Last Friday, the United States Department of Labor made the following announcement:
“On Dec. 19, 2017, the U.S. Court of Appeals for the Ninth Circuit became the fourth federal appellate court to expressly reject the U.S. Department of Labor’s six-part test for determining whether interns and students are employees under the Fair Labor Standards Act (FLSA).
The Department of Labor today clarified 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. The Wage and Hour Division will update its enforcement policies to align with recent case law, eliminate unnecessary confusion among the regulated community, and provide the Division’s investigators with increased flexibility to holistically analyze internships on a case-by-case basis.”
So, what’s the back story? Relying on a 1947 Supreme Court case involving “trainees”, Walling v. Portland Terminal Co., 330 U.S. 148, 152-53 (1947), the DOL developed a six-factor test for determining whether someone is an employee entitled to minimum wage. Under this test, the benefit of the time spent at work would inure to the worker, not the employer.
But the rules were not all that easily applied in the 21st Century workplace; difficult for both employers and those individuals who wanted experience in an “internship” in the private sector.
As noted by the DOL, four appellate courts agreed that the six-factor test was not workable, opting instead to inquire as to who would be the “primary beneficiary” of the services provided by an intern. See Benjamin v. B & H Educ., Inc., — F.3d —, 2017 WL 6460087, at *4-5 (9th Cir. Dec. 19, 2017); Glatt v. Fox Searchlight Pictures, Inc., 811 F.3d 528, 536-37 (2d Cir. 2016); Schumann v. Collier Anesthesia, P.A., 803 F.3d 1199, 1211-12 (11th Cir. 2015); Solis v. Laurelbrook Sanitarium & Sch., Inc., 642 F.3d 518, 529 (6th Cir. 2011).
The primary beneficiary test really got attention when it was adopted in 2016 by the Second Circuit in Glatt v. Searchlight Pictures. In Glatt, the court looked to the following factors:
- 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 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.
This is a case-by-case analysis. No one factor is dispositive, and the list is non-exhaustive. Every factor does not have to point in the same direction for a court to conclude that an intern is not an employee.
The “primary beneficiary” test is considered more employer friendly than the old six-factor test and may encourage employers to offer unpaid internships. Of course, other federal appellate courts may wind up disagreeing with the DOL’s direction and states may have more rigorous tests for unpaid interns under their own wage and hour laws.
The new DOL Fact Sheet on unpaid interns is found at https://www.dol.gov/whd/regs/compliance/whdfs71.htm