Intern or Employee? Don’t Find Out the Hard Way

Unpaid internships have become a prevailing part of the corporate landscape.  They serve as a means for students and recent graduates to gain experience in their chosen fields and give businesses the opportunity to develop relationships with new talent.  What many do not realize, though, is that the intern-business relationship is governed by a network of state and federal laws that, if ignored, can lead to very expensive consequences.

Recently, Fox Searchlight Pictures, P. Diddy’s Bad Boy Entertainment, The Hearst Corporation, Condé Nast, and other businesses have been forced to grapple with the effects of such laws.  Each of these companies has been sued by former unpaid interns who contend that they are entitled to back wages and benefits because of the nature of the work performed.  NBCUniversal is one of the most recent high-profile targets, and recently filed a response in a class action suit that may end up costing the company a tremendous amount of money.

In their suit, former NBC interns Jesse Moore and Monet Eliastam claim that NBC violated portions of the Fair Labor Standards Act and several state regulations in failing to pay wages for kinds of work that must be compensated under the law.  The Department of Labor has stated that interns may only work without pay in certain situations, and the NBC interns argue that because their work at the company does not fall within the protected categories, they are entitled to back pay.

The NBC suit and others like it have touched off a firestorm in the business community, with some calling out for better treatment and fair compensation for under-advantaged interns, while others argue that businesses should jettison their intern programs altogether to avoid potential liability.  One thing is certain: the issues raised in the intern lawsuits are not going away ‒ Fox lost during the first stage of its lawsuit and now has an appeal pending, other companies have settled, and the trend in intern lawsuit filings shows no signs of slowing.  In the end, these stories highlight how important it is for business owners to understand the laws that govern the business-intern relationship; when it comes to interns, it is definitely better to be safe than sorry.

Ryen Rasmus is an associate attorney for the Washington, DC regional business law firm Berenzweig Leonard, LLP.  He can be reached at RRasmus@BerenzweigLaw.com.

Trend Toward Enforcing FLSA Settlements

The general rule regarding out-of-court settlements for claims brought under the Fair Labor Standards Act (“FLSA”) is that in order to be enforceable, the settlement agreement must be approved by the Department of Labor or by a court. This rule has long posed a burden on employers because unlike many other employment-related claims that could be resolved through a private settlement agreement, settlement agreements in FLSA claims need to be filed in the public record for necessary court approval.

A recent ruling out of the Fifth Circuit Court of Appeals has provided a breath of fresh air for employers. In the case of  Martin v. Spring Break ’83 Productions, LLC, a group of film-industry technicians brought a claim under the FLSA for additional compensation for hours they allegedly worked. After an investigation, a union representative determined that it would be impossible to determine whether the technicians actually worked on the days they claimed.  Subsequently, the union and employer entered into a private settlement agreement regarding the disputed hours. Though the settlement agreement was entered, the technicians filed suit seeking unpaid wages under the FLSA. The employer moved to dismiss due to the previous settlement agreement. The Fifth Circuit ultimately ruled that there existed a bona fide dispute as to the number of hours allegedly worked. Because of this, the court held that the settlement payment was “an enforceable resolution of those FLSA claims predicated on a bona fide dispute about time worked and not as a compromise of guaranteed FLSA substantive rights.”

Importantly, the court allowed this private settlement because it “resolve[d] a bona fide dispute as to the number of hours worked – not the rate at which [the technicians] would be paid for those hours.” Employers must take note that nothing in this opinion allows for employees to privately waive or release substantive rights provided under the FLSA. For example, nothing in this opinion would allow an employer to enter into a settlement agreement whereby the employer would settle to pay half of an employee’s claimed overtime compensation or where the employer negotiated to pay a higher rate of pay than allowed for hours worked in excess of 40 per workweek.

Although the Fifth Circuit came to this conclusion, other jurisdictions may not necessarily reach a similar conclusion.  The Fifth Circuit is the appellate jurisdiction covering Louisiana, Mississippi, and Texas. The Fourth Circuit covering Virginia and Maryland has not yet permitted a private settlement waiver of FLSA overtime claims.  This decision calls into question the long standing principle that FLSA settlements must always be approved by a court or the Department of Labor to be valid. Employers should take note of this opinion and discuss with counsel its potential impact on any FLSA settlement.

Posted by Nick Johnson, Associate Attorney at Berenzweig Leonard, LLP, a business law firm in the DC region.  Nick can be reached at NJohnson@BerenzweigLaw.com.