Unpaid Intern Lawsuits: What Every Studio Owner Should Know

June 20, 2013 by Justin Colletti By now, many studio owners have probably heard about the rise of class action lawsuits against businesses that rely on illegal unpaid internships. In late 2012, Charlie Rose’s for-profit production company was the first to settle such a claim, paying out $250,000 in back minimum wages that it had failed to pay its entry-level workers. Just last week, Fox Searchlight Pictures suffered a resounding loss in the first of these new lawsuits to make it all the way to trial. This Monday, a former Atlantic records intern brought suit against the Warner Music Group, making them the first major music company on the chopping block. Their name has been added to a growing list of defendants that includes prestigious publishers like Condé Nast and Harpers. These cases are not unique to big businesses. I’ve even heard from a former intern who took a small recording studio to the labor board in California and won the case soundly. That decision is currently in appeals, but it doesn’t look good for the studio owner. If you haven’t looked into the practices at your studio, it’s time to do so now. This week, we’ll look at what separates a legal internship from an illegal one, and how to make sure your studio stays out of the crosshairs. A Brief History To those who have grown accustomed to the presence of unpaid internships, these may seem like new developments. But in reality, laws prohibiting the non-payment of workers have been on the books since the passing of the Fair Labor Standards Act way back in 1938.

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Credit: Mikey Burton It’s only been in the past decade-and-a-half that both prosecutors (and workers) have turned something of a blind eye to the practice. If you ask the old-timers of the studio world, just like I did, many of them will tell you that back in their day, all the legit studios paid minimum wage to their gophers, general assistants and receptionists. No one had quite the imagination to think they could do otherwise. It’s true that new workers often lack the skills to be nearly as productive as experienced hires. But for countless generations, training new workers was just considered part of the cost of doing business. Sometime between the late 1990s and early 2000s, all that began to change – not just in the studio world, but throughout the entire creative sector. Between 1992 and 2008, the number of students entering internships in the U.S. tripled, according to the National Association of Colleges and Employers. It’s unclear how many of these internships are unpaid, but estimates range from about one-third to one-half. Regardless of where you stand on the issue, it’s difficult to deny that this dramatic increase in unpaid internships has gone hand in hand with a sharp decline in the availability of paying entry level jobs, a record spike in youth unemployment, and what economists have taken to calling the “jobless recovery” from the Great Recession. How To Stay On the Right Side of the Law Not all unpaid internships are illegal, but there’s no question that according to existing labor laws, many are. As Ross Perlin, author of Intern Nation writes, in 1947, a Supreme Court decision “established a narrow, common-sense exemption for those enrolled in a genuine training program,” but “few internships these days are serious about training, and…most don’t even pretend.” There are a few ways to make sure your internship program stays on the right side of the law and avoids litigation. Internships that pays minimum wage are no problem at all, so that’s always a safe bet. And at non-profit firms, productive unpaid “interns” can simply be classified as “volunteers,” so there’s often no issue there either. At for-profit companies however, the bar for an unpaid internship is set very high. In order to remain legal, any unpaid internship must be done for the express benefit of the intern, and the employer must receive no immediate benefit from the intern’s labor. What exactly is an “immediate benefit”? Simply put, anything that resembles “work.” This includes answering phones, filing papers, entering data, distributing checks, picking up dry
637 S. Victory Blvd.| Burbank, CA 91502 | Phone: (818) 567-4400 | Fax: (818) 567-4401 www.fhofficesystems.com

cleaning, going on mandatory coffee runs, mopping floors, cleaning toilets, washing dishes, and so on. Our existing labor laws are not interested in the title we give to our new recruits – only their function. If it looks like a job, sounds like a job and smells like a job, it probably is a job. The law still holds that jobs have to pay, and the starting rate is minimum wage. To qualify as a legal unpaid internship, the employer must be running something that resembles the kind of hands-on, structured vocational training that one would expect at a school. They must also not profit directly from the work of the intern in any way. To help clarify the law, the Department of Labor offers a clear six-point guideline for keeping unpaid internships on the up-and-up. Of those six points, Maurice Pianko, an attorney with Intern Justice writes that the following points are the most commonly flaunted: “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; The internship experience is for the benefit of the intern; The intern does not displace regular employees, but works under close supervision of existing staff; 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.” That’s a pretty tall order to live up to, and it’s doubtful that many unpaid internships at recording studios live up to these standards at all times. In the case of Fox Searchlight, the judge found that each of these guidelines had been violated: “[Fox] Searchlight received the benefits of their unpaid work, which otherwise would have required paid employees. Even under Defendants’ preferred test, the Defendants were the “primary beneficiaries” of the relationship… “Undoubtedly, [the interns] received some benefits from their internships, such as resume listings, job references, and an understanding of how a production office works. But those benefits were incidental to working in the office like any other employee and were not the result of internships intentionally structured to benefit them. Resume listings and job references result from any work relationship, paid or unpaid, and are not the academic or vocational training benefits envisioned by this factor. [The interns] performed routine tasks that would otherwise have been performed by regular employees. In his first internship, Glatt obtained documents for personnel files, picked up paychecks for coworkers, tracked and reconciled purchase orders and invoices, and traveled to the set to get managers’ signatures. His supervisor stated that “[if the intern] had not performed this work, another member of my staff would have been required to work longer hours to perform it, or we would have needed a paid production assistant or another intern to do it.”
637 S. Victory Blvd.| Burbank, CA 91502 | Phone: (818) 567-4400 | Fax: (818) 567-4401 www.fhofficesystems.com

