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.
