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1. ELEVENTH CIRCUIT SURVEY: JANUARY 1, 2013 - DECEMBER 31, 2013: COMMENT: An Emerging

Liability: Managing FLSA Exposure from Internship Programs in the Private Sector, 65 Mercer L. Rev. 1131

Client/Matter: -None-

ELEVENTH CIRCUIT SURVEY: JANUARY 1, 2013 - DECEMBER 31, 2013: COMMENT: An Emerging Liability: Managing FLSA Exposure from

Internship Programs in the Private Sector

Summer, 2014

Reporter 65 Mercer L. Rev. 1131 *

Length: 22005 words

Author: Chris J. Perniciaro

Text

[*1131]

I. Introduction

According to the Wage and Hour Division (WHD) of the Department of Labor (DOL), unpaid internships in private for-profit businesses are illegal under the Fair Labor Standards Act (FLSA or the Act) 1 except for very narrow circumstances. 2 Consistent with the WHD's position, civil litigation against employers providing unpaid internships has significantly increased via the private right of action contained in the statute. 3 Over twenty lawsuits have been filed by unpaid interns alleging violations of federal and state minimum wage laws. 4 A major force behind these new lawsuits is Glatt v. Fox Searchlight Pictures Inc., 5 a [*1132] June 2013 decision from the United States District Court for the Southern District of New York, holding that two unpaid interns were employees under the protection of the FLSA. 6 Marking the first victory for unpaid interns in wage and hour litigation, the decision is a cautionary symbol to employers that shows the significant liability they might incur as a result of internship programs, and the potential for plaintiff's lawyers who can obtain certification of collective actions.

The FLSA is the main federal law regulating the wages and hours of employees. Under the Act, a national minimum wage and a maximum hour limit per workweek are set. 7 In the FLSA, Congress states the harms it intended to remedy through the legislation:

1 29 U.S.C. §§201-219 (2012).

2 Steven Greenhouse, The Unpaid Intern, Legal or Not, N.Y. Times, Apr. 3, 2010, at B1.

3 Stephen Suen, Tracking Intern Lawsuits, ProPublica (Jan. 7, 2014, 3:48 PM), http://projects.propublica.org/graphics/intern- suits.

4 Id.

5 293 F.R.D. 516 (S.D.N.Y. 2013).

6 Id. at 534.

7 29 U.S.C. §§206-207 (2012).

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The existence, in industries engaged in commerce or in the production of goods for commerce, of labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well- being of workers (1) causes commerce and the channels and instrumentalities of commerce to be used to spread and perpetuate such labor conditions among the workers of the several States; (2) burdens commerce and the free flow of goods in commerce; (3) constitutes an unfair method of competition in commerce; (4) leads to labor disputes burdening and obstructing commerce and the free flow of goods in commerce; and (5) interferes with the orderly and fair marketing of goods in commerce. 8

Congress intended to correct the above mentioned consequences of poor labor conditions through the FLSA "as rapidly as practicable … without substantially curtailing employment or earning power." 9 Subsequently, Congress created the WHD to enforce the provisions of the Act. 10

This Article is an analysis of recent lawsuits alleging FLSA minimum wage and maximum hour violations involving interns or volunteers at for-profit organizations, and a guide for companies with internship programs on how to avoid liability for FLSA violations. Part I provides a brief history of federal wage and hour regulation by examining the line of Supreme Court cases that form the foundation for unpaid internship litigation. Part II illustrates how the number of unpaid internships has increased in recent decades, why the expansion occurred, and how state and federal government has responded to the growing presence of internships. Also, Part II reviews relevant federal cases leading up to Glatt, along with a detailed review of this seminal case. Part III [*1133] provides guidance on how unpaid internships should be structured to comply with current legal standards.

II. History of the FLSA and Coverage Under the Act

Before the enactment of the FLSA, the freedom of private parties to determine the terms of employment relationships counter-acted state and federal attempts to regulate such associations. 11 The United States Supreme Court made itself clear in Lochner v. New York 12 that individuals have the right to freely determine the terms of their employment agreements without governmental interference. 13 In Lochner, the Court struck down a New York state law setting the maximum hours bakers could work per week at bakeries. 14 The Court concluded the maximum of sixty hours per week, or ten hours per day, was an arbitrary interference with the freedom to contract. 15 Unlike laws that set maximum hours for workers in dangerous industries to prevent injuries (miners or smelters), the law regulating bakers' hours did not serve the state's interest in the safety of its citizens. 16 Justice

8 29 U.S.C. § 202(a).

9 29 U.S.C. § 202(b).

10 29 U.S.C. § 204(a).

11 E.g., Lochner v. New York, 198 U.S. 45, 64 (1905).

12 198 U.S. 45 (1905).

13 Id. at 64.

14 Id. at 52, 64-65.

15 Id. at 62, 64.

16 Id. at 54-55, 57. The authority of a state to provide for the safety of workers in dangerous industries was grounded in the states' general police power. Id. at 54.

65 Mercer L. Rev. 1131, *1132

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Peckham wrote that "the freedom of master and employee to contract with each other in relation to their employment … cannot be prohibited or interfered with, without violating the Federal Constitution." 17

Resistance to wage and hour laws continued after Lochner in a series of Supreme Court decisions, 18 until the mid- 1930s. 19 The Court's staunch opposition to federal legislation restricting the terms of employment agreements subsided after President Franklin Delanor Roosevelt's court packing threat in 1936, which caused a change in judicial opinion referred to as a "switch in time." 20 In West Coast Hotel [*1134] Co. v. Parrish, 21 the five-four decision illustrated the Court's shift by upholding a state minimum-wage law for hotel employees. 22 The following year Congress passed the FLSA, establishing a federal minimum wage and maximum hour restrictions for employees. 23 Upholding the constitutionality of the FLSA, the Court held in United States v. Darby 24 that the Act was a valid exercise of Congress's Commerce Clause authority, firmly establishing the Court's changed perspective on federal wage and hour regulation. 25

Although the constitutionality of the Act was settled in Darby, the Court was faced with a new task of determining the FLSA's scope of coverage. 26 The FLSA mandates that only employees are to be paid a designated minimum wage, 27 and only employees are entitled to one and one-half times their regular hourly rate if they work more than forty hours in a workweek. 28 Therefore, whether an individual is an employee within the meaning of the FLSA is crucial. Congress however decided to include a redundant and unhelpful definition describing an employee as "any individual employed by an employer." 29 Still, the drafters provided some guidance by defining an employer as "any person acting directly or indirectly in the interest of an employer in relation to an employee," 30 and the term employ as "to suffer or permit to work." 31

Senator Hugo Black, the sponsor of the FLSA, expressed on the Senate floor that the term employee had "the broadest definition that has ever been included in any one act." 32 Accordingly, the Supreme Court has interpreted the term liberally. 33 Senator Black's broad interpretation [*1135] was acknowledged by the Court in United States

17 Id. at 64.

18 Morehead v. New York ex rel. Tipaldo, 298 U.S. 587, 618 (1936) (striking down state law allowing the fixing of women's wages); A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495, 521-22, 551 (1935) (striking down the National Industrial Recovery Act of 1933, which set maximum hours per day and week); Adkins v. Children's Hosp. of D.C., 261 U.S. 525, 539, 562 (1923) (striking down minimum-wage law for women and children employed in the District of Columbia on the grounds that the statute interfered with the freedom to contract).

19 Jonathan Grossman, Fair Labor Standards Act of 1938: Maximum Struggle for a Minimum Wage, 101 Monthly Lab. Rev. 22, 23-24 (June 1978).

20 Id. at 23.

21 300 U.S. 379 (1937).

22 Id. at 388, 400.

23 Fair Labor Standards Act of 1938, ch. 676, § 1, 52 Stat. 1060 (codified as amended at 29 U.S.C.§§206-07).

24 312 U.S. 100 (1941).

25 Id. at 118, 125-26. In Darby, the Court stated:

The power of Congress over interstate commerce is not confined to the regulation of commerce among the states. It extends to those activities intrastate which so affect interstate commerce or the exercise of the power of Congress over it as to make regulation of them appropriate means to the attainment of a legitimate end, the exercise of the granted power of Congress to regulate interstate commerce.

65 Mercer L. Rev. 1131, *1133

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v. Rosenwasser, 34 when it determined that workers paid at a piece rate, rather than by the hour, were within the definition of employee. 35 Significant to the decision were the Act's remedial objectives:

Neither the policy of the Act nor the legislative history gives any real basis for excluding piece workers from the benefits of the statute. This legislation was designed to raise substandard wages and to give additional compensation for overtime work as to those employees within its ambit, thereby helping to protect this nation from the evils and dangers resulting from wages too low to buy the bare necessities of life and from long hours of work injurious to health. 36

Therefore, the Court held congressional intent does not permit "distinction or discrimination based upon the method of employee compensation." 37

Despite the FLSA's broad coverage, the Court in Walling v. Portland Terminal Co. 38 carved out a significant exception from the definition of employee for trainees. 39 The Court in Walling held that unpaid rail yard brakemen trainees were not employees of a railroad. 40 The trainees were required to undergo preliminary training for an average of seven to eight days without pay before they were eligible for, but not guaranteed fulltime employment. At first the trainees did nothing but observe regular employees, but eventually they moved on to actual work under close supervision. None of the trainees displaced regular employees, and the trainees did not expedite the company's business, but rather would often slow activities in the yard. 41 Rejecting the use of common law or other statutory employer-employee classifications, the Court instead described FLSA definitions as comprehensive enough to cover "many persons and working relationships, which prior to [the] Act, were not deemed to fall within an employer-employee category." 42 Covered under the Act are "trainees, beginners, apprentices, or learners if they are employed to work for an employer for compensation," whether [*1136] through an express or implied agreement; however, individuals who work for only their own interests are not employees of those who aid and instruct the individuals. 43 Applying these principles, the Court held the brakemen were not employees under the

Id. at 118.