If that sounds something like the internship program at your studio, you may be in trouble too. The bottom line is that if you own a for-profit business and want to run an unpaid internship program, then it has got to be built around a rigorous training program. And if you want to benefit from the intern’s labor, you’ve got to pay them. Keeping that in mind, there may be suitable compromises that could allow cash-strapped studios the option to give young hopefuls ample real world experience while benefiting from their valuable labor as well. For instance, you might pay an intern for help to set up and break down at the beginning and end of a session. You could then invite them to stay and observe during the session (so long as they’re off the clock and not expected to be working) or to stick around to ask questions after you’ve wrapped up for the day. At minimum wage, this might cost a studio as little as $20 to $40 per session – A real bargain for an extra set of hands, and a potential win-win for everyone involved. Similarly, you might actively train an intern in a new task off the clock (such as soldering cables, invoicing clients or printing stem mixes) and then pay them to complete the actual job as contract work. This may be something of a legal gray area, and you’d be wise to discuss it with your own attorney. But at the very least, it’s a clear step in the right direction compared to the ways in which many studios run their internship programs. If you ever did face a lawsuit, you’d actually have a real case to make in court, unlike Fox Searchlight. But perhaps just as importantly, you might be far less likely to attract one to begin with. If you’re a young worker and are having trouble finding legal, non-exploitative internships, consider launching your own portfolio-building projects instead. Volunteering at a non-profit is also a great resume padder, and can be a fantastic way to earn real hands-on experience. In many cases, they even offer more intensive hands-on experience than for-profit firms because they need the help that much more. Both of these options can add tremendous value to your skill-set without devaluing the positions you hope to land in the future. For And Against We could debate the pros and cons of unpaid internships all day long in the comments section, but that’s not going to change the law. By now, most of us have heard the stock arguments from both sides anyway. Defenders of unpaid internships say that they can be “A great way to gain experience.” But this only begs the question, “Would it be any less of a great experience if the intern was paid minimum wage?” The common response here is “Yes, because the position wouldn’t have existed otherwise.” To which the obvious reply is “How do you know? That’s a pretty huge assumption to make.”
637 S. Victory Blvd.| Burbank, CA 91502 | Phone: (818) 567-4400 | Fax: (818) 567-4401 www.fhofficesystems.com

Jobs board at the 2012 AES Convention Some of these lines of reasoning are difficult to resolve in a vacuum. Better perhaps, to look at the hard numbers and see what they say. At this point, those numbers seem to suggest that unpaid internships aren’t actually much of an “opportunity” at all. Results of NACE’s 2013 Student Survey show that in a study of recent job hunts, 63% of graduating students who had paid internship experience received at least one job offer. However, the same could only be said for 37% of unpaid interns. This gives unpaid interns a measly 1% advantage over students who took no internship at all. Graduates with paid internship experience also earned far higher starting salaries than other applicants – By nearly 50%. The median starting salary for new graduates with paid internship experience is now nearly $52,000. This is far higher than their counterparts who had unpaid internships. They were able to secure average salaries just over $35,000. Ironically, even graduates with no internship experience whatsoever did better than the unpaid interns, averaging $37,000 to start! Critics of illegal unpaid internships say that they destroy entry-level jobs, economic mobility and equality of opportunity. There may be yet another cost as well: A good case can be made that unpaid internships are just plain bad for business, too. Regardless of whether you think unpaid internships are exploitation or opportunity, one thing is clear: Change is coming. Don’t let it get the better of you.

637 S. Victory Blvd.| Burbank, CA 91502 | Phone: (818) 567-4400 | Fax: (818) 567-4401 www.fhofficesystems.com

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