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Gibson Dunn - The Fashion Law and Business Report > Posts > Dream Internships Can Become Legal Nightmares for Employers in the Fashion World
1.7.15
Dream Internships Can Become Legal Nightmares for Employers in the Fashion World

This post was prepared by Howard Hogan and Samantha Daniels of Gibson Dunn.

It comes as no surprise that college students and recent college graduates are often attracted to unpaid entertainment and fashion internships, lured by the glamor of film sets, haute couture houses, and prestigious publications.  For young people looking to jump start a career in a desirable field, landing unpaid work is often considered a good way to get a head start on the competition. And such internships give the fashion and entertainment industries a way to find and develop new talent, which can be a real source of value to one of these enterprises. 

Recent lawsuits, however, have alleged that some companies are going beyond this mutually beneficial model, and instead using interns as simple unpaid workers—rather than using their internship programs as an equitable way to find and help develop talent.  These lawsuits typically assert claims for unpaid wages and overtime, and when they are brought as class action lawsuits on behalf of hundreds or even thousands of past and present interns, they can be expensive to defend and settle.

A number of these lawsuits have been filed since 2013 when a New York district court judge ruled that two interns were in fact employees entitled to pay for their work in connection with a major motion picture.  These lawsuits target companies in the fashion and entertainment companies, including Marc Jacobs, Oscar de la Renta, and Calvin Klein, among others.  Some have already settled.  For example, Condé Nast recently reportedly settled one of these cases for $5.8 million.  Some employers, like Condé Nast and PBS’s Charlie Rose, reportedly abandoned their programs altogether after disaffected interns sued.  But canceling these internships may not be a realistic option for firms that truly want to obtain and develop top talent.

The Department of Labor’s internship guidelines can be helpful in avoiding liability here.  Under the Department’s criteria, to qualify as an unpaid “intern”—in contrast to an “employee” entitled to wage and overtime protection of the Fair Labor Standards Act—an internship must satisfy a strict six-factor test.  This test is designed to ensure the program benefits the intern, not provide free labor to the employer.  In fact, some employers have argued that they pass this test because their internship program actually impedes the company’s normal business operations, as a price paid for recruiting the best talent.  The following advice may be helpful in assisting an internship program to withstand scrutiny:

Provide educational or vocational training, with supervision.  Employers should view their internship programs as an academic experience.  Offering college credit for participation in a program is certainly helpful, but may not be enough. To be safer, programs should include activities that develop interns professionally, such as special guest lectures, worksite tours, and shadowing senior executives.  The more feedback and the more mentoring interns receive, the more likely a court will view the experience as providing a benefit to the interns in question.  And whatever assignment an intern performs, current employees should closely supervise the trainee’s progress.

Duties devoid of special industry knowledge, in contrast, invite trouble.  Programs have fared worse where interns performed largely clerical tasks, such as fetching lunch, assembling furniture, and answering phones.  If an intern has little to no contact with seasoned employees, it may be easier to conclude the program lacks educational value.

Ensure productive work doesn’t shift to the intern.  Even if a task is arguably educational or vocational, it may be helpful to ensure that the duties assigned to an intern are not displacing work otherwise performed for pay.  The more closely the intern’s duties resemble the employer’s paid work—i.e., efforts that are instrumental to the employer’s actual business operations—the more likely that it will be considered unpaid work.  For example, one intern for The New Yorker magazine claimed he edited, proofread, and reviewed pieces for submission—all tasks a paid, junior editor would normally perform.  Other lawsuits have focused on assignments of entry-level tasks like entering data, taking inventory, assembling products, and dressing models for fashion shows.  Without their effort, the plaintiffs argued, these fashion houses would have had to hire additional lower-level staff or pay existing employees more hours to meet their labor demands.

Create a formal structure for the internship program. The more formal training planned throughout the intern’s tenure, the better.  The National Association of Colleges and Employers, for instance, recommends that employers designate a manager to run the intern program.  This intern manager should design and supervise the program and ensure all other employees know the intern’s proper role.

Enumerate the program’s limits in writing.  One way to create a record that will better withstand subsequent scrutiny is to be sure that all interns understand the limitations of an internship program and, in particular, that their work will go unpaid and that they will not be guaranteed a paid position at the completion of the program.  Instead, companies may offer to help interns apply for paid jobs at the end of their term.  Both parties should put this understanding in a signed, written contract. 

Consider the most cost-effective solution.  If an internship program that applies the advice laid out above appears that it may not be realistic or appropriate given the economic and practical realities of the business, another approach might be to instead pay interns a minimum wage salary or better.  If an employer follows this course, it is still important to operate it in a way that is consistent with other labor and employment laws and regulations.

Despite these recent lawsuits, there is a general consensus that internship programs can be designed well, so that they benefit both the interns themselves and the companies where they intern.  Cancelling these programs, in contrast, may mean missing an important opportunity to find and evaluate pools of talent.  The key is making sure that internship programs are designed to reasonably balance business imperatives with the needs of the young people that a fashion or entertainment company may hope to attract.  That way, today’s internship dream won’t become tomorrow’s legal quagmire.

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