This post was written by Cindy S. Minniti and Mark S. Goldstein.
Each day this week, we will “unwrap” one of five pressing employment law issues on the 2015 horizon for New York state and city employers. Previously, we covered the minimum wage hike, the anticipated enforcement of two new NYC laws, and the revamped NYC Commission on Human Rights. Today’s topic is the unsettled status of unpaid interns.
Finally, in 2015 – after what has felt like an endless wait – the federal Court of Appeals for the Second Circuit in Manhattan is expected to weigh in on the great intern debate: are company-sponsored unpaid internship programs lawful, or must interns be paid just like regular employees? The court has scheduled oral argument in tandem appeals for January 15, 2015, and should issue a ruling before year’s end.
As we have previously reported on this site, unpaid internship programs were once considered a long-standing, stable facet of the U.S. business landscape, as well as a valuable option for students seeking to gain real-world experience and to open doors in their sought-after career field. But in recent years, these programs have come under intense scrutiny and fierce legal attack. A veritable flood of class and collective action lawsuits have been filed against employers across a broad swath of industries. Propelled by an ever-enterprising employee-plaintiffs’ bar, and facilitated by the soft job market following the 2008 recession, these suits have attempted to hold companies liable under the federal Fair Labor Standards Act (FLSA) and parallel state laws, under the theory that companies unlawfully withheld minimum wages and overtime pay, while reaping the benefits of interns’ “free” labor. The suits seek not only back pay with interest, but also hefty attorneys’ fees, and have become so costly for employers to defend that several high-profile companies have elected to discontinue their internship programs altogether.
In its highly anticipated decision, the Second Circuit is expected to set the contours for when (if ever) a company must pay student (and other) interns. The court also will likely clarify whether, and if so, how much, deference federal courts should afford to policy positions of the United States Department of Labor (USDOL) on this issue. The USDOL contends that an intern must be classified as an employee under the FLSA (i.e., must be paid) unless all of the following six criteria are satisfied: (1) the internship is similar to training given in an educational environment; (2) the internship experience is for the benefit of the intern; (3) the intern does not displace regular employees; (4) the employer derives no immediate advantage from the intern’s activities; (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. The New York State Department of Labor, for its own part, has articulated 11 criteria (several of which are duplicative of the USDOL’s six) that must be met for a valid internship program.
The Second Circuit’s ruling will likely be based as much on politics and policy as on any technical FLSA statutory analysis. The USDOL has filed an amicus brief in the two intern cases pending before the court, urging that it “defer to the [the agency’s] longstanding six-part trainee test.” Other interested organizations, such as the United States Chamber of Commerce and the National Employment Law Project, have also vocalized their contrary positions, urging the court to rule in favor of the companies in the pending cases.
Many deem the Second Circuit’s decision to be the most important wage-and-hour decision expected in 2015, and it is anticipated to have significant impact on the future structure and use of internship programs not only in New York, but nationwide as well. Stay tuned here for future reports about developments in this hot legal story for 2015.
What Does This Mean for My Company?
New York employers can and indeed should expect a bevy of changes over the next year. From the minimum wage increase to expanded protections for pregnant employees to the use of unpaid labor, the New York employment law landscape remains in flux and is as dynamic as ever. Employers should therefore consult with experienced counsel immediately to discuss these issues and prepare a cogent plan of action to face them head-on.
Be sure that this is a New Year’s resolution that you actually keep!