Rising Concerns Over Unpaid Internships

The issue of unpaid internships is back in the spotlight after news that a settlement agreement between Fox and its unpaid interns has been filed for approval in U.S. District Court for the Southern District of New York (Glatt, et al. v Fox Searchlight Pictures, Inc., et al., Civil Action No. 11-CV-6784). The case was filed five years ago based on alleged violations of state minimum wage laws and made serious waves as one of the first major challenges to the standard practice of using unpaid interns in the entertainment and media industries. Other prominent cases were filed against NBCUniversal, Viacom, Warner Music Group and Condé Nastalmost immediately after this one. To settle the case, Fox is agreeing to pay many of the interns who completed unpaid internships at several of its divisions. Plaintiffs Alex Footman and Eric Glatt would receive $6,000 and $7,500 respectively for the work they performed in the summer of 2010. The terms of the settlement agreement are pending the approval of U.S. District Judge William Pauley. The discussion in this case has centered on the U.S. Department of Labor's (DOL) six legal criteria for unpaid internships, which Circuit Court Judge John Walker found to be excessively rigid in determining whether an intern must be paid for his or her work. Instead, Judge Walker proposed that the defining consideration should be whether the employer or the intern is the primary beneficiary of the internship program. When the interns lost in the U.S. 2nd Circuit Court of Appeals, the case was sent back to federal court in New York, which likely prompted discussions of settlement.

This case raises serious issues for employers in making arrangement for internship programs. The criteria from the DOL for whether an employment relationship exists that requires compliance with the Fair Labor Standards Act (FLSA) minimum age and overtime provisions include:

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
2. The internship experience is for the benefit of the intern;
3. The intern does not displace regular employees, but works under close supervision of existing staff;
4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

Before you make a decision as to whether your company needs to compensate summer interns, you must consult these criteria from the DOL. Failure to comply with the FLSA in compensating workers can result in civil money penalties (CMPs) of up to $1,100 for each violation for repeated or willful violations of the minimum wage and overtime requirements of the Act and up to $11,000 for each employee who is the subject of a violation of the Act’s child labor provisions.

To make sure that your company is complying with state and federal requirements for hiring and compensating interns, contact Simms Showers LLP for a consultation.