When two former interns sued the producer of the Oscar-winning film “Black Swan” for minimum wage and overtime law violations this past fall, it made headlines across the country. The case illustrates well some of the inherent dangers in taking on interns. Although internship programs offer employers obvious benefits, especially in tight budgetary times, it’s critical that you strictly adhere to federal and state requirements.

The ‘Black Swan’ Wage and Overtime Case
The interns claim that Los Angeles-based Fox Searchlight Pictures did not provide them with the kind of educational experience that would exempt their work on the film from wage and hour laws. Instead, they assert, the company had the interns perform the types of menial work that paid employees should have done.

Their complaint alleges that by misclassifying the interns, Fox Searchlight denied them “benefits that the law affords to employees”—including unemployment and workers’ compensation insurance, protections from discrimination and sexual harassment, and “a fair day’s wage.”

The interns seek class action status for more than 100 unpaid interns who worked on various Fox Searchlight projects.

The Federal Exemption for Internships
Employers that provide interns with training for the interns’ educational benefit may be exempt from minimum wage and overtime requirements in the federal Fair Labor Standards Act (FLSA). The “Black Swan” interns are bringing their claims under the FLSA (in a federal district court in New York, where the interns worked in the film’s production office).

According to a U.S. Department of Labor (DOL) fact sheet, an internship program must satisfy the following requirements to qualify for the exemption:

• The internship, even though it includes actual operation of the employer’s facilities, is similar to training that would be given in an educational environment.
• The internship experience is predominantly for the intern’s benefit.
• The intern does not displace regular employees but works under the existing staff’s close supervision.
• The employer that provides the training derives no immediate advantage from the intern’s activities, and its operations may actually be impeded on occasion.
• The intern isn’t necessarily entitled to a job when the internship ends.
• The employer and the intern understand that the intern is not entitled to wages for time spent in the internship.

The DOL fact sheet provides guidance on some of the most commonly discussed criteria:

Similar to an educational environment. Generally, the more an internship program is structured around a classroom or similar academic experience—rather than the employer’s operations—the more likely it will be considered an extension of the intern’s educational experience. Ideally, a college or university will oversee the program and provide educational credit.

The “Black Swan” interns allege in their lawsuit that they didn’t receive training similar to what they would receive in a vocational school or academic educational instruction.

For the predominant benefit of the intern. Interns benefit more directly from acquiring skills that can be used in multiple employment settings than skills that are tailored to the employer’s operations. And interns who engaged in the employer’s operations or who perform productive work (for example, clerical work or assisting customers) won’t be excluded from the FLSA’s requirements if they receive some benefits in the form of a new skill or improved work habits. The business should not depend on the intern’s work.

The interns in the Fox Searchlight case claim that they functioned as production assistants and bookkeepers and performed secretarial and janitorial work that benefited Fox Searchlight.

Displacement of regular workers and supervision. Interns should be paid at least minimum wage and overtime if the employer uses them as substitutes for regular workers or to augment the existing workforce for specific time periods (for example, during the busy season when the employer would have hired additional employees or required existing staff to work additional hours had the interns not performed the work).

If, however, the employer gives the interns job shadowing opportunities that let them learn certain functions under the close and constant supervision of regular employees—andthe interns perform no or minimal work—the activity is more likely to be considered an educational experience. When interns receive the same level of supervision as the employer’s regular workforce, it’s more likely to be employment than training.

Job entitlement. Internships should run for fixed durations that are established before they begin. Employers must not use an internship as a trial period for individuals seeking employment after the internship period. An intern placed with the employer for a trial period, with the expectation of eventually being hired on a permanent basis, would be considered an employee receiving compensable training.

The State Exemption
In 2010, the California Division of Labor Standards Enforcement (DLSE) noted in an opinion letter that it has historically followed federal interpretations that recognize the special status of interns who perform some work as part of an educational or vocational program. It cited the six criteria listed above. Again, though, the Black Swan case is being brought under federal law.

Previously, however, the DLSE had laid out an “11-factor test” that included the six DOL factors and the following five additional factors:

• Whether clinical training is part of an educational curriculum
• Whether the trainees or students do not receive employee benefits
• Whether the training is general, so as to qualify the trainees or students for work in a similar business, rather than designed for a job with the employer offering the program (i.e., on completing the program, the trainees or students must not be fully trained to work only for the employer offering the program)
• Whether the program’s screening process is not the same as for employment, and does not appear to be for that purpose, but involves only criteria relevant for admission to an independent educational program
• Whether the program’s advertisements are couched clearly in terms of education or training, rather than employment, although the employer may indicate that qualified graduates will be considered for employment

In the opinion letter, the DLSE applied only the DOL criteria and concluded the program that was the subject of the letter satisfied the six criteria—and the interns were exempt from California’s minimum wage law. It would seem, then, that the DLSE may also dispense with the additional five factors going forward.