In February we reported on the growing number of lawsuits brought by unpaid interns against companies they worked with for failure to pay regular and overtime wages.  The unpaid interns claim that these businesses treated them like employees.  Consequently, the interns argue they should have been paid like employees as required by the federal Fair Labor Standards Act (“FLSA”) and state wage laws.  Since our last post, a number of court decisions have been decided which provided mixed results. 

For example, in the “Black Swan” lawsuit against film company Fox Searchlight, Judge Pauley of the U.S. District Court in New York City ruled in favor of the unpaid interns who worked on the film.  Judge Pauley concluded the interns were in fact employees under both the FLSA and state law.  In the same court, Judge Baer reached a different result.  In a lawsuit against Hearst Corporation, Judge Baer held former interns who worked on several of the company’s magazines, including Harper’s Bazaar, Esquire and Marie Claire, did not qualify as employees under the same laws.  The losing parties in both cases have sought permission to take an immediate appeal to the Court of Appeals.  Judge Baer granted the former Hearst interns permission to appeal while Fox Searchlight is still waiting for Judge Pauley to rule on its request.

The uncertainty in the courts regarding whether unpaid interns must be paid as employees stems from a split among the courts over the test to apply in analyzing this issue.  In both the Black Swan and Hearst lawsuits, the courts applied the “totality of circumstances test” which weighs the six factors set forth on the U.S. Department of Labor’s Fact Sheet #71 (April 2010) regarding internship programs with no one factor being dispositive.  However, other courts have applied the “primary benefit test,” which focuses on whether the internship’s benefits to the intern outweigh the benefits to the company.  Still, other courts have applied the “economic realities test” which examines factors including, but not limited to, the nature of the company’s control over the work, the intern’s opportunity for profit and loss, and the length of the working relationship. 

There is also a split among the courts regarding the level of acceptance or deference to be given to DOL’s six factor test.  As discussed above, the courts in the Black Swan and Hearst lawsuits accepted this test and incorporated it into the “totality of circumstances test.” However, other courts have either afforded the six factor test little weight or have rejected it. 

Given the lack of consensus among the courts, it is possible the U.S. Supreme Court will eventually weigh in on these issues.  Recently, attorneys for two former interns who performed medical billing and coding services without pay for three different Florida businesses filed a petition for writ of certiorari asking the Supreme Court to review the Court of Appeals’ decision that they were not employees under the FLSA and were therefore not be paid for the work they performed.  The petition presented two questions to the Supreme Court: 1) What is the proper test for determining when an intern or extern is a “trainee” not entitled to the minimum wage protections guaranteed to employees; and 2) Is the DOL’s six-factor test entitled to deference? 

While it remains to be seen whether the Supreme Court will hear this or another case involving unpaid interns, public agencies should proceed cautiously when using unpaid interns.  Although DOL Fact Sheet #71 states “unpaid internships in the public sector and for non-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible,” it also says the DOL is “reviewing the need for additional guidance on internships in the public and non-profit sectors.”  Therefore, until further guidance is provided by the courts or the DOL, agencies should review their use of interns with their attorneys in order to minimize any potential liability for unpaid wages and benefits.