When it comes to developing summer internship programs, employers should take special note of the U.S. Department of Labor’s (DOL) new position on determining employee-status. The DOL announced it will abandon its six-part test for determining whether interns qualify as employees at for-profit employers under the Fair Labor Standards Act (FLSA) in favor of the “primary beneficiary test” as approved by the Second Circuit. A copy of the DOL’s new Fact Sheet #71 can be found here.

The “primary beneficiary test” takes into consideration the following seven factors:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. 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.
  7. 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.

The “primary beneficiary test” focuses on two features: (1) what the intern receives in exchange for his or her work; and (2) allows courts flexibility to consider the economic realities between the intern and the employer.

The DOL’s 2018 Fact Sheet is a departure from its earlier Fact Sheet issued in 2010, which was based on the Supreme Court’s decision in Walling v. Portland Terminal Co., 330 U.S. 148 (1947). The 2010 Fact Sheet included a different six-factor test that focused on whether the employer received an immediate advantage. If an employer experienced such an immediate advantage, the worker would be considered an employee.

While the DOL’s 2018 Fact Sheet is the first time the agency has adopted the “primary beneficiary test,” the Second Circuit first articulated this very same test in Glatt v. Fox Searchlight Pictures, Inc., 791 F.3d 376 (2d Cir. 2015). In Glatt, three unpaid interns—Eric Glatt, Alexander Footman, and Eden Antalik—who worked on Black Swan sued Fox Searchlight Pictures, Inc. and Fox Entertainment Group, Inc. (collectively “Fox”) claiming entitlement to overtime and minimum-wage compensation as employees under the FLSA. The District Court granted Glatt’s and Footman’s motion for summary judgment as to their employment status, which Fox appealed. The Second Circuit reversed and remanded, agreeing with Fox that the proper inquiry in determining the employment status of an unpaid intern is whether the intern or the employer is the “primary beneficiary” of the relationship. In setting forth this new test, the Second Circuit described the same seven factors listed in the DOL’s most recent Fact Sheet as a non-exhaustive list of considerations that should be used to determine a worker’s employment status. The matter was settled following remand.

The Bottom Line

Although the DOL has abandoned its older test in favor of a new one (approved by the circuit courts), the presumption remains that an individual is an “employee”. Establishing that an individual qualifies as an “unpaid intern” remains a challenge to employers. Companies seeking to establish summer internship programs are wise to partner with legal counsel.