Interns' Big Victory Against Fox Vacated by Appeals Court

2nd Circuit says the true test of whether internships must be paid comes down to whether the intern or the employer is the primary beneficiary of the relationship.
Fox Searchlight Pictures

Interns suffered a big setback on Thursday when the 2nd Circuit Court of Appeals decided to vacate a federal judge's summary judgment ruling in favor of two interns who both worked on Fox Searchlight's Black Swan.

Alex Footman and Eric Glatt brought suit in 2011 and contended that Fox's unpaid internship program violated minimum wage and overtime laws. In June 2013, a federal judge declared them the winner and also certified a class action over the internship programs of Fox Entertainment Group.

The ruling soon led to many other lawsuits against media and entertainment companies, and large ones including NBCUniversal and Viacom decided to pay millions of dollars to resolve claims made by former interns.

But today's appellate opinion says U.S. District Judge William Pauley erred by focusing too much on the Labor Department's six criteria for determining whether an internship might be unpaid. He believes that other factors should be considered, such as an internship being part of course curriculum.

"In sum, we agree with the defendants that the proper question is whether the intern or the employer is the primary beneficiary of the relationship," states the opinion authored by 2nd Circuit judge John Walker.

Glatt was a highly educated finance pro who aimed to get into the entertainment industry at a late age in 2009 when he began interning in Black Swan's accounting department, eventually moving to the post-production department in 2010. His duties included copying, scanning and filing documents, plus as today's opinion notes wryly, purchasing a nonā€allergenic pillow for the film's director Darren Aronofsky.

Along with Footman, who interned in the Black Swan production department, Glatt decided to lead a social justice movement objecting to how companies were exploiting free labor from interns. Though internships have held a special place in the entertainment and media industry for decades, and Glatt found difficulties in finding lawyers to take on his case, the 2013 summary judgment ruling by Pauley signaled that unpaid internships weren't immune from legal scrutiny.

Besides Glatt and Footman, Eden Antalik also joined the fight. She worked as a publicity intern and had claims that moved the dispute beyond Fox Searchlight to how its corporate parent was using interns and possibly violating minimum wage and overtime standards.

The big controversy in the case was how to properly classify workers — were unpaid interns really just unpaid employees?

The plaintiffs relied on guidance from the Department of Labor, which in 2010 spelled out some criteria for how to determine an employment relationship. The factors include whether the internship is similar to training that would be given in an educational environment, whether it is for the benefit of the intern, whether the intern displaces regular employees, whether the employer derives immediate advantage, whether the intern isn't necessarily entitled to a job after the conclusion of the internship and the understanding about no entitlement to wages.

Judge Walker writes today that the DOL's test, adopted from an old legal precedent, is "too rigid," and he doesn't find it persuasive. Instead, he likes the way that Fox urges an evaluation.

"The primary beneficiary test has two salient features," he writes. "First, it focuses on what the intern receives in exchange for his work. Second, it also accords courts the flexibility to examine the economic reality as it exists between the intern and the employer."

The 2nd Circuit also details a "non-exhaustive set of considerations" as judges focus on whose primary benefit an internship serves. Some of the considerations echo the DOL's six criteria, but they also include some examination into whether an internship ties into academic coursework, whether an intern is getting academic credit and whether the internship accommodates an intern's academic commitments by corresponding to the school calendar.

Here's the full opinion for more of what the 2nd Court envisions when evaluating the classification of internships.

Walker says no one factor is dispositive, but in remanding the case back to the district court for further proceedings, suggests that additional evidence about Glatt's and Footman's formal education be gathered.

Given Glatt's background (a 40-year-old who had completed his MBA when he started his internship), he still stands a good chance of winning on this point, but the bigger defeat is for the broader universe of unpaid interns. That's made even more clear by the 2nd Circuit's decision to vacate the class certification given to Antalik.

"As our previous discussion of the proper test indicates, the question of an intern’s employment status is a highly individualized inquiry," states today's opinion. "Antalik’s common evidence will not help to answer whether a given internship was tied to an education program, whether and what type of training the intern received, whether the intern continued to work beyond the primary period of learning or the many other questions that are relevant to each class member’s case. Moreover, defendants’ undisputed evidence demonstrated that the various internship programs it offered differed substantially across the many departments and four Fox divisions included in the proposed class."

Going forward, the ramifications of today's decision could mean that it will be nearly impossible to bring class actions over the issue of unpaid internship programs. (The opinion leaves the door open, though it's hard to see how such a "highly individualized inquiry" would ever qualify for large numbers of interns at big companies.) As for individual claims, they might not be worth enough money in damages for lawyers to pick up as a cause.

A Fox spokesperson reacted to the ruling by saying, "We are very pleased with the Court’s ruling, but the real winners are students.  Fox has always been very proud of its internship programs and continues to believe they offer tremendous benefits to those who participate in them."

"The 2nd Circuit’s new standards for evaluating unpaid internships still cut in our favor," responds Glatt. "I don’t see how Fox Searchlight can expect to prevail, even though the Second Circuit rejected the Department of Labor’s strict test. Among other things, these standards suggest that internships need to be integrated into an educational program in order to be unpaid. That wasn’t the case for me or my co-plaintiff, just as it is not the case for the majority of internships in Hollywood, where internships have simply become entry-level jobs."

Glatt adds that the appeals court came to a subjective standard about what a “good” internship looks like rather than basing its decision on anything Congress or the Department of Labor has expressed. He believes "a meaningful discussion of what a responsible policy would look" is in order.