Employers Catch a Break When it comes to Unpaid Interns

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July 8, 2015

Earlier this month the Second Circuit Court of Appeals, took on the issue of employers and the free labor provided by so called “interns.”  On July 2, 2015, the Second Circuit reversed a lower court decision which held that the unpaid interns at issue should have been classified and paid as employees under both the federal and New York State law.  Glatt v. Fox Searchlight Pictures, Inc., Nos. 13-4478-cv, 13-4481-cv (2nd Cir. July 2, 2015).

The Second Circuit expanded on the United States Supreme Court’s 1947 ruling in Walling v. Portland Terminal Co., 330 U.S. 148 (1947), which held that brakeman trainees were not employees because they (1) did not displace regular employees, (2) did not expedite the company’s business, (3) did not expect to receive any compensation, (4) would not definitely be hired upon completion of training, (5) the training offered was similar to a school course and (6) the company received no immediate advantage from the trainees’ work.

In Glatt the Second Circuit acknowledged that courts should weigh the six Portland Terminal factors, using a “totality of the circumstances” analysis.  The Circuit also directed lower courts to focus on the question of whether the company or the intern was the “primary beneficiary” of the intern/employee relationship.  Under this primary beneficiary test, if the primary benefit of the relationship is enjoyed by employer, than the intern is in fact an employee and should be paid and protected like one. 

To aide both courts and employers, the Second Circuit fashioned a flexible, non-exhaustive set of factors to evaluate an internship:

    1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation.  Any promise of compensation, express or implied, suggests that the intern is an employee - and vice versa.
    2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
    3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
    4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
    5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
    6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
    7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.
    8. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

Practical Implications

Employers in Connecticut, New York and Vermont (states under the jurisdiction of the Second Circuit) can, for the time being, continue to use interns in their traditional roles without having to pay them.  Special attention, however, should be taken when explaining compensation expectations, in designing an internship program that focuses on educating the intern as opposed to serving the employer, in not displacing any paid employees of the employer and making sure all interns understands that a paid job is not necessarily guaranteed at the end of an internship among other things.

For more information on this important ruling as well as for any other employment questions or concerns, please contact the attorneys in our Employment Law Practice Group: Charles S. Tusa, Jonathan M. Wells, or Jeffrey A. Slavin.