With the start of the Trump Administration, we anticipated numerous changes and alterations to employment laws. That expectation has occurred and we have already seen several changes, including adjustments to the joint employer test and relaxed NLRB guidance regarding employee handbooks.
The changes continued on January 5, 2018. On that day, the Department of Labor issued a press release in which it indicated it was abandoning the previous six-part test used to determine whether an intern is subject to federal minimum wage and overtime laws (i.e., whether the intern is classified as an “employee” under the FLSA). The press release indicated that moving forward, the Department of Labor would conform to the “primary beneficiary” test that had previously been adopted by multiple appeals courts.
The Primary Beneficiary Test
The primary beneficiary test examines the economic reality of the intern-employer relationship to determine whether the employer or the intern receives the greater benefit from the internship (i.e., who is the primary beneficiary). If the employer is the primary beneficiary, the intern is considered an “employee” under the FLSA and is, therefore, subject to federal minimum wage and overtime laws.
In examining the economic reality to determine which party is the primary beneficiary, the following seven factors are reviewed:
- 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.
The primary beneficiary test is a flexible test and no single factor is determinative. The examination and review of the factors is specific and unique to each circumstance.
What Employers Should Do Now
If an employer utilizes unpaid interns, the employer likely will want to review the interns’ work pursuant to the above factors. However, it is likely that if the interns were unpaid under the previous six-factor test, they are unpaid under this new test. Employers should confirm that, though, and consult with their legal counsel if they so choose.
If an employer utilizes paid interns as a result of the previous six-factor test and wishes to convert those interns to unpaid interns, the employer may be able to do so under the new test. The employer should review the factors and consult its legal counsel if it wishes to take this course of action.