Overworked, Underpaid, Illegal?

2012-38 BIZ Interns Illustration P IPAD

Intern class action lawsuits like those in New York involving Fox and Hearst could spread to California as Hollywood still thrives on young, free labor.

Internships long have been considered a rite of passage in Hollywood. From recruiting audience members for tapings to performing secretarial work in production offices, young people seeking a foot in the door have been willing to sign up for long hours and little or no pay. At the same time, some entertainment industry employers have counted on unpaid interns for free labor. But that could be starting to change.

Since September 2011, former unpaid interns have filed class action lawsuits seeking back wages against employers including Fox Searchlight (a case that received court approval Oct. 9 to expand to include claims on behalf of all corporate interns of the Fox Entertainment Group), the Charlie Rose show and the Hearst Corp. Although each of those cases is pending in federal court in New York, similar cases might arise in California. That's because, in the view of both the U.S. Department of Labor and California's Division of Labor Standards Enforcement, interns of for-profit employers generally must be paid.

Nancy J. Leppink, the DOL's deputy wage and hour administrator, told The New York Times, "There aren't going to be many instances where you can have an internship [for a for-profit employer] and not be paid and still be in compliance with the law."

So how does a movie studio or television network know when an intern must be paid? According to the DOL and the DLSE, interns of for-profit employers are entitled to the minimum wage and overtime pay unless each of six criteria are met:

  1. The internship is similar to the training an educational environment would provide.
  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.
  5. The intern is not entitled to a job at the end of the internship.
  6. The intern understands that he or she is not entitled to wages.

Few courts have interpreted these criteria, and many observers have complained that they bear little or no relationship to the realities of the entertainment world, where there is no shortage of interns seeking unpaid hands-on experience in return for a shot at employment. But as long as these criteria persist, employers might have difficulty demonstrating that they do not derive an "immediate advantage" from interns who perform substantive production or administrative work -- such as writing news releases and reading scripts, or even delivering mail and answering phones -- for free, or that such interns do not displace regular employees who otherwise would be doing the same work for pay.

Despite the uncertain legality of so many entertainment internships, wage claims by interns so far have been rare. One reason for that is the widely held belief, sometimes perpetuated by colleges themselves, that interns who receive college credit need not be paid. However, this is not the case under federal or California law.

Why has this issue not become more high-profile? Some interns might be reluctant to file claims for fear of being blacklisted. Alex Footman, a plaintiff in the Fox Searchlight case, told Time, "I realize that I have made a decision that could prevent me from being hired in the future." Others might decide the dollars at stake aren't worth the litigation headaches. California employers who improperly fail to pay their interns might face liability for back wages and overtime pay, penalties for missed breaks, unpaid employment-related taxes and various other penalties, plus interest. However, considering that internships often last only a semester, a successful intern's damages could amount to just a few thousand dollars.

Although an individual intern's recovery might be limited, successful actions for unpaid wages entitle a plaintiff to attorney's fees under federal and California law. This means an employer who fights an intern's claim and loses could owe a relatively nominal amount in actual damages but a much higher amount in fees to the intern's attorney.

But the real risk for companies that rely on unpaid interns is the possibility of a class action lawsuit in which one plaintiff would seek damages on behalf of potentially hundreds of others, including those who have no grievance with the company. Here, the fact that so few interns file individual claims might actually work to the industry's disadvantage as courts might be more likely to allow class actions where they determine that individual class members would not seek to enforce their rights on their own. Also, because the number of affected class members is one of the factors courts consider, the bigger the internship program, the greater the risk a class action presents.

None of the internship cases filed in New York has been decided, and it's not clear how those cases will impact the industry, if at all. While the risk of litigation might cause some employers to consider restructuring internship programs in efforts to comply with the DOL's six criteria, others might decide it's easier to pay their interns minimum wage than to face a lawsuit that would be a lot more costly.

John R. Carrigan Jr. is a labor and employment attorney in the Los Angeles office of Ballard Spahr.