In a decision issued earlier this month, the Second Circuit Court of Appeals ruled that participants in unpaid internship programs offered by the Hearst Corporation could not be classified as “employees” of Hearst and therefore were not entitled to compensation for their internships under the Fair Labor Standards Act (FLSA).

The Second Circuit’s decision in Wang v. Hearst Corp., No. 16-3302 (2d Cir. 2017) (available here) affirmed a 2016 decision by U.S. District Judge J. Paul Oetken granting summary judgment for Hearst and dismissing the claims of lead plaintiff Xuedan Wang and four other college-age individuals working as unpaid interns for Hearst’s various print magazines. The Second Circuit made clear reference to the case’s underlying significance, framing the question raised on appeal as “whether Hearst furnishes bona fide for‐credit internships or whether it exploits student‐interns to avoid hiring and compensating entry-level employees.”

In the eyes of the three-judge panel, “[t]he facts of this case permit inferences that support Hearst with respect to certain [factors], and inferences that support particular interns with respect to other factors.” The Second Circuit acknowledged the interns’ arguments that “such mixed inferences foreclose a ruling on summary judgment” but ultimately ruled against them “for the reasons explained by the district court, which weighed all factors under the totality of the circumstances, and concluded that the interns are not ‘employees’ for the purposes of the FLSA.”

The Second Circuit’s Adoption of the “Primary Beneficiary” Test

The Second Circuit’s ruling represents what is likely the final chapter in a case that began in 2012, when Wang filed suit alleging that she and a putative class of interns across Hearst’s magazine departments were deprived of wages in violation of the FLSA and New York Labor Law. After the district court initially denied the plaintiffs’ motion for summary judgment on the issue of whether the interns were employees (previously covered here), the Second Circuit heard the plaintiffs’ appeal in 2015 in tandem with another case involving unpaid interns, Glatt v. Fox Searchlight Pictures, Inc. As discussed in greater detail in our prior blog post, the Second Circuit vacated the denial and remanded the case to be redecided in light of its new standard. Wang v. Hearst Corp, 617 F. App’x 35 (2d Cir. 2015). In doing so, it recognized the “primary beneficiary” test as the way to distinguish employees from bona fide interns and provided seven non-exhaustive factors to consider in assessing unpaid internships: (i) whether the parties understand there is no expectation of compensation; (ii) whether the internship provides training similar to that received in an educational environment; (iii) whether the internship is connected to a formal education program or receipt of academic credit; (iv) whether the internship corresponds with the academic calendar, accommodating the student’s school commitments; (v) whether the duration of the internship is limited to the period in which the intern is provided with beneficial learning; (vi) whether the intern’s work displaces the work of paid employees; and (vii) whether the parties understand there is no entitlement to a paid job at the conclusion of the program.

Assessing the matter for the first time under the “primary beneficiary” test, Judge Oetken determined that all of the Glatt factors except the sixth (displacement of paid employees) either favored Hearst to some degree or were neutral, leading the court to conclude as a matter of law that the plaintiffs were interns rather than employees.

The Second Circuit’s Application of the “Primary Beneficiary” Test

The Second Circuit explained that “the heart of the dispute on appeal” concerned the appropriate assessment of Glatt’s second factor – whether the internship provides training similar to that received in an educational environment. The Second Circuit rejected Wang’s arguments that Judge Oetken misconstrued this factor by broadening the ambit of “training” to include “practical skills,” holding instead that “appellants’ interpretation ignores our instruction in Glatt that a key element of the intern relationship is ‘the expectation of receiving educational or vocational benefits’” and that Glatt “clearly contemplates that training opportunities offered to the intern include ‘product[s] of experiences on the job.’” The panel likewise rebuffed the plaintiffs’ argument that Hearst’s internships were a poor substitute for classroom learning and noted that accepting those complaints as true would still not offset the undisputed fact that the internships provided beneficial training.

The Second Circuit agreed with Judge Oetken that only the sixth Glatt factor, the extent to which an intern’s work complements the work of paid employees or displaces it, favored the interns, since the interns did complete some work regularly performed by paid employees. However, the panel noted that this factor alone was not dispositive. The panel emphasized that the Glatt factors do not require that “the alleged employer derive no immediate advantage from the activities of the intern” and that “an intern may perform complementary tasks and in doing so confer tangible benefits on supervisors.” As such, “it is no longer a problem that an intern was useful or productive.”

The Second Circuit Creates an Easier Path to Summary Judgment in Future Intern Cases

Importantly, while the Glatt factors are fact-specific and require a case-by-case analysis, the Second Circuit rejected the plaintiffs’ arguments that application of those factors precluded dismissal at the summary judgment stage. The panel deemed an individual’s status as an “employee” under the FLSA to be a matter of law, thereby allowing a district court to “strike a balance on the totality of the circumstances to rule for one side or the other.” Even where contested issues of fact exist, the Second Circuit held that “the crucial point is that a district court may rule on summary judgment if it can weigh the Glatt factors on the basis of facts that are not in dispute.”

Conclusion

While this month’s ruling represents a significant victory for companies that administer internship programs, employers must remain vigilant in their use of unpaid interns. Employers designing and managing internship programs should continue to focus on the educational objectives of those programs and take steps to ensure that their programs comply with Glatt’s “primary beneficiary” test.