Wang v. Hearst Corporation: Unpaid Interns Denied Class Status

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With the economy dragging and jobs difficult to come by, students who might otherwise have obtained paying jobs have increasingly turned to unpaid internships as a way to gain relevant experience and enhance their resumes. The distinction between individuals who perform work for their own benefit and therefore need not be paid, and “employees” (who are subject to the Fair Labor Standards Act's minimum wage and overtime requirements) can be blurry. Thus, it is not surprising that the increase in unpaid internships has led to more putative class actions by unpaid interns alleging their host companies used them as free labor to ride difficult economic times, in violation of state and federal wage and hour laws. The United States District Court for the Southern District of New York recently issued an order in one such case, declining to certify a class of more than 3,000 unpaid interns at Hearst Corporation over the past six years.

The putative class action against Hearst was brought in 2012 by an individual, Xuedan Wang, who held an unpaid internship for approximately four months at Harper’s Bazaar magazine. Wang alleged, on behalf of herself and others similarly situated, that Hearst effectively used unpaid interns to perform entry-level work that had historically been performed by paid employees. The district court conditionally certified an opt-in class of unpaid interns in July of 2012. The opt-in plaintiffs were individuals who held internships at various other magazines, working varying hours, and performing duties that ranged from organizing files, to running errands, to working the door at events.

The plaintiffs moved for partial summary judgment on the issue of their status as “employees” under the FLSA and New York law and for Rule 23 class certification. The court denied the summary judgment motion, holding there were fact disputes as to the level of educational training, benefit, and supervision received by the interns, as well as the existence and extent of any impediment to Hearst’s regular operations, which could support a finding that the interns were not statutory employees.

Turning to the motion for class certification, the court quickly found the numerosity, typicality, and adequacy requirements met and focused its analysis on the commonality and predominance requirements. The plaintiffs argued there was a company-wide policy regarding classification because Hearst classified all individuals eligible to receive academic credit as interns and all interns as unpaid non-employees. Citing Wal-Mart Stores, Inc. v. Dukes, Hearst argued the appropriate legal standard required examination of individual factors that would not generate common class-wide answers, in large part because there was no uniform policy or practice among Hearst’s magazines concerning what interns do from day-to-day. Characterizing the commonality issue as a “close question,” the court held that commonality was not met because the duties of the interns varied significantly from one to the next and from magazine to magazine.

Similarly, the court found that the plaintiffs failed to satisfy the predominance requirement because there was no uniform policy regarding training, duties, or supervision, factors relevant to the analysis of whether the interns were statutory employees. “Because the content of the internships, which is the core of the dispute, cannot be evaluated based on common proof,” the court said, “individual issues clearly overwhelm the common ones here.”

The court rejected the plaintiffs’ argument that Comcast v. Behrend—a United States Supreme Court decision we wrote about last month, in which a majority of the Court indicated that common questions cannot predominate when individual damage calculations “will inevitably overwhelm questions common to the class”—was limited to the antitrust context.  The court also noted, however, that its decision did not rest in any way on problems related to the calculation of damages.

As in any misclassification case, misclassification of interns as “unpaid” can result in liability for failure to pay minimum wage and overtime, penalties for failure to provide meal or rest breaks, and damages under other employment statutes, such as the Family Medical Leave Act or anti-discrimination statutes. Avoiding liability requires vigilance by employers and careful consideration of the United States Department of Labor’s Fact Sheet #71, which the Wang court held provided a “framework for analysis of the employee-employer relationship.” Employee status is a legal gray area and lawsuits challenging employer determinations are inevitable. Fortunately for employers, Wang suggests that unpaid interns may have difficulty proceeding on a class basis, which makes these lawsuits less attractive and less expensive to defend or resolve.