When two college graduates sued Fox Searchlight Pictures in September 2011 demanding unpaid wages for internships that included such “educational” tasks as making coffee and taking out garbage, they fired a shot heard around the media industry. That lawsuit drew nationwide attention to the questionable legality of making unpaid interns do menial work that a paid employee would otherwise do.
Across the country, media companies are facing legal action from former interns disgruntled over working without pay, particularly those who worked with the hope of turning the unpaid position into salaried employment. Hearst Corp. and Gawker are among the media giants who’ve been targeted by former interns seeking back pay.
In October 2014, NBCUniversal paid $6.4 million to settle a class-action lawsuit brought on behalf of several thousand former unpaid interns.1 Then in March 2015, media conglomerate Viacom (which owns MTV and BET, among other high-profile properties) agreed to a $7.2 million settlement with attorneys representing more than 1,000 former interns.2
Unpaid internships are in no way unique to journalism. A survey published by the research firm Intern Bridge found that more than 51 percent of students did unpaid internships, and more than half did not receive academic credit for the experience.3 But employers in the news and entertainment fields have been targeted in a recent wave of lawsuits questioning the widespread practice of asking interns to work without compensation.
The nonprofit investigative news service, ProPublica, shone a national spotlight on the widespread use of unpaid intern labor in a series of stories spanning 2013-14 about what the authors called “the intern economy.”4 The series pointed out that not only are internships commonly unpaid, but students who want to receive academic credit are required to register as if registering for any other academic course, meaning that students are actually paying money to do work.
When is it permissible for a news organization to maintain unpaid intern positions? And what are the legal risks to interns who agree to work without pay? This article summarizes recent legal developments that are causing some observers to predict that the end of the unpaid internship is not far away.
Employment law basics
A federal statute, the Fair Labor Standards Act (referred to as the “FLSA”), requires employers to pay their employees at least the federal minimum hourly wage (which is currently $7.25).5 It also requires overtime pay at a rate of 150 percent (“time-and-a-half”) of the regular wage for hours that an employer requires an employee to work beyond 40 per week.6
But not everyone who shows up at a workplace is covered by the FLSA. To be entitled to receive overtime pay and minimum wage, the worker must qualify as an “employee” at a workplace with $500,000 or more in annual gross sales.7
The FLSA does not contain an “intern exemption.” But if an employer can prove that an intern is not legally an “employee” at all – that the intern is part of an educational program and not just doing the work of a regular paid employee – then the intern can be paid less than minimum wage. Or nothing at all. Ironically given recent events, one of the earliest U.S. Supreme Court cases interpreting what it means to be an “employee” under the FLSA also involved Hearst – at that time, in a dispute with Los Angeles “newsboys” who peddled the company’s papers on the street.
The National Labor Relations Board, which is the federal agency with power to enforce compliance with the FLSA, ruled that the newspaper sellers were “employees” even though the employer carefully avoided using that term. The NLRB looked beyond how the job was labeled and focused on how it was actually performed. The Supreme Court analyzed the substance of the working relationship and agreed that the NLRB’s decision was justified:
[T]he designated newsboys work continuously and regularly, rely upon their earnings for the support of themselves and their families, and have their total wages influenced in large measure by the publishers, who dictate their buying and selling prices, fix their markets and control their supply of papers. Their hours of work and their efforts on the job are supervised and to some extent prescribed by the publishers or their agents. Much of their sales equipment and advertising materials is furnished by the publishers with the intention that it be used for the publisher’s benefit.8
The Department of Labor issued a “fact sheet” in April 2010 that sets forth criteria similar to those the Supreme Court applied in the Hearst Publications case that will determine whether a position is “employment” for which minimum wage must be paid:
1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
2. The internship experience is for the benefit of the intern;
3. The intern does not displace regular employees, but works under close supervision of existing staff;
4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.9
In simple English, the Department has told employers that the more a job looks like a job and not like a training experience, the more likely the worker will be entitled to receive overtime and minimum wage.
In deciding whether the FLSA does or does not apply to a particular working relationship, judges will look at the “economic reality” of the complaining employee’s situation.10 The most important consideration is who is the “primary beneficiary” of the work being done.11 If the work appears primarily to be for the educational benefit of the intern, then the position is unlikely to be covered by the FLSA. But if the primary beneficiary is the employer – particularly if the interns are doing work that is also being done by paid employees (or was, before they were laid off) – then the job should qualify for minimum wage and overtime.
