Fox Searchlight Ruling Raises the Red Flag on Hiring Unpaid Interns . . . Again

A June 11, 2013, ruling by U.S. District Judge William H. Pauley III (Southern District of New York) against Fox Searchlight Pictures, finding that its production interns should have been properly classified as employees and are entitled to the minimum wage and overtime, once again underscores the risks private sector employers face in hiring unpaid interns. (Glatt v. Searchlight Pictures, Inc., Case No. 1:11 CV 06784).

In the long-running Fox Searchlight dispute, Pauley ruled that two interns who worked on the film "Black Swan" should have been classified as employees under the Fair Labor Standards Act. He granted the interns' motion for summary judgment, and also certified a class of interns who worked in five New York Fox Entertainment Group units to bring related claims under state law and the Fair Labor Standards Act. The lawsuit alleged that the interns performed menial tasks, such as getting lunch and coffee, running errands and making photocopies for other workers. Such duties, it claims, should have been assigned to regular paid employees at Fox.

The Fox Searchlight ruling, and a host of similar cases pending against Warner Music Group/Atlantic Records, the "Charlie Rose Show," designer Norma Kamali, Elite Modeling Agency and others, have focused attention on the risks undertaken by employers that hire interns to obtain "free labor."

At the same time, recent college graduates unable to find paid employment, and college and professional students seeking work experience as a path to future job offers, are increasingly willing to work for free in order to get their foot in the door, making the prospects of an unpaid internship mutually attractive.

As we have previously cautioned, employers must be attuned to the federal laws governing internship as a means of avoiding potential liability.

The U.S. Department of Labor has identified six qualifying criteria to determine whether an unpaid internship program passes muster under the Fair Labor Standards Act. A program qualifies if:

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

Including an instructional or classroom training aspect in the internship program or having the intern qualify for academic credit are generally regarded as essential components of any unpaid internship program, and may assist employers in establishing the program's educational focus and legitimacy.

An employer — even well intentioned — may unwittingly assume a potential liability in terms of wages, overtime and benefits by engaging unpaid interns unless steps are taken to ensure compliance with Labor Department regulations.