By: Lauren G. Goetzl
On Friday, January 5, 2018, the Department of Labor (“DOL”) announced that it would apply the so-called “primary beneficiary” test in determining whether unpaid interns are actually employees under the Fair Labor Standards Act (“FLSA”). This represents a significant departure from the DOL’s prior practice and, according to the DOL, is in recognition that four federal appellate courts have now “expressly reject[ed] the [DOL’s] six-part test for determining whether interns and students are employees under the FLSA.”
Since 2010, the DOL has applied a six-part test that required employers to demonstrate, among other things, that the internship training is similar to that given in an educational environment, is for the benefit of the intern (not the employer), and that the employer derives no immediate advantage from the intern’s activities.
Under the DOL’s newly adopted “primary beneficiary” test, the DOL will examine the following six factors:
- 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 which would be 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.
Unlike the DOL’s former six-part test, the DOL will review the internship in the context of all seven factors – an employer is not required to demonstrate compliance with all seven factors and no single factor is determinative. According to the DOL, this will provide “investigators with increased flexibility to holistically analyze internships on a case-by-case basis.”
Notwithstanding these changes, the principles and recommendations provided in our prior article, “When Does an Unpaid Intern Become an Employee,” remain good practice. Given the considerable developments likely to follow this change in policy, however, employers are still highly encouraged to seek counsel from employment attorneys well-versed in employment law to ensure compliance with current legal authority.