Why it matters

Following the Second Circuit Court of Appeals, a panel of the Eleventh Circuit declined to follow the Department of Labor's (DOL) six-factor test on the question of whether a worker is an employee or independent contractor pursuant to the Fair Labor Standards Act (FLSA). The dispute began when a group of registered nurses sought payment for the hours they worked as part of a clinical curriculum, a required step to obtain their nurse anesthetist degree. A federal court sided with the facility where the nurses performed their clinical work and held the plaintiffs were not entitled to either minimum wage or overtime pay under the FLSA. But following the reasoning of the recent Glatt v. Fox decision from the Second Circuit, the Eleventh Circuit declared the DOL's test outdated and rigid. The agency's test does not reflect "the role of internships in today's economy," when the real question should be a determination of the "primary beneficiary" in the relationship between intern and employer, the panel wrote, tracking the factors discussed by the Second Circuit in Glatt.

Detailed discussion

To become a certified registered nurse anesthetist (CRNA), a registered nurse must obtain a master's degree that includes a clinical curriculum as part of the course of study. A group of 25 student nurses filed suit against Collier Anesthesia, the facility where they performed their clinical work, seeking unpaid wages and overtime under the Fair Labor Standards Act (FLSA).

Student nurses were required to complete four semesters of clinical experience, with participation in a minimum of 550 clinical cases in a variety of surgical procedures. The school required daily evaluations completed by both the student and a CRNA or supervising anesthesiologist.

The plaintiffs claimed Collier benefited financially by using their services in lieu of licensed CRNAs, particularly as they worked in excess of 40 hours per week as well as on weekends and holidays. A former staffer at Collier testified that she tried to use the student nurses to reduce the number of CRNAs on the schedule. Collier could receive reimbursement for student activities, the plaintiffs pointed out, with Medicare rules allowing the facility to be paid for two students being supervised by just one CRNA.

But Collier countered that on balance, the students were more of a burden than a benefit. The learning process often impeded the actual delivery of anesthesia, the defendant argued, and some surgeons, hospitals, and patients refused to allow students in the operating room. Even with Medicare reimbursement, the students were an added expense, Collier told the court, because of the time spent training and not performing actual work.

A federal court judge analyzed the question of whether the student nurses were employees under the FLSA using the Department of Labor's (DOL) six-factor test, granting summary judgment for Collier. The plaintiffs appealed.

Noting that the DOL's test simply reduced the specific facts of a 1947 U.S. Supreme Court case, Walling v. Portland Terminal Co., into six factors, a panel of the Eleventh Circuit Court of Appeals elected not to follow the test. The DOL's test "is not a regulation, and it did not arise as a result of rule-making or an adversarial process," the court said, meaning the deference owed the agency was proportional to its power to persuade.

"We do not defer to this test because, with all due respect to the DOL and the important work that it does, we do not find it persuasive," the court wrote. "First 'an agency has no special competence or role in interpreting a judicial decision.' Second, as the Second Circuit has observed, the test 'attempts to fit Portland Terminal's particular facts to all workplaces, and … is too rigid.' Third, while some circuits have given some deference to the test, no circuit has adopted it wholesale and has deferred to the test's requirement that 'all' factors be met for a trainee not to qualify as an 'employee' under the FLSA. In short, we prefer to take our guidance on this issue directly from Portland Terminal and not from the DOL's interpretation of it."

For the panel, that meant answering the "primary beneficiary" inquiry established in Portland Terminal without strict adherence to the six factors. A proper balance must be struck between the interests of both parties, the court said. "[T]he mere fact that an anesthesiology practice obtains benefits from offering [student nurses] internships cannot, standing alone, render the student interns 'employees' for purposes of the FLSA," the panel wrote. "Nevertheless, we recognize the potential for some employers to maximize their benefits at the unfair expense and abuse of student interns."

"So our dilemma arises in determining how to discern the primary beneficiary in a relationship where both the intern and the employer may obtain significant benefits," the court said. "We think that the best way to do this is to focus on the benefits to the student while still considering whether the manner in which the employer implements the internship program takes unfair advantage of or is otherwise abusive towards the student. This orientation allows for student internships to accomplish their important goals but still accounts for congressional concerns in enacting the FLSA."

The court looked to a recent Second Circuit case considering the application of the FLSA to interns working for various units of Fox Entertainment. The decision in Glatt v. Fox set forth a non-exhaustive set of considerations for evaluation in determining the primary beneficiary in intern cases:

  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 factors that the Second Circuit has identified effectively tweak the Supreme Court's considerations in evaluating the training program inPortland Terminal to make them applicable to modern-day internships like the type at issue here," the court explained.

Focusing on the Glatt factors, the panel added a few words of guidance. The fourth factor must account for whether a legitimate reason exists for clinical training to occur on days when school is out of session, while the fifth factor must recognize that "designing an internship is not an exact science." For example, courts should consider whether the duration of the internship was "grossly excessive" in comparison to the period of beneficial learning and in the case of the student nurses, whether the fact they completed well in excess of 550 cases during their four clinical semesters was an indication they were made to work grossly excessive hours.

The court also added a new wrinkle to the equation, suggesting that some cases may present a hybrid situation and not an all-or-nothing determination. "That is, we can envision a scenario where a portion of the student's efforts constitute a bona fide internship that primarily benefits the student, but the employer also takes unfair advantage of the student's need to complete the internship by making continuation of the internship implicitly or explicitly contingent on the student's performance of tasks or his working of hours well beyond the bounds of what could fairly be expected to be a part of the internship."

To allow the district court to apply the Glatt factors in the first instance, the panel reversed dismissal of the suit and remanded.

To read the decision in Schumann v. Collier Anesthesia, click here.