Labor Department provides new guidance on internship programs

Posted by Charles Middleton on 01/10/2018

Q: Until just recently, the U.S. Department of Labor took the position that most interns qualified for employee status and, thus, were entitled to be paid minimum wage and overtime. What happened?

A: On Jan. 5, the Department of Labor rescinded prior agency guidance from 2010 regarding internship programs for “for-profit” employers. The prior guidance, which required employers to apply a strict six-factor test, had been criticized by courts as “too rigid” and inconsistent with the Fair Labor Standards Act. Under the 2010 guidance, a private employer could be exempted from paying an intern only if all six factors of the Labor Department's test were met. Bottom line: Except in limited circumstances, if the employer received any economic benefit from the intern's services, the intern was to be considered an employee and paid accordingly.

Q: What is the Labor Department's new guidance for private employers?

A: Taking its cue from a 2015 appeals court decision, the agency adopted the “Primary Beneficiary Test” set forth in Glatt v. Fox Searchlight Picture Searchlight. In that lawsuit, the Second Circuit Court of Appeals explicitly rejected the Labor Department's 2010 six-factor test and created its own list of factors to be considered when deciding if an individual is an intern or a student. Other courts soon followed suit. The agency's new seven-factor test permits courts to look at the “economic reality” of the relationship between the intern and the employer to determine whether the intern or the employer is the “primary beneficiary” of the relationship. Unlike the previous rigid six-factor test, this one is meant to be flexible, and no one factor is a determinant.

Q: What are the key components of the seven-factor test that are to be considered?

A: Four of the factors relate to the qualities and benefits typically associated with a traditional learning-based internship program, such as the provision of clinical or hands-on training, the receipt of academic credit, and the furthering of one's education in a chosen field of study. Another important factor is the consideration of the extent to which the intern and the employer clearly understand that there is no expectation of compensation or the expectation of a paid job at the conclusion of the internship. Any promise of compensation, express or implied, suggests that the intern is an employee — and vice versa. Also to be considered is 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.

Q: What does the new guidance mean for employers?

A: Courts and employers will have to look to the unique facts of each case to determine if an intern or student is an employee under the Fair Labor Standards Act. Should an employer determine that an intern or student is an employee under the act, that individual is entitled to both minimum wage and overtime pay. However, if an employer determines that the individual isn't an employee, the intern or student isn't entitled to minimum wage or overtime pay. Employers who were hesitant to adopt an unpaid internship program in the past due to the Labor Department's prior guidance once again should consider if starting such an internship program would benefit their company.

Q: Does this guidance impact internships in the public sector or nonprofit charitable organizations?

A: No. Following this updated guidance, the rules regarding unpaid internships for public sector and nonprofit charitable organizations, where the intern volunteers without expectation of compensation (which are generally permissible), remain unchanged. Unpaid internships in these areas generally continue to be permissible.


Published The Oklahoman, January 10, 2018