Francine Esposito and Jeffrey A. Gruen
Francine Esposito and Jeffrey A. Gruen ()

With summer fast approaching, spotlights will again focus on issues relating to interns. Employers must ensure that they comply with the continuing developments in the law relating to interns, including new protections against discrimination and harassment in the workplace. Employers must also ensure that they comply with the not-so-new, but often disregarded, factors to determine whether interns must be paid for their services.

As for the new protections, in response to an October 2013 decision of the U.S. District Court for the Southern District of New York denying anti-harassment and anti-discrimination protections to an unpaid intern, the New York City Council passed, and Mayor Bill De Blasio signed, a bill to amend the New York City Human Rights Law (city HRL). The new law, which extends the city HRL’s protections against discrimination, harassment, and retaliation to interns working in New York City, will take effect on June 14, 2014.

Employment Relationship

The case that started it all was Wang v. Phoenix Satellite Television, 2013 U.S. Dist. LEXIS 143627 (SDNY Oct. 3, 2013). Lihuan Wang obtained an unpaid internship with Phoenix Satellite Television, a subsidiary of a Hong Kong-based media conglomerate, located in New York City. The internship was intended to provide training to Wang and result in potential employment for her after she completed her master’s degree. Wang and her supervisor, Zhengzhu Liu, discussed Wang’s future employment on several occasions, but her employment prospects ended when she rejected Liu’s sexual advances. Wang filed suit against Phoenix for sexual harassment and discrimination pursuant to the New York State Human Rights Law (state HRL) and the city HRL.

The District Court dismissed Wang’s claims, noting that, pursuant to well-settled law under Title VII of the Civil Rights Act of 1964 (the federal law prohibiting discrimination in employment) and the state HRL, an individual must be paid in order for an employment relationship to exist. Therefore, it concluded that the state HRL’s protections did not extend to unpaid interns. The difficult question, however, was whether the same held true under the city HRL in light of the 2005 Local Civil Rights Restoration Act, which mandated that the city HRL’s provisions be construed independently from and more liberally than similar or identical provisions of federal and New York state statutes. N.Y.C. Local Law No. 85 §1 (2005). The District Court nevertheless concluded that the city HRL applied only to employees and remuneration is a dispositive issue in determining whether Wang was an “employee” under the city HRL.

According to the District Court, the threshold issue of remuneration had to be satisfied before a court could consider other factors indicating an employment relationship, such as method of hire, power of dismissal, and supervision and control of tasks performed. It further found that because Phoenix did not compensate Wang, she could not meet the threshold requirement to be considered an employee, and the protections of the city HRL did not apply to her.

New City Law

The new law amends the city HRL by adding the term “intern” to the definitions section. The new law defines “intern” as someone who performs work for an employer on a temporary basis and whose work:

1. Provides training or supplements training given in an educational environment such that the employability of the individual performing the work may be enhanced;

2. Provides experience for the benefit of the individual performing the work; and

3. Is performed under the close supervision of existing staff.

The new law also adds a new subdivision to the “unlawful discriminatory practices” section of the city HRL, stating that “[t]he provisions of this chapter relating to employees shall apply to interns.” Consequently, all provisions of the city HRL, which currently apply to employees, will also apply to interns beginning June 14, 2014. Specifically, it will be considered an unlawful discriminatory practice for an employer to refuse to hire, discharge, or discriminate against any intern in terms, conditions, or privileges of employment on the basis of his or her actual or perceived age, race, creed, color, national origin, gender, disability, marital status, partnership status, sexual orientation, alienage or citizenship status, status as a victim of domestic violence, sex offenses or stalking, prior criminal convictions, or unemployment status, or to retaliate against any intern for reporting or opposing such practices.

Employers will also be obligated to provide reasonable accommodations for interns’ disabilities, religious observances, and pregnancies. In addition, this will enable interns, like employees, to file complaints in court or with the New York City Commission on Human Rights within one year for alleged violations of the city HRL, seeking back pay and benefits, compensatory damages, punitive damages, and equitable relief.

