Category Archives: Internships

DOL Says Goodbye to Six-Factor Unpaid Internship Test

Contributed by JT Charron, January 10, 2018

On Friday, the Department of Labor abandoned its six-part test for determining whether an intern must be paid, and replaced with the more employer-friendly “primary beneficiary test.” This announcement came less than a month after the Ninth Circuit became the fourth federal appellate court to expressly reject the DOL’s six-factor test in favor of the primary beneficiary test.

Background

Under the Fair Labor Standards Act (FLSA) employers must generally pay employees minimum wage for all hours worked, and overtime for all hours worked over 40 in a week. The FLSA, however, exempts certain individuals from these requirements, including bona fide interns. To determine whether an intern was bona fide, the DOL introduced a six-factor test in 2010, which required that:

  1. The internship was similar to training that would be offered in an education environment;
  2. The internship experience was for the benefit of the intern;
  3. The internship was not displacing a regular employee;
  4. The training provide by the employer to the intern may have impeded the employer’s operations;
  5. The intern was not expecting a permanent position at the conclusion of the internship; and
  6. Both the employer and the intern understand that there was no compensation.

    56243229 - interns wanted internship training trainee concept

    “interns wanted” sign

According to the DOL, if even one of these factors did not apply, the individual was an employee — not an intern — and was required to be paid minimum wage and overtime.

The Primary Beneficiary Test

First articulated in 2015 by the Second Circuit Court of Appeals, the primary beneficiary test is a case-by-case approach that gives consideration to the following seven 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 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.
  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.

Importantly, no single factor is dispositive, and the employee/intern distinction will be based on the unique circumstances of each case.

Bottom Line

While the primary beneficiary test will provide more flexibility for businesses preparing for the 2018 internship season, employers must still be careful in designing internship programs. As the above factors indicate, the primary beneficiary of any program must still be the intern — not the employer.

Student Interns Do Not Equal Free Labor

Contributed by Noah A. Frank, July 26, 2016

43608970 - internshipFall is around the corner, and with it comes student interns bolstering their resumes. Interns can benefit companies by cutting down some of the workload; however, employers need to be aware that wage and hour laws can apply to interns.

The federal Fair Labor Standards Act (FLSA) mandates that nearly all employees be paid minimum wage and overtime for hours worked over 40 in a week. One FLSA exemption is for bona fide interns.

The U.S. DOL applies a fact-specific inquiry to determine whether an internship may be unpaid because “no employment relationship exists.”

  • The internship, which may include “real work,” is similar to training which would be given in an educational environment;
  • The intern does not displace regular employees, but works under close supervision of existing staff;
  • The intern is not necessarily entitled to a job at the conclusion of the internship;
  • The employer and the intern understand that the intern is not entitled to wages;
  • The internship experience is for the benefit of the intern; and
  • The employer derives no immediate advantage from the intern’s activities, and may even be impeded by the internship.

While the Supreme Court has not spoken on the issue, trial and appellate courts have split between applying the DOL’s test (above), and a flexible “Predominant Benefit Test” (“PBT”). The PBT uses non-exhaustive factors, including the first four factors of the DOL test, to evaluate internships in the modern era. Some additional factors may include:

  • The extent to which the internship is tied to the intern’s formal education 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.

While a topic for another day, it bears mention that (1) a for-profit business may never have “volunteers,” and (2) public agency/non-profit employees may not volunteer for the same agency for the same type of work.

Internships Done Right

Employers should continue to embrace internship programs as a means of developing the future labor force, and identifying potential workers without all of the risks associated with employment, including wages and taxes.

Steps to Implement a Successful Intern Program:

  1. Develop the program, considering educational goals, work tasks, and supervision.
  2. Ensure any company benefit from the intern’s work is outweighed by the intern’s benefit. Particular advance analysis may save future headaches.
  3. Use a written engagement agreement clearly stating (i) compensation, if any, (ii) the length of the program, and (iii) that there are no expectations of any future employment at the end.
  4. Employment counsel should audit the program to ensure it will survive administrative agency, plaintiff’s counsel, and judicial scrutiny.

Thinking About Hiring Interns? Tips for Doing It Right.

Contributed by Suzanne Newcomb

Despite winter-like weather across much of the country, it is March and that means college students are searching for internships. On January 30, a federal appeals court heard oral arguments on a pair of class action lawsuits in which interns in the film and publishing industries sued for unpaid wages. Although the court has yet to rule, there are steps your organization can take now to avoid this type of litigation.

Under the FLSA anyone who performs work is entitled to compensation. For non-profits, federal regulations clarify that “volunteers” who freely serve public agencies for civic, charitable or humanitarian reasons are not “employees.” In 1947, the U.S. Supreme Court carved out an exception applicable to for-profit businesses, holding that “trainees” were not “employees.” In 2010, the U.S. Department of Labor published Fact Sheet #71 which states an unpaid internship at a for-profit business is legally permissible only if:

  1. It is similar to training given in an educational environment;
  2. It primarily benefits the intern, not the organization;
  3. The intern is closely supervised by existing staff and does not displace regular employees;
  4. The employer derives no immediate advantage from the intern’s activities; and on occasion its operations may actually be impeded;
  5. The intern is not necessarily entitled to a job after the internship; and
  6. The employer and the intern understand that the intern is not entitled to wages.

