Unpaid Interns in Sports and Entertainment

U npaid internships, the generally accepted path to a career in sports and entertainment, have come under siege through Fair Labor Standards Act (“FLSA”) challenges alleging violations of minimum wage and overtime compensation regulations.

I t is generally accepted that the path to a career in the sports and entertainment industries begins with an unpaid internship performing menial tasks, through which up-and-comers receive an opportunity to view the industry from the inside, make valuable connections, and, occasionally, gain academic credit. However, this practice has recently come under siege through Fair Labor Standards Act (“FLSA”) challenges alleging violations of minimum wage and overtime compensation regulations.

I. FEDERAL LAW

Under the Fair Labor Standards Act of 1938[1], an employer must compensate an employee according to minimum wage and overtime compensation laws. The FLSA defines “employ” to mean “to suffer or permit to work”—a definition that was “written in the broadest possible terms so that the minimum wage provisions would have the widest possible impact in the national economy.”[2] As a result, exemptions must be narrowly construed against the employers seeking to assert them.[3] This is especially so in the context of unpaid internships because none of the exemptions enumerated within the FLSA explicitly apply to interns.[4]

  1. Walling v. Portland Terminal

The landmark 1947 Supreme Court case Walling v. Portland Terminal[5] set forth the trainee exception to the FLSA that purportedly makes unpaid internships legal.. In Walling, the Department of Labor (“DOL”) brought suit on behalf of prospective yard brakemen, who were enrolled in Portland Terminal’s training course.[6] The course provided prospective brakemen with the requisite skills necessary to handle the job.[7] Accepted applicants, under the supervision of yard crews, first learned the routine activities by observing, before being gradually allowed to practice the tasks under close scrutiny.[8] Trainees did not receive pay or compensation for the training period.[9]

The Court held that the FLSA’s definition of employ was “not intended to stamp all persons as employees who, without any express or implied compensation agreement, might work for their own advantage on the premises of another.”[10] The Court further held that a person whose work serves primarily his own purpose cannot be deemed an employee of another person providing assistance and guidance.[11] As it pertains to interns, the holding implies that those who receive training from an employer for their own educational benefit need not be paid.

  1. DOL Fact Sheet

In attempting to elucidate the Court’s decision in Walling, DOL released Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act (“DOL Fact Sheet”) in 2010.[12] The DOL Fact Sheet sets out six criteria to apply in determining whether an internship or training program qualifies for Walling’s trainee exemption.[13] The criteria apply to interns in “for-profit” private sector programs exclusively, as DOL has deemed it generally permissible for unpaid internships to be used in government or non-profit organizations, provided that the intern volunteer has no expectation of compensation.[14] If all of the following factors are met, an employment relationship does not exist under the FLSA, and minimum wage and overtime provisions need not apply to the intern.

  1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which 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 close supervision of existing staff;
  4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
  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 time spent in the internship.[15]

To satisfy the DOL Fact Sheet, the program must be structured around academic experience,[16] and provide generally applicable skills that are not employer-specific.[17] A program providing academic credit and overseen by the school is more likely to fulfill the criteria.[18]

It is crucial that the business not depend on the intern’s work such that a paid employee would not need to perform the intern’s tasks if the intern were absent.[19] Additionally, the internship program must provide close and constant supervision exceeding that which is received by the regular workforce.[20] Finally, there should be no expectation from the intern of future employment with the employer following the internship.[21]

  1. Tests for Trainee Exemption

Federal courts have constructed three different tests for applying the trainee exemption based on differing readings of Walling.

Some courts, including the Fifth Circuit[22] and certain New York federal courts[23], require all factors from the DOL Fact Sheet to be met. These courts argue that because the DOL factors “were promulgated by the agency charged with administering the FLSA and are a reasonable application of it, they are entitled to deference.”[24]

Other courts, however, such as the Fourth Circuit[25] and the Sixth Circuit[26], have eschewed the DOL Fact Sheet in favor of a primary beneficiary test based on the idea that “the ultimate inquiry in a learning or training situation is whether the employee is the primary beneficiary of the work performed.[27]

Finally, some other courts, including the Tenth Circuit[28] and certain other New York federal courts[29], adopt a middle ground, giving deference to the DOL factors but construing the language in the DOL Fact Sheet and the Walling holding to permit a flexible approach that allows the Court to “take into account all the economic realities of the relationship between the alleged employer and the trainees.”[30]

II. NEW YORK LAW

The Second Circuit has yet to rule on the issue, and there are conflicting rulings within the New York federal courts. New York is particularly relevant, as it has spawned much litigation regarding unpaid interns, particularly with regard to the sports and entertainment fields.

