Unpaid Interns and a Lunch Order Gone Bad: Jury Returns FLSA Retaliation Verdict Against Martina McBride’s Production CompanyA February 2020 jury verdict against county music star Martina McBride’s production company highlights – albeit indirectly – the perils of unpaid internship programs and the issues they can cause under the Fair Labor Standards Act (FLSA).

The Facts

Martina McBride and her husband, John, own Blackbird Studios, which hired Richard Hanson as its operations manager in 2012. According to the decision from the United States District Court for the Middle District of Tennessee, in 2013 Hanson began overseeing Blackbird’s unpaid internship program and supervised paid assistant engineers. Hanson allegedly became concerned that the interns were not receiving any educational benefits from their internship (but were running personal errands and performing custodial work), so they should have been classified as employees and received wages.

Hanson says he told John McBride he was concerned that the internship program violated the labor laws. He claims he raised these concerns in 2013, again in May 2015, and again in March or April 2017 but the program continued.

According to the decision, on June 6, 2017, things came to a head over an apparent “series of misunderstandings” concerning an intern’s retrieval of a lunch order for Ms. McBride. Shortly thereafter, Hanson sent an anonymous email to the Department of Labor about his “unnamed employer’s practices related to interns, as well as assistant engineers who were not receiving overtime pay.” The court found that Hanson told the studio’s general manager of his email to the DOL, and the studio’s general manager then told John McBride.

John McBride then called Hanson, and Hanson admitted to John McBride that he “emailed the Department of Labor about the interns.” According to the decision, John McBride interrupted Hanson and fired him.

Hanson Files a Lawsuit and Wins Jury Verdict

Hanson subsequently filed a lawsuit against the McBrides and Blackbird Studios claiming (in part) that they retaliated against him for opposing what he reasonably considered to be violations of the FLSA. (Ms. McBride was dismissed as a defendant early in the case.) The defendants argued that they had decided to fire Hanson before they learned of the email to the DOL and were just waiting for his replacement to return from his honeymoon before telling Hanson. Accordingly, they denied that Hanson’s complaints about the unpaid interns and perceived FLSA violations caused his discharge. Both parties filed motions for summary judgment, but the court denied the motions because a reasonable jury could find for either Hanson or the defendants.

The case proceeded to trial. On February 7, 2020, a jury found that Hanson successfully proved he was terminated because he complained about actual or reasonably perceived violations of the FLSA. The jury awarded Hanson $59,242 in backpay and $100,000 in compensatory damages (i.e., emotional distress, loss of enjoyment of life, etc.), but declined to award Hanson front pay or punitive damages. It is unclear at this time whether the defendants will appeal.

Interestingly, before the trial, the DOL found that Blackbird Studio’s unpaid internship program did not violate the FLSA, but that Blackbird Studios violated the FLSA to the tune of more than $40,000 by failing to pay required overtime to its paid employees. The DOL’s reasoning behind why Blackbird Studio’s unpaid interns were actually interns was not publicly available.

Key Takeaways

The most obvious takeaways from the case relate to retaliation. First and foremost, it is illegal to retaliate against employees for complaining about what the employee reasonably believes to be an FLSA violation. In this case, Hanson was not even correct that the intern program violated the FLSA — he just reasonably believed it did. Second, when an employee raises a complaint that may be protected activity and you fire them during that conversation, you will almost certainly get a retaliation claim. That might not mean that you should not go ahead and terminate the employee, but you should recognize the potential risk.

The final takeaway is that using unpaid internship programs, especially in for-profit businesses, is perilous. (Non-profits have more flexibility on this front.) The main issue is determining whether the unpaid intern is actually an intern or an employee under the FLSA. If the intern is actually an employee, then the intern is entitled to minimum wage and overtime for all hours worked over 40 in a regular work week, as well as all of the other legal benefits and protections provided to employees.

The test the DOL uses to determine if an individual is an intern or an employee is the “primary beneficiary test”. That test uses seven factors to determine whether the relationship primarily benefits the potential employer or the intern which are as follows (according to the DOL):

  1. “The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.”

For-profit employers considering an unpaid internship program should proceed with caution and make sure that their program meets as many of the above factors as possible. As the factors illustrate, providing an educational benefit to interns and structuring the internship program around those educational benefits are important factors that can help persuade the DOL and overseeing courts that unpaid interns are actually interns. And if the head of the intern program complains about how the program might not comply with wage-and-hour law, even if you know he is wrong, don’t get mad and fire him or her on the same day.

National Labor Relations Board Reverses Another Obama-Era  Labor Board Ruling and Reinstates Historical Deferral DoctrineThe National Labor Relations Board in recent weeks has continued to overturn Board decisions from President Obama’s administration. In United Parcel Service, Inc., the current Republican-controlled Board returned to a long-standing legal standard for “deferring” unfair labor practices to private arbitration.

The Issue

Often when workers are disciplined, whether in a union or nonunion setting, they file “unfair labor practices” with the National Labor Relations Board. These charges usually allege that the company took disciplinary actions to interfere with workers’ rights to engage in protected collective or group activities under the National Labor Relations Act or in retaliation for activities protected by the act. In a union setting, the company and the union usually have a collective bargaining agreement (CBA) that contains arbitration procedures. Historically, companies in this scenario respond to these types of unfair labor practices by asking the Board “to defer” to the arbitration procedure and let the arbitrator decide the disciplinary issue for both the grievance filed under the CBA and the unfair labor practices filed with the Board.

