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Court approves settlement in unpaid interns’ wage suit against modeling agency

January 21st, 2014  |  Lisa Milam

By Lisa Milam-Perez, J.D.

In a noteworthy development on the intern wage suits front, a federal district court in New York has granted preliminary approval to a settlement reached in a suit brought by unpaid interns of a premier modeling agency who contended they should have been paid for their work as statutory employees under the FLSA and state law. The agency will dole out $450,000 to resolve the interns’ wage claims, marking the second significant recovery by unpaid interns since the wage-hour litigation trend took off two years ago. (Last June, a New York state judge gave the final sign-off on a $250,000 settlement resolving a suit brought by unpaid interns of PBS’ Charlie Rose show.)

A $50 million class action. In what originated as a $50 million class action against Elite Model Management Corp., the interns alleged willful violations of the minimum wage and overtime requirements of the FLSA and New York Labor Law. They also asserted a spread-of-hours claim under state law and contended they were entitled to incidental expenses they incurred in carrying out their duties. “Elite has for years boosted its bottom line on the backs of young interns, who while anxious to build their resumes, are too afraid to ask for compensation and/or are unaware of the wage laws’ requirements,” according to the amended complaint. “The self-proclaimed ‘world’s most prestigious’ modeling agency knows better, however.”

The interns asserted that Elite deliberately misclassified them as interns, or “trainees” in FLSA parlance, exempt from statutory wage requirements, in order to avoid paying them for their considerable efforts. The named plaintiff, who was hired to assist in preparing for and participating in New York’s fall 2010 “Fashion Week,” organized model portfolios and office files; prepared modeling books; picked up models from their homes or hotels and escorted them to and from bookings or on shopping errands to buy clothes; organized clothes, shoes and accessories for the models’ use; cleaned and organized office space, including wiping down closet drawers; and ran errands for paid staff, buying them coffee and picking up printing supplies. Such an “internship,” the complaint asserted, “fits the classic definition of what a paid employee does.”

The casting agent who oversaw the interns made it clear they were “indispensable” to the agency’s business and that Elite expected them to be available 24-7 to perform their assigned duties. As such, they worked in excess of 40 hours a week and more than 10 hours a day, and contended they were expected to do “productive work” every hour they were on the job. According to the complaint, Elite ramped up its internship program ahead of Fashion Week, commensurate with the agency’s increased need for their services. “Without the free labor of its interns,” the complaint asserted, “Elite would have been forced to do what every other reputable employer in this country does: pay workers an honest day’s wage for an honest day’s work.”

In fact, “Elite is so stingy,” the complaint charged, “that it doesn’t even reimburse its interns for their out-of-pocket expenses including cabs and subway fare spent taking Elite’s models to their modeling assignments. Thus, not only does Elite expect its unpaid interns to work for free, it expects its interns to cover Elite’s incidental operating expenses.”

Asserting that her fellow interns suffered a similar fate, the named plaintiff brought putative class and collective claims on their behalf as well, seeking damages of at least $50 million for unpaid wages, overtime and benefits. She also sought punitive damages and injunctive relief enjoining Elite from continuing the practice of misclassifying its interns as trainees.

Settlement approved. Pursuant to the settlement, Elite agreed to pay a maximum settlement amount of $450,000, which covers payments to class members, administration costs, service awards, and attorneys’ fees and expenses. The settlement provides for a NYLL class of individuals who served as unpaid interns for Elite (or an Elite subsidiary) in New York, and a second FLSA class comprised of all other individuals who served as unpaid interns for Elite or any Elite subsidiary in the country between February 2010 and the date of preliminary approval of the settlement. There are approximately 123 class members. The payout for each individual claimant will be based on the number of weeks worked, based on a minimum of four weeks, up to a maximum of 10 weeks (and a maximum individual recovery of $1,751.61). In exchange, the interns must release all related claims against the agency. Elite denied the complaint allegations and admitted no liability.

The parties had disputed whether the unpaid interns were entitled to compensation under the FLSA and NYLL, the number of hours they worked, and the amount they would have been entitled to receive absent the settlement. Finding the settlement constituted a compromise of a disputed claim, that it was fundamentally fair, adequate, “within the range of possible final settlement approval,” and the result of extensive, arm’s length negotiations, the court granted preliminary approval. A final approval hearing is scheduled for May 1, 2014.

All eyes on Second Circuit. New York is the epicenter of these intern wage suits, and the Second Circuit is poised to consider two such cases handed down by federal judges in the state. The appeals court has been asked to resolve an intra-district conflict over the standard for courts to use in deciding whether unpaid interns are statutory employees. One federal judge held that production interns for Fox Searchlight Pictures were statutory employees, not “trainees.” Another judge in the circuit ruled to the contrary in a suit against Hearst Corp. The judge in that case applied a “totality of the circumstances” approach to the question of employee status, including an analysis of which party was the primary beneficiary of the relationship. Both decisions have been certified for immediate appeal. Several more intern suits have been filed in the district since; currently there are more than a dozen pending cases in New York alone.

Given that these intern suits are invariably brought as class actions, and by particularly sympathetic plaintiffs—typically college students and recent graduates desperate for a leg up—employers throughout the country should be watching the Second Circuit closely, and scrutinizing their own internship programs to ensure they are legally compliant.