Department of Labor adopts new test to address unpaid internships

The Fair Labor Standards Act (FLSA) requires employers to pay employees for their work. In recent years, whether or not interns and trainees constitute employees under the FLSA has been a frequent topic of conversation.

In 2010, the Department of Labor (DOL) publicized the “Six Factor Test” as a guideline for determining whether interns and trainees constitute employees. The Six Factor Test was an elemental test that required each factor to be met for an individual not to be considered an employee. While the DOL’s Six Factor Test was intended to streamline the decision-making process for courts and employers, the courts in four federal circuits rejected it in favor of other criteria. These circuits utilized instead the “Primary Beneficiary Test” developed by the Second Circuit in Glatt v. Fox Searchlight Pictures.

In the first week of 2018, the DOL abandoned the Six Factor Test and adopted the Primary Beneficiary Test. Under the Primary Beneficiary Test, courts and employers are instructed to consider several factors to determine whether interns and trainees qualify as employees. The seven determinations taken from the DOL’s fact sheet are the following:

1. 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.
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.

Unlike the DOL’s Six Factor Test, which was rigid and required that each factor be met, the Primary Beneficiary Test evaluates the totality of circumstances to determine if the primary benefits of the relationship flow to the interns and trainees. If they do, the interns and trainees may not be an employee under the FLSA and may not be subject to the FLSA’s pay requirement.

To find out whether the DOL’s new position affects the way you treat interns and trainees, contact an attorney in Chuhak & Tecson’s Employment Law Group for more information.

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.

Client alert authored by: Michael Leifman, Associate, and O. Koplan Nwabuoku, Associate

This alert originally appeared in the January 2018 Employment Focus newsletter.