Thursday, January 11, 2018

Intern Update: The DOL Adopts New Rules for Interns

In a fairly unsurprising development given several federal appellate court decisions, the U.S. Department of Labor (DOL) has disposed of its six-factor test for assessing whether a worker is an intern or an employee, for purposes of coverage under the Fair Labor Standards Act (“FLSA”).  Most recently on Dec. 19, 2017, the Ninth Circuit became the fourth federal appellate court to expressly reject the DOL’s six-part test for determining whether interns and students are employees under the Fair Labor Standards Act. In Benjamin v. B&H Education, Inc., for example, the Ninth Circuit Court of Appeals rejected the “rigid” six-factor test and instead adopted the primary beneficiary test as articulated by the Second Circuit.

As a consequence of this case, and in lieu of the six-factor test, the DOL pronounced on January 5, 2018 that it has adopted the “primary beneficiary test” to determine whether interns qualify as employees under the FLSA.  The DOL’s change in position is reflective of the standards utilized in decisions by the Second, Sixth, Ninth, and Eleventh Circuits, which is an employer friendly standard because it permits flexibility by examining the “economic reality” of the intern-employer relationship to determine the “primary beneficiary” of the internship. The test adopted by the DOL focuses on a balancing seven different factors:
  • Compensation Is the absence of compensation clearly articulated by the employer?
  • Training Does the internship provide training similar to that given in an educational environment?
  • Nexus to Educational Program To what extent is the internship tied to the intern’s education program (i.e., is academic credit provided)?
  • Nexus to Academic Commitments Does the internship accommodate the intern’s academic commitments by corresponding to the academic calendar?
  • Duration of Internship Whether or not the internship is of limited duration
  • No Displacement Does the intern's work complement, rather than displace the work of paid employees? 
  • No Expectation of Future Employment 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.

Although there are seven parts to the newly adopted primary beneficiary test, the DOL now emphasizes that “no single factor is determinative” so that “whether an intern or student is an employee under the FLSA necessarily depends on the unique circumstances of each case.”  The Department of Labor has long distinguished interns in the public sector, stating that unpaid internships, “where the intern volunteers without expectation of compensation are generally permissible.” As a result of this change, the DOL’s Wage and Hour Division will be issuing an update  of its enforcement policies to detail the “primary beneficiary” test. While the new test is more employer-friendly, employers should carefully review the primary beneficiary test before concluding that the interns are, in fact, non-employees for FLSA or other purposes. Public sector employers should exercise care to document the voluntary nature of the relationship.  We will continue to update you on any developments.  Please let us know if you have questions about the new test or if you would like assistance in reviewing the primary beneficiary test as applied to the use of interns.