Movie Company, Interns Agree to Settlement Amid Uncertainty on Compensability Status

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By Howard Perlman

A preliminary settlement reached July 12 by Fox Searchlight Pictures Inc. and 640 interns is to deny the federal judiciary an opportunity to implement an intern compensability test that it developed in response to the case.

A federal district court determined in 2013 that some of the interns should have been compensated based on a six-factor test the Labor Department released in 2010, but the Second Circuit Court of Appeals in 2015 said that test was too rigid. The appeals court developed a seven-factor test that examines whether an intern or employer is the primary beneficiary of the intern's work and asked the district court to use the seven-factor test when reconsidering the case. The settlement, if approved, would cause the compensability issue to be unresolved in this case ( Glatt v. Fox Searchlight Pictures Inc., S.D.N.Y., No. 1:11-cv-06784, motion for preliminary settlement approval 7/12/16 ).

The Labor Department determined that an intern would not be engaged in an employment relationship if all six factors of its test characterized the internship. However, the district court determined that an intern could be unpaid if some of the six factors characterized the internship and the factors in favor of unpaid status qualitatively or quantitatively outweighed factors in favor of paid status. The appeals court's seven-factor test, in addition to examining primary beneficiary status, involves determining the degree that an intern functions akin to an employee performing productive work and weighing factors indicative of compensable status against factors that suggest noncompensable status.

The settlement would provide $276,600 to the class of interns.

Broader Application of Internship Compensability Tests

While the seven-factor test was not used in Glatt, the test had its first use in March 2016 when it helped resolve a case involving interns and another media company ( Mark v. Gawker Media LLC, 2016 BL 97757, S.D.N.Y., No. 1:13-cv-04347, 3/29/16 ).

In that case, which like Glatt was considered in the Second Circuit, the court used the seven-factor test to find that an intern for Gawker Media LLC was not owed wages. The court found with the test that the intern was not owed wages because he “traded his labor for significant vocational and educational benefits, and these benefits outweighed those received” by the company as to his “work and the ability to evaluate him for future employment.”

The Eleventh Circuit Court of Appeals adopted the seven-factor test in September 2015 and asked a federal district court to use it when reconsidering an internship case ( Schumann v. Collier Anesthesia P.A., 2015 BL 294459, 11th Cir., No. 14-13169, 9/11/15 ). However, the district court has not yet completed reconsideration, so the test has not been applied to the case.

As the Second and Eleventh Circuits use the seven-factor test but other federal appeals courts use different tests for resolving internship compensability, the discrepancies add to payroll complexity.

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