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After Cold Reception from Appellate Courts, DOL Rescinds Internship Enforcement Guidance and Adopts “Primary Beneficiary” Test

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In the wake of multiple federal courts rejecting its previous guidance, the Department of Labor (DOL) has revised its guidelines for determining when an intern may qualify as an “employee” under the Fair Labor Standards Act (FLSA.) Going forward, the DOL will follow the “primary beneficiary” test–a standard endorsed by several appellate courts. This shift may reduce costly investigations and lawsuits, because the “primary beneficiary” factors are viewed as providing more flexibility in structuring unpaid internship programs.

The “primary beneficiary” test focuses on whether the internship primarily benefits the student/intern, rather than the employer, and includes seven, non-exhaustive factors for determining whether an intern is entitled to paid employee status under the FLSA:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation suggests that the intern is an employee.
  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.

Additionally, courts have recognized that this standard is highly fact-specific and would have to be applied on an intern-by-intern basis. The fact-specific nature of the analysis may provide another basis for opposing class or collective actions.  

In 2010, the DOL issued guidance using a stricter six-factor test to determine whether an intern should actually be treated as an “employee” under the FLSA, with its corresponding minimum wage and overtime requirements. Unsurprisingly, litigation followed. However, plaintiffs and the DOL received a much colder reception from the courts than anticipated. In 2015, the Second Circuit Court of Appeals rejected the six-factor test as being too rigid and imposing a one-size-fits-all standard. Instead, the court established the primary beneficiary test, described above. Subsequently, the Ninth, Sixth, and Eleventh Circuits have also endorsed versions of this test.

The DOL’s adoption of the primary beneficiary test should be welcome news for employers, as it provides greater opportunities for implementing internship programs. Nevertheless, the adoption of any unpaid internship program can be very complex. Given the potential risks, companies are wise to have experienced labor and employment counsel review any unpaid internship program before offering the program to internship candidates.