Mark Goldstein contributed to the content of this post.

Just weeks after one New York federal judge gave employers a small glimmer of hope by ruling that a group of former interns could not sue as a class, another on Tuesday dashed employers’ hopes by ruling that a group of former interns who worked on the film “Black Swan” should have been classified and paid as employees. Judge William H. Pauley III reasoned that because the interns’ work more closely resembled that of a traditional employee, they should be able to seek unpaid wages from their former employer. Glatt, et al. v. Fox Searchlight Pictures Inc., et al., 11 Civ. 6784 (S.D.N.Y.).

As more fully detailed here, a soft job market has made lawsuits by unpaid interns against their employers exceedingly popular. These lawsuits allege that the interns were misclassified and, given that they performed duties traditionally provided by regular employees, they should be paid. Relying principally on a fact sheet published in 2010 by the United States Department of Labor, the interns claim they are owed, for a period of up to two years under federal law and six years under New York State law, minimum and overtime wages for their work.

Tuesday’s ruling is the first contemporary decision to declare that unpaid interns should have been treated as paid employees. Specifically noting that the decision depends on the totality of circumstances, Judge Pauley relied heavily on the DOL’s six-factor test for determining whether an internship program may be unpaid. That test requires:

  1. That the internship be similar to training given in an educational environment;
  2. That the internship experience be for the benefit of the intern;
  3. That the intern does not displace regular employees;
  4. That the employer derives no immediate advantage from the intern’s activities;
  5. That the intern is not entitled to a job at the conclusion of the internship; and
  6. That both the employer and the intern understand that the intern is not entitled to pay. 

If any one of these factors is absent, then the intern must be paid like a regular employee. 

Judge Pauley held that the “Black Swan” interns did not qualify for this narrow exception to wage laws for interns, even though the interns understood from the start that they would not be paid for their work. He found especially significant the facts that the employer derived a benefit from the interns’ work – which included preparing and fetching coffee, running various errands, and other menial chores – and that the interns did work that would have otherwise been performed by regular employees.

How Does this Impact my Company?

The decision has far-reaching implications for employers that rely on unpaid internships to educate and identify potential employees. Tuesday’s ruling gives any former unpaid intern a basis to seek recovery of unpaid minimum and, if applicable, overtime wages. Employers should immediately work with counsel to make sure that any current or anticipated unpaid internship program satisfies the DOL’s six-factor test. In light of this recent ruling, employers should seriously consider whether unpaid interns are worth the risk of costly and vexatious litigation.