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Department of Labor Adopts Appellate Court Test to Determine If Interns are Employees, Rescinding Agency Guidance from 2010

Internships represent a rite of passage in U.S. employment for traditional and non-traditional students and professionals to enter a new field or change careers.

A New York Times article noted that in 2008, the National Association of Colleges and Employers found that 50 percent of graduating students had held internships, up from the 17 percent shown in a 1992 study by Northwestern University.  A recent poll conducted by the National Association of Colleges and Employers stated that employers are projecting to hire 3.4 percent more interns and 6.3 percent more co-ops in 2017 than they did in 2016.  The steadily increasing number of unpaid internships has led federal and state regulators to worry that employers are using internships illegally to obtain free labor, thus violating the Fair Labor Standards Act.

On Friday, January 5, the U.S. Department of Labor adopted a new test for determining whether interns qualify as employees under the FLSA, rescinding agency guidance from 2010. The DOL adopted a seven-factor test originally articulated by the Second Circuit in Glatt v. Fox Searchlight Pictures Inc., which applied the “primary beneficiary” test to distinguish employees from bona fide interns under the FLSA.

Under the Glatt test, courts have analyzed the “economic reality” of interns’ involvement with their employer to determine which party is the “primary beneficiary” of the relationship.  The “primary beneficiary” test includes seven nonexhaustive factors, none of which is dispositive. These factors include whether there’s a clear understanding that no expectation of compensation exists, whether interns receive training similar to what they would get in an educational environment, and to what extent the internship is tied to a formal education program.  The DOL stated that if these factors weigh in favor of interns functioning as actual employees, they will be entitled to minimum wages and overtime under the FLSA.

This test already has been applied in several cases in various circuits where courts have ruled that interns in a variety of industries, as the primary beneficiaries of their internships, do not qualify as employees for FLSA purposes and cannot collectively pursue claims for misclassification and wage violations under the FLSA.

This new policy seeks to eliminate unnecessary confusion surrounding the classification of interns under the FLSA, and moves away from the DOL’s rigid standard previously adopted, to provide the division’s investigators with increased flexibility through a fact intensive analysis.

But, employers who want to avoid liability under the FLSA must continue to proceed with caution.  They should continue to carefully evaluate their internship programs, and analyze whether the title of “intern” matches the position.  Another note of caution, employers should be aware of their state’s laws regarding internships, which might differ from and be stricter than the FLSA.

You can contact the attorneys at Berke-Weiss Law for help with determining whether your internship program is compliant with state and federal laws.