Last month the Department of Labor’s Wage and Hour Division officially rejected the 6-part test it had been using to determine if an employer who had an unpaid intern was violating the Fair Labor Standards Act (FLSA). Going forward the DOL will employ a “primary beneficiary” test which is designed to focus on the specific economic realities between the employer and intern. The new test affords the DOL more flexibility in its analysis with one factor not being any more or less important than another factor.
Primary Beneficiary Test
The primary beneficiary test requires the Courts and DOL to look at the following seven 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.
Click here for an excellent summary of the new “Primary beneficiary Test” provided by the DOL.
Improperly Classified as Unpaid Employee
If the employer improperly classifies an intern as an unpaid employee, then the employee will be entitiled to minimum wage and overtime wages to the extent applicapble under the FLSA. An employer really needs to consider who is the primary beneficiary of the relationship and whether or not it is really just trying to get free labor. Attorneys will take these cases on a contingent basis because of the fee shifting provisions under the FLSA. If you are still not concerned consider this through a broader lens. What if this ocurrs in a large corporation that for years has been using unpaid interns but had improperly classified them as interns and not employees? On a class wide basis, combined with attorneys’ fees, the stakes are much larger.
What this means for Employers
As we have said in the past, Employers should every once in a while conduct a wage and hour audit and make sure that the audit applies to its “unpaid interns” as well. This means not only should an employer review its wage and hour policies, but also understand how it works in the actual workplace.
Douglas Leavitt is an attorney with Danziger Shapiro and focuses his practice on guiding businesses with their daily operational needs. Please feel free to contact him or any of the other attorneys at Danziger Shapiro to discuss a business compliance issue or other concerns you have that affects you and your business.
This entry is presented for informational purposes only and does not constitute legal advice.