CLIENT ALERT: Please read this special message.

Interns, Employers Prepare for Second Circuit Showdown

The Litigation Daily—Scott Flaherty

A panel of judges in Manhattan is poised to hear two appeals this week stemming from a rash of employment class actions brought by disgruntled unpaid interns. The outcome could determine whether the litigation was just a flash in the pan for the interns' enterprising lawyers—or if it's just getting started.

On Friday the U.S. Court of Appeals for the Second Circuit is set to hear oral arguments in unpaid intern cases brought against Fox Searchlight Pictures Inc. and The Hearst Corp. The appeals, which will be heard in tandem, offer the court a chance to answer a critical question at the heart of the intern cases: Do unpaid interns qualify as employees under the federal Fair Labor Standards Act, entitling them to protections like minimum wages and overtime pay?

In the Fox case, brought by former interns on the movie "Black Swan," U.S. District Judge William Pauley III in Manhattan granted class and collective status to the interns, finding that they deserved minimum wages. Another Manhattan federal judge, Harold Baer Jr., denied summary judgment to the Hearst plaintiffs, who had interned at various magazines, ruling that a jury should decide whether they qualified as employees.

The judges differed on the appropriate test for determining whether interns deserve employee protections. That's the question that's now teed up for the Second Circuit, and the court's answer could have serious implications for employers. If the Second Circuit sides with the interns, it would open the door for a wave of new class action litigation, while a ruling for Fox and Hearst would clamp down on future intern suits, and could spell trouble for those that are pending.

Plaintiffs lawyers at Outten & Golden, led by Rachel Bien, have urged the Second Circuit to uphold Pauley's decision, which was based on a U.S. Department of Labor fact sheet that lays out factors for employers to use to determine if an internship may be unpaid. The Labor Department's list describes factors like whether the internship benefits the intern, whether the employer derives an "immediate advantage" from the intern's activities, and whether the internship is "similar to training which would be given in an educational environment."

"Plaintiffs performed productive work on the film Black Swan that provided [Fox] with an 'immediate advantage' because it allowed Fox to hire fewer paid employees and expedited the film's operations," Bien and others wrote a brief filed in the Fox appeal. "Plaintiffs did not receive academic training or other educational benefits, and were not part of an internship program designed to benefit them."

                                         *           *          *

The U.S. Department of Labor filed an amicus brief at the Second Circuit in April advocating that courts adopt the six factors on its intern fact sheet. It will also have a say before the panel on Friday, after the court granted the agency eight minutes of argument time last week.