A 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).
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.
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):
- “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.
- 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.
- The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
- The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
- The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
- 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.
- 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.