To benefit or not to benefit: mutually induced consideration as a test for the legality of unpaid internships.

• Author: Durrant, Craig

INTRODUCTION I. HISTORY AND BACKGROUND OF UNPAID INTERNSHIPS A. Origins B. Description of the Current State of the Law C. Flaws of the Fact Sheet D. Negative Effects of Unpaid Internships 1. Financial Detriment to the Intern 2. Unfair Advantage to Wealthier Students 3. Increase in Unemployment Rate 4. Lack of Protection Against Discrimination and Harassment E. Why Unpaid Internships Persist II. MY PROPOSAL III. APPLICATION OF MY PROPOSAL A. Situation 1: Blatant Illegality B. Situation 2: Latent Illegality C. Situation 3: Superficially Unsettling Illegality D. Situation 4: Simple Legality E. Situation 5: Unexpected Benefit F. Situation 6: Conditional Gratuitous Promise IV. CHALLENGES A. Challenge I: Perversion of Contract Law B. Challenge 2: Edwards and Hertel-Fernandez's Proposal Is Superior CONCLUSION INTRODUCTION

From October 2009 to February 2010, Alex Footman worked as a production intern on the Oscar-winning film Black Swan, where he spent his days filling coffee pots, taking out the trash, getting lunch for the staff, and cleaning floors. (1) Black Swan went on to make more than $300 million, but Footman, a graduate of Wesleyan University's well-known film studies program, received no compensation. (2) When asked whether he had gained experience from the position, Alex replied, "The only thing I learned on this internship was to be more picky in choosing employment opportunities." (3)

Diana Wang is also no stranger to unpaid internships. In trying to break into competitive industries like publishing and public relations, she went through seven. (4) Her most recent stint was at Harper's Bazaar, and she described her time there as "disgusting." (5) Her normal workday consisted of shipping merchandise between New York and London, carrying heavy bags throughout Manhattan, working through dinner, and finally leaving the office at around 10 PM. (6) She even served a management function at the company, overseeing eight other interns. (7) Yet she, like them, made nothing, (8)

The banality and lack of value in the work given to unpaid interns is a common complaint. Marra Green, for example, had an unpaid internship at the Diane von Furstenberg fashion house in Manhattan, where she felt "as if she was ... her boss's valet." (9) In discussing her internship, Ms. Green said, "I did a lot of lunch runs. I also did some weird personal errands. I picked up clothes which my boss ordered from the store. I returned her children's clothes to various stores. I went to Barneys to pick up Christmas presents...." (10)

This year, some unpaid interns have begun to fight back. (11) Footman and another intern who worked on Black Swan won a lawsuit in federal court against Fox Searchlight Pictures. (12) They alleged that the production company violated minimum wage and overtime laws by not compensating more than one hundred interns. (13) The complaint stated, "Fox Searchlight's unpaid interns are a crucial labor force on its productions, functioning as production assistants and bookkeepers and performing secretarial and janitorial work.... Fox Searchlight has denied them the benefits that the law affords to employees...." (14) Similarly, Diana Wang and her fellow interns filed a class-action lawsuit against the Hearst Corporation, which owns Harper's Bazaar, in which they claimed that Hearst's treatment of its interns violated federal and state labor laws. (15)

While these two lawsuits against major corporations are the most prominent, similar claims are certain to arise as the pool of unpaid interns keeps growing and as interns continue to become disgruntled after their unsatisfying, uncompensated experiences. (16) Yet when judges finally hear these cases, they will have little case law and only vague instructions from the Department of Labor to guide them. (17)

My proposal is that, in assessing unpaid internship cases, judges should borrow the doctrine of consideration from contract law to decide whether there really is an employment relationship. Under such a system, if the employer and intern exchanged mutually induced promises, then an employment relationship exists that requires (1) at least the minimum wage in compliance with the Fair Labor Standards Act (18) and (2) the typical employee protections against harassment and discrimination in compliance with the Civil Rights Act, (19) Americans with Disabilities Act, (20) and the Age Discrimination in Employment Act. (21)

In this Comment, I discuss the need for, details of, and advantages of my proposal. In Part I, I provide a background of unpaid internships in the United States to display their pervasiveness and their negative effects on our country. In Part II, I lay out the test I propose judges use when determining the legality of unpaid internships. In Part III, I demonstrate how this test will work in the courts by applying it to six concrete examples that range from the clearest illegal scenario to the clearest legal scenario. Finally, in Part IV, I discuss and counter potential challenges to my proposal.

