Why it matters

Interns lost a round in the Second Circuit Court of Appeals when the federal appellate panel reversed class certification and summary judgment in their favor, remanding the suit back to district court. Former interns for Fox Entertainment sued seeking wages and overtime under the Fair Labor Standards Act (FLSA) as well as California and New York state law. In 2013, a federal court judge sided with the interns, certifying a nationwide class and granting summary judgment on the issue of whether or not they were employees. But on appeal, the three-judge panel said the lower court used an incorrect standard. Instead of relying on the “too rigid” six-part test from the Department of Labor (DOL), other factors should have been evaluated to answer the question of whether the intern or the employer was the primary beneficiary of the relationship, the panel wrote. The “non-exhaustive set of considerations” included whether an internship tied into academic coursework, if an intern received academic credit for the position, and whether the internship accommodates academic commitments by corresponding to the school calendar. The new test should prove to be employer-friendly, with additional considerations about the benefits an internship can provide to an intern, as opposed to simply the “immediate advantage” to employers found in the DOL’s six-factor test. The panel also emphasized that “the question of an intern’s employment status is a highly individualized inquiry,” providing beneficial language to employers seeking to avoid class or collective status in a suit brought by a worker.

Detailed discussion

Four different interns who worked for various units of Fox filed a putative class action under California and New York Labor Laws as well as the Fair Labor Standards Act (FLSA). Both sides moved for summary judgment.

A federal court judge dismissed one of the plaintiffs, certified a class of New York interns, and then determined that two of the interns were “employees” covered by the FLSA and state law, with Fox their “employer,” relying upon a six-factor Intern Fact Sheet test from the Department of Labor (DOL).

The interns “worked as paid employees work, providing an immediate advantage to their employer and performing low-level tasks not requiring specialized training,” the court said. “The benefit they may have received—such as knowledge of how a production or accounting office functions or references for future jobs—are the results of simply having worked as any other employee works, not of internships designed to be uniquely educational to the interns and of little utility to the employer. They received nothing approximating the education they would receive in an academic setting or vocational school.”

Fox appealed. Before the Second Circuit Court of Appeals, the employer argued that the panel should use a more nuanced “primary beneficiary” test, which would better reflect the economic realities of the relationship between an employer and an intern. The interns countered that the panel should consider interns to be employees whenever the employer receives an “immediate advantage” from the interns’ work.

The DOL also weighed in, defending its six-factor test and asserting its position was entitled to deference. Declining to defer to the DOL or its Fact Sheet, the panel said the six-factor test was “essentially a distillation of facts” from a 1947 U.S. Supreme Court case that didn’t involve interns.

Instead, the court agreed with the employer and adopted the “primary beneficiary” test. “The primary beneficiary test has two salient features,” the panel wrote. “First, it focuses on what the intern receives in exchange for this work. Second, it also accords courts the flexibility to examine the economic reality as it exists between the intern and the employer.”

The court then listed seven factors, a “non-exhaustive set of considerations” to aid courts in determining whether a worker is an employee for purposes of the FLSA:

“1. 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.

2. 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. 

3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.

4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.

5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.

6. 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.

7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.”

No one factor is dispositive, the court said, and “every factor need not point in the same direction for the court to conclude that the intern is not an employee entitled to the minimum wage.” In addition to weighing and balancing all of the circumstances listed, the panel added that courts “may consider relevant evidence beyond the specified factors in appropriate cases.”

“The approach we adopt also reflects a central feature of the modern internship—the relationship between the internship and the intern’s formal education,” the court wrote. “By focusing on the educational aspects of the internship, our approach better reflects the role of internships in today’s economy than the DOL factors, which were derived from a 68-year-old Supreme Court decision that dealt with a single training course offered to prospective railroad brakemen.”

Reversing summary judgment in favor of the interns, the court remanded the case for the district court to make a second attempt at considering the plaintiffs’ employment status.

The panel then turned to the district court’s order certifying a nationwide class of interns over a five-year period, which it similarly reversed, despite the plaintiff’s presentation of evidence to show interns were commonly recruited to help with busy periods and displaced paid employees.

“As our previous discussion of the proper test indicates, the question of an intern’s employment status is a highly individualized inquiry,” the court said. “[The plaintiff’s] common evidence will not help to answer whether a given internship was tied to an education program, whether and what type of training the intern received, whether the intern continued to work beyond the primary period of learning, or the many other questions that are relevant to each class member’s case.”

Even if the plaintiffs could establish that Fox had a policy of replacing paid employees with unpaid interns, “it would not necessarily mean that every Fox intern was likely to prevail on her claim that she was an FLSA employee under the primary beneficiary test, the most important issue in each case,” the panel said. “Because the most important question in this litigation cannot be answered with generalized proof,” the court vacated the certification order and remanded the case.

To read the opinion in Glatt v. Fox Searchlight Pictures, Inc., click here.