Department of Labor Adopts Employer-friendly Test for Determining Unpaid-intern Status Under the FLSA

Jan 15, 2018

On January 5, 2018, the U.S. Department of Labor (“DOL”) announced, as yet another signal of the Trump administration’s employer-friendly enforcement agenda, that it would adopt a more flexible test for determining whether interns are employees entitled to the protections of the Fair Labor Standards Act (“FLSA”). The policy change is reflected in the DOL Wage and Hour Division’s “Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act.”

Prior to this policy change, the DOL assumed interns to be employees subject to the FLSA, unless six stringent factors could be established by the employer. These factors, among others, included whether the internship was similar to training that would be given in an educational environment, and whether the experience was for the intern’s benefit.

In recent years, however, various federal courts expressed hostility to the DOL’s stringent six-factor test, instead adopting the so-called “primary-beneficiary test.” The primary-beneficiary test focuses on seven factors—none of which is controlling—each geared towards determining which party derives more of the benefit from the internship arrangement. These factors include:

The extent to which the intern and the employer clearly understand that there is no expectation of compensation, as 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 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; and
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 adopts the primary-beneficiary test verbatim. Thus, according to the DOL, whether an intern is an employee under the FLSA necessarily depends on the unique circumstances of each case, analyzed against the factors of the primary-beneficiary test. If analysis of the above-factors reveals that an intern is actually an employee, then he or she is entitled to both minimum wage and overtime pay under the FLSA. On the other hand, if the analysis confirms that the intern is not an employee, then he or she is not entitled to either minimum wage or overtime pay under the FLSA.

Employers should always take care in analyzing their internships to avoid misclassifying the individual as an unpaid intern, rather than employee entitled to compensation. Should you have any questions regarding how to structure your organization’s internships, or the legal implications of Fact Sheet #71, please feel free to contact Tom Green, John Hofstetter, or any KWW attorney.