United States: "Black Swan" Internship Case Creates New Obstacles For Employers In California

Last Updated: July 21 2015
Article by Daniel Handman

In California, internships have always been viewed as a trade-off between prestigious employers and young students looking to get a foot in the proverbial door.  College students and graduates looking for highly-coveted positions in insular Hollywood and Silicon Valley companies take unpaid positions so they can make connections to build a network.  Because internships usually provide a "win-win," there has been very little litigation over the propriety of those arrangements.  But, in 2013 a federal District Court in New York found that interns on the movie Black Swan were entitled to pursue a class action seeking millions of dollars in unpaid wages and overtime and studios and tech employers immediately took note.

Today, in Glatt v. Fox Searchlight Pictures, Inc. the U.S. Court of Appeals for the Second Circuit took the first step in answering the age-old question: what is an intern?  Despite the prevalence of interns in the American economy over the years, there is surprisingly little law on the issue. In fact, the Second Circuit's decision ultimately turned on a U.S. Supreme Court case involving railroad apprentices from nearly 70 years ago.  The opinion contains good news and bad news for California employers.

First the good news.  The Second Circuit held that wage-hour cases involving interns involve a "highly individualized inquiry" that is rarely subject to resolution in a class action under state law or in a collective action under the federal Fair Labor Standards Act (FLSA).  The court had no trouble setting aside the plaintiffs' efforts to maintain a classwide case despite the fact that the interns all seemingly did the same types of menial labor on the film, like copying documents, getting coffee for executives, and even locating a hypoallergenic pillow for the movie's director, Darren Aronofsky.  The court found that despite the seemingly common level of triviality of the tasks performed, the interns' work was different enough to preclude consideration of this case as a class or collective action.

But the news wasn't entirely good. Fox, the studio which produced Black Swan, convinced the court to impose a "primary beneficiary" test to determine whether someone is an intern or an employee. Under that test, court will have to decide "whether the intern or the employer is the primary beneficiary of the relationship."  In so doing, the court identified seven "non-exhaustive" inquiries which a trial court should consider in making that determination:

  1. Do the intern and the employer "clearly understand" that there is no expectation of compensation?
  2. Does the internship provide "clinical and other hands‐on training" like those provided by schools?
  3. Is the internship "integrated" into the intern's coursework or the receipt of academic credit?
  4. Does the employer accommodate the intern's academic commitments by corresponding to the academic calendar?
  5. Is the internship limited in time to the period in which the internship provides the intern with beneficial learning?
  6. Does the intern's work "complement, rather than displace" the work of paid employees?
  7. Do the intern and the employer understand that the intern is not entitled to a paid job at the conclusion of the internship?

The court emphasized that not all of these factors need to be present in order to have a proper internship program and that other factors may well be relevant, depending on the nature of the position.

So why then is this bad news for employers, especially considering that it was Fox, the entertainment industry behemoth, who wanted the "primary beneficiary" test in the first place?  For one thing, in the Black Swan case, it seems almost impossible for Fox to meet its own standard.  Clearly, the Black Swan interns were performing menial tasks that did nothing to enhance their educational experience, they were not getting any skills that could be used in their future, and in all likelihood they were displacing work that would be done by ordinary employees. Fox seems destined to lose the interns' individual cases.

And the "primary beneficiary" test is not a good one for employers whose internship program offers little educational benefit to its participants.  The Second Circuit's opinion emphasizes that the more menial the work assigned to the interns, the less likely a court will consider them such.   In the entertainment and tech industries, where it is not uncommon for employers to have interns perform clerical tasks or work as a gofer, employers are going to have to rethink their models.

In California, the good news from this opinion — raising the bar on class and collective actions — may not be so good after all.  The Black Swan case came from a federal court applying the Federal Rules of Civil Procedure and the FLSA.  By contrast, most class actions in California are brought under state law in state court which are much more class action-friendly.

While this is the first significant appellate opinion on the issue, it likely will not be the last. Other intern-related class action cases are on appeal and ripe for decision by other courts around the country.

But in California, this opinion will likely have a lasting impact as employers shuffle to bring their internship programs into line.  Here, prevailing employees could not only recover unpaid wages and overtime, but a seemingly endless panoply of penalties under the California Labor Code, not to mention attorney's fees.

The Black Swan case does contain a few helpful guides for employers. First, employers must provide interns with an offer letter that gives interns a "clear understanding" that they will not be paid and that they should not expect a job when the internship ends.  Second, there has to be a firm description of the internship program which, not unlike an academic course syllabus, sets forth the work that is to be done and how that work is expected to dovetail with an intern's educational experience.  Third, as much as possible, an employer must strive to tailor the internship to the specific coursework that the intern is pursuing.  Put another way, don't have an engineering major get coffee for studio execs unless he's looking for a career as a barista; don't have her buy hypoallergenic pillows unless she wants to work at Bed, Bath and Beyond.

Even with those steps, however, the "win-win" that internships used to provide may be a relic of the past.  Unless an internship provides interns with real, hands-on experience and some educational benefit, a court will likely find that interns are employees.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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