Last summer the Second Circuit issued an important decision that identified the proper test for determining whether an employer properly classified an individual as an unpaid intern. The decision was a victory for employers because the nature of the test required courts to utilize a highly-individualized analysis of each intern’s experience, and therefore, it did not necessarily lend itself to class action treatment.  On rehearing, the Second Circuit has now amended this decision to clarify that the test is highly context-specific rather than dependent on the individualized experiences of each intern.

The Amended Decision

In short, the amended decision reaffirms the use of the primary beneficiary test – that is, whether the intern or the employer was the primary beneficiary of the working relationship.  In the original decision, the Second Circuit identified two salient features of the primary beneficiary test – (1) a focus on what the intern receives in exchange for the work; and (2) flexibility to examine the economic reality as it exists between the intern and the employee.  The amended opinion tacked on a third feature: an acknowledgment that:

“the intern‐employer relationship should not be analyzed in the same manner as the standard employer‐employee relationship because the intern enters into the relationship with the expectation of receiving educational or vocational benefits that are not necessarily expected with all forms of employment (though such benefits may be a product of experience on the job).

Based on those three salient features, the Court left in place the non-exhaustive list of seven factors that a court should consider in determining whether an employment and not intern relationship existed.  But it then it added two additional considerations.

First, because the economic reality of the relationship remains the “touchstone” of a court’s analysis, courts may, including when faced with a collective action, consider evidence about an internship program as a whole rather than the individual experience of each intern.

Second, this flexible approach only applies in the context of bona fide internship programs; not other “training programs in other contexts.”

So……..Thanks for the Summary, But what Does this Mean?

• Taken together, the Court in its amended opinion continues to strive for a flexible approach, but one that is now “highly context-specific.” It had previously directed courts to utilize a highly-individualized approach.  This could be an important change for employers because they can now satisfy the primary beneficiary test by looking at the entirety of the internship program as opposed to the individualized experience of each intern.  At the same time, this could be helpful to plaintiffs, as a “collective” view of the program may make it easier for plaintiffs to certify a class.

• We reaffirm our prior post, which concluded that the battle over this issue is not over yet. First, the Second Circuit continued to leave open the possibility that the plaintiffs could prevail on a renewed certification request by offering additional proof.

• Second, despite this amended opinion, plaintiffs’ attorneys continue to abandon their pursuit of FLSA and New York Labor Law hybrid claims in federal court, opting instead to pursue violations of the New York Labor Law in New York State court only. The New York State DOL says that an employer must satisfy each of the 11 factors in its unpaid internship test before classifying an individual as an unpaid intern and New York State courts generally utilize a more relaxed certification standard.  Therefore, plaintiff’s attorneys are hoping that a New York State court would reach a different conclusion than the Second Circuit and endorse the NYSDOL’s strict view while applying this more relaxed certification standard.

• We continue to believe that the number of overall unpaid intern class/collective action lawsuits will drop in part because employers have already started to adapt by paying their interns or restructuring their internship programs.

• At the same time, while some employers have eliminated their internship programs altogether, on the whole, we expect true internship programs to remain prevalent in the workplace for students. The opposite should be said for other training programs to which the Court’s opinion does not apply.  Internships play an important role in the lives of students by providing them with the opportunity to build their resumes, grow their networks and gain valuable experience.  They also serve as less expensive forms of labor for employers (even when paid).  In other words, student internship programs aren’t going anywhere.

• Finally, the Second Circuit panel issued this amended opinion after a rehearing, but an application for an en banc hearing (i.e. a hearing before the entire Court) remains outstanding. We will be tracking that application and whether any other court decides this issue.