The Second Circuit today issued two eagerly-anticipated decisions addressing the standard that should be applied to determine whether unpaid interns at a for-profit employer are “employees” under the Fair Labor Standards Act (FLSA) who are entitled to compensation for their services. Glatt v. Fox Searchlight Pictures, Inc., Nos. 13-4478-cv, 13-4481-cv (2d Cir. July 2, 2015); Wang v. Hearst Corp., No. 13-4480-cv (2d Cir. July 2, 2015). The interns urged the Second Circuit to adopt a test granting “employee” status whenever the employer receives an immediate advantage from their work. The Department of Labor submitted an amicus brief in support of the Plaintiffs and argued that each of the six factors enumerated in its “Intern Fact Sheet” must be present for the intern to not qualify as an “employee.” The employer urged the Court to adopt a nuanced “primary beneficiary” test that was not as rigid as either of the other proposed tests.

The Second Circuit rejected the test advocated by the Plaintiffs and the Department of Labor and sided with the employer, holding “the proper question is whether the intern or the employer is the primary beneficiary of the relationship.” The Court identified two salient features of the test. First, it “focuses on what the intern receives in exchange for his work;” second, it “accords courts the flexibility to examine the economic reality as it exists between the intern and the employer.” The Court identified the following non-exhaustive set of considerations, none of which alone is dispositive and all of which must be weighed and balanced:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee – and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by education institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

The Court held that such a flexible standard “reflects a central feature of the modern internship – the relationship between the internship and the intern’s formal education.”

In a holding with critical importance for cases in the Second Circuit and in other jurisdictions, the Court vacated the district court’s decision certifying a class action under New York law and a collective action under the FLSA, finding issues relating to classification of the interns too individualized to permit certification either under Rule 23 or even the lenient standard applied at the preliminary stage of a collective action under the FLSA. The Court found that even where an employer has a policy of replacing paid employees with unpaid interns, every intern is not necessarily likely to prevail on a claim that the intern was an “employee” under the “primary beneficiary” test, and therefore certification was improper. Even “assuming some questions may be answered with generalized proof,” the Court held, “they are not more substantial than the questions requiring individualized proof.” Similarly, as to collective certification, the Second Circuit observed that “courts must consider individual aspects of the intern’s experience” and that such analysis may be sufficient to find that unpaid interns are not similarly situated, even at first-stage conditional certification.

Employers obtained a clear victory in these cases, likely ending the barrage of intern class actions filed in New York. Employers, of course, should still be vigilant in reviewing their classifications of individuals as employees or unpaid interns.