New Department of Labor Release on Unpaid Interns – Legal or Not?

On January 5, 2018, the U.S. Department of Labor (“DOL”) clarified when interns and students working at for-profit employers will be considered employees under the Fair Labor Standards Act (“FLSA”), thereby entitling them to compensation. The press release can be found here.

Previously, the DOL and Courts had conflicting interpretations regarding when the FLSA minimum wage and overtime provisions applied to interns. Since 2010, the DOL presumed interns to be employees unless six specific factors were present. But, finding the approach somewhat rigid, Courts did not consistently apply this six factor test, instead utilizing a more flexible balancing approach to consider which party, the intern or the employer, was the “primary beneficiary” of the relationship.

Following suit, the DOL has abandoned the six-factor test in favor of the “primary beneficiary” test.  This test looks at the economic reality of the intern-employer relationship to ascertain which party is the “primary beneficiary” of the relationship.  The test is flexible and fact-sensitive: no single factor is determinative. Instead each of the following seven factors are to be considered:

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.

While the clarified analysis should be welcome news for employers, they should still proceed with caution in determining when and how to utilize unpaid internship programs.  For more information, you can refer to the DOL Fact Sheet: “Internship Programs under the Fair Labor Standards Act,” which can be found here.  Additionally, Hoagland Longo attorneys are available to assist employers in their compliance efforts. For more information about the FLSA, internship programs, or for any other labor and employment questions you may have, please contact me at ngrzeskowiak@hoaglandlongo.com or 732-545-4717.