Hunton Employment & Labor Perspectives

On Friday, January 5, 2018, the U.S. Department of Labor (“DOL”) posted a brief statement and updated its Fact Sheet on Internship Programs Under the Fair Labor Standards Act to clarify that going forward, it will use the “primary beneficiary” seven factor test for distinguishing bona fide interns from employees under the FLSA.  The DOL’s approach is consistent with the test adopted by appellate courts such as the Second and Ninth Circuits.

As previously reported, the “primary beneficiary” test was first laid out by the Second Circuit in its 2015 ruling in Glatt et al. v. Fox Searchlight Pictures, Inc. et al., 811 F.3d 528 (2d Cir. 2015).  The court fashioned a flexible, non-exhaustive set of considerations to evaluate the internship rather than use a rigid set of factors:

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.

Importantly, the court noted that the above factors are non-exhaustive, that no one factor is determinative, and that courts may consider other relevant factors.  Also importantly, the court expressed doubt about whether lawsuits by interns would be suitable for class or collective action treatment by declaring that “an intern’s employment status is a highly individualized inquiry” not conducive to class action treatment.  Under this more nuanced and employer-friendly test, various courts have ruled that interns in a variety of industries, as the primary beneficiaries of their internships, do not qualify as employees under the FLSA and cannot collectively pursue claims for misclassification and wage violations.

Under the DOL’s previous test issued in 2010, which several appellate courts have rejected for being overly rigid and not consistent with modern day internships, an intern was considered an employee unless six factors were met.  Under these factors, the employer needed to show, among other things, the intern did not displace regular employees, and the employer derived no “immediate advantage” from the intern’s work.

While the DOL’s actions on Friday mark the formal end of the DOL’s rigid intern test and make class or collective treatment of internship lawsuits less likely, employers are encouraged to review the structure of their unpaid internship programs to evaluate whether they are predominantly educational in nature and primarily benefit their interns.