Second Circuit's Black Swan ruling: This is a big victory for companies that use unpaid internships.

Companies That Exploit Unpaid Interns Just Won a Huge Victory at Court

Companies That Exploit Unpaid Interns Just Won a Huge Victory at Court

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A blog about business and economics.
July 2 2015 4:19 PM

Companies That Exploit Unpaid Interns Just Won a Huge Victory at Court

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An unpaid intern was apparently tasked with buying a non-allergenic pillow for Black Swan director Darren Aronofsky. No doubt, it was a crucial educational experience.

Reuters

For a while, it seemed that unpaid internships were about to become relics of history. In 2013, a federal trial court judge in New York ruled that Fox Searchlight should have paid interns who worked on the production of its Oscar-winning film Black Swan, because they were indistinguishable from regular employees, tasked as they were with fetching coffee, taking phone calls, handling paperwork, and in one case apparently buying a non-allergenic pillow for director Darren Aronofsky. The decision helped usher in a wave of lawsuits by former interns against their employers in the media business. Companies including Condé Nast, NBC Universal, Viacom, and Warner Music eventually ponied up for settlements totaling millions of dollars.

Jordan Weissmann Jordan Weissmann

Jordan Weissmann is Slate’s senior business and economics correspondent.

Perhaps they should have waited a little longer before making a payout. Today, the U.S. Court of Appeals for the 2nd Circuit reversed the lower-court's decision in the Black Swan case, as well as a similar suit involving magazine publisher Hearst, essentially finding that unpaid internships can be legal if they're educational enough. Should the ruling stand, it may be all but impossible for former interns to sue their ex-bosses in the future.

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In his 2013 opinion, Judge William Pauley III found that Fox Searchlights interns should have been considered employees under federal law and were entitled to at least the minimum wage. In doing so, he relied on a six-part test advocated by the Department of Labor, which says that workers are owed a paycheck if their employer gets an "immediate advantage" from their labor (that includes, presumably, convenient access to caffeine and luxury bedding).

But according to today's decision, Pauley's approach was too strict. The 2nd Circuit ruled that interns could go unpaid so long as a job benefited them more as a learning experience than it benefits their employer financially. To decide whether that is the case, it wrote that courts should balance a long, open-ended list of considerations like whether interns received training similar to an academic program, whether they might get academic credit, and whether their work “complements, rather than displaces, the work of paid employees.”

This is all quite a bit fuzzy. "Applying these considerations requires weighing and balancing all of the circumstances,” the court wrote. “No one factor is dispositive and every factor need not point in the same direction for the court to conclude that the intern is not an employee entitled to the minimum wage.” But fuzziness is also the point. The court writes that determining whether an intern must be paid is “a highly individualized inquiry.” 

That's very, very bad news for any former interns considering suing their former companies for back pay. In the second part of its decision, the 2nd Circuit finds that Judge Pauley had incorrectly allowed a class action suit to press forward on behalf of everyone who interned at Fox Entertainment between 2005 and 2010. How come? All of those interns don't have enough in common to join together in a single lawsuit. Instead, their claims need to be litigated more or less one by one—meaning that, more likely than not, they won't be litigated at all. Lawyers have been happy to take these intern lawsuits on as class actions, because they can win a possibly large judgment or settlement by pooling lots of small claims together. But as the Hollywood Reporter's Eriq Gardner notes, most former interns could never win enough money in a solo lawsuit to make the case worth an attorney's time.

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From the news reports so far, it seems unclear whether the plaintiffs plan to appeal this decision. And so far, their lawyers are putting a happy face on it. The suits are headed back to the lower court, which could still find that the interns should have been paid using the new test.* Per Reuters:

Rachel Bien, the lawyer who represents the former interns in both cases, said she was pleased the court created a clear rule.
"Many of the most abusive internships involving low-level tasks and grunt-type work are plainly illegal under this standard," she said.

But by killing the potential for large class actions against companies over their internship programs, the 2nd Circuit is effectively giving them leeway for abuse. It's possible that media companies have been so scarred by this last round of court cases that they'll shy away from the worst practices of the past. But if they really want to go back to offering 22- and 23-year-olds unpaid "educational opportunities" that consist mostly of grabbing Starbucks and making photocopies, it doesn't look like there will be much to stop them.

*Update, July 2, 4:37 p.m.: This story has been updated to note that the suits were remanded to the lower court.