Unpaid Internship, Hands-On Learning or Free Labor?

Unpaid Internship, Hands-On Learning or Free Labor?

Internships can be rewarding to both the organization as well as the intern who is able to gain valuable experience towards obtaining lucrative employment. However, sometimes an unpaid internship can become unbalanced and benefit the employer more than the intern, which prompts some to question whether interns should be paid the same as employees. To determine if and when an unpaid intern should receive payment for their efforts, the courts passed the primary beneficiary test.


Employee Classification

Why the Need For Classification?

In 2011, two previous unpaid interns took legal action against Fox Searchlight, a separate film division of 20th Century Fox, declaring they should have been paid the same base salary and overtime as other employees. In 2013, New York Federal District Court approved the collective action in relation to their Fair Labor Standards Act claim. Since then, there have been various class action suits filed by individuals, namely in the media, entertainment and retail fields. Fox Searchlight went on to appeal the case to the Second Circuit.

Second Circuit Appeal

During the appeal, the Second Circuit struggled with determining the instances in which an individual qualifies as an unpaid intern or employee, during which time, the plaintiffs, Fox Searchlight and the DOL urged the courts to mandate a test that would determine classification.

Fox Searchlight suggested a primary beneficiary test, based on who holds the major advantage during the internship, while the plaintiffs suggested a test in which classification was based on who held the immediate advantage. The US Department of Labor (DOL) suggested the courts require a set of factors be set similar to the factors outlined in the Intern Fact sheet to determine classification.

The Second Circuit took each suggestion into consideration before successfully passing the employer-friendly primary beneficiary test.


Circuit Court Judge

The Second Circuit Passes the Employer-Friendly Primary Beneficiary Test

The court embraced Fox Searchlight’s primary beneficiary test because of its capacity to take into consideration the role of internships in today’s economy and the economic disparity between intern and employee, which provides sufficient flexibility. The Second Circuit also went on to abandon the lower court’s ruling granting a collective action, which relied on common proof, for the highly individualized approach of the primary beneficiary test, which analyzes each intern based on their experience.

Employer-Friendly Primary Beneficiary Factors

According to the courts, when applying the employer-friendly primary beneficiary test, these factors should apply:

  • – 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.
  • – 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.
  • – The extent to which the internship is tied to the intern’s formal education program by integrated course-works or the receipt of academic credit.
  • – The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  • – The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  • – The extent to which the intern’s work compliment’s, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  • – The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

Furthermore, the courts concur that “every factor need not point in the same direction for the court to conclude that the intern is not an employee…” This means that no single factor will be used to determine the settlement. The courts may also rely upon other relevant court cases and evidence to analyze these factors.

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Interpreting a decision

What Does It All Mean?

The Second Circuit’s ruling has made it easier for the courts to classify whether an intern should be paid as an employee or not. Since the ruling, many employers have responded by revamping their internship programs or paying their interns, which means the number of intern class and collective action law suits should decline.

In the meantime, it is suggested that employers re-evaluate their unpaid internship program to ensure the intern is the “primary beneficiary” of the internship. They should also work closely with supervisors to ensure compliance with the Second Circuit’s guidance is adhered to. Lastly, employers should ensure interns receive the same beneficial learning and credit as they would in an academic setting. They should also ensure that the internship has a precise end date. Implementing these tips will help employers construct an ethical unpaid internship program that benefits both the employer and the intern.