DOL Adopts New Test For Unpaid Internships
On January 5, 2018, the U.S. Department of Labor (“DOL”) announced that it was adopting a new test for determining whether an intern qualified as an employee under the Fair Labor Standards Act (“FLSA”). Such a determination affects how employers may offer and utilize unpaid internships, and the DOL’s policy change loosens the rigid requirements of the former test.
Under the old test, an intern did not qualify as an employee under the FLSA for an unpaid internship if the internship: (1) was similar to training that would be given in an educational environment, (2) was for the benefit of the intern, (3) did not displace regular employees, (4) did not provide the employer with an immediate advantage from the intern’s activities, (5) there was no guaranteed job at the end of the program, and (6) the employer and the intern each understood that the internship was unpaid. All six factors had to be met without exception, and multiple federal courts found the “no immediate advantage from the intern’s activities” factor as particularly problematic.
The DOL’s new test, known as the “primary-beneficiary” test, is the same test that has already been adopted by the federal Courts of Appeals for the Second, Sixth, Ninth, and Eleventh Circuits. The primary-beneficiary test factors are: (1) both parties understand that the intern is not entitled to compensation, (2) the internship provides training that would be given in an educational environment, (3) the intern’s completion of the program entitles him or her to academic credit, (4) the internship corresponds with the academic calendar, (5) the internship’s duration is limited to the period when the internship educates the intern, (6) the intern’s work complements rather than displaces the work of paid employees while providing significant educational benefits, and (7) the intern and the employer understand that the internship is conducted without entitlement to a paid job at the internship’s end.
Although the primary-beneficiary test’s seven factors are similar to the former test’s factors, it does not require that each factor be strictly satisfied, and also analyzes the extent as to which each factor is met. As such, the new test relies more on a totality of the circumstances approach, with the ultimate question being whether the unpaid internship was more for the benefit of the intern or the employer. If the intern benefits more from the experience than the employer, then the internship’s nonmonetary value is sufficient, and it does not require monetary compensation.
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