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Jan 04

Second Circuit Affirms Flexible Analysis for Determining “Employee” Status for Unpaid Interns Under the FLSA

By: Samuel Wiles

In December 2017, the Second Circuit affirmed that unpaid interns, in some circumstances, are not “employees” under the Fair Labor Standards Act (“FLSA”) and the New York Labor Law (“NYLL”) and were thus not entitled to receive the minimum wage.[i]

In Wang v. The Hearst Corp., the Court of Appeals found that the Hearst Corporation (“Hearst”) furnished bona fide, for-credit internships and did not exploit student-interns to avoid hiring and compensating entry-level employees.[ii]  Hearst offered unpaid internships across its various print magazines and each of the plaintiffs interned with Hearst during the semester, the summer, or between graduation and beginning graduate school.[iii]  The plaintiffs received approval for course credit before starting their internships, although not every plaintiff ultimately received the credit.[iv]  Some testified that their internship responsibilities included “tasks related to their professional pursuits” through which they “gained valuable knowledge and skills.”[v]  However, some interns complained that the tasks were “menial and repetitive” and they did not “receive close supervision or guidance” and received “little formal training.”[vi]

Under the FLSA, an “employee” is an “individual employed by an employer,” but not every individual who performs a service for an employer, like an unpaid intern, is an “employee.”[vii]  The analysis depends upon the “economic reality” of the relationship between the unpaid intern and the employer.[viii]  To aide in analyzing whether an unpaid intern is an “employee,” the court recognized the “primary beneficiary” test from its previous ruling in Glatt.[ix]  The test utilizes seven “non-exhaustive considerations specific to the contest of unpaid internships,” each of which must be considered by weighing and balancing the totality of the circumstances and none of which is dispositive to the ultimate determination.[x]  Courts applying these factors acknowledge that internships may directly benefit the employer “so long as the intern receives identifiable educational or vocational benefits in return.”[xi]

The court then proceeded to analyze the facts in relation to the factors; favoring the plaintiffs on some and Hearst on others.[xii]  Ultimately, the Court did not grant summary judgment and concluded that the interns were not “employees.”[xiii]  The Court ruled that the “employee” status was a matter of law, which permits district courts to strike a balance on the totality of the circumstances.[xiv]  The touchstone, the court noted, is that district courts may rule on Glatt questions if it can “weigh the . . . factors on the basis of facts that are not in dispute.”[xv]

In reaffirming the flexible Glatt test, the Second Circuit permits employers to continue offering unpaid internships.  However, with the flexible and factual nature of the analysis, cases can easily be argued either way.  This ambiguity introduces a risk of litigation for employers who choose to hire unpaid interns. Employers who hire unpaid interns should adopt internal standards that clearly inform applicants or interns that the position is not an indication or guarantee of future employment to comply with the Second Circuit’s factor analysis.

References

[i] Wang v. The Hearst Corp., 2017 WL 6062241 (2d Cir. Dec. 8, 2017). The Southern District denied the plaintiffs’ summary judgment motion, although the Second Circuit initially vacated the decision due to its almost concurrent ruling in Glatt v. Fox Searchlight Pictures. Wang v. Hearst Corp., 617 F.App’x 35, 37 (2d Cir. 2015).

[ii] Wang, 2017 WL 6062241 at *1.

[iii] Id.

[iv] Id.

[v] Id.

[vi] Id. at *2.

[vii] Wang, 2017 WL 6062241 at *2.

[viii] Id.

[ix] Id. The “primary beneficiary” analysis is a subjective and highly factual analysis that focuses on whether the employer or the intern “is the ‘primary beneficiary’ of the relationship. Michael A. Hacker, Permitted to Suffer for Experience: Second Circuit Uses “Primary Beneficiary” Test to Determine Whether Unpaid Interns Are Employees Under the FLSA in Glatt v. Fox Searchlight Pictures, Inc., 57 B.C. L. Rev. E-Supplement 67, 69 (2016).  In adopting this analysis, the Second Circuit in Glatt rejected the Department of Labor’s six-part test because it was “too rigid for” the court’s precedent. Glatt v. Fox Searchlight Pictures, Inc., 811 F.3d 528, 536 (2d Cir. 2015).

[x] Under Glatt, the considerations are: (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; and (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.” Wang, 2017 WL 6062241 at *3 (citing Glatt, 811 F.3d at 536–37).

[xi] Wang, 2017 WL 6062241 at *3.

[xii] Id. at *3—*4.

[xiii] Id. at *5.

[xiv] Id.

[xv] Id.

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