Unpaid Intern or Employee? ---- DOL’s Enforcement Policy Is Changing

In a news release issued this month, the federal Department of Labor (DOL) advised that it will begin using a more flexible test to determine whether interns are really employees.  This is important, in part, because for-profit employers are required by the federal Fair Labor Standards Act (FLSA) to pay minimum wage and overtime to employees, but not to interns.  The DOL, recognizing that four federal courts of appeal have rejected the test it had previously used, stated that “going forward, the Department will conform to these appellate court rulings by using the same ‘primary beneficiary’ test that these courts use to determine whether interns are employees under the FLSA.”

Until the announced change this month, the DOL had been using a strict six-factor test that it published in 2010.  Under that test, each one of the six factors had to be satisfied.  One of those factors required that, “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.” DOL Fact Sheet #71, Internship Programs Under The Fair Labor Standards Act, April 2010.  This factor in particular made it difficult for employers to avoid having an intern determined to be an employee entitled to at least minimum wage.

The DOL’s six-factor test was criticized by the Second Circuit Court of Appeals in the case of Glatt v. Fox Searchlight Pictures, Inc., 811 F.3d 528 (2^nd Cir. 2015), which was a class action on behalf of unpaid interns working for a film production company.  The Glatt court adopted the “primary beneficiary” test and listed seven non-exhaustive factors that a court should evaluate in determining whether an individual is an intern or an employee.  The DOL, in its newly-updated and re-issued Fact Sheet #71, adopts the Glatt court’s seven factors verbatim: 

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.

Fact Sheet # 71, Internship Programs Under The Fair Labor Standards Act, January 2018.  In its revised guidance in the Fact Sheet, the DOL notes that the primary beneficiary test is a “flexible test,”  “no single factor is determinative” and, “whether an intern or student is an employee under the FLSA necessarily depends on the unique circumstances of each case.” 

Given the shift in the DOL’s guidance and enforcement policies on whether an intern should be considered an employee entitled to minimum wage, employers should review their current internship arrangements including any agreements, policies, and recruiting materials and make any revisions necessary to conform those arrangements and documents with the seven-factor “primary beneficiary” test.