By: Melanie M. Dunajeski; Drewry Simmons Vornehm, LLP
On January 8, 2018, the Department of Labor (DOL) issued a new guidance that abandoned a stricter Obama-era test for determining whether an intern must be paid as an employee under the Fair Labor Standards Act (FLSA) and adopted a less-restrictive and more employer friendly “primary beneficiary” test.
The FLSA mandates that all “employees” are entitled to minimum wage and to overtime pay—but the problem became establishing a workable standard for employers to determine when an unpaid student or intern is outside the bounds of FLSA or is actually an “employee” and entitled to pay. The Obama Administration had adopted a six-part test under a 2010 guidance and required that all six parts of the test had to apply to show that the affected person was correctly classified as an unpaid intern. That Guidance included a controversial part that required that “[t]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.” Addressing this rigid test, some federal appeals courts declined to follow that guidance, adopting a more flexible seven-part test. This is the test that the DOL has adopted, noting that no one factor is dispositive, and that the factors are a non-exhaustive list of what the DOL may take into consideration to review the “economic realities” of an employer’s classification of an intern to determine whether the employer or the intern is the “primary beneficiary of the internship arrangement. The new seven factors are as follows:
- 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 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.
The DOL emphasizes that whether an intern or a student is an employee under the FLSA depends on the unique circumstances of each case. With a flexible, non-exhaustive test, both the DOL and the Courts may also consider other circumstances that are relevant to the determination. To download a copy of the “Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act” (updated January 2018), go to https://www.dol.gov/whd/regs/compliance/whdfs71.htm. To examine the circumstances of any internship that your company may be considering, contact the employment law attorneys at Drewry Simmons Vornehm LLP.