- The DOL will no longer use the six-factor intern test.
- Instead, it will use the “primary beneficiary” test.
- Employers should evaluate how this may impact their hiring and related business decisions.
On January 5, 2018 the U.S. Department of Labor (DOL) announced that it would replace its six-factor test to determine whether interns are employees under the Fair Labor Standards Act (FLSA) with the “primary beneficiary” test that has been adopted by several appellate courts.
In 2010 the DOL issued guidance addressing whether unpaid interns are employees under the FLSA. Under the guidance, an intern is an employee unless all of the following factors are met:
- The internship, even though it includes actual operation of the employer’s facilities, is similar to training that would be given in an educational environment.
- The internship experience is for the intern’s benefit.
- The intern does not displace regular employees, but works under close supervision of existing staff.
- The employer providing the training derives no immediate advantage from the intern’s activities, and on occasion its operations may actually be impeded.
- The intern is not necessarily entitled to a job at the conclusion of the internship.
- The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
Primary Beneficiary Test
Several Courts of Appeals have considered the six-factor test too rigid, and some, including the Second Circuit in the notable Glatt v. Fox Searchlight Pictures Inc. case, have adopted a new test called the primary beneficiary test that turns on which party (the intern or the employer) derives the primary benefit from the relationship. This test has three key features:
- It focuses on what interns receive in exchange for their work.
- It allows for flexibility in examining the economic reality between the parties.
- It acknowledges the difference between intern-employer relationships (typically containing some sort of educational or vocational benefit) and employee-employer relationships.
The primary beneficiary test includes seven factors for courts to weigh and balance:
- 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.
- The extent to which the internship provides training similar to that which would be given in an educational environment, including clinical and other hands-on training provided by educational institutions.
- The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
- The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
- The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
- 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.
- 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.
Although several federal appellate courts have adopted the primary beneficiary test in lieu of the six-factor test, it appears the most recent court to do so, the Ninth Circuit in Benjamin v. B & H Educ., Inc., No. 15-17147, 2017 U.S. App. LEXIS 25672 (9th Cir. 2017), a case involving whether cosmetology and hair design students in certain California and Nevada schools were also employees of those schools within the meaning of the FLSA, may have been the tipping point for the DOL to change its position.
More to Come
The DOL’s brief January 5 announcement promised additional information will be forthcoming: the Wage and Hour Division will update its enforcement policies to align with recent case law, eliminate confusion and provide DOL investigators with increased flexibility to analyze internships on a case-by-case basis. We will provide more details as they become available.