Tip of the Month:
Interns and Volunteers
Tip: Now is the time of year when many employers look forward to the arrival of winter/spring interns or volunteers, often students, but not infrequently, college graduates, many of whom are willing to forgo a paycheck, and are instead eager to give their time in exchange for getting “real world” experience. Ascribing the term “intern” or “volunteer” to these positions, however, does not automatically exempt the employer from federal and state minimum wage overtime requirements. Indeed, unless the positions meet certain statutory and regulatory criteria, these individuals will be subject to the same wage-hour requirements as employees. The stakes for failing to compensate an employee properly are high – an employer’s liability can include back wages, overtime, and liquidated and punitive damages. In addition, under federal and New York law, attorney fees are also available. Employers must therefore be mindful of the criteria set forth by the federal Fair Labor Standards Act (“FLSA”) and applicable state laws when they engage workers as unpaid interns and volunteers.
Whether an intern may properly be considered a “trainee” and not an “employee” under the FLSA (and a number of state laws) often requires a fact-specific inquiry, and will depend on all the circumstances surrounding the intern’s duties. Where educational or training programs are designed to provide interns with professional experience in furtherance of their education, and the training is academically oriented for the benefit of the interns, the interns generally are not considered employees. In April 2010, the U.S. Department of Labor (“USDOL”) identified the six factors listed below to guide courts and employers in determining whether trainees, students, interns and the like are considered employees under the FLSA:
- The individual receives training similar to what would be given in a vocational school or academic educational instruction;
- The training is for the benefit of the intern or trainee;
- The interns or trainees do not displace regular employees, but work under close observation;
- The employer that provides the training derives no immediate advantage from the activities of the individuals and on occasion the employer’s operations may actually be impeded;
- The interns or trainees are not necessarily entitled to a job at the conclusion of the training period; and
- The employer and the individual understand that no wages are paid for the time spent in the internship.
See USDOL Fact Sheet #71: Internship Programs under the Fair Labor Standards Act. The Fact Sheet itself states that it is “for general information and is not to be considered in the same light as official statements of position contained in the regulations.” Moreover, a majority of the Circuit Courts of Appeal have not required employers to satisfy all six of these criteria.
In December 2010, the New York State Department of Labor (“NYSDOL”) issued an Opinion Letter illustrating similar, although more stringent, criteria to determine the existence of an employment relationship for interns and trainees. Specifically, the NYSDOL established five additional criteria to the USDOL’s six, to be used in determining whether an individual is an “employee” under the state’s labor standards:
- Any clinical training is performed under the supervision and direction of individuals knowledgeable and experienced in the activities being performed.
- The interns do not receive employee benefits.
- The training is general, so as to qualify the interns to perform work for any similar employer, rather than designed specifically as preparation for a job with the employer offering the program.
- The screening process for the internship program is not the same as for employment, and does not appear to be for that purpose, but involves only criteria relevant for admission to an independent educational program.
- Advertisements for the program are couched clearly in terms of education or training, rather than employment, although employers may indicate that qualified graduates may be considered for employment.
See N.Y. Dep’t of Labor Opinion Letter, RO-09-0189, Dec. 21, 2010.
The U.S. Court of Appeals for the Sixth Circuit, however, affirmed the district court’s decision not to follow the USDOL’s 6-factor test guidelines in assessing whether students receiving vocational training at a private, not for-profit boarding school were “employees” under the FLSA. Solis v. Laurelbrook Sanitarium & Sch., Inc., 642 F.3d 518 (6th Cir. 2011). As part of the curriculum, students spent four hours per day learning practical skills and were assigned various duties, including in the Sanitarium’s kitchen and housekeeping departments. In affirming the district court’s opinion, the Circuit Court opined that the USDOL’s 6-factor test is “a poor method for determining employee status in a training or educational setting.” Id. at 525. The Circuit Court held that “the proper approach for determining whether an employment relationship exists in the context of a training or learning situation is to ascertain which party derives the primary benefit from the relationship.” Id. at 529.
The Sixth Circuit surveyed the case law throughout the country on this issue and found that the “primary benefit” test had been adopted by several Circuit and District Courts, including the Fourth, Fifth and Eighth Circuits. The court concluded that a “primary benefit test provides a helpful framework for discerning employee status in learning or training situations. By focusing on the benefits flowing to each party, the test readily captures the distinction the FLSA attempts to make between trainees and employees.” Id. at 529. It is worth noting that the USDOL “intern” test has received varying levels of deference by courts in connection with “trainees” where employers create training programs (often non-compensable) of very short duration (e.g., 2 weeks) to identify future employees. While some courts hold that the USDOL 6-factor test is entitled to substantial deference, a number of other courts have held that not all 6 factors need be met, others apply a “totality of circumstances” assessment permitting the courts to better evaluate the “economic reality,” while others apply a “primary beneficiary” test evaluating whether the trainee or employer is the primary beneficiary.
