Noting that on December 19, 2017, the US Court of Appeals for the Ninth Circuit became the fourth federal appellate court to expressly reject the US Department of Labor’s (DOL’s) six-part test for determining whether interns and students are employees under the Fair Labor Standards Act (FLSA), the DOL announced on January 5, 2018 that it would adopt the “primary beneficiary” test endorsed by those courts in evaluating internships sponsored by private employers.
According to its announcement, the DOL “clarified that going forward, the Department will conform to these appellate court rulings by using the same “primary beneficiary” test that these courts use to determine whether interns are employees under the FLSA.” The DOL reported that “the Wage and Hour Division will update its enforcement policies to align with recent case law, eliminate unnecessary confusion among the regulated community, and provide the Division’s investigators with increased flexibility to holistically analyze internships on a case-by-case basis.”
The primary beneficiary test gained traction when adopted by the Second Circuit in Glatt v. Searchlight Pictures. In that case, the Court suggested that courts consider the following non-exhaustive list of factors in applying the primary beneficiary test to internship programs sponsored by private employers:
- 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 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.
- 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.
Applying these considerations requires weighing and balancing all of the circumstances. No one factor is dispositive and every factor need not point in the same direction for the court to conclude that the intern is not an employee entitled to the minimum wage. In addition, the factors we specify are non-exhaustive—courts may consider relevant evidence beyond the specified factors in appropriate cases.
The DOL has already updated its Fact Sheet on unpaid interns to reflect this new test, available here.
The DOL’s new test could encourage more employers to establish or continue unpaid internship programs that align closely to the primary beneficiary test. Obviously, other federal courts may disagree with this approach, and some states may continue to have more rigorous tests for unpaid interns under their own wage and hour laws.