A Changing Legal Landscape for Unpaid Internship Programs in New York

Megan J. Muoio, April 23, 2014.

On June 11, 2013, Judge William H. Pauley of the United States District Court for the Southern District of New York issued a decision in Glatt v. Fox Searchlight Pictures that struck fear into the hearts of employers with unpaid internship programs in New York. The Court ruled that an employer had violated federal and state labor laws by classifying the plaintiffs as unpaid interns rather than employees and that the plaintiffs should have been paid for their work.

The Glatt case involved a class action of unpaid intern plaintiffs who were represented by named individuals who worked on the films “Black Swan” and “500 Days of Summer” for the Fox Searchlight Pictures film studio in New York and California. The Court held that the plaintiffs should have been classified as employees under the federal Fair Labor Standards Act and New York Labor Law, rather than classified as “trainees” who could be unpaid for their work. Under the FLSA and NYLL, an individual is a “trainee” only if:

1. the internship is similar to training that 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 the close supervision of existing staff;
4. the employer derives no immediate advantage from the activities of the intern (and, in fact, the intern may impede the employers’ operations);
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 intern’s work.

The Court held that the internships at issue in the case, which typify many unpaid internships in the fields of journalism, media, fashion and film production, did not meet the trainee standard under the FLSA and NYLL. The interns received no educational training and performed functions in Fox Searchlight Pictures’ office and on its sets that were for the primary benefit of Fox Searchlight. The work performed by the interns was also of the type that would have been performed by paid employees in the absence of the interns and the work provided an immediate advantage to Fox Searchlight. Therefore, the plaintiffs were entitled to receive at least minimum wage payment and overtime wages for their work for Fox Searchlight. The decision has already impacted the many industries in New York that heavily rely on unpaid interns.

After the decision in Glatt, several prominent New York employers decided to discontinue their unpaid internship programs rather than face legal battles in the future. For example, Condé Nast terminated its unpaid internship program across the 20 magazines that it publishes and settled claims from former unpaid interns at its high-profile magazines The New Yorker and W. Elite Model Management paid $450,000 to settle claims brought by former interns and terminated its unpaid internship program. And Reddit shuttered its unpaid internship program after two former interns accused the popular website of violating the FLSA. Lawsuits by former unpaid interns are currently pending against Warner Music Group, Gawker Media, News Corp., NBCUniversal, Viacom, Inc., Sony Music Entertainment, Donna Karan International, and Madison Square Garden, just to name a few. New York employers would be wise to review the United States Department of Labor Wage and Hour Division’s Fact Sheet regarding internship programs to ensure compliance with federal law. New York Labor Law closely tracks the federal standard.

New York City employers should also be aware that the New York City Council has passed legislation extending protections against harassment and discrimination to unpaid interns properly classified as such under state and federal law. This was done in response to a decision from the United States District Court for the Southern District of New York holding that unpaid interns do not have standing under New York State and City Human Rights Law to sue an employer for sexual harassment and discrimination. The legislation passed by the City Council amends the New York City Human Rights Law to cover unpaid interns, thereby providing unpaid interns the right to sue their employers under the City law. The legislation was signed into law by Mayor Bill de Blasio on April 15, 2014 and goes into effect on June 14, 2014.