Internships and training programs have been a staple of the fashion industry (among many other industries) for years. Luxury retailers have traditionally offered internships in the areas of communications, marketing, merchandising, production, and public relations. The continuing role of such internships in teaching students, recent graduates, and others who aspire to careers in fashion about the fashion business is, however, under attack. In the aftermath of a 2013 ruling by a New York federal court that a film studio had violated minimum wage laws by not paying production interns on a film, New York plaintiffs’ lawyers have escalated the battle over “unpaid internships” in the fashion, media, and entertainment industries. In just the past year, intern wage actions have been filed in New York against at least five luxury retailers (including another titan of luxury just this past week); two media companies that are closely associated with luxury brands and fashion; and a dozen or so other entertainment, media, and events companies. Plaintiffs’ law firms have also created multiple websites for the sole purpose of recruiting interns to bring lawsuits against businesses in these industries.
The named plaintiffs in the fashion industry intern cases allege that their duties included familiar tasks such as cutting fabric, preparing look books, and research, as well as data entry and making coffee runs. These plaintiffs argue that because they performed duties that otherwise would have fallen to employees, the interns should have been treated like employees under the employment laws (i.e., paid minimum wage, overtime, and employee benefits).
Particularly troubling for the businesses targeted by these lawsuits, is that the complaints are fashioned as “collective actions”—meaning that the lawsuit begins with as few as one named plaintiff, and within months courts typically order the company to give the plaintiffs’ lawyers the contact information for scores of former and current interns, thus paving the way for the plaintiff to solicit other interns to join the lawsuit. In addition to causing significant disruption and raising the specter of legal liability, these cases are expensive to litigate and are unlikely to be dismissed until the company has engaged in significant and costly discovery, typically including exhaustive searches of electronic information maintained by the company.
The Fair Labor Standards Act (FLSA) and similar state laws dictate the requirement to pay wages and overtime to employees. The dozens of cases filed in New York on behalf of interns have been styled as “hybrid” cases under the FLSA and New York law. In such cases, the claims on behalf of interns based outside New York go back two to three years under the FLSA, but the New York-based claims cover internships over an additional three to four year period because New York law has a longer statute of limitations.
For more than half a century, courts and government agencies have found the FLSA to be inapplicable to internships where the intern qualifies as a “trainee”— in short, no wages are due if the trainee and company agree to an unpaid internship, the company provides meaningful training that is educational in nature, the establishment of the position does not displace employees, and the company receives no immediate advantage by the trainee’s labor. The U.S. Department of Labor has established a six-factor test for evaluating whether the “trainee exception” applies to an internship and advocates the view that only internships that meet all six factors are exempt.
Because New York courts have recently expressed different views about how to apply the FLSA to internships, the two primary cases in this area (one of which favored the interns while the other favored the company) are both on appeal to the Second Circuit Court of Appeals. Decisions are expected in both of those appeals in 2015, and those decisions will almost certainly clarify the standards for establishing a legal, unpaid (or modestly paid) internship.
Best Practices for Retailers
Just because the Second Circuit has not yet ruled does not mean that luxury retailers and fashion brands are completely at sea. Regardless of how the court rules on the pending cases, retailers should ensure that they understand the goals and realities of their companies’ internship programs and be able to articulate the expectations of those positions as well as the many training and learning opportunities that result from their internships.
Experienced legal counsel can assist in the elicitation of relevant evidence of an appropriate “trainee” relationship. In our experience, engaging in such an analysis provides the company with valuable guidance regarding the strength or vulnerability of its internships against legal attack; leads to action items that should be considered to avoid future pitfalls; and, indeed, improves the quality and focus of unpaid internship programs, even those that clearly satisfy applicable legal standards.