Judges Grapple With Test Under FLSA for Interns

New York Law Journal Mark Hamblett
February 2, 2015

Three federal appellate judges grappled Friday over adopting a fresh test to determine whether unpaid  interns must be paid as employees under the Fair Labor Standards Act (FSLA).

At oral arguments before the U.S. Court of Appeals for the Second Circuit, Judges Dennis Jacobs  (See Profile), Richard Wesley (See Profile) and John Walker (See Profile) appeared dissatisfied with  the Department of Labor’s test for determining an “employee” under the FLSA, as grafted from a 67-year-old Supreme Court opinion.

The arguments centered on a pair of cases with different outcomes reached by two lower courts.

In  Glatt v. Fox Searchlight Pictures, 13-4481-cv, Fox was sued by interns who worked the set of the  movie “Black Swan.” Southern District Judge William Pauley (See Profile) granted summary judgment  for the interns and certified a class.

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But in the second case,  Wang v. Hearst, 13-4480-cv, Southern District Judge Harold Baer ruled  against the interns after employing the “primary beneficiary” test that Fox and Hearst are asking the  Second Circuit to adopt. Under the test, the court is asked to identify the primary beneficiary of the  relationship the intern or the employer.

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Arguing against the primary beneficiary test was Outten & Golden partner Rachel Bien, the attorney  for plaintiffs in both cases, who said the test was inconsistent with a 1947 Supreme Court case,  Walling v. Portland Terminal Co., 330 U.S. 148.

In  Portland Terminal, the Supreme Court held the FLSA’s coverage did not extend to a training  program at a railyard. The court outlined six factors that the Department of Labor later would adopt as  its own criteria for determining who is an employee under the act.

The factors include whether the training is similar to that in vocational school; whether it benefits  trainees or students; whether the trainees displace regular workers; whether the employer gets no  benefit from the training or actually has operations impeded; whether the trainee is not necessarily  entitled to a job upon completion; and finally whether the trainee or student understand they are not  entitled to wages.

On Friday, as Maria Van Buren, senior attorney for amicus the Department of Labor, defended the six  factors, Walker faulted the factors for being inconsistent.

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 As Bien argued  Fox, Jacobs said, “Surely the willingness to work for nothing is a powerful signal that  one thinks the arrangement is beneficial to oneself.”

But Bien said there was more involved than just the decision to work for no pay. She said the problem  with the primary beneficiary test “is it makes employment contingent on who benefits more.”

She called the test subjective, but Walker said, “Courts have been applying it quite well” and judges  are used to balancing different factors.

Bien said the Department of Labor test clearly indicated the requirement that the internships benefit  the intern.

“It’s not binary though,” Wesley replied. “Because the benefit can be both ways. The question is who  is benefitting more.

But Bien said the question was not who benefits more, but whether it was a training program, and  that’s why the Department of Labor’s other factors, including whether interns are displacing  employees, are important.

Bien told the court that, even if it adopted the primary beneficiary test, the plaintiffs in  Fox  would  prevail, because the interns “did displace regular employees.”

“The primary beneficiary of the relationship surely was Fox,” she said.

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The second set of arguments were on  Hearst, where the plaintiffs pressed the fact that Hearst was  cutting expenses in 2008 when it directed staff to use interns rather than paid managers. It also cut  229 employes in 2008 and used 3,000 interns from 2007 to 2013, some of whom did the same work  as those who were fired.

Bien said that if the court adopted the primary beneficiary test, “it needs to set out some specific  criteria employers can look at to make decisions” because “its so open ended, so broad” as it now  stands.

Bien said the defendants were putting “too much emphasis on the fact that interns were willing to work  without wages.” When asked by Jacobs why a person would work without wages, Bien said, “Because  people are really desperate to get their feet in the door,” particularly during tough economic times.

“These are students who are saddled with a tremendous amount of debt,” she said. “They are willing  to do whatever they can.”

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