26 See United States v. Rosenwasser, 323 U.S. 360, 361-63 (1945).

27 29 U.S.C. § 206(a).

28 29 U.S.C. § 207(a)(1).

29 29 U.S.C. § 203(e)(1).

30 29 U.S.C. § 203(d).

31 29 U.S.C. § 203(g).

32 81 Cong. Rec. 7656, 7656-57 (1937); see also Rosenwasser, 323 U.S. at 363 n.3.

33 See Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 326 (1992) (noting the term employee has "striking breadth" in the FLSA); Goldberg v. Whitaker House Coop., Inc., 366 U.S. 28, 31-32 (1961); Rutherford Food Corp. v. McComb, 331 U.S. 722, 728-29 (1947); Rosenwasser, 323 U.S. at 362-63.

34 323 U.S. 360 (1945).

35 Id. at 363 n.3, 364.

36 Id. at 361 (quoting S. Rep. No. 75-884 (1937)) (internal quotation marks omitted).

37 Id. at 362.

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Act because the railroads did not receive any immediate advantage from the brakemen's work, while the brakemen received the benefit of free instruction. 44

Later in the same year, the Court expressly adopted a broad interpretation of employee in Rutherford Food Corp. v. McComb, 45 giving FLSA terms the comprehensive definitions described in Walling. 46 In Rutherford, the WHD sought to enjoin the owners of a meat processing plant from violating the overtime provisions of the FLSA in regards to its plant workers. 47 The Court concluded that the plant workers were employees, and disregarded that the workers were formally titled independent contractors. 48 In lieu of examining isolated factors like formal titles, the Court held "that the determination of the [employment] relationship does not depend on such isolated factors but rather upon the circumstances of the whole activity." 49 Because the plant workers were part of an integrated unit of production and their work followed the usual path of employees, the Court found coverage under the Act. 50

One reason the Court adopted a broad interpretation of the term employee was that the FLSA's definition of employ is derived from state child labor statutes, which used the phrase "suffer or permit to work" in place of employ. 51 These statutes phrased their broad prohibitions on child labor by dictating to employers that they "shall not employ [minors] by contract, nor shall [they] permit by acquiescence, nor suffer by a failure to hinder." 52 When the FLSA was enacted in 1938, thirty-two states and the District of Columbia had child labor statutes using similar phrasing to describe employ. 53 The statutes were specifically constructed to prevent employers from evading the prohibitions by [*1137] claiming children workers were not employees. 54 By including the term suffer, the statute covered the typical express employment relationship, while the term permit encompassed acquiesces and implicit assent, allowing for broader coverage. 55

The Court in Rutherford also noted other Supreme Court decisions defining the employer-employee relationship for purposes of the National Labor Relations Act (NLRA) 56 and the Social Security Act (SSA) 57 were "persuasive" when determining coverage under the FLSA. 58 For example, in NLRB v. Hearst Publications, Inc., 59 the Court held that whether workers fall within the definition of employee under the NLRA requires an examination of the

38 330 U.S. 148 (1947).

39 Id. at 152.

40 Id. at 153.

41 Id. at 149-50.

42 Id. at 150-51.

43 Id. at 151-52.

44 Id. at 153.

45 331 U.S. 722 (1947).

46 See id. at 728-29; see also Darden, 503 U.S. at 325-26.

47 331 U.S. at 723.

48 Id. at 729.

49 Id. at 730.

50 Id. at 729.

65 Mercer L. Rev. 1131, *1136

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history, terms, and purposes of the legislation. 60 Justice Rutledge explained that when interpreting the term employee, state agency law is not considered, rather the term should be interpreted using federal law "in the light of the mischief to be corrected and the end to be attained." 61

In subsequent Supreme Court cases, the analysis of whether employment exists under the FLSA was specified as an examination of the economic realities of the relationships. 62 Under the Court's economic realities test appearing in Goldberg v. Whitaker House Cooperative, Inc., 63 courts must consider the functional aspects of the relationship, such as the worker's independence, compensation method, and the principal's authority over the worker, rather than technical concepts such as formal titles. 64 Consequently, titling a worker's position intern [*1138] or volunteer does not mean the worker is not an employee covered under the FLSA. 65

The economic realities test was applied to volunteers in Tony & Susan Alamo Foundation v. Secretary of Labor, 66 when the Court examined the relationship between a non-profit religious foundation and workers receiving only food, clothing, and other non-monetary benefits. 67 The workers were called associates, and they were mostly addicts or criminals the foundation took in for rehabilitation. During rehabilitation the unpaid associates would work in businesses the foundation owned, including grocery outlets, hog farms, and roof construction companies. While working for the foundation, the associates were entirely dependent on the foundation - sometimes for as long as several years. All of the foundation's income was derived from these businesses staffed by the unpaid associates. 68

Unlike the railroad brakemen trainees in Walling, the associates in Alamo Foundation were not working as volunteers as defined in the former Supreme Court decision. 69 The Court explained that in Walling, the brakemen worked without pay for seven to eight days under close supervision with no expectation of compensation. 70 Also, the FLSA was "not intended to stamp all persons as employees who, without any express or implied compensation agreement, might work for their own advantage on the premises of another." 71 Because the brakemen's employment in Walling did not consider compensation, they were more [*1139] like students rather than

51 Id. at 728 & n.6; see also Bruce Goldstein, et al., Enforcing Fair Labor Standards in the Modern American Sweatshop: Rediscovering the Statutory Definition of Employment, 46 UCLA L. Rev. 983, 1030-55 (1999).

52 Goldstein, supra note 51, at 1041 (quoting Curtis & Gartside Co. v. Pigg, 134 P. 1125, 1129 (Okla. 1913)).

53 Rutherford, 331 U.S. at 728 n.7.

54 Goldstein, supra note 51, at 1040.

55 Id. at 1041.

56 29 U.S.C. §§151-69 (2012).

57 42 U.S.C. § 301-11397mm (2012).

58 Rutherford, 331 U.S. at 723-24. But see Darden, 503 U.S. at 324, 325-26 (holding that the FLSA definition of employee is broader than the common law agency definition used in the NLRA and SSA).

59 322 U.S. 111 (1944).

60 Id. at 124.

61 Id. at 123-24 (quoting S. Chi. Coal & Dock Co. v. Bassett, 309 U.S. 251, 259 (1940)). The Court in a later case, United States v. Silk, came to a similar conclusion when interpreting the term employee under the SSA. 331 U.S. 704, 705, 718-19 (1947). However, Congress later amended the NLRA and SSA in reaction to Hearst and Silk with the purpose of forcing the courts to apply common law agency principles. Darden, 503 U.S. at 324-25. The Supreme Court would later revisit these amendments to clarify their effect. See infra notes 89-93 and accompanying text.

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employees. 72 Conversely, the associates in Alamo Foundation were not like students, but instead depended entirely on the foundation for long periods of time showing that the associates expected in-kind benefits in exchange for their services. 73 Even though the associates considered themselves to be volunteers, and actually protested coverage under the Act, the non-monetary benefits they received were deemed compensation, or "wages in another form." 74 Because the associates worked in contemplation of compensation, they fell outside the trainee exception in Walling and, therefore, had non-waivable FLSA protections. 75 Importantly, the foundation's commercial activities were in competition with other businesses; hence, allowing the foundation to use volunteers for labor would create an advantage for the foundation and a downward pressure on wages in the competing businesses, an effect the FLSA was precisely intended to prevent. 76

Shortly thereafter the FLSA was amended in light of the Court's ruling in Alamo Foundation to provide that volunteers for public agencies are not employees if they do not receive compensation and do not perform services that regular employees are paid to perform. 77 Pursuant to an express grant of authority from Congress, the Secretary of Labor defined volunteer as "an individual who performs hours of service for a public agency for civic, charitable, or humanitarian reasons, without promise, expectation or receipt of compensation for services rendered." 78 No amendment has been made to the FLSA, nor has the [*1140] Secretary of Labor promulgated regulations allowing for volunteering in the private for-profit sector. 79

As the Court recognized in Walling, the FLSA definition of employee extends beyond traditional agency principles. 80 This concept was rehashed in Nationwide Mutual Insurance Co. v. Darden, 81 when Justice Souter, writing for the Court, compared the term employee in the Employee Retirement Security Income Act (the ERISA) 82 to the same term in the FLSA. 83 Before reaching the heart of the issue, the Court reinforced a rule expressed in a prior decision:

62 Goldberg, 366 U.S. at 33.

63 366 U.S. 28 (1961).

64 Id. at 32-33; see also Rutherford, 331 U.S. at 729.

65 See Rutherford, 331 U.S. at 729 ("[The] "independent contractor' label does not take the worker from the protection of the Act.").

66 471 U.S. 290 (1985).

67 Id. at 292, 301.

68 Id. at 292-94.

69 Id. at 301-02, 306.

70 Id. at 299-300.

71 Id. at 300 (quoting Walling, 330 U.S. at 152). Compensation is an integral factor under the economic realities test. See Hale v. Arizona, 993 F.2d 1387, 1393-94 (9th Cir. 1993) (en banc). In Hale, inmates required to work in the State's work programs were not employees eligible for minimum hour requirements under the FLSA because the work was a hard labor requirement for inmates, and the purpose of the work was penological, not pecuniary. Id. at 1395, 1398; see also Coupar v. U.S. Dep't of Labor, 105 F.3d 1263, 1266 (9th Cir. 1997). Although in Coupar and Hale pecuniary interests of the purported employees were a relevant factor, in Coupar, the court concluded that the term employee pertains to the usual employer-employee relationship, not relationships based on forced labor. Coupar, 105 F.3d at 1266. Summarily, "the final and determinative question must be whether … the personnel are so dependent upon the business with which they are connected that they come within the protection of the FLSA or are sufficiently independent to lie outside its ambit." Usery v. Pilgrim Equip. Co., 527 F.2d 1308, 1311- 12 (5th Cir. 1976).