Whether these factors are a rigid checklist or simply a guiding framework is at issue in the pending Second Circuit case. For now, for-profit businesses should consider this a checklist. If you fall short on any factor, the internship should be paid.

All organizations that hire unpaid interns — for-profit businesses and not-for-profit organizations alike – should:

  1. Make clear at the onset that the position is unpaid and is not likely to lead to a paid position with your organization (preferably this will be in writing signed by both parties).
  2. Coordinate with the student’s educational institution to provide credit for the internship whenever possible.
  3. Never use an unpaid intern to fill a paid position (even temporarily).
  4. Remember that internships are designed to provide educationally rich learning experiences, not a source of free labor.
  5. Recognize that while having an internship program may benefit the organization overall, the program itself will likely decrease efficiency and could negatively impact the organization’s bottom line.
  6. Follow all normal hiring protocol if you do consider a former intern for a paid position.

Internships: As the Tulips emerge so do the Interns….

Contributed by Julie Proscia

As the tulips begin to pop-up, so do the students applying for internships. In a sluggish economy this is even more prevalent as students are now examining any option that would give them that “experience” edge following graduation. Unpaid internships are a great opportunity but can subject a company to liability if not administered correctly. If administered incorrectly the hopeful doe-eyed unpaid intern can quickly turn into a green-eyed plaintiff looking for back wages and unpaid overtime.

The basic principle behind an unpaid internship is simple – unpaid interns cannot do any work that contributes to a company’s core operations. This includes any tasks that predominately help you run your business, like documenting inventory, filing papers, answering emails, etc. These principles are for “for profit” organizations and are not applicable to “not-for-profit” entities.

So what does that leave? Unpaid interns are allowed to shadow other employees and perform duties that don’t serve a business need.  The Department of Labor has developed six factors that should be used to determine if the unpaid intern is really an intern or an employee.  ALL six factors must be met in order for an internship to be properly classified as unpaid.  If any of the six factors are not met the intern is considered an employee.

Here are the factors:

  1. 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;
  1. Training is for the benefit of the trainee;
  1. The trainees do not displace regular employees, but works under close observation;
  1. The employer that provides the training derives no immediate advantage from the activities of the trainees, and on occasion the employer’s operations may actually be impeded;
  1. The trainees are not necessarily entitled to a job at the completion of the training period; and
  1. The employer and the trainee understand that the trainees are not entitled to wages for the time spent in training.

If an intern fails to meet any of the six factors they should be paid minimum wage for all hours worked and overtime, if overtime is applicable. It is also prudent to require that the intern receive college credit and their internship should be conducted through an approved program at their school or university. The latter will not absolve the company from wage and hour liability if the factors are not met, but it will go a long way in protecting the employer if questions are raised.

Internships: To Pay Or Not To Pay, That is the Question…

Contributed by Julie Proscia

At the change of each season, companies become inundated with requests for internships from hopeful college students. Unpaid internships are a great opportunity for both the employer and the intern to receive valuable assistance and experience, but can subject the company to liability if not administered correctly. If administered incorrectly the hopeful doe-eyed unpaid intern can quickly turn into a green-eyed plaintiff looking for back wages and unpaid overtime.

So how can companies administer the unpaid internship program correctly and not subject themselves to liability? The basic principle behind a legal unpaid internship is simple; unpaid interns cannot do any work that contributes to a company’s operations. This includes any tasks that predominately help you run your business, like documenting inventory, filing papers, answering emails, etc. These principles are for “for profit” organizations and not applicable to “not-for-profit” entities.

So what does that leave? Unpaid interns are allowed to shadow other employees and perform duties that don’t have a business need. The Department of Labor has developed six factors that should be used to determine whether the hiree will be performing the work of a true unpad intern or the work of an employee. ALL six factors must be met in order for an internship to be properly classified as unpaid. If any of the six factors are not met the intern is designated as an employee.

So what are the factors?

  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 trainee;
  3. The trainees do not displace regular employees, but work under close observation;
  4. The employer that provides the training derives no immediate advantage from the activities of the trainees, and on occasion the employer’s operations may actually be impeded;
  5. The trainees are not necessarily entitled to a job at the completion of the training period; and
  6. The employer and the trainee understand that the trainees are not entitled to wages for the time spent in training.

If an intern fails to meet any of the six factors they should be paid minimum wage for all hours worked and overtime if overtime is applicable. It is also prudent to require that the intern receive college credit and conduct their internship through an approved program at their school or university. The latter will not absolve the company from wage and hour liability, if the factors are not met, but will go along way to protect the employer if questions are raised. In a 1988 Opinion Letter, the DOL stated that students would not be classified as employees if the internship programs were “designed to provide the students with professional experience in furtherance of their education and training and are academically orientated for their benefit.”

So what is the answer to the question of “to pay or not to pay?” It depends. It depends on what type of work that the intern will be performing and what the company’s goal is regarding the internship. If the goal and the reality is to have an individual perform routine type of tasks then it is better to pay the individual minimum wage. In either aspect, whether paid or unpaid, are a great way for a company to have an trial period with a potential employee and catch the next brilliant star before they rise with another company.