U.S. Department of Labor Loosens Standards for Permissible Use of Unpaid Interns

DOL Rejects Restrictive Six-Factor Test and Announces That It Will Adopt the “Primary Beneficiary” Test Favored by the Federal Circuit Courts January 9, 2018
On January 5, the U.S. Department of Labor announced that it would abandon the test by which it had previously evaluated the permissibility of using unpaid interns.  The DOL’s previous position, adopted in an April 2010 Fact Sheet, had been that unless an unpaid internship program met each of the six criteria set out in the Fact Sheet, unpaid interns would be considered employees under the Fair Labor Standards Act (“FLSA”), entitled to be paid minimum and overtime wages.  One of the criteria, for example, was whether the employer “derives no immediate advantage from the activities of the intern and on occasion its operations may actually be impeded.”  Under the 2010 test, many employers considered it prohibitively risky to maintain unpaid internship programs.

In its new Fact Sheet, the DOL has adopted the “primary beneficiary” test endorsed by multiple federal courts.  The “primary beneficiary test” was applied to the internship context first by the Second Circuit Court of Appeals in Glatt v. Fox Searchlight Pictures, Inc., 791 F.3d 376 (2d Cir. 2015), amended and superseded by 811 F.3d 526 (2d Cir. 2016), and was adopted thereafter by the Sixth, Ninth, and Eleventh Circuits.  View our memorandum on the Glatt decision.  The primary beneficiary test assesses whether the internship’s benefits to the intern outweigh the benefits to the employer.  If the intern is the primary beneficiary, he or she should not be classified as an employee and, thus, would not be subject to the FLSA.  On the other hand, if the employer is the “primary beneficiary,” the intern is considered an “employee” and is therefore entitled to minimum wage and overtime pay, and is covered by the other provisions of the FLSA.

To assess whether the intern or the employer is the primary beneficiary, the DOL Fact Sheet lists the following seven non-exhaustive factors, the same as those used by the Second Circuit in Glatt:
  • First, “[t]he extent to which the intern and the employer clearly understand that there is no expectation of compensation.”
     
  • Second, “[t]he 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.”
     
  • Third, “[t]he extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.”
     
  • Fourth, “[t]he extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.”
     
  • Fifth, “[t]he extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.”
     
  • Sixth, “[t]he extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.”
     
  • Seventh, “[t]he 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 Fact Sheet states that this is a “flexible test” and that “no single factor is determinative.”  Thus, “whether an intern or student is an employee under the FLSA necessarily depends on the unique circumstances of each case.”  Nonetheless, it is clear that under the new standard, the DOL is less likely to challenge an employer’s classification of its unpaid interns than under the previous regime.  It bears noting, however, that states remain free to take their own positions as to whether and to what extent their own minimum wage and overtime laws apply to unpaid interns.

DOL Wages and Overtime