Under the FLSA, “volunteers” are treated somewhat differently than interns or trainees, although, again, employers must be wary. The FLSA provides an exemption for public agencies that excludes “volunteers” from the definition of “employee,” provided certain criteria are met. For public sector employees to volunteer with their employing public agency and maintain “volunteer” status for their “volunteer” activities, the individuals must:
- perform hours of service for a public agency for civic, charitable, or humanitarian reasons, without promise, expectation, or receipt of compensation for services rendered – although a volunteer can be paid expenses, reasonable benefits, or a nominal fee to perform services;
- offer services freely and without pressure or coercion; and
- not otherwise be employed by the same public agency to perform the same type of services as those for which the individual proposes to volunteer.
See 29 U.S.C. § 203(e)(4)(A); 29 C.F.R. §§ 553.101, .103, .104, .106. This volunteer exemption, however, is limited to public sector employers.
The USDOL’s enforcement position has generally been that volunteer work for a private, not-for-profit employer is not considered compensable under the FLSA so long as certain criteria are met (e.g., the absence of coercion on the individual and the services donated are not the same type of services as those the individual performs as an employee for that very organization). See Field Operations Handbook § 10b03(d). Nevertheless, successful lawsuits have been brought against not-for profit organizations for suffering or permitting work of “volunteers.” Thus, in the U.S. Supreme Court’s landmark Alamo decision, the USDOL sued a religious foundation for violations of the FLSA, where individuals provided services for the foundation’s commercial activities and, in exchange, expected to receive in-kind benefits, such as food, clothing and shelter. Tony & Susan Alamo Found. v. Sec’y of Labor, 471 U.S. 290 (1985). In affirming the opinion of the U.S. Court of Appeals for the Eighth Circuit, that the individuals were in fact “employees” under the FLSA, the Supreme Court held that protestations of workers that they are not employees and do not expect compensation is not dispositive of whether they are employees covered by the FLSA; rather, the test of employment under the under the FLSA is one of “economic reality.” Id. at 300–01.
The FLSA does provide a narrow volunteer exemption in the private, not-for-profit employer context. This exemption is for individuals who provide volunteer services to not-for-profit organizations, such as food banks, solely for civic, charitable, or humanitarian reasons, without promise, expectation, or receipt of compensation. See 29 U.S.C. § 203(5); 29 C.F.R. § 553.101(a). Other volunteer services covered by this exemption include:
- services to shelters;
- personal services to the sick or elderly in a hospital or nursing homes;
- services to a school library or cafeteria;
- driving a school bus for a football team or band trip;
- working as firefighters or auxiliary police;
- working with certain disabled or disadvantaged youths;
- helping with youth-based programs as camp counselors;
- soliciting contributions or participating in civic or charitable benefit programs or educational programs.
See 29 C.F.R. § 553.104(b); Field Operations Handbook § 10b03(c), (d).
The USDOL has articulated a position on its website that private, for-profit employers may not hire unpaid volunteers. However, these informal comments do not have the status of regulations or formal opinion letters and the USDOL has not pointed to any case law in support of its position, so it is unclear the extent to which courts would entitle it any deference. Indeed, recent case law suggests that there is no per se rule prohibiting for-profit employers from having volunteers. See Okoro v. Pyramid 4 Aegis, 11-C-267, 2012 U.S. Dist. LEXIS 56277, at *20-21 (E.D. Wis. Apr. 23, 2012) (“[T]o say that one cannot under any circumstances volunteer for a for-profit entity might be too sweeping a statement”); see also Hallissey v. Am. Online, 99-CIV-3785(KTD), 2006 U.S Dist. LEXIS 12964, at *22 (S.D.N.Y. Mar. 10, 2006) (acknowledging defendant’s status as a for-profit company but undertaking an analysis of whether volunteers were actually employees). In such circumstances, courts have considered several factors, most significantly, whether the volunteers had an expectation of compensation (either in the form of monetary wages or in-kind benefits), as well as other factors, such as the extent to which the volunteers received a benefit from the experience, the length of the relationship, and whether the volunteers expected a paying job at the conclusion of the engagement, among others.
Avoiding “Intern” and “Volunteer” Misclassifications
The exclusion from the definition of employment by the FLSA is narrow in order to underscore the public policy remedial objectives of the law. Individuals who are “suffered or permitted” to work, in most instances, must be compensated by the employer. That said, the reach of “employ” under the FLSA is not unlimited. There are steps employers can take to be proactive in reducing the risk of FLSA and/or state misclassification violations. First, employers should ensure that the intern, and not the business, obtains the primary benefit of the internship experience. Second, employers are well advised to maintain documentation regarding the structure and features of the internships.
In addition, documentation should include, for example, an agreement detailing the parties’ mutual intent that: (1) their relationship will not be one of employment but rather an internship for the individual’s benefit, (2) the intern does not expect employment or compensation, and (3) the relationship is to provide the intern with skills that can be used in multiple settings. Finally, employers should review their internship and volunteer programs with special care to determine how the program is actually working in practice – looking at the design of the program alone (or the labels used to describe it) is not sufficient.
As the above discussion demonstrates, distinguishing between “intern” and “employee” often requires an intensive and fact-specific analysis.