DOL Rescinds Intern Test, Adopting Second Circuit’s “Primary Beneficiary” Test

In a prior post, we reported that two U.S. Courts of Appeals had rejected the Department of Labor’s test for analyzing whether an individual qualifies as an unpaid intern. On Friday, January 5, 2018, the DOL scrapped its own test, adopting the Second Circuit Court of Appeals’ “primary beneficiary” test instead.

By way of background, in 2010, the Department of Labor announced the following six-factors for determining whether an individual qualifies as an unpaid intern:

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
2. The internship experience is for the benefit of the intern;
3. The intern does not displace regular employees, but works under close supervision of existing staff;
4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

Fact Sheet No. 71 (April 2010). Under the 2010 test, each of these criteria had to be met or the individual would be deemed an “employee” entitled to pay (or backpay) under the Fair Labor Standards Act. Id.

In 2015, the Second Circuit rejected the DOL’s 2010 test, announcing its own seven-factor test that focused on whether the intern or employer is the “primary beneficiary” of the internship. See Glatt v. Fox Searchlight Pictures, Inc., 791 F.3d 376 (2d Cir. 2015), opinion amended and superseded, 811 F.3d 528 (2d Cir. 2016). And unlike the DOL’s test, “every factor need not point in the same direction . . . to conclude that the intern is not an employee entitled to the minimum wage.” Glatt, 811 F.3d at 537. Not long after, the Eleventh Circuit joined the Second Circuit in Schumann v. Collier Anesthesia, P.A., 803 F.3d 1199, 1209-12 (11th Cir. 2015), concluding that the Glatt “primary beneficiary” test it is more practical and applicable to the modern-day internship.

Now, the DOL has rescinded its 2010 guidance and adopted the Second Circuit’s test. See Field Assistance Bulletin No. 2018-2. Under the DOL’s new guidance, courts should consider the following seven, non-exclusive 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.

As the DOL concludes in its recent guidance, “[a]pplying the same ‘primary beneficiary test’ already used by the courts will update WHD’s [Wage and Hour Division] enforcement to align with recent case law, eliminate unnecessary confusion among the regulated community, and provide WHD’s investigators with increased flexibility to holistically analyze internships on a case-by-case basis.” DOL Bulletin No. 2018-2.

So what does this mean for Tennessee employers? Well, it’s good news for those with bona fide unpaid internship programs. But don’t interpret the DOL’s recent guidance to mean that you can put your interns to work in a salt mine – the question is still who is the “primary beneficiary” of the relationship, the employer or the intern.

Photo credit: jscreationz via Freedigitalphotos.net

The information contained on this blog is not legal advice, nor does this blog create an attorney-client relationship. Klein Bussell attorneys do not blog about pending matters handled on behalf of our clients and will never disclose client confidences.