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Courts weigh legality of unpaid internships

A U.S. district court ruled that Fox Searchlight Pictures violated the Fair Labor Standards Act by employing unpaid interns, in a decision that could have economy-wide implications.
/ Source: All In

A U.S. district court ruled that Fox Searchlight Pictures violated the Fair Labor Standards Act by employing unpaid interns, in a decision that could have economy-wide implications.

When you think of the Natalie Portman movie Black Swan, labor rights violations might not be the first thing that comes to mind. But according to a recent ruling from a U.S. district court, the production company Fox Searchlight Pictures violated labor law by letting unpaid interns work on the film.

New York Southern District Judge William Pauley on Tuesday ruled that Eric Glatt and several other unpaid interns who worked for the studio were actually employees, and therefore entitled to at least the minimum wage.

The ruling could set a precedent for young people across the country. If Fox Searchlight’s unpaid internship program was illegal then so are many other similar programs.

Pauley’s ruling “is hugely important, because corporate America has been taking advantage of these unpaid interns for years,” said Paul Secunda, a professor of labor law at Marquette University. “Especially in this economy where people are desperate to find jobs and are subject to exploitation, people have been using these unpaid interns to save money.”

Thanks to a tight job market and a vast oversupply of college-educated young people, many students and recent graduates seek out unpaid or low-paying internships as a way of establishing a foothold in their preferred industry. There are about 1.5 million internships in the U.S. each year, according to Ross Perlin, the author of Intern Nation: How to Earn Nothing and Learn Little in the Brave New Economy. Only about half of those internships pay anything at all.

Intern compensation has been the subject of a number of legal challenges in recent years. Last month, former Harper’s Bazaar intern Xuedan Wang lost her lawsuit against Hearst Magazines. This Thursday, two former interns filed suit against publishing company Condé Nast, saying that the company failed to adequately compensate them for their labor. In all three cases, the plaintiffs are represented by the same law firm, Outten & Golden.

“It’s a pretty common misconception that it’s okay to have unpaid interns, because that’s something that’s been done for a long time,” said Outten & Turner associate Juno Turner, who is involved with both cases. “But just because something’s been done for a long time, doesn’t make it lawful.”

In order to get away with paying interns below minimum wage, said Turner, employers need to meet six very strict legal criteria derived from the Supreme Court’s 1947 Walling decision. Those criteria require that the employer “[derive] no immediate advantage from the activities of the trainees” and provide training “similar to that which would be given in a vocational school.”

When asked to defend themselves, employers of unpaid interns typically advocate for a broader interpretation of the six-point Walling test.

“You’ve got to consider a lot of different factors including these six factors,” Camille Olson, a partner at corporate law firm Seyfarth Shaw, told Wonkblog’s Dylan Matthews. She pointed to the recent ruling in Xuedan Wang v. Hearst, in which Judge Harold Baer rejected Wang’s claim that she was an employee of Hearst Magazines and therefore owed wages.

Baer based his decision in part on something called the primary beneficiary test, which “looks to the totality of circumstances to evaluate the ‘economy reality’ of the relationship,” according to the ruling [PDF] in favor of Hearst Magazines. In other words, it’s not only the six criteria under Walling that matter; the legality of an internship depends on a holistic view of how much the intern benefits.

“The proposed analysis is to figure out who benefits more from the internship, the intern or the employer,” said Turner, who also represented Wang in the Hearst case. “In addition to not finding support in precedent, that test is really difficult to apply. It’s really subjective.”

The primary beneficiary test is “some judge-made test which is not really true to the law” and “not supported by the Department of Labor,” said Secunda.

He predicted that it would not be long before the Supreme Court took up on a case related to unpaid internships. In that event, the Court will likely defer to prior Supreme Court precedent and Department of Labor policy, he said.

Perlin described lawsuits against employers as “an effective tool…to get justice.” But he lamented the fact that they are necessary in the first place.

“In an ideal world, lawsuits would not be the way that this practice changes,” he said. “It would be from companies changing this policy, changing themselves, interns being to organize more and act collectively, or the Department of Labor playing more of an enforcement role.”