For the past eight years, the U.S. Department of Labor (the "DOL") followed a strict six-part test to determine whether a for-profit employer could use interns without compensating them for the services they provided.
The DOL's test received a lot of attention as several lawsuits - including high-profile cases against fashion designer Norma Kamali and the producers of the film “Black Swan” - were filed by interns who asserted that they should have been paid for their work. As these cases received attention, employers were counseled to turn away eager college students offering to "work for free" because of the uncertainty as to whether the DOL would find that the interns should be deemed to be employees under the federal Fair Labor Standards Act ("FLSA") and therefore entitled to be paid. Under the DOL test, unless the employer met every factor in the six-part test, the DOL would find the failure to pay the intern violated the FLSA.
After a growing number of federal courts became critical of the DOL's stringent test, where it mandated compensation if the employer failed to meet even one of the six factors, the DOL finally published new guidelines. Those guidelines, published earlier this year, make it easier for employers to offer unpaid internships. The new DOL guidelines seek to determine who is the “primary beneficiary” of the internship? If the intern will get more out of the experience than the employer, then the intern is not an employee governed by the FLSA.
To make the primary beneficiary determination, the new DOL test examines seven factors:
- Expectation - Do both the intern and the employer clearly understand that there is no expectation of compensation?
- Training - Does the internship provide training similar to that which would be given in an educational environment, to include clinical and other hands-on training provided by educational institutions?
- Integration - The internship must be tied to the intern’s formal education program, via integrated coursework or the receipt of academic credit.
- Timing - The internship must accommodate the intern’s academic commitments, by corresponding to the academic calendar.
- Duration – is the internship limited to the period in which the internship provides the intern with beneficial learning?
- Effect on paid employees – Does the intern’s work complement, rather than displace the work of paid employees?
- Entitlement – Do both the intern and the employer understand that there is no entitlement to a paid job at the conclusion of the internship?
This new test is often described as more “flexible,” for the reason that no single factor is determinative. Rather, the DOL and the courts will consider the totality of the circumstances to determine whether an intern is an employee under the FLSA, based on the unique circumstances of each case.
While an unpaid internship has returned to the realm of possibility, employers will need to engage in careful planning to meet the new criteria. To adhere to these new standards and avoid FLSA liability, employers will need to design and execute the unpaid internship in a manner that will ensure that the intern is the “primary beneficiary” of the relationship.
How can you implement an unpaid internship? While each employer/intern relationship may present unique challenges and opportunities, we generally recommend:
- Document compliance with the three least subjective factors – Expectation, Timing and Entitlement. Clearly state in your postings that the position is without compensation and without expectation of a paid job offer. Also, use an application form that causes the applicant to acknowledge the fact that they won't be paid and don't expect an offer of a paying job and requires provision of the beginning and end date of their break from classes.
- Address the Integration factor by making a college-style syllabus at the beginning of the internship: to identify internship learning objectives that are tied to their formal education; or, if applicable, to restate what is needed to receive academic credit.
- Meet with the intern regularly and address the Training and Duration factors by discussing: are they meeting identified objectives; has their experience reinforced prior studies or "informed" future studies; how much “clinical" or "hands-on" training they have received; and are additional objectives needed, to ensure that they learn throughout the program?
- Avoid assigning any task that would be considered revenue-generating activity. These would displace, not complement, the work of paid employees and violate the FLSA.
If you wish to evaluate your current internship program and determine whether modification is needed to comply with the DOL's new guidelines, or you'd like to create an unpaid internship program to meet the new guidelines, Foster Swift’s labor and employment attorneys are ready to lend a hand.