In a case involving one of the many unpaid internship arrangements under today’s graduate programs, the Eleventh Circuit recently reversed a summary judgment entered against former anesthetist nursing students who alleged that the clinic at which they worked as unpaid clinical interns violated the Fair Labor Standards Act (“FLSA”) by failing to pay them wages and overtime. Schumann v. Collier Anesthesia, P.A., No. 14-13169, 2015 U.S. App. LEXIS 16194 (11th Cir. Sept. 11, 2015). The Eleventh Circuit determined that the “primary beneficiary” test articulated by the United States Supreme Court nearly 70 years ago needed updating in order to properly address modern-day internships, and that informal guidance previously issued in 2010 by the Department of Labor (“DOL”) on this topic was not dispositive of the issue.

Under the FLSA, wages and overtime pay are only owed to “employees.” [1] In 1947, the Supreme Court addressed the application of the FLSA to trainees in Walling v. Portland Terminal, 330 U.S. 148 (1947). In Portland Terminal, the defendant railroad company offered a practical training course, typically lasting seven or eight days, to prospective yard brakemen.Participants were required to successfully complete the training to be eligible for future hire, but were not guaranteed a job. Trainees were instructed and supervised by a yard crew, which allowed them to perform actual work under the crew’s watch, and their work did not displace that of regular employees. The trainees’ work did not expedite the railroad’s business, and instead, at times, impeded it. Under these facts, the Supreme Court determined that the railroad trainees were not “employees” under the FLSA, concluding that the FLSA “was not intended to penalize railroads for providing, free of charge, the same kind of instruction at a place and in a manner which would most greatly benefit the trainees.” 330 U.S. at 153.

In April 2010, the DOL published informal guidance in its Field Operations Handbook on the use of unpaid interns in the private sector and the circumstances under which the FLSA may apply to them. [2]The DOL’s internship Fact Sheet establishes a “Test for Unpaid Interns,” and instructs that no employment relationship under the FLSA exists if all of the following six factors are met: (1) the internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment; (2) the internship experience is for the benefit of the intern; (3) the intern does not displace regular employees, but works under close supervision of existing staff; (4) the employer that provides the training derives no immediate advantage from the activities of the intern and, on occasion, its operations may actually be impeded; (5) the intern is not entitled to a job at the conclusion of the internship; and (6) the employer and the intern understand that the intern is not entitled to wages.

In Collier Anesthesia, the plaintiff former students had enrolled in a master’s program that, under Florida law, required them to participate in clinical internships to obtain their degrees. The students, relying upon the DOL’s informal guidance, argued that they were wrongfully denied wages and overtime because, despite being interns, they actually served as “employees” under the FLSA. The students pointed out that the clinic benefitted from their internships, that they worked in excess of 40 hours per week, and that the clinic strived to use student interns to reduce the number of its paid employees. The clinic replied that the students were aware that they would not be compensated in connection with the internship, that they were more of a burden than a benefit, and that they impeded actual performance of the paid employees’ jobs. The district court granted summary judgment in favor of the clinic, determining that the students were not “employees.” The students appealed.

The Eleventh Circuit acknowledged the evolving role of internships in the professional landscape since Portland Terminal, stating thatthe “dilemma arises in determining how to discern the primary beneficiary in a relationship where both the intern and the employer may obtain significant benefits.” 2015 U.S. App. LEXIS 16194 at *28. The court sought to strike a balance by focusing on the benefits to the student, while still considering whether the employer used the internship program to take unfair advantage of or otherwise abuse the student.

First, the Eleventh Circuit held that the district court was not required to follow the DOL's guidance because the DOL had no special competence or role in interpreting the Portland Terminal decision and because its standard was “too rigid,” and no circuit had adopted it in full. 2015 U.S. App. LEXIS 16194 at *21. Then, to apply Portland Terminal to modern-day internships, the Eleventh Circuit adopted the “non-exhaustive set of considerations” promulgated by the Second Circuit in its July 2015 Glatt v. Fox Searchlight Pictures, Inc.,791 F.3d 376 (2d Cir. 2015), decision. These considerations include the extent to which (1) the intern and the employer clearly understand that there is no expectation of compensation and no entitlement to a paid job at the conclusion of the internship; (2) the internship provides training similar to that in an educational environment; (3) the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit; (4) the internship accommodates academic commitments by corresponding to the academic calendar; (5) the internship’s duration is limited to the period in which it provides beneficial learning; and, (6) the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern. The Eleventh Circuit further emphasized that all of these factors and, where appropriate, other considerations as well, must be weighed as a court sees fit, to determine whether interns are “employees.” The court then reversed the summary judgment in favor of the clinic, and remanded the case for the district court to determine whether the former student interns qualified as “employees” under the FLSA, using the above criteria.

At first blush, the Eleventh Circuit’s decision appears to simply massage the preexisting “primary beneficiary” standard initially set forth in Portland Terminal, and more recently, in the DOL’s internship Fact Sheet. The standard articulated in Collier Anesthesia, however, provides courts with tremendous flexibility in determining whether unpaid interns might be entitled to wages and overtime pay. Given the incidence of internship programs in today’s professional world, the Collier Anesthesia decision heightens potential FLSA concerns for employers who participate in these programs, and, in particular, for those who rely upon the support of unpaid interns in the operation of their business.