The U.S. Department of Labor (DOL) has signaled its intention to follow the growing number of appellate courts that have endorsed a test for assessing whether interns qualify as employees under the Fair Labor Standards Act (FLSA). On January 5, 2018, the DOL rescinded its 2010 guidance, which had applied a six-factor test, and announced it will follow the primary beneficiary standard first adopted by appellate courts in 2015.

The primary beneficiary standard resulted from two Second Circuit Court of Appeals landmark rulings. In the case Glatt v. Fox Searchlight Pictures, Inc., involving unpaid Fox publicity interns who filed a lawsuit claiming they should have been compensated as employees for the work they performed during their internships, the Court found the DOL’s six-factor test was too rigid, overturning the lower court’s decision that granted class and conditional collective action certification to the Fox interns. In another intern case involving the Hearst Corp. decided in tandem with Glatt, the court upheld a trial court’s denial of certification and remanded the case in light of the Second Circuit’s newly adopted standard.

Under the primary beneficiary standard, commonly referred to as the Glatt test, there are seven non-exhaustive factors for assessing whether the intern or the organization is the primary beneficiary of the relationship. The assessment considers, among other things, whether there’s a clear understanding that no expectation of compensation exists and to what extent the internship is tied to a formal education program. Other factors for consideration include whether an employee would be displaced by the intern and whether there is no immediate benefit to the employer. If the analysis of the seven factors tends to show the employer is the primary beneficiary of the supposed intern relationship, the intern will likely be properly classified as an employee, and be entitled to minimum wages and overtime.  A more detailed assessment of the Glatt test can be found in our prior alert, here.

The Glatt test was recently applied in a December 2017 ruling by the Ninth Circuit, which upheld a trial court’s decision to deny compensation to three students completing unpaid work at a beauty school they attended. The panel rejected the plaintiffs’ claim that the court should follow the test endorsed by the DOL’s 2010 guidance.

Now that the Ninth Circuit has become the fourth federal appellate court to reject the DOL’s 2010 guidance, the DOL has indicated it will conform to the appellate court rulings by using the same primary beneficiary standard the courts use to determine an intern’s status under the FLSA.

With the change in DOL policy, employers should continue to evaluate their internship programs under the seven factor primary beneficiary test laid out by the Second Circuit and, now, endorsed by the DOL.