August 30, 2016

Federal Judge Tosses Unpaid Intern Claims: Four Takeaways—and Good News—for Nonprofit Employers with Internship Programs

6 min

The legal requirements for unpaid internships have been in a state of flux the last several years. In Glatt v. Fox Searchlight Pictures, Inc., unpaid interns sought minimum wage and overtime pay based on allegations that they qualified as employees under federal and New York State wage-and-hour laws. In 2013, the federal District Court in Glatt ruled in favor of the unpaid interns, finding that they should have been classified as employees and, therefore, were entitled to minimum wage and overtime pay. That holding was soon reversed, however. In 2015, the Second Circuit Court of Appeals vacated the District Court's Glatt decision and established a different test for evaluating the legality of unpaid internships.

Federal courts in the Second Circuit are now tasked with applying the new Glatt standard. On August 24, 2016, United States District Judge J. Paul Oetken of the Southern District of York dismissed an unpaid intern lawsuit against the Hearst Corporation, using the new Glatt test. A copy of Judge Oetken's decision in the case, which is captioned Wang v. The Hearst Corporation, may be found here.

By way of background, Glatt replaced the U.S. Department of Labor's (DOL) six-factor test for unpaid internships with a more employer-friendly "primary beneficiary" test. Under the new test in Glatt, courts consider the following seven non-exhaustive factors when deciding whether an individual is properly classified as an unpaid intern (as opposed to a paid employee):

  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 an 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 commitment 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.

See Glatt, 811 F.3d 528, 536-37 (2d Cir. 2015).

In addition, DOL generally permits unpaid internships for individuals who volunteer at "charitable" nonprofit organizations (a more limited subset of all nonprofits), provided that the individual meets the first factor above regarding the individual's understanding that he or she will not receive compensation. That being said, based on DOL enforcement practices, there have been some questions about whether there truly is a "charitable" nonprofit exception to the basic rules in this area, despite what the written DOL guidance provides. Finally, DOL has stated that it is reviewing the need for additional guidance about unpaid internships at nonprofit organizations.

With that as background, below are four takeaways from Wang for nonprofit employers with unpaid internship programs.

Takeaway 1: Require Academic Credit from the Intern's Educational Institution

Two of the six plaintiffs in Wang did not receive academic credit, yet the court still found that the third Glatt factor supported the unpaid intern classification. The educational institutions initially approved the two plaintiffs' receipt of academic credit, only to later deny the requests for academic credit at the end of the internship program. Wang held that the internship program was nonetheless tied to the formal education program because the Hearst Corporation had required the plaintiffs to submit proof of eligibility for academic credit at the beginning of the internship. The fact that the plaintiffs ultimately did not receive academic credit did not weigh in favor of an employment relationship. Accordingly, nonprofits should consider requiring that unpaid interns submit proof from their educational institutions that they are at least preliminarily eligible to receive academic credit for participation in the internship program, if that is indeed the case. In any event, even if an individual is ineligible for academic credit, nonprofits should remember that no single Glatt factor is necessarily determinative.

Takeaway 2: Design Educational Sessions for the Interns

Some of the plaintiffs in Wang worked as summer interns at Cosmopolitan magazine. During their internships there, they attended four one-hour sessions of "Cosmo U," which was a program where the magazine's senior editors discussed their career paths with interns. Wang held that the "Cosmo U" sessions supported the legality of the unpaid internship because the sessions, among other things, presented the interns with educational and vocational benefits through hands-on job experience.

Nonprofits should consider conducting educational sessions for their interns during the internship program. Just four one-hour sessions during a summer internship helped the employer in Wang under the second Glatt factor note above. A nonprofit employer should ensure the educational sessions teach its interns about the practical realities of working in the nonprofit's field.

Takeaway 3: Monitor the Frequency of Menial Tasks Performed by Interns

One common problem for unpaid internship programs is the frequency of menial tasks the interns perform. For instance, a court is more likely to find an employment relationship if the bulk of an intern's day is spent making deliveries, performing data entry, and running other errands, because such tasks undercut the educational value of the internship. Wang explained that the sixth Glatt factor will favor the existence of an employment relationship "where an internship exists to pass drudge work on to unpaid laborers."

While menial tasks are not altogether prohibited, nonprofits should ensure that the majority of an intern's time is not spent on "drudge work." Non-menial tasks for interns may include substantive tasks that paid employees would otherwise perform, or alternatively, a nonprofit may assign an intern to shadow a paid employee. Both tasks typically support the legality of an unpaid internship program because both tasks provide interns with an educational benefit.

Takeaway 4: Beware of Lengthy Intern Relationships

Wang shed light on the appropriate duration of an unpaid internship. As held in Wang, the fifth factor established under the new Glatt test asks whether the length of the internship is "grossly excessive in comparison to the period of beneficial learning." Wang determined that each of the internships at issue—the longest of which lasted approximately six months—did not impermissibly exceed the period of beneficial learning for each intern. Accordingly, nonprofits should manage the length of participation in their internship programs. For now, Wang serves as precedent in support of an internship program that lasts six months or less.

While Wang is merely one federal court decision in New York, it suggests a possible road map for how nonprofits of all types and in all jurisdictions may administer an unpaid internship program. Nevertheless, federal judicial precedent and state laws may vary across different regions. To minimize the risk of an unpaid intern suit for minimum wage and overtime pay, it is always recommended that nonprofits consult with experienced legal counsel about the nature of their internship program.