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Where Congress uses terms that have accumulated settled meaning under … the common law, a court must infer, unless the statute otherwise dictates, that Congress means to incorporate the established meaning of these terms … . In the past, when Congress has used the term "employee" without defining it, we have concluded that Congress intended to describe the conventional master-servant relationship as understood by common-law agency doctrine. 84

Because ERISA defines employee in a circular and meaningless fashion as - "any individual employed by an employer" - the Court followed its established rule by adopting a common law agency definition for the term. 85

Justice Souter went on to discuss the FLSA definition of employee, and how it encompasses more individuals than the ERISA term despite its identical definition. 86 Even though both statutes use the phrase, "any individual employed by an employer," the FLSA is alone in defining employ as "to suffer or permit to work." 87 Referring to its decision in Rutherford and the striking breadth of the FLSA term, the Court explained: "This [] definition … stretches the meaning of "employee' to [*1141] cover some parties who might not qualify [] under a strict application of traditional agency law principles." 88

The Court then rejected the proposition in Hearst that employee should be interpreted "in light of the mischief to be corrected and the end to be attained." 89 Justice Souter noted that Congress had responded to Hearst by amending the NLRA term indicating that the common law rules of agency control. 90 Therefore, the Court concluded the principle of construction from Hearst should not be used where employee is not helpfully defined. 91 But the FLSA is different from ERISA and the NLRA in that employ is defined broadly, illustrating that it is entitled to a broader definition than the common law provides. 92 It follows then that Hearst's principle of construing employee in light of the remedial purposes of the legislation is still viable to rectify the expansive meaning the term has been given. 93

72 Alamo Found., 471 U.S. at 300.

73 See id. at 293, 301 (stating that "the situation here is a far cry from that in Portland Terminal").

74 Id. at 301-02. In order to avoid coverage of true volunteers in religious organizations, the Court explained "the Act reaches only the "ordinary commercial activities' of religious organizations, and only those who engage in those activities in expectation of compensation." Id. at 302 (internal citation omitted); see also 29 C.F.R. § 779.214 (2013).

75 Alamo Found., 471 U.S. at 299-300, 306.

76 Id. at 299, 302.

77 Fair Labor Standards Act of 1985, Pub. L. No. 99-150, § 4, 99 Stat. 787, 790. Section Four of the amending act provides:

(4)(A) The term "employee" does not include any individual who volunteers to perform services for a public agency which is a State, a political subdivision of a State, or an interstate governmental agency, if -

(i) the individual receives no compensation or is paid expenses, reasonable benefits, or a nominal fee to perform the services for which the individual volunteered; and (ii) such services are not the same type of services which the individual is employed to perform for such public agency.

Id.

78 29 C.F.R. § 553.101(a) (2013).

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Although the FLSA covers many working relationships, as was intended by Congress, the emergence of unpaid internships was not accounted for when the Act was passed. Now, it must be determined where unpaid interns fit within the FLSA definition of employee, or if they are included within the trainee exception created in Walling.

III. An Emerging Liability in Unpaid Internships

Employees must be paid at least the federal minimum hourly wage and receive overtime pay for the work they perform for their employer. 94 However, the requirements for employer-employee relationships are sometimes improperly avoided when workers are classified as non-employees (e.g. independent contractors or unpaid interns) despite the individuals' actual duties and terms of the relationships reflecting those of employees. 95 This practice is known as misclassification and can result in liability to the misclassified employee for back wages and [*1142] damages. 96 If the misclassification is an intentional violation of known FLSA standards or WHD rules, employers may also be liable to the WHD for significant civil money penalties. 97 Because internships share similarities with employment relationships, a danger of misclassification exists, and interns' inclusion or exclusion from the FLSA definition of employee must be examined.

A. The Rise of Internships

Undoubtedly internships can provide valuable benefits to students by offering work experience in an intended career field, allowing the participants to build their resumes and become more competitive upon entering the job market. 98 The value of internships is statistically apparent, as college graduates with experiential education are paid 9% more on average. 99 A 2010 survey by the Association of American Colleges and Universities determined employers are in high demand for graduates who have held internships that demonstrate an ability to apply classroom knowledge to real world situations. 100 Other benefits of internships include gaining disciplinary skills, acquaintance with professional practice, increased self-awareness, the opportunity to exercise civic responsibility, and the expansion of social and professional networks. 101 Nevertheless, students are taking some risks by participating in internships. Unpaid interns may not be protected by federal workplace safety laws or states' workers compensation laws. 102 Federal courts have also excluded unpaid interns from coverage under Title VII of the Civil

79 However, in 1998 Congress amended the FLSA again, reflecting the same principles by excluding volunteers at private non- profit food banks working "solely for humanitarian purposes." Amy Somers Volunteers at Food Banks Act, Pub. L. No. 105-221, § 2, 112 Stat. 1248 (1998); see also 29 U.S.C. § 203(e)(5).

80 Darden, 503 U.S. at 326; see also Walling, 330 U.S. at 150-51.

81 503 U.S. 318 (1992).

82 29 U.S.C. §§1001-1461 (2012).

83 Darden, 503 U.S. at 319, 325-26.

84 Id. at 322-23 (quoting Cmty. for Creative Non-Violence v. Reid, 490 U.S. 730, 739-40 (1989)).

85 Id. at 323; see also 29 U.S.C. § 1002(6). The Court emphasized that the common law understanding used to define employee is not the law of any particular state, but rather "the general common law of agency." Darden, 503 U.S. at 323 n.3 (quoting Reid, 490 U.S. at 740).

86 Darden, 503 U.S. at 326.

87 Id.

88 Id.

89 Id. at 325; see Hearst Publ'ns, 322 U.S. at 124.

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Rights Act of 1964, 103 leaving interns vulnerable to sexual harassment and discrimination based on race, religion, color, sex, or national origin. 104

[*1143] Legal scholars have noted a broader societal impact from unpaid internships, which extends beyond the individual interests of the intern. 105 These proponents believe an inequality between the rich and the poor is perpetuated by unpaid internships because students without affluent parents to finance their education are unable to absorb the costs of unpaid internships, while the opportunities are left to students from wealthy families. 106 The proponents assert that unpaid internships create a sharp class divide between those who can afford to take the opportunities and those who cannot because of the competitive edge internships give to students and employers' demand for graduates with work experience. 107 As a result, the students who cannot take unpaid internships have less of a chance of climbing the social class ladder. 108

Despite these arguments, both paid and unpaid internships have been increasing at a significant rate. 109 Only about 3% of college graduates had internships in 1981, but by 1991 the number grew to 33%. 110 In 1994, 60% of graduating college seniors had held internships, and the percentage continued to grow throughout the early 2000s. 111 A study conducted in 2010 by the College Employment Research Institute at Michigan State University found that of the 10 million students enrolled in U.S. four-year universities, approximately 75% will hold internships at least once before graduating, while one-third of those internships will be unpaid. 112 Other estimates place the percentage of unpaid internships close to 50% of all internship positions. 113 As of September 2013, the percentage of graduating college students who have held internships is the highest ever recorded. 114

Competition for post-graduation employment among college students is the driving force behind the popularity of internships. 115 A growing [*1144] amount of employers are now demanding this type of experiential education from prospective employees. 116 In addition, some argue that the increased competition is only one side of the explanation for why internships have grown in number. 117 It has been asserted that employers are specifically offering more unpaid internships for the objective of lowering labor costs. 118 Ross Perlin, the author of the book

90 Darden, 503 U.S. at 324-25 (amending the statute to indicate that the term employee "does not include … any individual who, under the usual common-law rules applicable in determining the employer-employee relationship, has the status of an independent contractor.") (emphasis omitted).

91 Id. at 325.

92 Id.; see 29 U.S.C. § 203(g).

93 See supra note 33.

94 29 U.S.C. § 206(a), 207(a).

95 See Solis v. A+ Nursetemps, Inc., 2013 U.S. Dist. LEXIS 49595, at 4-7 (M.D. Fla. Apr. 5, 2013).

96 See id. at 1-3, 4-7 (concluding a licensed temporary health care staffing agency and nurse registry misclassified nurses assigned to health care providers as independent contractors when they should have been titled as employees).

97 29 C.F.R. § 578.3 (2013).

98 Charles Westerberg & Carol Wickershan, Internships Have Value, Whether or Not Students Are Paid, Chron. Higher Educ. (Apr. 24, 2011), https://chronicle.com/article/Internships-Have-Value/127231/.

99 David C. Yamada, The Employment Law Rights of Student Interns, 35 Conn. L. Rev. 215, 217 (2002).

100 Westerberg, supra note 98.

101 Id.

102 Id.

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Intern Nation, 119 an expose on exploitative internships, describes a significant backlash from the public against unpaid internships caused by employers using unpaid internships as a source of free labor. 120 Many interns have filed lawsuits under federal and state employment laws alleging this kind of exploitation, with some finding success. 121 Consequentially, Perlin believes the public backlash has caused the demand for unpaid internships to peak. 122

Regardless of the trajectory of unpaid internships' the economy may have been changed permanently. 123 Increased competition for jobs has not subsided, and students are more aware of the advantages internships provide than ever before. 124 Most students continue to pursue internships for the purpose of gaining experience and building their portfolio in order to better position themselves for entry into the job market. 125 Therefore, internships are here to stay, and businesses that wish to host such programs must understand the potential for liability if participants are unpaid or paid less than the federal minimum hourly rate.

