Virtually all U.S. workers are protected by existing minimum wage and overtime laws. Interns are one exception. But determining who classifies under that exception has historically been a pain point for businesses—and a legally murky area for employment attorneys.
Last week, the Department of Labor (DOL) released guidance establishing new rules for determining whether an individual classifies as an unpaid intern. The revised model, called the “primary beneficiary test,” asks a straightforward question: who benefits most from the relationship, the employer or intern? The flexibility—and subjectivity—of this approach may come as welcome news to employers, many of whom saw the agency’s old method as too restrictive.
Prior to the announcement, the DOL enforced an “all or nothing” six part test, which considered whether the internship was primarily educational and whether it displaced regular staff, among other factors. That approach, originally penned by the Obama administration, struggled to find traction in the courts. It was overruled by both the Second and Ninth Circuit Court of Appeals, and called “too rigid” by the former.
The DOL’s new approach was first proposed in Glatt v. Fox Searchlight. Conveniently for both the agency and employers, the case also established seven factors to consider when deciding primary beneficiary status. In the court’s words, these include:
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.
While some of these requirements harken back to the old method, the distinction here is that they don’t all have to be satisfied. Instead, the DOL’s official position is now that internship classification “depends on the unique circumstances of each case.”
Employers should closely review their existing internship programs to ensure compliance with the DOL’s new interpretation.