Within the span of just over a month in 2013, the Southern District of New York (“SDNY”) heard two cases in which first-impression FLSA claims were brought by unpaid interns seeking back wages. While the two cases shared many similarities in underlying fact patterns and legal claims, the Courts applied two different tests and came to opposing conclusions

  1. Xuedan Wang v. Hearst Corp.

In Xuedan Wang v. Hearst Corp.,[31] plaintiffs were each among more than 3000 interns employed by Hearst, one of the world’s largest publishers of monthly magazines,[32] over six years preceding this trial, performing an assortment of tasks for various magazines operated by Hearst.[33] The Court analyzed the DOL Fact Sheet and concluded that the weight that it should place on individual factors was unclear. The Court interpreted the DOL Fact Sheet as providing a framework for the analysis, rather than a rigid checklist, and held that a “balancing of the benefits” test looking to the totality of the circumstances should be employed to evaluate the economic reality of the intern-employer relationship.[34]

An appeal to the Second Circuit was certified, seeking guidance on the controlling question of law regarding the applicable test.[35]

  1. Glatt v. Fox Searchlight Pictures

In Glatt v. Fox Searchlight Pictures, a group of unpaid interns, who had performed menial tasks on blockbusters Black Swan[36] and 500 Days of Summer,[37] brought FLSA claims against Fox Searchlight, which produces and distributes feature films.[38]

This Court explicitly rejected the primary beneficiary test advocated by the defendant in favor of adhering to the DOL six-factor test.[39] The Court found that the primary beneficiary test has little support in Walling, as the Supreme Court did not weigh the benefits of the parties, but rather emphasized the fact that the training program was solely for the trainees’ benefit, with the employer deriving no immediate advantage from their work.[40] Additionally, the Glatt Court argued that such a test would be subjective and unpredictable, potentially leading to the result that the same internship position would be compensable to one intern but not another, based on the amount each took from his or her experience:[41] “Under this test, an employer could never know in advance whether it would be required to pay its interns,” and so “such a standard is unmanageable.”[42] In opting for the DOL six-factor test, the Court noted that the factors are supported by Walling and are entitled to deference because they were promulgated by the agency charged with administering the FLSA.[43]

Following an examination of the evidence relative to the six-factor test, the Court held that the plaintiffs were improperly classified as unpaid interns, and are instead employees covered by the FLSA.[44] Unsurprisingly, this decision too has been appealed, and is currently pending before the Second Circuit.

III. AFTERMATH

In December 2012, prior to the resolution of Glatt and Wang but following their filings, Charlie Rose and his production company agreed to pay 189 interns back wages to settle a putative class action lawsuit.[45] The Glatt ruling made the issue even more urgent, as the DOL six-factor test the Court applied is tremendously unfavorable to employers seeking to use unpaid interns. It is clear though that such a stringent standard is indeed advocated by DOL, which went on record in 2010 saying “If you are a for-profit employer or you want to pursue an internship with a for-profit employer, there aren’t going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law.”[46]

Indeed, some entertainment companies have found that it is no longer worthwhile to provide an internship program. In October of 2013, shortly after the Glatt and Wang rulings, Conde Nast, the publisher of, among others, Vogue, The New Yorker, and Glamour magazines, announced that it will stop offering internships as of 2014.[47]

Within the court system, Glatt has had also a predictable effect. Unpaid interns in the sports and entertainment industries, hoping to capitalize on the success of the Glatt plaintiffs, have filed a barrage of cases this past year within SDNY with varying success. These lawsuits have targeted a wide range of employers, including Major League Baseball[48], Madison Square Garden[49], Warner Music[50], and Gawker Media.[51]

IV. CONCLUSION

An analysis of the application of Walling’s trainee exemption to unpaid internships reveals that this is very much an unsettled area of law. What is unambiguous, however, is the fact that this is a current hot button issue with significant implications for the sports and entertainment industries.

Given the rush to the courthouse by former interns and the panicked responses of employers, it is clearly in the best interest of the legal system and society generally that this issue of law be settled as soon as possible. The competing factors, however, render the situation a complex one. Interns driven by the benefit of fostering connections within the sports and entertainment industries may be willing to accept unpaid positions. It is thus a mutually beneficial relationship wherein the interns receive something they greatly desire in exchange for providing free labor to businesses that have historically utilized a lot of it. However, this dynamic also creates ample risk of exploitation, which is precisely what the FLSA was intended to guard against. Indeed, a key feature of the FLSA is that employees are not allowed to waive their entitlement to wages, even if they would be willing to perform employee type work as a volunteer. The legal system must thus determine how to best protect interns from exploitation while still providing employers incentives to train up-and-coming workers. How it does so is an area to watch in the coming years.