B. The Federal, State, and Private Plaintiffs' Response to Unpaid Internships

When internship positions are unpaid or pay less than the federal minimum wage, companies hosting the positions face potential FLSA [*1145] enforcement actions initiated by the WHD or private plaintiffs based on misclassification. 126 In 2010, President Obama's administration announced its intention to crackdown on firms that pay interns improperly. 127 Because the FLSA's minimum wage and maximum hour provisions provide the remedy to accomplish this crackdown, the question arises of whether unpaid interns are misclassified employees covered by the FLSA's wage and hour protections. 128

The DOL weighed in on the issue by publishing Fact Sheet No. 71, 129 which offers general guidance on whether interns at private for-profit companies are subject to the minimum wage and maximum hour provisions of the FLSA. 130 In the DOL's view, these companies must pay their interns minimum wage unless they meet certain criteria. 131 M. Patricia Smith, the current Solicitor of Labor, reiterated in her letter to the American Bar Association on

103 42 U.S.C. §§2000e to e-17 (2012).

104 See O'Connor v. Davis, 126 F.3d 112, 119 (2d Cir. 1997).

105 Jessica L. Curiale, America's New Glass Ceiling: Unpaid Internships, The Fair Labor Standards Act and The Urgent Need for Change, 61 Hastings L.J. 1531, 1536 (2010).

106 Id.

107 Id.; Yamada, supra note 99, at 218-19.

108 Curiale, supra note 105, at 1536.

109 Greenhouse, supra note 2.

110 Yamada, supra note 99, at 217.

111 Jennifer Lee, Crucial Unpaid Internships Increasingly Separate the Haves from the Have-Nots, N.Y. Times, Aug. 10, 2004, at A16.

112 Ross Perlin, Unpaid Interns, Complicit Colleges, N.Y. Times, Apr. 3, 2011, at WK11.

113 Yamada, supra note 99, at 218.

114 Victoria Stilwell, Youth for Hire Find Internships Prove Preferred Process, Bloomberg Businessweek (Sept. 25, 2013), http://www.businessweek.com/news/2013-09-25/youth-for-hire-finding-internship-proves-preferred-process-jobs.

115 Id.

116 Id.

117 Greenhouse, supra note 2.

118 Id.

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September 12, 2013, that "generally, the FLSA does not permit individuals to volunteer their services to for-profit businesses such as law firms." 132 Fact Sheet No. 71 recognizes an exception from the general rule for unpaid interns at private for-profit companies if the following factors are present:

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which 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. 133

[*1146] The factors in the DOL's test are derived from the Supreme Court's decision in Walling that recognized an exception from the FLSA for trainees. 134 Despite the specificity of Fact Sheet No. 71, the DOL advises that "whether an internship or training program meets this exclusion depends on all of the facts and circumstances of each such program." 135 Some federal courts have given differing amounts of deference to Fact Sheet No. 71, while others have rejected the test entirely. 136 However, the DOL maintains the exception for unpaid internships at private for-profit businesses is "quite" narrow due to the broad definition of employee contained in the FLSA. 137

119 Ross Perlin, Intern Nation: How to Earn Nothing and Learn Little in the Brave New Economy (2011).

120 Josh Sanburn, The Beginning of the End of the Unpaid Internship, Time Bus. & Money (May 2, 2012), http://business.time.com/2012/05/02/the-beginning-of-the-end-of-the-unpaid-internship-as-we-know-it/.

121 More Unpaid Interns Sue Employers for Back Wages: Interns' Victory in Fox Seachlight Case Highlights Employer Risk, 337 Fair Labor Standards Handbook for States, Local Gov't & Sch. Newsletter 2 (Oct. 2013).

122 Sanburn, supra note 120.

123 Stilwell, supra note 114.

124 Id.

125 State of the Internship, InternMatch (May 29, 2013), http://employerblog.internmatch.com/state-of-the-internship-2013/.

126 Greenhouse, supra note 2; see Glatt, 293 F.R.D. at 521.

127 Greenhouse, supra note 2.

128 See 29 U.S.C. § 203(e)(1).

129 U.S. Dep't of Labor, Wage & Hour Div., Fact Sheet No. 71: Internship Programs Under the Fair Labor Standards Act (2010).

130 Id.

131 Id.

132 Letter from M. Patricia Smith, The Solicitor of Labor, U.S. Dep't of Labor (Sept. 12, 2013), available at http://www.americanbar.org/content/dam/aba/images/news/PDF/ MPS_Letter_reFLSA_091213.pdf.

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Regulators at the DOL claim that many unpaid internship programs are in violation of the FLSA, but enforcement is difficult because interns are afraid to come forward and complain to the appropriate authorities. 138 They say the pressure on interns to keep quiet creates a chilling effect on violation reporting as the interns prefer not to be labeled as troublemakers in their chosen career field. 139 Fearing reprisal, interns may remain unpaid rather than risk jeopardizing the benefits and opportunities that are implicitly included within an unpaid internship. 140 In addition, some young interns are also unaware of FLSA requirements and never file complaints or initiate litigation. 141 Conditions are nevertheless changing as intern litigation increases and opponents of unpaid internships become vocal, more interns will become aware of their FLSA rights.

States have also been cracking down on exploitative unpaid internships through state labor laws. 142 In 2010, Oregon, California, New York, and other states initiated investigations and fined employers [*1147] operating illegal unpaid or underpaid internship programs. 143 A spokesperson for the Oregon Labor Board commented that some of the illegal unpaid internships found during the investigations had unsupervised interns displacing regular employees. 144 In one instance, a company producing solar panels in Oregon was ordered to pay $ 3,350 in back wages to two individuals for violations of the state's labor laws. 145 Oregon has taken action by passing legislation that includes interns under the class of individuals protected by the State's anti-employment discrimination and sexual harassment statutes. 146 California responded to the DOL's step-up in enforcement by releasing its own revised guidelines to employers, advising when interns must be paid under state law. 147

A major tool for widespread enforcement, beyond the capability of federal or state government, is the private right of action under the FLSA by which employees can sue their employers for FLSA violations. 148 There have been sixteen lawsuits under the FLSA's private right of action arising from internship programs, many of which are still pending. 149 Section 216(b) of the FLSA states that employers who violate the minimum wage or maximum hour provisions of the Act are directly liable to their affected employees for unpaid wages due. 150 Employees may file a lawsuit in any federal court with jurisdiction to recover from their employers not only back wages, but also reasonable attorneys' fees and costs of the action. 151 Plaintiff-employees may sue on their own behalf and on the

133 Fact Sheet No. 71, supra note 129. It is unclear why the DOL describes the six criteria as factors, yet states that the exception is met if all are met, as an elements test requires. Presumably, the DOL deliberately called the criteria factors to avoid conflict with Supreme Court precedent using a flexible factors analysis when analyzing an employment relationship. See supra note 49 and accompanying text.

134 Reich v. Parker Fire Prot. Dist., 992 F.2d 1023, 1025-26 (10th Cir. 1993).

135 Fact Sheet No. 71, supra note 129.

136 Kaplan v. Code Blue Billing & Coding, Inc., 504 F. App'x 831, 834 (11th Cir. 2013) (noting the DOL factors are "pertinent" to the analysis); Solis v. Laurelbrook Sanitarium & Sch., Inc., 642 F.3d 518, 525 (6th Cir. 2011) (noting the DOL factors are "a poor method for determining employee status in a training or educational setting"); Glatt, 293 F.R.D. at 532 (S.D.N.Y. 2013) (The DOL factors "are a reasonable application of [the FLSA]" and "have support in Walling."); Xuedan Wang v. Hearst Corp., 293 F.R.D. 489, 493-94 (S.D.N.Y. 2013) (The DOL factors are "a framework for an analysis of employee-employer relationship.").

137 Fact Sheet No. 71, supra note 129.

138 Greenhouse, supra note 2.

139 Id.

140 Yamada, supra note 99, at 232.

141 Id.

142 Greenhouse, supra note 2.

143 Id.

144 Id.

145 Id.

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behalf of other similarly situated employees. 152 Class actions are prohibited and collective actions are used as a substitute. 153 A class action lawsuit requires plaintiffs to opt-out of a lawsuit to preserve their claim, but collective actions differ in that they require plaintiffs to opt-in to pursue a FLSA claim if they are similarly situated with the original plaintiff. 154 Collective enforcement [*1148] actions have become increasingly popular, as the potential for large judgments is greater than individual FLSA actions, and attorneys eagerly take the cases because of the attorneys' fees provision in the Act. 155

New York's federal district courts have become a focal point for FLSA litigation under the private right of action. 156 Over the course of the last two years, many lawsuits arising from internships have been filed in the state. 157 The law firm of Outten & Golden has played a major rile, suing the Hearst Corporation and Fox Entertainment Group on behalf of former unpaid interns. 158 In Glatt v. Fox Searchlight Pictures Inc., the firm obtained a momentous decision from the Southern District of New York, holding that two interns working on the production of the movie Black Swan were employees as defined by the FLSA. 159

C. Intern and Trainee Litigation

Employers defending FLSA lawsuits arising out of unpaid internship programs have translated the trainee exception from Walling to apply to interns. 160 This defense has been generally successful outside the Southern District of New York, but blatantly exploitative internships, similar to the internships in Glatt, may be found illegal even in these other jurisdictions. 161

1. Kaplan v. Code Blue Billing & Coding, Inc.A few months prior to the Glatt decision, the United States Court of Appeals for the Eleventh Circuit affirmed two cases from the United States District Court for the Southern District of Florida, holding that two unpaid externs were not employees under the FLSA. 162 In Kaplan v. Code Blue Billing &

146 H.B. 2669, 77th Leg. Assemb., Reg. Sess. (Or. 2013) (amending Or. Rev. Stat. § 659A.001 (2008)).

147 Steven Greenhouse, California Labor Dept. Revises Guidelines on When Interns Must be Paid, N.Y. Times, Apr. 9, 2010, at B2.

