A federal appellate court in New York handed an apparent victory to employers who utilize unpaid internships. In Glatt v. Fox Searchlight Pictures, Inc., frequently referred to as the “Fox intern” case, the Second Circuit Court of Appeals reversed a 2013 district court ruling that had granted class certification to a plaintiff class of unpaid interns who had worked on the movie “The Black Swan” and other projects. The district court’s ruling brought substantial publicity to unpaid internships and was followed by the filing of literally dozens of lawsuits challenging unpaid internships. In reversing the district court, the Glatt opinion has potentially significant consequences for companies and for those who desire internships.

Perhaps most significantly, the Second Circuit reversed the decision to allow the case to go forward as a class action. Under the court’s analysis, class certification was reversed as a result of the highly individualized analysis required to determine whether unpaid interns must be paid. It remains unclear whether there are any circumstances where an unpaid intern case might proceed as a class action, but the opinion’s repeated reference to the requisite individualized analysis would appear to act as a significant impediment, if not a complete bar, to class certification in most cases. If that is correct, it would follow that we should see plaintiff/employee-counsel shift their recent emphasis away from this area of the law.

The Glatt opinion also enunciated a new standard for determining whether an unpaid intern is an “employee” who thus must be paid. In adopting what it described as the “primary beneficiary” test, the Second Circuit expressly refused to use the list of factors that had been issued by the Department of Labor (“DOL”). Whereas the DOL’s list has been read to require interns to be compensated as employees if the company received some benefit from the intern’s services, “some” benefit is not automatically disqualifying under the Second Circuit’s new test and, instead, the court must weigh any such benefit to the company’s operations against the benefits received by the intern, i.e., to ask the question of who is the primary beneficiary of the arrangement.

While the opinion clearly swings the pendulum in a direction that is more favorable of unpaid internships, many questions remain following the issuance of the Glatt opinion. Preliminarily, the Second Circuit is comprised of the federal courts in New York, Connecticut, and Vermont. It remains unknown whether the opinion will be followed in other federal jurisdictions, whether it will  be  adopted  by  any  of  the  states  applying  comparable  state  laws,  and/or  whether  the Department of Labor may modify its current position. Further, even in the Second Circuit, the Glatt opinion does not provide clear guidance as to how the respective benefits received by an intern and a company are supposed to be weighed or where the line lies between unpaid intern and employee.

There are a number of factors to consider when using unpaid interns. If you are doing so or considering such hiring in the future, please contact us to discuss these issues and the specifics of your situation.