Mark Goldstein contributed to the content of this post.

The polarizing debate over using unpaid labor added a new wrinkle last Thursday.  Until now, the debate’s primary focus was whether federal and state wage and hour laws protect interns.  On Thursday, however, a New York federal court raised and resolved an ancillary, yet largely unexplored, question:  can unpaid interns sue for employment discrimination and harassment?  In an unprecedented decision, the Court answered this question with a resounding “No!”

In her complaint, Lihuan Wang, a former unpaid intern for Phoenix Satellite Television US, claimed that she had suffered from discrimination and harassment actionable under the New York City Human Rights Law (“NYCHRL”).  Phoenix denied the claims and argued that Wang, as an unpaid intern rather than an employee, had no right to sue under the NYCHRL.

Declaring this an issue of first impression, Federal District Judge Kevin Castel agreed with the company, ruling that interns are not employees under the NYCHRL and therefore lack standing to pursue claims of discrimination and harassment under the statute.  Judge Castel held that Wang’s failure to receive compensation for her services, a hallmark of the employer-employee relationship, deprived her of any right to seek damages for discrimination.  Though mindful that the NYCHRL is intended to be read liberally, Judge Castel nevertheless concluded that the receipt of “compensation is a threshold issue in determining the existence of an employment relationship.”  A worker who receives no compensation has no right to pursue a NYCHRL discrimination claim (or, as Judge Castel noted in passing, any claim under Title VII or the New York State Human Rights Law).

How does this affect my company?

After months, if not years, of debate over whether compensation is due to at least some unpaid laborers, Thursday’s ruling addressed a unique aspect of this largely unchartered area of law.  While the takeaway from Judge Castel’s decision may be simple, it is poignant:  unpaid interns are not employees, at least under the NYCHRL’s anti-discrimination provisions.  Wang is likely to appeal the adverse ruling, but, at least for now, Judge Castel’s decision is a victory for employers.

Irrespective of the ruling, employers should nevertheless remain vigilant when considering the use of unpaid labor and involve experienced wage and hour counsel prior to implementing or continuing an unpaid internship or volunteer programs.  Although employers may have won this battle, the “war” over the use of unpaid laborers rages on.