The Historical Standard

Under long-standing Board law, when a company responded to an unfair labor practice charge by urging deferral to arbitration, the Board would do so if the so-called Spielberg standards were met. Spielberg was a 1955 Board decision that governed when an unfair labor practice charge should be deferred (and dismissed) due to an already-decided arbitration decision. Here were the Spielberg factors:

(1) The arbitral proceedings appeared to be “fair and regular,”

(2) The parties had agreed to be bound, and

(3) The arbitration decision was not “repugnant” to the act.

Importantly, subsequent Board decisions placed the burden of proof on the party opposing deferral (usually the worker) to show that deferral was not appropriate.

The Obama Board

With the 2014 Babcock and Wilcox decision, the Democratic-controlled Board dramatically changed the historical standard. The deferral standard became as follows:

(a) The arbitrator had to be explicitly authorized to decide the unfair labor practice,

(b) The arbitrator must have been presented with and have decided the statutory issue, and

(c) Board law reasonably permitted the award.

 Moreover, the burden was placed on the company to show that deferral was appropriate rather than on the worker to show that it was not.

The Return to the Historical Standard

In United Parcel Service, the Board considered the Obama-era shift and decided to return to the historical standard. The Board noted that the Obama Board considered no empirical or statistical evidence in deciding that the historical standard created a risk of erroneous decisions in unfair labor practice cases. The Obama-era Board’s distrust of arbitration also was “untenable” considering the act’s preference for resolution of disputes through an agreed-upon bargained procedure and the overwhelming judicial precedent favoring arbitration. Finally, the change from historical precedent encouraged duplicative litigation of single employment decisions. The new Board thus reinstated the historical standard and clarified that deferral will be appropriate when the issue under the CBA is factually parallel to the unfair labor practice and the arbitrator is presented generally with the facts related to the statutory issue.

Under the new Board, companies once again will have greater chances for deferral and lesser chances of being required to litigate single employment decisions more than once. More shifts in labor law under the new Board are likely to follow.

New H-1B Visa Cap Process Still on Track: USCIS Releases More Details on Electronic Registration ProcessAs we’ve previously explained, some big changes are coming this year to the H-1B visa process. Employers use H-1B visas to temporarily employ workers in “specialty occupations” – generally, jobs that require a bachelor’s degree or higher in a specific specialty or its equivalent.

Each year, the government makes available 85,000 new cap-subject H-1B visas, but, in recent years, the demand has far outstripped the supply. As a result, U.S. Citizenship and Immigration Services (USCIS) has conducted a lottery to determine which petitions would be adjudicated. In 2019, more than 201,000 petitions were filed for the 85,000 cap-subject H-1B visas, meaning USCIS did not even consider over half the petitions.

What’s Changing?

Under the prior process, employers had to submit fully prepared petitions for the cap-subject H-1B visas during the first week of April. Then, after the petitions were filed, USCIS conducted the lottery and adjudicated the lucky 85,000 petitions selected. As a result, many employers incurred considerable effort and expense filing full-blown petitions, only to find out that their petitions would not be adjudicated.

Beginning this year, USCIS will use a new process that should improve efficiency and reduce employer costs. Under this new process, employers will file electronic pre-registrations for prospective H-1B employees. USCIS will then conduct the lottery and identify the registrants who were selected. Only if a registrant is picked in the lottery will the employer be required to file a full-blown H-1B petition. This new process should save considerable time and expense as it will allow employers to avoid preparing and filing petitions that don’t get selected for adjudication.

What’s the Latest?

USCIS recently provided some additional details about the timing and information required for the initial registrations. Unless there is a last-minute change, employers will submit their registrations between March 1 and March 20, 2020. These registrations will be submitted through an H-1B registrant account in the myUSCIS online portal, which is currently available for certain other USCIS filings. At present, the online portal does not permit anyone to create an H-1B registrant account, but USCIS has indicated that it will allow the account creation prior to the March 1-20 submission period. Authorized attorneys will be allowed to file H-1B registrations for employers.

As part of the electronic registration process, the employer or its attorney will be required to provide some basic information about both the employer and the prospective H-1B employee. This includes the employer’s legal name, Employer Identification Number (EIN), primary office address, and the name, job title, and contact information of its authorized signatory, as well as the employee’s name, gender, date of birth, country of birth, county of citizenship, and passport number. The employer will also be required to pay a $10 non-refundable fee for each registration, using a link to the pay.gov portal.

The initial electronic registration will not require information about the position being offered or the employee’s qualifications for that position. However, before submitting the registration employers should carefully evaluate whether the position is a “specialty occupation” and whether the employee qualifies for the position. In filing the electronic registration, the employer will be required to attest, under penalty of perjury, that it intends to file a petition for the foreign worker if selected in the lottery. USCIS has indicated that cases selected in the lottery that are not filed may be flagged for fraud, so employers need to consider whether they can follow through with a viable petition before submitting the electronic registration.

USCIS has stated that it expects to conduct the lottery and notify employers about the selected registrants no later than March 31, 2020. If a registrant is selected, USCIS will include the applicable petition filing period with the notice of selection sent to the employer. The regulations relating to this new process indicate that employers may begin filing petitions for selected registrants as early as April 1 and that they will have at least 90 days from the date of registrant selection to get the H-1B petition filed. According to USCIS, it will adjudicate filed petitions in the order they’re received.

What’s Next?

Some of the details about the new process are still unclear, but USCIS has promised to provide additional information before registration begins on March 1. Employers interested in sponsoring foreign workers for cap-subject H-1B visas this year need to be gearing up now and should stay tuned as more information is made available.