The Fox Searchlight Signal: Why Fox Searchlight Marks the Beginning of the End for Preferential Treatment of Unpaid Internships at Nonprofits

While the Department of Labor has said that unpaid internships at charitable nonprofits are “generally permissible,” Fox Searchlight signals that charitable nonprofits can no longer rely on Fact Sheet #71 for protection. The Labor Department is only entitled to Skidmore deference for this document, and its assertion of protection in Fact Sheet #71 contains no justification for the sweeping exception that it announces. The Fact Sheet is therefore unlikely to persuade courts that the Labor Department’s stance is correct.

This Note predicts that arguments for preferential treatment of nonprofits proffered by authors such as Tucci, Bianci, and Harthill will fail in the courts. This Note stands alone in forecasting massive liability for the 40% of unpaid internships hosted by charitable nonprofits in the United States today. Once a nonprofit or an employee is covered by the Fair Labor Standards Act, the clear intent of Congress as articulated by the Court (as well as the Department of Labor in the context of the volunteer exception) is to draw exceptions to coverage as narrowly as possible. On top of these textual and precedent-based arguments, plaintiffs have strong public policy arguments that the continued existence of the exception encourages inefficiency, distorts the labor market, creates uncertainty, and privileges whites and elite institutions at the expense of racial and ethnic minorities. At the very least, interns at charitable nonprofits should no longer have to fend for themselves in a completely unregulated market. This Note recommends that charitable nonprofits curtail their unpaid internship programs and calls on the Labor Department to withdraw its unsupported guidance in Fact Sheet #71. It would be as easy as deleting a footnote.