Getting a foothold in a new career takes dedication and sacrifice. In many fields it’s expected that new entrants will pay their dues—often, ironically enough, by working for free. While unpaid interns and trainees often do get valuable experience and may even advance their careers, the real winners in these arrangements have always been employers. For decades, entire industries have built their economics on the backs of newcomers who have no choice but to work for free in exchange for necessary “experiential learning.”

Fed up with being exploited and seeking reform through the justice system, unpaid workers have in recent years launched a number of class-action lawsuits to be classified as employees under federal and state labor laws, which would entitle them to a minimum wage, overtime, and the basic protections available to all employees. These efforts have already begun to bear fruit, but there is still a long road ahead.

A Win for Fairness in the Film Industry

Take, for example, the now-famous Black Swan case. The 2010 film starring Natalie Portman as a troubled ballerina grossed $329.4 million worldwide. Yet producers employed dozens of unpaid “interns” to do everything from making coffee and cleaning the office to assisting with accounting tasks and bringing director Darren Aronofsky just the right hypoallergenic pillow. Some interns worked 40-hour weeks for months at a time without compensation.

Nor did they receive academic credit for their efforts. They were not students, and the “internship” program was unconnected to any educational institution.

Ultimately, three Black Swan interns sued production company Fox Searchlight Pictures, arguing they were employees entitled to a minimum wage and overtime pay under the federal Fair Labor Standards Act (FLSA) and New York law. After five years of litigation, the interns and Fox Searchlight finally reached a settlement this past July under which the plaintiffs and other similarly situated interns will receive back pay.

Although their case didn’t end in a court victory, in the wake of the settlement Fox Searchlight and a number of other large studios announced that they would start paying their interns. The Black Swan suit is helping to topple a decades-old system that exploited aspiring filmmakers while effectively closing the door to all but those who could afford to forego a full-time job.

There is still a ways to go: The reform at these big production companies has been self-imposed. Smaller players continue to lean heavily in unpaid interns and will likely continue to do so until forced to by the courts.

The Ugly Side of Beauty School

Cosmetology is another field in which established players extract free labor from newcomers. In just about every state, cosmetologists (including beauticians, estheticians, hairdressers, and sometimes even hair braiders and eyebrow threaders) are regulated as licensed professionals like lawyers, doctors, architects and pharmacists.

The licensing requirements are onerous and usually include an examination plus thousands of hours of classroom training, practical apprenticeship, and often both. In California, for instance, beauty students must complete 1,600 hours of “technical instruction and practical training” in order to earn their license—the equivalent of 40 weeks of full-time work.

Cosmetology student-trainees learn their craft by providing beauty services to the public under varying degrees of supervision in their schools’ salon “clinics.” The schools often charge the customers but pay the trainees nothing. Moreover, trainees are typically made to perform sales, marketing, and even janitorial tasks that are of dubious educational value—again, without pay.

In short, student-trainees do work that directly earns their school money and pads the school’s bottom line by cutting staffing costs—and the school lines its pockets.

Cosmetology students have challenged the status quo in a number of class actions filed in courts around the country. But it has been and will remain an uphill battle to achieve widespread victory because slight variations in the facts of a particular case can drastically alter the outcome, and because the law on the issue varies substantially in different parts of the country. 

A Legal Patchwork

Under section 3(e) of the FLSA, an “employee” is any individual employed by an employer or by a person acting in the employer’s interest. To “employ” is defined as “to suffer or permit to work.” For its part, the U.S. Department of Labor (DOL) analyzes the following six factors when evaluating whether a trainee is an employee:

(1) whether the training, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;

(2) whether the training experience is for the benefit of the intern;

(3) whether the trainee does not displace regular employees, but works under close supervision of existing staff;

(4) whether the employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;

(5) whether the trainee is not necessarily entitled to a job at the conclusion of the internship; and

(6) whether the employer and the trainee understand that the intern is not entitled to wages for the time spent in the internship.

Unless all six factors are satisfied, an individual will be considered an employee entitled to wages. But federal courts do not like to be held to such strict tests and do not defer to the DOL’s interpretation, complicating the legal landscape in an already complex area of law. Accordingly, whether a trainee is found to be an “employee” will depend in large part on which federal circuit a case arises in. (Since most states’ labor laws are based on federal statutes, courts will usually apply the same interpretations to both.) 

Federal courts usually focus on the “economic realities” of the work relationship. While many federal courts have adopted the factors of the DOL’s analysis, they have chosen to apply the factors loosely and nonexhaustively. This results in a holistic evaluation of the totality of the circumstances to determine whether the “economic realities” of the working relationship are those of an employer and employee.

Still, other courts, like those in the Ninth Circuit evaluate the “economic reality” of the relationship by focusing directly on the employer. The inquiry in the Ninth Circuit, which includes California, Nevada, Oregon, and Washington state, is whether a person exercises such “control over the nature and structure of the employment relationship, or economic control over the relationship, that individual is an employer within the meaning of the Act, and is subject to liability.” Boucher v. Shaw, 572 F.3d 1087, 1091 (9th Cir. 2009).

The Ninth Circuit even has its own four-factor economic realities test. But district courts facing recent claims from cosmetology students have further distilled the inquiry into a simple question: “whether a school subordinates its educational purposes to its business function of generating revenue.” Guy v. Casal Institute of Nevada dba Aveda Institute of Las Vegas, No. 2:13-cv-02263-RFB-GWF (D. Nev. Aug. 8, 2016). As Guy illustrates, this test is effective for cutting straight to the heart of the matter.

Students Were Employees Under ‘Subordination’ Test

In Guy, Aveda charged customers for services provided by its beauty students, but it did not pay the students for their labor. Nor did it pay them for the “janitorial and menial tasks” it also made them perform. Moreover, Aveda assigned students to customers without regard to the skills the students needed to learn, and provided only minimal supervision while students served those customers. And students were prohibited from bringing in volunteers to practice on with free services.

The court found that “these facts demonstrate the business interests of Aveda operating the salon were dominant in the relationship between the ‘students’ and the ‘school.’” It found that Aveda “could not proffer significant or compelling evidence to establish that its business model was not predicated on unpaid student labor,” nor could it explain why students were not permitted to bring in volunteers. And the fact that students were made to perform janitorial tasks suggested that “the school subordinated students’ interests to that of its own revenue-generating business by having unpaid janitorial labor offset its cleaning expenses.”

Although the students may have benefitted from the training by learning about cosmetology, “[t]he question is not whether these students learned anything while working for the ‘business;’ rather, the determinative legal inquiry is whether the students’ education and educational interests [were] the dominant organizing principle of the activity in which they participated.” Here they were not, the court found.

Going Forward

The decision last month in Guy is a good sign that courts, at least in the Ninth Circuit, are growing tired of beauty schools exploiting their students for free labor. “This unfair system of providing free labor under the guise of an internship has gone one for far too long,” said employment lawyer Eric Grover of Keller Grover LLP. “However, the courage of a few interns willing to challenge the system is starting to effect real change.”