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Judges Grapple With Test Under FLSA for Interns

Feb 2, 2015 / Media Coverage

New York Law Journal—Mark Hamblett

Three federal appellate judges grappled Friday over adopting a fresh test to determine whether unpaid interns must be paid as employees under the Fair Labor Standards Act (FSLA).

At oral arguments before the U.S. Court of Appeals for the Second Circuit, Judges Dennis Jacobs (See Profile), Richard Wesley (See Profile) and John Walker (See Profile) appeared dissatisfied with the Department of Labor's test for determining an "employee" under the FLSA, as grafted from a 67-year-old Supreme Court opinion.

The arguments centered on a pair of cases with different outcomes reached by two lower courts.

In Glatt v. Fox Searchlight Pictures, 13-4481-cv, Fox was sued by interns who worked the set of the movie "Black Swan." Southern District Judge William Pauley (See Profile) granted summary judgment for the interns and certified a class.

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But in the second case, Wang v. Hearst, 13-4480-cv, Southern District Judge Harold Baer ruled against the interns after employing the "primary beneficiary" test that Fox and Hearst are asking the Second Circuit to adopt. Under the test, the court is asked to identify the primary beneficiary of the relationship—the intern or the employer.

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Arguing against the primary beneficiary test was Outten & Golden partner Rachel Bien, the attorney for plaintiffs in both cases, who said the test was inconsistent with a 1947 Supreme Court case, Walling v. Portland Terminal Co., 330 U.S. 148.

In Portland Terminal, the Supreme Court held the FLSA's coverage did not extend to a training program at a railyard. The court outlined six factors that the Department of Labor later would adopt as its own criteria for determining who is an employee under the act.

The factors include whether the training is similar to that in vocational school; whether it benefits trainees or students; whether the trainees displace regular workers; whether the employer gets no benefit from the training or actually has operations impeded; whether the trainee is not necessarily entitled to a job upon completion; and finally whether the trainee or student understand they are not entitled to wages.

On Friday, as Maria Van Buren, senior attorney for amicus the Department of Labor, defended the six factors, Walker faulted the factors for being inconsistent.

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As Bien argued Fox, Jacobs said, "Surely the willingness to work for nothing is a powerful signal that one thinks the arrangement is beneficial to oneself."

But Bien said there was more involved than just the decision to work for no pay. She said the problem with the primary beneficiary test "is it makes employment contingent on who benefits more."

She called the test subjective, but Walker said, "Courts have been applying it quite well" and judges are used to balancing different factors.

Bien said the Department of Labor test clearly indicated the requirement that the internships benefit the intern.

"It's not binary though," Wesley replied. "Because the benefit can be both ways. The question is who is benefitting more."

But Bien said the question was not who benefits more, but whether it was a training program, and that's why the Department of Labor's other factors, including whether interns are displacing employees, are important.

Bien told the court that, even if it adopted the primary beneficiary test, the plaintiffs in Fox would prevail, because the interns "did displace regular employees."

"The primary beneficiary of the relationship surely was Fox," she said.

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The second set of arguments were on Hearst, where the plaintiffs pressed the fact that Hearst was cutting expenses in 2008 when it directed staff to use interns rather than paid managers. It also cut 229 employes in 2008 and used 3,000 interns from 2007 to 2013, some of whom did the same work as those who were fired.

Bien said that if the court adopted the primary beneficiary test, "it needs to set out some specific criteria employers can look at to make decisions" because "its so open ended, so broad" as it now stands.

Bien said the defendants were putting "too much emphasis on the fact that interns were willing to work without wages." When asked by Jacobs why a person would work without wages, Bien said, "Because people are really desperate to get their feet in the door," particularly during tough economic times.

"These are students who are saddled with a tremendous amount of debt," she said. "They are willing to do whatever they can."

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