Matthew Lee is a current student at Harvard Law School (Class of 2016).

 

[1] 29 U.S.C.A. §201 et seq.

[2] Carter v. Dutchess Cmty. Coll., 735 F.2d 8, 12 (2nd Cir. 1984).

[3] See Reiseck v. Universal Commc’ns of Miami, Inc.,591 F.3d 101, 104 (2nd Cir. 2010).

[4] Xuedan Wang v. Hearst Corp., 293 F.R.D. 489, 492 (S.D.N.Y. 2013).

[5] Walling v. Portland Terminal Co., 330 U.S. 148 (1947).

[6] Id. at 149.

[7] Id. at 149.

[8] Id.

[9] Id.

[10] Id. at 152.

[11] Id.

[12] U.S. Dep’t of Labor, “Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act (April 2010),” available at http://www.dol.gov/whd/regs/compliance/whdfs71.pdf.

[13] Id.

[14] Id.

[15] Id.

[16] Id.

[17] Id.

[18] Id.

[19] Id.

[20] Id.

[21] Id.

[22] See e.g., Atkins v. General Motors Corp., 701 F.2d 1124, 1127-28 (5th Cir. 1983).

[23] See e.g., Glatt v. Fox Searchlight Pictures Inc., 293 F.R.D. 516, 531 (S.D.N.Y. 2013).

[24] Id. at 532.

[25] See e.g., McLaughlin v. Ensley, 877 F.2d 1207, 1209-1020 & n.2 (4th Cir. 1989).

[26] See e.g., Solis v. Laurelbrook Sanitarium & Sch., Inc., 642 F.3d 518, 525 (6th Cir. 2011).

[27] Id.

[28] See e.g., Reich v. Parker Fir Prot. Dist., 992 F.2d 1023, 1026 (10th Cir. 1993).

[29] See e.g., Xuedan Wang v. Hearst Corp., 293 F.R.D. 489, 493 (S.D.N.Y. 2013).

[30] Id.

[31] Xuedan Wang v. Hearst Corp., 293 F.R.D. 489, 492 (S.D.N.Y. 2013).

[32] Id. at 492

[33] Id. at 491-92.

[34] Id. at 493-94.

[35] Xuedan Wang v. Hearst Corp., No. 12 CV 793(HB), 2013 WL 3326650 (S.D.N.Y. Jun. 27, 2013).

[36] Black Swan (20th Century Fox 2010).

[37] (500) Days of Summer (20th Century Fox 2009).

[38] Glatt v. Fox Searchlight Pictures Inc., 293 F.R.D. 516, 531 (S.D.N.Y. 2013).

[39] Id. at 531-32.

[40] Id.

[41] Id. at 532.

[42] Id.

[43] Id.

[44] Id. at 534.

[45] Steve Greenhouse, “Charlie Rose” Show Agrees to Pay Up to $250,000 to Settle Interns’ Lawsuit, New York Times (Dec. 20, 2012), available at http://mediadecoder.blogs.nytimes.com/2012/12/20/charlie-rose-show-agrees-to-pay-up-to-250000-to-settle-interns-lawsuit/?_php=true&c_type=blogs&_r=0.

[46] Steve Greenhouse, The Unpaid Intern, Legal or Not, New York Times (Apr. 2, 2010), available at http://www.nytimes.com/2010/04/03/business/03intern.html?pagewanted=all&_r=0.

[47] Suzanne Lucas, Conde Nast Ends Internship Program: Will Others Follow Suit?, CBS News (Oct. 24, 2013), http://www.cbsnews.com/news/conde-nast-ends-internship-program-will-others-follow-suit/.

[48] Chen v. Major League Baseball, 6 F.Supp.3d 449 (S.D.N.Y. Mar. 25, 2014).

[49] Fraticelli v. MSG Holdings, L.P., No. 13 Civ. 6518(JMF), 2014 WL 1807105 (S.D.N.Y. May 7, 2014).

[50] Grant v. Warner Music Group Corp., No. 13 Civ. 4449(PGG), 2014 WL 1918602 (S.D.N.Y. May 13, 2014).

[51] Mark v. Gawker Media LLC, No. 13 Civ. 4347(AJN), 2014 WL 4058417 (S.D.N.Y. Aug. 15, 2014).

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