New DOL rule loosens restrictions on unpaid internships
The Fair Labor Standards Act generally requires employers to pay nonexempt employees at least the federal minimum wage for all hours worked and time and a half for all hours over 40 worked in a week. But the FLSA exempts internships when they serve a bona fide educational purpose.
The Department of Labor is moving aggressively to clarify that most internships can be unpaid.
THE LAW In 2010, the Obama Administration’s Department of Labor adopted a six-factor test to determine whether interns were employees or not. To qualify as unpaid interns, the employer had to meet each of the six factors. Miss even one, the DOL held, and interns had to receive at least the minimum wage.
In a landmark 2015 case involving interns who worked on the movie “Black Swan,” the 2nd Circuit Court of Appeals found the six-factor test so rigid that it in effect made all interns employees. The appeals court overturned a lower court decision that found the movie interns to be employees.
Despite that setback, the DOL kept the six-factor test in place until now.
WHAT’S NEW In all, four federal appeals courts have now ruled against the six-factor test, the last being the 9th Circuit in December 2017. As a result, the Department of Labor under the Trump administration has rescinded the six-factor test and now uses a “primary beneficiary test” in which seven factors are weighed.
The key question: Who is the primary beneficiary of the internship: the intern or the employer? Unlike the six-factor test, all seven factors do not have to be decided in the employer’s interest to establish the intern’s status. When applying this primary beneficiary test, the deciding factors are the extent to which the:
1. Intern and the employer clearly understand that there is no expectation of compensation
2. Internship provides training similar to that available in an educational environment
3. Internship is tied to the intern’s formal education by integrated coursework or academic credit
4. Internship timing corresponds to the academic calendar
5. Internship lasts only as long as beneficial learning takes place
6. Intern’s work complements, rather than displaces, the work of paid employees
7. Intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.
The factors, taken from court decisions, are intended to assess the economic reality of each situation on a case-by-case basis. No single factor determines the outcome, but courts will examine each when making the decision.
HOW TO COMPLY The key is that the intern must be the primary beneficiary of the internship. Generally speaking, the intern must do more than grunt work. For example, having the intern run out for coffee, with no other duties, would probably not count as a legitimate internship. However, that doesn’t mean an internship can’t include some menial tasks.
For example, the recently decided 9th Circuit case involved students who worked at a cosmetology school in lieu of paying tuition. They complained that cleaning their work stations was the type of menial task that made them employees rather than interns. The school noted that knowing proper cleaning techniques were part of a cosmetologist’s job, and were covered in the test to obtain a state cosmetology license.
The educational aspect
To be safe, employers should have a list of various educational goals the internship is designed to accomplish. Even in traditional college or trade school internships, employers should still protect themselves with this step.
Educational institutions have come under scrutiny for supplying private-sector employers with what critics have called slave labor. The educational objective list will provide cover for both employer and educational institution.
Even for noneducational entities, the law still requires the intern experience to be “similar to training that would be given in an educational environment.” So listing specific learning objectives and how they will be measured, plus documenting the intern’s progress along the way, bolsters the employer’s case that the internship is legitimate.
A contract, but not an employment contract
Employers should have their interns sign a contract indicating that they are not entitled to pay and that the employer makes no guarantee of future employment. Not only does this protect the employer from contractual obligations, it also is required to preserve the internship arrangement under the FLSA.
The contract should include a clause stating that the contract can only be changed in writing. Otherwise, interns can assert that management promised a job once the internship was over. Train managers not to make any promises of employment to interns other than to say that they may be considered for any future openings.
Read the Department of Labor’s official guidance on internships—“Fact Sheet #71: Internships Under the Fair Labor Standards Act”—at www.dol.gov/whd/regs/compliance/whdfs71.htm.