This is the season when employers are finalizing their plans for summer interns. The summer internship gives students experience in the working world and the company is provided the opportunity to get to know the student prior to extending post-graduation employment offers. The Department of Labor recently amended its guidelines for determining whether an unpaid intern should be designated an employee. The Department of Labor's new guidelines for the unpaid intern test is significantly more relaxed than the prior test.
Old Unpaid Intern Test Criteria
Under the prior Department of Labor test, established in 2010, the internship had to meet six rigid requirements in order to validate its unpaid designation, making it difficult for an employer to validate the unpaid designation.
The prior six mandatory criteria were:
- The internship is similar to training given in an educational environment;
- The internship experience is for the benefit of the intern;
- The intern does not displace regular employees, but works under close supervision of existing staff;
- 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;
- The intern is not necessarily entitled to a job at the conclusion of the internship; and
- The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
Under this old test, if all the listed factors existed, then there would be no employment relationship under the FLSA, and the minimum wage and overtime provisions would not apply to the intern; however, if any one factor was not met, then the intern was considered an employee and had to be paid as an employee. The most-limiting factor was that the employer could not derive a benefit from the intern's activities. Even where an internship was well-designed for the benefit of the intern, if the employer derived some benefit from the intern's work, then the intern was reclassified as an “employee” and entitled to all the benefits under the FSLA.
2018 Amendments to the Unpaid Intern Test Criteria
In 2018, the DOL amended the test for determining whether an unpaid intern is misclassified and relaxed the standards. The DOL standards (Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act) now utilize a “primary beneficiary test” to determine whether an intern or student is, in fact, an employee under the FLSA. This test permits courts to examine the “economic reality” of the intern-employer relationship to determine which party is the “primary beneficiary” of the relationship. The DOL identified the following seven factors as part of the test:
- 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.
The “primary beneficiary test” is a flexible test where no single factor is determinative. Whether an intern is an employee under the FLSA will depend on the unique circumstances of each case.
The primary beneficiary test should open the possibilities for more employers seeking to have summer interns. Prior to making the decision of whether your company should offer unpaid summer internships, make sure to follow the above-guidelines and create a program that is a well-tailored educational experience for the intern.
Our employment law defense attorneys are experienced in defending employers in all facets of employment relations. Please contact Kristin Tauras for questions about this topic or any other related concerns.