State Legislature

The New York State Legislature is currently also considering a similar bill that would extend the protections of the state HRL to unpaid interns. As currently constructed, the state bill, unlike its city counterpart, would apply only to unpaid interns. It defines “intern” as a person who performs work for an employer for the purpose of training under the following circumstances:

1. The employer is not committed to hire the person performing the work at the conclusion of the training period;

2. The employer and the person performing the work agree that the person performing the work is not entitled to wages for the work performed; and

3. The work performed:

a. Provides or supplements training that may enhance the employability of the intern;

b. Provides experience for the benefit of the person performing the work;

c. Does not displace regular employees; and

d. Is performed under the close supervision of existing staff.

That bill was referred to the New York Committee on Governmental Operations in January 2014, but is still several steps away from reaching Governor Andrew Cuomo’s desk.

Trainees

Although anti-discrimination protection for unpaid interns in New York City is new, scrutiny over whether interns should be paid is not. In the 1940s, the U.S. Supreme Court held that prospective brakemen at a week-long railroad training course were “trainees” and not covered under the minimum wage and other requirements for employees under the Fair Labor Standards Act (FLSA). Walling v. Portland Terminal, 330 U.S. 148, 149-53 (1947). The court reasoned that the FLSA was not intended to penalize employers for providing vocational instruction at a place and in a manner that would greatly benefit the trainee.

In finding that the workers were not employees covered by the FLSA, the court considered that they did not displace any regular employees, required close supervision by regular employees, did not expedite the company’s business (and in some cases impeded it), and performed work that provided a benefit to them.

Despite the distinction between employees and trainees for some 70 years, recent tough economic times caused the issue to surface once again. Indeed, more workers sought unpaid internships and employers were eager to take advantage of the availability of free labor. As a result, in 2010, the U.S. Department of Labor issued a fact sheet to assist employers in determining whether interns fell under the trainee exception to the FLSA. U.S. Dept. of Labor Fact Sheet #71 (April 2010). That fact sheet enumerated six criteria to consider, which are similar to those recently adopted in the city HRL’s definition of intern:

1. The internship is similar to training which 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 derives no immediate advantage from the activities of the intern, and occasionally operations may be impeded;

5. The intern is not necessarily entitled to a job after the internship concludes; and

6. The employer and the intern understand the intern is not entitled to wages.

The New York State Department of Labor followed up with its own fact sheet for determining whether an intern is exempt from the requirements of the New York Labor Law. That fact sheet incorporated the six criteria from the Labor Department’s fact sheet (but required that notification that the intern would not receive wages be in writing) and added five of its own:

1. Any clinical training is performed under the supervision and direction of people who are knowledgeable and experienced in the activity;

2. The trainees or students do not receive employee benefits;

3. The training is general, and qualifies trainees or students to work in any similar business. It is not designed specifically for a job with the employer that offers the program;

4. The screening process for the internship program is not the same as for employment, and does not appear to be for that purpose. The screening only uses criteria relevant for admission to an independent educational program; and

5. Advertisements, postings, or solicitations for the program clearly discuss education or training, rather than employment, although employers may indicate that qualified graduates may be considered for employment.

The issue of whether interns must be paid received further attention in June 2013, when the Southern District of New York issued its highly publicized decision that Fox had misclassified two individuals who worked on the movie “Black Swan” as unpaid interns. See Glatt v. Fox Searchlight Pictures, 293 F.R.D. 516 (S.D.N.Y. 2013). The District Court concluded that the two individuals did not fall under the trainee exception to the FLSA because they did not receive any formal training, performed routine tasks including fetching coffee, and were not entitled to jobs at the end of their programs. As such, Fox had to pay their back wages plus penalties.

Conclusion

Given the above, employers contemplating the employment of interns must be aware of issues under federal, state, and city law—both old and new—to determine whether interns must be paid, and to ensure that they are provided with an environment free from discrimination, harassment, and retaliation. Otherwise, employers will face substantial monetary and criminal penalties for wage and hour violations, and even more substantial compensatory and punitive damage awards for employment law violations.

Francine Esposito is a partner at Day Pitney, and Jeffrey A. Gruen is an associate at the firm. They are based in the New York and New Jersey offices.