When “free labor” is legal
Once a person qualifies as an “employee,” then the person is presumed to be entitled to the protection of the FLSA, including the right to be paid the minimum wage and time-and-a-half for mandatory overtime hours. But Congress has carved out certain industry-specific exemptions even for people who’d otherwise be covered by the FLSA as “employees.” If a dispute arises, the burden of proof is on the employer to demonstrate that a position is exempt from the FLSA.12
A government agency, such as a state college or university, has more leeway to use unpaid intern labor because of an exemption for “public agency volunteers.” The Labor Department says it’s legal for a government agency not to pay a volunteer as long as the work meets certain standards: (1) it must have a charitable or civic purpose, (2) there must be no promise or expectation of pay, (3) the work must be performed freely and without pressure and (4) the work must not be the same type of work that the “volunteer” is already doing for pay.13 (In other words, an employee cannot “donate” unpaid hours of work at her regular job; the volunteer work must be of a different type, such as a librarian who volunteers on weekends to plant trees.)
The FLSA also has a targeted exemption that applies specifically to newspapers with circulation of less than 4,000,14 so an intern for a small-town weekly paper would have no legal right to demand minimum wage or overtime pay. However, if a chain of small newspapers is under the same management with shared editorial content, then their circulation will be combined and may put the newspaper over the 4,000 threshold, meaning that workers are entitled to overtime and minimum wage.15
Unpaid interns fight back
In September 2011, former Fox Searchlight interns Eric Glatt and Alexander Footman filed suit in federal court in New York alleging that they should have been compensated as employees for their work on the crew of the Academy Award-winning motion picture, “Black Swan.” The suit claimed that the interns did work with no educational or training purpose, indistinguishable from the work of regular employees — except for the paycheck.
The interns won a favorable ruling in June 2013 from a judge in the Southern District of New York. Judge William H. Pauley ruled that the movie studio was, legally, the interns’ “employer.” Even though the interns worked in name for a different corporate entity, Fox Searchlight exercised “effective control” over their work and therefore could be held liable under the FLSA as their employer. The judge also allowed the lawsuit to proceed as a class action on behalf of five years’ worth of interns not just with Fox Searchlight but with all of its Fox-owned sister corporations, potentially hundreds of plaintiffs.
That ruling is being appealed to the Second Circuit U.S. Court of Appeals, where lawyers presented arguments in January 2015. No decision has yet been issued.
The Fox Searchlight lawsuit triggered a wave of similar cases around the country, many targeting media companies that for years have relied on unpaid interns to research news stories, produce TV broadcasts, manage social-media accounts and do other substantive work. Interns have readily taken on these positions for years in hopes of turning the “apprenticeship” into full-time employment, or at least making the connections that will lead to a post-graduation job.
At the same time the Second Circuit heard arguments in the Glatt case, the judges also heard a comparable case against Hearst Corp. brought by a former intern with Harper’s Bazaar magazine. In that case, unlike in Glatt’s, the district court refused to allow the former intern, Xuedan Wang, to bring her claims as a class action. (Class actions are significantly more intimidating to employers, and more rewarding to plaintiff’s lawyers, because unlike in a traditional lawsuit, the rights of potentially thousands of people with similar claims are all decided at once.)
No salary = no legal rights?
If it were not frustrating enough to work without compensation, a New York court made life even more discouraging for unpaid interns in a 2013 ruling, Wang v. Phoenix Satellite TV US, Inc., involving sexual harassment claims against a television production company.
The plaintiff, Lihuan Wang, worked as a television copywriter and on-air reporter during an unpaid internship while a graduate student at Syracuse University. Wang complained that her supervisor grabbed and propositioned her, and that she was rejected for full-time employment because she refused to accompany the harasser on a weekend trip to Atlantic City.16
A U.S. district judge threw out Wang’s harassment complaint – brought under New York state law, which is nearly identical to the better-known federal Title VII gender discrimination law – on the grounds that Wang did not meet the definition of an “employee” because she received no pay. In other words, regardless of how strong her proof that she was harassed on the basis of sex, Wang was disqualified as an unpaid intern from bringing a claim.17 (Wang was allowed, however, to proceed with a claim that the broadcaster refused to hire her for not submitting to sexual advances, since a failure-to-hire claim logically does not require proof of being an “employee.”)
While startling and seemingly unjust to many, the court’s ruling was consistent with the view of most federal appeals courts nationwide – that protection against on-the-job harassment or discrimination first requires proof that the worker received “substantial compensation” for the work.18 Being vulnerable to harassment without an obvious legal remedy is yet another hazard of the unpaid internship.