148 See 29 U.S.C. § 216(b).

149 Suen, supra note 3.

150 29 U.S.C. § 216(b).

151 Id.

152 Id.

153 29 C.F.R. § 790.20 (2013).

154 David Borgen & Laura L. Ho, The Fair Labor Standards Act: Litigation of Wage and Hour Collective Actions under the Fair Labor Standards Act, 7 Emp. Rts. & Employ. Pol'y J. 129, 130-31 (2003) (contrasting class action lawsuits and FLSA collective actions).

155 See Lawrence E. Dube, Lawyers Discuss FLSA Developments, Increasing Popularity of Collective Actions, 232 Daily Lab. Rep. (BNA), Dec. 3 2008, at A8.

156 See Glatt, 293 F.R.D. at 521-22; Wang, 293 F.R.D. at 490.

157 Susan Adams, Is the Unpaid Internship Dead?, Forbes (June 14, 2013), http://www.forbes.com/sites/susanadams/2013/06/14/is-the-unpaid-internship-dead/.

158 Id.

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Coding, Inc., 163 the pair of externs separately filed their [*1149] complaints in the same district court claiming they were due back wages for unpaid externships at two for-profit businesses. 164

The first unpaid extern case decided by the district court was also titled Kaplan v. Code Blue Billing & Consulting, Inc. 165 In Kaplan, the extern was a student at a vocational school in a medical billing and coding specialist program who was required to complete an unpaid externship before graduating. The student's externship with the defendant medical billing and consulting company fulfilled this requirement. 166 To answer the question of whether the extern was an FLSA employee, the district court used the DOL six-factor test from Fact Sheet No. 71. 167

The district court concluded that the externship satisfied all six of the factors and determined that the extern's relationship with the for-profit company was not, as a matter of economic realities, the employer-employee type. 168 Work activities the extern performed included checking the status of insurance claims and filing Medicare and insurance remittances. 169 Although the district court found these activities were not as comprehensive as the course material the extern studied at the vocational school, the district court found the first factor - that the work the extern did was similar to what she would learn in a classroom - was satisfied. 170 Because the student received college credit for the externship, the district court found that the second factor was satisfied and the externship was for the benefit of the extern. 171 On the third factor, the district court used a two-prong analysis: whether the extern displaced regular employees; and whether the extern worked under the company's close supervision. 172 According to the district court, the extern was not replacing regular employees because another paid employee was double checking the extern's work, and the extern understood she would not be hired. 173 The second prong was also met because the owner of the company closely supervised [*1150] the extern's phone calls to insurance companies, discussed issues that arose during the calls, and answered any questions from the extern. 174 Physical proximity supported finding that the extern was closely supervised because the owner/supervisor was always in the building with her office door open and accessible to the extern. 175 Under the fourth factor, the company received no immediate benefits from the extern's work, but instead the extern impeded business activities. 176 Last, the fifth

159 See Glatt, 293 F.R.D. at 522, 538-39.

160 See discussion infra Part III.C.1-3.

161 Id.

162 Kaplan, 504 F. App'x at 832-34.

163 504 F. App'x 831 (11th Cir. 2013) (unpublished).

164 Id. at 835. No relevant difference exists between interns and externs for purposes of this Article.

165 2012 U.S. Dist. LEXIS 185696 (S.D. Fla. Mar. 12, 2012).

166 Id. at 3.

167 Id. at 10-18.

168 Id.

169 Id. at 12.

170 Id. at 11-12.

171 Id. at 12-13. According to a 2004 DOL opinion letter, "when a student receives college credit for an externship, it inures to the benefit of the student." Id. at 12 (internal quotation marks omitted).

172 Id. at 13.

173 Id. at 13-14.

174 Id.

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and six factors were met because the extern understood she would not be entitled to a job and would not be paid. 177

The second case considered on appeal from the Southern District of Florida involved another extern from the same vocational school at a different private for-profit company. 178 In O'Neill v. East Florida Eye Institute, P.A., 179 the extern was similarly required to complete an unpaid externship before graduation. 180 During the externship the extern expected to learn skills related to her vocational school course work and apply the knowledge from the coursework to externship activities. Almost all of the extern's time was spent on work activities related to her studies at the vocational school. At no point did the extern discuss wages with the company. 181

In its analysis, the district court applied the economic realities test from Goldberg and determined that the extern was not an employee. 182 First, the district court contrasted the case before it from cases distinguishing between hired employees and independent contractors. 183 In the employee-independent contractor cases, "compensation was contemplated as the central basis for [the] relationships." 184 The [*1151] district court went on to find that the extern's relationship with the alleged employer never contemplated compensation, and the extern never complained about being unpaid; therefore, her allegation of an employment relationship was inconsistent with the facts. 185 Also relevant was that the company received very little benefit from the extern's work. 186 The paid employees supervising the extern normally would perform the same work, review the externs work, provide feedback, and answer questions. 187 No employees were displaced because the extern did not "lighten the work load" for any paid employees. 188 The district court recognized that the company partnered with the extern's school to help the students by providing them with an educational experience when they had no marketable skills, before going on to hold that the extern was not an employee entitled to minimum wages under the FLSA. 189

In the consolidated case, the Eleventh Circuit applied the economic realities test, which considered the economic benefits conferred to the companies hosting the externships. 190 Citing Walling, the court of appeals held individuals who work for their own advantage, or whose work provides no immediate advantage for the alleged

175 Id. at 14.

176 Id. at 15. The owner described having four of the externs at one point to be "very overwhelming." Id.

177 Id. at 16-17.

178 O'Neill v. E. Fla. Eye Inst., 2012 U.S. Dist. LEXIS 185699, at 1 (S.D. Fla. Apr. 17, 2012).

179 2012 U.S. Dist. LEXIS 185699, (S.D. Fla. Apr. 16, 2012).

180 Id. at 2.

181 Id.

182 Id. at 3-4. Without an explanation, the same district court used a different test. Id. The opinions were written by different judges (Judge Middlebrooks in Kaplan, and Judge Graham in O'Neill), indicating that the judges had differing views on the deference due to the DOL factors. Id.; Kaplan, 2012 U.S. Dist. LEXIS 185690, at 1.

183 O'Neill, 2012 U.S. Dist. LEXIS 185699, at 5-6.

184 Id. at 5. The district court's reasoning for why the extern was not an employee parallels that of the Second Circuit's in O'Connor v. Davis, which decided that unpaid interns who do not receive compensation cannot be hired parties, and, therefore, cannot be employees within the meaning of Title VII of the Civil Rights Act of 1964. 126 F.3d at 115-16 (2d Cir. 1997).

185 O'Neill, 2012 U.S. Dist. LEXIS 185699, at 5-7.

186 Id. at 7.

187 Id. at 7-8.

188 Id. at 7.

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employer, are exempt from the definition of employee. 191 The court of appeals stressed that the externs' work was for their own advantage because they earned academic credit and it was required for their degrees. 192 Also, the district court's findings that the externships impeded the companies' businesses showed the companies took no immediate advantage from the relationship, and thus the externs were not the companies' employees. 193 As an afterthought, DOL Fact Sheet No. 71 was given some deference, although the court of appeals noted the six- [*1152] factor test was not controlling. 194 Still, both of the externships met all six DOL factors, and the district court decisions were affirmed. 195

2. Solis v. Laurelbrook Sanitarium & School, Inc.Unlike the Eleventh Circuit, the Sixth Circuit in Solis v. Laurelbrook Sanitarium & School, Inc. 196 adopted a primary benefits test and rejected the DOL's test. 197 In Laurelbrook, the Secretary of Labor filed a FLSA enforcement action against a non-profit vocational school seeking to enjoin the school from requiring its minor students to work without pay in a nursing home (the sanitarium) owned by the school and located on its premises. Half of the students' day would be spent in the classroom, while the other half would be spent working in the sanitarium gaining practical skills and learning the dignity of manual labor. The district court found that the sanitarium staff members would be able to provide the same services if the students were prohibited from working. But because the sanitarium was an integral part of the school's vocational training program, the sanitarium would not exist without the student workers. The district court found students received important tangible benefits from the vocational training, and any benefits the school received from operating the sanitarium were far outweighed by the benefits to the students. Since the students received the primary benefits from their own work, the trial court found the students were not employees. 198

The Sixth Circuit expressed how precise tests are inconsistent with the Supreme Court's economic realities test, which considers all of the surrounding circumstances on a case-by-case basis. 199 According to the court, the DOL's test was too rigid and inconsistent with the required totality of the circumstances analysis because it mandated all six factors be met. 200 Also, the court noted the DOL test was inconsistent with Walling and prior DOL interpretations, causing the test to lose all persuasive force. 201 The court instead preferred tests "where no one

189 Id.

190 Kaplan, 504 F. App'x at 834.

191 Id.

192 Id.

193 Id.

194 Id. at 834-35 ("The rulings, interpretations and opinions of the Administrator under [the FLSA], while not controlling upon courts by reason of their authority, do constitute a body of experience and informed judgment to which courts and litigants may properly resort to for guidance." Id. (quoting Dade Cnty. v. Alvarez, 124 F.3d 1380, 1385 (11th Cir. 1997) (internal quotation marks omitted) (alterations in original)).

195 Id. at 835.

196 642 F.3d 518 (6th Cir. 2011).

