Laborsphere

Unpaid Interns Deemed Employees Under the FLSA

A federal district court in New York ruled last week that unpaid interns who worked on the production of films for Fox Searchlight Pictures Inc. and Fox Entertainment Group, Inc. were actually employees who should have been paid in accordance with the Fair Labor Standards Act (“FLSA”) and New York Labor Law (“NYLL”). Glatt v. Fox Searchlight Pictures Inc., Case No. 11-CV-06784 (S.D.N.Y. 2013). This decision comes just weeks after another Southern District of New York judge issued a favorable defense ruling by denying class certification for unpaid interns at various Hearst-owned magazines. See Wang v. The Hearst Corporation, Case No. 12-CV-00793 (S.D.N.Y. 2013).

In Glatt, the court applied the six-factor test set used by the Department of Labor (“DOL”) and determined that two unpaid interns who worked on production of Black Swan were improperly classified and did not come within the “trainee” exception to the FLSA’s coverage. Instead, the interns should have been classified as employees subject to the FLSA and NYLL. Specifically, in applying the DOL test, the court found that:

The internship was not similar to training in an educational environment because the interns did not receive any formal training or education, or acquire any new skills aside from those specific to the Black Swan back office during the internship;
The internship had only incidental benefit to the interns – resume value and references– which were not the result of the structure of the internship, and that Fox also benefitted from the unpaid work;
The interns displaced regular employees and performed tasks that would have otherwise been performed by regular employees, such as obtaining documents for personnel files, picking up paychecks for coworkers, tracking and reconciling purchase orders, making copies, and running errands, among other low-level tasks;
Fox received immediate advantages from the activities of the interns, and there is no evidence that the interns impeded work;
The interns were not entitled to a job at the conclusion of the internship; and
The parties understood that the interns were not entitled to wages for time spent in the internship, although the court noted that this factor was not determinative.

While the plaintiffs to whom the court’s ruling applied did not seek class certification, the court granted another plaintiff’s motion for class certification of her NYLL claims and conditional certification of the FLSA claims. In doing so, the court found that: (1) the class was sufficiently numerous because it included at least 40 plaintiffs whose information was not easily identifiable by plaintiffs; (2) there are common questions or law and fact relating to the DOL’s six-factor test; (3) the plaintiff’s claims are typical of the class because she participated in the same internship program administered by the same set of recruiters as all class members and was classified as an unpaid intern like all class members; (4) plaintiff’s interest are not antagonistic to those of the class; (5) common issues of liability predominate over any individual damages claims; and (6) class action is a more efficient mechanism than individual claims because of the relatively small recoveries available.

The court’s reference to the evidence presented in the case provides a good lesson for employers. The court noted an internal memo in which Fox stated that, in light of the DOL test, Fox would only provide paid internships unless a manager could comply with the six criteria provided by the DOL. The outcome in Glatt demonstrates employers must remain vigilant not only in maintaining proper policies on internships, but also in training and oversight of managers, to ensure compliance with the DOL’s six-factor test and the FLSA.

NLRB Rules That Policy Requiring Employees to Individually Arbitrate Employment Disputes Violates the National Labor Relations Act

On June 3, 2013 an National Labor Relations Board (NLRB) Administrative Law Judge (ALJ) reached a decision in which it found that MasTec Services’ Company’s policy that required employees to individually arbitrate employment disputes violated Section 8(a)(1) of the National Labor Relations Act (NLRA). In so holding, the ALJ radically expanded the NLRB’s previous decision in D. R. Horton, Inc. (1/3/12). As D.R. Horton itself has been rejected by almost all federal courts which have considered it, the MasTec decision is bound to create a firestorm of criticism.

