By attorneys Emily Kolbe, Rebecca Reif and Lindsay Vaught
On January 5, 2018, the Department of Labor (DOL) issued a Press Release regarding its test for determining when interns or externs working for "for-profit" employers are in fact employees under the Fair Labor Standards Act (FLSA).
Previously, the DOL had used a "six-part" test to assess when an intern, extern, or student worker was actually an "employee" entitled to minimum wage, overtime, and other protections of the FLSA. The DOL's test was strict, and did not permit an unpaid internship unless the employer providing the training received "no immediate advantage from the activities of the intern." However, the DOL decided to change its test after the Ninth Circuit became the fourth federal appeals court to expressly reject the DOL's "six part" test.
The DOL has now adopted the "primary beneficiary" test for unpaid internships, which is a test used by a number of courts. This test is intended to look at the "economic reality" of the intern-employer relationship, and permits an unpaid internship where the benefit to the intern outweighs the benefit to the employer. Seven factors are considered:
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.
The "primary beneficiary" test is considered more employer-friendly than the prior DOL test, and is more flexible. As noted above, employers can receive some benefit from the relationship, and look to "what extent" it meets the test's factors.
It is anticipated that the relaxing of the DOL standard could lead to a resurgence in unpaid internships, particularly in jurisdictions which have already adopted the "primary beneficiary" test or something similar. For instance, Iowa's federal Circuit Court, the Eighth Circuit Court of Appeals, has used an "economic reality" test, which considers both the "primary beneficiary" of the relationship and totality of the circumstances. See Blair v. Wills, 420 F.3d 823, 829 (8th Cir. 2005). However, the DOL's guidance is not binding on courts, and not all courts have adopted the "primary beneficiary" test, or even decided what test to apply. Going forward, employers should still be aware of the law in their jurisdiction regarding unpaid internships to avoid FLSA wage claims or claims under state law.
If you have further questions on the new standard or whether an unpaid internship is consistent with the FLSA, please contact any member of the Ahlers & Cooney Employment Law Group.