In July 2015, the Second U.S. Circuit Court of Appeals made a ruling that small business owners taking on interns need to take into consideration. While the matter is still being examined by the courts, maintaining an internship program that is not educationally focused might have serious financial consequences.


The Black Swan lawsuit

In recent years, the nature of what constitutes an internship has been in flux because of a 2011 lawsuit filed against Fox Searchlight Pictures by two people who worked on the 2010 Oscar-winning film “Black Swan.” The lawsuit argued that the pair were owed back pay because the work they did on the film should’ve classified them as employees, not interns. In 2013, a federal judge ruled in favor of the plaintiffs because he determined that by the U.S. Department of Labor’s 1959 established six-factor internship test, the pair’s work was menial and not educational in nature. As this Deadline piece explains, this ruling led to the filing of several other internship lawsuits, many of which ended with multimillion dollar settlements.


The Second Circuit Court ruling

On July 2, 2015, the U.S. Second Circuit Court of Appeals struck down the lower court’s ruling. The Second Circuit Court found that the issue was not whether or not the employer “obtained an immediate advantage,” but rather which party was the “primary beneficiary of the relationship.” Additionally, the Second Circuit issued a revised list of criteria for employee or intern classifications in the “Black Swan” case. While similar to the Labor Department’s standard, the Second Circuits’ list of factors is less concerned with the kind of labor performed during the internship and more focused on whether the labor is educational in nature.


How does all this legal wrangling affect you?

If you decide to create an internship program for your company, it’s probably a good idea to establish guidelines based on the commonalities in both the Labor Department’s standard and the Second Circuit’s revised list. Do as this Employee Handbook post recommends and limit your program to only those who are actively enrolled in college. Adjust term of the internship so that it corresponds with the intern’s academic calendar. Consult with educators at the intern’s college to make sure that your program includes work that will be accepted as credited coursework, and where possible, always ensure that the tasks you have the intern performing do not overlap with the tasks assigned to any of your current employees.


Get a lawyer

Since the issue is still being hashed out in court, it’s fair to say the nature of internships in America has yet to be settled. As such, it should almost go without saying that owners who want to establish an internship program should definitely contact an experienced labor lawyer before doing so. In addition to offering guidance about the Department of Labor’s standard and the Second Circuit Court’s ruling, a good labor attorney can help you navigate the unique legal issues related to the state and region in which you do business.

This article was written by Mario McKellop of for CBS Small Business Pulse.


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