In November 2013, the Supreme Court of the United States declined to review the United States Court of Appeals for the Eleventh Circuit’s decision that two unpaid externs for two Florida health administration firms were not employees and therefore not entitled to wages from those companies under the Fair Labor Standards Act (FLSA). Kaplan v. Code Blue Billing & Coding, Inc., U.S., No. 13-179 (cert. denied 11/12/13).

This case involved two individuals who had completed externships with two separate companies as a required part of a formal degree program at a school in which they were then enrolled as students. At the time of their externships, neither of the externs expected nor received payment for the work they performed. Sometime after completing their externships, each filed a complaint under the FLSA seeking minimum wage for the work they performed, contending that given the lack of formal structure and the repetitive nature of the work they were assigned, they received little educational benefit from the externships and instead primarily conferred economic benefit upon the defendants. On that basis, they asserted that they qualified as employees under the FLSA and were entitled to minimum wage.

The district court granted the defendants’ motions for summary judgment, finding that the externs were not employees within the meaning of the FLSA. The court also found the externs’ claims were barred by the statute of limitations because they had filed their claims for minimum wage more than two years after they had worked as externs but before three years. The statute of limitations for a wage claim under the FLSA is two years unless there is a willful violation, in which case that period is then three years.

On appeal, the Eleventh Circuit determined that the externs were not employees of the defendants and therefore not entitled to wages under the FLSA. The claims were also found to be barred by the applicable statute of limitations. The Eleventh Circuit determined that whether an employer-employee relationship exists under the FLSA depends on the “economic realities” of the relationship, including whether a person’s work confers an economic benefit on the entity for whom they are working. A person who works for his or her own advantage or personal purpose and provides no immediate advantage for his or her alleged employer is not an “employee” under the FLSA.

The court noted that while the externs argued that their externship experiences were of little educational benefit, they did engage in hands-on work for their formal degree program, making them eligible to earn degrees. Also, the court found that the defendants’ staff spent time away from their own regular duties training the externs and supervising and reviewing their work. The court also found that its determination was supported by a six-part test set forth by the Department of Labor’s Wage and Hour Administrator, namely that:

A trainee is not an “employee” if these six factors apply:

  1. The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school.
  2. The training is for the benefit of the trainees.
  3. The trainees do not displace regular employees, but work under close supervision.
  4. The employer that provides the training derives no immediate advantage from the activities of the trainees and on occasion his operations may actually be impeded.
  5. The trainees are not necessarily entitled to a job at the completion of the training period.
  6. The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training.

When petitioning the Supreme Court, the externs contended that there is a substantial split between the various circuits on the analysis applied to classifying someone as an unpaid extern/intern/trainee or an employee entitled to wages. The petition contended that the Fourth, Fifth and Sixth Circuits apply a primary benefit test, focusing on whether it is the extern/intern/trainee or the employer who is the primary beneficiary of the labor for purposes of determining whether the extern/intern/trainee must be paid as an employee. Decisions by the Fourth and Sixth Circuits criticize the Department of Labor’s above test and do not follow it. On the other hand, the petition contended that courts in the Tenth and Second Circuits apply a totality of circumstances directly rooted on the Department of Labor’s six-factor test above.

Employers, especially those with interns working in different areas of the country, should be mindful of the different analyses used by these circuits in determining whether someone is appropriately classified as an unpaid extern/intern/trainee or an employee entitled to wages. Cases of this nature are presently cropping up around the country, and we expect additional court decisions on this subject in 2014.