a lower court ruling that the interns should have been treated as employees and that certified a New York class action and conditionally certified a nationwide class action, the Second Circuit held that the lower court applied the wrong test. The court acknowledged the well-established DOL six factor test and its position, to which the lower court adhered, that an employment relationship did not exist only if all six factors applied. However, the court held that the true test is whether the intern or the employer is the primary beneficiary of the relationship.

More specifically, the court articulated a non-exhaustive list of seven factors to consider when deciding whether an employment relationship exists for interns: (1) a clear understanding by the intern and employer that there is no expectation of compensation, (2) the internship provides training similar to what would be given in an educational environment, (3) the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit, (4) the internship accommodates the intern’s academic commitments by corresponding to the academic calendar year, (5) the duration is limited to the period in which the internship provides the intern with beneficial learning, (6) the intern’s work complements (rather than displaces) the work of paid employees while providing significant educational benefits to the intern, and (7) the intern and employer understand that there is no entitlement to a paid job at the end of the internship. The court stated that no one factor is dispositive, that employers need not meet all of the factors, and that courts must weigh and balance all of the relevant circumstances.

There is no certainty that other circuits will rule in a consistent manner, or that the DOL will adopt this test. Moreover, some states (including California), enforce more worker-friendly tests. Therefore, employers should evaluate legal risk very carefully when considering an unpaid internship engagement.