Is Your Intern Really an Intern or an Employee – DOL Adopts the “Primary Beneficiary Test”

As the winter months bear down on us, many of us find our thoughts wistfully drifting to sun, sand, and all things summer.  Summer months, however, also bring (for most employers) summer interns and one of the more befuddling employment issues: do I have to pay my summer intern?  Stated another way: is my intern, in actuality, an “employee” under the Fair Labor Standards Act (“FLSA”) and therefore entitled to wages?

This confusion concerning the scope of the FLSA with respect to interns has been driven by the lack of any uniform standard for assessing whether an intern is an “employee.”  Although comprehensive, the FLSA does not define “employee” in any meaningful fashion.  To the contrary, an “employee” is defined in a circular, broad fashion as “any individual employed by an employer.”  29 U.S.C. § 203(e)(1).  To cope, both the courts and the United States Department of Labor (“DOL”) have relied upon a variety of competing analytical frameworks to analyze whether an individual falls within the foregoing definition.  By way of example, the DOL previously relied upon a “rigid” six-factor all-or-nothing test while the Second, Ninth, and Eleventh Circuit Courts (to name a few) have relied upon a more flexible balancing of seven factors, an analysis, referred to as the “primary beneficiary test,” to determine employee status.

Earlier this month, however, some much-needed clarity and uniformity on the issue arrived.  As of January 5, 2018, the DOL abandoned its previous approach to the issue and accepted the “primary beneficiary test” as the standard for determining whether an individual is an employee under the FLSA.  See Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act.  Reminiscent of the colloquial “if it looks like a duck, quacks like a duck, then it’s a duck” mentality, the primary beneficiary test focuses on seven factors aimed at ascertaining the true “reality” of a relationship between the employer and the intern/employee.  As set forth in the DOL’s January 2018 Fact Sheet, these factors 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; and
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.

No single factor is dispositive; rather, the test is flexible and intended to accommodate the unique circumstances of each case.  The DOL’s acceptance of this test will likely usher in the beginning of more wide-spread acceptance, use, and perhaps uniformity with regard to the treatment of interns.

Although some have pontificated that this change in the DOL’s position may “revive” unpaid internships, the true effect of the shift in position remains to be seen.  While there is now greater uniformity in how the government and courts may view an “employee” under the FLSA, the matter is far from settled.  Indeed, courts have yet to determine a uniform approach to the issue and, as a result, the framework under which an internship program is assessed will still depend on the jurisdiction.  Employers utilizing unpaid internship programs should continue to familiarize themselves with the analysis utilized in their state as well as the primary beneficiary test.  Employers must also remember that each case is, of course, fact-specific and context-driven.