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Second Circuit vacates district court's ruling that unpaid interns who worked on film Black Swan and at Fox's corporate offices should have been classified as employees and thus entitled to minimum-wage and overtime pay, remanding for further consideration of whether intern or employer is "primary beneficiary" of relationship for classification purposes.

Three unpaid interns, Eric Glatt, Alexander Footman and Eden Antalik, sued Fox Searchlight Pictures, Inc., and Fox Entertainment Group, Inc., in a New York federal district court, claiming entitlement to overtime and minimum-wage compensation as employees under the Fair Labor Standards Act (FLSA) and New York Labor Law. The district court granted Glatt and Footman’s motion for partial summary judgment as to their employment status. It also granted Antalik’s motion to certify a class of all New York interns working at certain defendants’ divisions between 2005 and 2010, and to conditionally certify a nationwide class of all interns working at those divisions between 2008 and 2010. The Fox defendants filed an interlocutory appeal. The Second Circuit vacated and remanded, agreeing with the defendants that the proper question to consider when determining the employment status of an unpaid intern is whether the intern or the employer is the “primary beneficiary” of the relationship.

The Second Circuit noted that the U.S. Supreme Court has yet to address the difference between unpaid interns and paid employees under the FLSA, though the Supreme Court did hold in a 1947 case,Walling v. Portland Terminal Co., that unpaid railroad brakemen trainees should not be treated as employees where (1) the trainees did not displace any regular employees; (2) their work did not expedite the employer’s business; (3) the trainees did not expect to receive any compensation and would not necessarily be hired upon successful completion of the course; and (4) the training course was similar to one offered by a vocational school. The Department of Labor in 2010 published guidance for unpaid interns working in the for-profit sector, which provided that an employment relationship exists unless all four of the Walling factors apply, and unless the internship experience is for the benefit of the intern and the employer and intern understand that the intern is not entitled to wages for the time spent in the internship.

In granting Glatt and Footman’s motion for partial summary judgment, the district court concluded that four of the six DOL factors weighed in favor of plaintiffs’ status as employees rather than trainees. The Second Circuit, however, vacated that order and remanded the case, holding that the proper question as to an unpaid intern’s status is whether the intern or employer is the “primary beneficiary” of the relationship. The court set forth a non-exhaustive list of considerations, and directed that none of the considerations are dispositive. The factors include the extent to which (1) the intern and employer understand that there is no expectation of compensation; (2) the internship provides training similar to that which would be given in an educational environment; (3) the internship is tied to the intern’s formal educational program; (4) the internship accommodates the intern’s academic commitments; (5) the internship’s 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 the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

The Second Circuit also vacated the district court’s certification of a New York class and conditional certification of a national class, holding that Antalik failed to demonstrate predominance under Federal Rule of Civil Procedure 23. According to the Second Circuit, determining whether each intern should be considered an employee is a highly individualized inquiry, and, even though some questions may be answered with generalized proof, those questions are not more substantial than the questions requiring individualized proof.