UncategorizedDOL Adopts New Test for Interns: Will Test Revive Unpaid Internships?

 
In response to certain U.S. appellate courts rejecting the U.S. Department of Labor (DOL) strict six-factor test for determining whether interns and students are employees under the Fair Labor Standards Act (FLSA), the DOL has adopted a new test, the “primary beneficiary test.”
The FLSA is a federal law that requires employers to pay “employees” minimum wage for work performed, and overtime pay for hours worked over forty hours per week.  However, interns and students may not be considered “employees” under the FLSA, in which case, employers would not be required to compensate them for their work. 
Under the previous test, in order for an internship to be unpaid, that internship had to meet the six criteria outlined by the DOL.  In lieu of this six-factor test, the DOL has now adopted the primary beneficiary test to examine the economic reality of the intern-employer relationship, and determine which party is the primary beneficiary of the relationship.
The court considers the following seven factors in its analysis:

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.

If the court’s analysis of these circumstances reveals that an intern is an employee, then he or she is entitled to both minimum wage and overtime pay under the FLSA.  Whether or not an intern or a student is considered an employee is a fact specific inquiry, and is unique to the circumstances of each case.  Unlike the DOL’s previous test, the primary beneficiary test is a flexible test and no single factor is determinative.
Since the primary beneficiary test relies on more of a totality of the circumstances approach than the previous six-factor test, unpaid internships may increase in prevalence as compared to recent years. Companies that choose to rely on unpaid internships should revise their internship program materials to ensure that their program conforms to the new test being utilized by the DOL.  Both the intern and the employer should have a clear understanding of the relationship to reduce potential liability for unpaid wages.  Tristan & Cervantes has provided guidance to employers in implementing internship programs.  If you have questions regarding your organization’s current internship program, or in potentially implementing such program, please contact our office at info@tristanlegal.com or call us at 312.345.9200.