On June 11, 2013, the U.S. District Court in the Southern District of New York ruled that Fox Searchlight Pictures (Fox) illegally classified two individuals who worked on the Oscar-winning film, Black Swan, as unpaid interns rather than paid employees under the Fair Labor Standards Act (FLSA). The interns performed menial tasks like getting coffee, taking lunch orders and taking out the trash for 40 or more hours a week without pay. More significantly, the Court conditionally certified a national class of hundreds of interns who worked in five Fox Entertainment Group divisions under the FLSA. The lawsuit, Glatt v. Fox Searchlight Pictures, Inc., is one of several FLSA lawsuits unpaid interns have recently filed against companies across the country.

In this time of economic uncertainty and restrained growth, many companies are using or considering unpaid internship programs. As the latest string of lawsuits by former unpaid interns demonstrates, however, companies that operate a non-compliant unpaid internship program risk exposure to considerable monetary damages.

To help for-profit employers distinguish between an unpaid intern and an employee, the Department of Labor (DOL) has established six criteria to determine whether an unpaid intern should be considered an “employee” entitled to wages under the FLSA:

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

While courts are not strictly bound by the DOL’s guidelines, courts will often follow them anyway. For example, the Fox Court applied the DOL’s six criteria to determine that the two Black Swan interns actually worked as employees.

In its decision, the Fox Court underscored several important points regarding unpaid internships. First, an internship program that merely provides experience is not adequately similar to training from an educational environment; the internship should include some learning opportunity beyond job experience. Second, a company should not use an unpaid intern in a capacity that would ordinarily require a paid employee to perform the same task. Third, interns who perform menial work product may still provide an immediate advantage to a company. Last, that an unpaid intern does not expect any wages holds little significance because “the FLSA does not allow employees to waive their entitlement to wages.”

For-profit employers should carefully evaluate their internship programs to maximize the likelihood that their programs will be found to comply with the FLSA. Consider the following guidelines if your company is thinking about implementing an unpaid intern program:

1. Distinguish between intern recruitment and employee recruitment in job postings and application materials;
2. Design the internship program to include more than just on-the-job training;
3. Ensure that the internship program will teach the intern skills that he or she can apply to another job in the same industry;
4. Consider entering into a formal arrangement with an educational institution that provides the intern with academic credit and exercises oversight over the program;
5. Require the unpaid intern to sign a written agreement that specifically details the duration and other terms of the internship; states that the intern does not expect an automatic offer of employment at the end of the internship; and highlights that the intern does not expect any wages. This agreement will not be a silver bullet in the event of a lawsuit, but it will help establish a clear record of the company’s and the intern’s expectations.

Because every internship situation involves a fact-intensive analysis, potential internship arrangements need to be evaluated individually, using the DOL’s six criteria as a guideline. Before establishing an unpaid internship program, we urge companies to consult with counsel to ensure that their respective programs are FLSA-compliant.

Yongqing D. Yang also contributed to this article.