Last week, the Second Circuit Court of Appeals vacated a lower court decision that certain unpaid interns had to be paid for their work in the entertainment industry. The district court had held that Fox Searchlight Pictures misclassified the unpaid interns who worked on the movie, “Black Swan” and should have paid them as employees under the FLSA. The district court applied a six factor test and adopted the plaintiffs’ argument that interns should be considered employees whenever the employer receives an immediate advantage from the intern’s work.

The Second Circuit disagreed with the lower court about the appropriate test and instead held that the focus should be on the relationship between the internship and the intern’s formal education, and whether the intern or the employer is the primary beneficiary of the relationship. The Court went on to articulate its own non-exhaustive list of factors:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation—any hint of compensation suggests that the intern is an employee;
  2. The extent to which the internship provides training that would be similar to that given in an educational environment;
  3. The extent to which the internship is tied to a formal education program by integrated coursework or academic credit;
  4. The extent to which the internship accommodates the intern’s academic calendar;
  5. The extent to which the internship’s duration is limited to the period in which the intern is provided with beneficial learning;
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees; and
  7. The extent to which the intern and employer understand that the internship is not an entitlement to a paid job at its conclusion.

The Court remanded the case to the lower court for it to apply this test in determining whether the plaintiffs were unpaid interns or employees.

This case adds a bit more clarity to the ambiguous nature of internships and whether they should be paid. As we previously reported on this blog, companies have paid large settlements to interns based on these type allegations. Employers should be very clear about their expectations in internship programs. The list of factors above should provide a good roadmap on how to structure a program but in general, it may be easier to pay an intern minimum wage than to fight later about their misclassification.