In D.R. Horton, the NLRB ruled that requiring employees to sign a blanket waiver of rights to pursue their employment claims through class actions violated Section 8(a)(1) of the NLRA. The specific agreement at issue in D.R. Horton (1) contained a mandatory arbitration provision, and (2) required employees to bring all employment-related claims to an arbitrator on an individual basis, as opposed to as a potential class action. The D.R. Horton decision generated significant criticism, and many commentators noted that it appeared to conflict with U.S. Supreme Court precedent, specifically AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011). Concepcion held that the Federal Arbitration Act preempts state laws that prohibit contracts from disallowing class-wide arbitration, and that companies can enforce contract provisions that require customers to arbitrate their disputes individually. Concepcion, which involved a consumer contract, was thought to make it much harder for individuals – not only consumers, but also employees who had signed arbitration agreements – to file class action lawsuits.

Although D.R. Horton initially caused great concern among employers, as it seemed to eliminate the possibility of preventing class suits through mandatory arbitration agreements, this concern has been tempered by the fact that an overwhelming number of federal courts that have considered the issue have refused to follow the decision, including the Eighth Circuit Court of Appeals. See e.g., Owen v. Bristol Care, Inc., 702 F.3d 1050 (8th Cir. 2013); Delock v. Securitas Security Servs. USA, Inc., 883 F. Supp. 2d 784 (E.D. Ark. 2012); Morvant v P F Chang’s China Bistro Inc., 2012 WL 1604851 (N.D. Cal. 2012); De Oliveira v. Citicorp North America, Inc. (M.D. Fla. 2012); Tenet Healthsystem Philadelphia, Inc. v. Rooney (E.D. Pa. 2012); Lavoice v. UBS Wealth Management Americas (S.D.N.Y. 2011); Johnmohammadi v. Bloomingdales, Inc. (C.D. Cal. 2012); Sanders v. Swift Transp. Co. of Ariz., 843 F Supp. 2d 1033, (N.D. Cal. 2012); Palmer v. Convergys Corp., 2012 WL 425256 (M.D. Ga. 2012).

MasTec is sure to be controversial because, despite the courts’ hostile reaction to D.R. Horton, MasTec expands its holding. The arbitration provision at issue in MasTech was less restrictive than that in D.R. Horton, in that it (1) permitted the employee to opt out within 30 days, and (2) explicitly authorized employees to bring claims to administrative agencies. Nonetheless, even with these safeguards in place, the ALJ found the provision to violate Section 8(a)(1). The ALJ gave three independent reasons for reaching this conclusion. First, given that the NLRA grants employees the right to engage in protected concerted activities without interference, an employer may not require its employees to affirmatively act (through the opt-out) in order to obtain or maintain those rights. Second, employees who opt out still would be unable to engage in and cooperate in concerted activities with those who did not opt out, disadvantaging them in their attempts at concerted action. Third, some employees may be reluctant to exercise the opt-out option for fear of angering their employers. Under the reasoning of the Mas Tec opinion, it would be virtually impossible for any employer to include a class action waiver in arbitration agreements with individual employees.

D.R. Horton itself is currently on appeal before the U.S. Court of Appeals for the Fifth Circuit. Should the NLRB and Federal Court decisions continue to diverge, the stage may be set for a reversal of D.R. Horton (or perhaps a Supreme Court decision). We will continue to monitor D.R. Horton and its progeny, given the case’s broad implications for employers potentially subject to employee class actions.

Drinker Biddle Labor & Employment Lawyers Ranked in Chambers USA 2013

Congratulations to the Labor & Employement group lawyers and practices who were recognized as leaders in their field in Chambers USA 2013. Those lawyers who were recognized include Labor & Employment group co-chair Tom Barton (Band 3) and Florham Park partners John Ridley (Band 1) and Lynne Anderson (Band 3).

Sources said about the New Jersey practice (Band 2), “They were eloquent and responsive to a tee. Everyone has been extremely helpful”. When asked about John Ridley, one client commented “He is a seasoned litigator and has been doing employment law for so long that he is a real asset”. Another interviewee praised Lynne Anderson for her ability to “remain calm amid the nastiness of litigation.”

