Unquestionably, the entertainment industry has engendered an almost-mythical culture surrounding unpaid internships. Though highly romanticized, the journey from unpaid intern to Hollywood executive is well-known and has spawned some of Hollywood’s most famous players. Michael Ovitz, David Geffen, Rich Ross, and countless others – the list of Hollywood moguls who began their careers as unpaid interns in the infamous “mailroom” is strikingly impressive. Perhaps these were the career paths envisioned by plaintiffs Eric Glatt, Alexander Footman, and Eden Antalik when they agreed to work as unpaid interns for Fox Searchlight’s blockbuster film, Black Swan, before filing a class action lawsuit demanding wages, challenging their status as unpaid interns.
Indeed, the controversy surrounding the legality of unpaid internships has only grown louder in recent years, and with good cause. In an increasingly competitive job market, internships have become a crucial aspect of the modern employment process in the United States as a way for students to obtain valuable experience and training in the field of their choosing. For employers, internships provide access to deep hiring pool of students who demonstrate talent. Because internships play such a key role in education, most universities now offer academic credit for their participation. In 2015, a survey of college graduates revealed that nearly sixty percent of college students have participated in an internship programs and that students who participate in internships are far more likely to receive job offers after graduating from their respective undergraduate institutions.
However, not all internships are created equally. While most internship programs are now paid, nearly forty percent of all internships remain unpaid. In fact, anywhere between 500,000 and 1 million people intern for free each year. In industries like entertainment, where demand for available jobs far outweighs the supply, unpaid internships are hardly uncommon. Unsurprisingly, there are many critics who view the practice of unpaid internships as illegal, claiming that interns should be considered “employees” owed at least minimum wage under the Fair Labor Standard Act (“FLSA”). As the discussion has progressed, so have the number of lawsuits filed by unpaid interns asserting that they were unlawfully denied wages, with many arising from the entertainment industry. In the midst of a circuit split in how to interpret the question of when interns must be paid, the Department of Labor (“DOL”) has informally promulgated Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act (“Fact Sheet #71), an “all-or-nothing” six factor test to help with the inquiry.
Working as unpaid interns for the film Black Swan, Eric Glatt, Alexander Footman, and Eden Antalik all had different roles for Fox Searchlight Pictures. Glatt, a 42-year old intern at the time, worked in the accounting department. Footman, a recent college graduate, worked in the production department. Antalik, who was pursuing her degree at the time, worked as a publicity intern in Fox Searchlight’s corporate office in New York. All three interns were responsible for various clerical and administrative tasks. In October of 2012, the plaintiffs filed a class action lawsuit against Fox for unpaid wages for themselves and those similarly situated. They moved for summary judgment, asking for the Southern District of New York to classify them as employees under the FLSA.
The district court eventually granted the plaintiffs’ motion for summary judgment. Using the Department of Labor’s six-factor test from Fact Sheet #71, the court concluded that the interns had been improperly classified as unpaid interns and were therefore entitled to minimum wages and overtime pay. In making this decision, the court paid special attention to a 1947 decision in Walling v. Portland Terminal, where the Supreme Court found that railroad “trainees” were not entitled to compensation under the FLSA. Essentially, the court found that the interns in this case did not fit into the “narrow ‘trainee exception’” to the FLSA created by the Portland Terminal decision. Following the district court’s order, several entertainment companies such as Condé Nast promptly cancelled their internship programs.
On appeal, the Second Circuit vacated the district court’s holding. In overturning the district court’s decision, the Second Circuit neglected to adopt the FLSA test regarding when it is lawful to classify employees as “unpaid interns.” In doing so, the Second Circuit adopted a flexible, individualized test, allowing for an employer to maintain an unpaid internship program as long as the potential intern is the “primary beneficiary” of the test. Under this test, an intern can be classified as an employee when the “tangible and intangible benefits provided to the intern” are “less than the intern’s contribution to the employer’s operation.” The touchstone of this test, as instructed by the Second Circuit, is to consider the totality the circumstances regarding the “economic realities” of the intern-employer relationship. To determine the primary beneficiary of the employment relationship, the Second Circuit proposed a non-exhaustive list of factors primarily focused on the synergy between the internship and the intern’s learning and education.
The “primary beneficiary” test adopted by the Second Circuit, while not a perfect fit, is still well-suited for the entertainment industry because the individualized assessment of the employer-intern relationship provides a practical amount of flexibility in assessing unpaid internships without sacrificing its ability to protect the integrity of the modern employment relationship. Previous precedent is simply unworkable. As previously stated, the most germane Supreme Court decision on the matter deals with whether or not railroad trainees were covered by the FLSA in 1947. Unsurprisingly, internships today present very little similarity to the situation of the railroad trainees in Portland Terminal.
Similarly, the all-or-nothing six-factor test proposed by the Department of Labor is far too rigid in practice, and, if formally adopted, would likely result in the end of all unpaid internships across all industries. In the entertainment industry, the costs of production have become increasingly higher and the doorway to employment has become even narrower. The death of the unpaid internship would slam shut that barely-opened door of opportunity for those without nepotistic connections.
This does not, however, give companies free rein to exploit unpaid interns as free labor. The true strength of the Second Circuit’s decision is that, despite its flexibility, it maintains sufficient protection for interns against exploitive employers. By tying the test to the intern’s educational and vocational benefits, the test takes a practical and contemporary view of the modern internship. The “highly individualized inquiry” present in the Glatt test helps to ensure that the goal of the modern intern—to receive valuable experience in an industry of their choosing—is met. By requiring accommodation to the intern’s academic commitments, limiting the duration of the unpaid internship to the period where the internship actually provides learning, and demanding some formal training, the Second Circuit’s test undoubtedly helps to protect interns. In the entertainment industry, where unpaid internships play a crucial role in the identification, acquisition, and training of new talent, the Glatt test provides a workable safe haven that has the potential to benefit interns and employers alike.
Vincent Honrubia is a JD candidate, 2018, at NYU School of Law.