A New York federal judged approved what is believed to be the largest settlement for unpaid internships in history, as a New York modeling agency will pay its former unpaid interns $450,000.

Credit - Flickr user mandiberg
Credit – Flickr user mandiberg

Elite Model Management will have to pay more than 100 former unpaid interns $700 to $1750 each in a suit that said that the agency purposefully misclassified interns as non-employees in order to avoid paying them. A former intern brought the case  and “argued that Elite’s unpaid interns actually did the work of employees and should have been paid, and sought $50 million in damage,” writes to Adam Smiley of Seyfarth Shaw. The complaint against Elite, an agency well known for representing supermodels Tyra Banks, Heidi Klum and Giselle Bundchen, stated that interns were used during New York’s Fashion Week to avoid hiring extra staff.

This, the largest settlement to date, is part of the trend of former interns getting their revenge on big companies. A judge issued a similar ruling against Fox Searchlight Pictures for unpaid intern labor on the movie Black Swan, but the decision is being appealed. The class action lawsuit against the publisher Hearst was dismissed, but cases against Conde Nast and Warner Brothers have since popped up. Even Sean “Diddy” Comb’s record label was sued.

Outside of the courts, the argument against unpaid internships is unlikely to go away. ProPublica, the nonprofit investigative journalism organization, is crowdsourcing the financial burden of unpaid internships.

For companies, it might be time to reexamine rules around unpaid labor because even with labor regulations, there’s a fine line of what interns can and can’t do before they must have a spot on the payroll. In order for unpaid interns to remain legal, employment lawyer Brian Van Vleck writes that they have to be “useless.”

This “unpaid intern” model is at odds, however, with federal and state minimum wage laws, which are designed to ensure that all workers receive minimum pay for time spent working.  Employers thus cannot avoid paying workers merely by calling them “interns,” “trainees,” or “learners.”  Rather, the only way to avoid paying these individuals is to show that they add so little value that they can’t even be considered to be productive “employees” at all.

Because unpaid interns are legally barred from replacing paid employees the “experience should be focused on teaching interns skills that can be used in multiple employment settings.  The more an internship focuses on the agency’s actual operations and teaches skills specific to the agency, the less likely that the internship will resemble an educational environment,” writes Elizabeth Arce, employment lawyer for Liebert Cassidy Whitmore.

It is important to note that most of these cases – including Elite’s – were filed years after the positions were over, which is within unpaid interns’ rights under the Federal Labor Standards Act, according to the Wage & Hour Defense Blog.

These cases should have alerted employers to examine their own practices and policies with regard to their internship programs in order to protect themselves from future wage and hour liability under both federal and state wage and hour laws.  Considering that the FLSA has a 2-year statute of limitations, or a 3-year statute of limitations if a violation is “willful,” employers should now be looking back to examine past practices and proactively assessing potential risk and liability in the event a former intern of their own “follows suit.”

These cases may be signaling the end of unpaid internships. Conde Nast shut down their program in 2013. At least for students, there is little glamour left in working for free.