Do You Know the 6 Warnings Signs of an Impending FLSA Lawsuit?

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How's this for irony? 20th Century Fox (a subsidiary of 21st Century Fox) recently released the movie "The Internship," starring Vince Vaughan and Owen Wilson who, as desperate 40-somethings looking for work in a bad job market, land a coveted internship with Google.  This coming at a time when another subsidiary of Fox has had high-profile court trouble with regard to its practices of using unpaid interns.

First, about the movie -- it may not have struck box office gold, but I liked it.  I thought it was a fun buddy comedy with heart that speaks to a generation of people who have been left behind by rapid advances in technology. While it wasn't "laugh-a-minute," it did have some good laughs including a truly inspired scene (it's the one featuring NTSF:SD:SUV's Rob Riggle). I also liked that franchising played a small role in the movie, but hopefully I'll get to writing a separate post on that later.  

Now for the irony: another Fox subsidiary, Fox Searchlight Pictures, just last month lost a high-profile lawsuit by real-life interns. 

On June 11, 2013, the U.S. District Court for the Southern District of New York ruled that two unpaid interns on the Fox Searchlight movie, "Black Swan," should have been paid because they were essentially regular employees, not "interns" under the Fair Labor Standards Act (FLSA). 

The "Black Swan" ruling and other recent decisions are a wake-up call for companies to re-evaluate unpaid internship programs to ensure compliance with the law.

Indeed, for-profit companies that are currently using unpaid interns should be acutely aware that the FLSA's exception that allows this practice is extremely narrow, and that any "intern" who does not fit the narrow exception must actually be paid as any employee.   

Every "employee" under the FLSA must be paid at least minimum wage and, when applicable, overtime. 

Courts interpret "employee" very broadly.  In fact, courts sometimes presumptively view internships at for-profit companies as employment. However, interns who receive training for their own educational benefit, rather than the benefit of the employer, may nevertheless meet the unpaid intern exception and not be paid.

The U.S. Department of Labor (DOL) has identified six criteria that must be met for determining whether an internship program meets this narrow exclusion:

  1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training that 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.

While some Courts do not require that all six factors be met, the Court in the recent Fox Searchlight decision agreed with the DOL that all six factors must be satisfied. 

In whatever Court a company finds itself, the ultimate determination as to whether an unpaid intern is an "employee" entitled to compensation will be made on a case-by-case basis and depends upon all the facts and circumstances of the internship program.  

In short, employers should undertake a proper evaluation of their unpaid internship programs now, and hopefully avoid facing those interns in Court later. (And, if you do see "The Internship," let me know what you think). 

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I've had experience once with our company hiring an intern.

I was in charge of development at a major QSR and we provided an internship to my sister.

Yes she got the internship because she was my sister. And she was a top engineering student at Virginia Tech.

We did not have the problem that Matthew describes since we paid my sister for her intern work on workflow engineering of our restaurants.

This is clever, and I like it.

Haven't seen the movie and I might just have to watch it now to see if Matt is right about the potential lawsuit.

This reminds of those great academics who can see game theory problems being described in literature.

S. Brams comes to mind: he also wrote a book called something like "The Bible and Game Theory"

I must dig around my archives and find some of his papers on this topic.

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This page contains a single entry by Matthew Kreutzer published on July 10, 2013 1:24 PM.

How to Get Your Franchisee Buyers to Make Effective Validation Calls was the previous entry in this blog.

Give Me One Hour - And I Will Give You a Surprisingly Quick Recipe for Negotiating Franchise Relationships in China is the next entry in this blog.

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