Employment Law Commentary, May 2012

An unpaid internship for a college student has almost become a rite of passage. Many advocates, however, charge that unpaid internships are just a form of unpaid labor, regardless of the benefits enjoyed by students and companies. Indeed, in the past six months, three proposed class actions have been filed against companies in the media industry accusing them of misclassifying individuals as unpaid interns, instead of employees, thus violating federal and state minimum wage and overtime laws. These legal challenges should be of concern to employers who use unpaid interns, and provide an opportunity for employers to reassess their internship programs and ensure that they are in compliance with federal and California law.

Recent Class Actions Filed Involving Unpaid Interns

Interestingly, all three of the recent class actions involving unpaid interns were filed by the same New York City law firm and allege New York labor law violations (while two assert federal labor claims as well). The first case was lodged in September 2011 against Fox Searchlight Pictures, Inc., on behalf of two unpaid interns who worked on the production of the film Black Swan.1 A similar case was filed in February 2012 against Hearst Corporation by a former Harper's Bazaar intern.2 Both cases were filed in a New York federal court.

On March 24, 2012, a third class action was filed against Charlie Rose, Inc. and television host Charlie Rose, where a former intern claims that she regularly worked 25 hours a week with no pay.3 Unlike the other two class actions, this case does not assert any federal labor violations, and was filed in a New York state court.

Litigation concerning unpaid interns can be expected in other states and business sectors, particularly in the entertainment, fashion, and publishing industries, where the utilization of unpaid interns is a prevalent and widely accepted practice. Accordingly, all California employers who use interns, regardless of the sector they are in, should keep abreast of the relevant federal and California laws relating to interns.

Evaluating Whether a True Internship Relationship Exists Under Federal Law

When determining whether an individual should be classified as an intern as opposed to an employee under federal law, an employer must first examine if that individual and his or her arrangement meet the definitions of "employee" and "employ" under the federal Fair Labor Standards Act ("FLSA"). Those who fall under these definitions must be compensated for their services in accordance with federal and state minimum wage and overtime laws.

The FLSA defines an employee as "any individual employed by an employer," and employ as "to suffer or permit to work."4 In a pivotal case on the matter, the United States Supreme Court held (more than 60 years ago) that the FLSA definition of employ does not "intend to stamp all persons as employees who, without any express or implied compensation agreement, may work for their own advantage on the premises of another."5 Therefore, deciding whether an individual should be considered an intern or an employee under the FLSA depends "upon all the circumstances surrounding their activities."6

The Federal Department of Labor's Six Criteria for Unpaid Internships

The federal Department of Labor ("DOL") has provided guidance to "forprofit," private-sector employers to assist them in making this determination. 7 To begin with, the federal DOL indicated that the FLSA's definition of employ "is very broad."8 Accordingly, it explained that "internships in the 'for-profit' private sector will most often be viewed as employment."9 In fact, in April 2010, Nancy Leppink, the DOL's current Deputy Wage and Hour Administrator, told the New York Times that "if you're a for-profit employer or you want to pursue an internship with a for-profit employer, there aren't going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law."10

With that said, the DOL has six criteria in place to assess whether interns should be considered employees for the services they provide to "for-profit,"...