DOL Reduces the Risk of Employers Offering Unpaid Internships

Employers interviewing for their upcoming summer internship programs now have more flexibility and less risk of wage and hour litigation due to a significant policy turnaround by the U.S. Department of Labor (DOL).

 

Traditionally, unpaid internships offered college students the opportunity to gain real-life business experience in their chosen career, while for-profit employers received the benefit of additional assistance in the workplace, as well as an opportunity to assess potential new employees.

 

However, in 2010, this symbiotic relationship was complicated by the DOL’s institution of a strict six-factor test to determine if the individual was properly classified as an unpaid intern or an employee entitled to wages and overtime under the Fair Labor Standards Act (FLSA).

 

Under the former DOL test, all of the following criteria must have been met to be considered an intern by the FLSA: (1) the internship 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 and works under close supervision of existing staff, (4) the employer does not gain an immediate advantage from the intern's activities (and the employer’s operations may actually be impeded or hindered by the intern’s activities), (5) the intern is not guaranteed a job at the end of the program, and (6) the employer and the intern each understand that the internship is unpaid.

The 2010 test resulted in current and former interns bringing class action lawsuits against companies such as Viacom, 21st Century Fox, and fashion giant Gucci, resulting in large dollar settlements. While some companies reacted by creating internships that paid at least the minimum wage, many other companies simply eliminated internship programs out of fear of litigation.

 

In January 2018, the DOL released Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act, which scrapped the old test, in favor of the court-favored “primary beneficiary test” to determine if an individual is an intern or an employee under the FLSA. The new seven-factor test is as follows:

 

1.         The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, expressed 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.

Courts have described the “primary beneficiary test” as a flexible test, and no single factor is determinative. Accordingly, whether an intern or student is an employee under the FLSA depends on the circumstances of each case.

If analysis of these circumstances reveals that an intern or student is actually an employee, he or she is entitled to both minimum wage and overtime pay under the FLSA. On the other hand, if the analysis confirms that the intern or student is not an employee, then he or she is not entitled to either minimum wage or overtime pay under the FLSA.

 

Employers should carefully assess their internship programs under the new criteria, and if needed, seek advice of counsel in regard to any use of unpaid interns.



 

 



RULING EXPECTED NEXT WEEK IN LEGAL CHALLENGE TO INCREASED SALARY REQUIREMENT FOR FLSA “WHITE COLLAR” EXEMPTIONS

Back in May 2016, the U.S. Department of Labor ("DOL") issued its final rule, bumping the minimum salary level for white collar exemptions under the Fair Labor Standards Act ("FLSA") from $23,660 annually ($455 per week) to $47,476 annually ($913 per week). With the new standard slated to go into effect on December 1, 2016, employers have spent the last six months scrambling on how to comply with the new rule, which makes millions of formerly exempt employees now eligible for overtime under the FLSA.

 

Options available to employers include bumping employee salaries to meet the new minimum (not feasible in many cases), paying employees’ current salaries with overtime after 40 hours (increased expense), reorganizing schedules and workloads to avoid overtime, or adjusting hourly rates of pay to essentially maintain the same pay level by estimating potential overtime hours. For a more detailed explanation of the final rule, click on this link to read an article by my colleague Jessica Coco Huffman in Phelps Dunbar’s Baton Rouge, Louisiana Office. For a discussion and explanation of the FLSA white collar exemptions, click on this link.
 

However, 21 states filed a lawsuit against the DOL, seeking to block the implementation of the new salary requirement prior to it going into effect, because of the heavy burden it would place on state budgets An injunction hearing was held November 16, 2016 in the United States District Court for the Eastern District of Texas. At the hearing, issues addressed included the DOL’s authority to make the change, the appropriateness of a nationwide injunction, and the impact on the incoming Administration. Following the hearing, the federal Judge in the case stated he was taking the matter under advisement, and expects to have a ruling on the requested injunction on Tuesday, November 22, 2016.
 

Reading the tea leaves, I think it is unlikely the Court will issue the injunction this late in the game. The federal Judge hearing the case, Amos L. Mazzant III, is an appointee of President Obama, who initially pushed for the change. However, after our tumultuous roller-coaster ride of a political season, the only sure bet is to see what happens next Tuesday.
 

If the unlikely actually happens, I expect an enormous sigh of relief from many employers, tinged with annoyance and aggravation over six months spent preparing for a rule that never went into effect.

 

 

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Dept. of Labor Delays FLSA Enforcement and Penalties Against Home Healthcare Companies

             Employers in the home healthcare industry will be getting a brief delay in the enforcement of new regulations extending minimum wage and overtime requirements to home healthcare workers under the Fair Labor Standards Act (“FLSA”). 

The U.S. Department of Labor’s (“DOL”) final rule is scheduled to take effect January 1, 2015, but on October 7, 2014, the DOL announced it would delay enforcement and the imposition of penalties for a period of six months, or until June 30, 2015.  For the following six months, or until December 31, 2015, the DOL will exercise its discretion in determining whether to bring enforcement actions, based on the extent to which employers have made “good faith efforts to bring their home care programs into FLSA compliance.”

 It is important for employers to remember that despite the DOL's enforcement delay, they are still required to begin complying with the new rule as of January 1, 2015.

            Up until the new rule, the FLSA contained an exemption that employees providing “companionship services” to elderly persons or individuals with illnesses, injuries, or disabilities were not required to be paid the minimum wage or overtime pay if they met certain regulatory requirements.

            This change will result in nearly two million direct care workers, such as home health aides, personal care aides and certified nursing assistants falling under the requirements of the FLSA.  Business groups and Congressional Republicans had strongly pushed for a complete suspension of the new rule, expressing fears that it would make home healthcare unaffordable and result in disruption to patient care.  In explaining its reason for the additional delay in active implementation, the DOL noted:

When we announced the final rule, we provided a 15-month implementation period before its effective date. We did so out of recognition that home care services financing is complex, and that making adjustments to operations, programs and budgets in order to comply with the rule would take time. Some states, tell us that they’re ready to implement the rule. Others, because of budget and legislative processes, have requested an extension.  After careful consideration, the department decided to adopt a time-limited non-enforcement policy. This approach will best serve the goals of rewarding hard work with a fair wage while not disrupting innovative direct care services.

            For employers seeking more detailed information on the changes to the FLSA under the final rule, the DOL is providing an on-line fact sheet.

Mark Fijman is a labor and employment attorney with Phelps Dunbar, LLP, which has offices in Louisiana, Mississippi, Florida, Texas, Alabama, North Carolina and London. To view his firm bio, click here. He can be reached at (601) 360-9716 and by e-mail at fijmanm@phelps.com