1. HISTORY AND BACKGROUND OF UNPAID INTERNSHIPS

   1. Origins

      Any history of unpaid internships must begin with the passage of the Fair Labor Standards Act (FLSA), (22) in 1938, which President Franklin Delano Roosevelt called "the most farsighted program for the benefit of workers ever adopted." (23) Passed during the Great Depression in response to injustices to the working class, (24) this monumental piece of legislation had three primary objectives:

      to establish minimum wages, to discourage the employment of workers for long hours by providing that wage payments for all hours in excess of the statutory maximum shall be at a rate not less than one and one-half times the regular rate, and to discourage the employment of oppressive child labor. (25) The Act's overarching purpose is to ensure a "minimum standard of living necessary for health, efficiency, and general well-being ... without substantially curtailing employment." (26) For this Comment, the most relevant provisions of the FLSA are the definitions of employee, the minimum wage, (27) and the one and one half-time overtime rate. (28)

      The FLSA defines an employee as "any individual employed by an employer." (29) "Employ," under the FLSA, means "to suffer or permit to work." (30) The Supreme Court in Walling v. Portland Terminal Co., (31) however, narrowed this definition so that "'employ' does not make all persons employees who, without any express or implied compensation agreement, may work for their own advantage on the premises of another." (32) In response to heightened criticism of unpaid internships, the Department of Labor released Fact Sheet #71 (the Fact Sheet) to clarify when an intern is an "employee" deserving minimum wage and overtime rates. (33)

      According to the Act, "an employer [must] pay the prescribed minimum wage 'to each of his employees who is engaged in commerce or in the production of goods for commerce."' (34) The intent here "was to insure that every person whose employment contemplated compensation should not be compelled to sell his services for less than the prescribed minimum wage." (35) Thus, if an intern is an "employee" under the meaning of the FLSA, she is entitled to the minimum wage of $7.25 per hour (36) and one and one-half times that rate if she works more than forty hours per week. (37)

   2. Description of the Current State of the Law

      The number of unpaid internships has been increasing since the recession. (38) Unpaid internships have tended to be most popular in industries like media, communications, entertainment, and publishing. In such fields, industry experiences and achievements are necessary qualifications for a job. (39) Moreover, unpaid internships are particularly prevalent among small businesses, "which often look to save money while benefiting from the productivity of the students they hire." (40)

      Exactly how many unpaid internships have been added since the recession, or even the exact number of unpaid interns currently working, however, is difficult to calculate because the Department of Labor's Bureau of Labor Statistics does not track the number of unpaid internships. (41) Despite this empirical deficiency, the United States saw increasing skepticism of unpaid internships, beginning in early 2010. Most notably, President Obama's Administration called unpaid internships "abusive and unfair because less-affluent students can't afford to spend a summer working as an unpaid intern." (42) Additionally, in April 2010, the Economic Policy Institute launched a comprehensive critique of unpaid internships on three distinct grounds: (1) a majority of interns are unprotected against harassment and discrimination because they do not qualify as employees, and therefore are not afforded employee protections; (2) the current state of the law promotes the growth of unpaid internships, which are often limited to wealthy individuals who can afford to work for free; and (3) the availability of "free labor" encourages employers to replace regular employees with unpaid interns. (43)

      In response to these criticisms and to increased scrutiny by state governments of unpaid internships, (44) in April 2010, the Department of Labor released the Fact Sheet to clarify when an unpaid intern is an "employee" who must be paid under the FLSA. (45) This report is meant to restate the pertinent law as promulgated in Walling v. Portland Terminal Co. (46) and the FLSA--not to reflect a change to existing law and jurisprudence regarding unpaid internships. (47) Furthermore, though these guidelines are not as authoritative as the FLSA or a court ruling, Judge Pauley in Glatt v. Fox Searchlight Pictures, Inc.--the only case yet to address the issue of unpaid internships--held that the Fact Sheet was "entitled to deference" and adopted the entire six-point test in his opinion. (48)

      For an unpaid internship to be legal under the Fact Sheet, it must adhere to the following six criteria:

      1. ...