Overtime Advisor : New York Employment Lawyer & Attorney : Greenwald Doherty Law Firm : NY Wage & Hour & Discrimination : Overtime Advisor Law Blog

Prospective litigants in a case brought under the FLSA (Fair Labor Standards Act) must take action to demonstrate a willingness to participate in that matter.  Unlike the typical class action, where class members are presumed to be included unless they affirmatively “opt-out” of the litigation, prospective plaintiffs in an FLSA “collective action,” such as the interns here, must affirmatively “opt in” to be part of this law suit.  At this early stage in the litigation, the plaintiff only needs to make a modest showing to the Court that there were other individuals who were similarly situated to her who were also likely victims of the employer’s allegedly improper classification, in order for the Court to allow the case to proceed as a collective action.  Whether she will actually win her case in the end still remains to be seen.

In these summer months, this is a good reminder that employers should take care when hiring unpaid interns to provide services for their companies.  In order for those individuals to be truly unpaid, they need to satisfy all of the requirements set forth in the Department of Labor Regulations.  These requirements are also discussed in our prior blog.  As the Hearst Corporation is learning, there are risks to misclassifying interns incorrectly when they should be treated as employees.  Make sure that your company is doing it right.

As previously discussed in this space, misclassification typically deals with one of three issues: (1) unpaid interns, (2) independent contractors, and (3) volunteers. The classic unpaid intern misclassification features an individual who, while classified as an unpaid intern, is being asked to handle the responsibilities of a full-time employee. This problem most commonly arises in the for-profit sector. Meanwhile, the classic independent contractor misclassification features workers who are termed independent contractors but get treated by employers in the same fashion an employee would. Volunteers are simply not permitted in the private sector. The problems are similar, though the details of what is necessary for compliance are distinct.  Employers should take the time to review the rules for proper classification laid out in our previous blog posts.

The size of the budget allocated to combat misclassification issues should have employers reviewing their practices. It is clear that identifying alleged misclassifications will be a major focus of the DOL and your business could be in the cross-hairs. Government agencies feeling the economic pinch and determining that they have been denied taxes or other payroll benefits inapplicable to independent contractors, volunteers and unpaid interns, have every incentive to inspect worker classifications for compliance. In addition to whatever tactics such government agencies may have utilized in the past, employers should also be aware that there will be a greater deal of government interdepartmental communication on this issue.  Strategy and tactics focused on becoming compliant now could be cost effective for employers in the long run.

As we previously mentioned in our post on the Black Swan intern lawsuit, employers who utilize unpaid interns need to be sure that their internship programs comport with DOL regulations. Unpaid internships abound in certain industries and often serve as a foot in the door. However, the fact that something has “always been done that way” will not save an unwary employer from a DOL investigation or a wage and hour lawsuit, if its internship program does not contain the required educational components, or otherwise fails to comply with the DOL regulations.

The intern who is suing Hearst worked for the fashion magazine Harper’s Bazaar.  She claims to have “worked” between 40 and 55 hours per week over a 4 month period without being paid, and is being represented by the same law firm representing the plaintiffs in the Black Swan lawsuit. Once again, they are attempting to pursue a class action suit.

Interestingly, at the time of the publication of this blog post, Hearst’s internship website expressly indicates that internships are for current students and requires that applicants demonstrate the ability to receive academic credit. Compliance with such a rule could potentially shield an employer from this sort of litigation, but (presuming this requirement was in place previously) it does not seem to have deterred the claimant here.

The take-away? Employers should review their internship programs against the DOL regulations to ensure compliance, lest they be the next litigation target.

Although provided with an opportunity to get first-hand insight into the making of a movie, the “Black Swan” interns were also required to perform tasks such as preparing coffee, cleaning up and fetching food. 

The Department of Labor regulations make clear that employers do not have to pay their interns so long as ALL of the following criteria for the intern work are met:
 

1. The training, even though it includes actual operation of the employer’s facilities, is similar to that which would be given in a vocational school;
2. The training is for the benefit of the trainees or students, not the company;
3. The trainees or students do not displace regular employees, but work under close supervision;
4. The employer that provides the training receives no immediate advantage from the activities of the trainees or students and, on occasion, his or her operations may even be impeded;
5. The trainees or students are not necessarily entitled to a job at the conclusion of the training period; and
6. The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.

While the tasks required of the Black Swan interns may be commonplace in the entertainment industry, they also allowed the employer to derive a direct benefit from the interns’ activities. As the interns allege, that may have violated criteria 2 and 4 above.
 

While intern labor cases have thus far been rare, the growing number of unpaid internships coupled with the high visibility of this case should put employers on warning. Simply acting as others in your industry will not necessarily keep your company safe from potential litigation if those industry standards are not in line with the Department of Labor’s rules on unpaid internships. To avoid any potential ramifications, employers would be prudent to make sure their internship programs comply with the applicable regulations and/or consider either paying interns or partnering with educational institutions so that internships may be structured for academic credit.