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Court finally clarifies law regarding internships.

Byline: Thomas E. Chase

In July, the 2nd Circuit Court of Appeal issued a groundbreaking decision addressing when unpaid interns are exempt from the minimum wage and overtime requirements of the Fair Labor Standards Act (the FLSA). See Glatt v. Fox Searchlight Pictures, Inc., 2015 WL 4033018 (2d Cir. 2015).

The Court held that unpaid interns are not covered by the FLSA if they receive significant and quantifiable educational benefits from their internships. Surprisingly, Glatt is the first authoritative decision in this area despite the fact that the FLSA was adopted almost 80 years ago (in 1938) and unpaid internships have been a staple of career development for decades. The decision finally provides a roadmap for qualifying internship programs and is a must-read for counsel advising employers operating or considering internship programs.

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FURTHER READING: Education on unpaid internships for the in-house counsel Roundup: Labor and employment

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The court held that Fox's interns must receive significant educational benefits to be exempt from the FLSA. Plaintiffs offered significant evidence that they received little educational benefit and performed mostly menial services, and the lower court held that the plaintiff interns were "employees" covered by the FLSA's compensation requirements. The 2nd Circuit held that the lower court applied the wrong test for employee status and announced a different but equally demanding test. The court held that internships must provide interns with significant educational benefits tied to the interns' formal education programs. The requirement that internships must provide tangible educational benefits as part of a formal educational program in order to be exempt from the FLSA is entirely unprecedented.

The court announced a "non-exhaustive" list of factors to be considered in determining whether an internship is exempt from the FLSA, including whether the internship (1) "provides training that would be similar to that which would be given in an educational environment"; (2) "is tied to a formal educational program by integrated coursework or the receipt of academic credit"; (3) "accommodates an intern's academic commitments by corresponding to the academic calendar"; (4) is of a duration that "is limited to the period in which the internship provides the intern with beneficial learning"; and (5) compliments, rather than displaces, the work of paid employees while providing "significant educational benefits" to the intern.

Glatt should immediately impact prevailing internship practices, which have developed to an industrial scale at some large employers. A spate of recent FLSA internship cases filed in New York showed the massive internship programs at some employers, especially in the media and entertainment fields. Viacom recently settled a class action brought on behalf of 10,500 interns for $7.2 million. Conde Nast settled similar claims covering 7,000 interns for $5.8 million. Warner Music Group settled intern claims for $4.2 million, covering approximately 4,500 former interns. MSG Holdings settled claims on behalf of approximately 1,000 interns for $800,000. Claims by former interns at Fox and Hearst Corp., among others, are still pending.

While none of these cases has been adjudicated through trial, the preliminary decisions issued in these cases suggest that many interns in these large programs did not receive the type of tailored educational benefit required by the 2nd Circuit. In Glatt, for example, the district court held:

[The interns] worked as paid employees work performing low-level tasks not requiring special training. The benefits they may have received -- such as knowledge of how a production or accounting office functions or references for future jobs -- are the results of simply having worked as any other employee works, not of internships designed to be uniquely educational [t]hey received nothing approximating the education they would receive in an academic setting or vocational school. Glatt, 293 F.R.D. 516, 534, 535 (S.D.N.Y. 2013).

To comply with Glatt, employers should, among other things: (1) schedule internships to accommodate interns' academic schedule, preferably permitting interns to work after class hours, on weekends, or during vacations; (2) limit the duration of internships to the time needed to impart specifically identifiable educational or training benefits to interns; (3) liaise formally or informally with interns' schools or instructors and document how the internship compliments the interns' academic program, preferably resulting in the intern receiving academic credit for the internship; and (4) assign individual mentors/supervisors to each intern to ensure that the intern receives some structured instruction and is not relegated only to performing menial tasks.

Significantly, the Glatt decision also makes it much harder to challenge internship programs through class actions. The 2nd Circuit reversed the lower court's certification of a plaintiff class of interns, holding that questions regarding the educational benefits obtained by interns are highly individualized: "common evidence will not help to answer whether a given internship was tied to an education program, whether and what type of training the intern received, whether the intern continued to work beyond the primary period of learning, or the many other questions that are relevant to each class member's case." Id. at *8. This part of the Glatt decision should significantly lower the legal stakes of offering an internship program.

In conclusion, Glatt is a remarkable decision. It provides clear guidance in an important area of the law where there was virtually no controlling precedent. The decision finally establishes a safe harbor for internships that is critically important for employers contemplating such programs. The decision also mandates that qualifying programs provide interns with significant educational benefits and the decision therefore will affect the employment and training prospects of thousands of young people entering the workforce.
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Publication:Inside Counsel Breaking News
Date:Aug 19, 2015
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