There has been a significant update on the unpaid intern front, as the Second Circuit recent issued an amended decision in its ruling in Glatt v. Fox Searchlight, a lawsuit that was filed in September 2011 in the Southern District of New York and stems from Fox Searchlight's production of "Black Swan" in New York City. In its July 2015 decision, the Second Circuit Court of Appeals held that the “primary beneficiary” test, which holds than an intern will not be classified as an employee if he or she is the primary beneficiary of the internship, should be used to decide whether individuals should be deemed employees or interns. This is a ruling that will likely tide over to a number of existing intern lawsuits, such as the ones being faced by The Row, Gucci America, Zac Posen, Perry Ellis, Oscar de la Renta, and Marc Jacobs, among others.
The Intern vs. Employee Test
In an amended decision, issued late last month, a panel of three judges in the Second Circuit further clarified the test for determining whether an individual is an employee, entitled to minimum wage, or an intern by adding a third “salient feature” to the primary beneficiary test. The primary beneficiary test has three salient features: 1) what the intern receives in exchange for his work; 2) the economic reality as it exists between the intern and the employer; and now, 3) “the intern - employer relationship should not be analyzed in the same manner as the standard employer - employee relationship because the intern enters into the relationship with the expectation of receiving educational or vocational benefits that are not necessarily expected with all forms of employment (though such benefits may be a product of experience on the job).”
In light of the seven non-exhaustive factors that determine the “primary beneficiary” of an internship (read about them in their entirety here) and the “touchstone” of its analysis being the economic reality of the relationship, the court held that it is relevant to consider evidence “about an internship program as a whole rather than the experience of a specific intern.” According to sources, “this is an important addition because it may render the specific experiences of a named plaintiff less important in the overall ‘primary beneficiary’ analysis and make it easier for an employer to satisfy the test even if a particular manager did not administer a compliant program.”
It is worth noting that in adopting this new test, the court stated that the test set forth by the Department of Labor (DOL) is too rigid to apply to all workplaces and held that the proper question is not whether the employer receives an immediate advantage from the activities of the intern (which was not permitted under the former DOL test). Instead, the court held that the proper question is “whether the intern or the employer is the primary beneficiary of the relationship.”
This is an important addition because it may render the specific experiences of a named plaintiff less important in the overall “primary beneficiary” analysis and make it easier for an employer to satisfy the test.
The court also modified its analysis in terms of New York state law. As you may know, in order for a plaintiff (the former intern, in this case) to bring a lawsuit on behalf of himself and other similarly situated individuals (read: other interns for the company at issue) by way of a class action lawsuit, the court must grant class certification. As a result, this is an extremely important aspect of the case. If the class is certified (aka it is deemed that there are so many possible plaintiffs and lawsuits against a defendant that it's not practical for them to file their own suits; the claims raise common legal and factual issues; the named plaintiffs have the same claims and defenses as the others in the class; and the class representatives provide fair and adequate protection for the class), it can proceed to discovery and resolution on the merits. If the class is not certified, the plaintiff may continue the suit to determine his individual claim, but may not represent the other people in the class.
With this in mind, New York state law formerly dictated that in order determine whether a class is fit for certification, the court must make “individualized” inquiries regarding an intern’s employment status. The Second Circuit has modified this standard, holding, instead, that the question of an intern’s employment status is a “highly context-specific inquiry.” This lower threshold for determining whether an internship is, in fact, an internship, seems to be the court siding, yet again, with the employers.