All Work and No Pay

A recent provisionally approved settlement in a wage and hour class and collective action case serves as an important reminder for employers of the risks and potential costs of hiring interns to perform work without pay.  In Tart et al. v. Lions Gate Entertainment Corp. et al, two plaintiffs filed a lawsuit in a New York federal court over work they performed for an entertainment company that distributed “The Wendy Williams Show” and provided other production services.  The plaintiffs claimed that they worked two or three days per week, eight hours per day, performing tasks like washing dishes, getting coffee, reading scripts and answering phones. They were classified by the employer as “interns.” The plaintiffs maintained that they received no academic or vocational training and that the employer’s failure to pay them for their work was consistent with a “corporate policy or practice of minimizing labor costs” by denying compensation to them and their would-be class members in violation of the Fair Labor Standards Act and state and wage and hour laws. In their amended complaint, they sought unpaid compensation including minimum wage plus interest, attorneys’ fees and costs.

Class Action Settlement

After a little more than a year into the litigation, the parties reached a proposed settlement for an approximate amount of $1.34 million. Notice will be distributed to an estimated 1,000 class members, who can either opt out of the settlement (preserving their right to sue individually) or object to the terms. From the total settlement amount available of $1,341,752.00, the two named plaintiffs would be eligible to receive $5,000 or $7,500 each (the latter if they are required to provide a deposition). Each class member who applied, including the named plaintiffs, would receive $531 or $600 (the latter being interns from “The Wendy Williams Show” in particular). The lawyers representing plaintiffs would petition the court for up to $325,000 in attorneys’ fees and costs.

Who Is the “Primary Beneficiary”?

In reaching its conclusions and preliminarily approving the settlement, the court explained that it was applying the “primary beneficiary” test to determine whether an individual was properly classified as an unpaid intern or should have been classified as an employee. Under the standard, applicable in the Second Circuit, the focus is on whether the intern or the employer is the primary beneficiary of the relationship. The district court called this a “highly individualized inquiry” and explained, quoting from the Second Circuit, that “the claims and defenses are fact-intensive and present risks, including . . . the risk that recovery, if any, could take years and would require significant discovery and expense.” Although putting on proof at trial of these very individualized circumstances might make the case unmanageable at trial (and thus not subject to class or collective action treatment), the court found that standard was not so important for a settlement.

Lesson for Employers

The lessons of this case are not unique for the entertainment industry. The use of unpaid interns occurs in health care, retail, publishing and many sectors of the economy. Employers should evaluate whether their interns should be properly classified as employees under the Fair Labor Standards Act and applicable state law. As the Tart case highlights, the use of interns can be costly.