197 Id. at 523-24.

198 Id. at 519-22.

199 Id. at 522.

200 Id. at 525.

201 Id.

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[*1153] factor (or the absence of one factor) controls," while rejecting categorical tests that "determine employee status by reference to labels used by the parties." 202

Pursuant to the court's understanding of Walling, "the ultimate inquiry in a learning or training situation is whether the employee is the primary beneficiary of the work performed." 203 Important factors to consider are if the relationship displaces regular employees and the relationship's educational value. 204 The test is admittedly broad, but since it focuses on the benefits flowing to each party, the test expresses the FLSA's distinction between trainees and employees made in Walling. 205 To that end, where students are used for essential functions of an employer's operation in place of regular employees, without gaining significant education, an immediate economic benefit is passed to the employer, and the students should be classified as FLSA employees. 206 The court also concluded that analyzing the primary benefits of a working relationship is consistent with the remedial purposes of the FLSA - to prevent the displacement of paid employees and the exploitation of labor. 207

Accepting the district court's factual findings and legal conclusions, the Sixth Circuit held that the students primarily benefited from their work at the sanitarium. 208 Although the sanitarium received payment for services it provided to patients through the unpaid students, the value of the free labor to the school was offset in three separate ways: (1) the students did not displace paid workers in part because the sanitarium could continue to operate without the students; (2) some of the paid workers had to supervise the students, which reduced the supervisor's overall productivity for the nursing home; and (3) the school did not receive an unfair advantage from the unpaid labor as the school was not in competition with other institutions for labor. 209 For the students, tangible benefits like learning how to use hand tools, and intangible benefits such as responsibility and the dignity of manual labor were [*1154] enough to tip the primary benefits scale in favor of the students, excluding them from FLSA coverage. 210

3. Glatt v. Fox Searchlight Pictures.In June of 2013, the Southern District of New York held in Glatt v. Fox Searchlight Pictures that two unpaid interns were legally required to be paid minimum wage. 211 In Glatt, two interns who had worked on the set of the film Black Swan brought a lawsuit under the FLSA against Fox Searchlight Pictures Inc. (Searchlight) claiming they were improperly classified as interns instead of paid employees. 212 Upon

202 Id. at 524, 525. It would therefore be incorrect to conclude students were not employees simply because they are in a vocational school, as this ignores the economic realities of the relationship. Id. at 524.

203 Id. at 525-26.

204 Id. at 529.

205 Id.

206 Id. at 527-28; see also Marshall v. Baptist Hosp., Inc., 668 F.2d 234, 235 (6th Cir. 1981).

207 Laurelbrook, 642 F.3d at 527.

208 Id. at 532.

209 Id. at 530-31. The court also noted that the revenue from the nursing home's operations was invested back into the school. Id. at 530.

210 Id. at 531-32.

211 Glatt, 293 F.R.D. at 534.

212 Id. at 521-22.

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granting in part the plaintiffs' motions for summary judgment, the court determined that Searchlight was the employer of the two interns, and the interns were employees within the meaning of the FLSA. 213

The court first rehashed the trainee exception from Walling. 214 Emphasis was placed on the Supreme Court's determination in Walling that the alleged employer received no "immediate advantage" from the work performed by the trainees. 215 Searchlight presented the primary benefits test as the appropriate standard, arguing that if "the internship's benefits to the intern outweigh the benefits to the engaging entity" the trainee exception will apply. 216 However, the court rejected the primary benefits test as too subjective, claiming the test depends on the amount of benefits an individual intern derives from an internship. 217 In the court's view, employers would not be able to predict how much an intern will benefit from an internship, and cannot know in advance if they need to pay their interns. 218 Instead, the court gave deference to the DOL factors found in Fact Sheet No. 71., but noted that "no single factor is controlling," and that the correct view considers the totality of the circumstances. 219

Under the first DOL factor, the court found that the internships did not offer training similar to an educational environment, and the interns received nothing beyond on-the-job training that other paid employees received. 220 The amount an intern actually learns was not relevant to [*1155] the inquiry under the first factor. 221 Both interns received no formal training, education, or "skills that are fungible within the industry." 222 Learning to use the photocopier and coffee machine or how a film production office functions were not deemed sufficiently fungible skills. 223 Therefore, the court concluded the first factor weighed in favor of finding an employment relationship. 224

The second factor, which considers if the internship is for the benefit of the intern, also weighed in favor of finding employment. 225 Although the interns received resume listings, job references, and learned how a film production office works, the court found these benefits incidental to working in the office and were shared by other paid workers. 226 Because the internships were not structured for the benefit of the interns and Searchlight was benefited by their work, which normally would be performed by paid workers, the court found liability on the second factor. 227

213 Id. at 529, 534.

214 Id. at 530-31.

215 Id. (quoting Walling, 330 U.S. at 153).

216 Id. at 531.

217 Id. at 532.

218 Id.

219 Id.

220 Id. at 532-33.

221 Id.

222 Id. (quoting Reich, 992 F.2d at 1028) (internal quotation marks omitted).

223 Id.

224 Id.

225 Id. at 533.

226 Id.

227 Id.

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Third, whether the interns displaced regular employees was answered by examining the nature of the interns' work. 228 As stated by the court, administrative work will normally fall within the category of activities that a regular employee would perform. 229 In this case, the interns were running errands, answering phones, making photocopies, organizing file cabinets, and taking lunch orders. 230 Even one intern's supervisor admitted that the work would otherwise be done by a paid employee. 231 Accordingly, the court found the third factor to weigh in favor of FLSA coverage. 232

Fourth, Searchlight did not dispute that it received an immediate advantage from the interns' work. 233 According to the court, the interns' work was menial but otherwise essential to the film's production and not an impediment to the progression of the film. 234 Next, the court found no evidence the interns were entitled to a job at the end of [*1156] their internship, and thus, the fifth DOL factor weighed against finding that the interns were employees. 235 Last, even though both Searchlight and the interns understood the internships were unpaid, the court gave little weight to the sixth factor. 236 The Supreme Court in Alamo Foundation reasoned that workers cannot waive their FLSA protections by claiming to do work voluntarily; otherwise, such an exception would allow employers to use their greater bargaining power to coerce employees into testifying that they voluntarily performed uncompensated work. 237 For these reasons, the sixth factor was given little, if any, weight. 238 After reiterating the administrative nature of the interns' work and the immediate advantages to Searchlight, the court held the interns were improperly classified as unpaid interns and were FLSA employees entitled to minimum wage. 239

Succeeding the decision in Glatt, a number of lawsuits were filed alleging violations of state and federal wage and hour laws arising from unpaid internships, many of which are still pending. 240 In addition to finding two interns were actually employees, the district court in Glatt also certified a collective action for other interns whose FLSA claims were not resolved on summary judgment. 241 The certification of collective actions showed courts were willing to allow large scale pursuit of unpaid internship claims against employers, which caught the interest of attorneys and contributed to the increase in litigation. 242 The success of some of these lawsuits further entices plaintiffs since some employers have entered into settlement agreements with their past interns. 243 At least one

228 Id.

229 Id.

230 Id.

231 Id.

232 Id.

233 Id.

234 Id.

235 Id. at 534.

236 Id.

237 Alamo Found., 471 U.S. at 302.

238 Glatt, 293 F.R.D. at 534.

239 Id.

240 See More Unpaid Interns Sue Employers for Back Wages, supra note 121.

241 Glatt, 293 F.R.D. at 538; see also Glatt v. Fox Searchlight Pictures, 2013 U.S. Dist. LEXIS 121964, at 6-7 (S.D.N.Y. Aug. 26, 2013) (limiting the time period of the collective action).

242 Amanda L. Shelby, High-Profile Class Actions Illustrate Intern Risk, 22 No. 10 Ind. Emp't Law Letter 1 (2012).

243 More Unpaid Interns Sue Employers for Back Wages, supra note 121.

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other decision finding a misclassified unpaid intern has come out of the Southern District of New York, 244 but despite the majority of the litigation being concentrated in this district, [*1157] intern cases have been, and will continue to be, filed in other regions. 245

IV. Complying with the FLSA

The significant increase in the amount of lawsuits against companies stemming from their internship programs is no small matter. Many attorneys representing employers are now advising their clients to discontinue their internship programs or pay their interns minimum wage. 246 Justifiably so, as the decision in Glatt has seemed to open the door to many more intern lawsuits. 247 The private right of action and collective action provisions in the FLSA create a huge potential for unpaid internship litigation and have thus been the vehicle used by the recent claims. 248 Despite this new litigation, the unpaid internship in the private for-profit sector is not completely without recourse to survive. 249 Courts have found unpaid interns are not employees within meaning of the FLSA under certain circumstances, but before summarizing how unpaid internships should be structured to avoid FLSA lawsuits, a precedent issue must be addressed.

A. Applying the FLSA to Unpaid Internships and Consistency with the Act's Remedial Objectives

Although some scholars reason that unpaid internships are a societal problem widening the class divide between rich and poor, 250 the reasoning that unpaid internships are creating unequal opportunities ignores the availability of school stipends and student loans for academic credit, which allow all students to take advantage of unpaid internships regardless of their financial backing. Statistical analysis has also disproven the contention that unpaid internships are unequally utilized by the rich, but rather shows that higher income students are more engaged in internships regardless of whether they are paid or unpaid. 251 [*1158] Even if the opportunities are difficult for underfinanced students to obtain, arguing against all unpaid internships ignores the stated remedial objectives of the FLSA and is more likely driven by an inner need to change the status quo based on misplaced humanitarianism. 252 Congress passed the provisions of the Act with the purpose of preventing long unhealthy hours, the use of sub-

244 See Alladin v. Paramount Mgmt., LLC, 2013 U.S. Dist. LEXIS 121949, at 3 (S.D.N.Y. Aug. 27, 2013) (finding an unpaid intern was a misclassified employee under the FLSA).

245 See, e.g., Schumann v. Collier Anesthesia, P.A., 2013 U.S. Dist. LEXIS 81100, at 8 (M.D. Fla. Jun. 10, 2013). Schumann is another unfavorable outcome for an unpaid intern; however, it shows that plaintiffs in the Eleventh Circuit are not deterred by the dismissal in Kaplan. See id.

