In some industries, unpaid interns are part of the landscape. Young people either in school or recently out provide free labor in exchange for experience and a chance to make connections. Only sometimes the companies seem to be the real beneficiaries, possibly using interns rather than what otherwise would be low-level paid staff. A recent court decision may undermine the whole practice.

A New York court came down on the side of some interns in a class action suit, ruling that Fox Searchlight's intern program was illegal because it violated some basic labor laws. The same logic that won there could prove dangerous to any business looking to augment its workforce on the cheap.

In short, Alex Footman and Eric Glatt were unpaid interns at Fox Searchlight, part of Fox Entertainment Group, while the movie The Black Swan was being made. They brought suit, alleging that they were really employees whose responsibilities and conditions went beyond those of an intern.

New York federal judge William Pauley agreed with them under two multi-part tests. Here are all of the conditions of the two:

  • The company could hire and fire them
  • Fox Searchlight company controlled work schedules and conditions
  • The company determined the rate and method of payment, or lack thereof (and not, say, a school awarding credit to the students)
  • Employment records existed
  • The people used the company's premises and equipment for work
  • The production company where they spent their time did not have other clients
  • The work done by the interns was "integral" to the company's process of production
  • The crew of the production company was actually tied to Fox Searchlight

Sounds similar to the IRS rules on whether someone is a contractor or an employee, doesn't it?

A company can have unpaid interns under some circumstances, but the relationship requires the fulfillment of six criteria:

  1. "The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment"
  2. "The internship experience is for the benefit of the intern
  3. The intern does not displace regular employees, but works under close supervision of existing staff
  4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded
  5. The intern is not necessarily entitled to a job at the conclusion of the internship"
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship

This isn't the final word. Fox intends to appeal. Interns at Hearst Corporation lost a round in May when a judge threw out class action certification, but the individual cases aren't over. And this ruling may have handed them some additional ammo.

If you've considered using unpaid interns to help around the office, now may be the time to get a second opinion.