Employers' ability to engage unpaid interns has come under attack in recent years, with an upsurge in the number of wage and hour lawsuits filed by interns. Courts continue to weigh in on the issue, yielding mixed results for companies using unpaid interns.

In Kaplan v. Code Blue Billing & Coding, Inc., the Eleventh Circuit ruled in favor of several companies who engaged students as unpaid externs. The students, who were enrolled in a medical billing and coding specialist program, performed what they alleged was "repetitive" work for the companies in their externships. The students filed suit, alleging that because they received an insignificant educational benefit and conferred economic benefits on the companies, they qualified as "employees" under the FLSA and were entitled to the minimum wage. The district court granted summary judgment in favor of the companies, and the Eleventh Circuit affirmed.

The Eleventh Circuit concluded that the companies received little, if any, economic benefit from the externship programs, while the students received academic credit for their work and gained experience through hands-on work directly related to their degree program. The court further found that the training benefitted the interns and caused the businesses to run less efficiently, with at least some duplication of effort; the interns were supervised; and the interns were not entitled to a job after their externships. Accordingly, under the "economic realities" test, the plaintiffs were not "employees" within the meaning of the FLSA.

The court noted that its conclusion was supported by guidance from the Department of Labor's Wage and Hour Administration. Under the Administration's six-factor test, an intern is not an "employee" if:  "(1) the training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school; (2) the training is for the benefit of the trainees; (3) the trainees do not displace regular employees, but work under close supervision; (4) the employer that provides the training derives no immediate advantage from the activities of the trainees and on occasion his operations may actually be impeded; (5) the trainees are not necessarily entitled to a job at the completion of the training period; and, (6) the employer and the trainees understand that the trainees are not entitled to wages for the time spent in training."

In November 2013, two separate appeals in intern cases were filed before the Second Circuit US Court of Appeals. The first case challenges a district court decision granting class and collective action certification and summary judgment in favor of former interns who worked on the movie Black Swan (Glatt v. Fox Searchlight Pictures, Inc., No. 13-2467 (2d Cir. Nov. 26, 2013)). The second case challenges US District Judge Harold Baer's May order refusing to certify a class of former Hearst Corporation interns and denying a motion for partial summary judgment on whether the interns qualified as employees under the FLSA and New York law. (Wang v. Hearst Corp., No. 13-2616 (2d Cir. Nov. 26, 2013)). In its November 2013 order, the Second Circuit indicated that the class certification and "employee" issues would be "heard in tandem." The court's decision is expected to settle an intracircuit dispute regarding the issue. 

Planning Tip:  US companies may be required to pay interns regardless of their title or position with the company, depending upon the particular job assignment and degree program the workers are involved in, among other factors. For now, US companies should be wary of engaging interns in unpaid roles. The DOL's guidance suggests that unpaid internships should be limited to a very select set of circumstances. Until this area of law is settled, employers using unpaid interns should have those arrangements reviewed by counsel so they are in the best defensive posture in the event of litigation or compliance challenges.