Executive Summary: On December 8, 2017, the United States Court of Appeals for the Second Circuit (which has jurisdiction over federal district courts in Connecticut, New York and Vermont) ruled in favor of an employer, holding that six unpaid interns were not “employees” for purposes of the Fair Labor Standards Act (FLSA). See Wang v. Hearst Corp. To reach its conclusion, the court used the flexible “primary beneficiary test” it first promulgated in Glatt v. Fox Searchlight Pictures. The court’s application of the test in Wang created some confusion for employers.
Wang v. Hearst Aftermath
In Wang, a group of interns filed a collective action against Hearst, claiming the company failed to pay wages as required by the FLSA. In light of Glatt, the district court granted summary judgment in favor of Hearst, finding the interns were not employees eligible for FLSA protection. The interns appealed to the Second Circuit.
On appeal, the Second Circuit applied the seven Glatt factors, considering whether:
- the interns expected payment for the internship program;
- the training in the internship was consistent with what they would have learned in an educational environment;
- the internship was for academic credit or was part of the intern's formal education;
- the internship period was consistent with an academic calendar;
- the internship duration was for a valuable period;
- the interns displaced paid employees through the tasks they perform; and
- the interns expected an offer of paid employment following the internship
Stressing the flexibility of this analysis, the court held in favor of the employer, ruling that a determination of whether the employer or the intern is the primary beneficiary of the intern-employer relationship is the key to classifying unpaid interns as “employees” for purposes of the FLSA. The court found that the Glatt factors, under the totality of the circumstances and based on the undisputed facts, indicated that the interns were the primary beneficiaries, and, thus, were not employees.
The Second Circuit quoted Glatt for the proposition that “[n]o one factor is dispositive and every factor need not point in the same direction for the court to conclude that the intern is not an employee.” The court reached this conclusion even though it found that some of the interns did not receive academic credit for their internships; some interns performed work that was unconnected to their academic programs; most performed tasks that employees would perform; and the interns performed some rote work, such as taking meeting minutes and photographs.
The court emphasized the case-by-case nature of analysis under the primary beneficiary test, but its application in this case provides little clarity for employers. The court applied the Glatt factors with no clear guidance on what specific facts might be key to determining the primary beneficiary in an intern-employer relationship. The concern for employers after Wang remains the same — should they pay their interns and how should they structure their internship programs moving forward? Wang illustrates that the primary beneficiary test, while flexible, is also amorphous.
Employers' Bottom Line
Multiple federal appeals courts across the country, including those in the Fourth, Sixth, Seventh, Ninth and Eleventh Circuits, have applied some form of the “primary beneficiary test.” Thus, employers across the country must grapple with the same questions.
In our opinion, the Wang decision provides more confusion than clarity. The Second Circuit provided no clear or formulaic path for employers to follow to maintain or create unpaid internship programs. The court indicated that it will likely determine each set of facts on a case-by-case basis to determine the primary beneficiary — the intern or the employer — and whether unpaid interns are “employees” for purposes of the FLSA. Uncertainty regarding the potential for liability remains for employers who have unpaid internship programs or who want create such programs.
In light of Wang, we strongly advise employers to carefully review their internship programs and speak to their labor and employment attorneys. When in doubt, we encourage employers to pay their interns the minimum wage rate for all hours worked, including time and a half for any hours over 40 in a work week.