Eric Glatt just wanted to change careers. He ended up changing the national conversation on unpaid internships. In the wake of the 2008 financial crisis, Glatt left a job at AIG on Wall Street to pursue his dream career in the film industry. At 40, he landed a coveted internship on the set of Darren Aronofsky’s Black Swan, where he did administrative and clerical work for no pay.
"I decided to get trained up, suffer some of the blows to my ego, start at the bottom, and do what it takes," Glatt tells Fast Company.
The problem is, he wasn’t really learning anything from his internship, and so Glatt, feeling exploited by the experience, turned to the courts. In 2011, he and another intern, Alex Footman, sued Fox Searchlight Pictures alleging that the internship program violated federal and New York state minimum wage laws. The lawsuit asserted that the interns were doing the work of employees, and therefore should be paid like employees. The high-profile case quickly reverberated across every glamour industry imaginable. Hearst, Condé Nast, Warner Music, NBCUniversal—soon, they all faced class-action lawsuits from unpaid or underpaid interns. For a pervasive culture of free labor, the reckoning had come.
Now after half a decade, the Fox Searchlight case is finally coming to a close with a proposed settlement, filed Tuesday, that will see former interns receive a range of payments, including Glatt, who would get $7,500. But for companies, there’s a bittersweet twist: The legality of unpaid internships remains just as ambiguous as ever. While Glatt’s lawsuit did much to advance conversations about fair wages and labor rights, it never really settled the more basic question of when it’s okay for businesses to employ unpaid interns.
"A lot of unpaid internships are still ripe for a legal challenge," says David Yamada, director of The New Workplace Institute at Suffolk University Law School.
Far from offering closure, the Fox lawsuit actually added to the confusion. Last year, the case made it to the Second Circuit Court of Appeals, where a judge rejected what had long been considered the gold-standard legal assessment for unpaid internships: the so-called six-factor test issued by the Department of Labor (DOL). The test—pieced together from a 1947 Supreme Court decision—hinges on the idea that employers may derive "no immediate advantage" from the work performed by unpaid interns. In other words, if interns contribute to your business in a meaningful way, you have to pay them. That condition was seen by fair-wage advocates as a kind of insurance policy, protecting interns against exploitation at the hands of their host companies.
"It made unpaid internship lawsuits more winnable," Yamada says. "Really, as long as you could show that the intern was providing a benefit to the employer—in other words, providing genuine labor—it’s very unlikely that the employer could meet the minimum wage exemption."
But what the Second Circuit did was essentially toss out that test in favor of its own seven-factor test, this one more concerned with the extent to which an internship is part of a bona fide academic pursuit. For instance, a key factor of the new test is whether an internship is tied to an educational program. Part of the reasoning, the court opinion holds, is that the more stringent DOL test is outdated and inconsistent with modern-day internships. But the ruling also gives companies more leeway to not pay their interns.
"It creates a more pro-employer framework," Yamada says. "It sends a message that internships associated with educational institutions are more likely to qualify for a minimum-wage exemption."
Count Eric Glatt among those who think the court made a huge error in judgment. "I think it’s wrong," he says. "Their reasoning is completely fuzzy, not grounded in any fact finding, and certainly not grounded in any statutory authority. They basically, in my opinion, had a notion in their heads about what an internship is. They assumed all interns are students, which we know is not a universal truth."
Since the lawsuits, many companies have decided to start paying their interns, or to scrap their programs altogether. Fox, which has never admitted wrongdoing, said it just wants to move on. "Having decisively prevailed in our appeal, Fox wishes to put this matter completely behind us," said company spokesperson Chris Petrikin in an emailed statement.
But going forward, employers that have unpaid internship programs should consider where they are located. States within the jurisdiction of the Second Circuit (Connecticut, New York, and Vermont) may find they can lean on the more lenient test that has come from the Fox case. Similarly, the Eleventh Circuit (Florida, Georgia, and Alabama) has also adopted the new test.
But elsewhere, the DOL’s original six-factor test may still prove the standard. That the DOL hasn’t backed down from its test indicates that it still believes in its relevance. Strictly speaking, this means offering college credit or tying an internship program to a school curriculum may not absolve employers from having to pay minimum wage.
Glatt said he would not be surprised if the Supreme Court ultimately took up the issue. "You could still have a different outcome in another circuit—and a true circuit split," he says.
Data on unpaid internships is scarce, but studies indicate that internships as a whole can be beneficial for both companies and workers. A recent survey from the National Association of Colleges and Employers found that the overall conversion rate from interns to employees is almost 62%, a 13-year high.
While no one wants to become the next Fox Searchlight, Yamada says there’s still a pretty reliable way to make sure an internship program is above board: Bite the bullet and fork over some cash. "If you want to avoid getting sued for this stuff, paying your interns is still the clear and easy way to go."