On January 5, 2018, the U.S. Department of Labor (DOL) announced it is doing away with its six-factor test for determining whether a worker qualifies as an unpaid intern under the Fair Labor Standards Act (FLSA). This change brings the DOL in line with the “primary beneficiary” standard that has been adopted by several federal appellate courts in recent years.
As you may recall from a previous McMahon Berger posting, the DOL’s previous six-factor test required that an unpaid internship meet all of the following factors in order to be deemed non-compensable:
- The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment.
- The experience is for the benefit of the intern.
- The intern does not displace regular employees but works under close supervision of existing staff.
- The employer providing the training derives no immediate advantage from the activities of the intern and on occasion its operations may actually be impeded.
- There is not guarantee of a job at the conclusions of the internship.
- Both parties understand that the intern is not entitled to wages for the internship.
Many federal appellate courts expressed concern with the DOL’s six-factor test, specifically the factor that the employer must not derive any “immediate advantage from the intern’s activities.”
In light of such displeasure with the six-factor test, the DOL has embraced a seven-factor, or “primary beneficiary,” test for determining whether a worker is an unpaid intern that was laid out by the 2nd Circuit Court of Appeals in its 2015 ruling of Glatt v. Fox Searchlight Pictures Inc. Accordingly, under the DOL’s new test, courts must examine the “economic reality” of the intern-employer relationship to determine which party is the “primary beneficiary.” Specifically, according to the DOL, the following factors are to be analyzed:
- 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.
- The extent to which the internship provides training that would be similar to that given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
- The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
- The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
- The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
- 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.
- 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 analysis under the “primary beneficiary test” is flexible, with no single factor being determinative.
After utilizing the seven-factor test, if the analysis determines that the unpaid intern should be classified as an employee because the employer is the primary beneficiary, he or she would be entitled to minimum wage and overtime pay pursuant to the FLSA. However, if the analysis determines that the worker is the primary beneficiary and, thus, an unpaid intern, he or she is not entitled to minimum wage or overtime.
While this announcement is a breath of fresh air for many employers who utilize unpaid interns or participate in internship programs, before establishing an unpaid internship, it is imperative to conduct a thorough analysis of any intern-employer relationships that may exist. Employers should make sure they are familiar with the new seven-factor test and conduct an annual inventory of the assignments and duties given to unpaid interns. It is important to note that misclassification of workers, including interns, remains a major concern for the DOL and it will continue to investigate and vigorously enforce the FLSA in the event of misclassification.
The St. Louis employment attorneys at McMahon Berger have been representing employers across the country in wage and hour matters for over sixty years, and are available to discuss these issues and others. As always, the foregoing is for informational purposes only and does not constitute legal advice regarding any particular situation as every situation must be evaluated on its own facts. The choice of a lawyer is an important decision and should not be based solely on advertisements.