Following another appellate court’s rejection of its six-part test to determine whether an intern is an employee for purposes of the Fair Labor Standards Act, the Department of Labor (DOL) on January 5 announced that it would adopt the “primary beneficiary test” favored by the courts.

Although prior DOL guidance paid lip service to unpaid internships being permissible in the nonprofit sector, stating that unpaid internships for nonprofit charitable organizations were “generally permissible,” it also stated that DOL would review the need for more guidance in this area. Furthermore, this guidance was just that, not a formal regulation or law that courts had to follow. The DOL’s prior six-part test made it difficult for employers to establish unpaid internships, in large part because the test required that the employer derive “no immediate advantage from the activities of the intern.” For these reasons, many nonprofits were understandably hesitant to continue unpaid internships.

The DOL’s softened approach going forward utilizes a seven-factor “primary beneficiary test,” which analyzes the following factors:

  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 similar to that 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 DOL will review each case individually and emphasizes that it is a flexible test, with no single factor being determinative.

With the new relaxed criteria for unpaid internships, nonprofits should be more comfortable establishing such programs. Nonetheless, to ensure compliance with FLSA, organizations should carefully develop and review all proposed internships to ensure the position will pass muster under the primary beneficiary test.

The revised DOL Fact Sheet is available online.