In a blow to employers utilizing unpaid interns, a New York federal court judge determined that two men who ran errands, made copies, and delivered coffee for a production company working for Fox Entertainment Group on the movie Black Swan were in fact employees – and should have been compensated as such.

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

U.S. District Court Judge William H. Pauley III of the Southern District of New York quickly dismissed one of the plaintiffs, whose claims he found time-barred. He also certified a class of New York interns, finding that the claims of a second plaintiff “identified several common questions” regarding violations of state law. “Evidence that interns were recruited to help with busy periods, that they displaced paid employees, and that those who oversaw the internships did not believe they complied with applicable law is evidence capable of generating common answers to questions of liability,” he concluded.

Judge Pauley focused the bulk of his decision on the issue of whether the two remaining plaintiffs, Eric Glatt and Alexander Footman, were “employees” covered by the FLSA and state law and if Fox was their “employer.”

Noting that the FLSA requires a case-by-case totality of the circumstances of review, Judge Pauley emphasized the “striking breadth” of the FLSA’s definition of “employ.” Although Fox argued that the movies were produced by separate companies, the court said those entities were created for the sole purpose of producing the film and ruled Fox was a joint employer, on the hook for liability.

Control is key, he emphasized, analyzing the relationship between the parties under two different tests adopted by the 2nd U.S. Circuit Court of Appeals: the formal control test and the functional control test.

Under the formal control test, the court found that Fox’s power to fire the movie’s production set was “unbridled” and that the company “closely supervised” work on Black Swan, requesting daily call sheets and wrap reports. The production company needed Fox’s permission to have unpaid interns, which meant it “was involved in their method of pay,” the court said.

Fox’s control was similarly evident under the functional control test, Judge Pauley found, as the crew of Black Swan was tied to Fox, not the production company. Fox “in its ‘sole reasonable discretion,’ had the power to replace key production personnel without material changes to those underneath them. [Fox] could even have dismissed [the production company] and taken over the production,” the court said.

Once Judge Pauley concluded Fox was Glatt and Footman’s “employer,” he turned to whether they were “employees” covered by New York law and the FLSA, looking to a 2010 Department of Labor Intern Fact Sheet. Analyzing six relevant factors and considering the totality of the circumstances, the court concluded that the plaintiffs “were classified improperly as unpaid interns and are ‘employees’ covered by the FLSA and [New York] law.

“They worked as paid employees work, providing an immediate advantage to their employer and performing low-level tasks not requiring specialized training. 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,” he wrote.

Therefore, Judge Pauley granted summary judgment to Glatt and Footman, concluding that Fox, as a joint employer with the production company, is liable to pay them as employees.

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

Why it matters: The Glatt decision is a blow for employers making use of unpaid interns. Companies that have intern programs in place should review their policies and procedures to ensure compliance with relevant state wage and hour law as well as the FLSA, paying particular attention to whether the intern receives any formal training or education – a factor Judge Pauley found important in his analysis of whether the plaintiffs constituted employees.