In June 2017, the U.S. Secretary of Labor announced the withdrawal of Obama-era informal guidance from the Department of Labor (“DOL”) on the issues of joint employment and independent contractors, both of which had been problematic for employers. In another employer-friendly move, on January 5, 2017 the DOL announced that it was abandoning the demanding “six-factor test” for unpaid internship programs under the Fair Labor Standards Act (“FLSA”). Going forward, the DOL will use the “primary beneficiary test”, which will take into account the totality of the relationship between the employer and intern. As explained below, this new, more flexible test will make it easier for employers to engage unpaid interns.
Under the former “six-factor test”, all of the following criteria had to be met in order for the relationship to be considered a valid internship, rather than employment:
- The internship, even, though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
- The internship experiences for the benefit of the intern;
- The intern does not displace regular employees, but works under close supervision of the existing staff;
- 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;
- The intern is not necessarily entitled to a job at the conclusion of the internship; and
- The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
This test resulted in increased wage and hour class action litigation alleging the misclassification of workers as interns. In applying this test, some federal courts issued opinions adverse to employers and finding interns to be employees as a matter of law. Multiple cases ended in seven-figure settlements for unpaid wages as a result of the more stringent test.
Effective January 2018, the DOL will use the “primary beneficiary test”, which lists the following seven factors to be considered:
- 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 course work or the receipt of academic credit.
- The extent to which the intern should accommodate 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 employer understand that the relationship is conducted without entitlement to a paid job at the conclusion of the internship.
These factors are applied on a case-by-case basis. Unlike the old test, no single factor is determinative, and an internship may still be valid even though one or more of the factors is not met. The DOL noted that this test has already been utilized by the Second, Sixth, Ninth, and Eleventh Circuits. Courts have favored this new test due to its flexibility.
While this new DOL guidance is certainly more favorable to employers than the old test, employers should not consider this carte blanche to use unpaid interns. Internships will continue to be scrutinized by plaintiffs’ attorneys, particularly where the internship is not tied to academic enrichment or credit. Employers should review their current internship programs to determine whether any adjustments should be made as a result of this new guidance.
If you have any questions regarding this specific issue of unpaid interns, or any other issue of employment, please contact a member of Reminger’s Employment Practices Defense Practice Group.
This has been prepared for informational purposes only. It does not contain legal advice or legal opinion and should not be relied upon for individual situations. Nothing herein creates an attorney-client relationship between the Reader and Reminger. The information in this document is subject to change and the Reader should not rely on the statements in this document without first consulting legal counsel.
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