New Primary Beneficiary Test for Unpaid Intern Status: Second Circuit

Practical Law Legal Update 8-617-1826 (Approx. 6 pages)

New Primary Beneficiary Test for Unpaid Intern Status: Second Circuit

by Practical Law Labor & Employment

Background

Eric Glatt, Alexander Footman and Eden Antalik worked as unpaid interns in 2009 and 2010 for film studio Fox Searchlight. All were enrolled in an undergraduate or graduate degree program during their internships.

Glatt worked up to 50 hours a week as an accounting intern. Later he worked two days a week assisting on the film Black Swan, performing tasks such as drafting cover letters for mailings, filing documents and running errands for the film's director.

Footman worked ten-hour days three to five days a week in the Black Swan production department. His responsibilities included answering phones, internet research, deliveries and making coffee.

Antalik worked in Fox's corporate office performing tasks such as compiling a daily summary of media references, making travel arrangements and setting up rooms for press events. (Antalik was the only intern who apparently did not receive college credit for her internship, though the reason is unclear from the record.)

In 2012, the three plaintiffs sued Fox for unpaid wages and overtime under the FLSA and New York law on behalf of themselves and others similarly situated. Glatt and Footman later abandoned their class claims and proceeded as individuals. In June 2013, the district court granted:

Glatt and Footman's partial motion for summary judgment, concluding that they were employees for purposes of the FLSA and New York labor law.
Analik's motion to certify a class of New York interns and to conditionally certify a nationwide collective action.

Fox obtained leave to file an interlocutory appeal and the DOL appeared as amicus in favor of the plaintiffs.

Outcome

The Second Circuit vacated the district court's orders and remanded.

On the issue of classifying workers as unpaid interns under the FLSA, the Second Circuit rejected the DOL's existing six-factor test. The DOL's test focuses on whether the employer receives an immediate advantage from the interns' work.

Instead, the Second Circuit concluded:

The correct test for unpaid intern status focuses on which party, the employer or the intern, is the primary beneficiary of the relationship.
The primary beneficiary determination involves seven, non-exhaustive considerations, including the extent to which:
- the intern and the employer clearly understand that there is no expectation of compensation (any express or implied promise of compensation favors an employment relationship);
- the internship provides training that would be similar to that given in an educational setting;
- the internship is tied to the intern's formal education program by integrated coursework or by receiving academic credit;
- the internship accommodates the intern’s academic commitments by corresponding to the academic calendar;
- the internship duration is limited to the period in which the internship provides the intern with beneficial learning;
- the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern; and
- the intern and the employer understand that the internship is conducted without entitlement to a paid job after the internship.
None of the seven factors is dispositive. Nor do all seven have to favor the same outcome. Where appropriate, courts can consider other factors and evidence they deem relevant.

The Second Circuit rejected the DOL's six-part test because the test is:

Too rigid in light of recent circuit precedent (Velez v. Sanchez, 693 F.3d 308, 326 (2d Cir. 2012)).
Based on the facts discussed in a much earlier US Supreme Court decision involving unpaid railway brakemen trainees that do not necessarily fit all modern workplaces (Walling v. Portland Terminal Co., 330 U.S. 148 (1947); DOL's Internship Programs Fact Sheet).
At best entitled to Skidmore deference as an agency's interpretation of a judicial decision rather than statutory or regulatory terms (Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944); State of N.Y. v. Shalala, 119 F.3d 175, 180 (2d Cir. 1997)).
Not persuasive, and therefore not entitled to deference, because the test is too rigid and attempts to apply the Portland Terminal facts to all workplaces.

The Second Circuit concluded that its primary beneficiary test:

Focuses on what the intern receives in exchange for his work.
Provides courts with flexibility to examine the economic reality of the working relationship (Barfield v. N.Y.C. Health & Hosps. Corp., 537 F. 3d 132, 141-42 (2d Cir. 2008)).
Reflects the current relationship between the internship and the intern's formal education in the present-day economy.

In addition, the Second Circuit vacated the district court's orders certifying a Rule 23 class under New York labor law and conditionally certifying a nationwide collective action under the FLSA because:

The plaintiff did not show that common questions of law or fact predominated over individual ones as required under FRCP 23(b)(3) because:
- the district court's conclusion that common questions of liability predominated over individual calculations of damages was erroneous; and
- the primary beneficiary determination is the "most important issue" for each intern, and it could not be made based on generalized proof.
Opt-ins in the proposed collective action are not similarly situated even under the more lenient conditional certification standard because:
- the primary beneficiary test requires courts to consider individual aspects of an intern's experience; and
- none of the common proof relied on by the district court addresses the individualized questions.

Also on July 2, 2015, the Second Circuit issued a summary order in Wang v. The Hearst Corp. (No. 13-cv-4480 (2d Cir. July 2, 2015)), argued in tandem with Glatt. Like Glatt, Wang involved unpaid interns seeking minimum wage and overtime pay under the FLSA and New York labor law. In Wang, the Second Circuit vacated the denial of plaintiffs' motion for summary judgment on their status as employees because the district court had not had an opportunity to consider all of the factors of the primary beneficiary test announced in Glatt. Also, applying the same reasoning it used in Glatt, the Second Circuit affirmed the district court's denial of class certification in Wang.

Practical Implications

These decisions are important victories for employers in the Second Circuit. In Glatt and Wang, the circuit court rejected the DOL’s six-factor test in favor of a more flexible inquiry that focuses on whether the intern or the employer is the primary beneficiary of the relationship. However, employers should be aware of possible conflicts between the Second Circuit’s approach and the requirements of state law. It may be that an individual qualifies as an intern under federal or state law, but not both.

Employers in all jurisdictions should regularly review their internship programs for compliance with the FLSA and state wage and hour requirements.

UPDATE: On remand, the district court granted summary judgment for the employer. Weighing the Glatt factors, the court held that overall the tasks performed by the interns provided beneficial academic experience and exposure to hands-on training, and therefore do not constitute employment requiring compensation under the FLSA (Wang v. Hearst, (S.D.N.Y. Aug. 24, 2016).

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