College students and recent graduates may soon have cause to celebrate:  employers are coming under increased scrutiny when it comes to unpaid internships.  Following the success of interns suing for wages at Fox Searchlight and the recent $450,000 settlement in favor of Elite Model Management interns, the Second Circuit finds itself at the epicenter of a battle between appropriate rules of law governing the age-old rite of passage for 20-somethings.

 The case law on unpaid internships stems from a 1947 Supreme Court case.  In Walling v. Portland Terminal Co., 330 U.S. 148 (1947) the Supreme Court held that trainees in a week-long railroad training program were not “employees” as defined in the Fair Labor Standards Act (FLSA) and, thus, not entitled to wages. The reasoning was that the training program did not result in the employer gaining an “immediate advantage” from the trainees’ performance.

Since Walling, young adults have endured long hours with little to no pay in the hopes of receiving a full-time paid position. Perhaps spurred by rising unemployment for college graduates, in 2010, the Department of Labor (“DOL”) published a fact sheet containing six factors that an internship must meet if it is to be unpaid:

(1) The internship is similar to training given in an educational environment;
(2) The internship is for the benefit of the intern;
(3) The intern does not displace regular employees;
(4) The employer derives no immediate advantage from the intern’s activity;
(5) The intern is not entitled to a job at the end of the internship;
(6) The employer and intern understand that the intern is not entitled to wages.

The DOL factors were applied in Xuedan Wang v. Hearst Corp., No. 12-CV-793 (HB) (S.D.N.Y. May 8, 2013). There, Judge Harold Baer rejected the plaintiff’s summary judgment motion in an intern FLSA suit. He declined to hold that any immediate advantage in favor of an employer necessarily creates an employment relationship. Id. at 6. Instead, he required analysis under the loose “totality of the circumstances” test. While emphasizing that the “primary recipient of benefits” might control, Judge Baer found disputes of fact as to four out of the six factors in the DOL checklist. Id. at 6-7.

 In Glatt v. Fox Searchlight Pictures, No. 11 Civ. 6784 (WHP) (S.D.N.Y. 2013), Judge William Pauley employed a totality of the circumstances test to two unpaid interns who worked on the film Black Swan.  By applying a more rigid, factor-by-factor analysis, Judge Pauley found that the interns satisfied five out of the six factors and were entitled to wages. Id. at 26. Even though both Wang and Glatt agree on the totality of the circumstances test, “[d]espite careful analysis provided in each opinion, the District Courts reached very different results.” Xuedan Wang v. Hearst Corp., 12 CV 793 (HB), 2 (S.D.N.Y. June 27, 2013). Fox has appealed and the Second Circuit is poised to determine the correct legal standard and its application.

We will continue to keep you apprised of all developments in these cases.