246 Adams, supra note 157; see also Unpaid Interns Get Conditional Certification in High-Profile Wage and Hour Case, 324 Fair Labor Standards Handbook for States, Local Gov't & Sch. Newsletter 6 (Sept. 2012).

247 More Unpaid Interns Sue Employers for Back Wages, supra note 121.

248 See 29 U.S.C. § 216(b).

249 Adams, supra note 157.

250 Curiale, supra note 105, at 1560; Yamada, supra note 99, at 218-19.

251 Phil Gardner, Intern Bridge, Inc., The Debate Over Unpaid College Internships (2010).

Our findings do not support the common contention that students from the wealthiest families have greater access to unpaid internships, even among most for-profit companies. We also learned that high income students appear more likely to be engaged in internships, regardless if they are paid or unpaid, with for-profit companies, and that they have very low participation in internships with non-profits organizations and government agencies.

Id.

252 See 29 U.S.C. § 202(a); Rosenwasser, 323 U.S. at 361.

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standard wages, and unfair competition. 253 The FLSA is intended to ensure workers who rely on their jobs for financial support are still able to buy the bare necessities of life. 254 Uncompensated interns cannot reasonably expect to rely on their internships for financial support and are not subject to the same pressures as hired parties. 255 Therefore, applying the FLSA to educational internships with no expectation of compensation takes the Act beyond its intended purposes. 256 If, however, employers receive immediate economic benefits from the use of unpaid internships, the FLSA's remedial objectives are contravened by the unfair competitive advantage free labor provides. 257 The Supreme Court has held that the term employee should be interpreted in light of the legislation's remedial objectives to address the problems Congress sought to fix. 258 Here, where a student is working part-time hours, gaining fungible skills, and is well supervised, coverage under the FLSA is improper.

With this in mind, firms that wish to host internship programs should tailor them to comply with court interpretations of FLSA coverage in their federal jurisdiction. Importantly, employers must understand whether the jurisdictions in which they are subject to suit follow the DOL's test in Fact Sheet No. 71. Because this test is stricter than the economic realities test or the primary benefits test, employers in these jurisdictions must take extra care.

[*1159]

B. Deference Afforded to the DOL Test

Certainly, guidance from the DOL on whether an intern is a FLSA employee must be considered, but depending on the jurisdiction, the DOL's six-factor test may not be the same analysis a court would use. 259 Rules and regulations promulgated by the Secretary of Labor pursuant to an express congressional grant of power in the FLSA have the force of law and are given controlling weight. 260 However, Fact Sheet No. 71 is not a rule or regulation, but an opinion letter. 261 Thus, the strict DOL test is not controlling and does not bind a court's judgment by reason of its authority. 262

Despite the lack of control opinion letters have over courts, the DOL factors contained in Fact Sheet No. 71 are entitled to some deference based on the DOL's unique status as the agency charged with administering the FLSA, its specialized experience from enforcement, and its knowledge acquired through investigations. 263 To that end, the Supreme Court recognized in Skidmore v. Swift & Co. 264 that agency opinion letters "do constitute a body of

253 29 U.S.C. § 202(a).

254 Rosenwasser, 323 U.S. at 361.

255 O'Connor, 126 F.3d at 115-16 (applying Title VII to unpaid internships).

256 See Alamo Found., 471 U.S. at 300.

257 Laurelbrook, 642 F.3d at 531.

258 See Silk, 331 U.S. at 713; Hearst, 322 U.S. at 123-24.

259 See supra note 136.

260 Chevron, U.S.A., Inc. v. Nat'l Res. Def. Council, Inc., 467 U.S. 837, 843-44 (1984).

261 Kaplan, 504 F. App'x at 834-35.

262 See Skidmore v. Swift & Co., 323 U.S. 134, 137-38, 140 (1944); Reich, 992 F.2d at 1026.

263 See United States v. Mead Corp., 533 U.S. 218, 234-35 (2001).

264 323 U.S. 134 (1944).

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experience and informed judgment to which courts and litigants may properly resort for guidance." 265 The weight assigned to an agency opinion depends on "the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control." 266

Fact Sheet No. 71 is regarded by some courts as a reasonable interpretation of the Supreme Court's decision in Walling. 267 Federal courts have already given deference to the DOL test and the factors in different jurisdictions. 268 Each of the factors can directly be identified in the facts of Walling. 269 Accordingly, both the Eleventh Circuit and [*1160] the Southern District of New York have determined that the DOL test is a reasonable application of the trainee exception. 270 An additional consideration tending to show courts' future preference for the DOL factors is that the enforcement standard has been consistently applied to employer training programs for decades. 271 Even though Fact Sheet No. 71 was published in 2010, the same six factors have been used in DOL opinion letters going back to at least 1967. 272 The Supreme Court has repeated that "when there has been a long acquiescence in a regulation, and by it rights of parties for many years have been determined and adjusted, it is not to be disregarded without the most cogent and persuasive reasons." 273 Although Fact Sheet No. 71 is not a regulation, businesses attempting to comply with the FLSA have likely relied on these standards. They provide definite guidelines for businesses ensuring that they will not be subject to FLSA liability for their unpaid internship programs. By utilizing a clear standard rather than the vague primary benefits-balancing analysis, businesses will be more inclined to host internships, and therefore, courts should be reluctant to depart from these factors.

On the other hand, for employers only subject to suit in the Sixth Circuit, the DOL test should be given very little consideration when formulating an internship program. 274 In Laurelbrook, the Sixth Circuit explicitly rejected the test by claiming it is too rigid, and instead opted for a totality of the circumstances approach that considers the primary benefits of the working relationship. 275 The Fourth Circuit in McLaughlin v. Ensley 276 and the Eighth Circuit in Blair v. Wills 277 also followed the primary benefits test. 278 However, these decisions were before Fact

265 Id. at 140.

266 Id.

267 Kaplan, 504 F. App'x at 834-35.

268 See id.; Atkins v. Gen. Motors Corp., 701 F.2d 1124, 1128 (5th Cir. 1983) (concluding the test is "entitled to substantial deference"); Donovan v. Am. Airlines, Inc., 686 F.2d 267, 273 n.7 (5th Cir. 1982) (applying the six DOL factors after using the primary benefits test); Glatt, 293 F.R.D. at 532; Archie v. Grand Cent. P'ship, Inc., 997 F. Supp. 504, 532 (S.D.N.Y. 1998).

269 Reich, 992 F.2d at 1025-26.

270 Kaplan, 504 F. App'x at 834-35; Glatt, 293 F.R.D. at 532.

271 See Reich, 992 F.2d at 1027.

272 Id.

273 Robertson v. Downing, 127 U.S. 607, 613 (1888); accord Helvering v. Griffiths, 318 U.S. 371, 403 (1943).

274 See Laurelbrook, 642 F.3d at 525.

275 Id. ("The ultimate inquiry in a learning or training situation is whether the employee is the primary beneficiary of the work performed.").

276 877 F.2d 1207 (4th Cir. 1989).

277 420 F.3d 823 (8th Cir. 2005).

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Sheet No. 71 was officially published in 2010; therefore, [*1161] it is possible that future decisions in the Fourth and Eighth Circuits will consider the DOL test.

In other circuits, the DOL factors are considered relevant, but courts differ on whether they are entitled to controlling weight. 279 The Fifth Circuit applied the primary benefits test in Donovan v. American Airlines Inc., 280 although the same court later afforded substantial deference to the DOL factors in Atkins v. General Motors Corp. 281 For the Tenth Circuit, the DOL factors are weighty, but are applied with a slight variation from the test proposed by the DOL. 282 According to the Solicitor of Labor, all of the DOL factors must be present for an unpaid internship program to qualify for the exception. 283 Nevertheless, the Tenth Circuit concluded in Reich v. Parker Fire Protection District 284 that the factors are "relevant but not conclusive," and requiring all of the DOL factors to be present is "unreasonable." 285 The Eleventh Circuit in Kaplan applied its own economic realities test and then applied the DOL factors, concluding the factors are entitled to deference. 286 Last, the Second Circuit also applied the economic realities test, but it has not passed judgment on the viability of the DOL factors in the context of an unpaid internship. 287

Because the DOL test mirrors the facts from Walling, and some courts have given the test deference, employers should be cautious and assume courts will apply the factors, unless there is precedent rejecting the test.

[*1162]

C. How Employers can Comply with FLSA Standards

Regardless of whether a court will apply the DOL standard or some other test, all unpaid internship programs in the private for-profit sector should have certain characteristics. The presence of these traits will help ensure that employers will not be exposing themselves to FLSA claims for back wages and damages.

278 Id. at 829 (finding student's chores for a school were not employment under the FLSA because they were primarily for the student's benefit providing the student with "a sense of teamwork, responsibility, accomplishment, and pride"); Ensely, 877 F.2d at 1209 ("The general test used to determine if an employee is entitled to the protections of the Act is whether the employee or the employer is the primary beneficiary of the trainees' labor.").

279 See Laurelbrook, 642 F.3d at 524.

280 686 F.2d 267, 271-72 (5th Cir. 1982). In Donovan, the Fifth Circuit approved of the district court's method of analyzing the "relative benefits flowing to trainee and company during the training period." Id. at 271. The Fifth Circuit supported a primary benefits test that requires the balancing of benefits. Id. at 272. However, after applying the primary benefits test the court went on to briefly apply the same six DOL factors, coming to the same conclusion as under the former test: "Furthermore, the Wage and Hour Administrator's interpretation of Portland Terminal supports the district court's conclusion. The Administrator has formulated a six-item list designed to answer the question whether trainees are employees within the meaning of the FLSA. The trainees here are not employees by each of those criteria … ." Id. at 273.

281 701 F.2d 1124, 1128 (5th Cir. 1983).

