On January 5, 2018, the DOL abandoned its rigid six-part test to determine whether workers are unpaid interns or “employees” who must be paid at least minimum wage and overtime and receive other protections under the FLSA. In its place, the DOL adopted the more flexible and holistic “primary beneficiary” test adopted by federal courts in the Second, Sixth, Ninth and Eleventh Circuit Courts of Appeals. The DOL’s stated goals in doing so include: (1) aligning its guidance with recent case law and eliminating unnecessary confusion among employers regarding the standards to be used in determining whether interns are “employees” under the FLSA and (2) providing investigators with increased flexibility to holistically analyze internships on a case-by-case basis.
The DOL’s prior six-part intern test provided that an unpaid intern for a for-profit company would be deemed to be an “employee” under the FLSA unless
all of the following six factors were met:
- The internship is similar to training, which would be given in an educational environment.
- It is for the benefit of the intern.
- The intern does not displace paid employees.
- The company does not benefit from work the intern is doing “and on occasion its operations may actually be impeded.”
- The intern is not promised a job at the end.
- Both the intern and the company understand it is an unpaid position.
Under this test, if the company received any economic benefit from the intern’s services, the intern was likely to be found to be an “employee” under the FLSA.
The DOL’s above six-part test spurred numerous lawsuits, particularly in the Southern and Eastern Districts of New York. While these lawsuits had some initial success, in Glatt v. Fox Searchlight Pictures, Inc., the Second Circuit held that whether interns qualify as “employees” under the FLSA depends on whether the intern or the company is the “primary beneficiary” of their relationship. The court then proposed the following “non-exhaustive” list of factors to be used in making this determination:
- The extent to which the intern and the company 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 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 coursework or the receipt of academic credit.
- The extent to which the internship accommodates 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 the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.
The Glatt court instructed that no individual factor is dispositive and all relevant circumstances – even those not on the above list – should be weighed and balanced.
After the Ninth Circuit, in December 2017, became the fourth U.S. Court of Appeals to reject the DOL’s six-part test in favor of Glatt’s “primary beneficiary” test, the DOL abandoned its six-part test and adopted the “primary beneficiary” test. Like the Glatt court, the DOL made clear that none of the seven factors enumerated in Glatt is determinative and the determination of whether an intern qualifies as an “employee” under the FLSA depends on the unique circumstances of each case.
By aligning its test with the one used by federal courts, the DOL provides employers in most jurisdictions more certainty in determining whether their interns must be paid. This, in turn, may encourage more employers to establish or continue unpaid internship programs that provide interns with valuable experience they may not otherwise obtain. Employers should consult with counsel to determine whether any internship programs comply with the “primary beneficiary” test as well as any applicable state wage and hours laws that may impose stricter requirements.
Client Alert 2018-011
