Second Circuit Court Adopts “Primary Beneficiary Test” in Black Swan Interns Case

As previously reported, in 2013, a federal district court in New York ruled that Fox Entertainment Group misclassified employees as unpaid interns in violation of the Fair Labor Standards Act (FLSA). Glatt v. Fox Searchlight Pictures, Inc. (2nd Cir. 2013). That court applied a six-factor test established by the U.S. Department of Labor (DOL). The holding prompted many unpaid interns to file claims against companies for failing to properly compensate them under the FLSA.

On July 2, 2015, the Second Circuit Court of Appeals rejected the DOL’s six-factor test and instead applied a “Primary Beneficiary Test.” Glatt v. Fox Searchlight Pictures, Inc. (2nd Cir. 2015).  The Primary Beneficiary Test focuses on whether the intern or the employer is the primary beneficiary of the relationship. The Second Circuit provided a non-exhaustive list of considerations in determining whether an individual is an unpaid intern, including:

  • The extent to which the intern and the employer clearly understand there is no expectation of compensation;
  • The extent to which the internship provides training that would be similar to that which would be given in an educational environment;
  • The extent to which the internship is tied to the intern’s formal education program by integrated coursework 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 complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern; and
  • The extent to which the intern and employer understand that the internship is conducted without entitlement to a paid job at the end of the internship.

The Second Circuit Court emphasized that the list of considerations is non-exhaustive and no one factor is decisive in determining whether an intern has been misclassified.

This case was one of the first in a number of class-action lawsuits filed by workers who claim that they were improperly classified as interns when they should have been employees. MSEC members who use unpaid interns should be aware of these criteria and examine the business relationship with all unpaid interns to determine if that status is proper. Contact an MSEC attorney with your questions.