282 See Reich, 992 F.2d at 1027.

283 Smith, supra note 132. In the Solicitor's letter to the American Bar Association she explained: "The FLSA does, however, permit individuals to participate in unpaid internships or training programs conducted by for-profit entities if certain criteria are met." Id.

284 992 F.2d 1023 (10th Cir. 1993).

285 Id. at 1026-27.

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1. Unpaid Internships Should be for Students Receiving Academic Credit.Two of the relevant cases where employers had no requirement to pay interns or volunteers involved situations with enrolled students. 288 A clear inference can be made that an internship is for the benefit and education of its interns when all participants are students. 289 Further, the student interns should be gaining an educational benefit from the internship similar to what the student would learn in a classroom. 290 Only the DOL test requires this component in internships, but if employers want to minimize their risk they should only include students taking college, graduate, or vocational courses related to the employers' businesses.

Not only should employers exclude non-students from their internships, employers should also require their interns certify they are receiving academic credit from their school. 291 When an intern is receiving academic credit, the primary benefits of the relationship more clearly flow to the intern. 292 Employers hosting internship programs are advised to be in communication with the schools where the interns attend. This allows the schools to affirm the educational value of the internships, to monitor the internship for compliance, and to give the appearance of propriety if a lawsuit is ever threatened. 293

Unpaid interns should understand that they are not entitled to wages for the work they do. 294 Additionally, employers should confirm the interns will not be entitled to a job at the completion of their internship to prevent any coercive pressure on the interns to do extra work which benefits the employer in the hopes of future employment. 295 Therefore, [*1163] employers should have their interns sign documents acknowledging that the interns are not entitled to wages for the work they complete during their internships, and that they will not be entitled to employment.

2. Internship Programs Should Teach Interns Transferrable Skills.Skills must be taught during the course of unpaid internships that are fungible, or transferrable to other companies and positions within the employer's industry. 296 Courts have supported this fungible skills requirement because it illustrates that internships are for the benefit of the participants. 297 Conversely, an internship will not be sufficiently beneficial for unpaid interns just because the interns receive resume listings and job references. 298 Companies hosting unpaid internships must provide interns

286 Kaplan, 504 F. App'x at 834-35.

287 See Ling Nan Zheng v. Liberty Apparel Co., 355 F.3d 61, 72 (2d Cir. 2003).

288 See Kaplan, 504 F. App'x at 832-33; Laurelbrook, 642 F.3d at 520. The interns in Kaplan and Laurelbrook were students at vocational schools. Kaplan, 504 F. App'x at 832-33; Laurelbrook, 642 F.3d at 520.

289 Kaplan, 2012 U.S. Dist. LEXIS 185696, at 7.

290 Fact Sheet No. 71, supra note 129.

291 See Smith, supra note 132.

292 See O'Neill, 2012 U.S. Dist. LEXIS 185699, at 8.

293 See Smith, supra note 132.

294 See Fact Sheet No. 71, supra note 129.

295 See Alamo Found., 471 U.S. at 302.

296 Reich, 992 F.2d at 1028.

297 See id.; Glatt, 293 F.R.D. at 532.

298 See Glatt, 293 F.R.D. at 533.

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with something beyond on-the-job training that regular paid employees would normally experience. 299 Learning how to work office equipment is not considered a fungible skill that satisfies the requirement. 300 On the other hand, transferrable skills like medical billing are satisfactory because they make a person attractive to employers in a related industry. 301 Under the primary benefits test, a more liberal application of the fungible skills requirement may be used because of the benefit balancing analysis. 302 For example, less complex skills like learning how to use hand tools, and intangible skills like responsibility and the value of hard work can be sufficiently beneficial to interns if economic advantages to an employer are offset. 303 In all jurisdictions, employers should not worry about how much an intern actually learns, but rather should focus on what education is offered. 304 The best approach is comprised of a well-structured internship schedule with weekly training meetings demonstrating that steps have been taken to plan for a beneficial experience for the interns.

3. Internship Programs Cannot Give an Economic Advantage to Companies.A major mistake employers can make is viewing [*1164] interns as unpaid labor to address excess workloads. 305 Internships that serve this purpose clearly would fly in the face of the remedial purposes of the FLSA to prevent unfair competition and the exploitation of workers. 306 Employers must instead view unpaid interns as tag-alongs, shadowing the paid workforce, but not replacing them. 307 The best way to ensure that an unpaid internship program does not unfairly advantage the hosting employer is by using regular paid employees to closely supervise the interns. This will offset unfairly obtained advantages to the company gained from the unpaid labor. 308 Supervisors should be in close physical proximity, and readily available to the interns so they can answer the interns' questions promptly. 309 Work products should be reviewed, and supervisors should give the interns feedback and an opportunity to ask questions. 310 If regular employees are foregoing normal work activities to supervise interns or redo interns' work, the internship will typically be viewed as an impediment to the employer rather than an immediate advantage. 311

Employers cannot hire interns to cut costs because utilizing unpaid labor for tasks that would normally be performed by paid employees constitutes unfair competition. 312 Therefore, interns should not be replacing regular paid

299 Id. at 532.

300 Id. at 532-33.

301 See Kaplan, 504 F. App'x at 834; Kaplan, 2012 U.S. Dist. LEXIS 185696, at 11-12.

302 Laurelbrook, 642 F.3d at 531.

303 Id.

304 Glatt, 293 F.R.D. at 533.

305 Shelby, supra note 242.

306 See 29 U.S.C. § 202(a).

307 Shelby, supra note 242.

308 See Kaplan, 2012 U.S. Dist. LEXIS 185696, at 14.

309 See id.

310 See id.

311 See Atkins, 701 F.2d at 1128-29; O'Neill, 2012 U.S. Dist. LEXIS 185699, at 7; Kaplan, 2012 U.S. Dist. LEXIS 185696, at 16.

312 See Laurelbrook, 642 F.3d at 527.

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employees and should not be performing work that employees would normally complete. 313 Administrative work is generally viewed as appropriate for only regular employees because it imparts little if any fungible skills to interns. 314 However, it may be permissible for an intern to do the same work performed by regular employees, including administrative or menial work, if the economic benefits to the employer are significantly offset. 315 Circuits that apply the primary benefits test (Fourth, Fifth, Sixth, and Eighth) may allow this type of work where the balance of the benefits favors the interns. 316 [*1165] Close supervision is key in these situations in order to offset economic benefits to the employer. 317

The duration of an internship program is also relevant to the advantages derived from the working relationship. 318 Programs should last for a shorter period of time to appear more temporary in nature and mirror an academic schedule. 319 During long internships, participants presumably gain more skills and training, increasing the value of their work products. Shorter internships would not allow for such accruals of value. A typical internship length is ten weeks, but depending on the other aspects of the internship, an acceptable duration could be up to one academic year. Full-time hours should be avoided and flexible part-time schedules should be utilized in order to avoid similarity to regular employees. 320 Plainly, where internships are functionally the same as typical employment, courts will find employment.

V. Conclusion

Unpaid internships are, as a whole, not socially harmful. Rather, it depends on the circumstances of each individual program. It has been shown that unpaid internships can exist without contravening the purposes of the FLSA. Unfair competition and exploitation are certainly possible consequences of an improperly structured unpaid internship, but if a company creates a learning experience for a student in good-faith, it is hard to see a societal harm.

The right to freely determine the terms of employment contracts promoted in Lochner has certainly been outweighed by a public policy against abusive and exploitative labor conditions. Minimum wage and maximum hour laws help equalize the bargaining power differential between employers and employees, and therefore any loopholes are to the disadvantage of the entire workforce. The Supreme Court adopted a broad approach when applying the FLSA that considers all of the circumstances of a working relationship to ensure the remedial legislation would be as effective as Congress intended. The DOL's exacting test in Fact Sheet No. 71 has its benefits for businesses looking to ensure they will not be liable to future unpaid interns for back wages. Despite the solid reasoning and policy implications behind the selected [*1166] DOL factors, this all-or-nothing test does not conform nicely to the Supreme Court's flexible economic realities test. Federal courts must agree as they have consistently ignored or rejected the all-or-nothing approach the DOL offers. Cases like Kaplan and Glatt are good examples for employers around the country to look to when planning the structure of their unpaid internship programs. Representing both ends of the spectrum (exploitative and educational), the cases acknowledge that the DOL factors are entitled to respect, but refrain from holding the factors are conclusive. In determining the legality of

313 Glatt, 293 F.R.D. at 533.

314 Id.

315 Laurelbrook, 642 F.3d at 530-31.

316 Id.

317 Id.; Walling, 330 U.S. at 149-50.

318 See Alamo Found., 471 U.S. at 301.

319 Shelby, supra note 242.

320 See Rutherford, 331 U.S. at 729 ("Where the work done, in its essence, follows the usual path of an employee, putting on [a non-employee] label does not take the worker from the protection of the Act.").

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unpaid internships under the FLSA, employers should take a broad approach that considers whether the internships benefit students without providing an unfair advantage to the companies hosting the programs. But, to be certain, employers should be able point to evidence that all of the DOL's factors are present in their unpaid internship program.

Private for-profit employers must understand that internships need educational structure. Recent public backlash against unpaid internships has spawned litigation against employers offering these positions, and now employers must be more conscious about their activities. Unpaid interns cannot be hired carelessly without proper planning and legal consultation. Companies that use their interns as free labor have drawn attention from federal regulators and savvy plaintiffs' attorneys. Consequently, all employers must now consider their exposure as employers who implement insufficiently supervised and poorly structured unpaid internship programs will be easy pickings for the FLSA collective actions.

If money is not an object, employers should pay their interns at least the federal minimum wage. However, if a company does not have the financial resources to pay interns, the company can still provide a valuable opportunity for students by setting up an internship program with educating interns as priority number one.

Mercer Law Review Copyright (c) 2014 Walter F. George School of Law, Mercer University Mercer Law Review

End of Document

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