In 2013, we reported on the “Black Swan” lawsuit, a case brought by unpaid interns who worked on the film and claimed that they were employees entitled to regular pay and overtime wages under the FLSA.  The trial court agreed that the interns were employees of the studio, after it applied the “totality of the circumstances” test which weighed the six-factors set forth in the Department of Labor’s (“DOL”) Fact Sheet #71 regarding Internship Programs under the FLSA.

The studio appealed that decision and, on July 2, 2015, the United States Court of Appeals, Second Circuit, overruled the trial court.  In its opinion, the Court adopted the “primary benefits test,” stating that the DOL test was unpersuasive and declined to defer to it.  The Court derided the DOL test for being too rigid and too old to apply to modern workplaces and internships.

The “primary benefits test” focuses on whether the intern or the employer is the primary beneficiary of the relationship.  Under this test, if the intern primarily benefits, then the FLSA does not apply, but if the employer does, then the intern is actually an employee entitled to regular wages and overtime under the FLSA.  To aid courts in deciding whether the intern or the employer is the primary beneficiary, the Court set forth a list of non-exhaustive factors to consider:

  • Whether there is any expectation of compensation
  • Whether the internship provides training similar to that given in educational environments
  • The extent to which the internship is tied to the intern’s formal education program (e.g. integrated coursework or academic credit)
  • The extent to which the internship corresponds to the academic calendar
  • The extent to which the duration of the internship is limited to a period that provides the intern with beneficial learning
  • The extent to which the intern’s work complements rather than displaces paid employees
  • Whether there is any expectation of being hired as an employee after the internship concludes

The Court stated that these factors should be weighed and balanced against one another and that no one factor is dispositive.  The Court then remanded the case back to the trial court to apply its test.

While the Court’s test expressly applies to for-profit employers, this case provides all employers, even public agencies and non-profit organizations, with some guidance on what constitutes an unpaid intern under the FLSA.  Other courts, such as the Sixth and Eighth Circuit Court of Appeals, have also been finding in favor of the primary benefits test rather than the DOL’s more rigid approach.  However, until the Department of Labor or the Supreme Court weigh in, our clients should continue to work with their attorneys to review their use of interns in order to minimize any potential liability.