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Unpaid Internships: What’s Legal?

March 6, 2021 by in "Two Minute Takeaway"

Summer is here and so are the interns.  If your company uses unpaid interns, you have to carefully structure the program to provide a significant educational component.  Otherwise, you may have exposure under the wage and hour laws for failing to pay minimum wage and overtime. 

The law governing this topic was recently clarified by a spate of class actions against companies with large internship programs.  The Second Circuit then issued the seminal decision on the matter.  

Recent Class Action Lawsuits Concerning Unpaid Internships 

Class action attorneys recently filed numerous lawsuits against large media companies with extensive unpaid internship programs.  The suits revealed the industrial scale of some internship programs and resulted in multi-million dollar settlements.  Viacom paid $7.2 million to settle claims brought on behalf of 10,500 unpaid Viacom interns.  Condé Nast paid $5.8 million to a class of 7,000 interns.  Warner Music paid $4.2 million to a class of 4,500 interns.  And Madison Square Garden paid $800,000 to a class of approximately 1,000 interns.  These massive programs appeared to be essential components of defendants’ menial workforce rather than internships fitting the traditional mold. 

The central legal question in these lawsuits was whether the interns qualified as “employees” entitled to minimum wage and overtime payments under state and federal law.

Glatt v. Fox Searchlight Provides Much Needed Clarity

As part of this litigation, in 2015 the Second Circuit Court of Appeals issued a landmark decision.  In Glatt v. Fox Searchlight the Court held that bona fide internship programs must provide interns with significant educational benefits.  The Court held that unpaid internship programs should (1) provide training similar to that of an educational environment; (2) be tied to a formal educational program by integrating coursework or receipt of academic credit with the internship; (3) be structured around an intern’s academic calendar; (4) have interns work on assignments only for the duration which it normally takes to learn about a task or an aspect of the business; and (5) complement, rather than replace, the work performed by paid employees. 

Glatt’s holding that internship programs must have a demonstrable educational component was unprecedented.  The decision flunks casual internship programs in which unpaid interns perform menial tasks like copying or fetching coffee with the hope that the interns learn by osmosis or by “seeing what we do.”  Glatt was especially important because it was the first appellate court to consider the application of wage and hour laws to internship programs, and therefore the decision immediately became the leading case in the nation.  Shortly after Glatt was decided, the Eleventh Circuit Court of Appeals heard a similar case and adopted Glatt’s ruling focusing on the educational benefits of internship programs.

Consequently, providers of unpaid internships must ensure that the internship provides tangible educational benefits to interns.   

For those interested in a more detailed discussion of this topic, I wrote a longer piece for the New York Law Journal immediately after Glatt was decided in 2015.  That article is available here.