Courts Consider if Interns Must be Paid
Bloomberg News—Jim Snyder and Christie Smythe
By the time Ladan Nowrasteh got her master's degree in journalism, her resume was stacked with experience. Her bank account wasn't nearly as full.
Like many students trying to get a leg up, Nowrasteh, 26, of suburban Falls Church, Va., worked a string of unpaid internships in college and graduate school. She often worked part-time jobs as well to pay for food and rent.
"The value I was getting was nonmonetary," said Nowrasteh, who did seven unpaid internships as a student. "I wouldn't have gotten all that experience if I wasn't willing to work for free."
The practice, especially common in competitive industries such as journalism, finance and filmmaking, could change if the appeals court upholds the ruling of a federal judge in New York who found that moviemaker Fox Searchlight Pictures violated labor laws by not paying two of its interns. Cases have also been brought against Hearst, Conde Nast Publications and Charlie Rose's Public Broadcasting Service show.
"This question of whether private-sector internships violate the minimum wage laws has been sort of a sleeping-giant issue for many years," said David Yamada, director of the New Workplace Institute at Suffolk University Law School in Boston. "The absence of payment is done with a wink and a nod. Interns know they better not make any trouble about this."
According to a survey by the National Association of Colleges and Employers, a Bethlehem, Pa.-based recruiting and research group, more than 63 percent of graduating seniors in 2013 had an internship or a co-op, a position more closely tied to an educational curriculum. About 48 percent of those were unpaid, according to the survey.
To critics, unpaid internships are an abuse of the labor system, a way for employers to take advantage of desperate job seekers. Supporters, including some former unpaid interns, see it as a way to get training and career contacts.
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Eric Glatt, 43, wasn't as satisfied. The lead plaintiff in the case against Fox Searchlight, Glatt had left a job at the insurer American International Group in New York to pursue a career in film. After receiving a certificate in film editing, he took two temporary positions on the set of the movie "Black Swan," where he spent much of his time making copies.
"I knew I was being taken advantage of," said Glatt, now a law student at Georgetown University in Washington. "I just didn't think there was anything I could do about it."
That changed when he read a news article about a six-part test the Labor Department uses to judge whether unpaid internships violate labor laws.
In ruling against Fox Searchlight, U.S. District Judge William Pauley in Manhattan said internships can be exempt from minimum wage requirements only if they adhere to all the criteria in the Labor Department test, which is based on a 1947 Supreme Court decision concerning railroad trainees.
The criteria require that a position be structured for the intern's benefit and should not displace regular workers. The employer also should not derive immediate advantages from the intern's activities.
Glatt and Alexander Footman, who also was an unpaid intern at Fox Searchlight, alleged they were asked to perform routine errands and other tasks, such as making deliveries, organizing file cabinets, making photocopies and taking lunch orders.
Los Angeles-based Fox Searchlight, a unit of 21st Century Fox, the entertainment group being split off from News Corp. in a restructuring, had argued that the internships should be held to a less stringent "primary benefits test," which would allow a position to be unpaid if the intern received a greater benefit than the employer. The company argued the interns got more benefits than it did.
Fox Searchlight did obtain "an immediate advantage from Glatt and Footman's work," Pauley said in his ruling. "Menial as it was, their work was essential. The fact they were beginners is irrelevant."
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Most internships in the private sector would not qualify to be unpaid under the stricter test that Pauley upheld, Yamada, of Suffolk University Law School, said.
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In their lawsuit, Glatt and Footman alleged Fox Searchlight keeps its production costs down by "employing a steady stream of unpaid interns." Such staffers "are becoming the modern-day equivalent of entry-level employees, except that employers are not paying them for the many hours they work," the former interns alleged in their September 2011 complaint.
Glatt said a motivation in bringing the case is his belief unpaid internships favor students from higher-income households whose parents can cover their expenses or people like him who were starting second careers and had savings to carry them through.
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If Pauley's decision is affirmed by the U.S. Court of Appeals in Manhattan, the case might be considered in conflict with the Ohio federal appeals panel, raising the possibility the issue could end up before the U.S. Supreme Court.
The ruling in the Fox Searchlight case "creates a significant legal uncertainty," said Samuel Estreicher, professor of labor and employment law at New York University. He said he would advise employers not to use unpaid interns in light of the decision.
"I think it's going to discourage internship programs, even where they largely benefit the intern," he said.
Outten & Golden LLP, which represents Glatt and Footman, is also handling lawsuits brought by former unpaid interns at News Corp. and Fox Entertainment, Hearst, Conde Nast Publications and Rose. The PBS host has settled the case with former interns, said Juno Turner, an attorney with the firm. The Conde Nast and News Corp. cases are pending. Plaintiffs in the Hearst case were dealt a setback in May when U.S. District Judge Harold Baer Jr. in Manhattan declined to uphold the Labor Department test and rejected their request to include other interns in their suit.
Robert Shindell, a vice president at Intern Bridge Inc., a college recruiting and research company based in Austin, Texas, said the broader impact of the court cases was unclear. Most companies probably can afford to pay interns, who would receive about $3,000 if they received the minimum wage over three months.
"Hopefully some of these companies do the moral and just thing and just pay their employees," Shindell said.