When asked about Tom Barton, one client commented “Smart, creative and practical” and “tries to find a solution for his clients.” And when commenting on the Pennsylvania practice (Band 4), a client noted ” They’ve been great – their approach to litigation has been very reasonable and measured. They’re not overly aggressive – they’re very logical and pragmatic.”

The lawyers of the Labor & Employment group help make up the more than 60 lawyers from many of Drinker Biddle & Reath’s 16 practice groups that were recognized in the Chambers USA 2013 edition.

Whistleblowing May Not Be Limited to Claims About Employer Wrongdoing in New Jersey

The New Jersey Conscientious Employee Protection Act (“CEPA”) was designed to protect whistleblowing employees who have the courage to stand up to illegal or wrongful conduct by their employer. As the courts have consistently held, the initial focus in a typical CEPA case is on the whistleblower’s prima facie case burden to establish that he/she had an objectively reasonable basis to believe that the employer did something wrong by either violating a law or engaging in conduct incompatible with a clear mandate of public policy.

In an unreported opinion issued in March 2013, however, the United States District Court for the District of New Jersey found that CEPA can be implicated even where there is no claim or contention that the employer did anything wrong. In Stapleton v. DSW, Inc. (2013 U.S. Dist. LEXIS 38502), the plaintiff employee believed that a store customer was mistreating her young child by, among other things, not changing her dirty diaper, and decided to “blow the whistle” on the customer by turning her in to the New Jersey Division of Child Protection and Permanency (the “Division”) out of concern for the child’s health and wellbeing. The plaintiff employee gave the customer’s name and address to the Division after obtaining that information from the customer’s transaction with the store. In doing so, the plaintiff violated the company’s perfectly lawful policy prohibiting the unauthorized disclosure of confidential customer information. When the employer learned of what had happened, it discharged the plaintiff for violating its non-disclosure policy, and she filed suit under CEPA.

Not surprisingly, the company moved to dismiss the lawsuit on the grounds that the plaintiff was not a protected “whistleblower” because she did not allege that the company had done anything wrong or illegal. Indeed, the plaintiff had blown the whistle on the customer, not the company. This is where it gets interesting. In denying the company’s motion, the District Court noted that CEPA not only protects employees who object to illegal activity, but also those who refuse to follow a policy or practice which they reasonably believe is incompatible with a clear mandate of public policy. Unlike most CEPA cases, the court in Stapleton focused on the conduct of the employee – not the employer – and concluded that she was protected under CEPA by virtue of the fact that she acted pursuant to the public policy that encourages individuals to report child abuse. In this circumstance, the court determined that the company’s policy prohibiting the disclosure of the customer’s identity was incompatible with the State’s clear mandate to protect the health and welfare of children, and that the plaintiff was therefore engaged in protected “whistleblowing” under CEPA when she refused to “participate in” or follow that policy in order to help the Division identify the customer.

While the court’s CEPA analysis is subject to debate – there was no allegation that the employer had engaged in wrongful or illegal conduct – the plaintiff would appear to have a claim for wrongful discharge in violation of public policy where the New Jersey Child Protection Law provides immunity to employees reporting child abuse, and the New Jersey courts have held that employer policies on confidentiality must yield to matters of child safety. Nevertheless, this opinion should serve as a caution to employers and counsel alike that the courts often take an expansive view of the protections provided under CEPA.

Unpaid Internships – Training Programs or a Lesson in Class Actions?

Summer is quickly approaching, and eager students are lining up for internship opportunities, some of which may be unpaid. The whole topic has caused a firestorm of news stories lately – including an NYU students’ petition to remove unpaid internship postings from the campus career center, and an auction by an on-line charity website for a six week unpaid internship at the UN NGO Committee on Human Rights (the current bid is $26,000). Do unpaid internships run afoul of federal and state minimum wage laws? The answer potentially is yes, but given recent successful challenges to class certification, employers now have useful guidance in developing defense strategies against such claims.

