Background

The FLSA generally requires employers to pay employees for their work. Interns and students, however, may not be “employees” under the FLSA—in which case the FLSA does not require compensation for their work.

The FLSA exempts certain people who volunteer to perform services for a state or local government agency or who volunteer for humanitarian purposes for non-profit food banks. The Department of Labor Wage and Hour Division (“WHD”) also recognizes an exception for individuals who volunteer their time, freely and without expectation of compensation, for religious, charitable, civic, or humanitarian purposes to non-profit organizations. Unpaid internships for public sector and non-profit charitable organizations, where the intern volunteers without anticipation of compensation, are generally permissible.

On January 5 the DOL abandoned an earlier test and announced that it would adopt a “primary beneficiary” test favored by the federal courts.

The DOL’s earlier six-factor test made it hard for employers to lawfully set up unpaid internships. In particular, the six-factor test required that the employer get “no immediate advantage” from the activities of the intern.

The New Test for Unpaid Interns and Students

A number of federal courts have used the so-called “primary beneficiary” test to determine whether an intern or student is, in fact, an employee under the FLSA. In short, this test allows courts to examine the “economic reality” of the intern-employer relationship to determine which party is the “primary beneficiary” of the relationship. Courts have identified the following seven factors as part of the test:

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.

Courts have described the “primary beneficiary test” as a flexible test, and according to the DOL no single factor is determinative. Accordingly, whether an intern or student is an employee under the FLSA depends on the unique circumstances of each case.

If analysis of these circumstances reveals that an intern or student is actually an employee, then he or she is entitled to both minimum wage and overtime pay under the FLSA. On the other hand, if the analysis confirms that the intern or student is not an employee, then he or she is not entitled to either minimum wage or overtime pay under the FLSA. The new test will give employers greater flexibility in setting up lawful internship relationships.