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Department of Labor Revises Test To Determine Whether An Intern Is Entitled To Payment Under the FLSA

Published by and on February 20, 2018

The Department of Labor (DOL) recently updated its guidance regarding the proper classification of interns, bringing its test in line with the rulings of a growing number of courts.

With summer just a few months away, many employers are gearing up for summer internship programs—-or perhaps employers have already begun a spring internship program. One question that may arise in an employer’s mind when hiring interns is whether these individuals may be classified as unpaid interns, or whether they should be classified as “employees,” subject to the protections of the Fair Labor Standards Act, including compensation for their work.

In January, the DOL revised its guidance for determining whether an intern or student worker should be classified as an employee. The DOL now follows the “primary beneficiary test,” which sets out seven factors for employers to consider:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—-and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

The DOL also states in its guidance that this revised test is “flexible” and that “no single factor is determinative.” Rather, whether an intern or student worker should be treated as an employee under the FLSA will depend on the circumstances of each case.

Previously, an internship had to comply with all six of the following factors in order for the program not to be covered by the FLSA:

  1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training that would be given in an educational environment.
  2. The internship experience is for the benefit of the intern.
  3. The intern does not displace regular employees, but works under close supervision of existing staff.
  4. 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. The intern is not necessarily entitled to a job at the conclusion of the internship.
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship

Thus, for an internship to be unpaid, it had to meet all six of these factors, including the broad requirement that an employer gain “no immediate advantage” from an intern’s services. Courts, however, have been reluctant to follow such the more rigid approach since it was adopted by the DOL in 2010.

Several Circuit Courts of Appeal have favored the more flexible “primary beneficiary test.” For example, the Second Circuit in Glatt v. Fox Searchlight Pictures, Inc. and the Eleventh Circuit in Schumann v. Collier Anesthesia, P.A. follow the same seven-factor primary beneficiary test detailed above. Most recently, in December 2017, the Ninth Circuit in Benjamin v. B & H Education rejected the DOL’s old test and applied the Second Circuit’s primary beneficiary test to reach its conclusion that a group of cosmetology students were not employees of their school. In holding that the primary beneficiary test applies to determine whether an intern is covered by the FLSA, these courts have held that the DOL’s previous six-factor test was too rigid and did not account for unique considerations that may arise in certain situations.

Welter Insight

The DOL’s adoption of the primary beneficiary test for interns will most likely not have significant legal repercussions, as the DOL made the change to bring its test in line with the test courts have already been using. In practice, however, the DOL’s abandonment of the six-factor test may ultimately benefit employers. Nevertheless, employers should still periodically review their internship programs to determine if these programs are covered by the FLSA.

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