It is common for employers in the summer months to hire college students for internships. Often these summer internships are paid, but some employers provide unpaid summer internships for training and educational experiences for the intern. Federal law, however, provides strict guidelines for determining whether an employer’s unpaid internship falls outside of federal wage laws or if the internship must provide compensation. As it now stands, the Department of Labor (“DOL”) and some courts take differing approaches to determine whether an unpaid internship falls outside of the scope of the Fair Labor Standards Act (“FLSA”), as highlighted by a recent Sixth Circuit decision in Solis v. Laurelbrook Sanitarium and School, Inc.,___ F.3d ___, 2011 WL 1584356 (6th Cir. April 28, 2011).
The FLSA defines the term “employ” broadly to include to “suffer or permit to work.” Individuals who are “suffered or permitted” to work must be paid in accordance with the FLSA for the work they perform for an employer. The issue for for-profit private sector employers is whether their interns are in an employment relationship with the employer and, consequently, must be compensated in accordance with the FLSA.
The Department of Labor
According to the DOL, internships with for-profit private sector employers will most often be viewed as employment. Consequently, most internships must comply with federal wage laws. This means that the interns must be paid at least the minimum wage and overtime compensation for hours worked over 40 hours in a workweek. According to the DOL, if the internship is a training program for the interns’ own educational benefit, then an employment relationship does not exist and the minimum wage and overtime provisions under the FLSA do not apply. To determine whether an internship is a training program rather than employment, the DOL uses six criteria:
The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
- The internship experience is for the benefit of the intern;
- The intern does not displace regular employees, but works under close supervision of existing staff;
- The employer that provides the training derives no immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded;
- The intern is not necessarily entitled to a job at the conclusion of the internship; and
- The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
The more an internship is structured around a classroom or academic experience as opposed to the employer’s actual operations, the more likely the internship will be viewed as an extension of the individual’s educational experience, rather than employment.
Some courts have taken a different approach than that articulated by the DOL to determine whether an internship falls outside of the scope of the FLSA. One recent decision has highlighted these different approaches. See Solis v. Laurelbrook Sanitarium and School, Inc.,___ F.3d ___, 2011 WL 1584356 (6th Cir. April 28, 2011).
Laurelbrook is a non-profit corporation founded by a group of Seventh-Day Adventists. Laurelbrook operates a boarding school, an elementary school and a 50-bed intermediate-care nursing home that assists in the students’ practical training (the “Sanitarium”). Students in Laurelbrook boarding school learn in both academic and practical settings, which include student assignments to the Sanitarium’s kitchen and housekeeping departments, and they may be assigned to provide medical assistance to patients. The Sanitarium is staffed such that if the students were not training there, staff members could continue to provide the same patient services. Laurelbrook, however, would not operate the Sanitarium if the school did not exist – the Sanitarium’s sole purpose is to serve as a training vehicle for students.
The Secretary of Labor, Hilda Solis, filed suit in federal court, arguing that Laurelbrook was violating federal labor laws. Laurelbrook argued that its students were not employees for purposes of the FLSA. The district court agreed with Laurelbrook and the Sixth Court affirmed. In affirming the district court’s decision that the students were not employees for purposes of the FLSA, the Sixth Circuit clarified the proper test to use to determine whether the students were employees. The Secretary of Labor argued that the DOL’s Wage and Hour Division’s six-part test was the proper test for individuals participating in the employer-sponsored training program. The Sixth Circuit disagreed, determining that the test was a poor method for determining employee status in a training or educational setting.
The Court held that identifying the primary beneficiary of a relationship provides the appropriate framework for determining employee status in the educational context. The Court noted that decisions from other courts explicitly use a primary benefit test to determine employment status, including the Fourth and Fifth Circuits. See McLaughlin v. Ensley, 877 F.2d 1207, 1209-10 & n.2 (4th Cir. 1989); Donovan v. Am. Airline, Inc., 686 F.2d 267, 272 (5th Cir. 1982). Other courts, including the Eighth Circuit, have implicitly applied a primary benefit test. See Blair v. Wills, 420 F.3d 823, 829 (8th Cir. 2005). The Court determined that by focusing on the benefits flowing to each party, the test readily captures the distinction the FLSA attempts to make between trainees and employees. The Court did, however, agree that other factors, such as whether the relationship displaces paid employees and whether there is educational value derived from the relationship are relevant considerations that can guide the inquiry.
What this means for employers
Regardless of the standard that is applied – the six factors provided by the DOL, or the primary beneficiary test – employers need to tread cautiously when providing unpaid internships. The FLSA is broadly construed and most interns working for a for-profit private sector employer will be considered employees and must be paid in accordance with the FLSA. Even if the intern agrees that an internship will be unpaid, the FLSA may nevertheless apply and an employer may find itself with an investigation by the DOL or a lawsuit.