Professionals Beware: Unpaid Internships May Prove Costly for Employers

With summer break in effect, many students are utilizing the time off from school to participate in internships.  Internships provide students with an opportunity to gain work experience in a particular field and, arguably, make them more marketable upon graduation.  However, these intangible benefits may not excuse an employer from failing to pay interns under state and federal labor laws.

Earlier this month, United States District Court Judge William H. Pauley III of the Southern District of New York ruled on a class action lawsuit brought by former interns of Fox Searchlight Pictures and Fox Entertainment in Glatt v. Fox Searchlight Pictures, Inc., 2013 U.S. Dist. LEXIS 82079 (S.D.N.Y. June 13, 2013). The plaintiffs helped with the production of several Fox film projects in New York by building sets and offices, but were not paid for the work.  The plaintiffs claim that Fox was acting as their “employer” under the Fair Labor Standards Act (FLSA) and New York Labor Law (NYLL), and was therefore required to pay them as employees.

The court held that “trainees” are not covered employees under the FLSA or NYLL.  In determining whether the trainee exception was satisfied, Judge Pauley deferred to a Department of Labor fact sheet, which lists six criteria for determining when an internship may be unpaid.  These criteria include the benefit to the employer, the displacement of employees and the educational value to the intern.  Based on these factors, Judge Pauley concluded that the plaintiffs could not be considered unpaid interns because their work provided immediate value to Fox and that they received no special educational gain for the work performed.

Judge Pauley’s decision could have far-reaching effects in the professional community, where many firms offer unpaid work opportunities with the promise of experience and potential full-time employment.  Unpaid internships provide a near-term benefit to employers; however, absent a bona fide training program, these positions could lead to costly long-term liability.