Fade to Gray: Resolution of Fox’s Unpaid Internship Case Doesn’t Clear Up Much

By Zosha Millman | LXBN | July 19, 2016

Well that’s a wrap: Fox has officially settled with the unpaid interns who worked on “Black Swan” years ago. So companies can expect clear guidelines on paid and unpaid interns—right?

Probably not. After six years of litigation, a number of appeals, and some high-profile shockwaves, it seems only Fox knows where it stands around unpaid interns. The rest of us aren’t any better off than when we started.

As LXBN has reported in the past, the traditional way to guide unpaid internships was by the Department of Labor’s six part test, which theoretically ensured for-profit companies with unpaid intern programs were falling under the FLSA. Those six-factors were:

• Is the internship similar to training the intern would receive in an educational environment? As Mark Wilkinson wrote in a guest blog for Wage & Hour Insights, “the more an internship program is built around the classroom or academic experience as opposed to the employer’s actual operations, the greater the chance the internship will be considered an extension of the student’s educational experience.”
• Is the internship designed for the benefit of the intern? Will they learn new skills or gain college credit?
• Does the intern work alongside regular employees without filling in for them?
• Does the intern not provide the employer with any immediate advantages or services? If your internship looks a lot like a cliche–sorting mail and fetching coffee–then your internship is not legit.
• Is the intern aware of the endpoint for the internship, and do they understand that they are not entitled to a job at the conclusion of their time there?
• Are both the employer and the intern on the same page that the intern will not receive wages during their time in the internship?

Primarily the goal was to get at the heart of the substance of the internship; if an internship met all of the above requirements then there would be no employment relationship under the FLSA. And that was the way people evaluated a “good” unpaid internship over a “bad” one. It was the test Eric Glatt checked against when he decided that his time at Fox had left him feeling exploited, and he sued them for violating New York and federal law.

Photo Credit: moneypictures cc

But that case, which would go on to become Glatt, et. al v. Fox Searchlight, changed the narrative a bit. In2013 a Southern District of New York court granted a summary judgement to two of three interns, which lead Fox to appeal the case to the Second Circuit—where they won. In a twist of events, the Second Circuit rejected the gold-standard legal assessment from the DOL for unpaid internships in favor of a “primary beneficiary” test, which requires “weighing and balancing all of the circumstances” which the court said reflected the more “modern internship.” And as Evan J. Spelfogel of Wage & Hour Defense Blog writes, it caught on:

Noting that the DOL has no special expertise in interpreting court decisions [in their opinion  Schumann and Abraham et al v Collier Anesthesia, P.A., Wolford College, LLC, Thomas Cook and Lynda Waterhouse], the Eleventh Circuit instead followed the Second Circuit in holding that seven non-exclusive factors should be considered to determine whether the intern or the putative employer was the primary beneficiary of the services being rendered:

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 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.

The Eleventh Circuit expressly stated that in applying these factors to determine whether the intern or the putative employer was the primary beneficiary of the interns’ services, no one factor is determinative and every factor need not point in the same direction.  Further, courts may consider other relevant evidence beyond the specified factors in appropriate cases.

What’s resulted is a test that creates a more pro-employer framework, and more clearly aligning internships associated with educational institutions with minimum-wage exemptions. Sort of. The DOL hasn’t backed down from supporting its original test, even releasing a guide for employers to establish proper internship practices. So it appears they still believe in the relevance of their test.

And in their defense, it does seem to still be doing work around the country: The number of overall unpaid intern class actions and collective action lawsuits seems to be dropping. By the time the Second Circuit’s new test had rolled out, many companies had already revised their unpaid internship programs, either paying their interns or playing it extra safe and getting rid of the practice altogether. No one wants to be the next Fox Searchlight—even Fox, who scored the initial victory at the Second Circuit, is reaching a settlement with Glatt and his fellow former-unpaid interns.

The question now is, what revisions need to be made? And how can employers keep their internship programs on the right side of the law? Problem is, the answers vary on who you ask. The only way to get some clarity is that someone will have to be the next Fox. Otherwise, employers and interns alike will be stuck playing it extra safe and paying their interns to not break any eggs.

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