Last week, in Wang v. The Hearst Corporation, U.S.D.C. S.D.N.Y. Case No. 12-CV-00793, the court denied class certification in a case brought by interns at various Hearst-owned magazines. The interns challenged Hearst’s practice of classifying them as unpaid interns, allegedly to avoid minimum wage and overtime laws under the Fair Labor Standards Act (“FLSA”) and New York state law. The court found that the plaintiffs could not satisfy the commonality requirement for class certification. While plaintiffs could demonstrate a corporate-wide policy of classifying proposed class members as unpaid interns, the nature of the internships varied greatly from magazine to magazine. The court noted there was no evidence of a uniform policy among the magazines regarding the interns’ specific duties, training, or supervision.

Days later, attorneys for the defendant in Glatt v. Fox Searchlight Pictures Inc., U.S.D.C. S.D.N.Y. Case No. 11-CV-06784, made a similar argument to defeat class certification in a case in which Fox interns challenged their unpaid status under federal and New York state minimum wage and overtime laws. In that case, the interns worked on the sets of different films or were based out of corporate offices, and weren’t governed by a centralized policy or procedure. The defendant in Glatt argued that class certification should be denied because of the lack of a uniform policy. While the court in Glatt has not yet ruled, these two cases suggest that, although claims by unpaid interns may persist, plaintiffs may find it increasingly difficult to sustain them as class actions.

In light of these cases, now is a good time to review the rules for internships. According to the Department of Labor, internships in the for-profit private sector will be viewed as employment relationships for which the FLSA minimum wage and overtime rules will apply, unless the intern is truly receiving training which meets six criteria: (1) the internship is similar to training that would be given in an educational environment; (2) the internship experience is for the benefit of the intern; (3) the intern is not replacing employees and works under close supervision; (4) the sponsor of the intern does not derive immediate benefit from intern’s activities and at times, its operations may actually be impeded; (5) the intern is not entitled to a job at the conclusion of the internship; and (6) the sponsor and the intern understand the intern is not entitled to wages for the time spent in the internship. As of 2010, the California Division of Labor Standards Enforcement (“DLSE”) relaxed the multi-factor test it previously applied and now uses the same criteria as the DOL.

While the Hearst ruling is good news for employers, the case did not address the merits of the interns’ claims and does not mean employers can relax their compliance efforts. If an employer improperly classifies an internship as “unpaid,” the employer could be liable for failure to pay minimum wage and overtime, penalties for failure to provide meal and rest breaks, as well as potential liability for violations of anti-discrimination and anti-harassment laws that apply to employees. The bottom line is that employers should apply the DOL/DLSE six-factor test and if their internships do not meet the criteria, the interns should be paid at least minimum wage.

Editors note: Be sure to check out Kate’s guest blog post for thewrap.com on the use of interns by entertainment and media companies.

Federal Appeals Court Rejects NLRB Union Poster Rule

The U.S. Court of Appeals for the D.C. Circuit recently held that the National Labor Relations Board’s (Board) rule that required employers to post a new notice that promoted the right to unionize (sometimes referred to as the NLRB union poster rule) violated employers’ free speech rights under Section 8 (c) of the National Labor Relations Act.

The Board issued the highly controversial rule in August of 2011 that required employers to post the new notice. Employer groups soon challenged the rule, arguing that the rule exceeded the Board’s authority to enforce the Act.

The Court noted that Section 8(c) of the Act gives employers the right to communicate with employees about union representation as long no threats or promises of benefits are made. The right of free speech, the Court stated, also includes the right to be silent. The Board’s notice posting rule forced employers to communicate with employees about union representation and made it an unfair labor practice if an employer did not comply, which the Board cannot do.

The Court also rejected the Board’s rule because the Act’s six-month statute of limitations on unfair labor practices would not apply to an employer’s failure to post the notice. It remains to be seen what the Board will do in response to the Court’s decision.