On July 2, 2015, the U.S. Court of Appeals for the Second Circuit issued two eagerly awaited decisions that may dampen the recent wave of collective and class actions filed by unpaid interns claiming they should be paid employees. In Glatt v. Fox Searchlight Pictures, Inc. et al., Nos. 13-4478 & 13‐4481 (2d Cir. 2015) and Wang v. Hearst Corp., No. 13‐4480‐cv (2d Cir. 2015) (summary order), the court announced a new “primary beneficiary test,” identified seven non-exhaustive factors relevant to classifying interns as employees in the for-profit sector, and rejected strict application of the six factor test promulgated by the United States Department of Labor (DOL).  Equally noteworthy, the court largely foreclosed collective and class certification in intern cases by emphasizing the highly individualized inquiry required by its new test.

Glatt v. Fox Searchlight Pictures, Inc.

In Glatt, three unpaid interns sued Fox Searchlight for compensation under the Fair Labor Standards Act (FLSA) and New York Labor Law (NYLL), claiming they had been misclassified and should have been treated as employees entitled to minimum wage and overtime pay.  Two plaintiffs moved for partial summary judgment, contending they were employees under federal and New York law, while the other plaintiff moved for conditional and class certification of the interns at certain Fox divisions.  The district court granted the motions, Fox appealed, and the Second Circuit vacated both orders and remanded the case for further proceedings. 

            Second Circuit Establishes New Test for Intern Claims

On appeal, the plaintiffs in Glatt urged the Second Circuit to adopt a test whereby interns will be considered employees when the employer obtains an “immediate advantage from the interns’ work.”  The DOL, appearing as an amicus curiae in support of the plaintiffs, argued that the Second Circuit should defer to the six factor test contained in its Intern Fact Sheet as well as its requirement that every factor be present to find that an individual qualifies as a bona fide intern.  Fox Searchlight proposed that the Second Circuit adopt a “primary beneficiary” test that analyzes “whether the intern or the employer is the primary beneficiary of the relationship.” 

The Circuit Court rejected the DOL’s six factor test (which requires, in part, that a company receive no immediate advantage or benefit from interns), as overly rigid and not consistent with modern day internships.  Instead, it adopted the broader and more employer friendly “primary beneficiary” test and listed seven non-exhaustive factors for courts to use when analyzing whether an intern should be classified as an employee:  

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 educational 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 when the internship concludes.

The court noted that the above factors are a non-exhaustive list, that no one factor is determinative and that courts may consider other relevant factors.

            New Test Requires a Highly Individualized Inquiry into Internship

In what is an equally important portion of the Glatt decision, the Second Circuit declared that “an intern’s employment status is a highly individualized inquiry” not conducive to class action treatment.  The appeals court not only vacated summary judgment, it also vacated the district court’s order certifying the New York class, noting that under the new “primary beneficiary test,” determining whether a Fox intern was properly classified could not be answered with common proof.  Common proof, the court provided, “will not help 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 intern’s case.  Because the questions requiring individualized proof were more substantial than those that could be answered with generalized proof, the case could not proceed on a class basis.  The court did not, however, foreclose the possibility that a class may be certified under the new standard.

The court applied much of the same rationale in vacating the lower court’s order granting conditional certification to the interns who worked at various Fox divisions.  The court held that under the new legal standard, the plaintiffs in that proposed collective action were not similarly situated to each other, even under the minimal standards needed for collective certification.  Under the new “primary beneficiary test,” the Second Circuit noted, courts must consider the individual aspects of the intern’s experience and none of the common proof relied upon by the district court addressed the individual experiences of the proposed collective.

Wang v. Hearst Corp.

In Wang, the plaintiffs were unpaid interns who worked at Hearst Corporation among the nineteen magazines Hearst operates in New York.  Similar to the Glatt plaintiffs, the Wang plaintiffs filed motions for class certification and for partial summary judgment on the claim they were misclassified employees entitled to minimum wage and overtime pay.  Unlike the lower court in Glatt, however, the Wang district court denied both motions, and the plaintiffs appealed.  The Second Circuit vacated the district court’s denial of summary judgment and affirmed its denial of class certification.

On appeal, the plaintiffs argued interns must be considered employees if they provide an immediate advantage to the employer, or alternatively, because Hearst could not meet four of the six DOL factors.  The Second Circuit rejected the plaintiffs’ arguments, holding that the proper test was the new “primary beneficiary” test announced in Glatt.   Nonetheless, the appeals court vacated the district court’s order denying summary judgment to allow the district court to review the facts of the case against the Circuit’s new legal standard. 

However, Second Circuit affirmed the order denying class certification, again focusing on the individualized inquiry and analysis required by the Glatt factors:  “[i]rrespective of the type of evidence used to answer them, these questions are individual in nature and will require individual analysis.”  In affirming the lower court’s denial of class certification, the court highlighted how individualized the inquiries were in this case, given that the interns’ experiences at Hearst “varied across the numerous departments at each of the 19 magazines Hearst operates in New York.”

Glatt and Wang Takeaways

The Second Circuit’s decisions in Glatt and Wang are important for several reasons.

First, the court rejected the DOL’s six factor test – which is based upon guidance that has existed since 1967 – as “too rigid for our precedent to withstand.”  The court replaced the six factor test with a broader, non-exhaustive list of factors that is far more employer-friendly. Employers may now consider the flexibility of this test when developing and implementing internship programs.  Provided that an intern receives a significant educational benefit and does not serve as a direct replacement for paid employees, the fact that the employer is receiving benefits no longer means that the intern should automatically be treated as an employee, as had been the case when applying a strict application of the DOL’s six factor test.

Second, the new Glatt factors illustrate the importance of making sure that an employer’s internship program emphasizes educational development.  As the Second Circuit explained, “[t]he purpose of a bona-fide internship is to integrate classroom learning with practical skill development in a real world setting.”  This focus on the close relationship between internship programs and education is meant to accurately reflect the important purpose internships serve to train and develop new professionals.

Third, for-profit employers still must be cautious in establishing unpaid internship programs, even where they meet the standards set forth in these decisions.  The Glatt and Wang decisions only extend to intern classifications under the FLSA and NYLL in the Second Circuit.  They do not affect precedent in other Circuits.¹  Moreover, while the Glatt and Wang decisions are instructive in New York State court cases, particularly since the decisions also looked at the interns’ claims under the NYLL, these decisions are not binding on the New York State courts.  It is unclear whether a New York state court would similarly apply the “primary beneficiary” test to claims by interns under the NYLL in lieu of the New York Department of Labor’s intern classification test, which is largely based on the strict six factor DOL test.  These decisions are also not precedential on the state courts of other states, such as California, where such cases would be decided under the state law.

Finally, although the Second Circuit’s decisions in Wang and Glatt will make it difficult for future cases to be brought by interns on a class-wide basis, the court stated it was still possible for a class to be certified under the appropriate circumstances.  Therefore, the door remains open for other interns to bring wage and hour litigation, either on an individual or representative basis.