The marketplace responds
Alarmed by the wave of litigation, many employers have begun voluntarily paying their interns to avoid being next in the legal crosshairs. One Virginia employment-law expert told Bloomberg BNA that the unpaid internship “has been regulated virtually out of existence” at for-profit companies, although charitable and governmental employers continue offering unpaid positions.19
Indeed, ProPublica reported that, after the Labor Department threatened to bring an enforcement action against the outdoor sports magazine, Outside, on behalf of 28 former interns, the magazine responded by simply dropping its intern program and hiring more entry-level editors instead.20
One final complicating factor that may weigh in employers’ design of intern programs is the obligation under the federal Affordable Care Act to offer health coverage to employees who work 30 hours per week or more. Although short-term temporary employees do not qualify for coverage, an intern who is paid and works six months or more is probably enough of an “employee” to be covered by the ACA. An employer who fails to offer coverage to the federally mandated percentage of workers can face hefty fines. Consequently, the incentive under the health-care law will be to keep internships unpaid and of short duration.
Regulators, too, are beginning to take notice. After a wave of public outrage over Lihuan’s Wang’s sexual harassment case, the New York City Council enacted legislation that, at least in the nation’s largest city, gives unpaid interns the same right to bring discrimination complaints based on race, religion or gender as salaried employees have.21
Attorney Frank D. LoMonte is executive director of the Student Press Law Center.
Endnotes:
1. Daniel Miller, “NBCUniversal to settle suit by former interns for $6.4 million,” Los Angeles Times, Oct. 24, 1014.
2. Meg James, “Viacom agrees to pay up to $7.2 million to settle intern lawsuit,” Los Angeles Times, March 12, 2015.
3. The findings of Intern Bridge’s 2012 National Internship Salary Survey are summarized at http://www.prweb.com/releases/internbridge/02/prweb10400332.htm.
4. See Blair Hickman & Christie Thompson,”When Is It OK to Not Pay an Intern?”, ProPublica, June 14, 2013, available at http://www.propublica.org/article/when-interns-should-be-paid-explained.
5. 29 U.S.C. § 206(a). Students should also know that a lower minimum “trainee wage” of $4.25 per hour can apply during the first 90 days of employment for a worker younger than 20. Also, many states and even some cities require employers to pay more than the federal minimum rate.
6. 29 U.S.C. § 207(a).
7. U.S. Dept. of Labor, Wage & Hour Div., “Handy Reference Guide to the Fair Labor Standards Act” (Nov. 2014) available at http://www.dol.gov/whd/regs/compliance/hrg.htm.
8. NLRB v. Hearst Publications, Inc., 322 U.S. 111, 131 (1944).
9. U.S. Dept. of Labor, “Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act” (April 2010).
10. Alamo Found’n v. Secy. of Labor, 471 U.S. 290, 301 (1985)
11. See, e.g., McLaughlin v. Ensley, 877 F.2d 1207, 1209 (4th Cir. 1989).
12. Corning Glass Works v. Brennan, 417 U.S. 188, 196-97 (1974).
13. 29 C.F.R. § 553.101(a), (c), (d).
14. 29 U.S.C. § 213(a)(8).
15. See Reich v. Gateway Press, Inc., 13 F.3d 685, 694 (3d Cir. 1994) (ruling that circulation of chain-owned newspapers should have been aggregated for FLSA purposes where the papers had a “unified operation or control” and “a common publishing purpose”); accord McComb v. Dessau, 89 F.Supp. 295 (S.D.Cal. 1950).
16. Wang, 976 F. Supp. 2d 527, 530-31 (S.D.N.Y. 2013).
17. Id. at 535-37.
18. Bryce Morgan, Compensation Isn’t Everything: The Threshold-Remuneration Test for Employment Discrimination Under Title VII, 40 Iowa J. Corp. L. 779, 782 (Spring 2015).
19. William Welkowitz, “Will Unpaid Internships Start ‘Paying Off’ In More Ways Than One?”, Bloomberg BNA, May 14, 2015.
20. Kara Brandeisky & Jeremy B Merrill, “How the Labor Department Has Let Companies Off the Hook for Unpaid Internships,” ProPublica, April 9, 2014.
21. Erin Durkin, “Interns get equal protection against pervy bosses as paid employees under new bill,” New York Daily News (March 26, 2014).