No Better Biew

 Embracing the Future

Stephen A. Mazurak
UDM Law

Ever since 2008 you and your partner have struggled to keep your law practice afloat. You had to lay off your promising associate and a very good paralegal, cut your library and technology services and reduced the draw that you and your partner were taking. While you have been able to meet expenses things have been tight. Slowly, your practice has begun to improve and you have been able to renew contributions to your pension plans as well as putting a little aside as a contingency fund. But you have decided to be conservative in the cases that you take and hesitant to take on any new clients unless you can be assured that they will be able to pay for your services in a timely manner. 2014 may be the year that you finally fully recover and think about hiring a paralegal and maybe an associate if you can be sure that you will realize a net gain in revenues over their costs.

Last week a new client with substantial means and an excellent breach of contract case hired your firm to handle the substantial piece of litigation. The client indicated that it was unhappy with the services it had been receiving from its existing outside law firm and if you do an excellent job on this piece of litigation the client will be willing to retain you for all of its litigation. At the same time the local pro bono committee of your bar association has asked you to take a case without charge for a particular lawsuit that you find interesting and of importance to the public good. But you are going to need some help to adequately represent both of these new clients.

You received last week a resume from a recent graduate of a fine law school who has just taken the bar examination and is waiting for her results. She has advised you that while she would like to be paid something for any work that she does, she is willing to be an unpaid intern for you until she receives her bar results so that she doesn’t “waste” her time pending those results. In addition, you have just spoken to an assistant dean at your local law school who has advised you that there is a student who needs to obtain some practical experience to obtain credit needed for graduation and wonders if your firm would permit the student to be at your office for 10-15 hours a week during this semester. The dean advises you that the internship must be without pay since the student is earning credit towards graduation and the ABA does not permit the law school to award credit for an internship if that student is also compensated for his time.

You and your partner decide that while business is improving it is much too early to hire anyone fulltime because the prospect of future revenues is still too uncertain. But your daughter, who is an undergraduate film studies major in college, just finished an unpaid internship in Hollywood for one of the major studios. She advises you that all of her classmates have done the same thing as “the only way they will ever get a job in the film industry is to get your start as an unpaid intern.” So you and your partner decide to offer an unpaid internship to both the recent graduate and the law student. After they start work at your firm you receive your recent copy of volume 29, number 1, of the fall issue of the ABA Journal of Labor and Employment Law of the ABA Section of Labor & Employment Law. Upon reading the article entitled “The Unpaid Intern: Liability for the Uninformed Employer,” at pages 101 to 123, you wonder whether you made the right decision.

Those of you who take the time to read that article can come to your own conclusion. For those of you not interested enough to read that article I will provide you with my own opinion on the question. It may surprise a number of you that if your firm has sales exceeding $500,000 or more, or if you are engaged in interstate commerce, you are subject to the requirements of the federal Fair Labor Standards Act (FLSA) that you pay minimum wages and applicable overtime pay. But you say the two individuals are volunteers, not employees, and you should not have to pay them anything. You note that your daughter wasn’t paid for her time as an intern and that major corporation must know what it is doing so you should have no worries about the matter. If only the answer was that easy.

There are two major United States Supreme Court cases that provide the ends of the continuum to answer this question. In Walling v. Portland Terminal Co., 330 U.S. 148 (1947) the Supreme Court held that individuals who engaged in practical training lasting seven or eight days to become brakemen with a company were not employees under the FLSA. On the other hand, individuals who were trying to recover from alcohol and drug addiction and performed unpaid services for a religious foundation in its commercial enterprises were employees pursuant to the FLSA, even though every individual disclaimed any interest in receiving compensation for their services. Tony and Susan Alamo Foundation v. Secretary of Labor, 471 U.S. 290 (1985). Numerous lower federal courts have struggled to interpret and apply these cases.

In attempting to assist employers and others in the determination of when an intern should be paid and when pay is not necessary the Secretary of Labor (SOL) issued Fact Sheet #71 in April of 2010. This is a six-part test similar to the test used for determining whether a trainee must be paid for that individual’s services. While a complete review of these six factors will not be attempted here, two of the factors have caused lower courts to disagree as to the test. The Sixth Circuit has decided that the test should be one of determining whether the work was done for the primary benefit of the individual. If so, it needs not be compensated. Solis v. Laurelbrook Sanitarium and School, Inc., 642 F.3d 518 (6th Cir. 2011). It refused to accept the economic realities test proposed by the parties since it found it not helpful to the ultimate determination of the matter. On the other hand, a recent federal district court has determined that unpaid interns working on the motion picture Black Swan should have been paid for their services. Glatt v. Fox Searchlight Pictures, 2013 WL 2495140 (S.D.N.Y. June 11, 2013). That court applied the six-part test of Fact Sheet #71, and rejected the primary benefit test as “subjective and unpredictable” in its determination. 

There is a little light in making a determination if the law firm decides to use the law student only on its pro bona service case assuming that the firm will not receive any compensation for the matter. In answer to a request of the then-president of the ABA, the SOL answered the inquiry by letter dated September 12, 2013, indicating that so long as the student is under the supervision of the law school and performs no work on fee-generating matters of the firm, but limits the work to the pro bona matter, the services do not have to be compensated. The Secretary noted, however, that the actual facts of the individual case would have to be examined to make a proper determination. But the law firm does not have the same protection for the individual who has already graduated and is waiting for the bar results. The Secretary noted that such an individual would be subject to a different analysis and probably subject to the minimum wage requirements of the FLSA.

If it is determined that either of the unpaid individuals is entitled to minimum wages for their services, the firm must consider the remedies pursuant to the FLSA. These include doubling the back pay, as a liquidated damage award, as well as reasonable attorney fees for the unpaid intern’s legal representative. Those fees could far exceed the actual damages awarded. As a result, the more prudent approach would be to pay the individual who is awaiting the bar results the minimum wage and negotiate with the law school to see if the law student could work on the pro bono case for the academic credit and then pay the law student as a law clerk if other than pro bono work is to be done for the firm.

While this may seem strange, a review of the article, mention above, will help explain the paradox.

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