When it comes to interns, a misclassification can become a costly mistake.

Employers may want to use unpaid interns for a variety of reasons. However, a recent case (Glatt v. Fox Searchlight Pictures Inc., 2013 WL 2495140 (SD NY 2013)) shows this can be a big mistake.

Eric Glatt and Alexander Footman sought to bring a class action suit against Fox Searchlight Pictures Inc. (Searchlight) and Fox Entertainment Group Inc. (FEG). Glatt and Footman were unpaid interns who worked on production of the film Black Swan in New York. After production ended, Glatt took a second unpaid internship relating to Black Swan’s post-production. They contended that Searchlight and FEG violated federal and state labor laws by classifying them as unpaid interns instead of paid employees.

FEG is the parent corporation of Searchlight, which produces and distributes feature films, but does not produce the films themselves. Rather, it enters into production-distribution-finance agreements with corporations created for the sole purpose of producing particular films. Plaintiffs and defendants each moved for summary judgment on the issue of whether Searchlight was the “employer” of Glatt and Footman as that term is defined in the law.

A Department of Labor fact sheet helped the court determine whether interns at for-profit businesses fall within this exception. The fact sheet enumerates six criteria for determining whether an internship may lawfully be unpaid:

  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; and on occasion its operations may actually be impeded;
  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 classroom training is not a prerequisite, internships must provide something beyond on-the-job training that employees receive. Here, Searchlight received the benefits of plaintiffs’ unpaid work, which would otherwise have required paid employees. Glatt and Footman also performed routine tasks that would otherwise have been performed by regular paid employees. Searchlight did not dispute that it obtained an immediate advantage from Glatt and Footman’s work.

There was no evidence Glatt or Footman were entitled to jobs at the end of their internships or believed they would be, and Glatt and Footman understood they would not be paid. But this factor added little, according to the court, because the law does not allow employees to waive their entitlement to wages.

Considering the totality of the circumstances, Glatt and Footman were improperly classified as unpaid interns and instead were “employees.” The benefits they may have received—such as knowledge of how a production or accounting office functions or references for future jobs—were the results of simply having worked as any other employee works, not of internships designed to be uniquely educational to the interns and of little utility to the employer.

Unpaid wages can be recovered for a period of two years, or even three years in the case of a willful violation. The court may double the amount owed as liquidated damages, so a misclassification can become quite costly. The lesson? It is seldom possible to have unpaid interns.

In the wake of the Glatt case, NBCUniversal Inc., Warner Music Group Corp., and Gawker Media LLC have also been sued by unpaid interns. iBi

Michael R. Lied is an attorney with Howard & Howard Attorneys PLLC, located in One Technology Plaza in Peoria. He can be reached at (309) 672-1483 or [email protected]