During the Obama presidency, the Department of Labor (DOL) devised a six-part test to determine whether an intern is really just that or more like an employee-in-disguise working for free. Part of that test required that the employer receive “no immediate advantage from the activities of the intern,” a rule that several appellate courts found troubling and rejected in favor of their own tests.
On Jan. 5, the DOL announced it was scrapping the six-part test in favor of the “primary beneficiary test” put forth in various ways by the 2nd, 6th, 9th and 11th Circuit Courts of Appeal.
The “primary beneficiary test” is flexible, without a single determining fact. As the DOL statement explains, “Accordingly, whether an intern or student is an employee under the FLSA necessarily depends on the unique circumstances of each case.”
The announcement also notes: “The Wage and Hour Division (WHD) 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 Fair Labor Standards Act (FLSA) requires “for-profit” employers to pay employees for their work. Interns and students, however, may not be “employees” under the FLSA — in which case the FLSA does not require compensation for their work.
Courts have used the “primary beneficiary test” to determine whether an intern or student is, in fact, an employee under the FLSA. In short, this test allows courts to examine the “economic reality” of the intern-employer relationship to determine which party is the “primary beneficiary” of the relationship. Courts have identified the following seven factors as part of the test:
- 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.